FORTUNE — David Boies is the most celebrated litigator in America. In the 1980s he defended CBS’s 60 Minutes in an era-defining defamation suit by General William Westmoreland. In the 1990s he led the government’s landmark antitrust case against Microsoft. In 2000 he represented Vice President Al Gore in the historic Bush v. Gore contests. This decade, he’s co-leading, with Gibson Dunn & Crutcher’s Ted Olson, the challenge to California’s gay-marriage ban, known as Proposition 8, perhaps the most momentous constitutional issue of our day. Now 71, he has tried six cases in the last 18 months. (See David Boies: Corporate America’s No. 1 hired gun)
David Bernick, 58, is a mass-tort lawyer’s mass tort lawyer. From breast implants to pharmaceuticals to asbestos to tobacco, he is not just a leading gladiator in this sprawling, amorphous arena, but one of the most incisive diagnosticians of the field’s woes.
Boies left his longtime partnership at Cravath Swaine & Moore in 1997 to found his own firm, Boies Schiller & Flexner, which is now an AmLaw 100 firm of 250 lawyers. Bernick left his longtime partnership at Kirkland & Ellis in 2010 to become senior vice president and general counsel of Philip Morris International, the world’s largest tobacco company (except for the Chinese state tobacco monopoly). This February he stepped down to return to practice, and in August he joined Boies’s firm.
The two lawyers spoke with Fortune about everything from putting financiers behind bars to whether the LIBOR scandal is the next tobacco case. Below is an edited transcript.
Much of the public is very angry about how few criminal prosecutions have emanated out of the financial crisis. What would you tell those people?
Boies: I think I would tell them three things. First, it’s important to distinguish between civil wrongs and criminal activity. Somebody may breach a contract, may negligently run into you on the highway. Those may be bad acts for which they are responsible for the damages, but they’re not criminal acts. And it’s very important that the prosecutorial power that we give US attorneys and district attorneys in this country be exercised responsibly, so that we don’t go after people for criminal violations just because it’s going to be good publicity or good politics.
Second, I would say that I think the prosecutors have been overly lax. It’s not that they have been negligent. But these are hard issues. In some of these financial areas the prosecutors were to some extent over their heads in terms of an ability to really find where the smoking gun was, if you will. It wasn’t because they were dumb. It was just because these are very, very complex issues, and they didn’t have all the background and all the resources.
The third thing is that you have seen a revitalization of regulation, and you’ve seen a clarification of some of the regulations. The rules of the road are being better defined now, and that is something that makes it more likely that you will see in the future criminal prosecutions.
Bernick: It’s pretty fundamental to make a distinction between a meltdown, which clearly took place, and malfeasance. The perception of the person on the street is that if you have such a catastrophe financially, there’s got to have been something done that’s wrong. And in some discrete instances I’m sure there may well have been. But when you have a meltdown like that, in a sense we all know that what accounted for it was fairly systemic. And if you have a systemic failure, that is highly unlikely — unless things are really wrong here in America — to have at its core criminal misconduct.
And it’s not like the government’s been sitting on its hands. They’ve been very active when it’s come to insider trading and other things. So I don’t think that the Justice Department has been reluctant to press forward.
Suppose you are advising a CEO who is about to be cross-examined. Are there any special considerations that come into play?
Bernick: The rules that ordinarily constrain questioning a witness in areas where they don’t have personal knowledge — that rule is kind of rubbery when it comes to a CEO because the CEO is presumed to speak on behalf of the company. Which is, in a sense, a fiction under the rules of evidence, but nonetheless, it’s something that’s allowed. Also, there are high expectations for a CEO’s performance.
Given those special circumstances, we often see people struggle with implementation. Because you see, in one extreme, the CEO is [instructed by his lawyer], “Only talk about what it is that you know.” Then you get the “I don’t knows” and “I don’t remembers” and “It came across my desk” and God knows what.
At the other extreme the lawyer [may say], “Well, I’m going to have the CEO show up for multiple preparation sessions and go through every document and examine every fact.” Both of those approaches are rife with problems.
I [aim for a] kind of a sweet spot, not necessarily in between, but different in kind. What’s critical is for the CEO to have an absolutely crystal-edged conceptual understanding of the case and how the case fits into the business and fits into that CEO’s own approach and own plan for the company. Because the CEO is likely to be somebody who can think conceptually and doesn’t need to know every single detail, but will do very, very well if they’ve got [that understanding and] can articulate it. That takes personal commitment by the CEO and time, but it’s not busy work and slogging time. It’s thoughtfulness. The CEO has got to speak to the case with personal conviction, and that’s a good target to aim for.
