By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
Perhaps you remember this cheating scandal.
Three and half years ago, a junior lawyer from Dallas-based Baron & Budd accidentally handed an opposing lawyer an internal memo that appeared to coach clients to lie about central facts in asbestos liability cases.
"With this document, you could almost go down the street, get a homeless person, spend a couple hours with him, and he would be prepared to testify," Eugene Cook, a former Texas Supreme Court justice, said then. Low opinions of lawyers are fueled by these kinds of revelations, Cook testified in San Antonio. "The public thinks, 'The lawyers are doing it again. They're subverting the truth.'"
In Baron & Budd's high-volume legal assembly line, the so-called script memo was used to prepare more than 200 clients in their lawsuits against large manufacturing companies and others that sold or used products containing the cancer-causing substance before it was banned in the 1970s. The 20-page memo instructed these mostly elderly workers never to testify that they saw warning labels on asbestos packages or knew it was dangerous and gave firm directions on how to testify about their exposure to asbestos products in ways to make their cases better.
As a handful of lawyers for those companies pushed in civil courts to investigate the memo and its use, and a judge in Dallas initiated a criminal investigation, firm founder Fred Baron offered a variety of defenses and explanations. The memo was the work of a rogue paralegal and unknown to lawyers at the firm. It was not encouragement to lie because a lawyer has a duty to "refresh" a client's memory. It was a breach of the attorney-client privilege to even question the memo. At one point, the firm offered a legal affidavit concluding that whatever its behavior, it is not against the law in Texas to suborn perjury.
If anything was amiss, and Baron insisted it was not, the combative lawyer assured reporters in early 1998 that he had hired two legal-ethics experts from his alma mater, the University of Texas Law School, to set things right.
Somehow, the ethics team missed visiting Ken Treuter's desk.
For six months, until sometime in August 1998, the former private investigator was one of approximately 400 paralegals and clerks who assist the firm's 70 lawyers in moving tens of thousands of asbestos claims through the courts.
"They had so many of us in there they were setting up card tables," Treuter says of the firm's home office in Oak Lawn. "The printers would be backed up continuously; there were piles of papers stacked up for the data-entry folks."
In his $16-an-hour temp job, Treuter says he was assigned to find witnesses who could support claims by Baron & Budd plaintiffs that they were exposed to asbestos products at various workplaces from the early 1940s until the late 1960s.
The problem was, almost nobody could remember these facts without being told what to say, Treuter recalled in an interview earlier this month. It was his job to get them to name 20 or 30 different products from the multiple companies Baron & Budd would typically sue. (Baron has said the firm keeps a database on what asbestos products were used at various workplaces. The firm urges its clients to remember hazardous products it can prove were used where they worked.)
To find his would-be witnesses, Treuter says he would place ads in newspapers from Seattle to San Diego, which was his assigned region, and ask people to call if they worked at a particular company in the past. The workplaces included construction sites, government buildings, brake shops and lumber mills. He would locate further witnesses from company picnic photos and other enterprising sources.
"Realistically, would you remember the name on a bag of something you opened up 40 years ago?" Treuter asks, explaining the challenge he faced in getting the answers the firm sought.
The men he'd deal with were typically in their 60s or older, with little education and a lifetime of blue-collar work behind them, he says. Treuter, who spent 23 years as a licensed investigator doing street-level criminal investigations, says he used his good ol' boy nature to work his subject with stories of corporate malfeasance or whip up sympathy for victims of asbestos disease. "I'd tell 'em these companies knew this stuff was deadly. Guys would take it home on their clothes for their wives to wash. I'd evangelize."
Treuter says he was pretty good at his job, and he'd usually end up getting many men to say many things they had no idea about before he called. "I'd get 'em to identify every one," he says of his list of 20 or more products. Clerical staff managers and a "product ID" paralegal he worked under taught him his techniques.
"My training was focused on being more aggressive, more convincing, more persuasive and be insistent that they [witnesses] worked with so and so, and they were exposed to so and so," Treuter says.
Truth got lost in the process, he says, and Treuter recalls being uncomfortable from the start with telling witnesses how to testify. "What I was doing was fraudulent. There was never any doubt in my mind about it."
