heroes & villains – 11/9/10

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Heroes & Villains – 11/9/10 Heroes & Villains – 11/9/10 The OPM exercise The OPM exercise Organization as Client Organization as Client Conflicts revisited Conflicts revisited Confidentiality revisited Confidentiality revisited 1

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Heroes & Villains – 11/9/10. The OPM exercise Organization as Client Conflicts revisited Confidentiality revisited. GRPC 1.7(a). A lawyer shall not represent or continue to represent a client [OPM] if there is a significant risk that - PowerPoint PPT Presentation

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Page 1: Heroes & Villains – 11/9/10

Heroes & Villains – 11/9/10Heroes & Villains – 11/9/10 The OPM exerciseThe OPM exercise

– Organization as ClientOrganization as Client– Conflicts revisitedConflicts revisited– Confidentiality revisitedConfidentiality revisited

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Page 2: Heroes & Villains – 11/9/10

GRPC 1.7(a)GRPC 1.7(a) A lawyer shall not represent or continue to A lawyer shall not represent or continue to

represent a client [OPM] if there is a significant represent a client [OPM] if there is a significant risk that risk that – the lawyer's own interests [Reinhard’s potential the lawyer's own interests [Reinhard’s potential

personal liability as corporate director, personal liability as corporate director, friendships with Goodman and Weissman, most friendships with Goodman and Weissman, most of his income comes from OPM]of his income comes from OPM]

– or the lawyer's duties to or the lawyer's duties to another client [Goodman?] another client [Goodman?] a former client [Goodman, Weissman] a former client [Goodman, Weissman] or a third person [the law firm?]or a third person [the law firm?]

will materially and adversely affect the will materially and adversely affect the representation of the clientrepresentation of the client

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Page 3: Heroes & Villains – 11/9/10

1.13: Who is the Client?1.13: Who is the Client? (a) A lawyer employed or retained by an (a) A lawyer employed or retained by an

organization represents the organization acting organization represents the organization acting through its duly authorized constituents. through its duly authorized constituents.

(e) A lawyer representing an organization may (e) A lawyer representing an organization may also represent any of its directors, officers, also represent any of its directors, officers, employees, members, shareholders or other employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7.constituents, subject to the provisions of Rule 1.7.– If the organization's consent to the dual representation If the organization's consent to the dual representation

is required by Rule 1.7, the consent shall be given by an is required by Rule 1.7, the consent shall be given by an appropriate official of the organization other than the appropriate official of the organization other than the individual who is to be represented, or by the individual who is to be represented, or by the shareholders. shareholders.

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1.13: Who is the Client?1.13: Who is the Client? (d) In dealing with an organization's (d) In dealing with an organization's

directors, officers, employees, directors, officers, employees, members, shareholders or other members, shareholders or other constituents, constituents,

a lawyer shall explain the identity of a lawyer shall explain the identity of the client the client – when it is apparent that the when it is apparent that the

organization's interests are adverse to organization's interests are adverse to those of the constituents with whom the those of the constituents with whom the lawyer is dealing. lawyer is dealing.

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GRPC 1.13 CommentsGRPC 1.13 Comments [2] When one of the constituents of an [2] When one of the constituents of an

organizational client communicates with the organizational client communicates with the organization's lawyer in that person's organizational organization's lawyer in that person's organizational capacity, the communication is protected by Rule capacity, the communication is protected by Rule 1.6: Confidentiality of Information.1.6: Confidentiality of Information.

This does not mean, however, that constituents of This does not mean, however, that constituents of an organizational client are the clients of the an organizational client are the clients of the lawyer.lawyer.

The lawyer may not disclose to such constituents The lawyer may not disclose to such constituents information relating to the representation except information relating to the representation except for disclosures explicitly or impliedly authorized by for disclosures explicitly or impliedly authorized by the organizational client in order to carry out the the organizational client in order to carry out the representation or as otherwise permitted by Rule representation or as otherwise permitted by Rule 1.6: Confidentiality of Information. 1.6: Confidentiality of Information.

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GRPC 1.13 CommentsGRPC 1.13 Comments [[7] There are times when the organization's interest may be 7] There are times when the organization's interest may be

or become adverse to those of one or more of its or become adverse to those of one or more of its constituents. In such circumstances the lawyer should constituents. In such circumstances the lawyer should advise any constituent, whose interest the lawyer finds advise any constituent, whose interest the lawyer finds adverse to that of the organization (1) of the conflict or adverse to that of the organization (1) of the conflict or potential conflict of interest, (2) that the lawyer cannot potential conflict of interest, (2) that the lawyer cannot represent such constituent, and (3) that such person may represent such constituent, and (3) that such person may wish to obtain independent representation.wish to obtain independent representation.

