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Kleiner Wants to Introduce Financial Motive in Pao Suit

"I'm caught a little off guard by this," Judge Harold E. Kahn replied.

Courtroom sketch by Vicki Behringer.

In a surprise move after the jury had left the courtroom for lunch, Kleiner Perkins Caufield & Byers lawyer Lynne Hermle asked the judge to reverse his ruling that Ellen Pao’s financial motive not be considered in her lawsuit against the firm.

“I’m caught a little off guard by this,” Judge Harold E. Kahn replied.

His decision could drastically change the course of this trial.

Hermle laid out a number of moments when Pao had commented on “why” she’d filed her lawsuit against Kleiner, where she’d been a partner until being fired in 2012. This included Pao’s “lengthy” explanation about wanting to create a level playing field for women in venture capital, how she wanted her voice heard and how she wanted Kleiner to feel the pain of not having dealt with its gender problems. Hermle argued the motives Pao provided were false, and the expression of motive means the evidence of Pao’s financial state can be admitted.

Kahn had said in his ruling that evidence of financial motive would not be admitted, adding something to the effect of “once the door is open it cannot be shut.” Which means: Once Pao’s team starts talking about motives, Kleiner should be able to talk about motives too.

What kind of financial straits was her family in when Pao filed this lawsuit? Bad ones.

When Pao filed her suit in 2012, her husband was having considerable financial difficulty. Kleiner wants to now submit evidence of a tax lien sent to Kleiner for Pao’s partnership interest, and bankruptcy filings of her family, including her husband. They want to say that because her husband’s hedge fund was doing poorly, her family needed money. Pao’s husband is a bit of a controversial figure, as you may have read in the long Vanity Fair profile of them. He also has a history of being litigious.

Hermle concluded: “I believe Kleiner Perkins is entitled to show that those are false, that her actual motive is a financial motive, supported by evidence of her financial need at the time, and I ask that you reconsider the ruling.”

The four times Pao offered motive for this suit were in response to questions from her own lawyer, Therese Lawless. These questions were:

1) Why did Pao send her January 4, 2012, letter complaining to the firm?

2) Why did she file the lawsuit?

3) Why is she still pursuing the lawsuit given she now has the position as the CEO of Reddit?

4) Why did she ask for eight figures?

From the Kleiner brief the week before the trial:

“Simultaneously Pao’s husband, Alphonse “Buddy” Fletcher Jr filed for bankruptcy on behalf of his hedge fund Fletcher Asset Management (FAM) when FAM failed to pay back pension funds that requested reimbursement of their investment. The appointed bankruptcy trustee ultimately issued a report stating that FAM had not a single profitable investment since 2007 (the year Fletcher married Pao) and had committed several improper acts, including using FAM assets to pay for Fletcher’s own expenses (such as his personal litigation, his brother’s movie business, and a salary for a mother). The trustee concluded that FAM’s business was similar to a Ponzi scheme, and media reports state that FAM is currently under investigation by the SEC. Some of Fletcher’s lawyer and thirteen law firms resigned from their retentions. One of them, Kasowitz firm, recently obtained a judgement against Fletcher personally in the amount of 2.7 million for unpaid fees.”

“Also in 2012, the year Pao filed suit, Pao and Fletcher sold their luxury condominium at the St Regis in San Francisco at a loss. Fletcher received multiple notices of tax lien for millions of dollars in past due personal state and federal income taxes, some of which were served on Pao’s KPCB partnership interests. Pao fought the liens to obtain payments from KPCB.”

Judge Kahn asked that everyone pause and “make some scribbles,” submit briefs by 6 and that he’d have a response by 7:30 pm tonight.

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