Circle of Greed

by Patrick Dillon

  It was clear to Carrick, after seeing the focus groups, that Californians had grown weary of the whole battle between Lerach and his enemies: “They’d been warned about ‘corporate wolves,’ then they’d been told, ‘No, no, it’s the lawyers who are really ripping you off,” Carrick recalled. “They didn’t know who to believe. They just wanted to stop thinking about all this crap.” After one such depressing session Cuneo and Carrick walked out into the Los Angeles night together.

  “Fuck this,” Carrick said. “This is going to be brutal.”

  “It’s going to be very difficult to pass,” Cuneo agreed.

  The two demoralized Lerach lieutenants also agreed on a temporary solution to their dismay: they adjourned to the bar at Cuneo’s hotel and ordered several rounds of drinks. “We got shitfaced,” Carrick said.

  MEANWHILE, THE OTHER SIDE was not complacent; far from it.

  At seven thirty on a Monday morning in early October, the anti-Lerach brain trust gathered in the boardroom of Kleiner, Perkins, Caufield & Byers. The host was John Doerr. Those gathered in his conference room included Tom Proulx and Bill Campbell of Intuit; Hewlett-Packard’s John Young; Cisco Systems’ John Chambers; Ed McCracken of Silicon Graphics; and Judy Estrin of Doerr-backed Precept Software; along with various directors on the boards of Sun Microsystems, Federal Express, and Rockwell International. Even John Neese, the head of the Santa Clara County Building and Trades Council, was there. As one of the state’s top labor leaders, Neese was normally at odds with union-averse Silicon Valley. Not this time. Those present owed Doerr more than a debt of gratitude, they owed him their very companies and, indeed, whole new industries that their companies helped create. This meeting, Doerr told them, was about jobs and the very future of the region that had created the most jobs and wealth since World War II—the Silicon Valley. Collectively, those around the table employed more than 150,000 people, and their combined market capitalization exceeded $100 billion.

  Doerr got right to the point. “We are looking at the loss of nearly 160,000 jobs,” he said. “Economists are telling us that the stock market will decline by fifteen percent. That’s trillions of dollars. Directors are saying they will resign their seats rather than put themselves at personal risk.” Then he laid his hands on the table, as if showing his cards. “I sit on six boards. If this thing passes, I will sit on none.”

  “This Proposition 211 is the greatest threat to our industry since the Japanese threat of the mid-1980s,” added Intel chief Andrew Grove.

  With three weeks to go, Lerach and his allies had spent about $8 million and expected to spend another $4 million, Doerr pointed out. He also acknowledged the $11 million hit that Valley executives had taken just seven months earlier, in March, in unsuccessfully backing the ill-conceived “terrible two hundreds.” This time the stakes were exponentially higher, he assured them. They had momentum, but Proposition 211 was leading in the polls. To win they would have to spend at least $30 million, Doerr grimly told his colleagues. He also laid out the strategy that this money (which would come pouring in after the meeting) would finance. They were now in phase three of the campaign. Phase one had been softening up their target with personal attacks on Lerach. Phase two was softening up the voters with the Dole-Clinton ads. Although Doerr didn’t put it this way, phase three was scaring the bejesus out of people. From now on, it was all about jobs—the jobs that would flee California if 211 passed.

  This was to be the message, in both the “free media” and the paid media advertisements. On October 3, 1996, the American Electronics Association (AEA) released a survey of its members purporting to show that 47 percent of its 239 member companies might relocate their operations outside California’s borders if Proposition 211 passed. “That would mean the loss of 61,000 jobs in California,” Chris Ullman, an AEA spokesman added helpfully. In addition, 98 percent of the companies surveyed said that Proposition 211’s passage would make it harder to recruit top-quality executives and directors.

  Judy Estrin, who had founded three successful Silicon Valley companies, threatened in interviews to not take Precept public if Proposition 211 passed, adding that she would quit her other board of directors positions the next day.

