Delaware defers (for now) to N.Y. in lurid white-collar fee dispute

The seal of the Court of Chancery for the State of Delaware is seen on a wall in the Sussex County Court of Chancery in Georgetown, Delaware, June 9, 2021. REUTERS/Andrew Kelly

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  • Cognizant has sued over ex-general counsel’s legal bills
  • Ex-GC says company trying to “weaponize” his choice of lawyers

(Reuters) – If you thought white-collar fee advancement litigation was a boring matter of contract interpretation, you’ll need to revise your thinking in light of a dispute between Steven Schwartz, a onetime general counsel now facing U.S. Justice Department and Securities and Exchange Commission accusations of violating the Foreign Corrupt Practices Act, and Schwartz’s former employer, Cognizant Technology Solutions Corp.

Cognizant has sued one of the law firms representing Schwartz for fraudulently inflating its bills by millions of dollars. But that’s not all. We’ve also got an anonymous whistleblower with tales of trumped-up trips to India and skimming from vendor bills. We have Cognizant investigators who were hired to approach Schwartz’s lawyers and their staff for secret interviews. We have an alleged turncoat from deep inside the defense camp. We even have allegations from Schwartz that Cognizant’s conduct in the fee fight has compromised his constitutional rights in the DOJ criminal case.

This, folks, is not your run-of-the-mill fee advancement case.

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And to add to its complexity, Cognizant and Schwartz are battling over where the dispute should be heard. Schwartz believes the case belongs in Delaware Chancery Court, which is the forum specified in his advancement and indemnification agreement with the company.

Cognizant, however, has sued Schwartz’s lawyers from Bohrer in federal court in Manhattan, alleging fraud and conspiracy to the tune of millions of dollars in inflated legal bills. (Among Cognizant’s claims: Bohrer, a four-lawyer firm, billed more than $23 million on Schwartz’s defense between January 2019 and April 2021 – nearly $4 million more than Schwartz’s lawyers at Paul, Weiss, Rifkind, Wharton & Garrison over the same time period.)

Last week, Delaware Vice Chancellor Lori Will denied Schwartz’s motion for an injunction barring Cognizant from proceeding with its New York suit against Bohrer. The Delaware judge acknowledged that Schwartz’s indemnification agreement with Cognizant includes a provision specifying Chancery Court for the resolution of disputes under the agreement, but Will said it’s up to the New York judge to enforce the provision. She also rejected Schwartz’s theory that by filing the New York lawsuit, Cognizant violated a previous Chancery Court order requiring the company to continue to advance fees to Bohrer.

Cognizant counsel from Quinn Emanuel Urquhart & Sullivan didn’t respond to my query, but, presumably, the next development will be a ruling from Ronnie Abrams, the New York judge, on whether the forum selection clause in Schwartz’s indemnification agreement covers Cognizant’s lawsuit against Bohrer. If she agrees with Schwartz, the case will go back to Will.

There are a couple of caveats to keep in mind. Schwartz said through a spokesman that he is innocent of the government’s “baseless charges.” He also said that he stands by the Bohrer firm, which he portrays as a casualty of Cognizant’s attack on him. (Schwartz provided his comment in response to my query to Bohrer about Cognizant’s allegations.)

“Bohrer is an essential part of my defense team,” Schwartz said. “Cognizant has repeatedly attempted to interfere with my defense, and this isn’t the first time it has tried to weaponize its contractual obligation to pay my legal fees. Cognizant’s lawsuit in New York against Bohrer is just the latest example that they are focused on preventing me from having a full and fair defense.”

Schwartz’s original lawsuit to force Cognizant to advance Bohrer’s fees was filed in Delaware Chancery Court in late 2019. By then, Schwartz had resigned from the company and had been charged by the DOJ and the SEC in connection with an alleged scheme to bribe Indian officials to obtain construction permits. Bohrer, hired by Schwartz in 2018, had billed the company more than $10 million through November 2019, almost twice the fees charged by all of Schwartz’s other lawyers from other firms, including Paul Weiss. Schwartz sued when Cognizant refused to pay about $3 million.

In the midst of that first advancement proceeding, before then-chancellor Andre Bouchard, Cognizant received an email from an anonymous whistleblower who claimed to be “a legal professional who has worked at Bohrer.” The whistleblower alleged, among other things, that Bohrer lawyers were taking expensive and unnecessary trips to India, the site of the allegedly illegal bribery scheme, and were skimming from bills sent by vendors.

“If you dig a bit,” the whistleblower allegedly said, “you will discover all the billing anomalies.”

Cognizant brought in investigators from Guidepost Solutions LLC, who approached lawyers and others with ties to Bohrer. According to Schwartz and Bohrer, Cognizant persuaded Bohrer’s lead investigator on Schwartz’s case to switch sides. The Bohrer investigator had been deeply enmeshed in Schwartz’s defense, they alleged, but began supplying information to Cognizant in 2020.

Cognizant’s investigation of the whistleblower allegations took place mostly under the surface of the fee advancement litigation before Bouchard, although Cognizant did allege “indicia of fraud” and “naked profiteering” at oral arguments. Bouchard ultimately ruled that Cognizant was obligated to advance all of Bohrer’s fees except for billings by contract lawyers. Any remaining dispute over the scope of Cognizant’s indemnity, under the Delaware ruling, could be hashed out in an indemnity case after the resolution of proceedings against Bohrer.

Cognizant responded by suing Bohrer in Manhattan, where, it asserted, the firm’s alleged fraud took place. Schwartz then filed a new lawsuit in Delaware, arguing that Cognizant’s New York case was merely an attempt to rehash allegations already reviewed by Bouchard in Delaware.

Schwartz also filed a motion in his criminal case in Newark, New Jersey, accusing Cognizant of perpetrating an “intrusion into the defense camp.” Cognizant has been cooperating with the government against Schwartz, the ex-GC said, so Schwartz said the company might have told prosecutors whatever it learned from its investigation of the Bohrer firm. Over protests from the DOJ, U.S. District Judge Kevin McNulty ruled in January that the government must produce anything it learned from Cognizant.

If you’re keeping count, that’s four judges in three courts already drawn into the fee dispute – and we haven’t gotten anywhere close to the merits of Cognizant’s specific fraud claims. I have a feeling this is going to get uglier before it’s over.

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Alison Frankel

Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.

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