INTRODUCTION I. THE PROBLEM OF QUASI-THIRD-PARTY ACADEMIC ADVICE A. Defining the Problem B. Professional Responsibility 1. Lessons from tax practice 2. An Illustration: Charles Wolfram on Vinson & Elkins (Enron) C. Academic Responsibility II. A CASE STUDY: ETHICS EXPERTS AND DEFENDANT PAYMENTS TO PLAINTIFFS' LAWYERS IN AGGREGATE LITIGATION A. Factual Background 1. LM&B and its 587 clients 2. The aggregate settlement agreement (DRSA) a. LM&B agrees to deliver client agreements and to process claims speedily b. Nextel agrees to pay LM&B $7.5 million c. LM&B agrees to refuse to represent or refer other claimants d. Clients are forbidden to discuss claims with each other or anyone else except professional advisors e. Clients are obliged to stay with LM&B, and LM&B is prohibited from associating outside counsel 3. The individual agreements and the ADR process a. Most clients agree after consultation with LM&B b. Claims are "resolved" c. Aftermath B. The Ethics Experts C. Critique 1. Conflicts a. The elephant in the room b. Consentability c. Consent after consultation 2. Other issues a. Reasonableness of the fee b. The clients' commitment to stay with LM&B c. The agreement not to accept or refer other claims d. The "consultancy" as a restriction on practice CONCLUSION APPENDIX I INTRODUCTION
On several notorious occasions in recent years, lawyers gave clients bad legal advice because the clients wanted it.
Lawyers from Andrews Kurth and from Vinson & Elkins gave opinions to Enron that various asset transfers represented "true sales" or involved a "true issuance" of securities even though the opinions were either plainly wrong or plainly irrelevant to the circumstances they addressed. (1)
Lawyers at Jenkins & Gilchrist gave hundreds of opinions to taxpayers to the effect that bizarrely complex and economically substanceless transactions with names like COBRA (Currency Options Bring Reward Alternatives) were acceptable ways to reduce taxes. Some of them were virtually copies of transactions that the IRS had specifically condemned. (2)
John Yoo, Jay Bybee, and other lawyers at the Department of Justice gave opinions to federal officials concluding that various statutory and international law constraints on the President in the "war on terror" were unconstitutional or otherwise not binding. The opinions exaggerated the authority for the conclusions and omitted inconsistent arguments and precedent. (3)
In all these cases, the clients seemed happy to get the bad advice, at least in the short term and sometimes in the long term. They were happy because the advice made it easier for them to do things they wanted to do--overstate income on financial statements, underpay taxes, or torture people.
The bad advice made life easier for the clients because, regardless of its merit, it conferred on them a significant measure of immunity from liability or public criticism. In the corporate area, a legal opinion may raise the bar for a shareholder action by satisfying a condition for the "due diligence" defense or the "business judgment" rule. In the tax area, a lawyer's opinion may help establish the "good faith" and "reasonable cause" that enables a taxpayer to avoid penalties for underpayment. And opinions often make the "advice of counsel" excuse available either as a response to a liability claim or a persuasive argument in the court of public opinion.
This capacity to influence public authority or public opinion does not fit easily within the most prevalent understanding of the lawyer's role. Influence of this kind requires the lawyer to purport to speak impartially, rather than as a partisan. Moreover, when the lawyer advises a client, she is normally subject to strong legal mechanisms of accountability to the client. Yet, the lawyer is not comparably accountable to the ultimate public addressees of the advice in our examples.
The public dimension of this advice-giving/immunity-conferring role might seem more appropriate for academic lawyers. Academic lawyers can represent clients in a conventional partisan fashion, but when they express views in their academic roles, the norms of the academy require that they speak sincerely and disinterestedly. From an academic point of view, however, there is a distinctive problem with advice designed to confer immunity. The norms of the academy regard openness and transparency as an essential guarantee of the reliability of a scholar's views. Yet, exonerating opinions are most often subject to conditional secrecy. Typically, the client wants to keep the advice confidential unless she needs to reveal it in order to respond to some challenge to her conduct, and even then, she may want to limit disclosure to a minimum. Thus, the academic lawyer is also in an anomalous position. She invokes the authority of her role and institution as emblems of both acuity and impartiality; yet she forswears the norms of openness that the academic world regards as essential to such claims.
