When Jeff North first arrived at the Denver law offices of Baker & Hostetler in July 1992, he must have seemed like quite a catch.
Barely 43, North had been wooed away from the upper echelons of the Resolution Trust Corporation, the federal agency charged with cleaning up the nation's savings and loan mess. As the RTC's Denver-based regional counsel, North had presided over the work of more than 350 government lawyers in seventeen Western states. He had overseen tens of millions of federal dollars set aside every year for RTC contracts with outside law firms. And he had developed personal relationships with high-ranking officials at RTC headquarters in Washington, D.C., and in branch offices around the country. Now he was bringing his experience--and his contacts--to Baker & Hostetler, a nationally prominent firm that already counted the RTC among its most important and deep-pocketed clients. On paper North appeared to be a classic "rainmaker"--someone who could help win the firm millions of dollars in future RTC legal work.
Today, however, Baker & Hostetler's decision to court and acquire North turns out to have been a drastic mistake--for both North and the law firm itself.
North has been ignominiously drummed out of the firm's 17th Street offices in the wake of a nasty falling-out with the firm's managing partner in Denver, James A. Clark. Once one of the RTC's most powerful in-house lawyers, North now is unemployed and says his career has been "irreparably damaged."
And Cleveland-based Baker & Hostetler, already smarting from RTC sanctions imposed in an unrelated case, is being forced to fend off a new series of damaging charges and revelations contained in a lawsuit North filed recently in Denver District Court.
That lawsuit reveals that Baker & Hostetler's hiring of North triggered a federal investigation of how Clark recruited North into private practice. Because of RTC secrecy rules, the exact status of that investigation is unclear, but an April RTC memorandum obtained by Westword shows that the RTC and its sister agency, the Federal Deposit Insurance Corporation, believe the firm violated federal ethics guidelines.
Attorneys for North also allege in the suit that Baker & Hostetler improperly pulled punches while litigating an S&L case on behalf of American taxpayers because of an internal conflict of interest. According to North's complaint, the law firm resisted a recommendation by North that the government sue a Big Six accounting firm for damages arising out of a thrift failure because the accounting firm was a Baker & Hostetler client.
And the complaint alleges that Clark lied to North when he hired him, falsely promising him the chance to develop a legal practice with banks and other private financial institutions. In reality, the suit charges, "Clark was interested only in the bonanza of RTC work which he expected North's presence to attract to B&H."
Neither North nor Baker & Hostetler will comment on the dispute. But North's lawsuit has tongues wagging inside Baker & Hostetler and the RTC. Present and former attorneys from those organizations say it offers a rare view of how law firms go about cultivating government business--and how government officials can capitalize on their status as insiders. Many of those observers fault both North and Baker & Hostetler for entering into an agreement that was bound to raise eyebrows--and, they say, cause them both grief in the long run.
"It was like one greedy force meeting another," says one RTC attorney familiar with the case. "There's no black-and-white here. Both parties came to work with one another with the idea of making some quick money."
"It had the sense of impropriety almost from the outset," says a lawyer formerly employed at Baker & Hostetler. "Neither side is particularly innocent."
Allegations of waste and ineptitude have dogged the RTC ever since it was founded in 1989. Created by Congress to handle the massive wave of S&L failures in the late Eighties, the agency has seized more than 700 institutions around the country and has spent more than $85 billion closing them down and selling off their assets. But RTC horror stories are legion. A government audit, for instance, revealed that the accounting firm of Price Waterhouse billed taxpayers for $5 million in photocopying fees for work on one RTC case. In Texas, the RTC has reportedly been unable to get a single professional liability case before a jury in five years. In California, a recent investigation by the Orange County Register concluded that the RTC "tolerated widespread harassment and discrimination of agency employees" and paid millions to lawyers and accountants for work that in some cases was never done.
Colorado has seen its own series of thrift failures--Silverado, Otero, American Federal, Capitol Federal--as well as its share of RTC shenanigans. In 1991, for instance, the Denver Post revealed that the agency's Denver branch office could not account for more than $7 billion in assets in a scandal that came to be known as "Operation Western Storm." An accounting firm that was paid $25 million to hunt down the assets itself became the source of further controversy, receiving payment for some work that was never performed and hiring workers with little or no training.
