Blowing the whistle on unethical lawyers
Legal professor William Simon aims to shame colleagues who sell their opinions for the right price.
(Fortune) -- In August 2001, when in-house accountant Sherron Watkins warned Enron CEO Ken Lay that the company might "implode in a wave of accounting scandals," Lay asked the firm's regular law firm, Vinson & Elkins, to do a "preliminary investigation." Though V&E had worked on the very transactions Watkins was questioning, it took the assignment and reported back on Oct. 15 that there was no cause for concern. About a month and a half later Enron filed for bankruptcy, having, in fact, imploded in a wave of accounting scandals.
When V&E was summoned before a congressional committee to account for the breathtaking shallowness of its probe, it produced a letter blessing its performance from one of the nation's most highly credentialed experts on legal ethics: Charles Wolfram of Cornell University Law School. Wolfram opined that it is "customary and appropriate" for a company to conduct a "preliminary investigation" before undertaking a "full-scale" one, and that the firm had not violated conflict-of-interest rules because Watkins had raised "business and accounting" issues, not issues regarding V&E's "own legal services."
In a forthcoming Stanford Law Review article titled "The Market for Bad Legal Advice," Columbia Law School professor William Simon cites Wolfram's opinion as just one example of patently bad advice offered in exchange for lucrative compensation by academics whom he contends are becoming "enablers of pernicious... practices."
In an interview, Wolfram says that while Simon's article "makes some interesting points," it greatly exaggerates any problem that might exist. "[Simon] seems to suggest that giving favorable testimony for a law firm is facilitating future wrongdoing by the law firm," says Wolfram, who charges $650 an hour. "I think that's unrealistic. Most of the testimony I've done is after the plane crash - the pilot having survived and crawled out of the fuselage. My testimony is that the pilot did not act negligently. [Simon] overinflates its importance."
Simon's article, the "take-no-prisoners" tone of which left me slack-jawed, contends that there is a systemic, recurring problem that arises when well-heeled clients go shopping for expert exonerations - sometimes prior to doing something shady, sometimes after they've already done it - to immunize themselves from civil liability or criminal prosecution.
Simon isn't talking only about V&E and Enron. He cites the example of lawyers at another law firm who "gave hundreds of opinions to taxpayers to the effect that bizarrely complex and economically substanceless transactions... were acceptable ways to reduce taxes. Some of them were virtually copies of transactions that the IRS had specifically condemned."
Or of Department of Justice luminaries advising that "various statutory and international law constraints on the President in the 'war on terror' were un-constitutional or otherwise not binding" in opinions that "exaggerated the authority for the conclusions and omitted inconsistent arguments and precedent."
Simon's article seeks not just to diagnose the problem but also to prescribe and administer remedies. The most controversial will surely be the measure he calls "shaming." That process consists of having other academic ethics experts - like Simon - write law review articles brutally critiquing the opinions that their colleagues have offered while under retainer. This, he believes, will help deter the delivery of bad advice.
Like most ethics experts contacted for this article, New York University School of Law's Stephen Gillers declines to share his thoughts on the ethics disputes that Simon discusses, observing that he socializes with all the experts named, including Simon. But he does venture this: Simon's article is "unique in my 30 years as a law teacher. It's unique for law professors to so aggressively criticize the behavior of other law professors - not their intellectual positions. This is about character and integrity." (Gillers is not among those targeted in Simon's article, though he does carry on a robust private practice as an expert witness.)
Simon is a tall, reflective man whose calm, matter-of-fact manner contains, at least as I experience it, undercurrents of controlled rage. Asked what got him interested in this explosive subject, he pauses, then says, "I wonder if I can tell you this story in a way that won't get me in trouble." Then he recounts that in the 1980s a friend of his moved from a law firm to an in-house legal position at a large corporation. The friend called Simon and said he'd just realized that he was faced with a host of conflict-of-interest issues; the company was involved in maybe 100 lawsuits where the opposing counsel was his former firm.
Simon told his friend that, to advise him, he'd need to examine each case individually, which could take weeks. His friend said he needed something now. So Simon recommended another academic, who Simon says had a reputation for handling those sorts of problems. A few months later the friend thanked Simon for the referral. According to Simon, his friend reported, "I called [the other expert] up, and he listened for ten minutes and then he said, 'I understand the problem and for $10,000 I'll give you a letter that will solve all your problems.'"
Here's Simon's theory as to how tainted advice is born: Clients ask lawyers to provide opinions that they plan to show to someone else - like a regulator or jury - if the client's conduct is challenged. A clear example is where the promoter of a dicey tax shelter offers a boatload of money to a law firm to opine that its Rube Goldberg-style investment has a genuine "business purpose" and should, therefore, pass muster with the Internal Revenue Service.