Friday, August 16, 2013
The New Jersey Appellate Court has issued a 105 page opinion in a case involving former friends and business partners who "pursued their respective claims against each other with the same passion and zeal that once characterized their success in business."
The defendant and plaintiff met in 1997. At first, defendant was plaintiff's personal attorney. He later became the chief operating officer as well as general counsel to business entities of the plaintiff.
The court notes that he was also an entertainment lawyer who had represented Bette Midler, Rod Stewart, Neil Sedaka, Andrew Lloyd Webber and the Bee Gees.
The plaintiff has risen from a limited eduction to great success. The defendant (who is admitted in New York but not New Jersey) was alleged to have engaged in self-dealing as well as lavish personal spending on the company dime.
In particular, the court describes a three-night, all expenses paid (by the company) trip to Las Vegas.
While the lesser mortals stayed elsewhere, the defendant had a penthouse at the Bellagio Hotel. He brought the gang back from dinner (where he let the company pick up the tab), along with "three young ladies" that he introduced as his "friends."
At the penthouse, the friends performed with, as a witness testified, "nothing on, nude show, did things to each other, that sort of stuff..." The witness was particularly impressed by the fact that the penthouse had a grand piano.
The court affirmed the rescission of the defendant's ownership interests in three entities. Further, the court affirmed legal malpractice and civil fraud claims against the defendant as in-house and general counsel as well as personal attorney for the plaintiff. Awards of counsel fees and punitive damages to the plaintiff were reversed.
The court squarely rejected the defendant's contention that RPC 1.8(a) (the business transactions with clients rule) did not apply to him as an in-house counsel.
As a sidelight, the litigation also led to the censure of the first trial judge.
The censured judge had violated judicial ethics by attending court proceedings after his recusal, a situation that did not create an issue for the court:
...we are satisfied that Judge Nugent's role as fact-finder and legal arbiter was not compromized by [former] Judge Perskie's conduct. Although we have disagreed with some of the legal rulings he made in the case, Judge Nugent's integrity as a jurist is beyond reproach.
The court departed from its usual pratice of not identiying the trial judge by name and noted that the judge had already been named in publicity generated by the case. (Mike Frisch)
Wednesday, February 16, 2011
Posted by Alan Childress
As promised in a comment, here is more information on a new addition to the publishing project, and quite germane to the blog topic (!): Rob Rosen's (law, Miami) book, Lawyers in Corporate Decision-Making. Today out in hardcover and last month in paperback (allows 'Look Inside'), Kindle, Nook, Sony, and on the iPad via iTunes and K/N apps. This was originally his dissertation in sociology at Berkeley, and had been cited a lot and passed around in manuscript before. It is updated with his new Preface and new Foreword by Sung Hui Kim (law, UCLA) noted below, and a revised chapter two and other additions. Mainly it is the classic study people know and quote. He triangulated interviews with corporate counsel, outside law firms, and the corporate client, on many different legal representations, and got the whole picture of the disparate roles played in corporate advising. Lawyers often perceived it differently from clients. One chapter autopsies four representational failures. Interesting. Rosen also relates all this to theory and practice about "who is the client" and what should be the role of lawyer here: passive, proactive, advising beyond the legal consequences? It is cited a lot, too, for its taxonomy of corporate advising roles. So it is now generally out and not just in Xerox. Rob worked hard to get its substance and presentation just right, and even in library-quality hardback; we hope you'll like it.
"Rosen’s study of in house counsel is a deft, subtle dissection of a complex world where nothing is as it quite seems. In interviewing in house counsel, outside counsel, and clients, Rosen captures, in a Rashomon-like way, the moral character of lawyers’ work–their choices, their pitches, their claims by which they justify what they do. We see inside the professional black box.”
– John Flood, Professor of Law and Sociology, University of Westminster, London
“Widely regarded by experts in the field as a pioneering work in the sociology of the legal profession and a foundational piece in the slowly emerging canon of empirical research on inside counsel…. Not limited to rich, thick description, the study also normatively challenges the legal profession’s ideology of moral ‘independence.’ …With the long-awaited publication of this manuscript, corporate lawyers will have something to guide them.”
– Prof. Sung Hui Kim, UCLA School of Law, from the new Foreword
Also was blogged about at Froomkin's Discourse.net (terming it a cult classic), Business Law Prof Blog, the Advanced Legal Studies@Westminster Blog and Random Academic Thoughts (Flood calling it wonderful), and others (and finally, me!). Libraries can order it through Baker & Taylor, Ingram, Amazon, etc. UPDATE: I forgot to mention that (and thank) Jeff and Nancy and others gave some great blurbs for this you can see below the fold....
