You’ve probably already read this letter…

It’s Tuesday night, October 8, 2019. What are you going to do with your evening? Want to read a letter written by someone who seems pretty clearly like someone who should not be permitted to be a lawyer at all but certainly who fails to understand that being White House Counsel is not the same thing as being a personal lawyer for the person presently holding that government office?

You’ve probably already read it, but just in case you haven’t, here is a link where you can read it in all of its infamy: https://assets.documentcloud.org/documents/6459967/PAC-Letter-10-08-2019.pdf

Enjoy.

And when I write “enjoy,” what I really mean is . . . lament the level of institutional failure that has given us someone like Pat Cipollone as White House Counsel at this period of history rather than someone who would have the decency to resign rather than pen that feeble-minded missive in order to stay employed by someone who is wholly unworthy of, and dangerous to, the institution of the Presidency.

Although, if I were trying desperately to say something positive about this letter, I could say that at least he didn’t use comic sans as the font.

Disbarrment time in D.C.?

Today’s a pretty big day for the future of democracy in the United States. Not just because it is Law Day, but because Law Day is being commemorated pretty ironically as the man with a very checkered past currently serving as the Attorney General of the United States testifies to Congress about why he didn’t mean the things he said to get the job and why, apparently, the current occupant of the White House should be free to obstruct justice if he is frustrated.

A couple of weeks ago, I wrote about a rare situation in which a corporation sued its former GC for what was essentially a legal malpractice claim and mentioned that, if nothing else, it served as a good reminder for lawyers who represent organizations that it is the entity, and not the CEO or its other officers, that are the client.

Many moons ago when I thought that Jeff Sessions might end up being the worst AG we were going to get under the current administration I wrote about the fact that the AG always needs to remember that the President is not the client.

The fact that we now have an AG who appears to be even worse is certainly proof of the small and meaningless nature of my voice, but also still more proof of how important the distinction between who is the client and who is not should be.

Of course, as an exchange with Atrios that I’ve had today on Twitter bears out, rampant lying by the person who is arguably the most prominent lawyer in the nation is – in addition to being an existential threat to democracy in this instance – not a good look for our profession as a whole.

So, happy Law Day, I guess.

Rarer than rare

I could try to open this post with references to song lyrics from either Toad the Wet Sprocket or Arctic Monkeys, but, either way, I’d likely lose most of you from the jump. (I could also try to claim knowledge of the Glenn Miller song that uses the exact phrase but while I may look it I’m just not old enough to know that reference.)

So, instead, we’ll go straight into the situation referenced by the title of the post. I’ve written in the past about the rare nature of instances of departures from law firms actually resulting in litigation and the rare nature of law firms suing other law firms over advertising practices. But what we discuss today is much rarer than either of those things, a corporation filing suit against its former general counsel for what is the equivalent of a claim for legal malpractice .

In the last few weeks there has been discussion in the legal press of a $70 million lawsuit filed by Hertz against three of its former high-level executives. One of those three defendants is Hertz’s former General Counsel. (He was also an EVP and Secretary but the lawsuit focuses only on his status as General Counsel so we shall do the same.)

So, what’s the deal? Well, Hertz has had some trouble over the years with the SEC where it ended up having to restate its financials for fiscal years 2011, 2012, and 2013. The restatement filing was made with the SEC in 2015 and amounted to a $231 million reduction in Hertz’s net income. The restatement was attributed to “material weaknesses” in Hertz’s internal controls which the lawsuit is claiming were either caused or made worse by the mismanagement of the company by the three defendants being sued, including the former General Counsel.

If you want to read a good summary treatment of the suit, you can grab one here or here. It certainly details a story of significant corporate turmoil and upheaval and paints a very unflattering picture of the former CEO (who is one of the three named defendants) and his management style. If you are interested in reading the full lawsuit filed in federal court in New Jersey, you can get it here.

If you want to get a clear flavor of the kinds of allegations involved without getting fully into the weeds – and in particular the almost “ride-along” nature of the case against the General Counsel – paragraph 6 of the Complaint is a pretty good landing point. (Frissora was the CEO; Douglas was the CFO; and Zimmerman is the General Counsel in question.)

Upon learning that Hertz might miss a financial target, Frissora would demand mandatory team-wide calls and continuous weekend meetings, and would repeatedly berate subordinates who did not come up with a sufficient number of “paradigm-busting” accounting strategies to fill the gaps between Hertz’s actual and expected performance, accusing them of not being team players if they would not play his game. Defendants Douglas and Zimmerman – Frissora’s right-hand subordinates who were entrusted with effectuating his orders — failed to stop, effectively counterbalance, or otherwise offset or report to Hertz’s board of directors . . . Frissora’s inappropriately forceful tone, in breach of their duties owed to Hertz.