  “If this passes, the only people who will be willing to be officers and directors of companies will be indigent or stupid or both,” Doerr warned. It was a reference to the Lerach initiative’s loosely worded language allowing for punitive damages—uninsurable by D&O policies—to be paid personally by corporate officers found to have committed vaguely defined “reckless” behavior. This provision would obviously make it difficult for companies to recruit outside directors.

  “I’d expect my entire board to resign the day Prop 211 passed,” added Centigram Communications’ George Sollman, a CEO who had been sued once by Lerach (settling the case for $1.5 million) and didn’t want to go through the experience again. “It’d be like an IQ test for directors. If they’d stay on the board, you’d have to question that person’s intelligence.”

  Doerr and his strategists knew that the average voter didn’t care much about the problems of a handful of wealthy entrepreneurs. But those board seats represented companies that had done a lot of recent hiring as California emerged from the recession of 1991–92, and voters wanted those companies to thrive—and remain inside the borders of the Golden State. On cue, tech giants Microsoft, IBM, Compaq, and Dell issued joint press releases opposing the measure. With those heavy hitters in the game, other big companies, their vendors, and various corporate partners followed suit. Wall Street money flowed into the “Get Lerach initiative” coffers as well, along with big contributions from top insurance companies. With two weeks to go, the fund-raising goals had been met. Not coincidentally—they were now seriously outspending Lerach’s forces in the air wars—the “Yes on 211” lead was slipping.

  Mel Weiss called Lerach for a status report. The news was not encouraging. The poll numbers were hemorrhaging, and the state’s major media outlets were aligning against their initiative. The Los Angeles Times called it “a measure that would mainly line lawyers’ pockets.” The state’s legislative analyst had come out against it, as had the governor, the attorney general, the president of the California Taxpayers Association, and the president of the state chamber of commerce. Even the supposedly neutral League of Women Voters appeared heavily tipped against the pro-211 forces. And of course, President Clinton had double-crossed them.

  “We’ve gone from Plan A to Plan B and now we’re hearing that we may be needing Plan C?” Lerach heard his mentor ask in a low, grave voice. “Are you saying we should be thinking about readjusting our business approach?” Lerach hadn’t exactly said that, but his immediate silence signaled that Mel had guessed right.

  Cuneo and Carrick had feared the bottom would fall out of their support. Now it was happening. This brought on a dilemma. When Lerach had asked Cuneo to run the campaign, Lerach had said playfully, “I’ll be the producer and you be the director.” Cuneo took this to mean Lerach would raise the money, and Cuneo would guide the effort. In the waning days of what now seemed a certain loss, their quandary was whether to continue raising money to try to keep the margin respectable or fold their tent. Lerach and Cuneo concluded that they couldn’t in good conscience ask their friends and allies to keep backing a losing hand, and they essentially shut down their fund-raising operation. “We came to believe,” Cuneo recalled later, “that there was no hope at all.”

  The fear was well founded. On November 5 California voters buried Proposition 211 by a margin of three to one. John Doerr and the vast business alliance he assembled had outspent Lerach’s proponents by nearly the same percentage, $32 million to $11 million, even donating an additional $1.75 million to fight another proposition that would have reinstated a higher tax bracket for wealthy Californians.

  Amid the din of celebration at the Holiday Inn in Palo Alto, Tom Proulx could be overheard heralding the vote as a significant milestone in the evolution of the New Age
economy. “We took a mortal threat to our industry and turned it into an opportunity to organize ourselves into a political force,” he proclaimed. “Thanks to the campaign that was mobilized against Proposition 211, the technology industry is now poised to become as influential a player in state politics as the trial lawyers.”

  Doerr was slightly more circumspect, saying: “Today voters decided growth is good. It creates opportunity for all of us.”

  It certainly created opportunity for Doerr. During the 1996 campaign he had become close to Al Gore and four years later served as a key adviser in the Gore presidential campaign. In early 2009, his fiction of being a Republican long since retired, Doerr would be introduced at the White House by President Obama as a member of the president’s Economic Recovery Advisory Board. On a bigger canvas, Proposition 211 did more in one fell swoop than all the position papers the Atari Democrats had ever put together. Never again would Silicon Valley be caught off guard in politics—and never again would its denizens be taken for granted by either political party.

