CORPORATE CRIME REPORTER
Advice to Delay From Scrushy Lawyer: Chin Up
19
Corporate Crime Reporter 39(1), October 4, 2005
One of the lead criminal defense lawyers for Richard Scrushy has some advice
for Tom DeLay: chin up.
“Based on the evidence that I’ve seen, Tom DeLay has an excellent
chance at total vindication,” Atlanta criminal defense attorney Art Leach
told Corporate Crime Reporter.
When asked whether he had any advice for DeLay, Leach said – “be
persistent and hang tough to your convictions – truth will prevail.”
Leach was one of a handful of lawyers who successfully defended at trial the
founder and former CEO of HealthSouth.
And if Congressman Tom DeLay (R-Texas) is losing hope because he perceives the
odds are stacked against him after being criminally charged in Texas, he need
only take a peek at what Richard Scrushy faced in Alabama – and then marvel
at the way Scrushy’s lawyers got him off the hook.
Against all odds, after 16 weeks of trial and four weeks of deliberations, a
jury in Birmingham, Alabama found Scrushy not guilty on 36 criminal counts.
That was June 28, 2005.
The press was disbelieving.
The Washington Post called the verdict “a miracle.”
“God works in mysterious ways, but his or her decision to acquit Richard
Scrushy, former CEO of HealthSouth Corp., on all charges of financial fraud
is especially inscrutable,” the Post editorialized. “Five
consecutive HealthSouth CFOs admitted to cooking the books and copped a plea.
They all fingered Scrushy. But jurors chose to believe that the man on top knew
nothing about what was going on directly below him. . .only one word can describe
Scrushy’s acquittal. It is a miracle.”
The New York Times put it this way:
“If ever a chief executive seemed destined for prison, it was Richard
Scrushy. Mr. Scrushy has always maintained his innocence. But at his trial,
no one disputed that there was a staggering $2.7 billion accounting fraud at
HealthSouth, the company he founded in 1984. Federal prosecutors lined up former
executives, including five former chief financial officers, to testify that
Mr. Scrushy had orchestrated the wrongdoing. In court, they played a secret
tape-recording that seemed to incriminate him. Jurors who heard from dozens
of witnesses but never the man himself agreed with Mr. Scrushy – to the
surprise of many lawyers watching the case. ‘It’s a stunner, given
how strong the government’s case seemed to be,’ said Gregory J.
Wallace, a former prosecutor.”
Art Leach was not stunned.
Neither was Jim Jenkins.
Jenkins is a partner at the law firm of Maloy and Jenkins – a white collar
criminal defense firm based in Atlanta.
Jenkins ran the back room operation of the Scrushy defense.
While Leach and the other lawyers were in the courtroom, Jenkins was back in
Atlanta, reading the daily transcripts – eventually he read the entire
transcript of the trial, more than 20,000 pages in all – and preparing
the legal challenges.
He knew he had a Judge he could work with.
And he knew she was reading his pleadings.
For the first time, and in great detail, Jenkins last month laid out the inner
workings of the Scrushy defense at a white collar crime conference held at Georgetown
Law School in Washington, D.C.
The conference was sponsored by the National Association of Criminal Defense
Lawyers.
Jenkins’ luncheon talk drew a big crowd – and judging by the reaction
of the defense attorneys in the room – was the most popular event at the
two-day conference featuring heavyweights from big Washington and New York corporate
law firms.
Nuts and Bolts
Jenkins gave the following background to the case:
Richard Scrushy was the only individual to go to trial in the HealthSouth case.
HealthSouth Corporation has not been charged with any crime.
The indictment charged Scrushy with 58 criminal counts.
As of March 2003, when the FBI executed search warrants at HealthSouth’s
corporate headquarters and HealthSouth’s stock was de-listed, there was
little doubt that a massive fraud had occurred at HealthSouth.
Government officials put the fraud at $2.7 billion.
It was equally clear after the deluge of guilty pleas by corporate officers
within weeks, that the fraud had been carried out at the highest corporate levels.
The only real question was whether or not Richard Scrushy was involved in the
fraud.
