MEMORANDUM

Author(s): Scott Mendeloff

Source: Litigation, Vol. 38, No. 2, Ripped from the Headlines (Winter 2012), pp. 23, 31-32
Published by: American Bar Association
Stable URL: https://www.jstor.org/stable/23239862
Accessed: 05-12-2019 02:45 UTC

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 corporate ex
get. Pressing
order of busi
Class action
fraud. As to

MEMORANDUM failure to disc

possibly Bass
TO: New Client Review Committee
drop/securitie
FROM: Scott Mendeloff
the fraud cla
RE: Bass Legal Representation
claim in the d
ments of the
Michael Bass has contacted us and asked us to represent him.
enterI requirem
know we are all familiar with the facts given the extensive
results that
newspaper coverage of this matter, and so I will not repeat them
believed and w
here. These are my initial thoughts about whether we should
a matter of la
take the case, and if so, our strategy. For all but th
what he knew
Economics for Accepting the Case (Assuring Payment) problems. Ba
Bass almost certainly will have to pay for the great bulk of the
his problems.
litigation expenses, with the possible exception of expenses
withre her con
nario
lated to the theft of trade secret counterclaim by his former em is the p
ployer, GyneTech, against both him and his current employer,
MedaStar. Given the broad-ranging civil, regulatory, and crimi
nal legal problems on the horizon for Bass, a predicate to reten
tion will be: (i) a major initial retainer; (ii) Bass's agreement in
One t
an engagement letter to replenish the retainer whenever it is
depleted to a certain level; and (iii) if Bass is indicted, a signifi
is tha
cantly larger retainer. Bass's problems occurred during his em
ployment with GyneTech, from which he cannot hope to receive suffic
financial help for a defense.

raise
Analysis of Claims and Associated Defenses
A variety of entities and individuals have myriad claims and po
tential claims against Bass. Bass is entwined in two classreceived
ac suf
tions: one by GyneTech shareholders focused upon the drop in
should have k
as,
the price of GyneTech stock; and a second by drug trial partici of course
pants for drug trial fraud, negligence, reckless endangerment,
viduals who
and products liability. Bass has sued GyneTech for breach ofPlainly,
his ther
employment agreement, and GyneTech has counterclaimed
who could po
against Bass and MedaStar for fraud, breach of fiduciary duty,
As to the late
breach of contract, and theft of trade secrets. Sylvie Bass likely
decision-maki
will sue for divorce. Dawn Pringle may sue as well. Further, at p
Beyond navigating the shifting sands of all these civil cluded
cases, Bass in
we encounter the pending criminal investigation, which the
adds case, this
another important layer of strategic complexity. GyneTech is
Bass's prior k
currently the target of a federal investigation into possible wit
more tenuou
ness intimidation, health care fraud, and securities fraud.against
The Bass.
DOJ also will be interested in the possible destruction of evi
edly drawn f
dence as well as the circumstances surrounding Diana Gray's
know would
demise. Because such investigations invariably extend to the (conti

VOL 38 | NO 2 | WINTER 2012 23

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been considered more wistful than effectual. Recently, however,
a few cases give it more brio than bluster as a basis for effective
case management.
As soon as the players in these cases are known and service
of process is accepted by or accomplished on most, if not all, the
Bass Legal Representation
parties, we can issue an order staying all discovery and motion
(continuedfrom page 2j)
practice until further order. We then can convene a pre
scheduling conference under Rule 1, not Rule 16, because the
case predicated upon Bass's inclusion in Gray's final email tha
purpose will be to produce not a mandated scheduling order, but
it would as the core of a case against him.
rather an omnibus case-management order. Indeed, several In this context, I view the philandering theory much more
scheduling orders will be in the offing, but discovery and mo a throw-in to smear Bass than a legitimate threat. First,
tion practice should be coordinated in all of them because there
questionable whether such an issue is sufficiently materia
is no sense in plowing the same field more than once. Dueoblige a corporation to disclose such matters as a matter of s
process notice of the items to be covered at the conference will
rities law; we will need to explore that. Second, even before
be given to all counsel in all cases, and we should also invite
disclosures in question, GyneTech's stock already demonstrat
them to suggest other matters to add to the agenda. substantial volatility, moving from $167/share on Monday m
At the conference, we first will need to consider whether one
ing to $216/share 24 hours later. It will be a tough sell to lin
or more of the cases will require class-action treatment and, ifnews of the philandering to the drop in the stock price.
so, what kinds of class actions are contemplated. The beauty Class action (by drug trial participants) for drug tria
contest then will commence to see who will end up as lead counfraud, negligence, reckless endangerment, and products
sel and liaison counsel and what accounting and record keepingbility. Bass will have several defenses to the drug trial cla
including: (i) Bass's state of mind; (ii) the nature, extent,
for possible attorney fees will be required. If, rather than or in
addition to two class actions, a number of separate plaintiff or
mass plaintiff cases are filed or planned, we should consider no
tifying the multidistrict litigation panel and request conditional I view the philandering
transfer orders.

