Triumphs to Remember: Harry Reasoner’s $1 Billion Antitrust Case

“It was a complicated case based on theories of sham litigation and smear campaigns brought in bad faith. At that point, nobody had won a big antitrust case on a theory like that.”

Landmark cases live on in textbooks, archival news clippings and the briefs that cite them. But there’s no better way to learn about a historic legal battle than directly from the source. Below, we chat with legendary litigator Harry Reasoner about the major antitrust case that led the press to dub him the “$1 billion lawyer.”

How did you get into antitrust work?

I’ve been very blessed in the opportunities that I’ve had. When I came to Vinson & Elkins in 1964, David T. Searls was one of the best and most acknowledged trial lawyers in the country. I was trying to decide whether I wanted to do tax or litigation. I clerked one summer and worked for Searls on a project. And so when I came back after law school, I was supposed to spend six months in tax and then six months in litigation to see which one I liked best. But Searls was going to trial and he said, “Why don’t you come and go to trial with me?”

My first case was a big antitrust case in Albuquerque. And then for the next three years, I went to trial with Mr. Searls in large antitrust cases in the District of Columbia and in New York. At the time, I didn’t realize how lucky I was. Some people spend a good part of their career or even their entire career and never get to go to trial in large cases.

You, of course, later worked your way up to being a lead litigator in large cases, including one of the biggest in your career, representing Energy Transportation Systems, Inc. (ETSI), which resulted in a judgment of $1 billion in damages for your client.1 Tell us about the case.

ETSI was a project to build a coal slurry pipeline from the Powder River Basin of Wyoming, where they mine the best, cleanest coal. A coal slurry is where you grind coal up to the consistency of talcum powder, and then you can add water and pump it like you were pumping oil. It would be much cheaper than carrying it by railroad car, which was the way it was transported at that time from the Powder River Basin. The railroads were making a fortune shipping coal from Wyoming to Texas at a high cost.

Our longtime client Texas Eastern Corporation; Bechtel, the engineering company; and other pipeline companies decided they could build a pipeline and make good profits off of it. Piping it would be much cheaper than the railroads could carry it by railcar, and the railroads were seeing the possibility that they would have to lower their prices to compete with the pipeline. So they set out to frustrate, to prevent the building of the pipeline.

How did the railroads try to do that?

Even though they were obligated by law to give easements under their railroads to allow for the pipelines, they refused to do that. They instituted litigation over it and claimed it was too dangerous. They went to environmental groups or created environmental groups and gave them large sums of money to lobby against the pipeline. They set out to stop it in every way they could.

So on what grounds did your client sue them?

It was a conspiracy in violation of the antitrust laws to prevent competition from a coal slurry pipeline. We sued every railroad that had been involved in it. Under the antitrust laws, you can’t conspire to keep somebody from competing with you.

How did the case come your way?

Jim McCartney, one of our senior partners at the time, had done a lot of work with the pipelines and suggested to them that we would take it on a contingent fee basis. It was obviously going to be very expensive and heavily resisted litigation. It was a bold move by our management.

I had tried a number of antitrust cases by that time, so they asked me to take the lead in it. I was heavily committed to other cases. So our partner John Murchison, who’s an enormously able lawyer, took the lead in the discovery. We had several years of discovery. Our partners who were involved in that did a wonderful job.

One of the real keys to our ultimate success was that we discovered that the railroads were coordinating the conspiracy through their legal departments and claiming that their actions were protected under attorney-client privilege, to avoid having to turn over any of those documents to us. We alleged that under the Crime Fraud Exception, we were entitled to those documents. Lawyers can’t use attorney-client communications to conceal a crime. We won that case in the Fifth Circuit in July, 1987. John Murchison argued it.

I was able to clear my schedule by late 1988 and devote myself to the antitrust lawsuit. We went to trial in March of 1989.

Harry and the V&E ETSI team

The case at the time struck many as unwinnable. Why is that?

