Legal Ethics Forum

Legal ethics round-up (July 31, 2010)

• The LA Times reports that the lawyer who represented the city of Bell, and who had a hand in approving huge salaries for city officials, has been sacked as city attorney by another California city, Downey.  There are no allegations of impropriety being made, but Downey wants to distance itself from scandal.
• If a lawyer offered discount fees to clients who would have sex with him, should the lawyer be suspended or disbarred?  Additional story, via ALM, here.
• Clifford Chance predicts that India will be open to foreign law firms within two years, if an expected trade agreement is finalized.  (h/t: The Lawyer)
• In light of the prior item, which demonstrates the pervasive role of regulatory law in today's legal profession, here's a link to a new article by John Flood, focusing on the UK and international contexts and titled, appropriately, enough, "From Ethics to Regulation: The Re-landscaping and Re-Professionalization of Large Law Firms in the 21st Century (Part 2)."  (More from Flood here.)  In the US, regulatory control will presumably come not through one agency but rather through piecemeal control as Congress enacts statutes and as the US enters into trade agreements.  
• It's not legal ethics, but Carrigan v. Commission on Ethics of the State of Nevada is a case where a public official disclosed a personal interest in a matter and then voted on it -- only to be brought up on ethics charges.  The Supreme Court of Nevada reversed on First Amendment grounds.
• Life after the Bar has some good tips on how lawyers should conduct themselves online.
• Cross-professional comparison: a lawyer talks about the ethics of poker. 
• A new California Court of Appeal case, Tucker v. Pacific Bell Mobile Services, deals with a lawyer who used notes on a yellow pad to coach the witness on the critical issue, in front of opposing counsel and with questions pending!  That's objectionable, even just as a matter of lawyerly craft.

Congress Goes After Rangel, Waters and Other Examples of Individual Corruption

Meanwhile systemic corruption is ignored.
 
In my 2009 book on government ethics,
 
http://www.oup.com/us/catalog/general/subject/Law/FederalPractice/?view=usa&ci=9780195378719 
 
I make the distinction between personal corruption and systemic corruption.
 
Government ethics rules are obsessed with the former (personal conflicts of interest from employment 
and investments, financial disclosure forms, and gifts) and give relatively little attention to the latter 
(the influence of campaign contributions, the influence of lobbying firms, the revolving door between 
government and the private sector, etc.).
 
The cases against Charles Rangel and Maxine Waters are yet more examples of this phenomenon.  
I have little sympathy for these two Members.  I have even less sympathy for fellow Members 
who say these two examples of personal corruption bring discredit upon the House.
 
Whatever Congresswoman Waters did or did not do, the financial crisis was not caused by the 
fact that some minority owned bank in Boston that I never heard of until today had too much 
influence in Congress.  I have no idea whether the Bank needed a $50 million bailout.  I have been 
worrying instead about the billions going out the door to big New York banks that desperately need 
the money to pay bonuses and resume their constitutionally protected role as financial supporters of 
our political process. 
 
Meanwhile, Congress refuses to pass legislation that would do something --
although not much -- about systemic corruption through undisclosed political spending.
 

Who gets to enter the profession?

Via Tax Prof Blog, the ABA comments on the effects of the USN&WR rankings (and, as best I can tell, throws up its hands in quiet resignation at the inevitability that those rankings will continue to reign).  The ABA committee is particularly concerned that the rankings drive up the cost of law school, decrease the availability of need-based financial aid, and reduce diversity.

In this article, the authors -- Ralph Clifford, Thomas Field, and Jon Cavicci -- suggest that the PTO excludes too many computer science types whose expertise is sorely needed.  Abstract:

Among the many factors that impact the declining quality of U.S. patents is the increasing disconnect between the technological education patent bar members have and the fields in which patents are being written. Based on an empirical study, the authors show that too few patent attorneys and agents have relevant experience in the most often patented areas today, such as computer science. An examination of the qualification practices of the U.S. Patent and Trademark Office (“PTO”) suggests that an institutional bias exists within the PTO that prevents software-savvy individuals from registering with the Office. The paper concludes with suggestions of how the identified problems can be corrected.

Eighth Circuit unhappy with two sets of lawyers feuding over referral fee

In Eng v. Cummings, McClorey, Davis & Acho, the Eighth Circuit expressed its unhappiness over a referral fee arrangement between a Michigan firm that didn't learn and follow Missouri's rules and a Missouri firm whose conduct was inconsistent with the legal position they later asserted.  Bottom line: the referral fee agreement is unenforceable, but the Michigan firm can proceed with a fraudulent inducement claim.  Opinion on this page (scroll down to 7/9 opinions); news story here.  (A few years ago in California, we had a similar case in California, Chambers v. Kay, where a failure to mind the formalities meant that a fee sharing agreement was unenforceable.)

