Posturing on the Slippery Slope: The "Reign of Terror" and the Appearance of a Second Hard Drive

The latest chapter in this fascinating David v Goliath struggle began last week when attorney Michael Kennedy (a recent addition to Charney's legal team who is famous for his representation of convicted murderer, billionaire Robert Durst) dashed off a letter to the presiding judge, Bernard Fried. That was followed the same day by a letter from the eminent, Charles Stillman, attorney for S&C. Another Kennedy missive followed by another Stillman letter, and finally one more by Kennedy, and the Judge clearly had a lot to think about as he brought the court room to order this afternoon and ventured one more time into the wilderness of collateral issues, distractions, and thorns in the ABC vs SC vs ABC thicket.

(The first part of this posting is here, if you wish to follow the story in correct sequence.)

Moments into today's hearing, as I have noted previously, we learned that Kennedy intends to prove that S&C partner DiBlasi [paraphrasing here] "ordered Charney to destroy the hard drive [of his personal computer] and ordered Charney to give an affidavit that confirms this was carried out." Judge Fried, it was noted with all due respect, had said [paraphrasing here] on February 22: "I don't see why the settlement conference of January 31 is relevant, other than if someone said to destroy the hard drive." As Michael Kennedy was all too happy to point out, "That's what happened." Why then, wondered Judge Fried, do we need to depose Mr. Grinberg's then-counsel, Edward Gallion? Why not just depose Grinberg and DiBlasi? Kennedy was ready for that question: Since Grinberg was the only one permitted to take notes at this meeting; since he apparently took extensive notes during the settlement conference [my emphasis, though I'm pretty sure Kennedy lingered over these words, or else it just felt that way]; since Grinberg gave those notes to his lawyer, Edward Gallion to keep them safe; and since Gallion apparently destroyed those notes, Gallion was the last person to have custody, as Kennedy put it, he was "the last repository of Grinberg's notes" i.e. essentially the only record of what transpired during that meeting. Kennedy closed with the coup de grâce : [again paraphrasing] Now, your honor, we have a real case of spoliation, rather than imagined one. Indeed.

Kennedy was masterful with his argument and never fumbled for a fact, a date or a name. He knew what he came for, and it was clear that the tables had turned. Kennedy wants Gallion to explain under oath why he destroyed the notes memorializing the January 31 settlement conference. Why, Kennedy appeared to ask rhetorically or suspiciously, was the best evidence of that meeting destroyed? Kennedy posed this question (which I have done my best to recall accurately) and was ready to answer it: Gallion, it seemed to Kennedy, may have been acting as an agent of S&C, he may have been paid by them to provide counsel to S&C Associate Gera Grinberg.... Kennedy reminded the court that Gallion was formerly an associate at S&C, and, you could feel this one coming, in a way Gallion was subordinate to S&C partner DiBlasi (the very S&C partner was alleged to have ordered the hard drive's destruction during that meeting). The way Kennedy saw it, Gallion & Spielvogel was potentially more interested in S&C's interests than those of Gera Grinberg. (Anyone reading Above the Law's open mockery of the Gallion & Spielvogel website (what is "internal investigation law"?) for the past two months has probably wondered how Gera Grinberg came to retain this particular firm in the first place. Maybe you were too busy wondering why Gera Grinberg---who remains an employee of S&C and is still on their website (though, as before, sans photo)---needs counsel in the first place? to destroy "extensive notes" he so conscientiously made at a critical meeting? For that he could have used his very own paper shredder!
As this Kennedy view of the world unfolded, the Judge was poised to keep all the attorneys engaged in the narrowest of issues (and not at each other's throats). Judge Fried noted that the only relevant issue relates to what was said at the January 31 meeting about the hard drive. Kennedy tries one more time to interject. He wants broader latitude on these depositions he seems sure will be approved. He wants to establish the context, so as to illustrate the state of mind of Aaron Charney as he endured "the reign of terror" as Kennedy described it. Kennedy's plea is that depositions be allowed not only to establish that Charney was ordered to destroy the hard drive. Kennedy wants to establish Charney's state of mind, his fear, that which, it is implied, led him to carry out that order to destroy the hard drive several days later, i.e. even after the settlement talks had ended; after Judge Ramos had made clear preservation of documents was important; and after retaining counsel for the first time since filing his suit. Kennedy clearly wants to bring to the light of day any evidence that Charney was bullied at the January 31 settlement conference, consistent with Charney's comment that an S&C attorney threatened that Charney would be "crushed like a bug." (According to a Bloomberg News report cited on Above the Law here.)