By the time trial started in January, 2005, 15 HealthSouth employees had entered
guilty pleas.
Six of these individuals testified at trial against Richard Scrushy, including
five former HealthSouth CFOs and one long-term controller.
Eight other HealthSouth employees who had not been charged with any crime also
testified, including a former Treasurer by the name of Leif Murphy, who testified
that he met with Richard Scrushy in 1999 and provided him with a notebook which
laid out the scope of the on-going fraud at HealthSouth and how it was being
carried out.
According to Murphy, Richard Scrushy threw a temper tantrum and shortly thereafter
Murphy left HealthSouth.
The government had two days of taped conversations with Richard Scrushy which
then-CFO William Owens collected at the behest of the FBI immediately after
Owens began cooperating.
The taping ended hours before the FBI raided HealthSouth corporate headquarters
on March 18, 2003.
During the trial the defense consisted of 19 witnesses.
Richard Scrushy did not testify in his own defense.
Two defense experts were called regarding accounting and money laundering issues.
The remaining witnesses, with one exception, did not shed any substantial light
on the singular question of Richard Scrushy’s knowledge or lack of knowledge
of the seven-year fraud.
For some reason, this evidence eventually resulted in directed verdicts on eight
counts of the indictment, the government dismissing two counts at trial, and
a jury acquittal on the remaining 36 counts.
Back Room Operation
Jenkins told the gathering that he was not one of the lawyers in the courtroom
at trial.
“I never entered an appearance – never set foot in the courtroom
in Birmingham,” Jenkins said. “In fact, the only time I ventured
into Alabama was for a one-day meeting three months prior to trial.”
He says that he organized and ran a somewhat unconventional back-room operation
out of his law office in Atlanta that assisted the legal branch of the courtroom
defense throughout this case.
Why the not guilty verdict?
Jenkins answered this way:
It was not a product of home-cooking for a favorite son.
Notwithstanding the breadth of Richard Scrushy’s financial generosity
to the Birmingham community, a review of the mainstream local press and opinion
measurements demonstrate that Richard Scrushy was not a much-loved local hero.
The number of people who lost money in HealthSouth stock and blamed Richard
Scrushy personally was, and is, substantial. Polling results at the time of
trial could very well have demonstrated a negative rating not much different
from Eric Rudolph, the Olympic park bomber who was awaiting trial in Birmingham
at the same time.
The verdict was not a product of an unsophisticated jury swayed by a religious
and racially-based public relations campaign.
The post-trial jury interviews by the press in the courtroom, which were transcribed
and are available, make a convincing rebuttal of this widely held theory.
The verdict was not a result of the defense’s “playing the race
card.” The group jury interview rebuts this. The jury that acquitted on
all counts had a racial makeup of seven African-Americans and five whites.
Moreover, additional juror interviews by the press and some informed nose-counting
among the jury support the conclusion that the foreperson of the jury, who was
white, was an early supporter of the defense verdict and that one of the two
hold-outs for conviction was an African-American.
The verdict was not a product of a trial Judge who was biased for the defendant
or against the government.
No, it wasn’t any of those reasons.
What’s the reason?
According to Jenkins, the jury got it right based on the case that was presented
to them inside the courtroom.
The government simply did not prove their case because that case began and ended
with the uncorroborated testimony of co-operating guilty-pleading HealthSouth
executives who were of questionable character and possessed overwhelming motivation
to assist the government in bagging the top guy, and the government was unable
to corroborate their testimony with a single document.
Verdict
not the product of a biased
Judge
“If I can communicate only one fact to you all today,” Jenkins told
the defense lawyers, “it would be that this verdict was not the product
of a biased Judge.”
Jenkins continued:
The trial Judge was Karon Bowdre.
She had been a federal Judge for four years.
She was appointed by President Bush.
Prior to her appointment, she was a law professor at Cumberland School of law.
This was her first major criminal trial.
“While I was not in the courtroom and therefore was not advantaged by
observing body language and facial expressions, I am probably the only person
who has read every word of the close to 20,000 pages of transcript in this case,”
Jenkins said.
