A 'bulldog' in court, Kempf has history of merger wins, spectacular losses

21 July 2017 00:00

In the 1970s and 80s, Donald G. Kempf was the go-to lawyer for merger litigation. He represented General Dynamics in a merger suit brought by the US Department of Justice that would prompt a landmark Supreme Court decision. He successfully defended Great Lakes Chemical Corporation and Weyerhaeuser in two merger challenges brought by the Federal Trade Commission, and fought off a competitor's antitrust suit that sought to derail Dart & Kraft's sale of KitchenAid home appliance business to Whirlpool and Emerson Electric.

Last month, the US Department of Justice announced that Kempf would join the antitrust division as deputy assistant attorney general for antitrust litigation. He took over the position on June 20.

The decision to hire Kempf was a surprise. Kempf is 80 and has been retired and largely inactive for the past 12 years.

His last antitrust trial — the FTC's 1997 challenge of the merger of Staples and Office Depot — ended in a spectacular defeat for his client. The last trial he oversaw before his retirement from Morgan Stanley in June 2005 resulted in a $1.6 billion judgment against the investment bank and allegations of criminal misconduct against him and other Morgan in-house lawyers. (The damages verdict was later overturned on appeal).

Still, some heralded his hiring as an indication that the Trump DOJ, though helmed by business-friendly Republicans, isn't planning to go easy on mergers. Why hire a famed litigator if the antitrust division doesn't envision going to court?

"Deputy Assistant Attorney General Don Kempf is an extremely capable and effective attorney," a Justice Department spokesperson said. "His extraordinary and unmatched decades of experience bringing antitrust cases to trial will be an asset to the Antitrust Division's litigation teams."

No prisoners

The son of a fruit seller in Chicago, Kempf attended Villanova University in Pennsylvania before joining the US Marine Corps. After three years, he left the military for Harvard Law School. After graduating, he returned to Chicago and spent 34 years at Kirkland & Ellis. He became general counsel at Morgan Stanley in 1999.

Kempf is well-known for a "take-no-prisoners" approach to litigation. He once told a reporter he wanted to write an article about how Sylvester Stallone's Rambo is the ideal model for litigators.

A 2006 American Lawyer article noted that Kempf relished telling stories of yelling at subordinates, being voted "worst on-campus recruiter" by his Harvard Law classmates for his "gruff bluntness" and inspiring "enmity bordering on hatred" in some people.

Nor is Kempf prone to modesty, saying in a 1997 profile that he has "had a dramatic influence on the course of history in the antitrust field."

As his litigation victories show, Kempf knows antitrust and merger challenges well. In the early 2000s, Kempf was a member of the Antitrust Modernization Commission, a 12-member panel of antitrust experts appointed by Congress to recommend changes to the US antitrust laws. Makan Delrahim, President Donald Trump's nominee to head the DOJ's antitrust division, also served on the commission.

In a separate statement issued with the AMC's final report, Kempf urged the agencies to change the Merger Guidelines, saying they are "fundamentally flawed" because they are based on the false notion that increasing concentration leads to decreasing competition.

Short of mergers to monopoly, "most increases in concentration lead to an increase in competition, not a decrease," Kempf said, urging the agencies to give more credit to efficiency arguments in analyzing mergers.

Lawyers who have worked with Kempf on cases praised his attention to detail and bulldog-like intensity. On occasion, though, Kempf's aggressiveness has hampered his success.

At a meeting in February 1997 before the FTC sued to block the Staples-Office Depot merger, Kempf allegedly made comments some of the agency staff viewed as belittling. At one point, he is said to have told an economist that his question was "the dumbest question I have ever heard," and later he reportedly threatened to "kick your ass" if the FTC took the case to court.

Kempf denied making the "kick your ass" comment in that form, according to reports by the American Lawyer and the Washington Post. "I might have said, 'If we go to court, I will try to kick your ass,' " Kempf told the publications.

Kempf's bravado inflamed FTC staffers, who told the American Lawyer that his comments encouraged them to work even harder on the case.

Kempf took the lead in the litigation — a five-day hearing held in May 1997 — offering the companies' opening statement and cross-examining key government witnesses.

US District Judge Thomas Hogan ultimately sided with the FTC, finding that the the merger would lead to a reduction in competition among office superstores — a unique market definition that the FTC has been able to use in subsequent cases.