Kennedy did not stand down. "They raised the spectre of spoliation.." and Charney's counsel, it followed, should be able to lay it to rest.

Charles Stillman (seen leading a group of attorneys and other leaving the court this afternoon) is a tall, well-proportioned man, with ramrod straight posture. In practice as a litigator for over 40 years, he can be cheerful when exchanging pleasantries with the Judge or his colleagues, but he can also be deadly serious. After hearing Kennedy's accusations he rose to the podium, and he was not interested in chit chat. Judge Fried began to describe the confidentiality usually afforded to settlement negotiations. Typically, Fried pointed out, they are not discoverable, but in this case there seems to be a relevant exception. Fried seemed to ask, "I am intrigued... how can I preclude this?" referring to Kennedy's request. If Sullivan & Cromwell initiated the inquiry (into the fate of Charney's personal computer's hard drive) how could Fried "close the book"? Stillman carefully took notes as the Judge spoke. Then he began a lengthy disposition of the salient issues, meandering around the most sensitive ones, talking the long way to reach the question of whether he opposed the deposition of DiBlasi, Grinberg and Gallion, trying every which way to remind anyone who would listen that a hard drive was destroyed (you'd think a life was lost) and forgetting entirely, perhaps conveniently, that this all started because, as Charney might describe himself, a rising star gay associate in S&C's Mergers & Acquisitions department, had complained of anti-gay harassment, discrimination and retaliation. Charney sat calmly in his seat in the first row of the gallery about ten feet to my right and listened.

Stillman began... there was a meeting on January 31 at which Gera Grinberg, "who was represented by a lawyer of his choice" was present. Stillman repeated, Gera Grinberg selected Gallion to represent him. So, Grinberg appeared at the meeting with Gallion & Spielvogel. Stillman then conceded, almost as an afterthought: "A decade ago [said in a way that made a decade seem about twenty years long] Gallion worked at Sullivan & Cromwell." How did Gallion come to appear at this settlement conference? Because Gera Grinberg chose him, Stillman reminded us. Stillman also mentioned that there was a non-disclosure or confidentiality agreement associated with this meeting. He called this the shortest confidentiality agreement in the history of American litigation, by which he appeared to be referring to Aaron Charney's dissemination of his Complaint and his allegations against S&C beginning on January 16 in various mainstream media and on the blogosphere. Stillman was happy to point out that the confidentiality agreement, or non-disclosure agreement, was violated, or breached first by Mr. Alterman (Charney's attorney) in court in February. (I'm unclear how Alterman can breach an agreement entered into by Charney when he was unrepresented, but perhaps Charney's agreement was not only to remain silent as to the January 31 settlement conference, but to gag all future counsel in this regard. I have no idea.) (Photo of Alterman, Charney and attorney Douglas C. James leaving the court, above)

Then Stillman dropped another bombshell. Attorney Edward Gallion, Stillman assserted, was present at the settlement conference to be "of assistance to Aaron Charney" as well as to represent Gera Grinberg. That one sentence seemed to me to suggest that Kennedy was not so far off the mark when he asserted that Gallion was not solely the independent actor one might expect. Once those words left Stillman's lips I started to think: did S&C think bringing friendly Gallion & Spielvogel into the mix would help both Grinberg and Charney see the light, co-operate with a settlement, move on, end this whole sordid affair? Why would Charles Stillman state that Gallion was there to "assist" Aaron Charney? Charney's interest do not seem to be aligned iwth those of Grinberg. It seems to me that Charney should have had his own counsel at that January 31 meeting, but to "share" counsel with Grinberg? That makes no sense to me. Stillman was, perhaps, trying to put a more compassionate spin on the presence of Gallion intot he mix. He was there to help..... He does not seem to have helped Aaron Charney by destroying the extensive notes of that meeting, right? I can't be the only one who noticed that this peripatetic extemporaneous attempt at spin was leading no where useful.

