Lawyers Gamble on 16-Year-Old Lawsuit

Gerald Ford was President. We had “Whip Inflation Now,” disco and Legionnaire’s disease. Howard Hughes died. There were 10 million fewer people in California.

It was October of 1976, the Bicentennial year. When Erwin Sobel went to court, he probably wore a necktie with a knot as big as a fist. His children were, well, children.

In that month, he filed a lawsuit. Huey vs. Teledyne, it was called at first. Then Botney vs. Teledyne. Then Gaffin vs. Teledyne.

It was a suit brought with no sense of fatefulness. Who knew? Sobel and fellow litigator David Daar accused the Los Angeles conglomerate of fraud in connection with a stock buyback. The lawyers were trying for one of those shareholder class actions that have grown so popular since.

What with one thing and another, the case seemed to drag on. Sobel and Daar struck out after three years in the federal courts, so they took their case to state court in Delaware, where Teledyne is incorporated, and where things dragged on some more.

How time flies. Gaffin vs. Teledyne, in its various incarnations, will be 16 soon, old enough to drive in California with a learner’s permit. Some of the more than 4,700 plaintiffs in whose name the struggle is waged have no doubt died.

“Mind boggling,” says Maxwell Blecher, a seasoned Los Angeles litigator who’s had his share of protracted court battles. “Preposterous,” adds Jesse Choper, former dean of the UC Berkeley law school. “Even to lawyers.”

Consider that Daar’s son, Jeffery, was an undergraduate when the Teledyne case was born. Since then he’s finished college, attended law school and joined his father at Daar & Newman in Los Angeles. That was 10 years ago. Earlier this year he joined Sobel in arguing Gaffin vs. Teledyne before the Delaware Supreme Court.

A verdict could come at any time, and Sobel insists that the case will end there.

The case is so old, Sobel can’t remember shareholder Botney’s first name. As for the paperwork, it would fill a small room. Says David Daar: “For the trial, my office’s Xerox facility produced 160,000 pages in 90 days.”

By now, Dickens fans will have spotted shades of Jarndyce vs. Jarndyce, the interminable suit in “Bleak House” that drags on from generation to generation, consuming all the disputed assets in legal fees.

Well, Gaffin vs. Teledyne could be some karmic retribution, because in this case, the lawyers for the plaintiff haven’t made a nickel. (Sobel figures Teledyne’s legal fees have run into the millions. The company’s lawyers at Irell & Manella couldn’t be reached for comment.)

Sobel and Daar aren’t given to wild flings in Las Vegas or at Hollywood Park, but they are gamblers nonetheless, betting that their case is strong enough to take on a contingency-fee basis. They invest their time and track their expenses, and if they win--but only if they win--they submit a bill, which the court may approve and order paid from the plaintiffs’ winnings.

“My wife thinks I’m crazy,” Sobel says genially, figuring that at $250 an hour, he and Daar have $3 million sunk into this thing, plus $300,000 in out-of-pocket expenses.

Daar handles a variety of cases, but Sobel is a plaintiff’s lawyer who, by working often on a contingency basis, makes such bets for a living. “In any specific case you can lose the house,” explains Blecher.

Losing a 16-year-old case--and not getting paid for the privilege--doesn’t seem to worry him, perhaps because he’s seen much worse. A Holocaust survivor from Czechoslovakia, Sobel, 54, had more hair-raising experiences in his first seven years of life than most people can even dream.

Sobel has done well as an attorney except for Gaffin vs. Teledyne, which even he describes as an albatross. But Sobel and Daar insist that they’re out to right a wrong here. They claim Teledyne induced shareholders to tender stock at $40 a share without fully disclosing all the facts--for instance, that top Teledyne executives might tender 1.1 million pension-fund shares they controlled. (A Teledyne spokesman didn’t respond to a request for comment.)

In the months after the buyback, Teledyne’s stock soared to $80, Sobel says.

Why has the case lasted so long? That’s hard to say. Sobel blames the system--discovery, depositions, motions, appeals and so forth. In 1990, a Delaware Chancery judge partly blamed Sobel and Daar, contending that “a lack of vigor in its prosecution” was partly to blame for the prolonged litigation. What a bitter pill for Daar, who years earlier had been sanctioned $12,500 by a federal judge in Los Angeles for needlessly multiplying litigation in the case--in other words, for pursuing it too vigorously.

Sixteen years is a lot, but it’s not unprecedented. Blecher recalls representing a plaintiff in the seemingly endless antitrust litigation against IBM. “The government’s case lasted about 16 years,” Blecher says, adding that IBM produced 7 million documents.

There are a lot of highs and lows when a case lasts 16 years, but at one awful moment there were both. On Dec. 4, 1990, a Delaware Chancery Court ruled that Teledyne “was guilty of equitable fraud in that it distributed a Feb. 9, 1976, tender offering circular that did not adequately disclose to its stockholders all the material facts.”

Sobel was elated. But what the first paragraph giveth, the second taketh away: “The court awards damages of $1 per share.”

Victories don’t get much more Pyrrhic. With the class narrowed to exclude arbitragers, only 750,000 shares were left, meaning an award of $750,000. (Thus the appeal to Delaware Supreme Court.) For Daar and Sobel, it was a bleak moment, especially since, according to Sobel, Teledyne’s lawyers had hinted in settlement discussions at $10 million or even $20 million.

“We asked for $56 million,” Sobel says.