I Don’t Want Michael Bromwich Messing With My Next iPhone

As an owner of shares of Apple stock (purchased years ago by my wife, when she was a stockbroker), I keep an eye on the news about this holding in our nest egg. Because I am also an author—working on a twelfth book—I followed particularly closely the antitrust case against Apple, charging them with conspiring to price fix e-books, which are the future for authors. Also, I love my iPhone, which has become essentially a body part.

Apple, which could easily have settled the case but refused to do so because it does not believe that it did anything improper, lost in a bench trial before Judge Denise Cote of the U.S. District Court for the Southern District of New York. On July 10, 2013, Judge Cote issued her 160-page ruling against Apple finding Apple guilty. The Injunction against Apple was issued on September 5, 2013. On October 3, 2013, only days before the injunction went into effect, Apple gave notice that it would appeal Judge Cote’s rulings to the U.S. Court of Appeals for the Second Circuit.

The case is currently before the Second Circuit. Depending on which antitrust expert you talk to, Apple will get Judge Cote reversed, or the District Court’s finding will be almost impossible to overturn. However, nothing seemed extraordinary about this case, until recently.

Judge Cote’s Judgment May Be Worse Than Everyone Thought

Initial reports regarding Judge Cote’s judgment did not, at first blush, appear to create any serious problem for Apple. They have lots of litigation, and this was just more of the same. The media that follows Apple and the world of technology pointed out that the judge’s final order was far less demanding and punitive than the Department of Justice (along with the thirty-one states, the District of Columbia, and Puerto Rico, all of which were also parties to the lawsuit) had requested.

For example, Mac World reported, “While the injunction is less strenuous than the terms pursued by the DOJ—which wanted, among other remedies, to apply antitrust regulations to Apple’s App Store and iTunes Store, as well—the company did object to the imposition of an external monitor. However, the final judgment makes it clear that an external monitor is an integral part of the compliance process.”

And Phillip Elmer-DeWitt’s well-informed tech blog at Fortune reported, “To her credit, the remedies U.S. District Judge Denise Cote proposed last week to prevent Apple from ever again conspiring to fix e-book prices were far less draconian (and frankly bizarre) than the ones the Department of Justice had requested.” Elmer-DeWitt, also noted, citing examples from attorneys familiar with, but less-than-enthralled by Judge Cote’s rulings, that she was often “sly.”

And “sly” indeed seems appropriate given the subsequent events that ensued.

Apple’s Court-Ordered External Monitor: Michael Bromwich

Apple vigorously objected to the imposition of an external monitor, but lost that argument. Accordingly, Apple is challenging Judge Cote’s authority to appoint such a monitor as part of their appeal. Nonetheless, Judge Cote proceeded on October 16, 2013, to appoint Michael Bromwich as an independent monitor. From the outset, this monitor has appeared something of a Javert-like character (the villain from Victor Hugo’s Les Misérables) who views Apple as purely prosecutorial prey. But then it got worse.

On November 20, 2013, Judge Cote, for no obvious reason, amended her prior final order giving the monitor, Bromwich, far more sweeping powers than she had originally ordered. She authorized him to have ex parte communications with her (thus allowing them to communicate among themselves unbeknownst to Apple), required Bromwich to brief her once a month without Apple present, and empowered Bromwich to interview Apple employees and officers without Apple’s counsel present, and even authorized him to release private Apple information if he saw fit.

Needless to say, Apple protested these surprisingly drastic changes in the court’s final order, along with the actions of Bromwich, after getting a good sampling of it.

On November 27, 2013, Apple filed formal objections with Judge Cote, noting that (1) she lacked jurisdiction to make these changes in the her final order of September 5, 2013, because the matter was on appeal to the Second Circuit and the appellate court now had exclusive jurisdiction of the case; (2) her modification of the injunction violated Rule 53 of the Federal Rules of Civil Procedure by giving Bromwich investigative powers greater than she herself had as a federal judge for the arrogation of such powers violated Article III of the U.S. Constitution and the separation of powers inherent in our Constitution. In short, Judge Cote had given Bromwich investigative functions that she herself did not have, and Rule 53 only empowered her to delegate “judicial functions.”

