Legal Ethics Forum

Harriet Miers and the $22 million settlement

Larry Ribstein, Stephen Bainbridge, Gordon Smith, and Christine Hurt have all posted about a $22 million settlement that Harriet Miers's firm -- or rather its insurer -- paid out after one of the firm's corporate clients turned out to be a running a stock swindle.  In addition, the firm (or its insurer) paid out another $8 million after a similar incident.  All this apparently happened while Miers, a litigator, was the firm's managing partner.

Bainbridge takes the cautious route, saying only that the matter deserves some ventilation at the nomination hearings.  Who can oppose that?  But the smart money says that the staffers prepping for the hearing will quickly realize what a waste of time this topic is.  Ribstein's post is the most off-the-mark, concluding that Miers was a "sleepy gatekeeper" and tossing in some inexplicable, irrelevant comments about her firm's insurer.  Smith concludes that the matters impeach Miers's business acumen.  Hurt offers this conclusion: "However, given the low probability of any payout absent committing fraud, one must conclude that some evidence existed that the firm knew of fraud in the Ponzi scheme."  (Guess what?  Here's all the evidence a firm's insurer needs to decide to settle: the client turned out to be a swindler and the law firm was named as a deep pocket defendant by some sympathetic plaintiffs.)  Hurt also seems to be confused over who paid the settlement.

Except for Bainbridge's, the posts draw their negative conclusions without spelling out any premises.  I will presume that none of them are relying upon some unspoken, novel form of strict liability under which we don't need any facts about what Miers actually did or didn't do.  God help us all if that's the new standard for corporate and legal America -- or for academic America for that matter.

What do the facts show?  According to the Chicago Tribune article that is the primary source for their postings, the fleeced investors alleged that Miers's law firm should have known of the client's nefarious doings.  No proof is offered in the Tribune or in the postings that the corporate lawyers at Miers's firm -- let alone Miers herself -- had any such knowledge.  Critically, no facts are given about Miers's role, if any, regarding client intake, client interactions, work on the corporate matters, the firm's internal response to the revelation of the wrongdoing, the firm's review of its procedures, or the insurer's decsion to settle. 

Miers might have had absolutely zero responsibility for some of those functions.  For all we know her performance in those functions could have exemplary, blameworthy, proactive, tardy, competent, brilliant, clumsy, or whatever.  Without information of that type, no reasonable person can draw any conclusions whatsoever about Miers.  Certainly, not one of those posts provides any warrant for the conclusions being drawn.  I wish I could be kinder about this, but the Ribstein, Smith and Hurt posts ought to be withdrawn.  There are plenty of reasons to oppose a nomination as disappointing as this one, but we shouldn't work ourselves into such a lather that we are trashing people based on armchair speculation.

You don't see this every day

I am always interested to read cases applying Strickland v. Washington, and a couple of days ago the Ninth Circuit gave us a very interesting opinion.  Recall that Strickland presumes prejudice for certain violations, thus short-circuiting the harmless error analysis that can preserve a lot of convictions even in the face of pretty serious errors.  That presumption applies to denial of counsel, which (in my unrepresentative and incomplete sampling of cases) does not happen very often.

But in Plumlee v. Del Pappa (Download Plumlee.pdf )the court said it did happen.  Plumlee was charged with murder and armed robbery.  He suspected that the public defender’s office was not loyal to him.  Why?  The chief PD was friends with Plumlee’s roommate, who was also a suspect in the murder; Plumlee heard rumors that a lawyer in the PD’s office was leaking information to the roommate.  The first lawyer assigned to Plumlee took a job with the DA while the case was pending.  That lawyer’s replacement told Plumlee that there was no bail order in the case and that Plumlee was crazy to think there was, a charge adequately rebutted by the order, once it was found.

The distrust was so bad that Plumlee asked the court to replace the PD’s office and the PD’s office asked to be relieved, on the ground that it could not establish a meaningful attorney-client relationship with Plumlee.  The trial court denied the motion, Plumlee represented himself, and he was convicted.  The trial judge later said (in a state habeas proceeding) that he could understand why Plumlee distrusted the PD’s office.

