By Frank G. Runyeon

Law360, New York (May 26, 2020, 10:42 PM EDT) -- A Manhattan federal judge on Tuesday was unimpressed with what he called paltry proof of alleged extortion by a legal staffing agency's former employee as the judge mulled the agency's request to order the attorney not to share what he learned on a WilmerHale project for Toyota.

During a teleconferenced preliminary injunction hearing to extend a temporary gag order, U.S. District Judge Lewis J. Liman told HC2 Inc., known as Hire Counsel, that while the staffing agency makes a solid argument that attorney Andrew Delaney may have disclosed privileged information he learned on a "highly-sensitive" review of Thai documents after he was warned not to, their marquee allegation that he blackmailed HC2, WilmerHale and Toyota fell short.

"Frankly, from the plaintiffs side, they overstated their case somewhat," said Judge Liman, sifting the record for evidence that Delaney "extorted" HC2, Toyota and WilmerHale when he sent a series of emails and letters demanding a $450,000 settlement for whistleblower retaliation related to his complaints of an allegedly unsafe office environment amid the COVID-19 pandemic in New York City.

The judge said the communications were "not any different from what you would ordinarily see in an employment dispute," brushing off a narrative by HC2 counsel Ron Rossi of Kasowitz Benson Torres LLP who said the messages showed a "startling" escalation that included an ultimatum to the CEO of Toyota that led Delaney to file a state court complaint.

"He filed a lawsuit!" Judge Liman interjected. "People file them every day!"

Judge Liman also indicated "there is some evidence" to back up Delaney's whistleblower counterclaim.

HC2 claims Delaney attempted a shakedown of the agency, its customer WilmerHale and the firm's client Toyota, and then revealed sensitive company information in a Florida state court lawsuit after they didn't pay up. Delaney has argued he was merely seeking compensation for retaliatory termination and never revealed any protected information in the Florida complaint.

HC2's federal complaint does not identify WilmerHale or Toyota, referring to them as the agency's "law firm customer" and that firm's "corporate client." But Delaney disclosed the names to Law360 in an interview about the suit, much to HC2's chagrin. The agency argued at the time that the unmasking was yet another improper disclosure by their former employee.

Curiously, however, on Friday HC2 filed a contract on the docket spelling out the agreement between the agency, WilmerHale and Toyota. It was signed by WilmerHale's Ron Machen, co-chair of the firm's white collar defense and investigations practice, and Ryo Ito, general manager of Toyota's legal division.

While Judge Liman pushed back on HC2's more sensational allegation that Delaney had extorted the companies, he criticized Delaney's understanding of what information is meant to be kept confidential, after Delaney's attorney Robert Rotman said he and his client did not believe that the fact that the company was doing a document review, in and of itself, would be privileged information.

"Your client might need a bit of a primer with respect to the law of privilege, I would think," Judge Liman said.

The judge also noted that the staffing agency had raised a potent argument, "that your client was told not to disclose privileged and confidential information and then did so."

Rotman replied with his stalwart refrain that his client had not leaked company secrets in the Florida complaint.

"A large amount, if not the entire amount, of what's in that complaint is available publicly," Rotman said, noting that he attached 48 exhibits showing how much of the allegedly improper disclosures could be found via web searches.

Moreover, Rotman said, HC2 had not offered the Florida complaint itself as evidence of Delaney's improper disclosures, relying instead on declarations from the general counsels of WilmerHale and HC2, neither of whom was involved in the project

Judge Liman hammered on this point repeatedly, pressing HC2 to explain why he had not yet seen the Florida complaint that spurred the federal litigation in the first place or even heard what Delaney said in it that the agency says was confidential, protected or privileged.

"Is there a reason why you chose not to tell me what was in the complaint?" Judge Liman asked at one point.

HC2 counsel Rossi recounted how the court rejected the agency's request for an extra layer of secrecy in the form of an in-camera review of the Florida complaint that would have allowed HC2 to withdraw the document if the court found it was not actually privileged or confidential. The judge decided such an arrangement would be inappropriate.

Moreover, Rossi said that WilmerHale general counsel Michael R. Heyison's claim that the Florida complaint contained privileged information was unrebutted and that the judge could simply rely on that as factual evidence.

The judge did not buy that argument.

"All Mr. Heyison has done is given a conclusion about the ultimate issue before the court, without the backup to support the conclusion," Judge Liman said, adding that relying on the firm lawyer's declaration "removes from me the responsibility and the right to look at the evidence to determine whether in fact it was privileged or not."

HC2 has repeatedly attempted to swaddle the case in secrecy, often with mixed results.

Following HC2's broad gag order request, the judge issued a temporary order telling Delaney not to divulge any confidential, privileged or protected information he learned on the job, tracking with his contractual obligations to HC2.

The judge waved off HC2's bid for a sealed injunction hearing in favor of declarations and depositions held in advance shortly before he denied the agency's request for a special in-camera review of the Florida complaint, ruling that the arrangement ran afoul of a presumption of public access to court documents.

Judge Liman reserved judgment on the pending injunction motion on Tuesday and said he would issue his ruling at noon Wednesday.

HC2 is represented by Marc E. Kasowitz, Ronald R. Rossi and Kalitamara L. Moody of Kasowitz Benson Torres LLP.

Delaney is represented by Robert Rotman.

The case is HC2 Inc. v. Delaney, case number 1:20-cv-03178, in the U.S. District Court for the Southern District of New York.

--Editing by Michael Watanabe.

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