Judge Weill’s opinion last week in Eaton v. Frisby was a doozy. Listed below are some of the key findings, followed by my commentary.

p. 14: An overwhelming majority of the documents discussed herein are documents that were clearly subject to one or more discovery requests made by Frisby.

My Take:

Read here if you doubt that this finding is big trouble for Eaton. Eaton could lose the case because of this finding alone.

p. 14: In the May, 2012 affidavits of various Eaton Employees, Eaton contends that an outside law firm, Latham & Watkins, LLP, was hired in 2011 to review certain documents, and Eaton’s discovert omissions were discovered as a result. Instead, the documents reviewed reflect that Latham & Watkins was in fact hired by Eaton in 2008, and it remains ambiguous exactly when the documents disclosed by Eaton on April 17, 2012 were discovered.

My Take:

The Court is never going to believe anything Eaton says ever again. Eaton might defend itself by saying that it was playing word games in May and that while it had already hired Latham & Watkins, it was telling the truth when it said it just hired the particular lawyer mentioned in May.

In general, the defense of “I’m not dishonest; I’m sneaky” doesn’t fly very well. Here, it’s land locked.

p. 28: Eaton’s argument [that there was no harm] is akin to an assertion that a robber who broke into a home but walked away with nothing, or with something nominal such as a plastic pearl necklace, is not really a robber.

My Take:

That argument didn’t work for the Delta Tau Chi’s in Animal House. It doesn’t work here.

p. 29: many of the newly produced documents evidence ongoing cover up efforts by Eaton and its attorneys of the original fraud.

My Take:

One of the smartest lawyers I know always says that the cover-up is always worse than the crime.

p. 30: other documents contain additional evidence that Eaton explicitly and implicitly sanctioned and encouraged Peters’ ex parte contacts with Judge DeLaughter.

My Take:

Did I mention that the Miss. Supreme Court doesn’t like these kind of shenanigans?

p. 34–35: an email from Peters indicated that he had spoken with DeLaughter and knew how he would rule on the Plaintiffs’ Motion to Lift Discovery Stay.

My Take:

It’s ok Eaton. No one believed your “we didn’t know” argument anyway.

p. 39: this documents [handwritten notes] indicates Peters only relayed his improper ex parted communications with certain team members for Eaton. [the ones from Milwaukee and Eaton’s in-house lawyers].

My Take:

What? MS lawyers were so corrupt you couldn’t trust them to keep the secret about the improper communications with the judge? “You Mississippians are so unprofessional.”

p: 45: “It is doubtful, given Peters’ limited civil litigation experience, that he would be preparing an proposed findings on behalf of Eaton.”

My Take:

This is an important point. The notion that Peters had a major role in the case outside of his relationship with DeLaughter is preposterous to anyone who has worked on major civil litigation.

p. 51: “this e-mail represented one of the more egregious examples of Eaton’s discovery failures. The statement in the e-mail ‘and God knows what Ed’s involvement in all of this is’ is a direct acknowledgement of concern about Peters’ involvement in the litigation.”

My Take:

God, Langston, Balducci, etc…

p. 56: Schaalman states in and e-mail to Peters: “We need to discuss how either I can win this guy [special master Jack Dunbar] over or how we can convince the judge to appoint a different special master.” One month later Judge DeLaughter sua sponte removed Jack Dunbar as special master and appointed Larry Latham. [Latham quickly smelled a rat, resigned and reported the matter to the Court].

My Take:

In my opinion this is the worst one for Eaton.

p. 66: Eaton contends that Peters did legitimate legal work on its behalf, but it is rather dubious that renowned civil litigation attorneys would take wholesale brief-drafting advice from a career criminal prosecutor, such as Peters, unless Peters had inside knowledge as to what the judge requested for inclusion in the brief.

My Take:

Exactly.

p. 83: Eaton lawyer billed time reviewing order from Judge DeLaughter that was not entered until the next day.

My Take:

It’s possible that the lawyer here was one of those defense lawyers who is a month behind on his time sheets and got the date wrong when he went back and entered his time. A good lesson to defense lawyers on the importance of entering your time the same day as the work performed.

p. 83: Eaton in-house lawyer’s note: “Ed P. said DeLaughter’s opinions may not be respected by Yerger. He’s lazy…”..” MS seems so corrupt..Do we need to add someone to the team who knows Yerger?”

My Take:

This is so funny. Occasionally in life we are confronted with statements of such monumental hypocrisy, that we are left speechless. This is one of those instances.

p. 120: Peters had an unsigned copy of a DeLaughter opinion that could have only come from DeLaughter.

My Take:

Come on Ed. Didn’t you see Goodfellas and Casino? You’re supposed to at least make it hard for the good guys to make a case.

Final Take:

Every time something else happens in this case I say to myself that Eaton has to make it go away now. But they never do. And it just keeps getting worse.

Don’t think that it can’t get worse for Eaton here. It can. People on the Eaton side can start talking about who knew what.

From page 83 of Judge Weill’s September 19, 2012 opinion and order:

This document contains the January 15, 2008 handwritten notes of Sharon O’Flaherty, former Eaton senior litigation attorney of her telephone conference with Schaalman. The notes stated: “Ed P. said DeLaughter’s opinions may not be respected by Yerger. He’s lazy…” Additionally, the notes say “MS seems so corrupt…Do we need to add someone to the team who knows Yerger?”

We’re corrupt? “MS” is corrupt? And you know that because, how? As opposed to you being corrupt?