Care must be taken to assure that the individual Care must be taken to assure that the individual understands that, when there is such adversity of interest, understands that, when there is such adversity of interest, the lawyer for the organization cannot provide legal the lawyer for the organization cannot provide legal representation for that constituent individual, and that representation for that constituent individual, and that discussions between the lawyer for the organization and discussions between the lawyer for the organization and the individual may not be privileged. the individual may not be privileged.

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Duty to prevent injury to Duty to prevent injury to organizationorganization

““(b) If a lawyer for an organization knows that (b) If a lawyer for an organization knows that – an officer, employee or other person associated with the organization an officer, employee or other person associated with the organization – Is engaged in action, intends to act or refuses to act in a matter related Is engaged in action, intends to act or refuses to act in a matter related

to the representation that isto the representation that is– a violation of a legal obligation to the organization, or a violation of law a violation of a legal obligation to the organization, or a violation of law

which reasonably might be imputed to the organization, which reasonably might be imputed to the organization, – and is likely to result in substantial injury to the organization, and is likely to result in substantial injury to the organization, – the lawyer shall proceed as is reasonably necessary in the best interest the lawyer shall proceed as is reasonably necessary in the best interest

of the organization”of the organization”

If lawyer knowsIf lawyer knows– Violation of legal obligation to organization orViolation of legal obligation to organization or– Violation of law imputable to the organizationViolation of law imputable to the organization– That is likely to result in substantial injury TO That is likely to result in substantial injury TO

THE ORGANIZATIONTHE ORGANIZATION

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Page 8: Heroes & Villains – 11/9/10

1.13(b-c) “shall proceed as is reasonably necessary 1.13(b-c) “shall proceed as is reasonably necessary in the best interest of the organization”in the best interest of the organization”

Ask for reconsideration of the matterAsk for reconsideration of the matter Advise that a separate legal opinion is neededAdvise that a separate legal opinion is needed Refer to higher authority Refer to higher authority

– if warranted by the seriousness of the matter, to the highest if warranted by the seriousness of the matter, to the highest authority that can act in behalf of the organizationauthority that can act in behalf of the organization

Minimize disruption of the organizationMinimize disruption of the organization Minimize the risk of revealing confidential information to Minimize the risk of revealing confidential information to

persons outside the organizationpersons outside the organization If the highest authority that can act on behalf of the If the highest authority that can act on behalf of the

organizationorganization– insists upon action, insists upon action, – or refuses to actor refuses to act– clearly a violation of law that is likely to result in substantial clearly a violation of law that is likely to result in substantial

injury to the organizationinjury to the organization– the lawyer may resign the lawyer may resign

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Warn lenders/customers? GRPC Warn lenders/customers? GRPC 4.14.1

In the course of representing a client In the course of representing a client a lawyer shall not knowingly …a lawyer shall not knowingly …

(b) fail to disclose a material fact to a (b) fail to disclose a material fact to a third person third person – when disclosure is necessary to when disclosure is necessary to

avoid assisting a criminal or avoid assisting a criminal or fraudulent act by a client, fraudulent act by a client,

– unless disclosure is prohibited by unless disclosure is prohibited by Rule 1.6Rule 1.6

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Is disclosure prohibited by 1.6?Is disclosure prohibited by 1.6? A lawyer may reveal information …to A lawyer may reveal information …to

avoid or prevent harm or substantial avoid or prevent harm or substantial financial loss to another as a result of financial loss to another as a result of client criminal conduct … clearly in client criminal conduct … clearly in violation of the lawviolation of the law

[but] if the client has acted at the [but] if the client has acted at the time the lawyer learns of the threat time the lawyer learns of the threat of harm or loss to a victim, of harm or loss to a victim, – use or disclosure is permissible only if the use or disclosure is permissible only if the

harm or loss has not yet occurredharm or loss has not yet occurred

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THE OPM CASE:THE OPM CASE:What Really HappenedWhat Really Happened

[Primarily drawn from Taylor, “Ethics and the Law: A Case History,”[Primarily drawn from Taylor, “Ethics and the Law: A Case History,” New York Times MagazineNew York Times Magazine (Jan 9, 1983)] (Jan 9, 1983)]

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Goodman’s visitGoodman’s visit Meeting actually was with senior Meeting actually was with senior

partner Joseph Hutner, not Reinhardpartner Joseph Hutner, not Reinhard Hutner claimed that Goodman Hutner claimed that Goodman

intercepted Clifton’s letter before he intercepted Clifton’s letter before he could read it and took it with himcould read it and took it with him

However, Hutner learned the However, Hutner learned the essential content by meeting with essential content by meeting with Clifton’s lawyer, William DavisClifton’s lawyer, William Davis

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June 1980June 1980

According to Davis Clifton has evidence that– O.P.M. had perpetrated a multimillion-dollar

fraud – the opinion letters Singer Hutner had drawn up

to obtain loans for O.P.M. had been based upon false documents

In Clifton’s opinion, to survive OPM would probably have to continue the same type of wrongful activity

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Singer Hutner obtains outside legal advice from Joseph McLaughlin (Dean, Fordham Law School) and Henry Putzel, a former federal prosecutor– The firm wanted to do the ethical thing,

and – The fim wanted to continue representing

O.P.M. unless they were ethically and legally obliged to quit.

