The Team Player

On April 8, 2010, Charles Prince, the CEO of Citigroup from 2003 to 2007, appeared before the Financial Crisis Inquiry Commission (FCIC) in Washington, D.C., to offer a mea culpa and explain his role, and his company’s role, in the subprime mortgage crisis and subsequent global financial meltdown. A month later, executives at JPMorgan and former executives at Bear Stearns did the same—the latter without the mea culpa.

These executives had one thing in common besides the 10-person commission asking questions in front of them. That was the man sitting behind them, Brad Karp, chairman of Paul, Weiss, Rifkind, Wharton & Garrison, whose firm has played a leading role in establishing limits on corporate liability despite a decidedly anti-corporate atmosphere around the country.

“You cannot take anything for granted,” Karp says of representing financial giants. “In difficult matters, I will think about my clients’ problems night and day until a solution emerges. I’m a big believer in late-night epiphanies.”

“I assume he doesn’t sleep,” says Citigroup General Counsel and Corporate Secretary Michael Helfer. “Somehow, he’s always available when I call, and he has this great talent for making you feel like you’re the only client he’s working with.”

Sitting in his firm’s sunlit Midtown Manhattan office on a spring day in between FCIC visits, Karp, appearing rested, has a broad smile and relaxed manner, and he clearly enjoys discussing his work and the law. He becomes animated describing important cases and influential colleagues, and tends to speak of the firm’s efforts, win or lose, as team endeavors. He’s also not without a sense of humor.

“It has been a fascinating experience to represent financial institutions at hearings before the FCIC,” Karp says. “It’s not every day that you get to see an autopsy performed on an organic, living body.”

He grew up in a litigious family. “Both of my parents were litigators,” he says, “and my mom’s dad had been a litigator—NYU class of 1927—so the law was always in my blood.”

A fan of TV courtroom dramas like Perry Mason, as well as books about the law, he was raised in Merrick, Long Island and attended Union College in upstate New York, before moving onto Harvard Law. He was a summer intern at Paul, Weiss in 1983 and came back as an associate in 1985. At the time, the firm represented clients like Viacom and Time Warner but was also known for its pro bono work—dual strains embodied by partners Arthur Liman and Judge Simon H. Rifkind.

Rifkind was the firm’s respected elder, a former New Dealer whose decades of public service were legend, but it was with Liman that Karp developed a particularly strong relationship. A skilled litigator with prominent contacts and clients in big media and finance, Liman had served as counsel for the New York state investigation into the 1971 Attica Prison uprising and would serve as chief counsel for the U.S. Senate’s inquiry into the Iran-Contra Affair.

“Arthur was not only a fantastic lawyer, but also an individual with a large heart and an unquenchable belief in social justice,” Karp says. “Arthur cared about everything and everyone to a degree I have never seen; he was passionate about the law, passionate about justice, passionate about the firm, passionate about fairness. His legacy is very much alive in our halls today.”

In 1985, Karp, a second-year associate, was tapped by Liman and Rifkind to assist in representing Pennzoil in its epic legal fight with Texaco. Pennzoil sued Texaco for interfering in its merger pact with Getty Oil and wooing Getty away. After a four-year struggle, Pennzoil walked away with a $10.5 billion judgment (ultimately a $3 billion settlement). Liman also brought Karp in to work on two sensational 1980s cases: the civil and criminal defense of Drexel Burnham Lambert investment banker Dennis Levine and junk bond trader Michael Milken.

Following Liman’s death in 1997, Karp, cultivating a deeper relationship with Citi, led the defense of the “Boom Boom Room” sex discrimination case involving Citi’s brokerage firm Salomon Smith Barney; it took years to resolve the almost 2,000 individual claims. “In cases like these that involve emotional distress, it’s difficult to evaluate what a plaintiff is entitled to,” Karp says. “You need to be nimble and willing to listen. Fortunately, in this situation, the client wanted to do justice by the plaintiffs, which was liberating for us. We made offers, mediated hundreds of cases, tried several, and, in the end, I believe we succeeded in being fair.”

Citigroup took notice of Karp’s acumen and made him and Paul, Weiss its lead outside counsel in a variety of cases. In the Enron and WorldCom class actions beginning in 2002, for example, Citi faced up to $100 billion in exposures. Karp guided Citi’s talks in the WorldCom case to a $2.5 billion settlement, while the Enron settlement went for $2 billion—significant amounts of money, but fractions of the damages plaintiffs had sought.

Asked which legal victory he’s most proud of, Karp mentions the firm’s defense of Citigroup from a series of lawsuits by Parmalat, the Italian food giant.

In 2002, when Parmalat went belly-up amid charges of fraud and corruption, it filed a lawsuit against Citigroup in New Jersey state court, seeking $30 billion in damages. The international pretrial discovery effort was complex, as Karp and his colleagues scoured reams of documents and conducted more than 100 depositions on both sides of the Atlantic, but it paid off. In April 2008 a judge granted summary judgment to Citi on all but one of Parmalat’s claims, reducing Citi’s exposure from $30 billion to $2.2 billion.