But the RTC was still just a fledgling agency when Phillip Jeffrey North came on board as a deputy regional counsel in 1989, eleven years after his graduation from law school. A native of West Virginia, he held an MBA from the London Business School and a master's in law from the London School of Economics. Though North had spent a few years working in the London office of a Philadelphia law firm, the bulk of his previous work experience was in government. He'd worked as a lawyer for the West Virginia state senate, as a trial attorney for the U.S. Department of the Interior and then as counsel for the Federal Home Loan Bank Board in Washington, D.C.
When North began work for the RTC, the agency's legal division was divided into four geographic areas directed out of regional offices in Denver, Atlanta, Kansas City and Dallas. Each was headed by a "regional counsel" who supervised the work of hundreds of RTC attorneys in field offices and reported directly to RTC headquarters in Washington. North's initial supervisor at the agency was Richard Aboussie, the Denver regional counsel. According to attorneys at the agency, Aboussie and North became close friends. "Jeff was his hand-selected right-hand man," says one. (Aboussie, now associate general counsel for the FDIC, declines comment.)
In 1990, when Aboussie was promoted to a senior RTC position in Washington, North was selected to take his place. He found himself with authority over 500 lawyers and other employees. It was a job, some insiders say, roughly equivalent to that of managing partner at a large national law firm. "He was God," says Ira Greschler, a Boulder attorney who sued the RTC two years ago on behalf of a former agency employee. "He had unbelievable authority." Agrees an agency insider: "Jeff had a tremendous amount of power."
North's tenure at the RTC was punctuated with controversy. He made bitter enemies at the agency when he helped reorganize its professional liability section, the division in charge of suing the directors, officers, accountants and lawyers of failed S&Ls. The reorganization became the focus of a Senate Banking Committee inquiry in 1992. During hearings that August, two Denver-based RTC "whistleblowers," Bruce Pederson and Jacqueline Taylor, testified that the reorganization undercut the agency's ability to collect damages in professional liability cases, resulting in the loss of millions of dollars. Much of the reason for the reorganization, the whistleblowers said, involved favoritism and office politics. North, Pederson later said, was "a general in the turf war."
Critics say North, whom they describe as arrogant, petty and imperious, supported the reorganization because it broadened his own power base within the agency. "He was a classic playground bully," says one RTC attorney. "If you had a toy, he'd either want to break it or take it away from you."
One of the people North got to know during his tenure as regional counsel was James Clark, managing partner of the Denver office of Baker & Hostetler.
Clark was well connected in Denver legal circles. His list of clients included prestigious corporations like the Rocky Mountain News. His wife, Patricia Clark, was a federal bankruptcy judge, and one of his law partners, Fred Winner, had been a judge in U.S. District Court. Another partner, Bruce Pringle, had been named a federal magistrate in 1991.
Many of Clark's colleagues say they hold him in high esteem. "Jim Clark is the most outstanding man I've ever met in my life," says John McNamara, a former member of the Baker firm. "He's certainly one of the finest trial lawyers in the country." James Kilroy, another former Baker attorney, calls Clark a "real gentleman" with "integrity beyond question."
"I really feel strongly that [Baker & Hostetler] is a good operation," Kilroy says, "and that a good man is running it."
But Clark, like North, has his share of detractors. Many former B&H attorneys describe him as dictatorial--the lone source of authority in the firm's Denver office. "He has a management style that is totally autocratic," says one. "It's got the Baker & Hostetler name on the door, but it's really Jim Clark & Associates." Agrees another: "Nobody makes a decision at Baker & Hostetler besides Jim Clark."
In March 1992, according to North's suit, Clark asked North about his career plans. The two had been speaking on the phone for several months about various legal matters that Baker & Hostetler was working on as outside counsel to the RTC. Both men knew that North, though he enjoyed a position of power and prestige, would be needing to look for new work within a few years, since the RTC is to be disbanded by legislative mandate in 1996. Clark, the suit says, told North that if he ever wanted to go into private practice, he would be welcome at the Denver offices of Baker & Hostetler.
