Former Uber Technologies engineer Anthony Scott Levandowski has requested court approval in his chapter 11 bankruptcy case to employ a criminal defense firm as special counsel. Both Google and the Office of the United States Trustee (UST) filed replies. A hearing on the motion is scheduled for May 21.
Levandowski has been embroiled in litigation over theft of trade secrets allegations since he left Google in 2015 to start a self-driving truck company. The company was subsequently acquired by Uber and Uber was then sued by Google (through its autonomous vehicle unit Waymo), who claimed Levandowski stole trade secrets when he left. Levandowski was not named in the suit but indicated he would invoke his FIfth Amendment privilege if subpoenaed. Uber fired Levandowski in May 2017 and eventually settled with Waymo for $245 million. The case was referred to the U.S. Attorney's Office and Levandowski was indicted last August in the Northern District of California on 33 counts of theft and attempted theft of trade secrets, in violation of 18 U.S.C. ยง 1832.
Following the indictment, Google won a $179 million arbitration award against Levandowski. A California superior court judge affirmed the award in March and hours later Levandowski filed for bankruptcy under chapter 11. By plea agreement on March 19, Levandowski pled guilty to one count theft of trade secrets and negotiated for a limit of $950,000 to any restitution order. A change of plea hearing and sentencing is schedule for August 4.
So, will the bankruptcy court approve the debtor's proposed retention of special criminal counsel? As a matter of law, the Bankruptcy Code does not prohibit a debtor from retaining criminal defense counsel to render services in connection with a parallel criminal proceeding. In fact, I devote an entire chapter to this subject in my legal treatise, Bankruptcy Crimes Law and Procedure. Bankruptcy courts may authorize the retention of criminal counsel under section 329(e) of the Bankruptcy Code when the employment is in the best interest of the estate. (The retention issue is entirely distinct from whether counsel may be compensated from the estate - a process that requires a separate fee application and which is governed by section 330(a) of the Bankruptcy Code.).
Levandowski argues retaining special criminal counsel is in the best interest of the estate because (i) counsel has negotiated a fixed restitution amount in the plea agreement ($756,499) that will leave more funds available to creditors and (ii) counsel's services are directed to reducing (or eliminating) prison time, leaving the debtor to "work and earn funds that would be estate property." The application requests an order approving retention, approving a $5 million flat-fee arrangement, and permitting immediate payment of $1.5 million from criminal counsel's client-trust account.
The UST says the application should not be granted until the debtor shows that employment of special criminal counsel for a $5 million flat fee is in the best interest of the estate, and it's too early right now to determine the benefit to the estate of proposed counsel's services. The UST also argued that Levandowski's application fails to show the reasonableness of the flat fee or of the immediate payment of $1.5 million. As an aside, it says, payment may be approved only by fee application after notice and a hearing in accordance with section 330(a) of the Bankruptcy Code.
While the Bankruptcy Code does not prohibit the retention by debtors of special criminal counsel, and in fact provides two statutory mechanisms through which the retention may be approved (11 U.S.C. 329(a) and 11 U.S.C. 329(e), bankruptcy courts nearly never authorize such retentions. The burden under section 329(e) to show that criminal defense services are in the best interest of the estate has proven nearly insurmountable in the cases. On the present state of the record, Levandowski's application will nearly certainly be denied to the extent of retaining, and immediately permitting payment to, criminal counsel. As I've written elsewhere, however, the issues of retention and compensation are distinct, although nearly always blurred by the courts. An indicted debtor has a Sixth Amendment right to retain counsel of his choosing. A Bankruptcy Court's determination that retention is not in the best interest of the estate simply cannot preclude an indicted debtor from retaining criminal counsel as the constitutional right supercedes the statutory requirement of court approval in bankruptcy. Of course, an attorney who is retained and renders criminal defense services without complying with the Bankruptcy Code will have no chance of recovering fees from the bankruptcy estate.