Thursday, June 24, 2010
A plurality of the Minnesota Supreme Court held that the former (and fired) in-house general counsel for Sybaritic, Inc. had failed to establish a whistleblower claim that he had been terminated from his position based on his advice that the client was illegally withholding discovery in litigation. The court held that the statute does not contain a job duties exception to bar an employee who reports suspected illegality as part of job duties from bringing a claim. The job duties of the reporting employee are relevant to determining good faith in the reporting.
Sybaritic is a company that sell that manufactures and sells equipment and spa products for spa and medical-spa industries.The in-house counsel sent around an e-mail entitled "A Difficult Duty" that expressed concern about a "pervasive culture of dishonesty" in the company and specific concerns about the conduct of an ongoing matter in Estonia. The e-mail concluded by stating that he had a "firm conviction" that the company:
intends to continue to engage in tax evasion, the unauthorized practice of medicine and obstruction of justice...it is my intention to advise the appropriate authorities of these facts. I do this with no ill will. To the contrary, I wish that I was not obliged to do so. However, the demand of Sybaritic that I become attorney of record in the [intellectual property action] has made it impossible to ignore the obstruction of justice issue, and compels me to speak out about the tax evasion and unauthorized practice of medicine issues which the company has refused to address. I regret I se no other course of action available.
The company changed his supervisor the day after the e-mail was sent and fired him three weeks later. The parties at trial presented conflicting evidence concerning the reasons that in-house counsel had been fired. The company found he had copied his father on the e-mail and felt it could "no longer trust [him] as general counsel." He claimed that the reasons for discharge were pretextual. The jury sided with him and awarded $197,000 in damages. That award was overturned by the Court of Appeals.
The court plurality here rejected the lower court's legal conclusion that a broad "job duties" exception barred the suit. However, the plurality concluded that the evidence established that the e-mail was sent as part of counsel's job duties, which precluded a whistleblower action:
When in-house counsel sends his client written advice in order to "pull" that client "back into compliance," as [he] said he did in this case, the lawyer is not sending a report for the purpose of exposing an illegality and the lawyer is not blowing the whistle.
Chief Justice Magnuson concurred, and would hold that the attorney's breach of his fiduciary duties to the client bars the claim. In the Chief Justice's view, the attorney's violation of the duty of confidentiality was fatal to the claims:
A lawyer may bring a whistleblower claim, but he or she is not thereby relieved of the fiduciary obligations imposed by the Rules of Professional Conduct, either before or after the claim is brought. Any disclosures of client confidences must be within the strict confines of the Rules of Professional Conduct. I would therefore hold that when a lawyer breaches his or her fiduciary duty to the client, the client has an absolute right to terminate the attorney-client relationship. And that right cannot be burdened by any claim from the lawyer for compensation or other damages.
Justice Anderson dissented, and would hold that the court plurality has created an "artificial evidentiary hurdle in proving mental state" that failed to give deference to the favorable jury award to the former in-house attorney at trial. The dissent finds sufficient evidence to support the jury's conclusion that the attorney acted in good faith and with an intent to blow the whistle. The dissent notes that the attorney's supervisor was an attorney convicted of mail fraud and suspended in 1984.
Justices Page and Meyer joined the dissent.
Saturday, May 30, 2009
Congrats and further best wishes to Jeff and Alene Lipshaw, who are now celebrating their 30th wedding anniversary (?!!) in Santorini, Greece. I know they are having a good time. And we are happy for them! [Alan Childress]
UPDATE: Thanks, Alan - this is this year's alternative to the Law & Society confab in Denver. Damn! And who's the dorky guy with the beautiful woman? [Jeff Lipshaw]
Tuesday, July 29, 2008
[By Bill Henderson, cross-posted to ELS Blog]
NALP just published its 2007 edition of Jobs & JD's. One topic of interest to students, lawyers, law firms, and legal educators is the change in salary distribution from 2006 to 2007. The now famous 2006 bi-modal distribution was vivid evidence that the U.S. legal profession is undergoing significant structural change. As shown in the graph below (from this NALP webpage entitled "Another Picture Worth a 1,000 Words"), the underlying stressors are even more pronounced for the class of 2007.
The sample is based on 23,337 law school graduates from the class of 2007 who reported salary information. Note, however, that 197 ABA-Accredited law schools graduated 43,518 students in 2007. Although we know the types of jobs taken by 40,416 grads, only 57.7% of this group provided salary information. If I had to wager on the direction of underreporting, I would predict it was under-inclusive of graduates with lower salaries and those who did not pass the bar. Why? Aside from the human psychology that it is easier to share flattering rather than embarrassing information, the roughly 7,500 jobs under the second mode are fairly close to figures I have seen from ALM and NALP data, which are provided by large law firms rather than individual students. See, e.g., charts in this NLJ article.