I don’t think people thought we would be able to get the evidence. The railroads were extremely sophisticated. They didn’t file the lawsuits jointly. And the various activities they were engaged in, they appeared to be doing separately. We had to prove they were sham lawsuits, that they engaged in a lot of lobbying based on false claims and they concealed their efforts. It wasn’t known that they were paying off and creating phony opposition by so-called environmental groups. And they even did things like paying Native American tribes to object to putting the pipelines over their land.

It was a complicated case based on theories of sham litigation and smear campaigns brought in bad faith. At that point, nobody had won a big antitrust case on a theory like that.

Because of the earlier Fifth Circuit victory, you did get the evidence and you used that to successfully pressure most of the railroads to settle. But there was one hold-out: Santa Fe Southern Pacific Corp. Why do you think they refused to settle?

They had a very hard-headed, arrogant CEO. The judge at the end of the trial called us in to see if it could be settled. In the final settlement discussion, we told the CEO, “Well, we might settle for $X” and provided a number. And he said, “Well, that’s more money than Santa Fe makes in a year. We’re not going to pay that. You can sit on it and spin.” I said, “Well, okay, we’ll see who spins.”

That’s very funny.

In retrospect, it was to me, not to him.

How did the trial actually proceed? Who did you call to the stand?

We had some great witnesses. We put on Steve Bechtel, the head of Bechtel Engineering — which was a partner in ETSI — who’d never testified in his life. And Bechtel’s lawyers had done a good job of keeping him from ever having to go on the stand. But I told him, “You’ve got to do this to show the jury how important it is, how much it means.”

He turned out to be a superb witness. We were able to show the difficult projects Bechtel had built all over the world, and he explained how confident they were that this pipeline would work successfully.

We had a wonderful environmental expert. He was very persuasive in demonstrating that their environmental claims were phony. He actually said, “You know, there’s far less environmental damage from the pipeline underground,” whereas you’ve got these coal cars running across the United States railroads emitting pollutants into the air, with the inevitable coal dust that comes from transporting coal in rail cars the way they did at that time.

And then we had a superb regulatory expert who talked about how effectively pipelines were regulated for safety. Those three experts I thought really made a critical difference.

We put on a very good, affirmative case showing what a good thing the pipeline would be. We also got lucky.

How’s that?

There was already a working coal slurry pipeline at that time, and ironically it was owned by one of the defendants. It was a short one out west.

But how could the railroads possibly argue that coal slurry pipelines were terrible if they owned one?

They argued, “Well look, this is a very small pipeline. It’s out basically in the desert where it’s not harming anybody. We’re not using the huge volumes of water that you would use in your giant pipeline.”

Those things were true. Their pipeline was small scale compared to what we wanted to do. So they argued against it that way. But they really couldn’t effectively argue you can’t make slurry pipelines work. Obviously, it was a point the jury could understand easily.

There was also a point in the trial when you said something that really made an impression on the presiding judge, Robert Parker. Judge Parker later told Law 360 that what you said was “hokey” but effective. What was it?

I’d said that I had been in the legal profession for a long time and was proud of that, but that it pained me to see all this fraud being committed by lawyers — the railroad companies’ in-house counsel — in relation to the conspiracy.

What was going through your mind when you said that?

I think it was effective because it was true. I was ashamed to see our professional status abused by abetting criminal conduct.

The trial took two months. What happened in the courtroom when the jury announced the verdict and $1 billion judgment?

Waiting for the jury is, I think, at least in the legal line of work, about as tense a period as you can go through. They announced the verdict on the third day after two days of deliberation. We were ecstatic to see years of work rewarded, and of course, getting a huge fee for Vinson & Elkins was a kick.

Harry, an institution at the firm, has been practicing with V&E for 55 years

What advice do you have for other attorneys in the antitrust space, particularly those in situations that you were in and are suing to stop conspiracy today?

I’d say, if it’s a conspiracy case and you can get the evidence to prove it, those cases are winnable … but they’re not easy and they require a heavy investment of time and money. There can be a big reward, if you can stomach the risk.

1. The case resulted in a jury verdict and subsequent judgement of $1 billion in damages with a net amount of $425 million ultimately received by the client against the nonsettling defendant.