In August 1998, the Dallas Observer published a lengthy story in which a former attorney and three former paralegals gave similar accounts to the one Treuter gives now. The paper published documents suggesting improper witness-coaching was not an isolated incident at Dallas' largest plaintiff's firm and that lawyers there also were involved in implanting memories and inventing testimony. Training-session notes taken by one lawyer, for example, read, "Warn [plaintiff] not to say you were around it--even if you were--after you knew it was dangerous."
Soon afterward, though, the matter seemed to die. Foes dropped away. Lawsuits withered. Criminal investigations begun by the county and the feds went nowhere.
Baron declared himself vindicated and moved into his new, 15,000-square-foot Preston Hollow estate. Last year, he assumed the presidency of the Association of Trial Lawyers of America and moved to Washington, D.C., where he'll try to influence policy on issues such as HMO and asbestos lawsuits and tort reform.
So how did Baron & Budd escape this embarrassing glimpse at the internal workings of the firm so cleanly? Why did several large corporations, judges, prosecutors and others let the matter drop?
While legal issues such as witness coaching are hardly clear-cut, critics wonder whether Baron & Budd's perfectly legal campaign contributions might have played a role in getting it off the hook.
Former U.S. Attorney Paul Coggins told the Observer recently he recused himself from participating in his office's investigation of the memo because of a conflict of interest posed by the firm's political contributions to his wife, Regina Montoya Coggins, in her run last year for Congress. He said contributions to his wife from the national trial lawyers group, where Baron earlier served as vice president, also drove his decision to remove himself from making decisions in the case.
Baron's critics question how vigorously Coggins' troops pursued Baron & Budd without support from the top, and whether Baron's massive fund raising for the Democrats, which stepped up in early 1998, might have influenced Coggins' superiors in Washington as well. "In my humble opinion," says one lawyer who provided information to the FBI, "that investigation was a joke."
In the past four years, Baron's firm gave $584,000 in soft money to the Democrats, according to the nonpartisan Center for Responsive Government, not counting several $10,000 donations to President Clinton's legal defense fund. Before the last two elections, Baron and his wife, Lisa Blue, hosted two $25,000-a-couple fund-raisers with Clinton at the couple's houses in Dallas and Aspen.
Concerns about influence, though, are speculative. Acting U.S. Attorney Richard Stephens, who Coggins said was in charge of the investigation, declined to comment on the case, which another knowledgeable source says has been closed.
More tangible reasons the matter died can be found in the firm's hard-nosed legal tactics, the zeal it took in punishing those who took the firm on, and the message sent to anyone who might do the same.
"I've never seen anything like them in my 17 years of practice," says Elizabeth Pfifer, one of three defense lawyers who challenged the firm over the memo. "Everyone understood that if we took them on, they would go after our clients."
She said she just didn't realize how effective Baron's firm could be or that the lawyers themselves would be made to pay.
To a degree many say puts Baron & Budd in its own league, the firm went after those who took issue with the memo. Targets included Bill Skepnek, a lawyer who tried to get the firm booted from representing asbestos clients in Dallas, and state District Judge John Marshall, who called the firm's coaching tactics "an affront to the integrity of the judicial system." He is the one who referred the script memo to criminal authorities.
When one side of a legal dispute gets slammed because the other has cultivated a friendly climate in its hometown, the lawyers have a name for it: homefrying. Baron's detractors say he and his firm are as adept as anyone at turning up the heat in Dallas, and it has served him well as he has defended himself in the memo flap.
For the last two years, G-1 Holdings Inc. (formerly GAF Corp.), a company in Wayne, New Jersey, that owns the stock of the nation's largest maker of roof shingles, has been sniffing around Dallas, trying to talk to former Baron & Budd lawyers and paralegals about the way the firm prepares its clients.
It hasn't had an easy time. In 1999 and again earlier this year, Baron & Budd caught wind of G-1's attempts and persuaded Dallas judges to order the company's investigations shut down.
The company, which earlier this year filed for Chapter 11 bankruptcy protection, citing a number of new asbestos claims, sued Baron & Budd and two other firms in January, accusing them of racketeering for bringing an avalanche of meritless asbestos claims. The suit, which included numerous references to the coaching memo, accused the firms of using a highly systemized method of recruiting and coaching plaintiffs and flooding the courts with hundreds of thousands of asbestos claims.