This bias, however, is not necessarily good news. In the above graph, 32.5% of the law graduates took jobs with starting salaries in the $100K+ range; but the true percentage for the class of 2007 is probably lower. Some facts and then one normative observation. The facts first:
More after the jump ...
Saturday, July 19, 2008
Posted by Jeff Lipshaw
Call me a fool, but I like to get stuff out there as early as I can short of being humiliated (I am okay with merely embarrassed). I have wrestled now for four years on the precipice either of an practitioner who thought too much like a professor (actually, that accusation goes back a long time), or a professor who was tainted by so many years of practice. I think Tevye in Fiddler on the Roof spoke to this: "a fish could marry a bird, but where would they live?"
I've posted a short and preliminary essay that reflects what I've been thinking about and reading about over the summer, and it has to do with the theory and practice of judgment - how judgment differs as between clients and practicing lawyers, and in turn, how it differs between practicing lawyers and the professors who taught them. The piece is entitled Law's Illusion: Scientific Jurisprudence and the Struggle with Judgment. Here's the abstract:
Why are there two fairly clear chasms that affect practicing lawyers - one between themselves and their clients, and one between themselves and their professors? Both have to do with the irreducibility of judgment - perceiving regularities, applying rules to new situations, and deciding in advance what to do. I suspect Kant was right over two centuries ago, and there has not been much progress theorizing about it since then (even after the behavioral theorists like Tversky and Kahnemann and popular expositors like Malcolm Gladwell); judgment, either the inductive inferences from what we observe to what we generalize, or the leap from what we generalize to what to do next, is not teachable, but only achievable through practice. Practicing lawyers are reductivists in comparison to their clients - reducing the complex world through the "science" of law to a model; professors are reductivists in comparison to their students - either reducing the practice to a rational science, or avoiding the question of judgment at all.
This is a thought piece preliminary to a more detailed treatment of the idea.
(By the way, this is the first time I've posted a new piece on SSRN in a while; the system is improved, but still capable of being screwed up. Key advice: remember to click the "save" button to the upper right when you are done with each entry.)
Friday, July 4, 2008
Orin Kerr graciously linked from the Volokh Conspiracy over here to the litigation versus corporate career post. I want to return the favor by linking back to a set of comments being posted over there. The same over at Above the Law. There are a number of thoughtful comments out there.
One of the themes being discussed is whether it's easier to move in-house if you've been a transactional lawyer or a litigator in-house. I don't have any idea what the data is on this, but my philosophy as a general counsel, unless I was hiring for a specific specialty, like a litigation supervisor, an HR lawyer, or a patent lawyer, was to look for the best available athlete, and I had a track record of hiring both transactional and litigation lawyers to be divisional or business group GCs.
Many leading GCs are or were former litigators, including Jeff Kindler, first at McDonald's and then Pfizer (and now CEO of Pfizer), Peter Kreindler at Honeywell, Don Kempf at Morgan Stanley, Paul McGrath at FMC Corp. and then American Standard, and the list could go on and on. John Donofrio, the GC at Visteon, and Bob Armitage, the GC at Eli Lilly, are patent lawyers by background.
I think many of the comments reflect something I suggested before, which is how hard it is at the bottom of the heap to experience what it's like to be a senior lawyer in either specialty. For example, the communication skills you learn as a litigator translate nicely into talking publicly to a board or in a negotiation. A congenial personality works well in front of a jury as well as in a boardroom (the six or twelve lay people in either environment tend not to like assholes any more than anybody else). One of my mentors at Dykema, now retired, Don Young (Harvard '63 I think) had a fearsome reputation both internally and externally (as a summer associate I drew a cartoon of an associate who looked like he had just put his finger in an electric socket; the caption had him saying to another lawyer, "Don Young just reviewed my research memo"), but in front of a jury he was the embodiment of Mr. Charm. Fortunately, despite the fearsome reputation, he also had a sense of humor and an appreciation for chutzpah in young lawyers, much less summer associates who had yet to get an offer!
Friday, March 14, 2008
Posted by Jeff Lipshaw
Dan Slater, the law blogger for the Wall Street Journal, has a post up on comparative pay as between in-house and out-house (oops, law firm) lawyers. I don't have any beef one way or another with the pay statistics, but I feel obliged to dispute this bit of anecdotal evidence about in-house practice. According to Zachary Zaharek, a (or the) senior corporate counsel at First American CoreLogic, and the head of the Southern California chapter of the Association of Corporate Counsel:
“An associate is getting grinded with billable hour requirements, and working weekends and late at night,” said Zaharek, who was a bankruptcy attorney at Malcolm Cisneros before going in-house. “A corporate counsel doesn’t have that. Also, when you’re a litigator, you’re looking back at history and asking what should the parties have done. As an in-house lawyer, you’re looking ahead and asking how you can help the company avoid pitfalls.”
