Boies Schiller tripped up in apparent conflict in FirstEnergy derivative suit

(Reuters) - The weirdest shareholder litigation saga I’ve ever encountered has snagged Boies Schiller Flexner in what appears to be a conflicts kerfuffle.

On July 26, David Boies filed an application before U.S. District Judge John Adams of Akron, asking Adams to appoint Boies Schiller to represent shareholders pursuing derivative claims against directors of the Ohio utility FirstEnergy Corp, which has admitted to paying millions of dollars in bribes to Ohio lawmakers in exchange for favorable legislation. In the application, Boies emphasized his firm’s stellar record in complex litigation and pledged that Boies Schiller would expend whatever time and money is needed to hold the company’s officers and board members to account.

What Boies did not mention in the July 26 filing with Adams is that Boies Schiller is actually defending a former FirstEnergy vice president, Eileen Mikkelsen, in parallel derivative litigation before a different Ohio federal judge, U.S. District Judge Algenon Marbley of Columbus.

In fact, as Mikkelsen’s counsel, Boies Schiller partner Richard Pocker signed a $180 million settlement agreement last March that purports to resolve the entire derivative litigation, presumably including the outlier lawsuit before Adams.

Boies Schiller, in other words, sought appointment to launch a big new discovery push for shareholders in a case it had already settled on behalf of a defendant.

That is, um, not something you see every day.

I sent Boies and Pocker a detailed email on Thursday morning, asking about these peculiar facts. A spokesperson for the firm responded, but only to confirm that Boies Schiller withdrew its application before Adams. He declined to provide any additional comment.

I should also note that Boies Schiller’s FirstEnergy client, Mikkelsen, is not actually named in the operative complaints in the cases before Adams and Marbley. She is, however, identified as a defendant in the March 11 global settlement agreement, which said that she was served with and responded to document requests in the litigation before Marbley.

The Boies Schiller conflict is just the latest twist in the incredibly strange FirstEnergy case. As you probably remember, shareholder lawyers from Bernstein Litowitz Berger & Grossmann, Saxena White and Cohen Milstein Sellers & Toll moved last spring for approval of the $180 million settlement in Marbley’s courtroom in Columbus, where several FirstEnergy derivative suits had been consolidated. Adams had previously declined to transfer the lone case before him to Marbley's court, so shareholders asked the Akron judge to stay his case in order to allow the settlement approval process to move forward.

Adams refused. The Akron judge was miffed that shareholder lawyers had asked Marbley to approve the global settlement even though the lone case before Adams was the first to have been filed. He also told shareholder lawyers, in a series of combative encounters, that he was concerned they had not conducted an adequate investigation before settling the case. In particular, Adams expressed the view that plaintiffs should have deposed high-ranking FirstEnergy defendants.

Marbley granted preliminary approval to the proposed settlement in May. Shareholder lawyers then told Adams that they were contractually barred, under the settlement agreement, from continuing to litigate the case before him, which, they said, was part of the global settlement. Lawyers for the company and for individual defendants echoed that view.

Adams, as I’ve reported, was undeterred. Last month, he issued an invitation for shareholder firms to apply to take over litigation of the case before him, even as the settlement headed for a final fairness hearing before Marbley.

The Akron judge received five applications, including the response from Boies Schiller. (Other applicants included Wollmuth Maher & Deutsch and Federman & Sherwood.) On Monday, Adams issued an order naming the shareholder firms Markovits, Stock & DeMarco and Abraham, Fruchter & Twersky as his choice to restart discovery in his court.

Adams said in the Aug. 15 order that one applicant had withdrawn its bid “following the discovery of a possible conflict of interest.” He did not name the possibly conflicted firm, but it was presumably Boies Schiller.

One of the key considerations for Adams in selecting Markovits and Abraham Fruchter was the firms’ ongoing representation of a FirstEnergy shareholder who objected to the proposed settlement before Marbley in Columbus. The firms’ familiarity with the case, based on their work for the objector, made them uniquely qualified, Adams said, to assess what discovery still needs to be obtained. In their application, Markovits and Abraham Fruchter said that even if Marbley grants final approval to the global settlement, they intend to appeal that decision.

Boies Schiller’s FirstEnergy shareholder client, John Donovan, also sought to object to the global settlement, in a filing two days after Boies applied, in Donovan’s name, to take over the derivative case before Adams.

Boies Schiller – which, remember, had signed the settlement agreement under Marbley’s consideration on behalf of a FirstEnergy defendant – did not appear as counsel to Donovan in his objection to that same global settlement agreement. Instead, Donovan’s objection was signed by David Stone of Stone & Magnanini. Stone’s website says that he headed Boies Schiller's New Jersey office from 2002 to 2008.

I emailed Stone to ask if Boies Schiller had had any involvement with Donovan’s objection to the global settlement. Stone didn’t respond. I also asked that question in my email to David Boies and Richard Pocker, but the firm spokesman who answered my query did not address the Donovan objection.

In the end, Marbley struck Donovan’s objection because it was filed too late.

It would have been interesting to see how Bernstein Litowitz, Saxena and Cohen Milstein would have reacted if Boies had been appointed. As veterans of countless lead counsel battles, shareholder firms like these are great at impugning competitors. I can only imagine the sputtering indignation that would have greeted Boies' appointment as shareholder counsel after the firm signed a global settlement releasing the very claims being investigated.

How the FirstEnergy case will play out from here is not clear, to say the least. Marbley held a fairness hearing on Aug. 4 but has not yet ruled on final approval. Adams, meanwhile, instructed Markovits and Abraham Fruchter to file a motion to intervene in the case before him. He has scheduled a hearing for next week for all of the lawyers in the case.

Read more:

FirstEnergy settlement be damned, judge orders new plaintiffs' lawyers

One judge approved a $180 million settlement with FirstEnergy. Another won’t let it go.

FirstEnergy ex-CEO, senior VP 'orchestrated' bribe scheme: lawyer affidavit

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