(From Left) Russell Post, Brad Hartz, Alistair Dawson and Garrett Brawley
For nearly a decade, HP (formerly Hewlett-Packard) battled Taiwan-based CD-ROM maker Quanta Storage in courts from Texas to California over allegations of a conspiracy to fix and maintain artificially inflated prices for optical disk drives.
There were complaints, objections, motions to dismiss, depositions and interviews with five dozen witnesses and the usual intense fights over discovery. HP senior counsel Brad Hartz and his team worked several thousand hours on the massive litigation. His outside counsel at Beck Redden in Houston worked another 5,000 hours.
What was at stake in the optical disk drive [ODD] antitrust litigation, which originally involved a dozen other major companies?
Hundreds and hundreds of millions of dollars and the way the entire industry did business.
Then, between October 2019 and June 2020, “all hell broke loose,” as one of the lawyers put it.
There was a weeklong trial that ended Oct. 22, 2019 in a $176 million jury verdict. The judge trebled the damages to $438.7 million. There was an expedited appeal, a refusal to post an appellate bond, an order to show assets, oral arguments before a three-judge panel, a blistering Fifth Circuit opinion, another refusal to pay and a judge’s threat to hand the keys to the company over to the plaintiff.
Beck Redden partner Alistair Dawson summed it up in a three-word email to Hartz minutes after the appeals court decision was issued: “Complete victory. Congratulations.”
For Premium Subscribers: Click Here for a special Q&A with Brad Hartz on challenges facing in-house counsel, what he looks for in outside counsel and why he takes special pride in resolving disputes without litigation.
Then, eight months later, on June 18, HP and Quanta signed an agreement to settle the litigation. The terms were confidential, but one lawyer familiar with the ODD litigation but not directly involved in the Quanta case estimated it was a nine-digit payout.”
Hartz, who will only say that the lawsuit “has been resolved to the satisfaction of both parties,” said he feels vindicated by the outcome.
“The litigation against Quanta was a long campaign,” Hartz told The Texas Lawbook in an exclusive interview, the only one he has ever given regarding the case. “I was able to see the case all the way through nearly from the start.
“This case shows we have an amazing civil justice system for solving large civil disputes,” he said.
The Association of Corporate Counsel’s Houston Chapter and The Texas Lawbook recognize HP’s Hartz and Beck Redden are the recipients of the 2021 Houston Corporate Counsel Award for Business Litigation of the Year.
ACC Houston and The Lawbook will honor Hartz and Beck Redden at the annual awards ceremony Jan. 13 at the Four Seasons in downtown Houston. The finalists in the other categories will also be honored and winners announced.
“Brad truly deserves this award,” said Beck Redden partner Alistair Dawson, who was the lead trial lawyer for HP in the case. “It took a lot of guts for Brad to go to his management and say this case needs to go to trial. This was an expensive case. And there were a lot of risks, including the fact that it is very difficult to seize assets of Taiwanese companies.
“But Brad believed pursuing this litigation was the right thing, and he was the force making it happen,” Dawson said.
Legal experts say HP’s trial court and appellate court victories are clear case studies for businesses with price-fixing complaints against foreign corporations — especially technology companies.
“The conduct of these companies was egregious,” Hartz said. “People were going to jail. We knew we had a great case.”
While the original Houston jury verdict received significant attention, the behind-the-scenes story of those ferocious final few months and the lawyers who scored this historic antitrust judgment has never been told.
“It was really a heated battle that required great lawyers and a lot of resources,” said Hartz, who is a veteran of the Iraq War.
Trial lawyers who work with Hartz say he “routinely brings a new and different angle to an issue” critical to the case – something they don’t always see from other corporate in-house counsel.
“Many times that is a new way to look at the facts, and he’s also floated legal angles that have real legs,” said Kirkland & Ellis partner Anna Rotman. “He is a trial lawyer at heart, and a plaintiff’s lawyer at that, so he loves thinking through the story for trial and then working with us to make sure that story sticks with our witnesses.”
“Brad is always game to dig in deeply and really engage with his outside-counsel team,” Rotman said. “He will think through hard issues, debate them and keep pushing to make sure that we’ve thought through every angle. All of these qualities absolutely improve the case we tell at trial.”
Akin Gump partner Michael Stortz said that Hartz “epitomizes the practical, problem-solving lawyer.”