  “A sleeping giant has been awakened,” Doerr’s partner Brook Byers said. Bill Lockyer, a California Democratic official with statewide ambitions, used identical imagery, as did influential California Republican Dan Schnur. But Schnur did not employ the passive voice: “Bill Lerach has awakened the sleeping giant,” he said.

  The day after the Prop 211 vote, chipmaker Intel issued an upbeat forecast for the pending fourth quarter, saying it anticipated forthcoming revenues to be “significantly higher” than the $5.14 billion generated in the immediate past quarter. Within months its stock price would break through $120 a share. (To celebrate its extraordinary year, the company would reward each of its employees with a $1,000 bonus.) That was nice, but it didn’t really compare to the $98 million reaped in 1996 by Intel CEO Andy Grove—$94.6 million of it coming from cashing in stock options. This dwarfed any previous annual compensation in Silicon Valley, and Grove was not alone. The old record would have been broken by two other high-tech executives that year: Cisco CEO John T. Chambers ($33.2 million) and Cisco vice president Frank J. Marshall ($28.4 million). It had been a good year, politically and financially, in the Valley.

  In San Diego on the day of Intel’s bonus announcement, Bill Lerach sat at his desk, nursing a hangover, and began drawing up a new business plan. Although dejected, he was trying to see ahead. He and his firm had been made vulnerable by political tectonics that he had misread. If the rules had changed, the goals hadn’t: fight the corporate swindlers and make a lot of money doing it. But how could Milberg Weiss become more protean, like the most successful companies, including those he’d sued?

  The reality of the past two years, at least the way he saw it, was that the courts and lawmakers had made it easier to get away with fraud. When men like John Doerr uttered phrases such as “growth is good,” they meant that innovation, jobs, and profits were good for the U.S. economy. But that wasn’t how Lerach interpreted it. Greed is good—that was what Lerach heard.

  “As long as greed is a growth industry we’re in business.” Mel Weiss had said that, such a long time ago. Now the skids had been greased. Greed was definitely going to grow.

  * Wilson’s departure from Washington created a vacancy that was filled after a brief interregnum—by Feinstein—in a 1992 special election.

  * Lerach had never spent the night in the Lincoln Bedroom and wouldn’t be an overnight guest in the White House for four more years, but the Clinton-Gore fund-raising scandal was beginning to break, which Lerach knew. According to Jon Cuneo, Lerach had received a questionnaire from Charles Lewis, founder of the nonpartisan Center for Public Integrity, asking him—as Lewis did other large donors—about favors he may have received from the Clintons, including overnight stays at the White House.

  17

  MISTAKE BY THE LAKE

  He was tall, toothily handsome, self-assured at forty years of age, and an attorney to boot. So it was not difficult to understand why Pamela Davis latched on to J. J. Little upon meeting him at Salmon Dave’s, a surf-and-turf restaurant in Rocky River, a Lake Erie enclave about five miles west of Cleveland. It was, fittingly, April Fool’s Day 1996. As Bill Lerach was girding for his epic political battle two thousand miles away, Little made an initial foray toward forging a relationship with a good-looking woman. He would succeed, at least for a while, although the subsequent detonation of this pairing would generate a remarkable amount of collateral damage on two coasts.

  Little, who had been married to an actress and former Playboy model, had recently moved from Los Angeles, where he’d practiced entertainment law. He’d just joined the old-line law firm of Arter & Hadden and had, among his clients, Microsoft and boxing promoter Don King. Would he miss Los Angeles? Of course. He’d even appeared in a couple of “bullets, bombs, and babes” movies.

  Pam Davis possessed a résumé, and a past, of her own. She was thirty-seven, a pharmaceutical representative, and had served as party chairwoman of the Kidney Foundation of Ohio annual ball. Her picture had been in the newspaper. She was not eager to tell Little that she was on probation for charging more than $5,000 worth of women’s clothing to the American Express account of Cleveland Browns fullback Tommy Vardell. Prosecutors were able to prove that she had accessed the account through records kept by her husband, who was Vardell’s accountant.