But Plumlee was wrong. The trial court found that Plumlee’s distrust had no basis in fact. The PD’s office had fulfilled its duties to him.  Nevertheless, the Ninth Circuit reversed on the ground that Plumlee was constructively denied counsel when the court refused to substitute new lawyers for the PD’s office.  That conclusion rests on the further conclusion that Plumlee’s distrust was reasonable and in good faith under the circumstances, even though the facts showed no disloyalty.  There is a long dissent by Judge Bea, so it might be well to keep an eye on this opinion to see if there is further action, but you don’t see this every day.

And this from the court that managed to duck the question whether Theodore Kaczynski was leveraged by his lawyers into his plea. 

DM

Game theory and judgment

Everyone knows that judgment is the most important quality a lawyer can have.  There is some dispute over whether it can be taught or only learned.  I am inclined to the latter view.  I do not know whether clinical training does more for judgment than classroom teaching, as some have suggested (see Luban & Millemann, GJLE 1995), but for those of us who do not teach clinical courses the problem remains: the most important thing is something we cannot teach but must be learned by students who are reasonably but short-sightedly fixated on the MPRE. 

Worse yet, judgment is notoriously hard to pin down.  How can we teach it if we cannot say what its elements are?  We can show examples of good judgment and bad, but unless we can specify some generalizable aspect of the examples, some facility the exercise of which the examples reveal, there is no reason to expect them to be of much benefit in learning a generalizable skill. 

I don't claim to know what judgment is, but I do think two important parts of it can be specified.  The facility of judgment is dynamic and interdependent.  That is to say, to exercise good judgment one must think ahead, several steps down the road, and one must think in terms of how those affected by some decision will react to it.  I decide, you react, I react to your reaction, you react.... and so on.  A lot of mistakes are made by people who never think in terms of an endgame, and who fail to think about how others will see them and react to their actions.

Game theory is a branch of economics that focuses on dynamic and interdependent decision-making.  I think its principles are important to the PR curriculum.  I don't want to suggest it is a perfect substitute for other sources of judgment, but it is very valuable in demonstrating the importance of thinking dynamically and interdependently. (With the Nobel Memorial awards this year, it also is the subject matter of two prizes, including John Nash's.)

The most familiar example is, of course, the prisoner's dilemma.  I suppose everyone does this, but I use it to introduce criminal conflicts and joint defense agreements.  Once you show students the coordination problem, you can present joint representation as a solution (the Edward Bennett Williams old-school "everyone inside the tent pointing out (I bowdlerize), no one outside the tent pointing in) approach. Conflict rules can disrupt coordination (through counsel) that solves the game, thus creating a risk of defection (confession in the classic game) that joint representation minimizes.  Joint defense agreements can be seen as another move in the structure of the game, contractually re-creating the confidentiality joint representation previously provided, and which might facilitate cooperation, but which might not be available because of conflicts, absent the JDA.

Another example, also involving the prisoner's dilemma, can be found in Robert Axelrod's wonderful book The Evolution of Cooperation (retrospective here), and its  endorsement of tit-for-tat as an optimal strategy for repeated games.  Tit-for-tat is a strategy in which you cooperate in round one of a game and then repeat the other player's move in each subsequent round.  I.e., you cooperate if they do, but you defect if they do, too.  Axelrod ran computer simulations showing that this strategy best induced cooperation.

How on earth could that apply to real lawyers?  Discovery conduct is one example, on which I can offer an anecdote.  I had got so fed up with the posturing and time-wasting of discovery spats, that once I tried explaining to opposing counsel that I would play discovery by cooperating in our first encounter and then by following whatever they did.  If they cooperated rather than pounded the table and made unreasonable demands, I would cooperate too.  If not, I would respond in kind. 

I cannot vouch for the effect of the statement--talk is cheap--but I can vouch for the effectiveness the strategy. Very early on you learn that you if you ever want a break yourself, you have to be willing to give one, but if you always give breaks as a strict rule, you may never get one.  You have to be willing to respond in kind.  That doesn't mean breaking any rules (I am talking here about things like agreeing to extensions and scheduling things to accommodate the other side), but it does mean exercising discretion in a way that makes cooperation more likely.  It would be nice if things were different, but they aren't.

