Deals Duo Raided at Home by Bailiff Just Days After They Quit Deloitte

(Bloomberg) --

The first week of 2018 didn’t start so well for Deloitte in Paris. Two partners on its 15-person deals advisory team quit, quickly followed by two more. The accounting firm feared they were leaving for a competitor and taking confidential data but it needed to back up its suspicions.

Deloitte initially had a computer expert check whether Guillaume Martinez and Donatien Chenu, the first two to leave, had made copies of work files or unusual transfers. The findings were sufficient to convince a French judge to authorize Deloitte to send a bailiff to search their homes and personal email inboxes for keywords such as Axa SA and Vivendi SA.

To go after the pair, Deloitte turned to a little-publicized legal tool in France that allows firms to get enforcement agents to gather evidence ahead of a lawsuit. Birkin bag maker Hermes International SCA and Airbnb Inc. are among many firms that have tried using it, spurred by the lack of U.S.-style discovery.

Martinez and Chenu, now at Alvarez & Marsal, sued to overturn the search authorizations, but lost twice. The judges in the second attempt, an appeal in Versailles in November, said they “didn’t provide any valid explanation” for copying the files. Deloitte, Alvarez & Marsal, and lawyers for the two men didn’t respond to several requests for comment. Martinez and Chenu can still appeal to France’s top court.

“Clearly, it can be quite jarring to face a search by a bailiff,” says Paris lawyer Sebastien Schapira, who isn’t involved in the case.

But searches are only allowed in rather exceptional circumstances and there are strict safeguards -- such as sequestering evidence, he added, calling it a necessary and efficient tool.

“If you lodge a criminal complaint and wait for the police to run a search, it could take two years and by then any evidence might have disappeared,” Schapira said by phone.

The legal tool is also useful if a company buys a firm that unexpectedly turns out to be a poor performer and then wants to make sure the seller didn’t hide facts before the deal, according to Jean-Philippe Pons-Henry, a lawyer at Gide Loyrette Nouel.

“Generally speaking, it can be used when evidence is located somewhere inaccessible and it’s meant to help substantiate whether there’s any merit in bringing a lawsuit,” Pons-Henry said.

Obtaining an order is half the battle as they are routinely overturned by another judge and there’s no saying the courts will provide access to the evidence collected. Some companies even block the searches from ever happening.

Nearly a decade ago, LVMH Moet Hennessy Louis Vuitton SA famously tried to take over Hermes by gradually increasing its shareholding. What is less well known is that Hermes retaliated by getting clearance to send a bailiff to LVMH’s adviser, Lazard.

Hermes argued LVMH had deceptively built the stake by using swaps to avoid having to notify the market when its participation reached regulatory thresholds. That was enough to convince a first judge to authorize the search, but when the bailiff arrived at Lazard’s offices, the bank refused to let him in.

Hermes sued to force Lazard to comply but lost twice as courts ruled the search wasn’t warranted because there was no risk of evidence destruction.

Yves Lelievre, a former judge who issued one of the rulings denying the Hermes request, says that while the use of this investigative tool is legitimate, the courts are there to prevent abuses.

Lelievre, formerly at the Nanterre Commercial Court northwest of Paris, said judges frequently limit the keywords for searches and freeze access to evidence collected until claimants actually sue and then provide access only to what’s strictly necessary.

Companies must show probable cause to get court authorization to send a bailiff, and then they must make a case for accessing the collected evidence.

A search order Airbnb had secured was recently overturned. The hospitality platform wanted the bailiff to collect data from executives at a hotel association, AhTop, on suspicions they had formed a cartel and were trying to undermine Airbnb. The Paris commercial court said Airbnb hadn’t shown enough evidence such a plot was plausible to support the search and the judges added it could sue AhTop for disparagement based on publicly-available press releases. Airbnb said it has appealed.

In the Deloitte case, Martinez and Chenu denied sharing any confidential data with third parties and complained that the bailiff accessed personal information including their plans for New Year’s Eve.

The search authorization came mid-March 2018, two months before Alvarez & Marsal announced their arrival at in its Paris office as managing directors.

In addition to arguing they may have breached confidentiality and loyalty clauses, Deloitte suspected they had unlawfully tried to encourage other staff members to join their new employer. In just a few months, Deloitte’s Transaction Services team in Paris lost about a third of its members to Alvarez & Marsal.

That might be what really spurred Deloitte to act.

The search orders aren’t just useful for gathering evidence to support a lawsuit, Lelievre says, they are often used as leverage in settlement negotiations. While Deloitte may be targeting Alvarez & Marsal by going after Martinez and Chenu, none of the parties would say whether there are ongoing talks.

To contact the reporter on this story: Gaspard Sebag in Paris at gsebag@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser

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