PraxIS Nov. 2008

08-11 Contents: Lawyers' mistake, Lehman's assets, Barclays' court case

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IT Risk
Barclays plead lawyers' mistake in Lehman purchase

see above

Off Topic
     Vampire SF

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Welcome to PraxIS

One story this month covers IT risk and spreadsheet use.

Patrick O'Beirne

_______________________________________________________ _______________________________________________________

IT Risk

Barclays plead lawyers' mistake in Lehman purchase 

The tabloid blog "Above the Law" on Oct 10 broke the story about the mistakes in valuing the Lehmans assets that may cost Barclays dear. The story has been covered well in the other media, so I'll focus on what could have been done to prevent or mitigate this risk. And no, it's nothing to do with a Microsoft bug. I have redacted the names of the people quoted.   Affadavit by 2nd year associate law clerk

"2. On the evening of September 18, 2008, my colleague [..]  asked me to help [..] reformat an Excel spreadsheet and convert it into a PDF document. A true and correct copy of that spreadsheet, in printed form, is attached to the Declaration of Eszter Farkas, dated October 9, 2008 (the “Farkas Declaration”), as Exhibit A."

1) Is a print out a "true and correct" copy of a spreadsheet that has hidden rows? The clerk does not say. What is truth here?

"3. Some of the rows of the original Excel spreadsheet were spaced too close together or too far apart, making it difficult to read when printed or converted to PDF format. I therefore globally re-sized all the rows in the document to make it easier to read when printed or converted to PDF format. I also removed certain columns that I understood were not needed on the final PDF document."
2) It is not clear whether the rows were fully hidden or simply of small height. Or hidden by Data Filter or by manually hiding. But when the clerk noticed it, it would have been good to query the colleague as to whether it was intentional that they were not visible, rather than unilaterally deciding to make them visible.

"4. I converted the reformatted spreadsheet into a PDF document [and  sent] both documents at 11:36 p.m."
3)  There is a known risk of mistakes when working late. The partners should have been aware of that possibility and managed it.

"5. I was not aware that the original Excel spreadsheet included rows that were hidden from view or that there were any “N” designations. I also was not aware that these hidden rows were exposed when I globally re-sized the rows in the spreadsheet on September 18 or that, once exposed, they would appear without the original designations."
4) And yet  the clerk was aware that rows were too close together? It is clear that the significance of the "N" designations was not explained, but that was not in the clerk's remit, even one with an MBA.  Affadavit by 3rd year associate counsel

"3. At 7:48 p.m. on September 18, 2008, [...] (then of Lehman, now of Barclays) sent me, via email, an Excel spreadsheet containing the list of non-IT contracts designated by Barclays as Closing Date Contracts.[...]"
5) With the instruction to get it done that night? Client pressure, yes; but then, they were under pressure too. The person who hid the rows knew what they meant by that. At what point was that knowledge lost? Did they assume that it was obvious that the law firm would know they meant to exclude these rows? Certainly they claim that in their court motion. Before Excel, would they have crossed out the rows, Tippex'd them out, or prepared a new clean listing?

"4. I opened the spreadsheet and saw only “Y,” for “Yes,” in each of the rows in Column Z, labeled “Critical.”"
6) The first mistake was the client's, to think that hiding rows was an adequate exclusion method. When sending a document out, all redundant data should be removed. Or, if it is important to retain the distinction, to more the N rows to a second sheet. Did the person who created it and hid the rows communicate that fact to the recipients?

"5. [Clerk] sent it to me, via email, at 11:36 p.m. on September 18, and I sent it, via email, to be posted to the Website at 11:37 p.m." "6. On October 1, 2008, I discovered that, [..] the spreadsheet I received [..] also contained approximately 179 contracts that Barclays [..] had in fact specifically designated not to be Closing Date Contracts.[..]The hidden rows each contained “N,” for “No,” in Column Z, labeled “Critical.”"
7) A  maximum of one minute checking time, then. If you delegate work, you have the responsibility to check it. Spotting 179 differences in 1000 rows is not that hard. Lawyers always work with paper evidence, so a simple check would have been to print the excel sheet as received, print the PDF, and visually compare the pagination. If they had had to do it by midnight, then at least the largest numbers could be checked in 15-20 mins. After all, even with the late submission by the client, counsel had nearly four hours just to look at it and convert it to PDF.  If the check had been done on Sept 18, much embarrassment would have been spared.  Schedules posted to web site
"Actually, just spot-checking the finished list against the original spreadsheet would have caught the foul-up: 22 of the 70 items on the first page weren't supposed to be there. (Yes, I counted them myself.)"
8) Other commentators have pointed out that there were no affadavits from the partners, who bear the responsibility for the work. Many are critical of the way that it appears the associates have been pillloried. The totals of the contracts was $75M original, $45 revised. If this was so important to Barclays that they go to court over it, it would have been important enough for a partner to manage the process by at least verifiying whether  the counsel had checked the conversion.