Boies: I agree completely. Trying to have the CEO either disclaim knowledge about most of the questions or answer every question in detail is something that no human being, no matter how talented, can do well. You’ve got to focus in on what the case is about. The CEO’s got to understand where the land mines are. But he can’t pretend to have detailed knowledge. What you’ve got to try to do is to help them focus on the key issues, the anchors that they can use in responding, and the general kind of answers that they can give that don’t give a false sense of precision, but do give the jury or the court a sense that this is somebody who is providing at least some information, even if it is at a general level.
How hard is it to get CEOs to follow your advice? Some must be incredibly headstrong.
Boies: CEOs have gotten where they are by paying attention to people whose views they have a high regard for. No CEO accomplishes what they do without relying on other people. And what sometimes happens is a failure of lawyering in the sense that lawyers, like all human beings, tend to have a certain regard for celebrities. In our world, CEOs are celebrities. So you tend sometimes not to treat them the same way you would a manager.
Plus they’re paying you.
Boies: Plus they’re paying you. They’re your customer, and you want them to be pleased with the result. So I think it’s sometimes a failure on the part of the lawyer really to be as clear and as tough as you need to be. I’ve had a couple of witnesses who were very difficult to get them to do what they needed to do, in particular not to answer questions that they didn’t know the answers to. And ultimately the lawyer simply has to say, “If you want to give away your case, give away your case, but don’t give away your case with me as your lawyer. If you want a different lawyer, that’s fine, but if you want me as your lawyer, you’re going to have to follow my advice.”
Let’s consider the Bill Gates deposition. [In August 1998 Boies, as the U.S. Department of Justice’s Special Trial Counsel, deposed Microsoft’s then-CEO Bill Gates on videotape in the United States government’s antitrust case against Microsoft (MSFT). Believing that it showed Gates being uncooperative and evasive, the government introduced the deposition at trial.] If I remember, that was more than one day.
Boies: Yes, it was three days of deposition: two days together, and then one day about a week later.
So suppose you had represented Bill Gates, what would you have told him?
Boies: Well, one of the things that I would have told him during the break was that he had to go back in and restore his credibility. And I probably would have taken him on some direct examination to do that. In fact, I think one of the biggest mistakes I made as a lawyer was not stopping the deposition at the end of that second day, giving them an entire week to work with him and bring him back and sort of clean him up and make him the kind of witness he could have been. I mean, he is smart, passionate, articulate. He’s somebody who could have been a killer witness for them. And for me to have given them the opportunity to do that over that week was just a rookie mistake that I shouldn’t make at that age.
Did they take advantage of it?
Boies: They didn’t really. And so, it’s better to be lucky than smart. But it was an opportunity that they had.
There have been a lot of pieces of journalism that ask the question, “Is such and such the next tobacco?” I’ve written some myself. “Is fat the next tobacco?” “Are guns the next tobacco?” It always seems that, ultimately, the answer is no. Was tobacco an anomaly?
Boies: I think tobacco was an anomaly. It was not unique. Tobacco and asbestos each shared a lot of common circumstances. There are a few instances where you have a health issue, like asbestos, like tobacco, that is very widespread and is subject to massive litigation. I think those are few and far between. I don’t think food additives, I don’t think fat, I don’t think guns, I don’t think lead in paint, any of those things, none of them are like asbestos and tobacco. That doesn’t mean that there aren’t other things out there that will be, but it takes something that is in very, very common use where the dangers of it are well-recognized for decades and yet it continues to be used, and where you have a lot of bad documents that are created over the course of decades.
And this goes to one of the things about preparing CEOs. There is always some [document] in every corporation that says both sides of every question. You get a big enough company and you can always find a document that will say anything you want it to say. And when you have documents like that in a health and safety area, they can have a very explosive impact in litigation.
Bernick: I guess my perspective is that tobacco is kind of an iconic product and the litigation is iconic. A lot of people think about the tobacco litigation in kind of a gestalt way. But really the tobacco litigation had lots of different elements and most of them really weren’t responsible for the traction that the litigation got and, ultimately, the most signal evidence of that traction, which is the enormous settlement. [In 1998 the four major tobacco companies agreed to pay $206 billion to 46 states over 25 years.]
The class actions essentially all failed. There was only one that actually went anywhere, which was Engle v. R.J. Reynolds, and it’s still going on today. It’s messy, but it’s under control.