From that, he made the following observation:
Judge Bowdre demonstrated a better working knowledge of the federal rules of
evidence than any other Judge I have appeared before or read a transcript of
in 30 years of work in federal court.
Judge Bowdre was curious about the nuances of case law and the applicable rules
and open-minded enough to know that she did not already know it all.
What she did not know, she took the time to find out.
She took the time to read and understand the parties’ briefs and arguments.
Judge Bowdre wanted to get this trial done right and do it only once.
She demonstrated an uncanny sense of fundamental fairness and an ability to
discern when she was being led astray by either side.
Judge Bowdre did not believe that a speedy trial or verdict was more important
than a fair trial that reached an accurate verdict.
Judge Bowdre was far more than patient with the advocates of both sides while
they made their first, second, and third arguments on any particular objection
or point of law.
She, like all Judges, had her limits of patience and meted out appropriate sanctions
when clearly defined lines were crossed.
Judge Bowdre understood the personal sacrifices of a jury in a 20-week trial.
She showed her consideration in many thoughtful ways, and by doing this avoided
a hung jury.
“This is my personal opinion,” Jenkins said. “I realize that
there are some who disagree with it. I submit that those who blame this verdict
on the trial Judge are seeking a simple answer to a complex question, and in
doing so are doing a disservice to bright, fair, and unusually hard-working
Judge while at the same time ignoring some important and interesting lessons
that this unusual case can offer to advocates in complex white collar prosecutions.”
A tale of two trials
Jenkins says that the defense of Richard Scrushy was really “a tale of
two trials.”
Jenkins put it this way:
There was the trial that the media covered and that apparently ultimately won
over the jury on a gut level.
That was the defense presented by lawyers Jim Parkman and orchestrated by Donald
Watkins.
The second trial was the trial which focused on the legal issues and provided
a legal framework for the Parkman-Watkins operation.
On a big picture basis, this schizophrenic defense had the very powerful effect
of forcing the government to fight on two very different fronts at the same
time.
On the one hand, the government had to deal with a shifting, unconventional
attack on their case that was not what usually shows up in federal court, let
alone in a trial of this size and profile.
At the same time, the government had to face an aggressive legal attack by what
appeared to be a lone lawyer – Art Leach – who objected –
usually successfully – to what seemed like two out of every three questions
the government asked – and that was only on direct.
At the same time, Art Leach attacked the government’s case at its very
foundations, leading to lengthy hearings out of the jury’s presence, making
it very difficult for the government to gain any traction or momentum in the
courtroom.
Jenkins said that while the Parkman-Watkins branch of the Richard Scrushy defense
may have appeared to have been unconventional, it succeeded because it adhered
to the very simple and fundamental rules of Trial Practice 101.
Jenkins said there was a very straightforward, easy to grasp theory of the case:
Yes, there was a gigantic fraud at HealthSouth.
But it was carried out by a rogue group called “the family” under
the leadership of top corporate officers who completely hid it from Richard
Scrushy.
This theory was communicated and repeatedly reinforced through a number of complimentary
themes:
* Out of the millions of documents and e-mails in the government’s possession,
not a single piece of paper established Richard Scrushy’s knowledge of
the fraud.
* The five CFOs who led the conspiracy were really and truly neither honest
nor admirable human beings, most especially the omnipresent lead conspirator
Bill Owens, who somehow neglected to file tax returns for nine years and conveniently
transferred most of his assets just before coming in to help the government.
* These men, and the family of accountants that booked the fraud every quarter,
successfully fooled the board of directors, internal auditors, regulators, and
Wall Street analysts for nearly seven years.
* Richard Scrushy started HealthSouth from nothing and built it into a Fortune
500 company virtually single-handedly, so why would he want to destroy his life’s
work?
* Richard Scrushy was worth over $175 million before the fraud began in 1996,
so why would he need to steal to get more money?
The defense played up a dominant emotion: betrayal
The five CFOs and the family betrayed the stockholders of HealthSouth,
and the board of directors, and the regulators, and the analysts.
Most of all they betrayed the man who made it all possible, the founding father
of HealthSouth, Richard Scrushy.