Apple also argued that because Judge Cote was still in charge of the case being pursued by thirty-one states, the District of Columbia and Puerto Rico– which were all trying to get big money damages out of Apple —the receipt of the ex parte information that she had authorized would result in her disqualification to continue to judge the case.

On December 2, 2013, Judge Cote largely blew off Apple’s objections to Bromwich’s actions, which I will address shortly, and issued an order pulling back on the ex parte communications between herself and Bromwich, and asserting that there had, in fact, been no such communications. As for Apple’s complaints about Bromwich, Judge Cote said that her order of September 5, 2013 has set forth a specific procedure to resolve “any concerns about the monitoring” by Bromwich, namely that “within ten days of any action giving rise to an objection, Apple was directed to write the Department of Justice … setting forth its objections.” It was up to the Justice Department to decide if it had any problem with Bromwich’s activities. Judge Cote did add that if the Justice Department claimed that Apple had not acted within the ten-day period, she would “entertain these objections after Apple has consulted with the Department of Justice.” Also, if Apple, Justice, thirty-one states, District of Columbia and Puerto Rico, could not resolve the matter, she agreed to hear it.

Presumably, Apple’s complaints about Bromwich are now before the Justice Department, which is not exactly an impartial institution regarding Bromwich, for not only did it recommend him to Judge Cote, but he also has a long history with the Justice Department. The fact that Judge Cote and Bromwich are longtime friends has also troubled many observers of this case.

Why Apple Is Concerned About Bromwich

Michael Bromwich is a very able and experienced attorney, and he is a litigation partner in Goodwin Proctor’s Washington, DC and New York City offices. He spent a third of his career in the U.S. Department of Justice: He was an Assistant U.S. Attorney in the Southern District of New York (1983-1987) and Inspector General of the Justice Department (1994-1999). In addition, he was previously appointed by the Justice Department to serve as an independent monitor of the Metropolitan (DC) Police Department and Virgin Islands Police Department. (Judge Cote was an Assistant U.S. Attorney in the Southern District of New York from 1977 to 1985, which is undoubtedly where Judge Cote and Michael Bromwich first met.) Bromwich is also the found partner of The Bromwich Group, a crisis-management consulting firm in Washington, DC.

What troubles Apple (and others, like the Wall Street Journal) is that, as they see it, Bromwich, from the outset, has acted in an “unfettered and inappropriate manner, outside the scope of the Final Judgment.” He has made “premature and inappropriate demands,” within days of his appointment, insisting that he be given access to the entire Apple Board of Directors, and Apple employees and officers who have absolutely nothing to do with antitrust compliance or e-books. Judge Cote’s order, and the record, indicate that Apple was to be given until January 14, 2014, to implement new compliance and training programs. Rather, as Apple states (and backs up with facts) Bromwich simply ignored the record. He insisted that he have unlimited access to anyone with whom he wanted to visit, immediately. As Apple states it, “Bromwich views himself as an independent investigator whose role is to interrogate Apple personnel about matters unrelated to the injunction in an effort to ferret out any wrongdoing, all at Apple’s expense.”

Notwithstanding the fact that Apple made available some fifteen key employees immediately, even though it had not been required by the court order to do so, Bromwich pushed for more, and was seeking to see these people without Apple counsel present, albeit that was provided for in the court’s order. For example, he insisted on seeing Apple board member Al Gore, and the head of the Apple design team, Jony Ive. Interestingly, although Judge Cote says that she had no ex parte communications with Bromwich, he told Apple when she interviewed him to hire him, she gave him instructions to begin immediately; and he would have such access, albeit that it was contrary to her written order.