  There was also a part of Little’s personal history that he was not anxious to disclose. He had a cocaine habit. Back in Los Angeles, he and his law partner James Tierney had represented Brian Wilson, the founder of the Beach Boys, helping Wilson win a $10 million settlement against his music publisher, only to be sued by Beach Boys lead singer Mike Love. The entertainment press had been all over the story, digging up Little’s misconduct. His mother’s illness had been a convenient excuse to bolt from California.

  Two months after their first encounter Little and Davis entered the U-Store-It facility in nearby Lakewood, Ohio, to retrieve a tennis ball machine. While there, Little began sorting through other contents. He came across two cardboard boxes that were unfamiliar and asked Davis to help him carry them outside to the parking lot so they could open them.

  “We found what appeared to be two very significant paintings,” he would tell police months later. To Davis, he quickly explained that they belonged to a friend for whom he’d been storing them back in California. In his hasty move he must have mistakenly included them among the articles he brought to Ohio.

  Two months later, on August 22, Rocky River Police Sergeant Carl Gulas and Detective Gus Carlson responded to a call on Beachwood Drive, a two-block street near Lake Erie. When the officers arrived, they found an obviously distressed woman identifying herself as Pamela Davis on her front porch. A male, in his forties, was leaning against an SUV in the driveway—J. J. Little. Davis claimed Little had manhandled her. Little, in turn, claimed Davis had attacked him after he tried to break off the relationship. The officers returned to the porch, repeated what Little had told them, and were greeted with a nearly incoherent, anguished reply. She was pregnant with Little’s child, she claimed, although she was married and living with her husband and five-year-old son. Then she dropped some bombs. “He’s a meth addict, a drunk, he’s assaulted me before,” she murmured. “He’s sitting on stolen art worth millions, in a secret location.”

  The cops weren’t sure what to make of that claim. “That comment was hidden between so many other allegations that she was throwing around, and that’s all she knew—that the paintings were at some unknown location in Cleveland or California,” Gulas would report. “It was like ‘Lady, you’re talking about a Cadillac in a cornfield somewhere.’” When pressed for more details, she changed the subject. The officers warned the pair and returned to their patrol car, agreeing that what they’d just witnessed had the makings of “a real mess.” They had no inkling of the enormity of that understatement.

  THE MORE BILL LERACH thought about the calamities that had befallen him in the previous year—the Supr
eme Court’s illogical and unexpected Central Bank decision, congressional passage of the PSLRA, and finally, the landslide defeat of Proposition 211—the more his indignation grew. We can’t pull back, we have to grow, Lerach thought to himself. We have to refocus, look for ways around the restrictions.

  Taken together, the “restrictions” eliminated the race to the courthouse, an exercise Milberg Weiss had perfected with its stable of plaintiffs. And now, under the federal rules, the court-certified plaintiffs would be those that suffered the greatest losses. We’ve got to find new partners, bigger, more powerful plaintiffs, he repeated to himself.

  Then, before he’d finished the thought, it hit him: big institutional investors, pension funds, labor unions, and public employees. They were a giant class of plaintiffs unto themselves. Looking at the problem, Lerach felt a metamorphosis. He’d have to become a great salesman before he could become a great lawyer again. First, they’d have to restore their good names. They would have to be associated with something other than “strike suits”—God, how he hated that term—or his epic battles with the high sector. They needed to generate some air cover. They needed a dose of positive public relations. Lerach picked up the phone and conferenced in Mel Weiss and David Bershad. He reminded the two partners of the bounce the firm had gotten for giving $100,000 to the Holocaust Museum just a few years earlier. Now the firm name was inscribed on the wall.

  “Mel, I’ve been to the museum,” he’d pitched to his partners back then. “You’ve been to the museum. Clinton wants you to be on the board. But how can we be a good Jewish law firm if we don’t have our firm name on the wall?” he had argued.