My firm is advising a client on a large and sensitive commercial transaction. Early one day, at an hour when few people are in the office, I overheard a loud speaker-phone conversation between Portier (the partner in our firm who is leading this assignment) and Neuergedanke (a well know personality in the finance field), who had called Portier. Neuergedanke was excitedly describing the outlines of a significant additional idea that he has to enhance the value of the transaction for our client. Portier cut Neuergedanke off and told him to get lost and not to get anywhere near the transaction, the parties or their advisers. I was surprised because Neuergedanke’s innovations are known generally to have real value. Then, later that day, I heard Portier casually mention to another of our own lawyers in the firm’s cafeteria that he needed to sit down with him to try to reverse-engineer something.
It bothers me that we may not be serving the client’s interests as well as we should, and it bothers me that Portier may be taking advantage of Neuergedanke if the reverse-engineering is designed to steal the idea. What duties do I have to the client and to my firm, both as things stand now and if I am asked later to work on this transaction? If I should be speaking up, how do I handle the matter of just how I heard about all this?
Welcome to the pressures that attend high-stakes complex transactions at the intersection of finance and law. The influence of legal and tax innovations in modern finance cannot be understated. People who do what you describe Neuergedanke as doing have played major roles in some very significant and visible transactions over the years. Sometimes they are hired by clients to “work their magic,” but occasionally, as appears to be the case here, they parachute in seemingly from out of nowhere, and then the obvious question for everyone else is how to react.
A. What duties do you have, and to whom?
A lawyer owes a duty of care and competent representation to clients, and owes to clients, to his employer or firm (if he does not practice alone), to himself and to the profession a duty not to violate, and not to countenance a violation of, the Rules of Professional Conduct (RPC). See Rule 8.4.
It is not clear from the facts that you have provided what the transaction is, how much about it is already known in the market or how Neuergedanke came to hear about it, what his new idea is, whether his idea is really novel or whether it even has any value. Some of that information is required in order to determine (i) whether Portier is doing anything wrong and (ii) if Portier is doing something wrong, whether it is a violation of the RPC. As I will explain more fully in Section B below, Portier’s actions may lie anywhere on the spectrum from perfectly appropriate to poor judgment to worse.
From the tone of your question, I will infer that you are not Portier’s equal or superior in the firm’s hierarchy. On that basis, the general standard to which you must adhere under the RPC is expressed in Rule 5.2:
Responsibilities of a Subordinate Lawyer
(a) A lawyer is bound by these Rules notwithstanding that the lawyer acted at the direction of another person.
(b) A subordinate lawyer does not violate these Rules if that lawyer acts in accordance with a supervisory lawyer’s reasonable resolution of an arguable question of professional duty.
At the same time, Rule 5.1(d) states as follows:
A lawyer shall be responsible for a violation of these Rules by another lawyer if:
(1) the lawyer orders or directs the specific conduct or, with knowledge of the specific conduct, ratifies it; or
(2) the lawyer is a partner in a law firm or is a lawyer who individually or together with other lawyers possesses comparable managerial responsibility in a law firm in which the other lawyer practices or is a lawyer who has supervisory authority over the other lawyer; and
i. knows of such conduct at a time when it could be prevented or its consequences avoided or mitigated but fails to take reasonable remedial action; or
ii. in the exercise of reasonable management or supervisory authority should have known of the conduct so that reasonable remedial action could have been taken at a time when the consequences of the conduct could have been avoided or mitigated.
These two rules, taken together, do not seem clearly to impose a duty on you to ring the alarm bell.1 And yet, there is some ambiguity because words like “arguable,” “reasonable” and “ratifies” are malleable and with the benefit of hindsight could expand or contract like an accordion.2 If you are already a partner in your firm, you come ipso facto under clause (d)(2)(i).3 It is also worth noting that you need to continue to reevaluate your duties as time goes by and as facts evolve.4
This kind of situation cannot be handled lightly or haphazardly. Start by discussing your concerns with Portier. You should air and explore the considerations that I will outline in Section B below.
