From Martha To Michael: Lessons in Litigation From Recent High-Profile Trials

Richard Scrushy: not guilty. Dennis Kozlowski: guilty. Michael Jackson: not guilty. Bernard Ebbers: guilty. Martha Stewart: guilty. What can businesses involved in complex commercial cases learn from these high-profile criminal trials? Plenty. Although the facts varied widely, the trial strategies help explain the outcomes and provide valuable lessons: Keep it simple, tell your story, and remember your audience.

The government's case against Martha Stewart was built around a simple theme: Everyone should tell the truth. In announcing the indictment, the U.S. Attorney characterized the charges as reinforcing "what parents have taught their children for eons, that if you are in a tight spot, lying is not the way out." Rather than spend weeks explaining the intricacies of insider trading and the securities market, the government focused its case on a single lie.

This reflects a strategy adopted by the Department of Justice's Corporate Fraud Task Force to bring smaller cases focused on the strongest charges and most compelling evidence. Even in litigation arising from complicated accounting maneuvers, the government maximizes its odds by telling its story cleanly and simply. A scaled-back presentation omits facts that could distract or confuse jurors.

The prosecution at Michael Jackson's trial didn't follow this strategy. The result was a trial that stretched from February to June, jury instructions that spanned 98 pages, and acquittal on all charges.

Meanwhile, local prosecutors in New York learned from the mistrial in their first go-round with Dennis Kozlowski. They whittled the counts down and concentrated on the core charges of grand larceny. To guide the jurors in deciding whether Kozlowski took unauthorized loans, bonuses and other benefits, prosecutors focused on the lack of written authorization. As one juror explained: "Essentially it came down to…the lack of evidence supporting the defendants' claims. The company has a basic principle on compensation: If it was given, then it was in writing."

Just as a film director may have to leave favorite scenes on the cutting room floor, so must a litigant exclude evidence or arguments that clutter the presentation.

For jurors to believe what happened, they must understand why it happened. This can be a special challenge in corporate litigation, which typically requires litigants to lead jurors on a safari of complex commercial and financial transactions, or through a jungle of dense contractual language.

Each side must piece together the facts to tell a story. Why would Bernard Ebbers risk all by driving a scheme to commit accounting fraud at WorldCom? Because, prosecutors argued, his fortune consisted largely of WorldCom shares and he owed hundreds of millions of dollars in loans that were coming due. Why would Michael Jackson's accuser allegedly lie about being molested? Because, the defense argued, he came from a family of "con artists" with a history lying for monetary gain. In each case, the prevailing side told a story of people who did things for a reason.

Conversely, Martha Stewart's counsel sought only to poke holes in the prosecution's case and spent less than 20 minutes questioning her sole defense witness. "I would have liked to hear her side of the story," one juror said.

Jurors do not check their common sense at the courtroom door. They are far more likely to reject even truthful testimony that conflicts with their view of how the world works. Ebbers, Kozlowski and Adelphia Communications founder John Rigas claimed that they knew nothing of the financial and accounting misconduct at their respective companies. Jurors didn't believe that such successful and well-paid executives could be so ignorant, sloppy, or inattentive.

Litigants must be careful to respect the jurors. When celebrities sat behind Martha Stewart at trial, some jurors perceived this as an attempt at manipulation. Jurors at Kozlowski's first trial felt the same way about the prosecution's focus on Kozlowski's lavish spending. The prosecution responded by excluding this evidence from the second trial.

Even unintended conduct can influence the jury. One juror at Michael Jackson's trial reacted strongly to the accuser's mother's habit of snapping her fingers for emphasis: "I disliked it intensely when she snapped her fingers at us. I thought, ‘Don't snap your fingers at me, lady.'" The lesson: Jurors notice and process everything that happens in the courtroom.

Working with counsel familiar with the community can also be critical. The evidence against former HealthSouth Corp CEO Richard Scrushy was widely considered to be stronger than that against Ebbers. But Scrushy was acquitted on all counts. Why? One key factor was that Scrushy was tried in his hometown of Birmingham, while Mississippi native Ebbers was tried in New York. Scrushy was represented by a prominent local attorney who connected with jurors in a way that out-of-town counsel did not.

Enron founder Kenneth Lay and former CEO Jeffrey Skilling are scheduled to stand trial on securities fraud charges next January. Both the government and defense will look to benefit from lessons of what worked – and what did not – at the high-profile and complex trials of the past two years. Companies facing the prospect of a civil trial can draw on the same lessons: Keep it simple, tell your story, and remember your audience.