But it’s not all peaches and cream as a company lawyer. “At a law firm you have a book of business, which is maybe 10 clients,” explained Zaharek. “At a corporation, you only have one client. So the risk is that if the company goes insolvent, or gets merged or bought, then there goes your client.”
Well, let's see. I spent the better part of twelve years running in-house law departments, and I disagree with just about everything in the quote.
1. Working hard. Just as I suspect there are law firms in which the culture is that you don't work nights and weekends, I suppose there are companies with similar cultures. My experience was that our lawyers worked as long and as hard, traveled more (all over the world), and were subject overall to as much stress as their private firm counterparts. What I know was different, and I think ameliorated some of the particular LAW FIRM stress, was:
(a) We didn't have billable hours. Whatever had to get done got done. Not writing your time down and being measured by that (as opposed to the results you get or the quality of your work or the respect of your clients) was the biggest single difference from law firm life.
(b) If you are the GC of a business, the work is in many ways more varied. Not only do you practice law, but you get involved in the management of the business, and you get involved in the administration (financial and otherwise) of the law function. So much of what a law firm lawyer couldn't count as billable hours was a significant portion of an in-house lawyer's job. And the mere variety, I think, reduces the kind of stress you feel in a law firm.
(c) Being involved in a business may well be a lot more meaningful than cranking out billables, and contributes to a desire to work hard.
(d) One of the first questions you always get from people is whether your life, now that you are in-house, is more "manageable." Mine never was, and I used to tell people that if it were possible to translate my work into billable hour equivalents, it would have been in the 2,400 hour neighborhood.
(e) The quickest way to disqualify yourself from most the of in-house jobs I knew about was to suggest that you wanted to move in order not to work as hard.
2. "At a corporation you have only one client. . . ." As to job security, I read a lot more about lawyers getting laid off from big law firms than I do from big companies. I am not suggesting one is more secure than another. I just think the inference is unsupported. Moreover, it depends on the company. In big portfolio companies, you may well acquire clients as well. The lawyers may move with transferred companies (that happens a lot). As to having only one client, again, this is going to vary by company, but my guess is that rarely does an in-house lawyer feel that he or she has one client. You may have responsibility for multiple divisions. You will certainly be asked by multiple people - the V.P. of Sales and Marketing, the head of corporate development, the CEO, the V.P. of Human Resources, etc. - to get involved in many different things, and those individual commitments are just like making commitments to different clients in a law firm.
3. Looking ahead and looking back. It depends. Part of what you do in-house may be to manage litigation. And in private practice you may do deals.
This, I'm afraid, is an area fraught with easy (and misleading) generalizations.
* Thanks to www.lifeatthebar.com for the picture of the clock.
Thursday, December 27, 2007
Posted by Jeff Lipshaw (cross-posted at Concurring Opinions)
I neglected to mention, in my original commentary on the Cerberus opinion over at Concurring Opinions, that I am indebted to Frank Pasquale (the real one!) for directing me to Paradoxes and Inconsistencies in the Law, edited by Oren Perez and Gunther Teubner. I'm now doubly indebted to Frank because he pointed out another blog post that makes for an interesting counterpoint about practical reason - how we decide (particularly as lawyers) what to do.
In his introductory essay to Paradoxes, Oren Perez (Bar-Ilan) makes a point about rational calculation, in the context of the Learned Hand formula for negligence, that had never occurred to me, and which seems to make sense. (I invite anyone to explain why it is wrong!) This has broad application because it gets at the heart of the core relationship between the ex post outcome of cases (like Cerberus' "lessons" on eliminating ambiguities in drafting) and the ex ante calculation in respect of that outcome that lawyers (those most rational of actors) are supposed to make.
Perez's argument goes like this. The potential tortfeasor, informed by the case holdings, knows that she will be liable for the injury she causes if the cost of precaution is less than the probability of an accident times the magnitude of the accident. For the model to work, it has to assume that potential tortfeasors and judges are perfect welfare maximizers with perfect information. But information and deliberation are not costless. So maximizing actors need to make a decision about whether to invest costs in obtaining the necessary information and spending the time deliberating about the choice. That decision is itself not costless; one needs to gather information about whether gathering information and deliberating is a fruitful way to spend one's maximizing time. And so on to the infinite regress. This appeals to my intuition in the same way as, and seems to be related to, at least analogically, the idea that rules cannot determine their own correct application. (If there were a rule for the application of a rule, then what would the rule be for the application of the rule for the application of a rule, and so on to the infinite regress.)
Perez's conclusion is that this is why we have rules of thumb for deciding what to do - they sit somewhere between unsatisfying calculation and pure intuition.
