Selling Out: an Instrumentalist Theory of Legal Ethics

Selling Out: An Instrumentalist Theory of Legal

Ethics

KEITH N. HYLTON*

ABSTRACT

Legal ethics has received attention mostly from scholars who view it as a

f‌ield for the application of moral philosophy. However, economic analysis is

also useful in the study of legal ethics, because it can illuminate the incentives

that generate ethical dilemmas and controversies. This is especially true in the

subf‌ield this paper devotes its attention to, lawyer conf‌lict of interest rules. The

problem I focus on is the incentive of the lawyer to “sell out” his client—for

example, by providing conf‌idential information to a potential adversary or by

providing legal misinformation to the client in order to aid the adversary. The

lawyer is in a unique position to auction off the client’s legal rights to the high-

est bidder. Troublingly, in those instances where the client most values his legal

right, the lawyer will f‌ind it more prof‌itable to sell out the client than to arrange

a mutually benef‌icial consent to a conf‌lict of interest. I examine implications for

the regulation of legal ethics.

TABLE OF CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

I. CONTRIBUTION OF INCENTIVES APPROACH . . . . . . . . . . . . . . . 23

II. LEGAL AND ECONOMIC INFRASTRUCTURE . . . . . . . . . . . . . . . . 27

III. STORIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

IV. THE ECONOMICS OF LEGAL RIGHTS. . . . . . . . . . . . . . . . . . . . . 38

A. THE VALUE OF LEGAL RIGHTS AND LEGAL

REPRESENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

B. ENFORCEABLE LEGAL RIGHT. . . . . . . . . . . . . . . . . . . . . . 39

* William Fairf‌ield Warren Distinguished Professor, Boston University; Professor of Law, Boston

University School of Law. I thank Mike Meurer and Kathy Zeiler for helpful comments. Abena Ababio, Yoona

Cha, and Nick Sangiovanni helped with the research. © 2021, Keith N. Hylton.

19

C. LEGAL RIGHTS AND BURDENS . . . . . . . . . . . . . . . . . . . . . 40

D. WAIVER OF LEGAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 41

E. CONFLICT OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . 42

F. SELLING OUT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

G. WELFARE CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . 46

H. ILLUSTRATION 1: PATENT CIRCUMVENTION . . . . . . . . . . 47

I. ILLUSTRATION 2: TAKING PROPERTY OR STEALING A

BUSINESS, THROUGH LEGAL REPRESENTATION . . . . . . . 49

J. CONSTRAINTS ON SELLING OUT . . . . . . . . . . . . . . . . . . . 51

V. LEGAL CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

A. SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

B. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

VI. IMPLICATIONS FOR LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

INTRODUCTION

Legal ethics has received attention mostly from scholars who view ethics as a

f‌ield for the application of moral philosophy.

1

However, economic analysis is

also useful in the study of legal ethics, because it can illuminate the incentives

that generate ethical dilemmas and controversies.

2

This is especially true in the

subf‌ield this paper devotes most of its attention to, attorney conf‌lict of interest

rules.

3

1. See, e.g., David Luban, Calming the Hearse Horse: A Philosophical Research Program for Legal Ethics,

40 MD. L. REV. 451 (1981); Thomas L. Shaffer, The Legal Ethics of Radical Individualism, 65 TEX. L. REV.

963 (1987); Alice Woolley & W. Bradley Wendel, Legal Ethics and Moral Character, 23 GEO. J. LEGAL

ETHICS 1065 (2010).

2. Although instrumentalist or incentive-based arguments are far from the dominant approach among legal

ethicists, there has been a developing undercurrent within ethics scholarship that questions the moral basis of

the traditional ethical norms, such as loyalty and the duty of conf‌identiality. See Shaffer, supra note 1, at 963;

William H. Simon, Ethical Discretion in Lawyering, 101 HARV. L. REV. 1083 (1988); Maura Strassberg,

Taking Ethics Seriously: Beyond Positivist Jurisprudence in Legal Ethics, 80 IOWA L. REV. 901 (1995).

3. See, e.g., Robert H. Aronson, Conf‌lict of Interest, 52 WASH. L. REV. 807 (1977); Nancy J. Moore,

Conf‌licts of Interest in the Simultaneous Representation of Multiple Clients: A Proposed Solution to the

Current Confusion and Controversy, 61 TEX. L. REV. 211 (1982).

