HENNIGAN VS. OLSON : Court Rivals : 2 Lawyers Will Slug It Out in O.C. Bankruptcy Debacle : J. Michael Hennigan: Winner Over Disney, Arco Tackles Merrill Lynch
It was perhaps inevitable that Los Angeles lawyers J. Michael Hennigan and Ronald L. Olson would one day face each other in a celebrated matchup.
Hennigan is known for wresting major monetary settlements out of big corporations, while some of Olson’s greatest efforts have gone to staving off corporate payouts.
The two are poised to do battle in one of the most important civil cases of the decade: The County of Orange vs. Merrill Lynch & Co.
Orange County accuses the Wall Street giant of making illegal loans to former County Treasurer-Tax Collector Robert L. Citron, and then getting him to buy inappropriate securities that cost the county nearly $1.7 billion in losses--accusations that the brokerage vigorously denies.
For the lawyers, the $2.4-billion damage suit could mean millions in fees, the chance to make precedent-setting law, and bragging rights to winning the largest municipal bankruptcy case in U. S. history.
At risk for residents of bankrupt Orange County is the wherewithal to repay more than $1 billion due schools that educate their children, cities that afford them police and fire protection, special districts that supply their water, and the agency intended to ease their commuting woes.
The Orange County case also may resolve questions about the obligations of securities brokers to warn customers about investment risks.
“Are brokerage firms financial advisers? Are they there to explain what an investment is?” said Michael Crames, a top New York lawyer. “And are we saying that municipalities do not bear the risk if their investments go bad?”
The lawsuit’s core issue: whether Citron and the county’s supervisors knew, or should have known, the risks they were taking, or whether wily Wall Street brokers manipulated an unsophisticated county treasurer in a drive to run up fees and commissions.
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J. Michael Hennigan doesn’t plan to spend much time talking about “reverse repurchase agreements” to the jurors who will decide how much, if any, of Orange County’s whopping investment losses should be repaid by Merrill Lynch & Co.
Instead, he thinks he will borrow a classroom exercise from a UCLA finance professor to explain to the jury just how former County Treasurer-Tax Collector Robert L. Citron and Merrill Lynch got the county into its current financial mess.
Hennigan says the university professor asks all of his students to flip coins. Those who flip “tails” are eliminated from further play, while those who flip “heads” continue flipping until only one student remains. The eventual winner is then told: “OK, you’re the genius, tell us how you did it.”
This exercise, Hennigan says, is emblematic of what Merrill Lynch and Citron did for years. For their own different reasons, they were gambling with taxpayers’ money, but believed that their initial success made them financial wizards.
But the anecdote he plans to use is also typical of Hennigan’s courtroom manner. The Los Angeles lawyer has a reputation for being a master of show and tell, a high-tech litigator who uses a state-of-the-art computer system to analyze complex securities issues, but who turns them into simple stories for the jury.
“He’s one of the best trial lawyers I’ve seen,” says Los Angeles Superior Court Judge Dion G. Morrow, who has presided over several cases argued by Hennigan. “He’s always thoroughly prepared, impressive in his presentation, and easy for the jury to understand.”
His courtroom successes have earned him and law partner James Mercer a fearsome reputation among Wall Street raiders, entertainment giants such as the Walt Disney Co., and their attorneys.
In 1990, for example, Kirk Kerkorian and his Tracinda Corp. agreed to pay $35 million to settle a class action lawsuit that Hennigan and Mercer filed for stockholders who alleged that Kerkorian undervalued the corporation when he arranged to sell it to Turner Broadcasting Co. for $1.5 billion in 1986, so that he could later buy back Tracinda’s assets at a sweetheart price.
A year earlier, the Hennigan and Mercer team wrested a $45-million cash settlement from the Walt Disney Co. and Wall Street raider Saul Steinberg over Disney’s 1984 buyout of Steinberg’s 11% stake in Disney.
The settlement, paid by both Steinberg and Disney, was the first resolution of a major “greenmail” case, where a company purchases at an above-market price the stock of an unwanted stockholder suspected of plotting a takeover.
And among their prized victories is an $80-million payment from the Atlantic Richfield Co. in the 1980s in settlement of a price-fixing suit. Hennigan said the retailers they represented accused Arco of overcharging them for gasoline and petroleum products in the wake of the Arab oil embargo.
But it was Hennigan’s and Mercer’s success in complex securities cases that made them the top contenders to handle the county’s lawsuit against Merrill Lynch & Co. Hennigan says he is still amused at how he and Mercer were hired.
It was Dec. 7, 1994, the day after the county filed for bankruptcy. County officials summoned Hennigan and Mercer, then at the Los Angeles office of Howrey and Simon, to interview for the case against Merrill Lynch.
Hennigan remembers spending the entire day on the third floor of the county’s Hall of Administration waiting to meet with county officials.
At the end of the day, the county’s chief bankruptcy lawyer, Bruce Bennett, came out of a meeting to announce that Hennigan and Mercer had been hired, even though they hadn’t been interviewed.
Terry C. Andrus, the former county counsel who made the decision, said keeping them waiting all day was simply a ploy.
“We wanted to sequester them so none of the other potential litigants in the case could reach them,” Andrus said last week. “We realized that they were among the best for the type of legal issue the county was facing. We have not been disappointed.”