Legal ethics odds and ends (July 30, 2010)

• White Collar Crime Prof Blog reports on a Seventh Circuit decision strongly admonishing a prosecutor for contriving to get some hearsay to the jury.
• The Economist looks at the globalization of law, and at potential impediments.
• In Preston v. Mariner Health Care Management, the Fifth Circuit affirms per curiam a ruling that plaintiff's legal malpractice claim was barred by res judicata.
• In Rivers v. Moore, Myers & Garland, LLC the Supreme Court of Wyoming affirmed a summary judgment for the defendant law firm, where the plaintiff could not present a question of fact regarding its claim that the lawyers' malpractice prevented the plaintiff from being able to build a larger building on the property he bought.
• "Mullett right choice for probate judge."  I thought it was a bad suggestion about hairstyles, but it's just an endorsement.

Political Theatre and the Trial of Congressman Rangel

If display of scripture were allowed in public buildings, this would be my choice for inscription above the door of the House Ethics Committee:

 

“And why beholdest thou the mote that is in thy brother's eye, but considerest not the beam that is in thine own eye?”  Mathew 7:3

 

Congressman Rangel has been charged with multiple ethics violations, including:

 

1. Rangel accepted gifts worth more than $50, which are prohibited.  The gifts he received – including rent stabilized apartments in Harlem for himself and for his campaign office – exceeded the allowed amount.  Most of the gifts did not count as campaign contributions, which if properly accounted for may be worth much more than $50.  House members routinely take advantage of the fact that the gift ban does not include campaign contributions and also exploit the even more lenient rules for 527s and other off the books campaign entities blessed by the Supreme Court.  What House members don’t do is waste their time with personal gifts.  Because Rangel took personal gifts exceeding the allowed amount, ethics charges against him will focus public attention on his ineptitude instead of the fact that Congress has little interest in passing legislation requiring transparency in corporate campaign spending.
2. Rangel did not declare and pay taxes on income he earned from a beach villa in the Dominican Republic.  This is bad.  We all pay taxes and so should Members of Congress.  The fact that the Treasury Secretary also can’t fill out his tax return correctly is no excuse.   
3. Rangel solicited donations from corporations and foundations for a school built in his honor at City College of New York.  He solicited donations for a school?   Other Members of the House raise money for worthwhile causes, and he wastes his time soliciting donations for a school?  Has he never heard of the Democratic National Committee?  Doesn’t he have a PAC?   If he has a safe seat, doesn’t he want to help raise campaign money for other members?  But a school; that is lame.  Rangel also apparently helped preserve a tax break for an oil executive who had donated to the school.  House members routinely preserve tax breaks for campaign contributors, but people who donate money to charity already get a tax break and are hardly entitled to more.  And the fact that the school was named for Rangel is also bad.  Other Members put their names on Acts of Congress (recall how hard Congressman Oxley fought for the financial reform bill that became the Sarbanes-Oxley Act of 2002 and how hard Senator Dodd fought for financial services reform before passage of the Dodd-Frank Act of 2010).  Schools, on the other hand, are named for Members after they retire.
4. Rangel’s financial disclosure forms had substantial omissions.  He obviously should have been more careful.  Everyone knows that these forms are enormously important in government ethics.  Ethics lawyers spend much of their careers helping government employees fill out the forms accurately.  It does not matter that Members of Congress – unlike Executive Brach employees – have wide latitude to participate in matters that affect their personal financial interests.  It does not matter that Members of Congress and Executive Branch employees alike have wide latitude to participate in matters that affect the financial interests of political supporters and campaign contributors.  Financial disclosure forms help reassure the public that government is ethical, and Rangel’s failure to make even a token attempt to keep up appearances has brought discredit on the House.

In sum, I do not approve of the Congressman’s actions if the allegations against him are true.  He was wrong.  I wonder, however, how his House colleagues can take action against him without acknowledging the more serious breaches of the public trust that have become a part of everyday political life.

 

All this reminds me of the day, nearly twenty years ago, when I saw a man playing three-card monte on a cardboard box with gullible pedestrians outside 85 Broad Street in New York City, which is the headquarters of Goldman Sachs.  Suddenly three plain clothes police officers descended upon the man, kicked over the box, took his cards and money and told him to get lost.  Con games of this sort (this one goes back to the Fifteenth Century) are unacceptable in our financial district, and it is reassuring that law enforcement is there to protect the public.

Kenneth Feinberg to Disclose His Compensation

Kenneth Feinberg has announced that he intends to disclose how much he is being paid by BP to administer its $20 billion compensation fund.  The announcement appears to be in response to various questions concerning Mr. Feinberg's previous unwillingness to discuss the financial arrangements.  Professor Byron Stier's original post about the issue is here, and his update is here.  (We also discussed the issue in this post.  Forbes covers the issue on its blog here.)

Showdown leads to recusal of Chief Judge

Main Justice carries a story you don't see everyday: US Attorney Patrick Fitzgerald clashed with Chief Judge James Holderman twice on the same issue and the appellate court bounced the judge from the case.

