Daniel Swanson,left, and Theodore Boutrous, Jr.,right, of Gibson Dunn & Crutcher.

Reversals of fortune are part and parcel of litigation—maybe you win before the lower court and lose on appeal, or vice-versa. It happens.

But the ups and downs in a $44 million antitrust fight involving skinny little cigars known as cigarillos? A rollercoaster looks flat by comparison.

I last wrote about the case in February, when a Gibson, Dunn & Crutcher team led by Theodore Boutrous Jr. and Daniel Swanson nearly pulled off an incredible save, only to fall short before the U.S. Court of Appeals for the Ninth Circuit.

"Hero to zero" was how I described them.

They're now officially back to hero status—though a stroke of good luck surely had something to do with it. 

On Monday, U.S. District Judge James Selna in the Central District of California nixed the $44 million judgment against Gibson Dunn's client, cigar maker Swisher International, as well as a pending $12 million request for legal fees, interest and costs, and ordered a new trial.

The reason? Fraud on the court. Conduct by plaintiff Trendsettah USA Inc., or TSI, "tainted the integrity of the trial and interfered with the judicial process, and the judgment must be set aside," Selna found.

It's a blow to TSI lawyers Mark Poe and Randolph Gaw—Morrison & Foerster and O'Melveny & Myers alums who launched their own boutique in 2015 and took the case on pure contingency. 

As recently as July, with a newly-issued Ninth Circuit mandate in hand, they'd asked Selna to release Swisher's supersedeas bond and award them enhanced fees for their "unbridled success, against long odds."

Which was in fact how it looked for most of the year. Until it fell apart—again.

The fight dates back to 2011, when Florida-based Swisher, one of the world's biggest cigar makers, and upstart TSI, struck a deal. TSI was looking to launch a low-priced, fruit-flavored brand of cigarillos it called Splitarillos. 

Swisher had unused manufacturing capacity at its Jacksonville, Florida plant, and agreed to make Splitarillos for TSI under a private label agreement.

Splitarillos were a hit, but the two companies' relationship turned sour, with TSI complaining of delayed or unfilled orders and defective products.

TSI sued—not just for breach of contract, but also for antitrust violations (hello treble damages!). Poe and Gaw argued that Swisher began to view TSI as a competitive threat, and "found multiple ways to affirmatively kneecap TSI and prevent it from eating further into Swisher's dominant market share."

In 2016, a jury in the Central District of California sided with TSI and awarded $14.8 million, which trebled to $44.4 million. 

But Poe and Gaw's triumph was short-lived.

Swisher promptly replaced its prior counsel from Akerman with Gibson Dunn. Boutrous and Swanson as well as partner Cynthia Richman re-conceptualized the defense, arguing that there could not possibly have been an antitrust violation.

Swisher had no duty under the Sherman Act to deal with competitors—and that includes TSI, they stressed. One hiccup: this wasn't an argument put forth at trial—Swisher had waived it.

Still, the Gibson Dunn team's position was bolstered soon after when the Ninth Circuit issued its decision in Aerotec International, Inc. v. Honeywell International, Inc., which also involved refusal to deal under antitrust laws.

Then Boutrous and Swanson convinced Selna to do something extraordinary. In light of Aerotec, they got the judge to set aside the jury verdict and revise his pre-trial summary judgment order to find for the defense.

It was an amazing turnabout.

Suffice to say, TSI appealed. 

Turning the Tables–Twice

In an unpublished order, the Ninth Circuit panel in February concluded it was not an abuse of discretion for Selna to reconsider summary judgment in light of Aerotec. 

But the appellate court faulted him for overruling the jury, which "clearly had rejected" evidence that Swisher had legitimate business reasons for its conduct.

The Ninth Circuit ordered the verdict reinstated and denied Swisher's request to rehear the case (a cert petition is still pending before the U.S. Supreme Court). On June 24, the Ninth Circuit ordered issuance of the mandate.

It really did seem like it was all over.

Until the Gibson Dunn lawyers came across a news article. TSI's CEO, Akrum Alrahib, had been arrested, "charged with a conspiracy to evade the payment of millions of dollars in excise taxes on imported cigars," according to the Justice Department.

TSI allegedly avoided paying taxes of 52.75% per cigarillo, received kickbacks in the form of free machinery and payroll checks for TSI employees, and artificially inflated its profits

Not only that, Alrahib confessed on videotape to the IRS and Alcohol and Tobacco Tax and Trade Bureau.

"It is now apparent that Mr. Alrahib's and TSI's tax evasion scheme was in full swing during the period relevant to this case and likely continued during (and even after) trial," the Gibson Dunn team wrote. "No doubt recognizing the devastating impact on its case from disclosure, TSI prevented Swisher from uncovering TSI's tax avoidance during discovery and at trial.'"

"This left TSI free to present to the jury and the court a falsely inflated picture of the profitability of its cigarillo sales, out of which its expert constructed a largely, if not entirely, sham claim for 'lost profits,'" they continued. "TSI proceeded to secure an 8-figure treble-damage jury verdict based on these false pretenses."

Poe and Gaw protested that Swisher "fails to identify even one false statement that was made in written discovery, at deposition, in expert reports, or at trial."

They also criticized Swisher's lawyers for not figuring it out sooner. "Were they potted plants? If Swisher had believed—as its new counsel now asserts three years after the jury's verdict—that excise taxes are 'critical to the outcome of the case,' why didn't Swisher's counsel ask even a single question on that topic over eight depositions, why didn't it pursue the subpoena it had served on Havana 59 (the importer that was liable for the taxes), why didn't its expert witness offer any thoughts on the criticality of excise taxes, and why didn't it ask even a single question about excise taxes over the 1,000+ pages of the trial transcript?"

But Selna came down squarely on Swisher's side. 

"Alrahib's credibility was central to the trial. He was TSI's first witness, and offered testimony regarding nearly element of TSI's claims," the judge noted. "In addition, other TSI witnesses presented a materially false portrayal of TSI's financial records, costs, profitability, injury, and damages."

"In sum," he concluded, "Swisher has shown by clear and convincing evidence that TSI engaged in misconduct that undermined the judicial process which went to the central issues in the case."

Poe in an email said Selna once again made "egregious errors" in vacating the verdict.

"According to the indictment, the alleged misconduct ended in December 2014, before Swisher had even entered its first appearance in this case," he said. "Who knows whether the allegations are even true, but of course neither we nor anyone else at the company had ever heard of anything like this."

Selna's order for a new trial is not directly appealable, but Poe said they're prepared to re-try the case. "One has to remember that this is a dispute about Swisher's anticompetitive exercise of its monopoly power, a jury finding that is completely irrelevant to anything in the indictment," he said. "[I]f we have to do so, we'll go back and ring the bell."

The way this case has unfolded, who knows? They might even pull it off.