There are problems with applying game theory to law.  If you add players and variables to approximate real-world decision-making, things can quickly get so complicated that results become indeterminate, which one might describe as "multiple equilibria are possible," re-translatable as "it depends."  But its not as if moral philosophy is conclusive and determinate, either.  The principles of dynamic and interdependent thinking are central to judgment, which is central to law, and game theory helps us think about them.

DM

 

A few of my favorite things

John asked (in comments on the Spaulding post) for some law & econ / ethics articles that I enjoy.  Here are a few, subject to the caveat that I haven't had time to put together an exhaustive or even well-rounded list.  If your article should be here and isn't, my apologies.  I'll break them into a couple of groups.

First, here are a couple of pieces that work from an economic perspective but which do not take an overtly "law & econ" point of view.  They both come out of an interesting flurry of writing concerning the OEO LSP (Office of Economic Opportunity Legal Services Program), the precursor to the LSC.  The Cahns piece is a follow-up to an article they wrote advocating a neighborhood law office program.  They are a good mid-sixties example of how an economic perspective highlights the costs of licensing and other notions of professionalism.  The Hazard piece concerns the then-hot debate (maybe it still is) over whether anti-poverty lawyering should focus on casework or law reform.  Economics has some things to say about that, but I will save them for a different post.

Edgar S. & Jean Camper Cahn, What Price Justice? The Civilian Perspective Revisited, 41 Notre Dame L. Rev. 930 (1965)

Hazard, Social Justice Through Civil Justice, 36 U.Chi. L. Rev. 699 (1968)

 

Here are what I think of as some bread and butter articles, and a good recent casebook.

George M. Cohen, When Law and Economics Met Professional Responsibility, 67 FORDHAM L. REV. 273, 283-88 (1998)

Cooter & Freedman, The Fiduciary Relationship: Its Economic Character and Legal Consequences, 66 N.Y.U. L. Rev. 1045

Ronald J. Gilson,  Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 Yale L.J. 2349 (1984)

Ronald H. Gilson & Robert M. Mnookin, Sharing Among the Human Capitalists: An Economic Inquiry Into the Corporate Firm and how Partners Split Profits, 37 STAN. L. REV. 313, 332, n.32 (1985).

Randal Graham, Legal Ethics (for a review see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=819984)

Langevoort & Rasmussen, Skewing the Results: The Role of Lawyers in Transmitting Legal Rules, 5 S. Cal Interdisciplinary L.J. 375 (1997)

Macey & Miller, An Economic Analysis of Conflict of Interest Regulation, 82 Iowa L. Rev. 965 (1997)

Richard Painter, Rules Lawyers Play By, 76 N.Y.U. L. REV.  665 (2001)

Larry Ribstein generally, including Ethical Rules, Agency Costs, and Law Firm Structure, 84 Va. L. Rev. 1407 (1998)

Carl Shapiro, Investment, Moral Hazard, and Licensing, 53 Rev. Econ. Studies 843 (1986).

Here are a couple of recent favorites:

Langevoort, Opening the Black Box of Culture in Law and Economics
http://www.law.umich.edu/CentersAndPrograms/olin/papers/Fall%202005/langevoort.pdf  (I cannot say enough good things about Langevoort’s work; I really think he is pointing us in the right direction)

Laura Beny, Reflections on The Diversity-Performance Nexus Among Elite American Law Firms: Toward A Theory of A Diversity Norm

http://olin.stanford.edu/schedule/2005-fall/20050922.pdf

And I never recommend any law & econ piece without also recommending the indispensable Mr. Leff:
Arthur Leff, Economic Analysis of Law: Some Realism About Nominalism, 60 VA. L. REV. 451 (1974).

I should say, none of this substitutes for at least a good micro text, Posner's Economic Analysis of Law, or Cooter & Ulen, and at least Game Theory and the Law, by Baird, Gertner, and Picker. One of the nice things about using law & econ to think about PR is that the methodology allows you to think about it in context of other fields.  That has its downsides (Leff thought it was tunnel vision), but I think there is a lot to be said for looking at doctrines across fields rather than just within them.