If that leads you nowhere, or if you are uncomfortable doing that, does your firm have some kind of ombudsman or other committee or procedure to deal with a situation in which a lawyer at the firm feels that someone is not properly handling client representations? If your firm has such a process, use it. If your firm does not have a mechanism for this, you are, I am afraid, very exposed should the client learn of events and seek to hold the firm and its partners accountable. If your firm is organized as a limited liability entity, that and a favorable interpretation of the RPC may shield you from personal financial risk – and I say perhaps because you are already in this at least up to your ankles, so to speak – but protection from direct personal liability may be of little comfort if the finances and reputation of the firm as a whole are impaired.
At this stage, you are not yet formally involved in this matter. That distinguishes the situation from the one we addressed in The Forum several years ago.5 In that situation, the client had already asked a junior attorney for advice, and the junior attorney was being directed by firm management to deliver what he considered biased and legally incorrect advice. You may conclude that you are already in a comparable position, and certainly, if and when you are asked to work on this matter you will then more clearly owe a direct duty to the client, who will be relying on you expecting you to provide the best advice. In the words of RPC 1.3(a) & (b), “[a] lawyer shall act with reasonable diligence and promptness in representing a client,” and “[a] lawyer shall not neglect a legal matter entrusted to the lawyer.”
You may be asking yourself whether you need to do more homework on the situation and the details. Perhaps you are thinking of engaging in some reverse-engineering yourself. Feel free to do your own research and thinking – quickly – if and to the extent that can help you evaluate what might lie behind Neuergedanke’s idea and Portier’s reaction, considering the factors I will lay out in Section B below. But resist any temptation to consult with other legal or finance professionals regarding the substance, even on what you think is a no-names basis. Exhilarating as that might be, you have nothing to gain from it, and if you go beyond the general information you have given me and speak with anyone outside your firm about the specifics of this transaction or what you think Neuergedanke’s proposal is, you are courting potential disaster. That gambit tends to yield dramatic positive results only on television. Should your frolic and detour come to light or even should you be asked explicitly by management in your firm whether you have discussed it with anyone before coming to them, you will be in a very unpleasant position.
B. Substantive considerations: is there malfeasance?
Whether there is something wrong here depends on developing further information regarding what is really going on, specifically why Portier is so intent not to allow Neuergedanke to get involved in the transaction and what, if anything Portier intends to do. As in the Let’s Make a Deal television show, there are three doors, but the difference is that you do not get to choose which one will be opened for you:
• Portier may be making a rational decision that this transaction is so sensitive and that the structure as it stands is adequate enough, that any additional agitation, even from an idea that might have been a good one if presented earlier, could topple the whole thing and leave the client worse off. A considered decision along those lines by a seasoned corporate deal lawyer who has a lot more experience in the trenches than you have might well be defensible or even the only appropriate course of action, reflected by the aphorism of not letting the perfect be the enemy of the very good.
• Might Portier be trying only (or mostly) to maximize your firm’s economic position, and more than anything else trying to make sure that the client does not view your firm in a negative light for not having come up with whatever it is that Neuergedanke has invented? In that case, Portier and your firm are not serving the client. Experience suggests that in most instances this strategy is penny-wise and dollar-foolish. When clients eventually find these things out – as they often do – they can end badly for the firm.
• Is Portier intent on using the Neuergedanke innovation by passing it off as his own? (Your suspicion regarding reverse-engineering might very well implicate this. Perhaps Portier is only trying, in a clumsy way, to get ahead of the curve before inviting Neuergedanke back into the mix, but that seems unlikely.) If Portier is trying to pilfer someone else’s intellectual property, there is a serious issue of misbehavior that goes beyond this transaction that your firm’s management needs to address. Apart from the risks of litigation and professional discipline for all involved, lawyers and other professional advisers who do this are not treated kindly by clients or by the financial community, which wields a certain degree of power and influence over which lawyers are allowed to work on transactions.
C. How do you explain your knowledge of the situation?
Let me start by assuming that you just happened to be at the office early, or earlier than usual, and overheard a loud conversation that you could not help but overhear, and that you were not holding a stethoscope to the wall. Let me further assume that in the cafeteria, Portier was being extremely careless, perhaps a bit arrogant, in not suspecting that anyone already had the first “2” to put together with another “2” to get “4.”
With those caveats, just be honest and completely open about all this. This is another reason not to muddy it up with additional conversations with others outside the firm.
