Washington People

By Blackwell, Rob; Heller, Michele | American Banker, August 5, 2002 | Go to article overview

Washington People


Blackwell, Rob, Heller, Michele, American Banker


The Six-Degree Suit

Just as all actors seem to have a link to Kevin Bacon, it appears that all of the past decade's notorious news events can be tied to a bizarre court case between the Federal Deposit Insurance Corp. and the millionaire developer Charles Hurwitz.

These events include the savings and loan crisis, an alleged government conspiracy to steal endangered redwood trees, President Clinton's controversial pardon last year of the fugitive Marc Rich, and the attempted breakup of Microsoft Corp.

The legal scuffle also threatens to become a precedent-setting case in which law firms cannot claim attorney-client privilege for their lobbying activities.

It started in 1995, when the FDIC sued Mr. Hurwitz for "gross misconduct and breach of duty of loyalty" as the principal shareholder of the failed United Savings Association of Texas, which cost $1.6 billion to resolve and still stands as one of the most expensive failures in history.

Mr. Hurwitz's countersuit alleged that the FDIC was in league with Clinton administration environmental officials who wanted to force him to sell his prized California forest to the government.

Fast forward to a court hearing two weeks ago on whether it was legitimate for the FDIC to subpoena Mr. Hurwitz's lobbying firm, Patton Boggs LLP, for any papers connected with its efforts to convince Congress and the media that the agency was trying to steal his trees. FDIC lawyers argued that Patton Boggs, a law and lobbying firm, first proposed the debt-for-nature swap, and that the firm's documents will prove there was no conspiracy.

In its response, Patton Boggs said, among other things, that its papers should be protected by attorney-client privilege.

The issue was left to Judge Thomas Penfield Jackson -- the same judge who ordered the breakup of Microsoft -- to decide in the U.S. District Court for the District of Columbia on July 25.

In the agency's argument, Jack Smith, the counsel representing the FDIC, referred to a case last year in a federal district court in New York in which a grand jury sought a lobbying firm's documents and testimony from attorneys who had lobbied to secure a presidential pardon for Mr. Rich.

That lobbying firm contended that, since it was also a law firm, its documents and employees were protected under attorney-client privilege. The judge in that case ruled that the lobbying firm's documents were not protected.

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