Lester Brickman, "Anatomy of an Aggregate Settlement: The Triumph of Temptation Over Ethics"

Article here.  (h/t: Legal Theory Blog)  Abstract:

In an aggregate settlement, usually of a mass tort claim, a defendant agrees to pay a specific dollar amount to be divided up by the lawyer among her multiple clients which may number in the hundreds and even thousands. Each client, therefore, is in competition with all of the lawyer’s other clients suing the same defendant for a share of the fixed sum. Rule 1.8(g) of the ABA Rules of Professional Conduct requires that each client give their informed consent to their allocation. To facilitate the settlement and the often quite substantial contingency fees to be earned, lawyers may mislead clients into believing that the amounts allocated to them were the result of individual bargains between their counsel and the defendant. Indeed, notorious examples of lawyers’ failures to abide by the rule abound in the literature. 

At a recent conference to consider the ALI’s proposal to effectively amend Rule 1.8(g) and allow use of advance client waivers in non-class aggregative litigation (ALI, Principles of the Law of Aggregative Litigation, §3.17 (2010), the underlying assumption of most participants was that the problems being addressed were structural. The issue posed was whether, as proposed by the ALI, advance waivers allowing a supermajority of clients to bind the entire group, should get an ethical imprimatur. 

While most of the commentators focused on efficiency, efficacy and autonomy, in this essay, I have set out on a different path. I reject the view that the defects in the ethical rule governing aggregate litigation are structural. For example, contrary to one panelist’s view, I do not agree that the all-or-nothing aggregate settlement -- which can empower hold-out clients to extract higher awards -- is the devil driving lawyers to violate Rule 1.8(g) with regard to securing aggregated clients’ informed consent to their allocated share. In my view, the issue posed is more fundamental. I contend that what drives lawyers to fail to comply with Rule 1.8(g) is the lucrative nature of this area of practice. 

Given the lack of enforcement of ethics rules that purport to limit lawyers’ fees to “reasonable” amounts, contingency fees in many mass tort litigation have standardized at the 40% level. It strikes me as mind-boggling that commentators on non-class mass tort litigations ignore the 40% contingency fee that lawyers are increasingly charging in these litigations. If there are substantial economies of scale being realized by mass tort lawyers -- as I believe is the case -- they are being entirely claimed by the lawyers and not even partially being passed on to their clients except as mandated by a handful of judges. Moreover, while the use of Federal Rule 23 in mass tort litigation has been at least circumscribed by the U.S. Supreme Court, few, if any, commentators have noted that another reason why lawyers do not seek certification of certain mass tort litigations is that they can charge their clients fees that are 50% to 100% higher than what they would be awarded in class actions. 

In my essay, I advance the view that lawyer adherence to ethical rules appears inversely related to the financial stakes for the lawyer. This is so, I argue, because fees of the magnitude obtained in non-class aggregate settlements simply overwhelm any proclivity of lawyers to adhere to ethical rules. 

To put meat on the bones of my argument, I present a detailed examination of the aggregate settlement in the Phillips Petroleum explosion that occurred in October 1989 -- an aggregate settlement that ultimately resulted in the 1999 Texas Supreme Court decision in Burrow v. Arce, 997 S.W. 2d 229 (Tex.1999). The duplicitous actions by the attorneys for the 126 clients illustrate the powerful influence that a $65 million dollar fee offered in return for signed releases, had on a quintet of very wealthy lawyers and possibly the presiding judge. The implicit question posed -- whether their actions would have been any different if the ALI Principles were in force -- remains an open question.

Legal ethics in the news (July 29, 2010)

• The State Bar of California named Starr Babcock as its general counsel.  (h/t: ALM)  As we discussed before, Jim Towery is now the Chief Trial Counsel.
• Dallas Justice has some skeptical thoughts about the changes to the ethics rules in Texas, especially with respect to prosecutors.
• This article by Vivia Chen suggests that Jones Day's hiring committee likes what Northwestern is doing.  How firms react to the innovations by NW's David Van Zandt could be critical to the pace of innovation in US law schools.  (I don't expect that rational arguments will force much chance in law schools.  Fear, competition, and entrepreneurial role models will be more productive.) I'm a big fan of what they're doing there, but ultimately it's the market that will have the final say.
• In the UK, law firms can retire partners at age 65.  (h/t: The Lawyer)
• Neil Rose discusses potential reform of contingency fee litigation in the UK.
• A business executive from Morgan Crucible was convicted of obstruction of justice in connection with an antitrust matter.  According to ALM, "Prosecutors alleged that Norris conspired with his subordinates to obstruct the grand jury's investigation by creating a false script that employees of both Morgan Crucible and a competitor were to follow when questioned. Also, a document destruction task force was formed to collect and destroy or conceal documents from the grand jury, prosecutors said."