“He gets right to the heart of a problem and finds creative ways to resolve issues on favorable terms,” Stortz said. “He will take a fresh look at key questions, and [he] doesn’t accept conventional wisdom if he’s convinced there’s a better way. Brad remains calm and steady under pressure. He digs deep for his client and teams. He has great situational awareness – he knows his client and its objectives, and keeps laser-focused on achieving those.”
Hartz said he accepts the Business Litigation of the Year Award on behalf of former HP senior counsel William R. Moore.
“Bill was the mastermind behind HP’s initial ODD litigation strategy, and he was a true mentor to me,” Hartz said. “He left HP in 2015, but he laid the groundwork for the success we later enjoyed. My first call, as I walked to my car from the federal courthouse after the Quanta Storage verdict, was to him to give him the news. It was the last time we spoke.”
Moore, who was 56, died June 16, 2020, from Covid-19 complications. Two days later, HP reached a settlement agreement with Quanta.
Alistair worked with Moore for more than a decade.
“Bill was an incredible lawyer,” Alistair said. “He actively managed his cases without micromanaging. He always had a game plan, and then he made sure the plan was executed.”
‘I was in paradise’
To understand the story behind the case against Quanta, it helps to know Hartz.
Born in Kansas, Hartz’s family moved often and moved to some interesting places, such as Panama and Germany. The family spent three years of Hartz’s high school years in San Antonio.
His father was a clinical social worker in the Army, where he focused his career on helping people work through problems.
“I trace my sense of service, justice and interest in dispute resolution to my dad,” he said. “His influence also led me to serve in the Army.”
Hartz majored in political science at Texas A&M and also served in the university’s ROTC program called Corps of Cadets. He graduated in 2000 and reported for duty on Sept. 10, 2001, as a newly minted infantry officer, a second lieutenant, in Schofield Barracks, Hawaii.
“I thought I was in paradise,” he said. “Of course, some pock-marked buildings – strafed in 1941 – still stood there, perhaps a subtle reminder of what it might mean to serve in the military. After 9/11, concertina wire and guard posts went up overnight on Schofield Barracks. A not-so-subtle reminder.”
Hartz’s unit, an infantry battalion, deployed to northern Iraq in October 2003, replacing the original airborne unit that invaded the country in March of that year.
“Our mission was to provide stability for the city of Kirkuk and help transition sovereignty to an interim Iraqi government,” he said. “We helped secure the first democratic elections in Iraq in over 30 years, which were the parliamentary elections for the new Iraqi National Assembly.
“Through this experience, I came to a new appreciation for the rule of law in the United States,” he said. “I was certain I wanted to be a part of our legal system. I was grateful for my time in the military, but it was violent and ugly at times. Not everyone in my unit made it back to Hawaii like I did.”
After the Army, Hartz went to the University of Houston Law Center, where he interned for U.S. Judge David Hittner, who would later be the trial judge in the Quanta trial 13 years later.
Baker Botts hired Hartz to join its commercial litigation practice in June 2007. His first assignment was to support the Baker Botts trial team prosecuting a multibillion-dollar fraudulent transfer claim in an ASARCO bankruptcy trial.
“As a brand-new lawyer, I didn’t do much more than tangential work akin to document review,” he said. “But I learned a successful approach to trial could be as intense as planning a military operation with lives at stake. The comparison of litigation to armed conflict can be overdone, but I see parallels.”
Baker Botts ultimately secured a judgment valued in excess of $6 billion in that case.
In 2009, Baker Botts allowed Hartz to participate in a project that allows young lawyers to be special prosecutors for the City of Houston’s city attorney’s office. It was there that he tried his first case as the first chair – a shoplifting case in municipal court.
“What I remember most was the pride of representing the State of Texas, even if just as a volunteer for a day,” he said. “I won’t forget the guidance the senior assistant city attorney gave me: ‘You’re not here to win. You’re here to ensure justice is done.’”
In November 2010, Hartz took his practice to Morgan Lewis, where he spent more than three years. It was there that he first started working on HP litigation matters. During that time, Hartz did a secondment at HP.
“I wanted to be a trial lawyer, but I knew if I went in-house that would probably not happen,” he said.
In 2014, he accepted a position as senior counsel for HP’s Affirmative Recoveries function, which was dubbed internally “HP’s In-house Plaintiff’s Firm.” It was there that he started working for Bill Moore.
