Since the Supreme Court’s Upjohn decision, it’s an article of faith for any real white collar criminal defense lawyer that the stiff working for the corporation will sell out the individual at their first opportunity. Of course, that’s what they are getting paid to do, but they just seem to enjoy it so darn much.
For the individual employee of a corporate target, on the other hand, the dynamic of legal representation, loyalty and advice is a minefield. From the WSJ Law Blog (with it’s new chief, Ashby Jones, firmly grasping the helm):
The issue has come up recently in two separate high-profile instances. Earlier this month, Los Angeles federal district court judge Cormac Carney — who just might be the only federal judge to have ever played in the old United States Football League — threw out portion’s of the government’s criminal stock-options backdating case against a former Broadcom executive after ruling that lawyers from Irell & Manella failed to explain clearly to the executive that it was representing the company, not the executive.
A similar issue recently arose during the government investigation of R. Allen Stanford. The Justice Department filed criminal obstruction-of-justice charges against Stanford’s chief investment officer, Laura Pendergest-Holt, based on statements she made in sworn testimony to the SEC. Present during the testimony was Proskauer Rose lawyer Thomas Sjoblom, who said during the testimony he represented Stanford and officers and directors of his affiliated companies.
But Pendergest-Holt says in her suit that she believed he represented her personally. Click here for Monday’s story on the issue, from the WSJ’s Kara Scannell. Click here for Judge Carney’s ruling, and here for the LB take on the Pendergest-Holt suit.
There is no question but that the attorneys are obliged to advise the individuals that they represent the corporation, not the individual personally. This advice is humorously called the “corporate Miranda warnings,” in that they are expected to clarify the lawyer’s loyalty and advice, so that the individual isn’t inclined to do something particularly stupid in the course of being a good corporate cog.
But then, there are so many conflicts of interest wrapped up representing corporations and corporate officers, and so much money at stake in legal fees and legal control, that the expectation that firms whose “expertise” is more directed at corporate litigation than anything remotely resembling criminal defense, will fulfill their Upjohn duty seems hard to swallow. At least cops get a card with the rights spelled out for them.
As Judge Carney notes, essentially right off the top, Irell & Manella had a pretty good gig going at Broadcom, representing the corporation internally in a stock options investigation, as well as CFO William Ruehle in a couple of lawsuits, It seemed like such a good time to order the new Ferrari. But as Ruehle found out, it wasn’t like he could actually say things to “his” lawyers, given that they served Broadcom first and his words to his trusted advisers could seal his fate.
The problem is that corporations are legal fictions, and legal fictions can do no wrong as long as they don’t stonewall the government. While every cog in the wheel, particularly as they get closer to the hub, is of course critical to the financial well-being of the whole, it is sometimes necessary to excise a very important cog to keep the entity alive, if not thriving. What all this gook means is that as important as any executive may be to the corporation, the rest of the folks in the executive suite will happily offer up her head on a platter if it saves their own butts. Hey, that’s corporate life.
What’s terribly problematic is communicating the idea to executives that the very lawyers they loved and trusted yesterday will be the ones who rat them out tomorrow in a blink of the eye. There are a variety of reasons for this communication breakdown, some from the side of the lawyers who at most give a perfunctory “corporate Miranda warning” while blinking and winking so much that their eyes hurt, to the hubris clogging the executive’s hearing that makes it impossible for her to understand that they really mean it when they say that they do not represent the individual. What works so poorly to the poor and downtrodden works even worse for the mighty and self-important.
There are solutions to this dilemma, though no one really likes them very much. For one thing, the lawyers representing the corporation could be absolutely prohibited from representing the individual, such that no waiver of conflict was possible and would subject the lawyer to serious disciplinary consequences (like loss of legal fees). This would remove the profit motive from doing a half-baked job of conflicted representation, and save the lawyers from a lot of opthamologist visits.
Another possibility would be for executives to display a modicum of intelligence by retaining competent independent counsel to represent them whenever they were the subject of inquiry in an internal corporate investigation. This option, however, flies in the face of the good corporate cog theory, since the executive always wants to believe that after a nice, cooperative interview, everyone will smile, shake hands and life will go back to normal, with bonuses paid timely. No executive wants to be unpleasant, or worse yet defensive, toward his fellow golfing partners.
This all goes to the never-ending dilemma in the defense of white collar causes: No one ever believes that they’ve done anything that could seriously subject them to criminal liability. They just can’t accept the concept, and because it all seems so ridiculously outlandish, no one ever treats an inquiry or investigation as if they could end up getting fried. Protecting oneself from becoming the corporate scapegoat, whether deserved or not, is beyond the pale for most executives until it’s too late and the damage has been done.
The fact that corporations are inclined to use attorneys who are less than scrupulous in their admonishment to individuals that anything they say will come back to bite them in their finely-clad butt doesn’t forgive these seemingly intelligent men and women from knowing when to lawyer up. Real criminal defense lawyers have a name for very important executives who firmly believe that they could never be held criminally accountable for their actions. The name is “prisoner”, followed by some numbers.
It might not make you the most popular exec at the club if you retain your own competent counsel and protect yourself from shouldering the corporate risk, but there is no golf course at Club Fed.