But wait. Maybe we don't calculate or intuit. Maybe we just frame, conform, and comply. That's a thesis proposed by Sung Hui Kim (Southwestern) over at The Situationist, a law and psychology blog affiliated with the Project on Law and Mind Sciences at Harvard Law School. In Part II of a series speculating on why lawyers acquiesce in the frauds of their clients, Professor Kim says:
Inside counsel, as employees of the firm, are inclined to take orders and accept the “definition of the situation” (a phrase coined by Milgram) from their superiors. These superiors happen to be a cohort of non-lawyer senior managers vested with the authority to speak on behalf of the organization and entrusted to give direction to inside counsel. They create the reality for inside counsel: they define objectives, identify specific responsibilities for inside lawyers and, ultimately, determine whether an inside lawyer’s performance is acceptable. And accepting management’s “definition of the situation” means accepting management’s framing of the inside lawyer’s role and responsibilities.
This framing provides that compliance responsibilities be segmented. Although inside counsel’s duties include a prominent role in corporate compliance, it is business management that jealously guards the right to decide whether to comply with the law, which is seen as the ultimate risk management decision. For inside counsel to challenge management’s decisions or management’s authority to make decisions would then amount to clear insubordination. Obedience in the corporate context will be substantial, so we should not be surprised by the banal tendency to listen to superiors.
Full disclosure. I spent eleven years of my career as an in-house lawyer, so it's entirely possible that I resemble that remark. (Professor Kim can also call on real-world experience as outside and inside lawyer, and in fairness, her very thoughtful and interesting Fordham Law Review article on the subject, which I recommend heartily, is more nuanced than the blog post.) But I'd be a lot more comfortable accepting this sweeping conclusion were it made on broad empirical evidence of actual in-house lawyer conduct rather than on what appears to be a combination of inference from the Milgram conformity lab tests and well-known examples of lawyers behaving badly. I knew a lot of in-house lawyers, and while I can't say how they would have performed in the electric shock tests, and can't deny the impact of framing on decision-making, I sure saw a lot of thoughtful and courageous pushback to management on lots of legal and moral issues. Indeed, my casual observations were that individual moral choice and leadership in context, while certainly more elusive in its measurement, showed up more than just from time to time. I can't determine whether that was the exception or the rule. Indeed, I applaud the coda to Professor Kim's bio: "I tell my students that there are two questions that every lawyer should ask when counseling a client about a proposed course of action. The first is: 'Is it legal?' The second is: 'Is it right?'" But how do you make that call?
I struggle with the line between psychological "truths" and moral free agency. I am willing to accept the conclusion that we are hardwired to seek and justify physical and material well-being, and hence, a natural inclination for people, not just lawyers, is to comply and avoid conflict. I don't like, however, blanket statements about in-house lawyers doing this and that, and having this and that tendency. If I may engage in another exercise of shameless self-promotion, the point of my piece, Law as Rationalization: Getting Beyond Reason to Business Ethics, was to explore the difference between lawyers using reason to justify a desired material world outcome, and lawyers using reason as autonomous moral agents trying to discern ethical obligation.
The implication is that I don't think you can change things by incentives (more cheese for the rats). My answer is there has to be personal engagement in a continuing struggle to ask questions with the hope of getting answers along the way. To borrow from Robert Louis Stephenson, sometimes it is better to travel hopefully than to arrive.
Thursday, September 6, 2007
On October 4, Georgetown Law's Journal of Legal Ethics and the Center for the Study of the Legal Profession are co-sponsoring a symposium on Corporate Compliance: The Role of Company Counsel. The panel discussions will feature a combination of practice-oriented and academic views relating to significant emerging issues faced by corporate counsel. The schedule is set forth below. The public is welcome to attend.