Personal injury never resurfaced as being a viable individual case to be brought. There are some, but they’re not huge in number. The international cases — all of that was a fizzle.
The litigation really got underway with the state-based cost-recovery cases, which were essentially the states suing as insurers [for reimbursement of the money] the states paid for smoking and health illness. And it was the prosecution of those state cost-recovery cases by virtually every state of the Union, with the support and participation of the state AGs,that really was the core of the case and is what prompted the settlement. I guess one of the legacies of the tobacco litigation is the state AGs have realized the cooperation is a good thing, and we still see that today.
But cost-recovery you don’t see. And part of the reason for that is that the [settlement] happened so quickly. There wasn’t a lot of [appellate court] review. And when the cost-recovery cases [finally got heard by federal courts] — union health and welfare funds, insurance companies, blah, blah, blah — none of it worked. So that was a very distinctive feature that we will not see again.
Boies: Just underscoring what David says, almost all of the money that has been recovered — I mean, I don’t know whether it’s 99.9 percent, but it’s in that area — has been recovered from settlements, not from trials. That [tobacco] settlement was done at a time when you were uncertain about where the federal courts were going to go here and just how far the courts were going to allow the creation of sort of a special rule for one industry. Later I think you saw the courts were not prepared to do that, and so you saw these third-party payer cases routinely rejected by the courts. But you didn’t know that at the time of the settlement.
Well, now that you’ve agreed that probably nothing will be the next tobacco, my next question is: Is LIBOR the next tobacco? [LIBOR, the London Interbank Offering Rate, is an interest rate benchmark set by pooling data contributed by major banks. Banks are now under scrutiny for having allegedly provided false data during the financial crisis to manipulate LIBOR or conceal their internal troubles.]
Boies: [Laughter] I think not unless the defendants screw it up. And the reason I say that is that –
I should first ask, are you in it already?
Boies: Well, we are in various aspects of it. We represent, for example, Barclays (BCS). HSBC. Goldman Sachs (GS). We represent people who are, in some sense, on both sides of the issue: people who allegedly were hurt or maybe allegedly benefited from it. But the fact of the matter is that you’re not going to be able to demonstrate any significant amount of damages from what went on. Were there inappropriate things done? Certainly in isolated incidences there clearly were. And what people have seen in the press are these emails where traders are saying, “Can we manipulate the rate today?” Now, the thing to remember about those things is three things. First, those things happened very, very rarely. Two, they moved [the rate] an infinitesimal amount. Third, the people who benefited and the people who were hurt by that are hard to define and most of them were sometimes helped and sometimes hurt.
The other area is banks allegedly self-reporting interest rates lower than they were actually paying because they didn’t want to make it appear that they were paying higher interest rates than anybody else.
Now, first, the regulators knew what was going on.
Is that clear?
Boies: For years. And the regulators didn’t object for a very simple reason. What the regulators were trying to do is get the interest rates even lower themselves, so anything that lowered interest rates helped people, helped the economy. So the fact that the banks may have from time to time self-reported interest rates they were paying that were lower than what they were actually paying is hard to separate from what the government was doing, which was pushing down interest rates.
At the same time, the basis for liability is very amorphous. Most of the cases have been brought as antitrust cases. An antitrust case either requires monopoly power or collusion. None of the people had monopoly power over money, and these actions were all in the bank’s individual self-interest. You didn’t need any collusion for a bank to say, “I don’t want to be an outlier.” So you have an initial problem of demonstrating collusion. You then have a problem of demonstrating antitrust damages. And you have the fundamental problem, which is that interest rates were predominantly here being set and influenced by national and regulatory policies, not by the banks.
So was there inappropriate conduct that went on? I don’t think anybody would dispute that. Should the people that engaged in that inappropriate conduct be called to account? They should be. But is this going to turn into a massive sort of damages playground for plaintiffs lawyers? I think that is highly unlikely.
Corporate defendants have always complained about the cost of discovery. Now with e-discovery, they’re complaining even more. When you have to sift through millions of emails and stop computer tapes to preserve them and maybe scrape hard drives, there’s a different level of expense and disruption here, they say. Is there?
Boies: Yes. Discovery is out of hand. Judges are trying to rein it in. We’ve made a lot of progress. The approach when I started practicing law, which was that almost anything that you asked for in discovery you got, has become much more restricted. That was inevitable, given the expansion of documents that came first with widespread use of copying equipment and now with electronics.