DM

Judith Miller's lawyers

There is something very odd about the representation of Judith Miller with regard to her grand jury testimony. White Collar Crime Prof  Blog has nice a nice post on it  here.   As I understand it, her lawyer, Floyd Abrams, gets from Joseph Tate, counsel for her source, I. Lewis Libby, a release from her promise of confidentiality to Libby.  She decides the release is ambiguous, that Libby has been coerced into it, and does not really want her to testify. 

Presumably she and Abrams talk about this.  But Abrams does not call Tate back after hearing Miller's interpretation--there is no "look, just level with me and let's be clear about this" call.   Time goes by, Miller goes to jail, articles on press freedom are written, hands are wrung, and then Bob Bennett, who also represents Miller, calls Tate back. Tate says Miller was free to testify all along. He assumed she was covering for someone else.  None of this was necessary. 

Then, to top it all off, Ms. Miller testifies that she cannot remember who gave her the name "Valerie Flame" in her notebook, which so far as I can tell, was the big question Mr. Fitzgerald wanted answered.  She went to jail to protect, at least in part, a source she does not recall.

I don't know what to make of this.  Mr. Abrams does not look particularly good, since his client had to go to jail over a misunderstanding that went through him, but it may be Mr. Tate's fault instead or as well.  Arianna Huffington has suggested that Ms. Miller chose to go to jail to erase the stain of flawed reporting regarding WMDs in Iraq.  That is quite a conjecture, and I am inclined not to accept it absent more concrete evidence. 

If we abstract from this particular allegation, though, the episode is a good lesson in how complex the seemingly simple task of communication can be, and how important it is for lawyers to be clear about the context in which they are operating, if for no other reason than to be clear about what counts as clarity in that context. It also may (or may not) be a lesson in the need for lawyers to understand their clients' agendas.  Reporters are sometimes accused of being used by officials who leak strategically, and cautioned to beware of that risk.  Lawyers face a different but related risk.  If a client such as Ms. Miller did have reasons to treat a clear communication as unclear, then the lawyer who transmitted the communication can wind up looking bad.  The client's interests and the lawyer's reputational interest may diverge, which is a difficult situation.

DM

 

Liability rules and Spaulding v. Zimmerman

I want to offer a couple of comments on economic analysis of legal ethics.  There has been a fair bit of work on this intersection, but not as much as other fields in which I have taught, such as antitrust, IP, securities regulation, contracts, and corporate law, where economic approaches dominate.  Recognizing that economic analysis will always have trouble with certain important questions (on which all other approaches will have trouble, too--comparative advantage is the only kind), I’d like to see that happen in PR, too. 

To kick things off, I want to explain why I see Spaulding v. Zimmerman, 263 MN 346 (1962), differently than many of my friends in the PR field.  In the version I hear most often, I hate it, though I have hope for it as an example of how confidentiality obligations could be treated as liability rules.

You know the case.  The plaintiff, a minor, is injured in a car accident.  The defendant orders a physical examination, which reveals that the plaintiff has a potentially fatal heart condition.  Plaintiff’s counsel does not ask for a copy of the exam report, to which plaintiff is entitled.  The case settles, the court approves the settlement (because the plaintiff is a minor), and life goes on.  An Army doctor later spots the condition, and the plaintiff sues to re-open the case, arguing that he should get more money because the accident might have caused the condition.  The court gives the plaintiff more money, but manages to clear all the lawyers on the ground that defense counsel had no duty to warn the other side (but did have to tell the court so it could evaluate the fairness of the settlement). 

Most people I talk to treat the case as an example of role immersion run amok: how could anyone, even acting as a lawyer, let this poor plaintiff walk around with a potentially fatal condition and not warn him? 

I don’t like this spin on the case because putting things this way misses a couple of important points and promises answers I doubt any of us can deliver.  The important points are that there was genuine incompetence in the case—plaintiff’s counsel should have asked for a copy of the report--and should have paid for failing to do so.  But for this carelessness, the right amount would have been paid up front and the costs of subsequent proceedings would have been avoided.  The careless lawyer should bear the cost of his error. The court avoids this result by finding a duty to disclose to the judge, which is nice to the careless counsel but is an unprincipled (or at least not generalizable) out, available only because the plaintiff was a minor.  On the facts, Spaulding is not only this day and train only; it is more like half a seat. 