It struck me as a rather mysterious turn of events. On the one hand, there was Edward Gallion of Gallion & Spielvogel, attorney for Gera Grinberg. Only I have no idea why Gera Grinberg needs counsel in the first place, or why he was at Aaron Charney's settlement meeting. I also do not know why Gera Grinberg would choose as counsel a man who had previously worked as an associate at Sullivan & Crowell, given the sensitive nature of the conflict that underlies the settlement meeting in the first place. Did Gera Grinberg know of this firm independently? Did S&C recommend them? Stillman does not say Grinberg paid Gallion & Spielvogel, and he did not say that S&C was not paying them. So in my mind, I was at the very least still confused as to who exactly brought Gallion & Spielvogel into the mix. But before that question could be pondered much longer, we learn from Stillman that Edward Gallion no longer represents Gera Grinberg.

Stillman continues in rebuttal to Kennedy. The settlement conference of January 31 was a settlement conference in the classic sense. It ended because there was no settlement. At the meeting Charney was pro se. The next day when S&C filed suit against Aaron Charney and when Judge Ramos ordered preservation, Charney was still pro se. Stillman pointed out that Charney spoke to the media, so S&C sued to retrieve its documents and those relating to its clients. Judge Fried starts to lose patience with this recap of everything and anything but the one issue (was Charney ordered to destroy the hard drive by S&C?). Fried directs Stillman to return to the subject at hand, the January 31 meeting. Fried sees an exception to the CPLR applying in this case because what is sought by deposition has nothing to do with the settlement itself, but only whether it supports an allegation of what occurred regarding the destruction of the hard drive. Fried just does not see any way that this narrow issue is protected as confidential. Fried is clearly inclined to allow Charney's lawyers to have their depositions. Stillman's response was lukewarm. He said something along the lines of "we have no reason whatsoever to object to testimony about that settlement conference" because when all is said and done the evidence will bear out that what Charney's lawyers claim did not happen. Stillman has no objection to the depositions if Judge Fried concludes that is appropriate but he is confident that the evidence "will prove otherwise." More than once or twice Stillman assures the court that he is fine with the depositions. (I wanted to raise my hand and ask the obvious question: why are you fine now? couldn't you have indicated from the beginning that you agreed to submit Mr. DiBlasi and Mr. Grinberg to depositions?)

You might think from my description of Stillman's colloquy (no argument here) that he was ready to move away from the podium. That was not the case. The next step was (now that defeat was apparently at hand on the issue of the depositions) for Stillman to remind the Judge that he had signed an order relating to preservation of all of Charney's email accounts and their contents (which would presumably be the object of discovery later?). Stillman again wants to lay out his time line (with a little help from John Harris and Zach Fasman seated at counsel's table): After the January 31 settlement conference, S&C sued Aaron Charney on February 1 (to be sure, Stillman seemed make an effort to pronounce all three names slowly: "Aaron Brett Charney"); and Judge Ramos issued an order that same day re preservation of materials. Stillman then says emphatically that Charney retained three eminent attorneys (I'm guessing Alterman, Schnell and .... Kennedy? I thought Kennedy was not retained until the following week) on February 1? (that didn't seem right to me) Stillman spoke very clearly: On February 1, that hard drive still existed. On February 2 that hard drive still existed! on February 3 that hard drive still existed. Then at some point on Sunday February 4, says Stillman apparently referring to an affidavit submitted by Charney, the hard drive was destroyed. Stillman says that Charney boiled the hard drive, then beat it with a hammer, then boiled it again, before disposing of what remained of the poor pile of steel. So Stillman concluded with some satisfaction: what did Mr. Charney tell his lawyers about this hard drive? Because, and it appears Stillman takes umbrage at this, Stillman spoke to Alterman repeatedly on Tuesday February 6 and no one ever mentioned to Stillman that the hard drive had been destroyed. Stillman managed to hold the floor for a while to lay all that out. It seemed certain that Stillman would one day want to depose Charney's lawyers to see when they knew about Charney's plans to carry out the boiling and beating to death of the hard drive. Kennedy and Alterman countered that whatever was in Charney's head, he was acting on instructions from DiBlasi, acting out of fear and intimidation.