“The job appealed to me because it involved acting as lead counsel for HP on some matters while also partnering with outside counsel to prosecute a docket of HP’s most important affirmative matters,” he said. “I enjoyed appearing as lead counsel for HP in certain commercial matters in New York, California and Texas. The highlight of my work as lead counsel while in-house was securing a RICO judgment for HP in Judge Hittner’s court.”
‘So clear that a kindergartener could get it’
HP’s Affirmative Recoveries function was developed in part to tackle price-fixing impacting HP’s supply chain, Hartz said. He points out that HP’s central procurement leadership was “responsible for tens-of-billions in annual spend and managing supplier relationships.”
“When we learned of the global optical disk drive price fixing conspiracy involving Quanta Storage and others, we knew HP needed an aggressive trial strategy,” he said. “Our goal was to make HP whole and try to deter future price fixers from targeting HP.”
Hartz said HP first learned about the price-fixing conspiracy because of subpoenas issued by the U.S. Justice Department in 2009. Moore hired three law firms – Bartlit Beck, Crowell & Moring and Beck Redden – to lead the ODD litigation.
“Beck Redden is known for superior trial advocacy, and Alistair had already successfully represented Compaq – later acquired by HP – in the well-publicized floppy disk class action litigation, which HP ultimately won in the Texas Supreme Court.”
“Our plan was to try the case against non-settling defendants and leverage the well-recognized ‘whipsaw’ effect of joint and several liability and treble damages,” he said.
HP first filed suit against Quanta in Houston in 2013. The cases were initially consolidated into a multidistrict litigation in the Northern District of California. There were more than a dozen large corporate defendants involved in the joint ventures, including Sony, Panasonic and Toshiba.
All settled except Quanta Storage, which was created in 1999 as an affiliate of Quanta Computer and is now a separate publicly traded company. As a result, the case was returned to the Southern District of Texas and assigned to Judge Hittner for trial.
“For me, the best few days of the multidistrict litigation were in 2016,” Hartz said. “The HP litigation team met with an external consultant to conduct a litigation risk assessment. Over two days, we thoroughly worked through a regimented process to benchmark the expected value of litigation against the remaining defendants. This process was very helpful to validate our litigation strategy and distill advice from outside counsel.”
For six days in October 2019, lawyers for Beck Redden prosecuted the price-fixing case against Quanta before an eight-person jury. There were two witnesses who took the stand to testify live. HP presented 14 additional witnesses by video deposition.
“Alistair was so impressive because he translated complex economics of price fixing into language the jury understood,” Hartz said. “His closing argument was so clear that a kindergartener could get it. He knew the jury just wanted to get it right.”
Dawson said his goal was to keep the message simple.
“We had to prove that there was a conspiracy, that Quanta was involved in the conspiracy and that HP was damaged by the conspiracy,” Dawson said.
The first two elements, he said, were fairly easy.
Dawson and the Beck Redden team played video depositions of Quanta officials and others pleading the Fifth Amendment in fear of incriminating themselves and then introduced evidence that those witnesses went to prison.
“We had plenty of documentary evidence showing Quanta’s involvement in the conspiracy,” Dawson said. “We had emails that said they were being investigated and that they should not use their regular phones but ‘let’s get burner phones.’”
The most challenging part of the case, according to Dawson, was the focus on damages.
“Even at the start of jury selection, we were concerned about potential jurors and how they would view our request for a large damage award,” he said. “We had a damage model, which I sort of understood – and I was an economics major in college.”
Quanta Storage presented a technical defense based on complicated aspects of the Sherman Act.
Hartz was in the courtroom every minute of the trial.
“I think the turning point for the jury was when Quanta Storage’s witnesses refused to answer questions about the alleged price-fixing conspiracy, instead pleading the Fifth Amendment,” Hartz said. “As Alistair delivered his closing argument, the collapse of Quanta Storage’s defense was palpable.”
The jury deliberated for nearly four hours before returning a verdict.
“I’ll never forget the answer to ‘Question No. 7,’ damages awarded: $176 million,” he said. “But I knew we still had a long way to go.”
Subhead
Suddenly, litigation that had crawled along for a decade went into hyperspeed in 2020.
Judge Hittner issued an order Jan. 3, 2020, that trebled the damage award against Quanta — as is permitted under federal antitrust laws. The final judgment stood at $438.7 million.