The Coleman case

Not long after the Staples-Office Depot trial, Kempf moved to New York to become general counsel for Morgan Stanley. In that position, he oversaw the investment bank's 400-person legal team, making decisions about litigation, investigations and settlements by Morgan.

In 1998, investor Ronald Perelman sold camping equipment company Coleman Holdings to Sunbeam, with the aid of Morgan Stanley, in exchange for cash and stock. Three years later, Sunbeam went bankrupt.

In 2003, Perelman sued Morgan Stanley in Florida state court, alleging the investment bank withheld information on the company's finances.

During discovery, Morgan Stanley maintained that it didn't have backups for e-mails before January 2000. This would turn out to be untrue — in May 2004, Morgan Stanley's IT team found a cache of more than 1,400 backup tapes with emails from the mid-1990s.

Morgan Stanley's legal team didn't tell Coleman's of the newly found tapes until October 2004, and told the court they had only just been made aware of their existence. In early 2005, the bank found nearly 7,000 other backup tapes in various other locations, but didn't disclose those until it was effectively too late for Coleman's lawyers to review them before trial.

Judge Elizabeth Maass, who was overseeing the Florida trial, held two evidentiary hearings in early 2005 and found that Morgan Stanley deliberately violated numerous discovery orders. She ordered that a statement about the bank's litigation misconduct be read to the jury.

Although Kempf served as general counsel for Morgan Stanley, he later said he wasn't involved in the case until right before the 2005 trial. After Maass ordered the litigation misconduct statement be read, Kempf tried a bold last-minute move to try to salvage the case, firing the bank's outside law firm, Kirkland & Ellis, the day before the case was set to go to trial. He asked Maass for a six-month stay to get another firm up to speed and said the bank was considering bringing a misconduct suit against Kirkland.

Kempf's gamble ultimately failed: the judge gave Morgan Stanley one week to find new counsel.

After a six-week trial, the jury returned a verdict in favor of Perelman and ordered Morgan Stanley to pay $1.6 billion, including $850 million in punitive damages — the largest verdict of 2005, according to the American Lawyer.

Two weeks after the verdict, Kempf retired from Morgan Stanley.

Around the same time, Morgan Stanley's lawyers dropped a bombshell: while the bank's in-house lawyers previously told the court they weren't aware of the tapes until October 2004, in fact they had been notified of their existence in June 2004.

Coleman asked that Kempf and three other Morgan Stanley lawyers be held in criminal contempt for providing misleading statements to the court about the backup e-mail tapes. Kempf, Coleman said, was "heavily and personally involved in supervising the litigation at least as early as March 2005" and should have known that his lawyers were misleading the court.

In court papers, lawyers for Kempf said he didn't violate any court orders and made no misstatements to the court. They also argued that Coleman's allegations were "vague and imprecise" and didn't establish probable cause that Kempf engaged in conduct that would warrant a criminal contempt charge.

In November 2005, the judge declined to rule on the contempt petition until after an appeals court reviewed the jury verdict.

A Florida appeals court later overturned the jury's verdict, finding that Coleman failed to correctly measure its damages because it offered no evidence on the value of Sunbeam stock absent the fraud. The appeals court ordered the lower court to enter judgment on behalf of Morgan Stanley.

Coleman then unsuccessfully sought a new trial, citing Morgan Stanley's misconduct.

"While the court does not consider the discovery abuses and misconduct by MS, up to and including the alleged misconduct perpetrated by its legal team, as de minimis when viewed through the lens of attorney professionalism, when viewed through the lens of [the motion], it cannot be said that the additional attorney conduct revealed [post-trial] affected the new final judgment, especially considering ... CPH's failure to prove damages at trial," Judge Robin L. Rosenberg, who had by then inherited the case, ruled in 2008.

An appeals court upheld Rosenberg's decision and the case finally closed in 2009.

The New York state court where Kempf is registered as an attorney confirmed that he has never been publicly disciplined. Complaints filed against an attorney or investigations are confidential unless they result in public discipline.

Kempf, however, is delinquent in his registration, the court confirmed. He can continue practice law for now, but his license could be suspended if his registration isn't updated.

The Justice Department and Kempf declined to comment on the contempt allegations or the status of his license.

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