Because of the strong possibility that some devious lawyers

might wish to file their cases in state court so as to avoid the
theory much more as a
mincing demands of federal practice, we will consider appoint throw-in to smear Bass
ment of a special master to handle discovery. If we follow that
course, we will notify the state courts that a coordinated discov
ery system is in place so that the state judges can consider ap than a legitimate threat.
pointingthe same special master for whom our litigants will pay.
The special master's duties might well include taking testimoobjective severity of the problems with the trial; (iii) the natu
nial depositions that will be available for use in various jurisdic and details of the information Gray had been pressing as
tions, using a unified exhibit numbering system, issuing generic went "up the chain of command" with her concerns over
interrogatories, and establishing a common data bank. This isdrug trial—e.g., was she including sufficient details to ra
an attractive offer for overburdened state-court judges. Once concern; and (iv) causation of damages. If we take the case, w
the lawyers get over the fact that this method is an innovation,will need to explore and develop each of these defenses.
past experience suggests they may even like it. Bass v. Bass. Another firm will handle defending this
Your primary responsibility will be the one I warned you stantively. If Bass did tell his wife anything damaging, the m
about when I selected you. At my age, lama Luddite. I don't owntal privilege will protect us—unless he did so with a third pa
a BlackBerry or iPhone or any other such gadget. You will be my present. Because that is unlikely, communications betw
lifeline to this age of electronic dither, and you will need tothem should not be a problem in court. However, this does n
translate all that garbled nattering into printed English prose. mean that Sylvie does not pose a practical threat to Bass.
(A glossary will help.) As always, our communications are could hurt Bass in a variety of ways by leaking information
strictly confidential. Otherwise, I would have no one to talk to, making public allegations. The fact that harming Bass fi
and you would be out of a job. ■ cially will correspondingly harm Sylvie's pocketbook whe
comes to splitting up marital assets does not mean that she w
John. L. Kane is U.S. senior district judge, Colorado. necessarily hold back. The pain she feels from Bass's now ver

VOL 38 | NO 2 I WINTER 2012 31

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public disloyalty could overcome rationality. So, I would advise As we explore these leads, a particularly critic
my client to do whatever he can to assuage his soon-to-be-ex to develop meaningful alliances. Of course, Gyn
wife. It would be extraordinarily short-sighted for him to be by far the best potential source for information
anything other than overwhelmingly contrite and very fair in velopment of defenses. However, as he has been
divorce settlement discussions. GyneTech on less than amicable terms and i
against the company, Bass's ability to access th
Counterclaims. Needless to say, we also will have to develop
mation poses one of the most vital challenges in
the facts and defenses relevant to Bass's claim against GyneTech
ofofBass. Bass has one huge advantage that mo
and GyneTech's counterclaims for breach of contract, breach
ecutives in his position do not: the fact that his
fiduciary duty, and theft of trade secrets. Bass tells us that there
MedaStar, is a minority stockholder in GyneTe
is no basis for any of these counterclaims; our fact investigation
and discovery in the lawsuit will flesh that out. value MedaStar clearly puts on Bass, he may be
his
Priority of issues and strategy. The most crucial priority by new position at MedaStar to exert influence
for
far is to get well ahead of the government and civil litigants in behind-the-scenes help.
Another significant potential obstacle to G
investigating all facts surrounding the various civil claims and
eration is Kauffman's hostile proxy battle with
the criminal investigation relating to the alleged undisclosed
control of GyneTech. If Kauffman wins, cruci
side-effects of GyneTech's cancer drug trials. If we take the case,
would be lost absent careful handling now. T
our first step should be to carefully debrief Bass. The key issues
sence in using the MedaStar connection to get a
here would be to discover: (i) all pertinent facts, paying particular
information
attention to the precise contours of his personal knowledge; (ii) from GyneTech as possible. The fir
the identity of any individual with knowledge of the facts be
whoto get access to GyneTech documents, espec
would provide what we hope would be truthful information in of
an Gray and Bass himself. Although Gray's comp
interview and/or who would help us work through other important
chal documents might still be preserved o
ers
lenges like obtaining information from others; (iii) the identity of or on the computers of her colleagues. A c
any individual with knowledge who has an ax to grind or ity
whowill be to try to arrange interviews of key Gyn
who might not be available if the proxy battle
way. An alternative would be to obtain this in
other defendants who are on better terms with
In any event, we should begin now to develo
proaching the rest of the board, who have thei
given that they did not include the potential FD
10-Q filing. We should try to find a way to use th
our best advantage.
Finally, another possible Bass ally is the Gyn
Counsel, Norhert Dwight. The board hung him
telling him to file the 10-Q without disclosing
they had regarding the drug trials. That is likely t
a subject of the DOJ and SEC investigations, an
the real risk of being added as a defendant in the
class action. So Dwight may be sympathetic to
should exploit if we take this engagement.
might, for whatever reason, provide information harmful to our If we can make the necessary financial arran
Bass, then developing information and developi
position; (iv) the best way to approach the company about coop
erating and working out a deal; and (v) the possible locationbe
of our primary considerations. ■
important documents that have not yet been scrubbed, including
any information Bass can provide regarding operation of Scott
the Mendeloff is a shareholder with Greenbe
Chicago.
company's IT system and the best people to approach who might
help us to get important information on the system. After that, of
This article was prepared for informational purposes only and
course, we will follow up on these leads, all the while maintain
is not intended to be considered or used as general legal advice.
ing careful files, building a chronology, and identifying and flesh
ing out the viability of the defenses outlined above. Please contact the author if you have any questions.

32 LITIGATION

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