Friday, October 27, 2006
Posted by Jeff Lipshaw
A few days ago, I commented on the Kenny Rogers-Tony LaRussa pine tar (or clump of dirt) incident in Game 2 of the World Series. Steve Lubet (Northwestern and Legal Ethics Forum) commented:
Let's assume that Larussa did make a spontaneous decision to defer to his own sense of justice as opposed to the positive law. The problem is that he wasn't exactly playing poker with his own money. He was acting as the employee of an organization, managing a team of professional athletes. Everyone involved has a serious stake in the outcome of the series, financial and reputational. what would give Larussa -- a lawyer, after all -- the right to privilege his own sense of justice over the positive law, in a situation where others (whom he did not consult) may suffer the consequences?
Andrew Perlman (left, Suffolk) also over at Legal Ethics Forum has advanced the discussion with an analogy to the professional requirements of zealous advocacy. I was a litigator for ten years before I moved into the corporate and M&A world, but one of my aphorisms of practice was "every time I thought I was either sublimely clever in pressing a rule-based advantage, it turned around to kick me in the ass." But that's me, and it could well be I just wasn't very clever.
Yesterday, in BE class, we launched into teaching the Delaware Supreme Court opinion in Brehm v. Eisner, better known as the Disney shareholder lawsuit, concerning the compensation paid to Michael Ovitz upon termination after his fourteen month stint as Disney's president. (I confess: at one point, I couldn't help it and this came out: "certain as the sun, rising in the east, tale as old as time, Beauty and the Beast,"* at which point I teared up, sighed deeply, and moved on.)
One of the heretofore little-discussed professional issues was Sanford Litvack's conclusion that trying to assert that Ovitz could be terminated for cause was a "no-brainer:" there was simply no basis for bringing Ovitz's conduct, even if obnoxious or insubordinate, within the clause. And mind you, this was no small decision: fighting the "non-fault termination" aspect of the contract could well have saved Disney a portion of that $140 million in severance cost. Indeed, one of the plaintiffs' theories was that Litvack and Eisner breached the fiduciary duty of care by not asserting the claim.
Under the Lubet view, or under Andrew's zealous advocacy view, if Litvack concluded that Disney could pass Rule 11 muster (or the straight face test), did he have an obligation, moral or otherwise, to all the uninformed stakeholders (i.e. the shareholders) to pursue the claim, even if as nothing more than bludgeon to knock ten or twenty or thirty million dollars off the pay-out? The similarity between the LaRussa judgment and the Litvack judgment, it seems to me, is the extent to which you are willing to employ EVERY means at your disposal to win (no pun intended - but playing hardball).
That was always the toughest kind of call for me as a general counsel. Like Litvack, I would conclude that contesting a particular issue was a "no brainer" because in my judgment we had no case. But I always wondered in those instances: was I too nice? or too ethical? Somebody could cobble together enough of a position to cause some grief for the other side (because it seemed like people were always taking marginally ethical positions against us, and finding lawyers who would sign the pleadings!) And a distinction as between LaRussa and Litvack, perhaps, that the latter disclosed his view to his principals but the former didn't, doesn't hold - because if I reached a legal conclusion and expressed it to the board, it was the rare case that anybody would question it. In essence, my sense of ethics or my moral judgment, as the GC, became the moral judgment of the corporation. I am sure it was the same for Litvack (well, maybe not - the case says Eisner checked with everybody!)