Wednesday, January 5, 2011

"A Business Lawsuit Should Always Be Strictly Business."

By Thomas Petzenger Jr., The Wall Street Journal, January 16, 1998,

Ron Libengood
Mishal al-Sabah
Marvin Bush
Wirt Walker III
U.S. District Judge Dickinson Debevoise

The Wall Street Journal
The Front Lines by Thomas Petzinger Jr.
Friday, January 16, 1998

A Business Lawsuit Should Always Be Strictly About Business,

There's a right way and a wrong way to wage a commercial lawsuit. Consider the case of Ron Libengood and his battle against some politically connected tycoons.

An electrical engineer, Mr. Libengood spent several years in a Westinghouse division that installed security systems for office buildings. Westinghouse quit the business in 1979, laid him off, then rehired him as a consultant. He called his firm SecuraComm.

Remember that name.

Mr. Libengood brought old-fashioned values to a high-tech field. He wrote a code of ethics committing his to reasonable fees. To vanquish any doubts about his impartiality, he refused commissions on any of the security hardware he recommended to his security clients.

His standing proved of value in 1992, when Westinghouse returned to the security industry and terminated his consulting contract. To replenish his lost business, he formed alliances with security firms around the U.S., 15 in all combining whatever specialties were necessary to qualify his small firm for major projects -- airports, libraries and the like.

Increasingly, though, Mr. Libengood was bumping into an altogether different company in a related line of work. It called itself Securacom – one "m" and no capital "c" but otherwise similar enough to confuse potential customers. Bid packages went to the wrong address, phone calls to the wrong number. And because the other Securacom was a commercial vendor of security systems, Mr. Libengood feared the confusion could tarnish his reputation for independence.

The Other Securacom, it turned out, was a younger company, but no trifle. Its owners included Mishal al-Sabah, a member of the Kuwaiti royal family, and Marvin Bush, a son of the president best known for rescuing Kuwait from Saddam Hussein. Both investors were friends of a Washington D.C. venture capitalist named Wirt Walker III, who is Securacom's chairman (and who last year took the company public.)

Mr. Libengood spent two years trying to get the other Securacom either to abandon its name or buy his. Ultimately he asked for $275,000, a sum based on an appraiser's estimate of the name’s value plus the cost of establishing a new one.

Down in Washington, this convinced a seething Mr. Walker that Mr. Libengood was digging for gold from the Kuwaiti-backed firm. "He thought there were deep pockets here, which there are," Mr. Walker later put it to me. "We get this stuff all the time. I mean all the time."

So, Mr. Walker phoned Mr. Libengood in Pittsburgh. "What is your problem?" he demanded, with an epithet thrown in. Mr. Libengood said he wanted to settle the affair amicably but if necessary he would sue to protect the name. Mr. Walker answered, "I have more money than you’ll ever have. If you proceed with this case I'll see that you are financially buried, and we will take everything you ever had." (This account is verified in a judge’s opinion in the case.)

Indeed, when Mr. Libengood sued, the other Securacom answered with a fusillade of counterclaims, even charging Mr. Libengood's lawyers with racketeering and extortion. While giving a deposition, Mr. Walker pointed to Mr. Libengood and snarled, "We are not through with you." Turning to Mr. Libengood's lawyers he added, "We are not going to pay one penny to you, OK? Period. And hopefully at the end of the day, you guys won’t be practicing law anymore."

Mr. Walker amplified on his views when I first spoke with him last spring: "In the American legal system, which is an absolutely disgusting system, anybody can get a … lawyer on a contingency basis and file a suit."

I think Mr. Walker was right about one thing: Contingency-fee arrangements are suspect in commercial disputes. A business lawsuit should be an attempt to get whole, not an attempt to get rich.

But Mr. Walker had the story wrong. Instead of using contingency-fee lawyers, Mr. Libengood was paying by the hour for qualified counsel – ultimately an army of five firms, owing to all the claims and jurisdictions the other Securacom was stirring up. By the time I caught up with him last spring, legal fees were consuming the entire income of Mr. Libengood's company. So last summer, wary of his adversary and exhausted with pretrial proceedings, Mr. Libengood offered to give up his trade name and quit the case for $150,000. It was a perfectly rational business decision.

Mr. Walker, however, wouldn't have it and sent the case to trial. This would prove a decidedly less rational business decision.

A few weeks ago, U.S. District Judge Dickinson Debevoise handed down a 47-page judgement. Mr. Walker's Securacom, he found, had not only "appropriated" the trade name but had conducted a "search and destroy" mission against Mr. Libengood. “Walker,” the judge wrote, "who purports to abhor the abused of the legal system, himself perpetuated the most egregious abuses of that system." The judge assessed treble damages totaling an astonishing $2 million and ordered the defendants to pay every penny of Mr. Libengood's $233,000 in fees.

Mr. Walker allows that his chesty handling of the case wound up benefiting his opponent. Still, he says, "The whole trial was a farce." An appeal is under way.
Securacom, however, has just changed its name, to Stratesec.

Note: The appeal was won by SecuraComm and all attorney's fees plus interest paid.

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