Legal Ethics Forum

An Ethics/Moral Puzzle for the New Year

Someone I know hired a landscaper to build a stone patio in his backyard.  The landscaper completed the job, and the person I know never heard a peep.  No bill.  Nothing.  After four months or so, it became increasingly apparent that the landscaper had dropped the ball (or perhaps the hedge clippers) and had somehow neglected to bill the homeowner for the patio, which probably would have cost in the neighborhood of $3,000. 

So here's the puzzle for you ethicists out there.  Does the homeowner have a duty to notify the landscaper about the bill?  If so, how long should the homeowner wait?  If you think the homeowner has no such obligation to notify, what's your reasoning? 

Although it's not a legal ethics problem, I found the issue to be ethically and morally interesting, especially since the homeowner in question has gotten a wide variety of answers to the question.  How would you legal ethicists out there have advised the homeowner to proceed, and why? 

Update: In addition to reading the insightful comments posted below, you can read my additional thoughts here.

Reporting a corporate investigation to a Board with adverse interests can destroy the privilege.

In an article titled, "Delaware Ruling May Let Plaintiffs Pierce Backdating Probes," American Lawyer Media covers an important case about loss of attorney client privilege. The key graf:

The Delaware court ruled Nov. 30 that the special committee investigating backdating at Maxim can't shield its final report and its communications with lawyers at Orrick, Herrington & Sutcliffe. One reason: The committee shared the results of the investigation with Maxim's board of directors, a third party with adverse interests.

Last Plea for Votes

We previously asked for votes in the ABA's Legal Ethics Blawg category, which matters to about five people.  Ok, maybe four.  In any event, we are now losing ground to the Legal Profession Blog in our attempt to win the coveted second place spot.  So vote for us.  Soon.  Have your children vote for us, too.

In all seriousness folks, thanks for reading the blog this year.  And special thanks to John Steele for keeping up the great posts while many of us have had our heads buried in exams.  Enjoy the holidays...even you guys at The Legal Profession Blog.

Mayer Brown partner criminally charged in Refco fallout

News story here (w/a nod to ABA's Daily News)  SEC press release here.  Indictment here.  As you may recall, after Refco went belly-up, Weil Gotshal filed a massive RICO action against Mayer Brown, alleging that the firm had participated in defrauding Weil's client, an institutional investor.  From the SEC's press release:

The Securities and Exchange Commission today charged the longtime, primary outside attorney for Refco Group Ltd. with aiding and abetting securities fraud violations at the now-defunct New York-based financial services and commodities brokerage firm.

The SEC filed a civil injunctive action in the U.S. District Court for the Southern District of New York against Joseph P. Collins, a partner at the law firm of Mayer Brown LLP, alleging that he substantially assisted Refco and its corporate successor, Refco Inc., as they failed to disclose hundreds of millions of dollars in related party indebtedness and related party transactions.

“Financial and disclosure frauds are often possible only if an attorney, an accountant, or some other outside professional assists,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “The Commission relies on these professionals to act as gatekeepers to our markets. We will aggressively pursue individuals who ignore their professional obligations and instead assist in their clients’ violation of the federal securities laws.”

Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement, said, “As a result of his longstanding relationship with his client, Collins was aware that Refco was hiding important facts from potential investors. Collins was in a perfect position to protect investors from being harmed, but chose instead to perpetuate the deception by actively assisting Refco’s fraud.”

The Commission’s complaint alleges that Collins, in the course of representing Refco, learned that Refco Group Holdings, Inc. (RGHI) owed Refco hundreds of millions of dollars. RGHI was a non-Refco entity controlled by Phillip R. Bennett, Refco’s chief executive officer. The complaint further alleges that Collins worked on, and oversaw other attorneys’ work on, short-term related party transactions that occurred regularly at the end of Refco fiscal periods from February 2000 through May 2005. In these transactions, a Refco subsidiary loaned hundreds of millions of dollars to third parties that, in turn, were obligated to loan equal amounts simultaneously to RGHI. Shortly after the ends of fiscal periods, the loans were reversed. Refco assumed hundreds of millions of dollars in potential liabilities in these transactions, in the form of guaranties and indemnification that it extended to the third parties to protect them from a default by RGHI or claims that might arise out of the loans.