"Having largely exhausted the supply of plaintiffs who actually became sick as the result of prolonged exposure to asbestos," the suits allege, the firms "increasingly solicited non-sick claimants who can allege, merely, that they were exposed to asbestos at some point in time." As a result, 25 once-profitable companies have been driven into bankruptcy, despite paying tens of billions of dollars to settle 300,000 cases to date.
Baron, who responded to one question for this story and declined to comment further, says G-1's suit is a tit-for-tat move in a "very, very difficult war" with the company and its chairman and owner, Samuel Heyman. "They want to throw us off the creditor's committee and screw all of our clients," Baron says, referring to the company's bankruptcy. "Sam Heyman is a very bad guy."
"We won't even dignify that with a response," says Richard Weinberg, chief executive officer for G-1.
Weinberg says the racketeering suit grew out of a system of handling asbestos lawsuits in state courts that works very well for plaintiffs' lawyers but miserably for defendants, and in turn, asbestos victims who are demonstrably ill. In his experience, plaintiffs' lawyers will negotiate to settle cases for sick plaintiffs--those with asbestos-related cancers, for instance--by demanding $3,000 apiece for their huge inventory of cases from clients who show no ill-health effects, he says. In other words, they leverage a few strong cases against masses of weak cases that are too numerous to defend. Within the past year, companies such as vinyl floor-maker Armstrong and Owens-Corning, the nation's top maker of fiberglass insulation, have been driven into bankruptcy because of an ever-increasing volume of claims from workers who are not sick. And in bankruptcy, five or six years typically go by before anyone is paid, Weinberg says.
"We understand, as part of the industry, we have liability," Weinberg says. In 1967, his company acquired Ruberoid Co., which from the mid-1940s to the 1960s produced asbestos insulation. It made about $1 million in profits from its asbestos business, according to the lawsuit. G-1 has paid $1.5 billion in asbestos lawsuits, about half of which went to attorneys' fees, it says.
To pursue its allegations that Baron & Budd has suborned perjury and fabricated evidence to produce dubious cases, G-1 dispatched investigators to Dallas in 1999. Baron & Budd met them head-on. The firm obtained a temporary injunction from state District Judge Merrill Hartman, forbidding them from "communicating in any manner" with former Baron & Budd employees. Such information was likely "privileged and confidential," Hartman ruled.
Over the next year and a half, the battle over the investigators became bogged down in a series of appeals and counter-appeals that at one point occupied the services of eight lawyers at five law firms. It was still going on in January, when the company filed for bankruptcy.
Baron & Budd has consistently argued that talking to former employees about witness coaching violates the principle that communications between lawyers and their clients are confidential--the so-called attorney-client privilege. The day the script memo was accidentally handed over in Corpus Christi in 1997, lawyers from the two sides at one point literally grabbed opposite ends of the document in a fracas by a copy machine while the Baron & Budd lawyer argued that point. For the next six months, the legal question became whether the memo was evidence of fraud and thus not protected by the privilege. District judges in Austin and San Antonio found the memo was not protected, but two lower-level appeals courts overturned those rulings, one in a split opinion. The matter was dropped before it reached the Texas Supreme Court.
This January, after filing its racketeering lawsuit, G-1 employed a new set of investigators, Kroll & Associates, and by the end of the month, they were busy tracking down former employees. On January 30, they telephoned former Baron & Budd lawyer Amy Blumenthal, who in turn telephoned her former firm, which appears to have gone immediately on alert.
The same day, Dallas City Councilwoman Laura Miller, whose husband, state Rep. Steve Wolens, is a partner at Baron & Budd, called ObserverEditor Julie Lyons to inquire if Kroll had contacted the newspaper, which in 1998 posted witness-coaching documents on its Web site. "She said Fred asked her to call," Lyons says of Miller, a former columnist for the paper. "She wanted to know if Kroll had called us."
The next day, state District Judge Ann Ashby granted Baron & Budd's quickly drafted motion for a temporary restraining order. It barred Kroll from contacting the firm's employees and ordered Kroll's investigators to submit themselves to questioning by Baron & Budd about what they had learned.
Ashby declined to comment on her ruling.
In New York, G-1's lawyers were apoplectic. They complained to the federal judge overseeing the racketeering case that they had been, so to speak, homefried. They accused Baron & Budd of using a state court in its "home county" to "protect" the firm. The aim, they said, was to halt the company's inquiry "virtually as soon as it began."