That will be the most prominent line in the movie about this case.

Eaton Corp. has found religion. As I discussed 2 weeks ago, Eaton got into more trouble with Hinds County Circuit Judge Jeff Weill in the Frisby litigation over not producing emails. The emails contained reports from Ed Peters—who had not appeared in the case—on his efforts to influence Judge Bobby DeLaughter to help Eaton.

Judge Weill ordered Eaton CEO Alexander Cutler and others to explain Eaton’s misdeeds. Here are excerpts from Cleveland Plain Dealer reporter Allison Grant’s article about Cutler’s explanation:

Details on how the emails surfaced are in a report by Latham & Watkins, a giant New York law firm that Eaton hired to help with Frisby litigation. The Latham report is attached to an affidavit from Eaton General Counsel Mark McGuire.

According to the report, James Brandt, managing partner of Latham’s New York office, met in February with lawyers at Eaton to hear a summary of a presentation they’d prepared for a special committee of Eaton’s board of directors about the Frisby litigation.

In reviewing documents assembled for the presentation, Brandt noticed an email thread from March 23, 2007. It contained exchanges that Brandt thought should have been submitted to the court in Hinds County, when it was investigating whether Peters tried to improperly influence DeLaughter.

Eaton then asked Latham to conduct an internal inquiry into why the email was not found earlier, whether any others should have been turned over and the reasons for the failure.

Latham’s report said the firm discovered no evidence of a deliberate attempt by Eaton to hide emails. But it did find “serious lapses” in producing records.

Latham describes how individual lawyers and legal assistants at Eaton reviewed emails saved on their computer for ones they thought should be submitted to a special master in Mississippi investigating whether there was judicial corruption.

Litigation counsel Sharon O’Flaherty said that she collected responsive emails, including her own, and provided them to her boss, Vic Leo, Eaton’s chief litigation attorney, the Latham report said. None of the files contained the two recently produced email exchanges, Latham said.

The company IT department also made forensic copies of computer hard drives of O’Flaherty, Leo and other lawyers. Two IT employees interviewed by Latham said it was the department’s practice to apply search terms — in this case “Peters,” “DeLaughter,” “Frisby” and several other words — to all files, including Word, Excel, PowerPoint, PDFs and emails.

But an IT employee said Leo told him in a phone call not to search emails because attorneys in the company’s law department already had reviewed their own mailboxes. The employee’s supervisor also recalled hearing that had been the directive.

Latham’s report said Leo denied instructing the IT team not to search emails. In his affidavit, Leo says that Eaton made a good faith effort to comply with all court orders and that any oversights were inadvertent.

O’Flaherty, in her affidavit, said she reviewed her email mailbox when she learned of the order to preserve documents because of the Peters-DeLaughter probe. O’Flaherty said she gave emails to Leo for review. She also said it was her understanding that the IT department had forensically searched her hard drive in 2008.

“I never did anything to withhold, alter, delete or hide any responsive documents and the ‘newly discovered’ emails are still on my computer, which I verified today,” O’Flaherty said in her statement, dated May 16.

Here is a link to Cutler’s affidavit. The affidavit states that Cutler personally met with Eaton’s outside lawyers John Sneed of Wise Carter in Jackson and James Brandt of Latham & Watkins in New York. Neither of these lawyers or their firms were involved when Eaton hired Ed Peters.

Just as significant to me is who apparently wasn’t at that meeting: Eaton’s Milwaukee law firm that hired Ed Peters and appeared to be calling a lot of the shots through much of the litigation.

It has long been my opinion that it was imperative for Eaton to cut out its in-house lawyer and the outside firm that hired Peters and completely turn things over to Wise Carter and other lawyers who did not have a dog in the hunt. It looks like they now have. And heads have rolled.

The Plain Dealer also reports that Eaton fired in-house lawyers Vic Leo and Sharon O’Flaherty last week:

Eaton Corp. has fired two top attorneys as the company faces on-going scrutiny from a Mississippi judge about how controversial emails in a trade-secrets case popped up years after they were supposed to be produced.

Eaton confirmed that Vic Leo, vice president and chief litigation counsel, and Sharon O’Flaherty, litigation counsel, have been let go.

Leo is the guy who told the IT department to not search for emails. Leo says he didn’t do anything wrong and his affidavit has the familiar “we didn’t do anything wrong” ring to it.

But it gets worse for Eaton. As NMC reports, the Justice Department dismissed all criminal charges against the former Eaton (and now Frisby) employees. Eaton alleged that the employees stole trade secrets and claimed $1 billion in damages in the Hinds County litigation.

To summarize where things now stand: the criminal case is dead and Eaton’s civil case is dead. The only thing that’s left are lawsuits against Eaton. This could end with Eaton writing a check—or multiple checks.

Eaton now appears to be saying and doing the right things—and listening to the right lawyers. Among other things, Eaton proposes as one of its sanctions that it sponsor courses at Ole Miss and UMC law schools on electronic discovery.

It was apparent in 2009 that this would end badly for Eaton. Of course Eaton lawyers knew what Peters was up to. As always, the cover-up is worse than the crime. It now looks like the Eaton lawyers who knew tried to cover it up. That appears to be what Judge Weill thought.

The big question now is does Cutler survive as CEO? In today’s world of lackey boards (Chesapeake for example), the answer is probably yes. But an independent Eaton board would launch an investigation of what Cutler knew and when he knew it, just to be safe.