New suit: Financial straits led to ethics infractions by Hausfeld

January 22, 2013

Jon King, a California lawyer who was a founding partner at Michael Hausfeld’s eponymous antitrust shop but was fired from the firm last October, spares no accusations in the 78-page wrongful termination complaint he filed last week in federal court in the Northern District of California. The suit is a compendium of supposed misbehavior by Hausfeld and some of his partners, allegedly committed under the pressure of financial straits. I’m not sure how much fire underlies the clouds of smoke from King’s red-hot complaint, but Hausfeld has made enough enemies and is leading enough big cases — including a potentially gargantuan investor class action against the banks that allegedly manipulated Libor rates — that the suit is going to be the talk of the antitrust bar.

I want to say up front that I emailed Hausfeld, asking him to address some of the specific accusations in King’s complaint. I did not receive a reply from him, but a representative sent an email statement: “This is an employment grievance from a former partner of Hausfeld LLP,” it said. “The firm separated with Mr. King for good reason, and the allegations made by him are baseless. We abide by the highest ethical standards and will defend our reputation vigorously.”

So keep Hausfeld’s denial in mind as you consider King’s allegations that the firm took financial advantage of co-counsel in litigation over the unauthorized use of likenesses of college athletes in videogames; courted Asian electronics companies to be plaintiffs in one antitrust case even as the firm litigated against them in another action; tried to undermine client development efforts by co-counsel; and signed the name of a famous client — NFL Hall of Famer Elvin Bethea — to a letter he did not write or support. Individually the accusations may not amount to much, and there’s a lot in King’s kitchen-sink complaint that, quite frankly, seems intended to tar the reputation of some Hausfeld partners rather than to bolster King’s argument that he was fired for blowing the whistle on the firm’s unethical practices. But the complaint includes enough details about the founding and operation of Hausfeld LLP to be a fascinating inside look at the firm.

The essential problem at Hausfeld, according to King, is money. The firm was founded as an antitrust boutique, but antitrust cases take years to generate attorneys’ fees. Moreover, Hausfeld’s determination to pursue cross-border litigation — the philosophy that led to his exceedingly bitter split with the firm now known asCohen Milstein Sellers & Toll — was costly, according to King. The firm struggled to keep open a London office, even as the British courts issued decisions that seemed to preclude the sort of global antitrust class actions Hausfeld envisioned. The complaint said that Hausfeld tried and failed to persuade litigation funding companies and other antitrust firms to invest in the London operation and finally had to ask partners to pledge personal assets as surety on funding from Citigroup. (King asserts that he voluntarily switched from equity to non-equity status because soon after the firm’s founding in 2008, he became concerned about the firm’s borrowing.)

Under financial duress, the complaint claims, the Hausfeld firm cut corners and took advantage of co-counsel. In the consolidated litigation over videogame makers using images of college athletes without permission or compensation, King alleges, Hausfeld, as lead counsel, created a shared litigation fund and asked for contributions from co-counsel to support combined efforts on behalf of the plaintiffs. But the firm itself, according to King, made no contribution to the fund. Hausfeld himself supposedly instructed King, who was one of the lead partners on the case, not to tell the other plaintiffs’ firms, and when Hagens Berman Sobol Shapiro proposed a joint motion to be named permanent lead counsel, King claims, Hausfeld discussed how to get Hagens Berman to pay into the fund while continuing to conceal the Hausfeld firm’s failure to chip in. (I emailed Steve Berman of Hagens Berman to ask about King’s allegation. He said King’s complaint accurately reflected his belief that the Hausfeld firm was overstaffing the college athletes’ case but said he wasn’t privy to Hausfeld’s financial dealings with other firms because he’s leading a different piece of the litigation. “I don’t know what arrangements have been made for funding the costs and whether the other firms have agreed that Hausfeld doesn’t have to share costs because the antitrust case was his idea,” Berman said. “I do think the loss of Mr. King is not good for the case.”)

King also alleges that the Hausfeld firm took advantage of Zelle Hofmann Voelbel & Mason, which provided office space to Hausfeld’s San Francisco office. Not only did Hausfeld partners supposedly go after the China National Offshore Oil Company, which Zelle Hofmann had been courting for a year, but the firm also allegedly told other prospective clients — Asian manufacturers that are defendants in a case Zelle Hofmann is leading for plaintiffs — that Hausfeld would “surreptitiously monitor the Zelle firm and work to provide information on what the Zelle firm had in mind as far as possible settlement ranges and the direction of the litigation,” the complaint said. King claims that he was shocked to hear that the firm was pursuing the Asian companies as clients because they were defendants in litigation in which Hausfeld represented plaintiffs, which he considered a conflict of interest. (I emailed Zelle Hofmann’s San Francisco managing partner for comment but didn’t hear back.)

And then there’s what King calls “the Elvin Bethea situation.” Bethea is a Hall of Fame football player whom Hausfeld represents as a name plaintiff in an unauthorized likeness class action by former NFL players against the NFL. Bethea’s name appeared on a letter that Hausfeld sent last year to the AFL-CIO, purporting to be a request from retirees that the umbrella labor group expel the NFL players’ union for failing to protect their interests. But Bethea publicly announced at a website for retired pro football players that he had never signed or authorized the letter and that he had demanded a retraction and public apology from Hausfeld himself. (Bethea is not the only former NFL player who has a gripe with Hausfeld, as you can see from a search of the retirees’ website. Former Houston Oilers quarterback Dan Pastorini sued Hausfeld for malpractice in Texas state court in November. Pastorini is represented by Jon King.)

It’s not clear from the complaint precisely what explanation the firm gave King for his termination, though King does disclose that he had at least two loud altercations with partners in the run-up to his firing. Clearly, this was not an amicable divorce and King is out for vengeance. He may have gotten some with this filing.

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