North, the suit claims, was "flattered by Clark's comments and interested by Clark's proposal." That spring, though still employed by the government, North flew to Cleveland with Clark and met with a group of Baker & Hostetler attorneys at the firm's headquarters. By June, after a three-month series of meetings and phone calls, the parties struck a deal. North agreed to join the firm at an initial salary of $180,000 a year. He resigned from the RTC on June 30, 1992, and began working at Baker & Hostetler the following day.
According to North's lawsuit, he was more than just a normal lateral hire for the firm. Clark, the suit claims, promised that he "intended to groom North as his successor"; that North would be given "considerable responsibility" for managing the firm's Denver office; and that North's relationship with Baker & Hostetler was to extend throughout "the remainder of North's professional career"--essentially a guarantee of lifetime employment. To back his claim, North says in the suit that the Baker firm announced his arrival "with great fanfare," printing brochures for distribution to clients and the public touting his appointment. The firm also assigned North to Bruce Pringle's old corner office, which had remained vacant since Pringle's appointment to the bench. That move, claims the suit, was a clear signal that North was Clark's new "right-hand man."
North, however, never actually was made an "equity partner" in the firm. Though he was given the title of partner, the suit notes, Baker & Hostetler never presented North with a partnership agreement to sign. Technically, that meant that North was more like a high-level associate, receiving a salary instead of a share in the firm's profits.
And the suit doesn't mention a controversy that erupted at the RTC over the rates the firm was charging for North's work on behalf of the agency in the latter half of 1992. According to RTC documents obtained by Westword, the firm wanted to charge the RTC $200 an hour for North's services. But Jack Clough, an RTC in-house attorney, objected, saying the rate was too high. North, Clough contended in a memo to his superiors, had hardly any actual litigation experience and did not deserve to bill himself out at such a high rate. "Mr. North is holding himself out as a person with [professional liability] litigation experience when, quite frankly, he does not have that experience as an active trial attorney," Clough said. "Mr. North's experience level is noticeably wanting."
Others within the RTC disagreed. Section chief Bernard Brodsky wrote in another memo that Baker & Hostetler's work had been "of the highest caliber" and that the agency was "particularly pleased" with North's performance. Records don't indicate how the dispute over North's pay was resolved.
Still, North's suit claims that his first six months at Baker & Hostetler went well overall. Clark, says the complaint, "was eager to exploit North's presence" at the firm and made sure to bring North along when he made a business trip to the RTC's California office that summer. Clark, the suit adds, hoped North could get him a "personal introduction" to attorneys at the RTC's offices in Newport Beach, who in turn might steer RTC legal contracts the firm's way. In a performance review at the end of 1992, the firm "positively evaluated" North and agreed to continue to pay him his lofty six-figure salary.
But the following month North's relationship with Baker & Hostetler suddenly went sour.
In January 1993, the suit says, the firm received notice from the RTC of an investigation by the agency's inspector general. The suit does not provide details about the probe but implies that it involved conflict-of-interest rules for federal employees who take jobs with companies doing work for the government.
The investigation was two-pronged and surrounded Clark's solicitation of North in the spring of 1992. The RTC focused on alleged violations of federal ethics guidelines, while the U.S. Attorney's office looked into possible criminal wrongdoing on North's part.
The criminal half of the probe ended last fall without any charges being filed, according to trial records in an unrelated case. Last year, North was deposed as a potential witness in a discrimination suit against the RTC by a former agency employee, and the existence of the U.S. Attorney's investigation was raised as a factor affecting North's credibility. The RTC's lawyer in the case, Assistant U.S. Attorney Richard Kaufman, said in court that the probe "focused on allegations...that [North] somehow had used his influence while at the RTC to throw business over to Baker & Hostetler." Kaufman told the court the criminal investigation of North had been dropped because "the office concluded there's no merit to the case." North insists in the suit that he did nothing improper and that he conducted himself "in a manner entirely consistent with applicable government ethics rules."
The administrative portion of the probe continued, however, and in April the joint Outside Counsel Conflicts Committee of the RTC and the FDIC ruled that Baker & Hostetler had violated federal ethics guidelines "by initiating a discussion of future employment possibilities [with North] prior to his recusal from all matters affecting the firm." (The firm was not penalized, because it had already been suspended from further RTC and FDIC work due to a violation unrelated to the North case. In March the conflicts committee "terminated" the firm's legal services agreement after learning that a senior partner in its Orlando, Florida, office had defaulted on a $700,000 loan to a bank in FDIC receivership. Baker & Hostetler appealed the decision, and in June the committee agreed to merely suspend the firm from RTC and FDIC work for six months.)
