The Instrumental Lawyer and the Limits of the Law

The Instrumental Lawyer and the Limits of the Law

We have seen that the agency relationship between client and lawyer requires the 4 C fiduciary duties to assure that a lawyer acts subject to the client's control. At the same time, every agency relationship is subject to one limitation: neither the principal's power nor the agent's duty to obey allows either to violate the limits of the law. n2 When an agent agrees to act subject to the control of a principal, the law does not assume that the principal merges her legal personality into the agent's. Both principal and agent remain responsible for the consequences of their own conduct. Agency law recognizes principal and agent as distinct, autonomous legal persons, and anticipates that they will behave accordingly. n3
 
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n2 Restatement of the Law Third, The Law Governing Lawyers, § 23 (ALI 2000). (hereinafter "RLGL"); Restatement (Third) of Agency § 1.01, comment f (1) (ALI, Tentative Draft No. 2 2001).
n3 Id. at comment c.
 
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When fraud or other legal misconduct occurs, it usually is viewed from a public perspective after its massive costs are known. From this vantage point, lawyers may appear to have misconstrued their role in the representation. In one example, Judge Stanley Sporkin upheld the federal receivership of Lincoln Savings and Loan, concluding his opinion with these observations:
There are other unanswered questions presented by this case. Keating testified that he was so bent on doing the "right thing" that he surrounded himself with literally scores of accountants and lawyers to make sure all the transactions were legal. The questions that must be asked are:
Where were these professionals, a number of whom are now asserting their rights under the Fifth Amendment, when these clearly improper transactions were being consummated?
Why didn't any of them speak up or disassociate themselves from the transactions?
Where also were the outside accountants and attorneys when these transactions were effectuated? n4
 
 
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n4 Lincoln Savings and Loan Assn. v. Wall, 743 F. Supp. 901, 919-920 (D.D.C. 1990).
 
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Judge John Noonan warns us that some lawyers can overidentify with a client. These lawyers often act instrumentally, continuing to advocate for such a client after red flags have been raised. He describes the transformation of an influential lawyer, Hoyt Moore, whose representation of Bethlehem Steel led him to bribe a federal judge to secure this client's goals. n5 Lawyers who overidentify with clients can negligently or knowingly become instruments of client wrongdoing or accessories to corrupt and dishonorable conduct [§ 8.05]. Further, no lawyer or law firm is invulnerable to serious allegations of complicity in client misconduct [§ 7.04]. n6
 
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n5 Noonan, supra note 1 at 840-41.
n6 In re American Continental Corporation/ Lincoln Savings & Loan Securities Litigation, 794 F. Supp. 1424 (D. Ariz. 1992) (upholding securities fraud and common law breach of fiduciary duty causes of action against accountants and lawyers who represented Lincoln Savings & Loan). The law firm of Jones, Day, Reavis & Pogue eventually settled the private claims of the stockholders against the firm for $ 24 million and the government claims for an additional $ 51 million. They were able to bill ACC about $ 1.2 million for their services. Rita Henley Jensen, Lawyers Share the Blame for the Savings and Loan Scandal 95 Bus. & Soc'y. Rev. 54, 57-59 (Sept. 1995). The law firm that represented Lincoln on regulatory matters after Jones, Day, Kaye, Scholer, Fierman Hays & Handler, also settled with both private investors ($ 21 M) and the government ($ 41 M). Stephen Labaton, Law Firm Will Pay a $ 41 Million Fine in Savings Lawsuit, N. Y. Times, Mar. 9, 1992 at A1.
 
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If you identify yourself as a hired gun, if you assume that most clients do not want to be fair, or if you see your job as assisting clients in getting away with what they can, you risk overidentification with your client and entanglement in your client's potentially illegal activities. Why? Because overidentification with a client or a client's goals can tempt you to suppress your own moral judgment and view law as a malleable means to pursue a client's objectives, rather than a set of rules with some definitive limits that should have shaped both your client's behavior as well as your own. In some circumstances, relevant law imposes clear legal boundaries on a client's intended conduct. In these situations, lawyers should expect to inform a client that certain actions cannot be taken or even that certain goals cannot be realized. If you do not competently discover these provisions and are not clear about them with your clients, you can be characterized as allowing yourself, wittingly or unwittingly, to be used as an instrument or technician of inappropriate conduct by a client.
It is important to realize that lawyers can be subjected to allegations of assisting client misconduct in at least three different circumstances. In the first, lawyers unwittingly or innocently participate in the client's fraud by providing legal advice to a client who, unbeknownst to the lawyer, is using that advice to break the law. In the second, lawyers act negligently by failing to identify or act upon legal red flags, which with the benefit of 20-20 hindsight, will be characterized as clear warnings that the client was engaged in wrongful conduct. In the third, and most serious, lawyers act recklessly or intentionally by blindly ignoring clear warning signs or, worse, purposefully assisting a client to violate the law. Everyone recognizes the last as a clear example of lawyer misconduct. But the middle example can get lawyers in almost as much trouble, and the first, unwitting involvement, requires immediate response at the point the lawyer discovers the client's unlawful activity. In all of these circumstances, the lawyer who fails to keep the proper distance and overidentifies with the client is the lawyer who is most likely to ignore the warning signs that will seem much clearer after the fact.
Special vigilance is called for in representing entity clients, because while your marching orders come from certain constituents of the client, other constituents, after the fact and with benefit of perfect hindsight, may assert that not just those other constituents, but you, following their orders, engaged in actionable conduct. Shareholders, receivers, or trustees in bankruptcy may bring claims against corporate officials, who may have violated legal regulations, and who, in turn, may blame the professionals they say they relied on. These officials may waive the attorney-client privilege so that all documents and conversations the lawyer thought would never see the light of day may appear on page one of the Wall Street Journal. The lawyer who acted instrumentally may in fact have agreed to the course of action, knowing it was risky, but believing all along that the corporate official would prevail on behalf of the entity. When that fails, the legal advice will be very carefully scrutinized by a successor in interest to the now failed enterprise.
Recent specific amendments to Model Rule 1.13 and the Sarbanes-Oxley Act of 2002 [§ 7.16] also become relevant at this point. n7 Lawyers who believe that constituents of entity clients are acting against its best interests should seek outside opinions and refer the matter to a higher authority within the organization. If that does not stop the wrongdoing, the lawyer should resign. n8 Model Rule 1.13 as recently revised further allows lawyers who reasonably believe it necessary to prevent substantial injury to the organization to disclose information to prevent, stop, or rectify the wrongdoing. n9
 
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n7 15 U.S.C. § 7201 et seq. (2003); 17 C.F.R. Part 205, 68 Fed. Reg. 6296 (Feb. 6, 2003).
n8 ABA Model Rule of Professional Conduct 1.13 Comment [4] (2002). (Hereinafter "Model Rules"). Comment [6] provides that a lawyer in such a situation also "may" resign. Of course, Model Rule 1.2(d) makes withdrawal mandatory when the ongoing conduct is criminal or fraudulent and the lawyer knows about it.
n9 Model Rule 1.13(c)(2).
 
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So if you find yourself tending toward instrumental behavior, be careful to know and communicate the limits of the law to your clients, and be ready to withdraw when they step over the line. Keeping a clear understanding of the legal limits to your clients' behavior will allow you to serve your clients well, and also will provide you with a necessary opportunity to prevent entangling yourself in your client's behavior when it crosses the legal limit.