8:30-9:00 am Continental Breakfast
9:00-9:15 am Introductory Remarks
9:15-10:45 am Panel 1: Conflicting Duties: Lessons from the KPMG Prosecution
Presentation: Professor Sarah Duggin, Catholic University Law School,
Former General Counsel, Amtrak and
University of Pennsylvania Health System
Panelists: Mary Kennard, General Counsel, American University
Sol Glasner, General Counsel, MITRE Corporation
Richard Janis, Janis, Schuelke & Wechsler
Irv Nathan, Arnold & Porter
11:00-12:30pm Panel 2: Gatekeepers Inside Out
Presentation: Professor Sung Hui Kim, Southwestern Law School,
Former General Counsel, Red Bull
Panelists: Carol Rakatansky, Associate General Counsel, Sallie Mae
Robert Lupone, General Counsel, Siemens Corporation
Ann Kappler, Partner, WilmerHale,
Former General Counsel, Fannie Mae
12:30–1:45 pm Lunch Provided for Participants
**** RSVP Requested for Individuals Planning to Attend Lunch.
Please e-mail Leslie at email@example.com. ****
2:00-3:30 pm Panel 3: Corporate In-House Counsel in the Age of Internal Compliance
Presentation: Professor Tanina Rostain, New York Law School,
Co-Director, Program on Professional Values and Practice
Panelists: Kathleen Barlow, Vice President, Marsh USA
Ann Straw, Director, Corporate Compliance,
Scott Killingsworth, Powell Goldstein
Tuesday, September 4, 2007
Connecticut has adopted a new rule governing multijurisdictional practice that will take effect on January 1, 2008. The Association of Corporate Counsel has prepared a summary of the new rule that also provides links to information regarding the status of MJP rules around the country. (Mike Frisch)
Friday, August 24, 2007
Can an in-house counsel for a corporation provide legal services to a sister corporation and can that corporation collect reimbursement for those services? Yes, according to a recent ethics opinion of the Virginia bar, so long as the lawyer is "mindful of his obligation to protect each client's confidences and secrets, properly address[es] any conflicts issues between [the two corps] and any funds collected from Corporation B for the lawyer's services [are] no more than reimbursement to Corporation A for the actual costs Corporation A incurs in employing that in-house counsel." (Mike Frisch)
Wednesday, August 22, 2007
The Sandia Corporation retained outside counsel (a law professor) to conduct an investigation of allegations by two internal ethics officers "that their work was being impeded and they were being retaliated against by Sandia managers." The attorney generated a 221 page report that identified several employees whose conduct "merited scrutiny." One of the identified employees was disciplined, terminated her employment and sued Sandia, claiming the report was a sham that had falsely accused her of misconduct.
A New Mexico district court held that Sandia's use of the report in the litigation waived the attorney-client and work product privileges and ordered additional disclosures. On appeal, the New Mexico Court of Appeals upheld the distirct court's order of additional disclosures as to communications between the outside lawyer and Sandia representatives aa well as work product materials provided to Sandia. However, the order to disclose "all materials prepared or compiled by [the outside lawyer]" was reversed as to work product that was not provided to Sandia. (Mike Frisch)
Monday, July 23, 2007
An article in today's New York Law Journal discusses the potential issues (disciplinary, civil and criminal) that may be encountered by in-house legal counsel. The overall sense of the article is that the problems that in-house counsel face make their world more dangerous than it has ever been in the past. This article was found on the web page of the Vermont State Bar. (Mike Frisch)
Wednesday, April 25, 2007
Posted by Jeff Lipshaw
There is a fascinating linguistic issue at work in the civil complaint just filed by the SEC against Nancy Heinen and Fred Anderson, the former general counsel and chief financial officer, respectively, of Apple, Inc. arising out of allegedly backdated options, which is a hot news story today. I'm going to assume the allegations to be true for purposes of some observations as to what I would call standard practice, but not necessarily of legal liability.
1. The hair on the back of my neck certainly went up when I read the allegations that Heinen had "altered company records" (Paragraph 1), and "fabricated or falsified" company records, "including the creation of minutes for a non-existent Board of Directors meeting" (Paragraph 2). So I flipped the pages looking for the particulars.
2. The complaint is about two different grants. The first was to the Apple Executive Team. There is no question under these allegations that the selection of a January 17, 2001 date was backward-looking and designed to find a day that had a low closing price, but that would also fall on a day after some recent public announcements that might have raised an inside information issue. But interestingly, on this one, I cannot find an allegation of a falsely dated document. First, the complaint leaves out any allegation as to the dates on the actual grant document, simply referring to it as "option grant paperwork" that was undertaken in February. Second, and more significantly, the complaint alleges that on February 1, 2001, "Heinen began the process of preparing false paperwork to submit to Apple's Board of Directors so that it could authorize the grant." The very next allegation says that she directed the preparation of a "Unanimous Written Consent" with an effective date of January 17, 2001. This is a little ambiguous, but it looks to me like the UWC was simply made "effective January 17, 2001."
That in itself, if I have the facts correct, is not a false statement. The law has long recognized that you can do something "now for then" or nunc pro tunc. Moreover, Section 141(f) of the Delaware GCL makes it clear that a unanimous consent is not the same thing as a meeting. It is an action in lieu of the meeting. And one can imagine benign circumstances in which the Board might well want its consent to have been effective retroactively. Nothing in the Delaware GCL, as far as I can tell, bars that. Certainly nothing in Section 141(f) does so.
The real problem here is the distinction between what Searles calls illocutionary and perlocutionary acts. The statement of the effective date is an illocutionary act because it is asserting something to the listener. Searle says: "Correlated with the notion of illocutionary acts is the notion of the consequences or effects such acts have on the actions, thoughts, or beliefs, etc., of hearers."