In 2004, Refco placed $600 million in senior subordinated notes with certain financial institutions pursuant to an offering circular. In 2005, Refco commenced its initial public offering of common stock pursuant to a registration statement filed with the Commission. The SEC’s complaint alleges that the offering circular failed to disclose RGHI’s indebtedness, the period end transactions, and the related potential liabilities. It also is alleged that the registration statement failed to disclose the indebtedness and the potential liabilities. The complaint further alleges that Collins, while aware of the indebtedness and the transactions, reviewed and revised sections of the offering circular and the registration statement without inserting requisite disclosures regarding the indebtedness, the period-end transactions, and the potential liabilities.

The SEC’s complaint seeks a permanent injunction enjoining Collins from violating the antifraud provisions of the federal securities laws. The complaint also seeks civil money penalties against Collins.

In a related action, the U.S. Attorney’s Office for the Southern District of New York today announced the filing of criminal charges against Collins for his role in the Refco fraud.

The Commission’s investigation is continuing.

Two Career Couples and Conflicts of Interest: FTC Commissioner Declines to Recuse Herself

Here's an increasingly common problem: a two-career couple raises conflict of interest questions.  The FTC Commission Chair, Deborah Platt Majoras, has denied requests to recuse herself from ruling on the proposed merger of Google and Double-click.  Majoras's statement is here.  A news article on the issue is here.

According to Majoras's statement, her husband is a non-equity partner at Jones Day, where other lawyers are handling a related aspect of the merger proposal in Europe for Double-click.  Simpson Thacher is representing Double-click on the matter before the FTC.  Her husband is not working on any matters for any of the parties appearing before the FTC, and he's no longer an equity partner.  I don't have the government regs in front of me, so I can't comment on whether recusal is required.  But here are some thoughts:

• If this represents a mandatory recusal, it's hard to be a high-powered, two-career couple with one person in government law and one in biglaw.
• According to Majoras's statement, she formerly recused herself from Jones Day matters because her husband was an equity partner, but now she doesn't always need to recuse herself in those situations, because her husband became a non-equity ("fixed participation") partner.  If Majoras is legally correct, I assume that we will see that strategy adopted more often.  But note that fixed participation partners can still earn partner-like salaries, and that the salaries could vary year by year.  And it may be common that the biglaw spouse (or SO) bounces back to full equity status once her/his spouse finishes the government stint.  In other words, depending on the facts the strategy might be viewed as form over substance.
• The matter is a reminder that, to paraphrase Ron Rotunda, just because ethics are good things it doesn't mean that more ethics rules are always good things.  (Or, as I say, "sometimes 'ethics' is just a brick they throw at you.")  Ethics rules get used as strategic weapons by people with private agendas.  We need to find a golden mean: enough conflict regulations to protect the process and public confidence in the process, but not so many that we strangle the process.  Conflicts rules must be rules of reason and not rules of empty formalism.

Top Ten Legal Ethics Stories of 2007 (Updated)

UPDATE:  The California Supreme Court's decision in Rico v. Mitsubishi has moved onto the list, meaning that the Top Ten is now an even dozen -- and we could get to a baker's dozen by year's end.  The requirement of "stop and notify" isn't all that new but it provides guidance to the approximately 1 in 7 US lawyers practicing under a California license.  But that wasn't the only noteworthy aspect of the opinion.  The case bolstered the uniquely strong protection given to work product in California.  No doubt we will see some commentary and analysis on that in the next few weeks.

The other news story affecting the Top Ten is the op-ed by Morris Davis on why he resigned as prosecutor in Guantanamo.  (It was Davis who made ethics accusations against defense counsel Michael Mori, as discussed below.)  Davis resigned because of what he felt was political interference in the tribunal process. 

ORIGINAL POST: It's that time again.  As in previous years, I'm offering a list of the Top Ten Legal Ethics Stories of 2007, along with some "honorable mentions" after the jump.  (The honorable mentions in the International section after the jump were supplied by Laurel Terry.)  If we get some breaking news in the next couple of weeks, I will update this.

[update]  But, at the outset, let's recognize 2007 as the year that Robert Drinan, S.J., passed away after a lifetime of accomplishments, including incredible leadership in the field of legal ethics.  (nod to Legal Profession Blog for this suggestion.)

1.         Michael Nifong.  North Carolina prosecutor Michael Nifong, who led the prosecution of Duke lacrosse players, was himself held in criminal contempt; served a day in jail; and was disbarred.  The incident renewed focus on whether prosecutors are sufficiently constrained by the discipline process.

2.         After Pakistani president Pervez Musharraf abolished the Supreme Court and set aside the constitution, judges and lawyers protested for the rule of law, and were beaten and jailed for it.

