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Aruna Viswanatha and Ben Hallman
The American Lawyer
03-26-2007

Biovail Pharmaceuticals fired Kasowitz, Benson, Torres & Friedman on Friday from its high-profile case against several hedge funds and Wall Street analysts, as questions continued over whether the law firm knowingly used documents covered by a protective order to help bring the suit.

"Due to issues arising from proceedings before Judge [Richard] Owen, Biovail has terminated its relationship with the Kasowitz firm," the company said through a spokesman. Kasowitz Benson says it has done nothing wrong in the case, and issued a statement saying the firm had performed "outstanding legal work for Biovail at all times."

At issue are documents that were part of a separate class action involving Banc of America Securities. BAS claims Kasowitz, Benson and Biovail used material that had been covered in a protective order to pump up the case against the hedge funds.

On March 16, lawyers for BAS asked Owen of the Southern District of New York to disqualify Kasowitz as counsel in the case. BAS employed several of the analysts implicated in the Biovail litigation.

The Biovail suit claims that hedge funds and analysts colluded to bring Biovail's stock price down and short its stock. Kasowitz Benson relied heavily on the BAS documents when the firm brought its case in state court in New Jersey. Attorneys at Kasowitz Benson say they didn't know about the protective order. "The evidence is clear and uncontradicted that Kasowitz, Benson was never properly or timely informed about the protective order covering documents provided to Kasowitz, Benson by Biovail's other counsel at Biovail's direction," the firm said in its statement. "That has made Kasowitz, Benson's continued representation of Biovail untenable."

In a hearing earlier last week before Owen, tensions between Kasowitz attorneys and Biovail were brought into the open. The Kasowitz firm tried to introduce documents that they said cleared its name. "We have asked Biovail to come forward and clarify the record on the fact that they knew about the protective order," said John Siffert of Lankler Siffert & Wohl, an attorney for Kasowitz. "They have declined to do so to date. We therefore have an obligation to defend ourselves."

Name partner Marc Kasowitz had testified previously that he didn't know the documents were sealed until January 2007. The e-mails presented by BAS last Friday show that a Kasowitz attorney asked for -- and received -- a copy of the protective order on March 7, 2006, two days before Biovail served the complaint against the hedge defendants.

The use of the documents has been the subject of a long-running dispute. BAS complained to Owen about the breach of the protective order as early as last summer. In January, Owen ordered that the privileged material be culled from the hedge fund complaint, and ordered Biovail to pay BAS' attorney fees.

Howrey, counsel to Biovail in the case before Owen, is also caught up in the document dispute. According to a statement by Kasowitz Benson: "Howrey has admitted that they knew about the protective order. Howrey's predecessor counsel, DLA Piper, testified that Biovail also knew. At Biovail's and Howrey's direction, Biovail's local counsel gave us the documents before we filed the New Jersey state court action. Both Biovail and Howrey reviewed and commented on the complaint before it was filed, but neither told us about the protective order. In fact, we were told there was no protective order."

In response, Howrey partner Thomas Engel said, "The issue of who knew what about the protective order is a complete red herring. That issue was laid to rest in the judge's January opinion. The issue in the hearing before Judge Owen is the compliance, or lack thereof, of the Kasowitz firm with the sanctions order in January."