When CEO Resignations Put Law Firms in the Hot Seat
The aftermaths of corporate ousters at Uber and Wynn Resorts highlight the turmoil outside law firms can face when a client's CEO goes down.
March 15, 2018 at 06:57 PM
5 minute read
Outside law firms can be among the first casualties—or at least find themselves suddenly vulnerable—when corporate boards oust their CEOs for alleged misbehavior and then engage in mop-up operations.
And even if a firm ultimately keeps its client, there's no denying the turbulence in the wake of such exits.
“The board or whoever is cleaning things up needs to shift responsibility from their being in the crosshairs to somebody else who had some colorable duty to watch out for things, and a major outside law firm is an obvious target,” said Bruce MacEwen of the New York-based consulting firm Adam Smith Esq.,
Take Uber Technologies Inc. and Wynn Resorts, two companies that bid farewell to embattled CEOs in recent months. In Uber's case, the ouster of Travis Kalanick was followed by a shake-up in the defense team in the company's high-profile trade secrets battle with Waymo over driverless car technology. Wynn Resorts, meanwhile, replaced its legal team at O'Melveny & Myers shortly after Stephen Wynn resigned as CEO under a cloud of sexual misconduct allegations.
Kalanick, who announced this month that he would start a new investment company, stepped down as Uber's CEO last June. Four months later, the ride-hailing company's board of directors recast the company's defense team by hiring Bill Carmody from Susman Godfrey to lead its battle against Waymo—an unexpected turn for the two firms, Boies Schiller Flexner and Morrison & Foerster, that were already litigating the case.
The litigation settled last month when, after one week of trial, Uber agreed to give Waymo a 0.34 percent stake in the company valued at $245 million.
“When we did parachute into this case, it's fair to say it was a surprise to management and the other two outside firms, and it happened just 60 days or so before the original trial setting,” Carmody said. “Their feeling was, 'We don't need any help. It will be an unnecessary drain on the initial people.'”
But in the end, he said, “Everybody brought something a little special to the table. At some point, egos left the room.”
“There was some skepticism,” Karen Dunn, a partner from Boies Schiller, said about the need for Susman Godfrey to be added to the team. “'Is this really necessary,'” was a question people asked, she said, but added, “Very quickly everybody rose to the occasion.”
The decision by a subcommittee of Uber's board to hire Susman Godfrey appeared to be “less about 'This is going badly' and 'you've screwed this up'” and more about wanting the best defense available, said one lawyer familiar with the decision. The move nevertheless caught Uber's legal department by surprise, according to the same attorney. “There was a period when Travis wasn't CEO and no one was CEO, and there was not a lot of deference to the administrators of the company,” the lawyer said.
Given the sprawl of the litigation—a bet the company case for Uber—there wasn't a question of Susman Godfrey fully taking over the case, Carmody said. “It was too big,” he said.
Ultimately, “in a tense situation, a respect grew,” among the defense firms, Carmody said. He recognized the MoFo lawyers knew “the tech part of the case better than we ever could,” he said. Boies Schiller's Dunn's preparation of Uber's colorful former CEO—a key witness at the trial, who was on the stand for the two days prior to the settlement being announced—was pivotal and expertly handled, Carmody said.
At trial, two lawyers from each of the firms had assigned speaking roles. The cooperation led to the best result for the client, lawyers from all three firms agreed.
“It definitely ended up as a very strong team effort. I've always found it exciting to practice with really great lawyers and we had that opportunity here with each of the firms,” said Michael Jacobs, a MoFo partner.
None of the lawyers would disclose details about the confidential settlement. But it ended litigation that could have been the beginning of dozens of additional trials over Waymo's potential claims related to dozens of alleged trade secrets. It also gave Waymo an equity interest in Uber—a deterrent to future suits.
Far from the Bay Area, meanwhile Wynn Resorts in Las Vegas spent the early winter grappling with multiple allegations of sexual misconduct by founder Stephen Wynn, first reported in January by The Wall Street Journal.
On Feb. 2, the board announced it had hired O'Melveny & Myers to assist its special committee of independent directors.
But two weeks later, following Wynn's resignation as chair and CEO, the Wynn Resorts board terminated O'Melveny's contract and announced it had hired Gibson, Dunn & Crutcher to conduct a review of the company's policies and procedure for keeping workplaces safe and respectful.
Apalla Chopra, chair of O'Melveny & Myers' labor and employment practice, and partner Daniel Bookin, who had been tasked with looking into allegations of decades of sexual misconduct by Wynn, did not respond to requests for comment for this story.
Nor did Kim Sinatra, a former partner in Gibson Dunn's New York office who now serves as Wynn Resorts general counsel, or Gareth Evans, a Gibson Dunn partner in Orange County, California, who represents Wynn Resorts in another matter.
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