3.        "The Vindication of Major Mori" was the apt title of David Luban's article about Major Michael Mori, who represented David Hicks, an Australian detained in Guantanamo.  Mori undertook a speaking tour, calling into doubt the legitimacy of the Guantanamo tribunals.  The chief prosecutor attacked Mori on legal ethics grounds.  The defense fired back at the prosecutor on legal ethics grounds.  In the end, Hicks obtained what everyone thought was a terrific settlement agreement, Mori received several awards for his zealous representation of Hicks, and Mori awaits promotion.

4.         Former Milberg Weiss lawyer Bill Lerach pled guilty to criminal conspiracy and will serve jail time.  He will not go quietly.  He continues to fire off op-eds decrying corporate fraud.  Former partner David Bershad also pled guilty.  The firm itself continues to fight the 2006 indictment.

5.         Pentagon official Cully Stimson apologized (January 2007) and later resigned (February 2007) his job.  Stimson had attempted to shame US law firms into ceasing their pro bono representations of Guantanamo detainees.

6.         In Qualcom v. Broadcom, the court issued multi-million dollar discovery sanctions for failures to produce emails and then waded into the thorny issue of who was at fault: the lawyers or the client.  The court immediately faced the issue of whether the threat of sanctions created an exception to the duty of confidentiality.  The case highlights the growing tension between firms and clients resulting from the heightened electronic discovery burdens.

7.         New rules.  New York took a huge step towards adopting the Model Rules and saw some of its new advertising rules enjoined on constitutional grounds.  California’s Rules Revision Commission (very slowly) headed in the same direction.

8.         Guild behaviors continued to give way to market behaviors.  Howrey Simon announced plans to formally abandon lockstep compensation for associates. (Many firms had previously accomplished the same result via various means.)  McDermott, Will & Emery announced their plans to create a second tier of associates.  Stanford law students began a site designed to disseminate information about law firms and thereby induce firms to improve their performance in terms of life-work balance and diversity.

9.         Ethics opinion 115 from the Colorado Bar Association stated that certain aspects of the collaborative law paradigm are unethical.  The ABA replied in August 2007 with opinion 04-447, which took the opposite view; collaborative law is permitted so long as the client is fully informed.  Doubtless, we will see experiments with collaborative law continue.  (My thanks to William Barker for emphasizing the ABA opinion.)

10.       Judge Kaplan dismissed federal criminal charges against thirteen of sixteen defendants in the KPMG tax shelter fraud litigation.  Judge Kaplan held that the government had coerced KPMG into improperly denying ex-employees funds for a legal defense.

UPDATE:  Just after I posted this, I got the first email asking me why a big story wasn't included.  Walter Olson of Overlawyered asks about the Dickie Scruggs story, and what can I say, except that it belongs on the list.  Maybe my top ten will become a baker's dozen.  If I've left out other major stories, please feel free to comment below.

Part-time firm jobs by gender

Bill Henderson has the facts, here.

I was named ABA's "2007 Lawyer of the Year" (runner up)

I am deeply honored about being named by the ABA as a "2007 (Runner-up) Lawyer of the Year."  (Take a grain of salt and then scroll down to the part about the "Lawyer-Blogger.")

I will delete any comments pointing out that Michael Nifong, Sooter Libby, Howard K. Stern, Monica Goodling, and Alberto Gonzales were also on the ABA's list.

UPDATE: I had hoped that the post would be understood as being in the same vein as all the bloggers who were Time Magazine's Person of the Year last year, and my thanks for Legal Profession Blog for getting my (poor) attempt at humor.

Members of Congress link accreditation and decline in African-American enrollment in law school

The story is, unfortunately, only for subscribers.  But here's the first sentence:

"Members of Congress are pushing for a detailed study of the accreditation process for the nation's law schools, claiming it may be partly to blame for a decline in black enrollment."

Rico v. Mitsubishi: stop reading and notify; DQ affirmed

The California Supremes have issued their opinion in Rico v. Mitsubishi,

Here we consider what action is required of an attorney who received privileged documents through inadvertence and whether the remedy of disqualification is appropriate.  We conclude that under the authority of State Comp. Ins. Fund v. WPS, Inc. (1999) 70 Cal. App. 4th 644 (State Fund), an attorney in these circumstances many not read a document any more closely than is necessary to ascertain that it is privileged.  Once it becomes apparent that the content is privileged, counsel must immediately notify opposing counsel and try to resolve the situation.  We affirm the disqualification order under the circumstances presented here.

UPDATE:  It appears to hold that core work product is not subject to the crime fraud exception.  That's new law to me, although perhaps I missed it before.