North claims in the suit that his prospects at Baker & Hostetler dimmed immediately after the firm learned of the investigation. Though "neither Clark nor B&H believed that North had done anything wrong," the suit says, the firm decided to "screen" North from all RTC work because it was "anxious to retain the substantial RTC business which B&H was then doing."
But it was another matter that actually led to North's demise at the firm, the suit says. Days after the firm learned of the investigation, North wrote a memo urging that the RTC, through its outside counsel Baker & Hostetler, sue a Big Six accounting firm that had done work for a failed thrift the RTC was liquidating. The suit does not name the thrift, but RTC sources say it was the Williamsburg Savings Bank in Salt Lake City, which collapsed in 1990. The accounting firm in question, according to sources, was KPMG Peat Marwick.
The RTC already had filed complaints against Peat Marwick for alleged negligence in connection with S&L audits it had performed elsewhere in the country. In March 1992, for instance, the agency sued the firm and its partners, seeking $100 million in damages for work it performed for Hill Financial Savings Association, a Pennsylvania thrift that had made loans on a number of real estate projects in Colorado.
Baker & Hostetler, however, resisted North's recommendation--because, the suit alleges, the accounting firm had been one of its clients. Angry that North would recommend a suit against Peat Marwick, Clark placed North on a "leave of absence" and cut his salary in half, the suit claims. North was forced to spend the next several months working out of his $300,000 home in Greenwood Village.
Then, in the fall of last year, North met with several Baker & Hostetler attorneys in the firm's Denver office. During that meeting, the suit says, some of the lawyers suggested that the firm cut its ties with North. Shortly afterward, Clark wrote North a letter informing him that his employment at Baker & Hostetler would end on January 1, 1994.
The firm's treatment of North "was particularly outrageous because [Baker & Hostetler] knew that North had forsaken a stable and prestigious position as Regional Counsel of the RTC," the suit claims. Furthermore, Clark and other members of the firm knew "their conduct would permanently cripple North's legal career."
Lawyers familiar with the case say North's claim about the Williamsburg Savings Bank case is the most serious allegation in his complaint. If true, one RTC lawyer says, the firm should not have agreed to represent the RTC at all in the Williamsburg case, since it should have known that a failed thrift's accounting firm is always a potential target of an RTC claim. If North is right, the RTC lawyer says, "someone's got a hot potato in their lap at the law firm."
But one source, who insisted on being identified only as a Denver attorney, says it's more likely that the inspector general's investigation of North doomed his prospects at the firm. North's main value to Baker & Hostetler, the lawyer says, was his relationship with the RTC. Regardless of the outcome of the probe, adds the attorney, North was tainted from then on and became a liability instead of an asset.
"It was a purely mercenary thing," the lawyer says. "He was supposed to come up with the goods. As soon as he couldn't, he was history."
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North's Denver attorney, Jay Horowitz, refuses to discuss the lawsuit. "Other than to say Mr. North feels strongly about the claims he's made," Horowitz says, "we have no comment."
Baker & Hostetler has not yet filed a response to North's complaint, so its version of the events surrounding North's hiring and firing has not been made public. The firm's attorney, Frances Koncilja, has filed a motion in court asking that an arbitrator take over the case, which would mean the dispute would be removed from court and adjudicated out of the public eye. Koncilja did not return repeated phone calls. Reached by phone, Clark referred a request for comment to John Burlingame, the firm's executive partner in Cleveland, but Burlingame also was unavailable.
Attorneys familiar with the case, meanwhile, are divided on the merits of North's claim against Baker & Hostetler. North isn't the kind of person "who would make statements like this wildly," says one former colleague at the law firm. "I know he is not a loose cannon."
But North's enemies from his days at the RTC say they're salivating at the prospect of a lengthy, revealing court battle. "What we're hoping," says one attorney, "is that the case will go to trial and there will be a lot of mudslinging.