Weaver and Sons Lawsuit: Your Company on the Line

Late on an October afternoon in 2007, a car headed east on Highway 84 in Clarke County crossed the center line and hit a tractor trailer rig head-on, killing the car’s driver, his brother and his brother’s wife. A subsequent lawsuit, Hosea O. Weaver & Sons v. Ira W. Balch, alleged that the car veered off a steep shoulder on the road and, in correcting itself, came back onto the highway and crossed into the wrong lane before smashing into the truck.

The $7.5 million suit claimed that a road contractor, Mobile-based Weaver and Sons, was liable because of work it had done on the highway where the wreck occurred. Weaver and Sons, in business since 1952, contended that five and a half years had passed since it had worked on the road; that it had done the work in accordance with state regulations and specifications, and that the state approved the work and had assumed maintenance of the highway.

The matter became what many law firms call a “bet-the-company” case — high-stakes litigation where the outcome can significantly impact a business’ finances or reputation or both. Others say that a bet-the-company case is one where, for whatever the reasons, both sides are prepared to litigate all the way to a jury decision and, if necessary, through the appeals process.

Whichever definition you pick, Weaver v. Balch is such a case. Both sides fought to the end, in late 2013, when the Alabama Supreme Court reversed an earlier ruling and cleared Weaver and Sons of any liability.

Ed Bowron, 55, an attorney with Burr & Forman in Mobile who represented Weaver and Sons, says the Clarke County accident was “horrendous” and one of the worst he’s been exposed to during his career. At the same time, Weaver and Sons had strong feelings that the company had done nothing wrong. What’s more, the company and Bowron had a cause in that they hoped a favorable ruling might provide guidelines for similar cases in the future for any company doing contract work with the state, including road contractors.

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“We could never bring back the three people killed in that wreck — they’re gone, ” Bowron says. “(Weaver and Sons) has enough insurance, enough money, where we could have reasonably settled, but it would still have been a lot of money. We asked if there was a reason to go through the difficult task of preparing this case for trial and the expense that was going to be involved to obtain a worthwhile result. And I think that’s really what we were dealing with: to obtain a worthwhile end result.”

Ligon: Looking for Justice

John McMahon, chairman of Birmingham-based Ligon Industries, recalls a case in which his company sued CNH America, a leading manufacturer of agricultural and industrial equipment and vehicles. Briefly, the case revolved around Ligon’s claims that one of its subsidiaries’ inventory was stuck with more than $3 million in parts that CNH America had ordered but then refused to buy.

McMahon says the case did not threaten the viability of Ligon Industries, but when CNH America failed to respond to Ligon’s requests to address the inventory matter, Ligon sued — a bet-the-company situation because both sides were willing to take the case to trial.

The Birmingham law firm of Maynard Cooper & Gale represented Ligon Industries, pursuing claims of breach of contract, fraudulent misrepresentation and fraudulent suppression. Among the evidence used during the trial was a CNH America PowerPoint presentation that strongly supported Ligon’s case, according to court documents.

Hearing the case on appeal, the Alabama Supreme Court ruled in Ligon Industries’ favor in 2013, awarding the company $3.8 million in compensatory damages and $7.6 million in punitive damages. Says McMahon, who has a law background: “When you’re seeking punitive damages, you’ve really got to be able to convince the jury that justice requires them to punish the other side. That sounds easy, but it isn’t. In reality, to get a punitive damages verdict, you have to be able to convince the jury that what the other side did was pretty egregious conduct.”

Michael Mulvaney, 48, was the lead attorney for Maynard Cooper & Gale on the case. According to McMahon, “There is nothing you would have wanted to change in Michael’s closing argument to the jury if you could have edited it and started over.”

Kiva Dunes: Golf and the IRS

Not all bet-the-company cases are heard before a civil jury, and not all of them involve death, injury or fraud. But the stakes can still be enormous, even if the issue at hand involves something as genteel as, say, golf. That’s what transpired in a tax case between the Kiva Dunes golf course, on Alabama’s Fort Morgan peninsula, and the Internal Revenue Service.

The owner of the golf course, the late Larry Drummond of Jasper, set aside portions of it as conservation easements at the direction of tax attorneys with Birmingham’s Sirote & Permutt law firm. The expectation was that the conservation easements would result in a large, one-time tax deduction of roughly $30 million. That, in turn, would free up around $15 million in cash that could be sunk back into the struggling golf course, which was losing money. By creating the easements, Drummond gave up any right for the golf course property to be developed as anything else. The easements are in effect in perpetuity. Forever.

But the IRS disallowed the deduction. According to David Wooldridge, 64, one of the Sirote & Permutt attorneys in the case, “You had Congress over here saying that they like conservation easements, they think they’re a good thing, and they still do. You had the IRS over here saying they don’t like these (deductions for easements) and we especially don’t think you can do it on a golf course. They were wondering how you can have a relatively natural plant and wildlife habitat on something as manicured as a golf course. It just didn’t make sense to them, and they were going to use this case to set a precedent.”

According to Wooldridge, the IRS didn’t care how much time and money the case required. Drummond, on the other hand, felt he had taken the proper steps to keep his golf course and protect it from future development. And Drummond, a member of one of Alabama’s wealthiest families, had the wherewithal to challenge the government. It was game on.