Hartz said getting the case to trial was hurdle No. 1. Winning at trial was No. 2. Now came two critical stages: Quanta’s quest to have the U.S. Court of Appeals for the Fifth Circuit reverse the verdict and HP’s mission to enforce the judgment.
Quanta demanded an expedited appeal in an effort to avoid enforcement of the judgment. HP did not oppose the motion and the Fifth Circuit agreed.
At the same time, Beck Redden commenced parallel proceedings before Judge Hittner to collect the damage award.
On April 1, Judge Hittner issued a five-page opinion pointing out that Quanta had failed to post an appeals bond and failed to produce documentation showing an undue financial hardship because of Covid-19 restrictions.
In briefs submitted to the Fifth Circuit, Quanta did not challenge its liability but instead focused on the damages award. Quanta hired lawyers at Vinson & Elkins, who argued that testimony by HP’s damage expert was flawed.
The big blow for Quanta came June 5 when a three-judge panel of the Fifth Circuit unanimously rejected Quanta’s arguments.
“Quanta risked bet-the-company litigation and lost, so the district court ordered it to hand over the company,” the Fifth Circuit said in its opinion.
The ruling is believed to be one of the largest civil judgments ever affirmed by the Fifth Circuit, which is notorious for reversing high-dollar judgments. Quanta maintained that HP’s foreign subsidiaries had purchased certain drives from Quanta, in conflict with a section of the Foreign Trade Antitrust Improvements Act that would have allowed HP to recover damages had its domestic entity made the purchase.
Enacted in 1982, the FTAIA limits global reach of U.S. antitrust laws by governing the circumstances in which U.S. companies can recover antitrust damages in foreign trade.
A key factor to the jury’s $176 million award for HP was based on testimony by HP’s damages expert, who testified that HP — not a foreign subsidiary — made the foreign purchases.
But in the appellate ruling, a three-judge panel rejected Quanta’s version of the facts, not even bothering to touch on Quanta’s legal ground for appeal.
“We need not resolve Quanta’s legal contention because its factual contention is wrong,” said the 21-page opinion, written by U.S. Circuit Judge Andrew Oldham. “All three assertions are incorrect.”
Quanta executives called the ruling “ridiculous” and swore they would fight the verdict. Quanta officials banked on the fact that it is difficult for U.S. businesses to collect damages against Taiwanese corporations.
“The Fifth Circuit’s decision is a powerful reaffirmation of basic principles of appellate review,” Beck Redden partner Russell Post, an appellate law specialist, told The Texas Lawbook’s Natalie Posgate in an interview in 2020. “The court correctly rejected Quanta’s effort to re-litigate the facts on appeal, and it correctly repudiated Quanta’s ongoing attempt to defy U.S. antitrust law by refusing to honor the judgment.”
At the same time, Beck Redden lawyers were pressing Judge Hittner to immediately enforce the $439 million judgment by having Quanta turn over all its cash, patents and factories to HP because Quanta has declined to post an appellate bond.
“Quanta did not understand the power of federal judges to seize assets and accounts,” Hartz said.
Judge Hittner of Houston scheduled a hearing for June 19 to consider HP’s request to simply turn over the keys of Quanta Storage to HP.
The hearing never took place. On June 18, Quanta folded. The parties reached an out-of-court agreement. Terms of the deal are confidential, but both sides withdrew their complaints against each other.
“Antitrust law awards treble damages because Congress recognizes the significant societal harm that price fixing and other forms of anticompetitive conduct does to the economy,” Post said. “One of the significant reasons for treble damages in this context is to deter similar conspiracies and protect the free market for goods and services.
“The most important impact of the case, therefore, is its deterrent effect on similar activity and the message it sends to potential conspirators in a future price-fixing conspiracy,” Post said.
Post also noted that the Fifth Circuit opinion is “a reminder that the sheer size of a monetary judgment is not a basis for reversal.”
While Hartz, Dawson, Post and Beck Redden partner Alex Roberts were leaders of the litigation, the three say several others played significant roles, including HP deputy GC Paul Roeder and deputy GC Cynthia Bright, who served as heads of the technology company’s worldwide litigation docket; HP’s Chief Legal Officer Harvey Anderson; and Beck Redden associates Garrett Brawley and Parth Gejji.