Special Report: In oil baron's divorce, company lawyer plays star role

Reuters News
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Posted: Nov 05, 2014 2:09 PM

By Joshua Schneyer and Brian Grow

OKLAHOMA CITY (Reuters) - During the divorce trial of oil baron Harold Hamm and wife Sue Ann, an unusual relationship took shape in the Oklahoma courtroom as the marriage was being dismantled.

From the bench, Special Judge Howard Haralson playfully tossed red and white peppermints to a lawyer sitting alone in the jury box who didn't represent either of the Hamms in the case.

The man, Eric Eissenstat, serves as general counsel, senior vice president, secretary and chief risk officer for Continental Resources, the publicly traded oil company founded and run by Harold. And during a trial that could result in one of the largest divorce judgments in U.S. history, Eissenstat emerged as one of the most important people in the courtroom.

For all but a few hours of testimony in the nine-week trial, the proceedings were closed to the public and to the media – a practice atypical in divorce cases that don't involve child custody disputes. But interviews with a half-dozen people who were present in the courtroom, and with others familiar with the case, indicate that Eissenstat played an extraordinary role throughout the trial:

* It was Eissenstat, the company's top lawyer, who advocatedsuccessfully for the trial to be closed to the public,contending that discussion of Continental's confidentialbusiness information warranted secrecy. Judge Haralson agreed,saying on the first day of trial that he wished to keep “adivorce trial from destroying” Continental, one of America'smost successful oil companies. Although about 95 percent of thetrial was closed, Eissenstat was allowed to stay and toparticipate.  * Eissenstat also attended pre-trial hearings, court filingsshow, and visited frequently with Harold Hamm's personal divorceattorneys, according to people familiar with the case. * After the trial began, Eissenstat's role in the case grew.Haralson allowed Eissenstat to interject during the proceedings,to approach the bench, and to attend meetings with the spouses'lawyers in chambers, according to court filings and interviewswith others in the courtroom.

'GENERAL CHITCHAT'

On several occasions, Eissenstat, 56, passed through the judge's chambers or into a court staff room and engaged the judge and his staff in conversations, said Haralson's bailiff, Jessica Rodriguez. The conversations were “general chitchat,” Rodriguez said. “We're all pretty friendly around here.”

In a statement, Continental said Eissenstat “did not speak privately with Judge Haralson in his chambers, and his relationship with Judge Haralson is professional and no different than the other individuals present in his courtroom.”

To at least one witness, Eissenstat, a tall, slim career litigator, was an imposing presence. “Eric positioned himself in a very tactical way in the room, in the jury box, basically right on the witness's shoulder,” said a former associate of Harold's who testified in the case. “When the judge looks at the witness, he's also looking at Eric. It just seems intimidating.”

Reuters interviewed more than a dozen legal experts including family law attorneys, law professors, retired judges and marital dissolution consultants. All said that Eissenstat's level of involvement in his boss' divorce trial seemed uncommonly deep. Some said that the role Eissenstat – and by extension, Continental – played at the trial raises questions about whether the company supported the personal agenda of Harold Hamm, the company's top shareholder, to the detriment of other shareholders. 

On Thursday, the day after Continental releases its quarterly earnings, analysts will have a chance to ask about the divorce case during a conference call the company is hosting.

“It sounds like the corporation is part of the divorce case,” said Arnold Rutkin, a lawyer at Rutkin Oldham in Connecticut. Rutkin represented the wife of Gary Wendt, a former chief executive at the General Electric Capital unit of GE, in one of the biggest U.S. divorces of the 1990s. “There are only two parties in a divorce: husband and wife.”

In that case, Rutkin said he did not recall GE Capital's attorneys playing anything close to the role that Eissenstat is playing in the Hamm divorce. A key difference in the cases is that although Wendt was a top executive, he wasn't a major owner of GE. Hamm owns about two-thirds of Continental.

Haralson did not respond to questions from Reuters. His bailiff said the judge would not speak publicly about the case before ruling.

MAJOR ROLE

Continental, in its statement, said it "did not seek to participate in the divorce case." It was compelled to by Sue Ann, it said.

In a court filing last month, Continental said the extent of its involvement in the case may be unprecedented. It contends it has been required to turn over more documents and data than any company “has ever been forced to produce in divorce proceedings in Oklahoma and possibly the nation.”

Hamm started Continental in 1967, and about 68 percent of the firm's shares are in his name. His stake was worth more than $18 billion when the trial started in August. It's worth around $14 billion today. Since the couple wed in 1988, Continental has grown from a smalltime driller worth less than $50 million into a $20 billion behemoth and one of Oklahoma's largest companies.

Because Harold owned his shares before he and Sue Ann were married, they belong to him. But under Oklahoma law, their “active” appreciation since 1988 is subject to “equitable distribution” with Sue Ann, a former executive at Continental who filed for divorce from Harold in 2012.

Her legal team contends that the amount of marital wealth the court should divide is more than $17 billion, a sum that included most of Harold's stake in Continental a few months before the trial began. Court filings show that his attorneys argued that the couple's shared wealth is a tiny fraction of that amount. The couple never signed a prenuptial agreement.

Harold Hamm's leadership at Continental is central to the case.

In court, his lawyers attributed most of Continental's success not to Hamm's business savvy but to factors beyond his control. If Haralson accepts the argument – that market factors such as rising oil prices, or decisions made prior to marriage caused Continental's growth – the award to Sue Ann could be much smaller.