The corporations need to get behind efforts to restrict discovery.
The problem is that in almost every piece of litigation, one side or the other will be benefited by broad discovery. So you’ve got to be prepared to make decisions not based on what’s good for you in a particular case, but what’s good for you and for the justice system over the long term.
Bernick: Yeah. In a sense the underlying problem is the sheer volume of email companies generate and preserve without really having a good process for getting it off the system on a timely basis.
Dewey & LeBoeuf, a 1300-lawyer firm with a 100-year pedigree, cratered in May, and almost no one saw it coming. What lessons do we learn from Dewey & LeBoeuf?
Boies: One lesson is that law is a business and that you cannot over-expand, over-promise, over-leverage any more than you can in any other business. Another lesson is that law is more than a business, that if you don’t have the professional collegiality, the glue that holds an institution together, you’re not going to be able to be successful. And I think that Dewey LeBoeuf ended up failing both tests. It didn’t operate as a very well-managed business, and it didn’t have the professional collegiality and glue necessary to hold this peculiar kind of business that you call a law firm together, in which you have partners, you don’t have permanent capital, you don’t have permanent shareholders. You don’t have the permanence of the corporate form of endeavor in which almost all other businesses are conducted. You have as your owners the people who are actually your managers and who are very independent-oriented people by nature. I think all those things mean that you need to have a sense of culture, a sense of institution that preserves the firm. And Dewey had that for many years. LeBoeuf may have as well. But they lost that. And when you lose that in the current environment, the results can be sometimes swift.
I wanted to ask David Boies: your dyslexia makes you an inspiration to dyslexic kids and adults. Does it still impact you and affect the way that you try a case?
Boies: Oh, it certainly affects the way I try a case. I think the net continuing impact is positive, not negative. Because of my inability to read notes with facility, I have developed a pattern where I will organize my thoughts and then speak extemporaneously around those thoughts without notes, and that is a continuing part of the way I try cases. I will still not read nearly as much as a lot of lawyers will, but that’s much less important at my stage. I now have lots of other people who do a lot of reading and help me get stuff.
There are also lots of words I don’t pronounce well, and my speaking vocabulary is probably — it’s less than half, for sure, of my reading vocabulary. So that affects the words that I use, which probably helps, because I’m tending to use simpler words and more familiar ones. Occasionally, I’ll be reading a document and one of those words that I don’t pronounce will come up. And what I often do is just spell that word.
Really? Can you remember one?
Well, I can remember one that I should have spelled. During the Microsoft case we would put up these documents, and I would read portions of them. And I kept referring to “lo-jin, lo-jin,” which of course was “log in” [written “login”]. And the first couple of times I had it, people were sort of mystified. And the second couple times people laughed. And finally somebody explained to me what it was.
Your firm is 15 years old now. A lot of clients come to your firm because they want to be able to say, “David Boies is my lawyer.” You are 71 now. Do you have a succession plan?
Boies: It depends what you mean by succession plan. We have been sort of planning succession from essentially the first day because both myself and [co-founder] Jonathan Schiller were mature lawyers. And then Don Flexner joined us a couple years later. So from the very beginning we tried to develop a firm that had an institutional quality that was independent of the three of us.
Part of our success is the extent to which we now have clients who are not interested in having David Boies as their lawyer. And we were talking about Barclays and LIBOR and that’s all being done by other partners. We have clients like Chevron, Bank of New York, HSBC that I’ve done essentially no work on. And today, probably 75 percent of the firm’s revenue comes from clients that I have not worked on. Of the 25 remaining, the vast majority of that comes from work that I do very little on, but they are at least clients that I have some contact with.
Show the flag.
Boies: Show the flag, show up at dinners, you know, and sometimes actually try a case. [Boies has tried six cases in the last eighteen months.] I still like to do that, and I still continue to expect to do that for some period of time.
The other form of succession planning is structural. And eight years ago we set up an executive committee, and we have now an administrative partner for each office. The administrative partners together form an administrative committee that deals with most day-to-day administration problems. The executive committee does most policy issues. The three main partners have the designation of the managing partner, and we continue to play we think a useful role in giving the firm the benefit of our advice and counsel. But more and more, the day-to-day running of the firm is done by non-managing partner members of the executive committee and by the administrative partners. So I think we are well on the way.
If I were to leave the practice tomorrow, it would hopefully have some effect on the firm, but it would be less than it was a year ago. It would be much less than it was five years ago. And I think it is more than it will be a year from now, and much more than it will be five years from now.