20 THE GEORGETOWN JOURNAL OF LEGAL ETHICS [Vol. 34:19

Economic analysis of legal ethics mostly adopts the agency cost framework,

4

which views ethical problems as emanating from the divergence of incentives

between principal and agent.

5

However, the incentives of principals and agents,

like the incentives of any two people, will always diverge to some degree.

6

Agency costs infect all relationships, and so an agency cost approach leads to the

question of which costs are signif‌icant and which ones are not.

7

Similarly, a

client-centered approach to legal ethics, which stresses the autonomy of the cli-

ent,

8

could lead one to imagine that any divergence between the incentives of

principal and agent is potentially a problem of ethics. Moreover, in the area of at-

torney conf‌licts, the divergences are really between alternative principals (one

client versus another client), not between principals and agents. For these reasons,

the agency cost framework, without some additional ref‌inement, may not be the

most promising perspective from which to analyze legal ethics.

This paper takes a different approach from agency cost theory. The approach

here is to identify the pressure points of incentive divergence, and the social costs

of failing to regulate attorney conf‌licts of interest. By starting at the ground level

with incentives, my hope is that this analysis can point to the types of interactions

where ethical constraints are most helpful, to rank ethical conf‌licts in terms of

potential for social harm and the consequent need for regulation, and to suggest

the types of regulation most likely to be benef‌icial. In evaluating the need for

4. The term “agency costs” refers to costs (or, more generally, losses in social welfare) that arise from the

divergence between the incentives of principals and agents. The term appears to have been coined by Michael

Jensen and William Meckling. See Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial

Behavior, Agency Costs and Ownership Structure, 3 J. FIN. ECON. 305, 309-10 (1976). Scholars have found

several applications of agency cost theory in the law. See, e.g., Jonathan Klick & Robert H. Sitkoff, Agency

Costs, Charitable Trusts, and Corporate Control: Evidence from Hershey’s Kiss-Off, 108 COLUM. L. REV. 749

(2008); Lee-ford Tritt, The Limitations of an Economic Agency Cost Theory of Trust Law, 32 CARDOZO L. REV.

2579 (2011).

5. Jonathan R. Macey & Geoffrey P. Miller, An Economic Analysis of Conf‌lict of Interest Regulation, 82

IOWA L. REV. 965, 968–69 (1997).

6. See Richard A. Epstein, The Legal Regulation of Lawyers’ Conf‌licts of Interest, 60 FORDHAM L. REV.

579, 581 (1992).

7. See id. at 580–81.

8. Client autonomy appears to be a basic norm underlying legal ethics. See, e.g., DAVID BINDER, PAUL B.

BERGMAN, PAUL R. TREMBLAY & IAN S. WEINSTEIN, LAWYERS AS COUNSELORS: A CLIENT-CENTERED

APPROACH (3d ed., 2011); MONROE H. FREEDMAN , LAWYERS’ ETHICS IN AN ADVERSARY SYSTEM 9 (1975);

CHARLES W. WOLFRAM, MODERN LEGAL ETHICS 146 (1986); Charles Fried, The Lawyer as Friend: The Moral

Foundations of the Lawyer-Client Relation, 85 YALE L. J. 1060, 1061 (1976); Stephen L. Pepper, Autonomy,

Community, and Lawyers’ Ethics, 19 CAP. U. L. REV. 939, 939–40 (1990); Stephen L. Pepper, The Lawyer’s

Amoral Ethical Role: A Defense, A Problem, and Some Possibilities, AM. B. FOUND. RES. J. 613, 614 (1986);

Fred C. Zacharias, Limits on Client Autonomy in Legal Ethics Regulation, 81 B.U. L. REV. 199, 199–200

(2001). For a modern equivocal defense of the autonomy norm and lawyering, see DANIEL MARKOVITS , A

MODERN LEGAL ETHICS: ADVERSARY ADVOCACY IN A DEMOCRATIC AGE 3 (2008). Of course, limited informa-

tion on the part of the client may justify paternalism in the legal profession, which clashes with the autonomy

norm, but even the paternalism defense takes autonomy as the appropriate default norm. See David Luban,

Paternalism and the Legal Profession, 1981 WIS. L. REV. 454, 464–65 (1981). Some authors have rejected the

autonomy norm. See, e.g., Shaffer, supra note 1, at 969–70; Simon, supra note 2, at 1116–18.

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