After another round of legal maneuvering in which Ashby gave the firm a second restraining order, U.S. District Judge Robert Sweet, who is presiding over the racketeering case in New York, stepped in to resolve the matter. A hearing is scheduled next month. For his defense in the racketeering case, Baron has hired Abbe Lowell, the Washington lawyer who pleaded the case for President Clinton during impeachment proceedings in the House.
The last judge in Dallas to rule that the firm deserved further scrutiny, not protection, was Marshall. At a hearing in February 1998, he said the memo's "encouragement to fanciful testimony is unmistakable...It is time for the maneuvering and wordsmithing to come to an end." He referred the case to the Dallas County district attorney for criminal investigation.
After the hearing, within earshot of reporters, Baron called Marshall a "fruitcake." He told Skepnek, one of the lawyers pressing the case against the firm, "You've got a bull's eye on your back."
Marshall, a lifelong Republican who drew no opponents when he ran in 1992 and 1996, found himself the next year in the fight of his life, with Baron leading the charge. Before the 2000 primary, Baron urged a Dallas trial lawyers group to target the judge with campaign money, enlisting the firm's lawyers in his cause. Campaign records show Baron & Budd was an early donor to Marshall's opponent, Mary Murphy, who said Baron was one of the first to urge her to run.
Marshall lost, and he makes no secret that he views his defeat as a result of his rulings and criticism of Baron & Budd. The firm has political money and, hence, power, he says. "You are talking enormous sums of money, and there are only a handful of people in the world who can't be bought," Marshall says. "You see the articles about his big fund raising [for the Democrats]. You put that kind of money in the pocket of a president and that's intimidating to some people."
Several lawyers interviewed for this story said Marshall's defeat sent a signal that it's hazardous to threaten Baron & Budd. "If I liked my comfortable seat on the bench, I'd think twice about ruling against them on these things," says one attorney, who declined to be named. Says another who was close to the memo case, "No judge in Dallas will cross Baron & Budd after what happened in that election. They are scared to death."
Marshall isn't the only one complaining he was run over once he took his shot. Consider the case of Skepnek, a career plaintiff's lawyer from Lawrence, Kansas, who pushed to have Baron & Budd removed from its cases because, he argued, it suborned perjury.
In the fall of 1997, Skepnek, Pfifer and Robert Thackston, an attorney with Jenkens & Gilchrist, were out front leading the memo attack. Skepnek represented Raymark Corp; Pfifer was outside counsel for Borg-Warner Corp., and Thackston handled asbestos defense for W.R. Grace and Co.
After the three lawyers took the offensive, Baron & Budd stepped up asbestos litigation against clients, Pfifer says. Grace and Borg-Warner soon negotiated settlements that took them out of the fray.
That left Raymark Corp., which had hired Skepnek because of his success in bringing a malpractice suit against a wealthy and influential Houston plaintiff's firm. He represented 46 workers who said their lawyers sold them short in a multimillion-dollar case in a chemical plant explosion. Skepnek's nerve was obvious. The state Bar had cleared the workers' lawyers. No lawyer in Houston would take the case.
In April 1998, though, Raymark filed for bankruptcy and Skepnek lost his client. There was no one left to press forward on the memo or the pending appeals. No one ever deposed the paralegal, her immediate supervisors or the clients who supposedly were prepared with the memo to testify.
And within months, Baron & Budd turned the tables on Skepnek. It filed contempt motions against him in 165 courts across Texas alleging he had knowingly produced a perjured affidavit by a Raymark official about the extent of its business in Texas. Skepnek, left to hire his own lawyer, was eventually fined $150,000 but has whittled that down to $30,000 after appeals. He narrowly escaped the firm's effort in a Dallas court to put him in jail.
"I'm not very willing to jump out there again," Skepnek says, declining to comment extensively for this story. "I never believed Baron could have done what he did."
As part of its counterattack, the firm tied up Skepnek's legal fees from Raymark in a contentious bankruptcy fight that itself has spawned a crop of lawsuits. In the latest, filed in November in Connecticut, former Raymark executive Craig Smith sued Baron for libel for calling him "a low-down dirty crook" last June in The New York Times. Smith, who is now running a business in Wales, is seeking $400,000 in damages.