What Jim Parkman and the rest of the defense did was straight out of Trial Practice
101: they identified and communicated a theory of innocence that did not contradict
the facts and that appealed to the jury on an emotional, if not entirely cerebral,
level.
Most importantly, throughout the trial, the defense communicated this theory
of the case:
Simply.
Clearly.
Consistently.
Repeatedly.
The type of litigation is as complex as it gets.
But when we fail to remember that our first goal is to overcome those complexities
and paint a clear and acceptable picture for the jury by failing to remember
the basic tenets of trial work, we lose contact with the only audience that
matters in every criminal case: the jury.
That’s what the defense did right in this case.
And that’s where I believe the government missed the boat.
Sometimes It’s Better to Look Good than Be Good
Jenkins said that throughout the four weeks of jury deliberations, Art Leach
recognized the importance and the rightness of maintaining your integrity with
the court.
He did this at all times and regardless of the cost.
He always tried to tell the truth, even when it hurt in the short run to do
so.
Jenkins went on:
A corollary component of this is in the defense’s paperwork.
We made every effort to accurately represent the legal principles in our arguments,
and especially in our representation of the holding in every case.
And, since our Judge was most recently a law professor, we worshiped at the
shrine of the 17th edition of the Bluebook (Uniform System of Legal Citation).
As one of my role models says, “sometimes it’s better to look good
than to be good.”
But the lesson is that accurate case parentheticals and arguments build trust
and credibility.
Inaccurate cites or parenteticals undercut everything a party does or days before
that Judge.
A second corollary is listening to what the trial Judge wants and trying to
meet those expectations while zealously advocating your client’s case.
It is surprising how many high-powered, experienced, high-quality trial lawyers
miss this stop – even, maybe even especially, in the biggest cases.
Art Leach: Objection, Your Honor
One lesson that this case offers is that, in the right circumstances, and when
executed strategically and with discipline, basic evidentiary objections can
be a surprisingly potent weapon.
One hundred percent of the credit for this tactic goes to Art Leach.
In reading the transcript of this trial day in and day out, I never ceased to
marvel at the number, aggressiveness, and efficacy of his objections.
Over the course of the next 16 trial weeks, Art Leach made more objections than
any lawyer I have ever seen.
I’m not talking about quite a few objections.
I’m talking about a whole helluva lot of objections.
Perhaps his most effective, and confounding objection was to leading questions.
I don’t believe that Art let a single leading question go by without an
objection.
First, this flies in the face of conventional wisdom to avoid objecting if possible
so as not to make the jury think you are hiding something.
But if the objections are well-taken, and the vast majority are sustained, not
only does the jury become desensitized to the process, it eventually adopts
a belief that this is, in fact, the way things should be done.
The second necessary ingredient is opposing counsel that have apparently rarely
had their feet held to the fire and learned how to ask non-leading questions
when put to the test.
Once it becomes clear what the rules of engagement are on this issue, it is
crucial to comply rather than try to subvert.
Wayward
Prosecutor
Jenkins said that one of the prosecutors in this case repeatedly ran afoul of
the Judge on the issue of asking leading questions.
Jenkins did not reveal the name of the prosecutor, although he did say it was
not U.S. Attorney Alice Martin.
Jenkins related this story:
After day after day of sustaining objections to leading questions by this particular
prosecutor, Judge Bowdre, one of the most patient Judges I have read 20,000
pages of transcript of, lost her patience, and the following colloquy ensued
at the bench:
Q: And do you know if the government has agreed to, under certain conditions,
make a motion for downward departure?
Mr. Leach: Your Honor, every one of these questions suggest the answer. He's
leading. We object.
The Court: Sustained. May I see counsel again?
The Court: Mr. ------, where did you did to law school?
Mr. ------ : Georgetown, Your Honor.
The Court: Did they teach you how to ask questions in law school without leading?
Mr. ------: They did, Your Honor.
The Court: Okay. Did anybody ever teach you not to talk while somebody else
is talking?
Mr. ------: My mother, Your Honor.
The Court: I would like to let your mother know what a poor job you're doing
in that regard. And I want to let your law school know what a poor job you're
doing in trying to ask questions that are not leading. I don't even think you're
trying not to ask leading questions.
