Read The Recorder‘s roundup of the stock-option backdating scandal. There won’t be a test later … but there might be a subpoena.
In court papers filed late last month, Klein’s lawyer, Wilson partner Jared Kopel, said that once finalized, the deal should kill the suit now in Santa Clara County Superior Court.
“Plaintiffs will lose standing to proceed with this litigation when Mercury Interactive Corp. merges with Hewlett-Packard,” Kopel wrote in court filings. The only way the case could continue, he said Thursday, is if the HP board were to take the case up on its own.
Lerach says that could well happen, since � in his opinion � Klein and the other former executives owe the company money. With that looming possibility, he argues that Wilson Sonsini is wearing too many hats in the case.
“It simply is unacceptable for a law firm to represent both a defendant and the party in control of the claim,” said Lerach. “It’s a very clear conflict, and is simply unacceptable.”
Kopel disagrees. “Right now they’re not adverse to each other, so there’s no conflict of interest,” he said, since HP does not yet own Mercury, and is not in a position to decide whether to prosecute the case.
And, he added, since it’s been publicly known for months that Wilson Sonsini represents HP, Klein has had ample time to switch counsel, which he has not chosen to do.
“He was aware, just from press reports, that HP would be acquiring Mercury, and that we had represented HP,” Kopel said.
When it comes to the merger, Kopel added, an ethical wall has been constructed between Wilson Sonsini’s HP lawyers and the Klein team to prevent conflicts.
For now, Kopel said his only source of information on the deal is the media. And he wants Judge James Kleinberg to halt discovery requested by Lerach until the merger is done.
The plaintiffs object and want the case to continue moving forward. They bristle at Kopel’s claim that the suit is clearly governed by Delaware law � and that Delaware law clearly puts a stop to such litigation in the event of a merger.
BEST IN SHOW?
The fate of the Mercury suit is of interest to many litigators, since it’s the most advanced of the backdating cases and involves a group of executives who’ve been closely scrutinized in the press and by government investigators.
Since Mercury disclosed its options problems last year, the practice of backdating stock options has become a major corporate scandal, with more than 100 companies having either admitted to having past problems or to being under investigation by the government.
But plaintiff and defense bar hopes that they could get a sense of the trajectory of civil backdating suits from the Mercury case may be dashed with the merger.
And the deal’s added involvement of Wilson Sonsini has also raised eyebrows, since Larry Sonsini’s name has repeatedly come up in backdating cases � both because his firm represents several defendants and also because Sonsini himself sat on the boards of at least three companies whose options issues have been publicly questioned. Neither Sonsini nor a spokeswoman for the firm returned calls seeking comment.
But Melinda Haag, a partner at Orrick, Herrington & Sutcliffe who represents the former Mercury general counsel, Susan Skaer, said the conflict issue that Lerach points out is the type of thing that’s become increasingly common in Silicon Valley in recent years.
“Conflicts are a mess these days, just generally,” she said. “We have ethical walls, we have conflict waiver letters. I think all firms are in this situation now, accounting firms, law firms, we’re all so big.”