The trial ended on Oct. 9, and Haralson is poring over thousands of pages of evidence before he issues a judgment in the coming weeks, or the two sides settle. Last week, Haralson denied a motion by Reuters to intervene in the case to have trial transcripts and other records unsealed. The Oklahoma Supreme Court, which heard the Reuters request to unseal the records this week, has not yet ruled.

In a filing before those hearings, Continental said it opposed opening court records because the documents contain confidential business information, including strategic plans, board minutes, and highly sensitive information on its oil reserves, among other things.

“A corporate counsel would have a legitimate role in trying to keep confidential information about the company from being disseminated,” said Ilan Hirschfeld, head of the marital dissolution practice at the consultancy firm Marcum LLP in New Jersey.

Continental may also have a significant interest in the outcome of the trial.

If Sue Ann, 58, wins a multi-billion dollar award, a judgment that size could prompt Harold to sell Continental shares, a move that could lead to a change in control of the company. In one court filing, Continental dismissed that possibility as "unfounded speculation."

Eissenstat, appointed as Continental's general counsel in 2010, previously had represented Continental and Harold Hamm personally during 27 years in private practice. As recently as 2010, he served as Harold's personal lawyer in a case involving Oklahoma oil and gas wells. Continental was not a party in that case.

As of Feb. 22, Eissenstat also owned shares in Continental valued at more than $7 million, SEC filings show.

Months before the Hamm divorce trial, Continental expanded Eissenstat's role at the firm, naming him its chief risk officer. The new responsibilities put Eissenstat in charge of keeping Continental out of corporate governance trouble and guarding against conflicts of interest and reputational damage – duties that would give Eissenstat reason to be concerned about the divorce trial.

In court filings, Continental said it was brought into the case by Sue Ann Hamm's broad and “abusive” demands for evidence from the company, and because dozens of its current or former employees were subpoenaed. “Continental doesn't like being here,” Eissenstat said at a pre-trial hearing, according to a transcript. Eissenstat told the judge he was only present in court to protect the firm's interests, not Harold's.

Allegations by Sue Ann's team that Continental meddled in the case to help Harold have been a sore point between the spouses.

In one court filing, his divorce attorneys wrote that the divorce is a matter of “common interest for Mr. Eissenstat,” citing his duty to “all shareholders to oversee any litigation impacting the company.” They added: “Harold Hamm and his counsel are frankly insulted by Petitioner's veiled suggestion of some collusion between them and (Continental) against her interests.”

Although Continental says it hasn't taken sides in the divorce, the company has taken unusual steps that could help Harold's case. In September, Reuters reported that the company revised its corporate history in ways that diminish the part Hamm played in its success. In downplaying the CEO's role, the firm recently deleted, added or revised at least 18 items on its website or in corporate filings, Reuters found. (http://reut.rs/1uYWqpH) 

In addition, Continental has weighed in against Sue Ann. In one of the company's many filings in the case, a “friend-of-the-court” brief in February, Continental urged the judge to deny Sue Ann additional time to prepare for the trial.

“To say the least, it's highly unusual for a company to file a friend-of-the court brief in its CEO's closed-door divorce proceeding to oppose his wife's request for more trial preparation time,” said appellate attorney Lawrence Ebner, a Washington-based partner at law firm McKenna Long & Aldridge.

Court records show that Haralson denied Sue Ann Hamm's request for another five months of trial preparation. Being hurried to trial could hurt her case, her lawyers contended in court filings, because they were racing to examine about 700,000 pages of uncategorized Continental documents that Eissenstat had delivered to them in response to evidence requests.

'ENORMOUS EXPENSE'

A spokeswoman for Continental, Kristin Miskovsky, has repeatedly said the divorce has had no effect on the company. “Mr. Hamm's divorce proceeding is a private matter and has not and is not anticipated to impact Continental Resources' business or operations,” the company said.

In one court filing, however, the company says its role in the case has come at “enormous expense.” Eissenstat and his in-house team handled discovery requests in the case. They have filed more than 40 briefs, objections or motions in the divorce case.

“Mr. Hamm has an interest in winning, and Continental should not have an interest in Hamm winning per se,” said Paula Dalley, a professor of corporate law at Oklahoma City University Law School. “That's where a conflict of interest could arise. The outcome for Hamm personally shouldn't matter to the corporation.”

Former Continental employees who were deposed or called as witnesses told Reuters that the oil company paid for lawyers to represent them. The employees requested anonymity after signing agreements not to discuss their depositions or testimony.

It is not unusual for company lawyers to represent employees who will testify in legal cases about their work. But Judith Maute, a law professor at the University of Oklahoma, said that if Eissenstat and Continental used company resources to help Harold, it could draw the ire of other shareholders. 

A general counsel's duty is to his corporation, not to the CEO's personal interests, she said. “If the general counsel is spending lots of time or company money to save the assets of the person, then he may be in breach of fiduciary duties to shareholders.”

Eissenstat's role and Continental's costly involvement in the marital dispute have not been disclosed in detail to the firm's shareholders. How much the company's board knows about Continental's participation in the Hamms' divorce isn't clear. Continental declined to address the question of whether it plans to bill Harold Hamm for the costs it's incurring related to the divorce case.

What is apparent is the trust the company has put in its top lawyer. Asked about Continental's involvement in the case, David Boren, the powerful Oklahoma politician who sits on Continental's board and testified in the divorce trial, had little to say.

“I have a policy not to make separate statements as a board member,” Boren said. “If you have any questions, please contact Eric Eissenstat.”

(Reporting By Joshua Schneyer in Oklahoma City and Brian Grow in Atlanta. Editing by Blake Morrison and Michael Williams)