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The firm's obligations to O.P.M. might be inconsistent with giving Goodman's secrets the fullest protection. – Thus, a lawyer is found to represent Goodman

Goodman's new lawyer, Lawler ... tells Putzel that he knows of no ongoing fraud. – Hutner had told Goodman his disclosures to

Lawler would be protected only so long as they did not indicate any ongoing fraud.

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Advice from McLaughlin and Putzel

Singer Hutner can ethically continue to represent O.P.M., based on Lawler’s report that there was no ongoing fraud.

Singer Hutner is bound to keep everything it had already learned secret, except from Weissman.

DR 4-101: A lawyer may reveal …A lawyer may reveal …the intention of his client to commit a the intention of his client to commit a crime and the information necessary to crime and the information necessary to prevent the crimeprevent the crime

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Advice from McLaughlin and Putzel

It is not necessary to check the authenticity of the computer-lease documents with third parties

Singer Hutner has no legal duty to withdraw past opinion letters– leaving the victims of a past fraud in the dark was not an

ongoing fraud DR 7-102(b): A lawyer who receives information clearly A lawyer who receives information clearly

establishing that:establishing that: (1) His client has, in the course of the representation, (1) His client has, in the course of the representation,

perpetrated a fraud upon a person … shall promptly call perpetrated a fraud upon a person … shall promptly call upon his client to rectify the same, and if his client refuses upon his client to rectify the same, and if his client refuses or is unable to do so, he shall reveal the fraud to the or is unable to do so, he shall reveal the fraud to the affected person … affected person …

except when the information is protected as a privileged except when the information is protected as a privileged communicationcommunication

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Summer 1980

Singer Hutner continues closing loans for O.P.M. without checking the legitimacy of underlying Rockwell leases.

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September 1980September 1980 1st week of September, Goodman

tells Hutner some of the details of the fraud

September 23 the firm votes formally to resign as O.P.M.'s general counsel

The firm quits O.P.M. gradually– assume that an abrupt withdrawal would

cause O.P.M. to collapse– will handle legal business until OPM can

find new counsel.

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2020

Duty of Confidentiality to OPMDuty of Confidentiality to OPMThe firm tells nothing to the corporations and

bankers who had been defrauded

responds to inquiries from lenders and other interested parties by saying Singer Hutner and O.P.M. had agreed to part ways.

honors Goodman's demand that Gary Simon, the O.P.M. in-house lawyer who was preparing to handle new loan closings, be kept in the dark.

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October 1980October 1980

Peter Fishbein, a Kaye Scholer partner and an old friend, phones Hutner asking – "is there anything I should be aware of" in

considering Goodman's invitation to represent OPM

Hutner tells him only that – "the decision to terminate was mutual and that

there was mutual agreement that the circumstances of termination would not be discussed."

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December 1980December 1980 Singer Hutner completes withdrawal Rockwell International

– Receives bank inquiry and upon investigation

– Discovers it was paying OPM on two leases for which it lacked documentation

After further investigation, Rockwell and the bank contact the U.S. Attorney's Office

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February 1981February 1981 A federal grand jury issues a number

of indictments

Although federal prosecutors investigated Reinhard, neither he nor any of the other Singer Hutner lawyers are indicted.

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March 1981March 1981

OPM files bankruptcy

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December 1982December 1982 Goodman pleads guilty to 16 counts

of conspiracy, mail fraud, wire fraud and making false statements to a bank– given a 12 year prison sentence.

Weissman also pleads guilty and receives a 10 year sentence.

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The Truth about OPMThe Truth about OPM

O.P.M. was short for "other people's money."

Almost from the start, the company was basically insolvent and survived by means of fraud and bribery. – A single computer would be used as

collateral for two or three loans with different banks

– the value of a given piece of equipment would be inflated to obtain larger loans.

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The Financial ConsequencesThe Financial Consequences OPM had defrauded banks and other

lenders of more than $210 million before the company went bankrupt in 1981

June - August 1980: $61 million in fraudulent loans were closed with Singer Hutner as OPM’s lawyers

December 80 - Jan 81: $15 million in fraudulent loans were closed with in-house counsel and Kaye Scholer as OPM’s lawyers

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19831983 Settlement of lawsuit filed by 19

lending institutions against Singer Hutner, Rockwell, Lehman Brothers and two accounting firms.

Total payment of $65 million Singer Hutner contributed

approximately $10 million.