Parmalat, though, refused to settle the remaining claim, and Karp was wary of trying the case. Much of the evidence was highly technical and would be difficult for a jury to follow. Plus some potential Citi witnesses had been compromised by criminal charges filed by Parmalat.

Nevertheless, behind lead litigator Ted Wells, the lawyers argued the case not as a set of differences and miscalculations between two financial giants; instead they highlighted how Citi employees and their reputations were victimized by Parmalat’s suit. Numerous Citi employees testified, and some returned to the courtroom as spectators to demonstrate their stake in the outcome. This strategy, too, paid off. “We not only won a complete defense verdict on Parmalat’s claims,” Karp says, “but we also won a verdict for the full amount of Citi’s counterclaim of $365 million, which, with interest, came to about $460 million.”

“[Karp] is one of the few people who can both master the details of a case while keeping his eye on the big picture,” says Paul J. Mode Jr., special counsel at Citi, who has worked closely with Karp since 2003. These days, Karp even carries a Citi employee ID card for easier entry to their offices.

He’s needed it. In February 2009, in one of Karp’s biggest victories, the chief judge of the Delaware Chancery Court dismissed a claim against Citi’s officers and directors for having failed to anticipate the subprime mortgage crisis. Armed with that decision, Paul, Weiss proceeded to beat back a number of class actions.

Many courts, Karp points out, confronted by allegations of large financial injury, often look to find ways to provide redress to plaintiffs. That was his experience at the outset of the Enron and WorldCom scandals. “So it’s been helpful to the extent that we’ve managed to persuade courts to look at the law and hold that—even where there are significant losses—the corporations involved are not liable because they could not have foreseen that which was not foreseeable,” he says, adding, “We ask the courts to step back in time and consider what was reasonably knowable at the time these events took place, not focus on what we know now, years later, with the benefit of 20/20 hindsight,” Karp says. “It is human nature to look at what proved to be a massive problem and say, ‘How could you have missed this? It seems so obvious.’ But when you situate yourself in a financial institution’s shoes, back in time, where there are a hundred issues on a CFO’s or CEO’s plate each day, the one that eventually blows up may well not be the one that seemed to merit any attention at the time, perhaps because it then appropriately seemed not risky or problematic.”

He notes that “During the heyday of the collateralized debt obligation (CDO) proliferation, when the market was robust, a lot of deal documents were assembled hastily, and plaintiffs have tried, with very limited success, to exploit some drafting glitches. For the defense, these cases are anxiety provoking in that you can have billions of dollars riding on the interpretation of a phrase in a 200-page document that was cobbled together in a matter of moments. Fortunately, the courts for the most part have batted such attempts away.”

Representing Citi and other major financial institutions before regulators and the FCIC hearings has given Karp an insider’s view of the evolving discussion about regulatory reform of the financial industry. He anticipates a continuing concerted effort by the Obama administration and Congress to tighten regulatory responsibility and oversight—or, as he says, “lines of authority and supervisory functions so that issues cannot fall through the cracks.” But he doubts there will be a return to the Glass-Steagall Act of 1933, which once provided a firewall between investment banking and commercial banking and whose reactivation some have advocated.

“The marketplace has become so much more global, complex, and interconnected since the Great Depression,” he says. “You need new regulatory institutions and technologies to reflect the realities of today’s global markets.”

Of course it’s not all fun and former CEOs.

“When I was an associate,” Karp recalls, smiling at the memory, “Judge Rifkind gathered us all together to remind us that the law is a profession and a high calling, not a business beholden to the bottom line or to shareholders. We have an obligation to give back to the community, to those who desperately need our advocacy, because we have certain abilities that the aggrieved need; it’s our duty to fight for those who don’t have the ability to fight.”

Karp hasn’t forgotten that lesson. As a result, within a year of his assuming the chairmanship at Paul, Weiss, the firm’s pro bono caseload increased by 50 percent.

An occasional lecturer at Harvard and Columbia Law Schools, Karp has also written a monthly column, “Second Circuit Review,” for the New York Law Journal for the past 25 years.  For Karp, the column is a welcome respite from his daily routine, as it allows him the chance to write, edit, and, as he puts it, “think without speaking for a change.”

While conceding that the increasing globalization of law will inevitably pose new challenges to the firm’s 120 partners and 700 lawyers worldwide, Karp foresees no dramatic growth or changes. Indeed, when the economic downturn forced many firms to lay off—temporarily or permanently—recent hires, Paul, Weiss was able to keep its associates employed.

“Everyone knows their job,” Karp says of the culture at his firm. “Everyone pulls in the same direction. There are no sharp elbows. As a consequence, I’m able to spend 90 percent of my time practicing law, and about 10 percent managing the firm. It’s really a very easy firm to run.”