So it is possible that an assertion, wholly true in itself, may have the effect by itself or in conjunction with other statement in particular circumstances, of meaning something else to the listener. In other words, the speech act in context is perlocutionary. [See update below.]
At this moment, I'm agnostic (but leaning toward a view that there was deception) on the overall context. But the mere creation of the UWC with an earlier effective date was not, in my view, irregular.
3. But it does get worse. The second grant was in October, 2001, and that is the one for Steve Jobs himself. Here, Heinen created minutes of a Special Meeting of the Board as of an earlier date, where that meeting had not occurred. That does raise the hair on the back of my neck. I think I would have said, "I am not going to make up meetings of the Board of Directors of a public company that did not occur. There is a device called the written consent that we use in lieu of a meeting when there was no meeting." (I would also distinguish the following. The discussion at a real meeting gets garbled. I look around at the directors and say "I think you mean this for your action - I will straighten it out in the minutes." There is no objection, and I do it. I don't have a problem with that; minutes are not a transcript, they are minutes.)
Now we are beyond a true illocutionary act that may be (intentionally or not) deceptive in its perlocutionary context. The propositions within the illocutionary act are false. There are references and predicates to things that did not occur.
It also looks like Heinen, without the consent of the Board, removed the reference in the minutes to discussion of option grants to Jobs at an earlier meeting. This may be false in itself or false in the context; I can't tell from the complaint.
As with the Executive Team options, there is no allegation about the dating on the option grants themselves. Obviously, there's an inference to be drawn if the option grant dates were accurate, but all the auditors got were either UWCs or meeting minutes suggesting that the option grants actually took place before they did.
So merely the UWC in itself wouldn't raise an issue for me. But the use of the UWC in context with the auditors as a means of fudging the date of a grant, if as alleged, as well as the creation of minutes to a meeting that didn't occur, would bother the hell out of me as a lawyer and the certifying secretary.
UPDATE: One of Larry Solum's readers has rightly taken issue with my sloppy turn of phrase on perlocutionary acts. She writes that I have misunderstood speech act theory regarding perlocutionary acts as follows: "Assertions may of course elicit a range of perlocutionary effects, but the meaning of the assertion does not turn on these effects (an assertion that p that elicits fear in A does not mean something different vis-a-vis B, who reacts with joy). Nor can an assertion be understood "in context" as a perlocutionary act!"
Let me clarify. The next sentence in Searle after the one quoted above is: "For example, by arguing, I may persuade or convince someone, by warning him I may scare or alarm him, by making a request I may get him to do something, by informing him I may convince him (enlighten, edify, inspire him, get him to realize)."
My point was that the propositional act in the UWC was a referral to a board and an effective date and options and a predicate that they were approved. The illocutionary act in the UWC is an assertion by someone in the company that options were approved effective January 17. That meaning is what it is. I think the perlocutionary act in this case is the convincing of an auditor by the making of the statement that the options were actually issued then. Because that's how the listener hears the statement. And then there is the second order question whether the speaker intended the deception. But my point there was that there was nothing false in itself about the statement in the UWC.
I am thinking of the example of a trial lawyer who is cross-examining a witness about a letter the lawyer believes the witness sent but has not yet tracked down. The lawyer picks up a sheet of paper that the witness cannot tell is blank and stares at it for several seconds. "It's true, isn't it," says the lawyer, waving the paper, "that you sent a letter to Mrs. X on December 4." There is no ambiguity whatsoever about the meaning of the assertion; the witness understands it just as the lawyer intended it to be understood. The witness was prepared to lie in response, but thinks the blank piece of paper is the letter, and is frightened by the possibility of being impeached. So she answers "yes, I did." Isn't the frightening and/or deception of the witness by the assertion a perlocutionary act with a perlocutionary effect? In later commentary, Searle refers to necessary "stage-setting" to be able to assess perlocutionary versus illocutionary acts, and it seems to me that has to be "context." I think of the UWC in the same way. There was no real issue as to either the clarity or the correctness of its propositional and illocutionary aspects. But the way it was used induced a particular effect in the listeners.
I agree my original post was incorrect in stating "In other words, the speech act in context is perlocutionary" and in conflating the meaning of the assertion with the perlocutionary effect. More precisely, the speech act is the speech act. The perlocutionary act is the fact that by making the statement I may deceive the listener, and, indeed, the listener is deceived.