D. What if the worst turns out to be true?
Finally, if your firm is not responsive, or if Portier goes berserk that you even question his judgment, you have to decide on your own whether their evaluation of the situation makes sense from a client service perspective. If and only if you are convinced under the standard noted above of RPC 5.2(b) that the firm is doing something wrong, you probably do have to inform the client directly.
Be careful, however, that you do not go to other parties in the transaction or their representatives. Whatever your duty to the client, to the extent that that might trump your duties to your firm, you cannot justify benefiting another party at the expense of your firm or of the client. You might be tempted to contact Neuergedanke; after all, he may be as much an aggrieved party as the client. Stop. Don’t do it. The details of your firm’s representation of the client include confidential information that belongs to the client. Arguably, your merely confirming to Neuergedanke that Portier might be thinking of using the idea falls in this category, as does a suggestion that the deal is likely to proceed without it, which also conveys timing information. The New York exception to the confidentiality rule under RPC 1.6(b)(2) to prevent the commission of a crime is too narrow to apply here. Apart from the limitation that it applies only prospectively, not to a crime that has already been committed, it clearly does not allow disclosure of the client’s information to prevent someone else (Portier) from committing the crime of theft from Neuergedanke. Even if you were to argue that you are preventing the client from utilizing Portier’s assistance, perhaps unwittingly, to steal from Neuergedanke, you do not know for sure that the idea is really proprietary or that the use of the idea would even be criminal. Finally, remember that the exception that allows disclosure is permissive rather than mandatory, leaving you the freedom to concentrate your effort where it belongs, for the benefit of the client. If action needs to be taken, the sensible course of action is just to go to the client.
In parallel, if Portier and your firm are violating the RPC, you may incur an obligation to report that to a disciplinary committee under RPC 8.4, but at this point you are still a long way from that.
If despite your best efforts to navigate these hills and valleys you encounter obstinacy or resistance, you may have some other choices to make as well, including getting your own ethics counsel to guide you in a much more comprehensive way.
For The Forum,
Robert Kantowitz, Esq.
QUESTION FOR THE NEXT ATTORNEY PROFESSIONALISM FORUM:
I am a solo practitioner and planning to retire (or at least semi-retire) sometime next year. My plan has always been to sell my practice and ride off into the sunset. Now that the time to close shop is impending, however, I don’t think I am quite ready to hang up my spurs altogether. I am planning to move to the south where I have a vacation home and am admitted to practice. I think I might do some part-time private practice work there or possibly even volunteer for some not-for-profit legal service groups.
Since my plans are changing from complete retirement to only partial retirement, I am trying to figure out how to navigate my ethical responsibilities to my current clients as well as my ethical obligations as a semi-retired member of the New York State bar. At the same time, however, I also want to make sure that I have enough in my retirement savings to be financially stable in the future. For example, I drafted hundreds of wills over the years and have a regular flow of estate matters as a result. Is selling my practice the only option I have if I am not completely retiring, or do I have other options? If I do continue part-time private practice work in the south, can I continue to list my New York admission in my advertising even though I am shutting down my New York office? Any advice on how to handle semi-retirement issues would be appreciated.
- See Andrew J. Seger, Marching Orders: When to Tell Your Boss “No”, 87 Fla. Bar Journal, No. 2, 34 (2013).↵
- See Andrew M. Perlman, The Silliest Rule of Professional Conduct: Model Rule 5.2(b), 19 The Professional Lawyer, No. 3, 14 (2009). For a more extended discussion, including analysis and references as to what the words mean in this context, see Roy D. Simon, Simon’s Rules of Professional Conduct Annotated §§ ٥.١:23, 5.2:5 (2019).↵
- Under RPC 1.0(m): “[p]artner denotes a member of a partnership, a shareholder in a law firm organized as a professional legal corporation or a member of an association authorized to practice law. Even very junior partners and non-equity partners would appear to be included in this definition.” Roy D. Simon, supra note 2, § 5.1:24. This is not professional baseball, where one of the limited partners in the New York Yankees was said to have observed, “There is nothing in life quite so limited as being a limited partner of George Steinbrenner.”↵
- See, e.g., In re Alexander, 232 Ariz. 1, 300 P.3d 536 (2013) (en banc).↵
- Attorney Professionalism Forum, N.Y. St. Bar Ass’n J. 50 (Jan. 2015).↵