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Daimler suit comes to a screeching halt

A federal judge ordered a recess Tuesday in billionaire Kirk Kerkorian’s suit against DaimlerChrysler after the automaker’s lawyers turned over documents at the last minute that could be favorable to Kerkorian.
/ Source: Reuters

A federal judge indefinitely suspended the DaimlerChrysler merger trial on Tuesday, saying he would ask another judge to rule on why evidence potentially favorable to billionaire investor Kirk Kerkorian was only made available at the last minute.

In a dramatic turn of events, documents produced by a witness in the final hours of testimony brought the case to a screeching halt.

U.S. District Court Judge Joseph Farnan directed lawyers for both sides to appear before Special Master Colin Seitz, who has overseen the discovery process in the fraud lawsuit brought by Kerkorian.

Kerkorian, a reclusive Las Vegas casino operator who owned 13.7 percent of Chrysler Corp. shares before its $36 billion link-up with Daimler-Benz, has accused DaimlerChrysler of defrauding Chrysler shareholders by misrepresenting the 1998 takeover as a merger.

The new hearing, ordered a day before the scheduled end of testimony in the two-week-old trial, followed the production of 61 pages of documents from former Chrysler Chief Financial Officer Gary Valade.

The documents were presented by Valade to a DaimlerChrysler attorney on Monday during a flight from Detroit to Wilmington, Daimler attorney Tom Allingham told Farnan.

The documents from Valade, who is due to retire from DaimlerChrysler’s top management team in Stuttgart within a matter of weeks, were given to Kerkorian attorneys at about 11:40 p.m. EST on Monday, according to William McGuinness, one of the attorneys for Kerkorian’s Tracinda Corp.

Valade was a senior figure in the merger negotiations and his documents, purportedly including hand-written notes, could be crucial in determining the outcome of the case.

A different light
Kerkorian’s lead attorney, Terry Christensen, said Valade’s evidence put the testimony of all previous witnesses in a different light.

“We have just gone through two years of active discovery and two weeks of trial, you honor,” Christensen told Farnan. ”These notes were sitting there in Auburn Hills (Chrysler’s headquarters) the whole time with a road map to what went on and a road map to what they actually were trying to accomplish.”

Farnan ordered the documents sealed until the new hearing takes place. He said it appeared there was nothing “untoward” in the behavior of Skadden Arps, the law firm representing DaimlerChrysler.

He offered no further comment, except to say that Valade’s evidence was clearly important. But Allingham told the court it was unclear why it had not been produced earlier.

McGuinness told reporters that it would be possible, if extreme, for the judge to enter a default and effectively hand victory to Kerkorian.

Kerkorian’s attorneys expressed astonishment at the discovery of the documents. Christensen told reporters he had never known of a case in which potentially pivotal evidence was produced at such a late stage.

In an overhead slide projected in court, Christensen highlighted notes with the handwritten phrase “senior management sold out.” It was not immediately clear if the note was written by Valade, however.

Kerkorian claims that DaimlerChrysler Chief Executive Juergen Schrempp and other Daimler executives pitched the deal as a merger rather than a takeover to lower the transaction price and avoid paying Chrysler shareholders a “control premium.” Kerkorian is seeking more than $1 billion in damages.

Farnan is hearing the case without a jury. DaimlerChrysler attorney Michael Schell said the main trial was unlikely to resume until sometime next year.

“it’s improbable that we are going to get reconvened in the judge’s courtroom before the end of the year,” Schell said.