Still, Charles Stillman indicated that he was not resisting the depositions Kennedy asked for, if the Judge saw fit to order them, as he would soon do. But Stillman warns, a slippery slope lies ahead. (That slippery slope seems to visit almost every courtroom inevitably, doesn't it? It sure gets around for a mere slope.) I'm not sure what he was driving at, except perhaps that if Kennedy deposes DiBlasi, Gallion and Grinberg, that S&C will want to depose Alterman and Kennedy to see when they first learned of their client's intention to destroy the hard drive. However, that would be moot if the first depositions prove the destruction was ordered by DiBlasi.

It sure didn't seem that Stillman bought the argument that Charney acted on instruction and/or intimidation from DiBlasi four days after a settlement conference that ended with no settlement. Stillman was careful not to let this opportunity pass without clarifying what was probably in nobody's mind, i.e. what did Stillman know and when did he know it? Like I said I don't think anyone guessed he'd then assure the court that he, Stillman, had "zero awareness" or "knowledge" about the destruction of Grinberg's notes. Stillman assured the court he wished to be 1000% (he used that superlative at least twice) clear on this point.

Stillman started to look like he might wrap up soon. He reminded everyone of what was in those letters. Charney not only allegedly destroyed the hard drive (it's hard to know sometimes whether Stillman would be happier if he had not destroyed it, though what would S&C use as a distraction from the discrimination/retaliation suit if not the hard drive?), but Stillman continues, we also know there was another hard drive in existence until November 2006. Apparently that hard drive kept crashing. So, in November 2006, Stillman notes that Charney himself as explained that he removed the motherboard from the computer (Stillman distances himself from the "motherboard" terminology saying that's the word Charney used, and he, Stillman, assumes that is where the memory is stored) and breaks it, then disposes of both the broken motherboard and the rest of the central processing unit in the garbage. Stillman points out that to the extent that there were records in the old hard drive pre-November 2006, they are now lost. Stillman then renews his desire to obtain access to Charney's e-mail. Stillman again levels the charge that Charney consciously and deliberately destroyed evidence (is it evidence if it was destroyed months before any lawsuit was filed?) and, in an effort to turn the tables back on Kennedy, Alterman and Schnell, Stillman points out that Charney destroyed the hard drive AFTER his own counsel wrote to S&C asking them to repserve and after Judge Ramos' order on February 1.

Of course in November 2006 when Charney's computer kept crashing and he decided to get a new home computer, he could not know that on February 1 Sullivan & Cromwell would file a lawsuit against him.

Stillman wraps up: On February 2 Charney met with and retain three lawyers. What did he tell those lawyers regarding his intention to destroy the hard drive? What did he tell them he did ovder the weekend? What did he tell them when he met with them on Monday? What did he tell them about this in connection specficially with Ramos' order and the settlement conference? (It doesn't seem likely to me that Stillman will find out the substance of these priveleged conversations.) Stillman wants to depose Alterman and Schnell to get the bottom of this, that much is clear.

Finally, Stillman rejects completely the characterization that anything occured during the settlement conference (intimidation, threatening or aggressive language for instance) that could be called a "reign of terror".

To be continued.