I doubt that the Justice Department will do anything about this aggressive behavior, but it might do something about Bromwich’s fees, which will seem exorbitant to government lawyers, for Bromwich has already charged more in fees for two weeks work ($140,000) than they will earn in a year. Apple, which must pay Bromwich’s fees, has made a very strong case that he has found a gravy train, and may be planning to ride it as long as he can.

Michael Bromwich is a top-flight legal talent, but I would wager that he has never been able to bill any client, anywhere, at the rates he now seeks from Apple.

Bromwich’s Big Time Legal Fees

Apple informed the court in its objections that not only are Bromwich’s fees excessive, and not only do they indicate that he is driven to make money with his assignment, they are also, give the circumstances, illegal. Apple explains that Bromwich informed them that “his fee structure is designed to ‘generate profits’ for himself and the law firm he has retained to make up for the antitrust experience he lacks.” In short, he has a personal financial interest in making his new job last as long as he can, and to investigate more not less, because it serves his own financial self-interest, and, for this reason, the arrangement violates Apple’s constitutional right to due process and “a neutral prosecutor.” (They cite law supporting this claim.)

Bromwich seeks to bill Apple for his work at an hourly rate of $1,100. And “because he lacks any antitrust experience,” he has also retained his former law firm, Fried Frank, to assist him, and their hourly rate is $1,025. (Emphasis in original.) Apple also notes, “Bromwich has made no attempt to justify why his lack of any substantive experience with the matter at issue justifies hiring another law firm with a four-digit billing rate.” (Nor, for that matter, has the Justice Department or Judge Cote explained why they selected a monitor without such background and experience.)

Apple, which is no rookie in hiring lawyers, says that it has never paid a rate as high as Bromwich’s. Apple also points out that the rate that Bromwich is charging Apple “dramatically exceed what he has quoted in the past. For instance, in a proposal to monitor the New Orleans Police Department five months ago, he suggested a $495 hourly rate, without an administrative fee, which the Department of Justice termed ‘relatively expensive.’”

But with Apple, Bromwich is seeking an administrative fee add on. The 15% administrative fee he wants will be based on the total billing, his fee, the fees of Fried Frank, and the fees of other lawyers he wants to hire. Bromwich told Apple that this markup was based on the fact that “he is handling this assignment through his ‘consulting firm,’ The Bromwich Group,” which is located in the same building as his law firm. Apple notes, however, that Judge Cote “appointed Mr. Bromwich himself, not the Bromwich Group,” and Bromwich has offered nothing to show it is “reasonable and customary” – with that standard having been set forth by the judge’s order—for a monitor to, in turn, use a consulting firm to charge additional fees. Indeed, the Bromwich Group appears to have no expertise in antitrust matters either, and based on its website, it has one employee, Melissa Schwartz, who is a public relations expert.

According to Apple’s unsuccessful plea to Judge Cote, Bromwich has refused to provide any justification for his fees. However, he has written Apple’s litigation counsel a long and threatening letter—including a conspicuously distorted reading of the terms of the court’s order—in which he tells Apple that the court will approve his fees, whatever they may be, so stop dithering with him. Bromwich provides no evidence whatsoever to support his statements, other than his own say-so, and his aggressive style. He clearly does not like Apple’s resisting being ripped off.

There is a significant body of jurisprudence relating to fees. While I have no expertise in this area of law whatsoever, I could find no recent case where any federal court has justified anything close to the kinds of fees Bromwich is trying to force upon Apple. As an Apple shareholder, I feel Bromwich is playing with my money, and I suspect all Apple shareholders feel the same. But he is also seriously interfering with the lives of the people who are busy building my next iPhone. Frankly, I don’t know about you, but I don’t want Michael Bromwich messing with my next iPhone. I find Apple’s facts, law, and arguments very persuasive. Apple does not deserve a special prosecutor looming over its business, particularly when Judge Cote’s ruling is under review. So I will be interested in how all this sorts out. I have watched the U.S. Department of Justice’s Antitrust Division screw up more than one American corporation in my time, and even if I sell my stock, I still want my iPhones.