Skepnek took nearly as much offense--although he has not filed suit--at how he was portrayed by Charles Silver, a University of Texas Law School legal-ethics professor, in a law review article published in late 1999.
The article defended the Baron & Budd's script memo as merely "poorly written," and turned to a lengthy discussion of Skepnek's affidavits, taking issue with him by name.
Silver concluded that the media's interest in Baron & Budd, rather than Skepnek, was the outgrowth of a "propaganda war" financed by "well-organized, well-funded, smart and highly motivated" opponents of trial lawyers.
The professor's piece, however, failed to mention that Baron & Budd hired him to write an affidavit used in its coaching-memo defense. In it he argued that the firm "did more than duty required" when it stopped using the script document, which he called "awkward or clumsy rather than an effort to perpetrate a fraud."
Silver, who testified recently in California in favor of multimillion-dollar trial lawyers' fees, was one of the two ethics experts Baron says he retained to school his firm in ethics in 1998. He did not return several calls for comment.
As crusaders against special-interest money in the state's elected judiciary, the left-leaning Texans for Public Justice is usually concerned about wealthy defense firms and their big-business clients. "They're the ones who can afford to seek influence," says Chris Feldman, staff attorney for the Austin-based group.
So he was a little surprised to learn last month that a drive by lawyers to hire and pay a lobbyist for appeals court judges in Dallas and Houston was initiated by a trial lawyer, state Rep. Wolens, from Baron & Budd.
Linda Thomas, chief justice for the 5th District Court of Appeals in Dallas, says she has been frustrated with inadequate funding for her court. When she raised the issue with Wolens, he came up with the idea of passing the hat to law firms in Dallas and Houston to hire someone to push her cause in the Legislature. Thomas says she didn't consider the favor unethical.
Wolens says his intent was to help the Dallas court overcome a funding disparity, just as he would help other local institutions that receive state money. "I know what a bear it is getting this done," he says. He says he had no intent to cultivate favor with the court, which he personally has appeared before only once.
"I don't care who it is," Feldman says. "It's unethical when you raise money for the courts. You have firms that max out [under the state's $5,000 limit on judicial campaign contributions], so they look for other ways to curry favor. It sure gives an appearance of impropriety."
In Dallas, several lawyers say, Baron & Budd often seems to lend a hand in ways that are legal but extraordinary.
In 1995, Baron's wife, Lisa Blue, one of the firm's top courtroom lawyers, led a drive to buy every civil judge in the county a new personal computer. Her firm provided much of the $200,000 needed for the 39 machines, according to one glowing report of the donation. "I feel a personal obligation to do this because of my asbestos cases," Blue told The Dallas Morning News. "I know I've created work for them."
As it turns out, two of the judges who received computers made critical rulings in the firm's favor in the memo disputes.
Beyond that, in October 1997, Justice Thomas overturned Judge Marshall's ruling to halt all local Baron & Budd's asbestos cases. Her emergency stay within hours after his ruling stunned opponents and represented a major win for the firm.
Interestingly, the next step in Baron & Budd's current dispute with G-1 over its investigators would be in Justice Thomas' court.
"They're richer than the Catholic Church," Pfifer says of the firm. "They're very well-wired."
In his labors at Baron & Budd, paralegal Treuter says he would at times be given rush jobs that took him out of his daily, witness-finding duties.
As the firm reached mass settlements with manufacturers, it needed to produce sworn affidavits from every client who had sued, he recalls. The mostly retired workers had to swear they had been exposed, 30, 40 or 50 years ago, to specific products the company made. Industry officials say they require the statements to validate claims and present them to insurers.
"At one point they needed to catch up on 800 of them," says Treuter, and any spare person in his department, which numbered about 20, would be put on the job.
Treuter says some clients had already identified the products in prior talks with the firm, and sometimes they had not.
Frequently, he says, he was the first person to mention the products, and clients who didn't remember them were hesitant and worried about signing. "They'd ask, 'Do I have to go court? Do I have to come to Dallas?'"
Treuter says he would assure them all they had to do was sign the document, have it notarized, send it in, and money would be coming their way.
"It was like telephone marketing...a marketing approach," Treuter says. But it didn't take much savvy to close the sale. Everyone would sign, he says. "When you are offering someone the ability to get money in their pocket when they're not expecting money for any particular reason, it's not all that difficult."