The second point stems from the suggestion, in an excellent article on the case by Roger Crampton and Lori Knowles, 83 MN L. Rev. 63, that defense counsel did not tell his client about the plaintiff’s injuries because counsel was looking out for the insurer, which paid for the representation and settlement.  The parties were apparently friendly, so if defense counsel had kept his client properly informed (and in this case that means telling the client about the report), the client probably would have ordered counsel to share the information, even if it cost the insurer money.  That story is not in the case report, but it suggests that both lawyers acted badly, but neither paid.  (This article also reports the tragic fact that the plaintiff lost his voice because the heart condition went untreated.)

But the point I think most important is that there is a difference between the morality of disclosure and the costs of disclosure.  Suppose that in Spaulding the client was told of the report but wanted it kept secret.  Counsel urges disclosure but the client refuses.  Counsel just can’t live with himself if he keeps quiet, so he discloses, and a case that would have settled for $10 settles for $20.  Who pays the marginal $10? 

I think the lawyer should pay.  I see no reason why it should be the client, whose moral code is by hypothesis untroubled by silence.  If the lawyer enjoyed the moral utility of disclosure—having a clear conscience--then the lawyer should pay.  It is true that having to pay makes disclosure less likely, but so what?  The lawyer would be paying only for costs he or she created (assuming the baseline legal rule allows silence), and there is nothing unfair about that. 

The standard Spaulding narrative, which as I hear it does not suggest to students that morality requires them to bear the costs of their actions, therefore presents a case in which the misconduct of the lawyers in the case goes unpunished and therefore might suggest to students that they might want to do the right thing, which will also be free to them (though not their clients) somehow.  (I don’t want to overstate this—perhaps many of you make just this point when you teach the case—I can only go on what I have heard.)

This gist of my suggestion is that when disclosure will produce a concrete benefit, client confidentiality should be protected with a liability rule, not a property rule (which would imply enjoining disclosure if the client found out ex ante and punishing it if the client found out ex post), so that a lawyer could choose to disclose and pay damages, which is of course a variation on Holmes's definition of a contract.

Disciplinary rules complicate my nice story.   If disciplinary rules do not allow disclosure, then the lawyer would have to calculate the expected cost of discipline and add it to the marginal increase in settlement.  The risk of discipline might silence lawyers who value a clear conscience at $10 but who think the cost of disclosure would be $12.  (I’ll talk later about how anyone might derive these numbers, and whether it is good or bad to think this way.)

We could deal with this problem by creating an exception to confidentiality rules for counsel who compensate clients for harm they cause through disclosure.  In other words, the disciplinary rule and agency tort structure would merge in this case.  (Discipline might internalize reputational externalities for all lawyers, but I very seriously doubt that those are significant, so I will disregard that risk for now.)  The rules are rules of reason, and I have a hard time seeing significant discipline being handed down for disclosure in Spaulding-like cases, so the expected cost of discipline may be low enough that my suggestion is in reality what students face, which is all the more reason to put Spaulding to them this way. (This suggestion would improve (though perhaps only slightly) on MR 1.6 by freeing lawyers from worries over whether harm was "reasonably certain."  Payment of the marginal settlement cose would create a safe harbor from discipline.)

There are problems here.  Most obviously, if a lawyer paid only the marginal increment due to disclosure, he might have an incentive to agree to a higher-than-necessary settlement in order to limit that marginal amount and thus his disclosure cost.  (I.e., he might recommend that the client accept an opening offer of $19 even if he thought he could get it down to $10, just so he would be liable for $1 rather than $10 when he disclosed.)  Alternatively, counsel might wind up engaging in side bargaining with the plaintiff, offering to disclose information of value to the plaintiff if the plaintiff kicked back part of the settlement to the lawyer.  (An anodyne version of this scenario is that the lawyer bargains down the cost of settlement.) But even partial cost-bearing is better than none, or at least not obviously worse, so this point should not foreclose efforts to design such a system.