This Article is about legal advice in which lawyers purport to speak disinterestedly in order to influence public conduct or attitudes for the benefit of private clients, and which is given under conditions of nonaccountability and secrecy. I call such efforts "quasi-third-party advice." The Article focuses on the issues of professional and academic integrity raised by quasi-third-party opinions on legal ethics issues by academic lawyers. Much of it also applies to nonacademic lawyers in their opinion practices. And much of it applies as well to nonlawyer academics who give opinions with legal consequences, for example, as expert witnesses in litigation.
I argue that quasi-third-party opinion practice in its currently prevalent form is inconsistent with core professional and academic values. The key problem does not lie in the assumption of public responsibility by lawyers or in the fact that academics consult for money for private clients. Rather, from both professional and academic perspectives, the key problem lies in the absence of transparency.
Part I elaborates on the issues posed by quasi-third-party practice, and suggests some appropriate responses in terms of both professional and academic ethics, using as examples opinions given by Charles Wolfram of Cornell in connection with Vinson & Elkins's work for Enron and by Geoffrey Hazard of the University of Pennsylvania in connection with the Kaye Scholer firm's work for Lincoln Savings & Loan.
Part II further illustrates the problem with a case study. In this case, three prominent academics--Geoffrey Hazard, Roy Simon of Hofstra, and Bruce Green of Fordham--gave bad legal advice with potentially large public consequences. The case involved a non-class aggregate litigation campaign of a kind that involves many claimants and raises important issues of procedure and ethics, but that typically eludes public view through confidentiality agreements. (4) The academic professional responsibility experts played important roles as enablers of pernicious (and heretofore largely undiscussed) practices. Thus, the case shows the convergence of an underground of litigation practice with an underground of academic practice--practitioners and academics allying under terms designed to immunize each other from accountability.
When I say that the three academics gave "bad legal advice," I am being provocative. My opinions are different from theirs. However, the value of the case study does not depend on whether I am right about the merits. The important contribution is to show that the form such advice takes and the conditions under which it is given reflect pressures and incentives that undermine confidence in its reliability.
THE PROBLEM OF QUASI-THIRD-PARTY ACADEMIC ADVICE
Defining the Problem
We are interested in advice by academic lawyers that has two characteristics: first, it has an externality in the form of an influence on third-arty conduct or attitude for which the advisor is not strongly accountable, and second, it is subject to significant secrecy.
The relevant measure of strong accountability is the common law duty of care that a lawyer owes a client when giving first-party advice. The lawyer is sometimes charged with a comparable duty to addressees of certain traditional third-party opinions. For example, major financing agreements often require that the borrower's lawyer provide an opinion addressed to the lender attesting to various matters, such as that the borrower is duly authorized to enter the agreement. Doctrine generally recognizes a duty of care comparable (at least in principle) to that owed a client. (5)
By contrast, quasi-third-party advice may not be directly addressed to third parties. Often, although there is a tacit understanding that the client will show the opinion to third parties if he needs to, the client is the only explicit addressee. In other cases, the opinions are addressed directly to third parties, but the addressees are too diffuse or remote to satisfy the privity requirements for strong duties.
Take the "advice of counsel" excuse. A client who receives advice that a course of conduct is lawful can sometimes escape liability, even when the advice proves wrong. At the extreme, such advice can amount to "get-out-of-jail-free cards," as Jack Goldsmith characterizes certain Office of Legal Counsel opinions. (6) Where bad advice causes the client to incur liability, the advisor will often be liable to the client. But where the bad advice helps the client escape liability, the advisor has no comparable accountability to the officials or members of the public who bear the costs of the bad advice.
Sometimes the advisor will have some accountability to the third parties, but it will be weaker than a full-fledged duty of care. For example, lawyers owe a duty to public shareholders not to assist managerial fraud under the securities laws, but under the Central Bank of Denver case, (7) that duty cannot be enforced through private...