When I was the general counsel of a large publicly-held company, we had a chief executive officer, my primary advisee (not my primary client, mind you, that was the corporate entity), who I think truly believed that the law and lawyers were put in the world for no reason other than to place barriers or hurdles between where he was and where he wanted to be. No surface answer was ever sufficient to satisfy him. "Why can't we buy back stock now?" "Why can't we sell stock in our public traded subsidiary?" "Why can't we sue X or Y for this?" "Because that's the law" or "because I said so" was never enough. And despite the fact that he wasn't a lawyer, his natural smarts and suspicious take on the whole game made the cross-examination as intense as any grilling to which a Kingsfield-like law professor could ever subject a student.
Before I would talk to him about a matter, particularly one as to which I knew he would not like my answer, I asked myself the question "what do I need to know?" and the answer was often that I needed to peel the artichoke all the way down to the heart.
Friday, April 20, 2007
Posted by Alan Childress
Lisa Nicholson (Louisville), right, has posted to SSRN her article, "Making In-Roads to Corporate General Counsel Positions: It's Only a Matter of Time?" It is also on 65 Md. L. Rev. 625 (2006). Here is the abstract:
There were 40,018 law graduates in the class of 2004, of which almost half were women. Many of these women, equipped with exceptional educational credentials, predictably have high hopes of ascending to the upper hierarchy of law practice. Unfortunately, their hopes of obtaining the fabled “corner office” may be dashed when they note who actually practices at the highest levels in those law firms and corporations. Indeed, by the end of 2004, women lawyers would only account for seventeen percent of law partners at the nation's major law firms and fourteen percent of the Fortune 500 general counsel.
This article focuses on the under-representation of women lawyers practicing in the upper levels of Fortune 500 corporations. Because law firm partners and senior associates are essential participants in any corporation's applicant pool for senior-level in-house positions, this article also addresses the promotional barriers encountered by women lawyers who practice at major law firms. To that end, Part I of this Article summarizes the reasons for the paucity of senior-level women lawyers at law firms and explains why corporations should be concerned. Part II proffers the beneficial impact of improving gender diversity throughout the upper ranks of corporate legal departments. In Part III, this article examines the assertion that in-house legal practice is better than law firm practice for women lawyers by questioning whether corporate legal departments do, in fact, provide better advancement opportunities, and work-life balance than law firms--particularly in light of the fact that those law firm pathologies have begun creeping in-house in recent years. Finally, Part IV provides solutions that may be implemented to address the limited gender diversity in the upper ranks of law practice at corporations.
Tuesday, February 27, 2007
ABA Ethics Opinion On Communicating With Inside Counsel to a Represented Corporation (It's OK), + More on Restrictive Covenants in Retirement Pacts
Posted by Alan Childress
This morning's ABA email newsletter YourABA, amid a flurry of articles [here in PDF] about the ABA's mid-year meeting in Miami, also links to summaries of two recent Ethics Opinions it has issued. [The PDF above also includes this Eye on Ethics section.] One opinion deals with the Model Rule 4.2 dilemma of prohibited communications with the opposing client where the lawyer wishes to communicate with in-house counsel to a corporation or organization that is otherwise represented by outside counsel. The opinion, with related cautions about care in communicating with the client in this position and honoring a request not to communicate that way, finds that the contact is permissible. It reasons that the policies of protecting clients from pressure and harmful admissions do not apply to the in-house counsel in that situation. The formal opinion is linked here.
The other opinion deals with restrictive covenants in lawyer retirement agreements, related to a topic [when New Jersey ruled on a similar matter of non-competes] on which Jeff previously posted and analyzed here. It appears that the ABA position is more generally approving of such agreements than had been New Jersey [see previous Law.com story on Jersey here], at least in the context of in-house counsel working for a competitor after leaving the company. On a quick reading this morning, I'd say that the ABA opinion solves some of the "puzzlement" that Jeff expressed with the New Jersey ruling -- and shows a more realistic place for lawyers in the grand scheme of things as subject to employment contracts to some extent as real people are. But there are obvious differences between the ABA focus on retirement agreements and qualifications that the retirement be real, as opposed to non-competes where the in-house lawyer contemplates further employment after leaving the company.
Friday, January 26, 2007
Story here today on Law.com as to the McNulty Memo and whether it realistically alters the prior Thompson Memo. Quoted critics say that it just drives the prosecutorial tactics or demands underground, sort of "don't ask, don't tell." I argued on LPB here, last month, that the new DOJ policy was tweaking, semantics, and mainly a publicity stunt -- as long as the carrot-stick ratio remains the same. Ultimately so far I would say that it is really just the McNulty Pocket Part. [Alan Childress]
Tuesday, December 12, 2006
The cartoon of "how to stump a corporate lawyer" by Wiley Miller (Non Sequitur), reprinted on the GoComics site here, is funny enough, but actually does not make a lot of sense to me. Maybe it would be a good PR essay question, with just "Discuss." It was linked on the QuizLaw blog. [Alan Childress]