I offer this as an example of how an economic baseline might help us think differently about an old issues such as client disclosure: we should not just limit ourselves to trying to specify some set of cases in which community morality stays the hand of discipline.  If agency creates financial risks to disclosure, which it does (disclosure in this case would be disloyal, though perhaps justifiably so), why not put that fact up front and tailor the rule to it?

Against this one might argue that the lawyer should not have to pay because the client is not entitled to counsel who pushes for every last advantage, and otherwise plays the hardest ball possible.  That point is true, and if it were feasible to specify up front what a lawyer would and would not do, I would hold lawyers and clients to those specifications.  But any specification will be incomplete—Spaulding is memorable in part because it is unique, and thus would be an unlikely subject of ex ante contracting—and I think most clients expect that lawyers will press for any lawful advantage the client wants.  Giving effect to that expectation, which I think of as the reliance interest in legal ethics, will minimize transaction costs and is justified on that ground.  (We can talk about penalty defaults later if you want to.)

That leaves broad lessons about the nature and scope of role morality, and this is what I had in mind earlier in saying that to emphasize this aspect of Spaulding is to promise answers we don’t have.  I don’t think there is a single answer to lawyer role questions, and I certainly don’t have it.  The best we can do is invite students to think about their own orientation toward the material and make their own calls.  That exercise will be more fruitful if they think about the costs of their actions, and who bears them, as well as the benefits.

DM

David McGowan on San Diego's City Attorney and "Who's the Client?"

[David McGowan, of the University of San Diego, offers these thoughts on the issues raised by the San Diego City Attorney's recent doings.]

Brad and John have kindly allowed me to guest-blog for a bit. I want to start with the San Diego City Attorney controversies, and then I’ll offer some thoughts on where I think PR scholarship and teaching should be headed and how it should get there.

On October 11, the San Diego City council held hearings on the role of authority of the City Attorney The debate focused on who gets to decide whether to file suits. The issue of the City Attorney’s authority is of course much broader than that, but I will track this focus.

Everyone agrees that the City Attorney represents the City as such. The question is who decides what the City’s interests are and what it should do. The current City Attorney, Michael Aguirre, claims that he decides what the City’s legal interest is. He relies on the fact that he is elected, plus some language from the City Charter, which I will discuss in a minute. Some members of the City Council disagree. Other members say they are not sure what to think.

I will divide this subject into the law and the politics, though obviously the two are tightly bound together, and then draw some general lessons from our current predicament.

Who Does the City Attorney Represent?

We previously discussed Michael Aguirre, the combative, confrontational City Attorney for San Diego.  We also discussed the difficult question of "who's the client" for government lawyers.  Here's an article out of San Diego about an entire City Council meeting, replete with dueling ethics experts, on those questions.

Judge Removed for Viewing Porn

In September 2005, a judge was removed from office for having reviewed pornography on his office computer. The Kansas Supreme Court opinion did not actually address whether the behavior violated the judicial canons (the judge didn't appeal the findings that repeatedly viewing porn despite regulations to the contrary constituted a violation of the judicial canons). (If the link doesn't work -- http://www.kscourts.org/kscases/supct/2005/20051007/94647.htm is the url.) 

I don't know, but this seems like a weird one to me.  I don't see the nexus between judicial decision making and this conduct, except perhaps in cases involving indictments for violation of obscenity laws.  Is it that he violated "the law" and so can't be a judge any more?  If so, is a speeding ticket the same (please don't flame me, I'm not suggesting pornography has no harmful impact, but speeding does, too).  In fact, you can read this opinion as suggesting that watching porn is "worse" than actual in-person sexual harassment. ("He relies upon Kansas cases involving inappropriate sexual relations or advances as well as nonsexual misconduct cases which he contends involved more egregious misconduct; in these cases the judges were not removed from office.") Am I just missing it on this one?

Becoming an Ethics Lawyer

I've received a few questions from students interested in developing into legal ethics specialists.  (Of course, in some states, you can't even say you're a "specialist," so let's say "practitioners" and leave that issue aside for now.)  How can a new lawyer gain expertise in this field?  In the extended post is the text of an email I sent to one of my former students who was joining a typical biglaw firm, doing typical first year associate work.  There are other paths to legal ethics work, as I mention in the email.