Hennigan and Mercer have since departed Howrey and Simon to form a new firm with Bennett, guaranteeing that they will receive a larger share of the legal fees generated by the county’s bankruptcy.
People who know Hennigan say he owes his success to hard work, a dogged determination to win, and devotion to a state-of-the-art computer system.
His wife, Phyllis, jokes that she has rarely seen him since he accepted the Orange County case.
In building their case against the brokerage firm, Hennigan and Mercer--who each bill the county at the rate of $395 an hour--are relying on the services of a computer expert coveted by many other law firms in the nation.
The expert, Matthew Ghourdjian, has designed a system that eliminates the need for voluminous legal files that lawyers always seem to be trucking into courthouses. In the Orange County case, for example, Ghourdjian has scanned into the law firm’s computer system about 1.3 million documents relating to the operation of the investment pool, and detailing the dealings between Merrill Lynch and Citron.
Where many law firms involved in the case would have to rifle through thousands of storage boxes for a critical document, Hennigan simply taps a few keystrokes on his desktop computer and voila!
In the Merrill Lynch case, he says he can trace memoranda between Citron and Merrill Lynch to prove that the treasurer was a know-nothing who was manipulated by overzealous brokers seeking lucrative commissions.
But apart from his high-tech support, Hennigan says the county also has an important witness, disclosing for the first time that Citron will testify for the county and is not being sentenced for his conviction on seven counts of misappropriating public funds and falsifying documents until after the civil case is over.
“You’re going to hear his name frequently,” says Hennigan. “Citron will show the deviation from his stated investment goals and the role Merrill Lynch played in all that.
“As I understand it, his sentencing is going to be deferred to some time after these [civil] proceedings are over, so his punishment may depend to a large extent on his level of cooperation.”
Merrill Lynch officials say they are not worried about Citron’s testimony.
Voicing confidence in the county’s case, Hennigan says, “I don’t think any jury would believe that a single elected official can obligate an entire county to the tune of $14 billion. . . . Merrill Lynch . . . broke a longstanding tradition in the business to know their customer’s limitation.”
Hennigan says he cannot see how Merrill Lynch can win this case. Their best bet, he says, is to delay a trial by asking for 400 days of depositions, as Merrill’s lawyers have done, and by prolonging discovery.
“They have a choice to pay now or pay later,” Hennigan says. “And with $2.4 billion, they will want to hold on to that money as long as possible and pay later.”
Hennigan’s ability to blend computer technology with sound legal strategy was developed while working as an IBM salesman in Washington.
After earning the rookie of the year award at IBM, Hennigan took a leave of absence to enroll at the University of Arizona Law School. As an IBM salesman, he had developed close friendships with lawyers “and I decided that I wanted to be one of them.”
To Hennigan, the law represented stability, unlike his early childhood when as the son of an U.S. Air Force officer he lived “on a two-year cycle” moving from country to country.
That cycle came to a harsh end when he was 15 years old and his father died from the radiation he was exposed to while flying over Hiroshima in a reconnaissance plane in the wake of the first atomic bomb blast, Hennigan said.
For young Hennigan, his father’s death came as a sharp blow. “I was only 15 and I had to make my own decisions,” he said. “It was a tough time, because I made a lot more mistakes.”
In Arizona, Charles Ares, the legendary dean of the law school, describes Hennigan as “one of my most remarkable students. He was the kind of student you want to have in your class because he keeps things alive and interesting. His self-confidence and discipline rubbed off on the others.”
Classmates remember Hennigan as a student who wore shoulder-length hair and sandals to school and always came up with the most provocative questions--and answers.
When President Nixon unsuccessfully sought to place two conservative Southern judges on the Supreme Court--Clement F. Haynsworth of South Carolina and G. Harrold Carswell of Florida--Hennigan was the one who collected signatures opposing their nominations, said James Sult, a Hennigan classmate who is now judge on the Arizona Court of Appeals.
Hennigan has since traded in his sandals for dark, pin-striped suits and natty bow ties, which he knots before a court hearing. His once-shaggy hair is now more salt than pepper.
He pauses and ponders a question about his activism in law school.
“Those were times when we thought we figured out a better order to things,” he says. “We were idealistic, and I was much more sure of myself then.”
He says he often thinks about the responsibility the Orange County case has placed on his shoulders--like the education of children and the jobs of government workers. But he says he is confident the county will prevail.
His message to Orange Countians, he says, is simply: “Be patient, we’re coming.”
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Profile: Michael Hennigan
Age: 51
Born: Tucson, Ariz.
Residence: Hancock Park
Family: Wife, Phyllis; two grown children
Education: B.A., University of Arizona, 1966; J.D., University of Arizona Law School, 1970
Employment: Partner in Hennigan, Mercer & Bennett of Los Angeles
Legal specialty: Complex commercial litigation
Career highlight: $45-million cash settlement from Wall Street raider Saul Steinberg and Walt Disney Co. in a landmark “greenmail” case. Lead litigator for Orange County in $2-billion lawsuit against Merrill Lynch.
On the ‘60s and law: This period “got me interested in justice because it was a time when we critically examined the culture we lived in. But a terrible thing happened to some of us who lived through the ‘60s: We got what we prayed for. We thought most of our problems were structural, but we realize they were a lot more complicated.”
Source: Michael Hennigan
Researched by DAVAN MAHARAJ / Los Angeles Times
