A Legalpalooza Only Dickens Could Love
You can't go home again. After two federal criminal trials charging him with looting Westar Energy, David Wittig has become all too familiar with that aphorism in his six-year legal odyssey.
But if you do go home again, it seems, you should first reacquaint yourself with local legal rates, which are likely to be far less than the high prices charged on the East Coast.
That seems to be the message of he most recent legal sideshow in the Westar case, sometimes dubbed the Enron of Kansas.
First, some background: In 2002, Federal prosecutors accused Wittig and another Westar executive, Douglas Lake, of wire fraud, conspiracy, money laundering, and circumventing of internal controls in the process of "looting" Westar, an electrical utility in Topeka, Kansas.
Their first trial, in 2004, ended in a hung jury. In September 2005, the jury at their second trial convicted the men of multiple counts, but an appeals court overturned the verdicts in 2007. It also threw out many charges, saying prosecutors had failed to prove the men violated any federal regulations. Their third trial is scheduled to start on September 9.
Who has been paying Wittig's and Lake's multimillion-dollar legal bills while they have stymied their former employer all these years? Why, Westar itself. Under the company's bylaws, Wittig and Lake, as former officers, are entitled to payment of reasonable legal defense costs, at least until they are convicted of criminal wrongdoing.
Not surprisingly, Westar is getting tired of writing the checks. And so it has challenged how much it is on the hook to pay. Specifically, does "reasonable" defense costs mean reasonable for Kansas City, where Westar is based? Or reasonable for New York and Washington, D.C., where Wittig and Lake found lawyers they like?
Since 2005, Westar has fought payment of lawyers for both Wittig and Lake, suing them in separate lawsuits, claiming outrage over the high prices charged by lawyers from the East Coast — and, so far, failing miserably in each of these cases.
Still, Westar is undaunted: As the parties prepare for the third criminal trial, Westar has been paying Wittig's local counsel from the Prairie Village, Kansas, firm of Berkowitz Stanton Brandt Williams & Shaw.
It's balking at the fees charged by Paula M. Junghans, a Washington, D.C. lawyer with Zuckerman Spaeder, a firm that was founded by former federal prosecutors and specializes in complex litigation.
(You may have seen the Zuckerman Spaeder's ads in the Wall Street Journal; they feature a predatory feline of some kind.)
Wittig shot back last Friday, filing a lawsuit in Shawnee County District Court in Topeka. It claims that Westar has "unilaterally determined that $395 per hour is 'reasonable' for Junghans' services, even that that rate is less than that charged by attorneys of equal or lesser experience in Kansas City, and substantially lower than Junghans' normal and customary hourly rate."
Now, $395 does seem low, but perhaps we are jaded by the spate of we see back East, of lawyers cresting the $1,000 an hour mark and beyond. Even so, why $395? Why not, let's say, $186 an hour? After, all, that's the rate Westar asserted was the "average rate for lawyers in Kansas City" when it was wrangling over fees with Wittig's codefendant, Lake.
In that case, lawyers from New York's Hughes Hubbard & Reed represented Lake, at rates ranging from $210 an hour for associates to $600 for the lead partner handling the trial. (And why not? Westar was picking up the tab.)
For his appeal before the U.S. Court of Appeals for the Tenth Circuit, Lake hired the firm of Wilmer Hale, led by Seth Waxman, the former Solicitor General of the United States. Westar's general counsel, Larry Irick, hit the roof when he got Wilmer Hale's request for an advance on legal fees of $2.27 million.
Irick called the fees "unreasonable, extraordinary, unnecessary and excessive," in a letter to Wilmer Hale. "There is no basis for Westar paying hourly rates greater than those customarily charged by attorneys in the place where the trial took place."
By the way, these fees, in addition to being excessive and extraordinary, also seem to have produced results: Waxman succeeded in getting most of Lake's convictions overturned by the Tenth Circuit.
For the upcoming third trial, Lake has replaced Hughes Hubbard with lawyers from the Kansas City office of Blackwell Sanders. Their rates are topping out at $395 an hour, and that's what Irick currently views as "reasonable."
"Our position is that reasonable rates are rates in this jurisdiction or in this regional area," says Irick. "It's our view that that is the law of Kansas."
So far, Westar has not found a single judge to agree with that notion. U.S. District Judge Julie Robinson, who has presided over the criminal trials and whose rulings have generally gone against the defendants, issued a lengthy opinion last June in favor of Lake. In it, ordering Westar to pay half of $6.2 million in fees already incurred, finding they were not per se unreasonable.
"Had Westar intended to limit an indemnified party's counsel of choice by rates or region, it was free to do so in the drafting of its advancement and indemnification provisions," Robinson wrote. "The time to have limited Lack in his choice was at the time of contract formation." She added: "Major, intricate and complex white-collar defense is in no sense a 'common specialty.'"
Meanwhile, the special master appointed to review Westar's attacks on Wittig's legal fees, went even further in a November report to the state court judge overseeing that case. The master chided Westar for putting its head in the sand, ignoring that Wittig's own lawyers "confessed an inability to have all the resources to handle this litigation," and finding that Westar had wrongly withheld $2.4 million in legal fees from the defense lawyers who handled the second trial.
In the process, the special master tweaked Westar a bit, pointing out that all parties agreed that a special committee of the Westar's board had paid about $9.17 million for fees and expenses to the lawyers who handled an internal investigation and turned their findings over to prosecutors.
That law firm was none other than Debevoise & Plimpton, a white-shoe firm with offices in a Manhattan tower known as the Lipstick Building. The investigation was led by Mary Jo White, the former Manhattan U.S. attorney, a stellar lawyer who does not come cheaply.
Westar has appealed Robinson's ruling on fees to the Tenth Circuit, and objects to the special master's report.
A recent article in Washingtonian magazine puts legal fees for criminal defense lawyers at $500 to $800 an hour. Hire a name like Brendan Sullivan and you're talking about $1,000 an hour.
What exactly, is Junghans' hourly rate? That is the crux of the latest suit, but she declined to discuss the matter.
by Karen Donovan
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