Wooldridge says Sirote & Permutt put around 3, 000 hours into the case, which lasted from 2006-2009. The firm successfully showed the tax court that conservation easements were legal. They also successfully argued that, without the easements, the property in question had a “highest and best use value” of more than $30 million, because it could have been developed later. But with the easements in place, the property was worth only about $1 million, since future development would no longer be an option. The difference between those two figures was the amount of the tax deduction. Drummond won.

“So, if the property has a value of $30 million, why would you put restrictions on it that brings the value back down to $1 million?” Wooldridge asks. “The answer is: That’s what rich people do. Wealthy people, most of them, once they get enough, whatever enough is, once they get enough for the kids, they start thinking charitable, most of them. You see them giving cash away all the time, and nobody ever says a thing. But when it comes to real estate (conservation easements), for some reason or another, it just doesn’t click.”

“Larry loved that course, and it was a place he wanted to maintain, ” says Ronald Levitt, 56, one of Sirote & Permutt’s attorneys on the case. “He got to keep his golf course, which he loved, and he wanted to preserve the land, and he was able to do both. There are times in life where a person’s vocation and avocation intersect, and this was just one of those times.”

Jefferson County: Bankruptcy is always betting the company

Cary Norton

Every bankruptcy case is a “bet-the-company” case says bankruptcy attorney Patrick Darby, of Bradley Arant, whose clients have included Jefferson County, the biggest successful bankruptcy case to date.

Photo by Cary Norton

Patrick Darby, 49, a bankruptcy attorney in the Birmingham office of Bradley Arant Boult Cummings, points out that Chapter 11 bankruptcy cases are all “bet-the-company” situations.

“Every single Chapter 11 case, by definition, is a bet-the-company case, ” he says. “When you put a company into Chapter 11, the very existence of the company is in play every single time. It’s not litigation in the classic Perry Mason style, where you have a trial with a jury and a judge, but you are in a federal court litigating with various parties quite specifically and explicitly over the existence of the company that’s in Chapter 11.”

Darby was heavily involved in Jefferson County’s successful Chapter 9 bankruptcy case, valued at $4.2 billion and the largest successful case of its kind in American history. In fact, “There was no individual lawyer who was more involved than I was, ” he says.

For almost six years, Darby dealt with a seemingly endless and complicated array of the county’s affairs. As perspective, consider that the county’s sewer system has annual revenues of roughly $150 million. “If you’re talking about a business with revenues of $150 million, that’s a big business, ” Darby notes. “But the sewer system was just one part of the county’s operations.”

Jefferson County, he says, came “perilously close” to not being able to provide basic services. “Had the county failed and been unable to deliver those essential services, the effect on the county’s economy, businesses and citizens would have been devastating, ” he says. “Most people just don’t realize how serious that situation was.”

Jefferson County, in effect, came out of bankruptcy in December of last year. In hindsight, Darby calls the bankruptcy case “a pretty massive undertaking” that he was happy to be part of.

“For bankruptcy lawyers, the only thing worse than having the case would be not having the case, ” he says. “As a bankruptcy lawyer, you want to do the highest and best work you can find, and this was the most significant, most challenging case around, so I wanted to be part of it. Professionally, it would have been a disappointment to me had I not been.”

That sentiment is echoed by Burr & Forman’s Bowron. “You know you’re going to have to go up against good lawyers in a case that goes to trial, ” he says. “But there is nothing more fun from a lawyer’s standpoint than trying a big lawsuit against other good lawyers.”

Where to Start…if your firm faces a bet-the-company lawsuit

An attorney with Hand Arendall in Mobile and chairman of the firm’s litigation section, 64-year-old Caine O’Rear III has been around the block more than once. So has Tommy Wells, also 64, a founding partner with Maynard Cooper & Gale in Birmingham and a past president of the American Bar Association.

Both would tell you to look for an experienced law firm to handle so-called bet-the-company cases, and both would advise that the law firm should assemble the best team possible as soon as possible to prepare for the case. Here are a few — but not all — of their additional tips:

  • Consider having one lawyer to manage the case and another to try it in the courtroom. A lead counsel might be able to do both, but a second lawyer can be beneficial.
  • Consider using a second attorney for settlement negotiations, so the lead counsel can focus on trial preparation. Says Wells, “When you’re expected to do both, you really do feel like Janus — you’re looking in two directions at the same time. You’re trying to settle but you’re also getting ready for trial, and getting ready for trial is a whole different mindset from settlement.”
  • Know that a case like this will cost time and money, and act accordingly. Be sure top management is committed to the cause. “This is not a time for management to delegate and ignore, ” O’Rear says.
  • Consider mock trials and focus groups to see how your case might resonate with jurors.
  • Arrange to get the best experts in the field as witnesses; in forming the legal team, choose the right people for gathering the right information for the case.
  • Immediately begin document retention and review, including e-mails. “This can be a major headache and an enormous expense, but it is absolutely necessary in today’s electronic world, ” O’Rear says. “These cases can be won or lost on the back of one or two e-mails that never saw the light of day until some lawyer found them. Good and bad e-mails, even at the lowest levels of the company, are powerful tools that can, unfortunately, sway the outcome of a case. Make sure these e-mails are found and discussed at the earliest stages of the case.”

Charlie Ingram is a freelance writer for Business Alabama. He lives in Birmingham.

Text by Charlie Ingram

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