In courtrooms around the country, companies are facing the specter of
guilt by association.
With a daily drumbeat of news about Enron Corp., WorldCom Inc. and other
scandals, corporate defendants are facing jury pools far more cynical
about business ethics than just a year ago. Jurors who have seen the value
of their stock portfolios plunge may be particularly primed to punish
corporate wrongdoing and excess.
"You have an environment ... in which the average juror is fed up and they
feel like there is a need for some significant justice to be done," says
Allan Diamond, a Houston attorney who represents plaintiffs and defendants
in commercial and financial litigation.
Nervous defense lawyers are going to unusual lengths to spot jurors who
may be looking for payback. During jury selection in Los Angeles for a
trial involving a rollover death against Ford Motor Co. last month,
defense lawyers asked 50 prospective jurors their reaction to this
statement: "Corporate executives will lie to increase their profits." More
than half agreed.
"I don't really have any proof of that," said Rosemary Watson, a postal
clerk, when defense lawyers questioned her further. "It's just an image in
my mind that I've gotten -- news articles, things I've heard on the news,
and some of the things that have been happening." The case was settled out
of court under a secrecy provision.
"Right now is a very dangerous time," says Ford's lawyer in the case,
Warren Platt of Phoenix, Ariz. "You start out with some substantial number
of people in the jury pool who are going to give less credence to
testimony of corporate executives just because they're corporate
executives."
In a trial last month in Tulsa, Okla., involving allegations that an
office-equipment distributor defrauded two former employees in connection
with a stock-purchase agreement, plaintiffs' lawyer David Bryant told
jurors that President Bush and Congress were attempting to address the
problems in corporate integrity but said jurors needed to send a message,
too. The jury awarded $2.23 million in compensatory damages and $500,000
in punitive damages, the maximum allowed under state law. Juror Fay
Shackle, an elementary-school teacher, says awareness of corporate
scandals "had a mild effect as background knowledge" in consideration of
the punitive award.
Attorneys and jury consultants say the fallout is evident in everything
from employment suits to intellectual-property disputes. "Ordinary
people's trust has been dramatically shaken," says Christine Spagnoli, a
lawyer for the plaintiffs in the Ford case. "It may be the equivalent of
what Watergate did to people's trust in government."
Distrust of corporations has always been a worry for defense lawyers. The
big difference now, says Mr. Platt, is how widespread and deep-seated the
distrust has become. In recent mock trials conducted for clients preparing
to face real juries, Chicago jury consultant Theresa Zagnoli found the
percentage of prospective jurors who believe that executives lie to
increase profits more than doubled to 67% from 30% a year ago.
The changed atmosphere is shaping trial tactics. In San Francisco Superior
Court, plaintiffs' lawyer John Friedemann of Santa Rosa, Calif., was
preparing a raft of arguments, including breach of contract, to recover
damages in a complex suit between two banks. His client, Far East National
Bank, a U.S. unit of Taiwan's Bank SinoPac, alleged that United Commercial
Bank in San Francisco knowingly provided false information about a $3
million loan that Far East took over.
But with incessant news reports of corporate deceit, "we dumped the other
theories before trial and sold the case as a fraud case through and
through," says Mr. Friedemann. In arguing for punitive damages, he told
jurors this was their chance to send a message that corporate fraud wasn't
acceptable.
William Hebert, an attorney for UCB, says an already negative environment
grew worse as the seven-week trial progressed. Jurors were allowed to read
newspapers; near the trial's end, federal prosecutors in New York charged
members of the Rigas family, founders of Adelphia Communications Corp.,
with looting hundreds of millions of dollars from the cable-TV company.
"While the jurors were deliberating, those guys at Adelphia got dragged
out in handcuffs," Mr. Hebert says.
On July 25, the jury awarded Far East $9 million, including $6 million in
punitive damages. The plaintiff had asked for $3 million in compensatory
damages and $21 million in punitives.
Juror Don Bannister, a 67-year-old, self-employed graphic designer, says
he and the others focused only on the evidence to find UCB liable. But in
considering punitive damages, he says he and four others argued for an
award of as much as $20 million because they "were afraid this case would
go unnoticed with what was going on in the outside world." They were
overruled by other jurors. UCB, a unit of UCBH Holdings Inc. in San
Francisco, is considering an appeal, Mr. Hebert says.
DecisionQuest, a Los Angeles jury consulting firm, has conducted more than
200 mock trials across the country over the past six months and found
consistent antibusiness bias, says Arthur Patterson, a director of jury
research. In one mock case involving a contract dispute, a juror said
misconduct by corporate managers "is a disease that infects all big
companies."
In another mock trial involving an insurance company's obligation to cover
damage from pollution, jurors discussed the possibility that documents had
been shredded even though there was no allegation that they had.
While most civil cases are settled, some say the current environment is
adding even more incentive to avoid trial. Houston attorney Stephen Susman
says he recently represented a former executive of a large company who
alleged that the company cheated him out of $8 million in stock options.
Mr. Susman says he settled the case, possibly for "a lot less than I would
have gotten a year ago because I'm worried about what a jury is going to
think about an executive who gets $8 million in stock options."
At the same time, says Mr. Susman, who represents both plaintiffs and
defendants, he suspects the executive's employer was worried that jurors
would think that this is "one more example of how corporations deal
dishonestly with everyone."