"In the e-discovery courts, the judges have made clear that the protests of lawyers they don’t understand “this computer stuff” must  be evaluated under the ethical rules of competency; should we not ask the same of lawyers handling business deals in the 21st century? "

"I’m not shocked.  Stuff happens.  But blaming it on a first year?  Does the firm think that relieves them of responsibility?  Clients are never impressed by that sort of thing. Back when I was in practice (longer than most profs), if one of my associates screwed up in a way that required an apology to the client, I made sure that I told the client that *I* or *we* screwed up.  Minimal excuses, sincere apology, and move quickly to how we are going to fix (cut hours, etc).  I never placed the blame on associates or staff, but I made sure the associate was there to watch me eat crow on his/her behalf. Not only was this the right way to deal with things, but it sent the right messages all around:  To the client, you show integrity and a focus on fixing problems rather than shifting blame.  To the associate, you teach lessons about owning up to mistakes, duty to clients, that loyalty runs both ways, and that the buck stops somewhere. "

9) Let's look at the interface between client and lawyer.  Clients should be able to expect well-paid lawyers to exercise vigilance and help protect the clients against themselves. As well as their first job which is to review the substantive content of documents, it should be standard practice in to review all received files for metadata and hidden data. It could be hidden text in a Word document, blacked-out text in a PDF, or file properties in an Office document that reveal identities. However, lawyers are rather expensive IT reviewers, so for one's own protection, one should review documents both in content and form before release. Form includes not just hidden data, but anything that is not manifestly clear to the parties involved and could be a source of confusion. Is "Y/N" in column Z a sufficient indicator, and was its significance made plain?  Comments:
"This rush-job mistake will be corrected by the court. No one wil get fired. End of story."
"In fairness, this deal went so quickly that the final purchase agreement was a hand markup (had to beat market opening). So it really wasn't a "triple-check" scenario. If this was the only mistake, it's a MIRACLE."
"The court will fix it and the client won't suffer, but their bonuses and performance reviews will, and they'll have to deal with a thoroughly undeserved reputation within the firm that will affect their ability to get good work. "
"The partner here is plainly trying to pin it on "mistake" only to minimize his embarrassment over appealing to "excusable neglect."  If I was the court, I'd deny it, finding that the 1st and 2nd year associates didn't make a "mistake" -- they did exactly what they intended to do, which is not a mistake. My last line would invite a motion based on excusable neglect." 
"Barclays unequivocally designated them as not being Closing Date Contracts by inserting the letter “N” in the “Critical” column for each of them."
10) I wonder if "unequivocally" is a correct term if the designation was then hidden? The key question is, as so often, who knew what when? When was the information about the significance of the hidden rows and 'Critical' column lost?

"13. In light of these exigent circumstances, the error that resulted in the inclusion of the contracts Barclays did not designate on the list of Closing Date Contracts is precisely the type of “mistake” or “excusable neglect” that this Court is authorized to correct under Fed. R. Civ. P. 60(b), which is made applicable to bankruptcy cases by Fed. R. Bankr. P. 9024. Rule 60(b)(1) authorizes a court to “relieve a party or its legal representative from a final judgment, order, or proceeding” in cases of “mistake, inadvertence, surprise, or excusable neglect.

The judge decides on this motion on Nov 5.



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Simply send your comments to FEEDBACK (at) SYSMOD (dot) COM

Thank you! Patrick O'Beirne, Editor

_______________________________________________________ _______________________________________________________

 Off Topic

It's November, the month of the dead, so for you fans of hard science fiction, here is Peter Watts' "Vampire Domestication"
In both Flash and .PDF illustrated transcript.


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