Mr. ------: I will try, Your Honor. Thank you.
Government
botches examination of Goodreau
Jenkins said one witness at trial proved critical in the final equation of guilt-innocence.
The witness was Jim Goodreau, the former head of HealthSouth’s security
department.
Jenkins filled in the details:
The security department was, shall we say, somewhat robust – they are
the folks that purchased the weapons with the sniper scopes.
There were also allegations of surveillance and other hanky-panky by the security
department that the government was salivating to put before the jury.
So Jim Goodreau was a potentially dicey witness to call for the defense.
On the other hand, he had knowledge of a conversation which was the single most
potent affirmative evidence in support of the fact that Richard Scrushy did
not know about the fraud, and that William Owens had led a conspiracy to hide
the fraud from Richard Scrushy.
The conversation occurred between Owens and Goodreau during the period a few
months before the fraud came unraveled.
At that time, Owens was the CEO, and Richard Scrushy was Chairman of the Board
and living in Florida as part of a planned leadership transition.
Here’s how the testimony came in on direct:
Q. Can you tell the jury what your relationship was with Bill Owens as of August
2002?
A. He was the CEO.
Q. And what was your personal relationship with him?
A. I was in somewhat of a transition period between Mr. Scrushy and Mr. Owens
and trying to determine, you know, kind of where I was going to wind up in the
mix.
Q. Did you consider Mr. Owens to be your friend?
A. I certainly did.
Q. Did you have discussions that evening with Mr. Owens about HealthSouth?
A. I did.
Q. And what was discussed in that part of the conversation?
A. Mr. Owens told me that there was some accounting problems at HealthSouth.
And I said, well, how bad is it? And he said, well, it's not another Enron,
but the number is significant.
Q. Significant?
A. Significant. And I said, does Richard know? And he said, no. I said, well,
you need to tell him, Bill. And he said, I will.
Q. When you said does Richard know, who were you referring to?
A. Mr. Scrushy.
Jenkins said that “fortune shined on the defense when, early on in his
cross-examination, the prosecutor made one of those mistakes that happen in
the heat of battle, but reverberate long after the moment they occurred.”
Jenkins emphasized again that the prosecutor who made the mistake was not U.S.
Attorney Alice Martin.
He did not name the prosecutor, but said – “you might guess that
he was the same guy who had trouble with the leading questions.”
Jenkins said that on a couple occasions prior to this, Judge Bowdre made it
plain that the words “Enron” or “Worldcom” should not,
under any circumstances, be uttered by any lawyer in the presence of the jury.
Unfortunately, the cross-examination of Jim Goodreau very early on stumbled
over that critical trip-wire:
Q. Now, Mr. Goodreau, you know what Enron is, don't you?
A. I don't know what Enron is. I know that Enron is a company that had a bunch
of problems.
Q. Yeah. A bunch of really big accounting problems, correct, sir?
A. Yes, sir.
Q. And the company collapsed, correct?
A. Yes, sir.
Q. And millions of people lost money, correct, sir?
Mr. Leach: Objection, Your Honor. That's irrelevant.
The Court: Sustained.
Q. A lot of people lost their jobs; isn't that right, sir?
Mr. Leach: Object to the whole line, Judge.
The Court: Sustained.
Q. Mr. Goodreau, people went to jail at Enron, correct?
Mr. Leach: Judge --
The Court: Mr. --------
Mr. Leach: Ask to approach, Your Honor?
The Court: Yes. Ladies and gentlemen, would you excuse us a minute, please?
Jenkins said that the ensuing sidebar was not a pretty sight for the government.
Jenkins went on:
After much back-and-forth in which the “custody” word was uttered
several times, along with a serious discussion of banishing the offending lawyer
from the rest of the case, the government suggested a compromise: as a sanction,
the cross-examination of Jim Goodreau would be terminated at that point and
the jury advised of the reason for the sanction.
Aside from the loss of face before the jury, the real windfall for the defense
was the incredibly valuable nugget of testimony regarding the Owens statement
that Richard Scrushy did not know about the fraud, which resonated in front
of the jury untested by cross-examination or impeachment of any kind.
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