The suit seeks to claw-back somewhere in the neighborhood of $70 million in incentive-based payments that were made to the three including significant amounts of money paid to each on their way out the door after they resigned and the financial problems had become known – payments that the lawsuit itself tags with the shorthand reference “Golden Parachutes.”

Paragraph 21 of the Complaint goes into the most details in terms of the allegations against the General Counsel. It does not, of course, reference the ethical duties that a lawyer to an organizational entity owed under RPC 1.13 but, at its heart, the dynamic that is discussed in that rule in most jurisdictions is exactly what this lawsuit is all about: the allegation that if Zimmerman wasn’t able to stop Frissora from engaging in wrongdoing he should have informed the Board of Directors of Hertz about what was going on.

Based on not much more than a very surface-level read, it is an extremely interesting story where I’d love to learn what the other side of it looks like. Given how rare this kind of lawsuit is, it would not be at all surprising for it to get resolved in a way that does not end up shedding light on whether the former general counsel’s story is one where he’s joined at the hip with the former CEO in a belief that everyone was trying to do the best thing for Hertz or if his story is one in which he wasn’t comfortable with what was going on but didn’t think he could rock any boats or somewhere in between. (One note of curiosity about the litigation and the dynamic, one of the two articles linked above goes into details about how the defendants in the New Jersey federal court suit have become plaintiffs in a suit filed in Delaware to seek to make Hertz pay them for the costs incurred in defending the suit Hertz has brought.)

At this point at least, and regardless of how any of it plays out further, the situation offers a ready highlight for lawyers who represent entities, and particularly in-house counsel, about how important it is to always remember that it is the entity that is the client – and not any particular officer – and how big the stakes can be when it comes to trying to figure out whether the person giving you instructions is acting in the best interest of that entity or not.

About last night.

Things are moving so fast, the new administration has made it to one of the worst moments of the Nixon Administration in fewer than 11 days.  Now, in addition to being a constitutional crisis, America’s political drama involves an honest-to-goodness legal ethics issue so…

To recap, yesterday Sally Yates, a career federal prosecutor who was serving as Acting Attorney General of the United States, having been confirmed by the Senate in 2015, wrote a letter to prosecutors in the Department of Justice telling them not to defend an Executive Order issued by the President that has resulted in in various pieces of litigation being filed, most on an emergency basis, over the last 2 to 3 days.  In Ms. Yates’ words (which read like a grown-up, well-educated, adult wrote them):

On January 27, 2017, the President signed an Executive Order regarding immigrants and refugees from certain Muslim-majority countries. The order has now been challenged in a number of jurisdictions. As the Acting Attorney General, it is my ultimate responsibility to determine the position of the Department of Justice in these actions.

My role is different from that of the Office of Legal Counsel (OLC), which, through administrations of both parties, has reviewed Executive Orders for form and legality before they are issued. OLC’s review is limited to the narrow question of whether, in OLC’s view, a proposed Executive Order is lawful on its face and properly drafted. Its review does not take account of statements made by an administration or it surrogates close in time to the issuance of an Executive Order that may bear on the order’s purpose. And importantly, it does not address whether any policy choice embodied in an Executive Order is wise or just.

Similarly, in litigation, DOJ Civil Division lawyers are charged with advancing reasonable legal arguments that can be made supporting an Executive Order. But my role as leader of this institution is different and broader. My responsibility is to ensure that the position of the Department of Justice is not only legally defensible, but is informed by our best view of what the law is after consideration of all the facts. In addition, I am responsible for ensuring that the positions we take in court remain consistent with this institution’s solemn obligation to always seek justice and stand for what is right. At present, I am not convinced that the defense of the Executive Order is consistent with these responsibilities nor am I convinced that the Executive Order is lawful.

Consequently, for as long as I am the Acting Attorney General, the Department of Justice will not present arguments in defense of the Executive Order, unless and until I become convinced that it is appropriate to do so.

Within three hours of that announcement, the Acting Attorney General was fired by the President.  The last time anything like this happened was the year I was born.

This is not normal; this is not appropriate; this is not at all how things should go.  Before going to bed last night, I’d already read too many folks online, including a former Speaker of the House, attempting to defend this move on the basis that the President simply wants “his people” in place or that Ms. Yates undermined her boss, refused to do her job, or was being insubordinate.

To the extent my teeny-tiny voice makes any difference, I want to make sure to state this as clearly as I can.

The Attorney General’s client is the United States, not the President.  The Attorney General’s job is not to do the President’s bidding.

The ethics rule that addresses the concept of who is the client for a lawyer in Ms. Yates’s position is Model Rule 1.13.  It establishes that, generally speaking, the client is the organization and not its constituent parts.  That same rule also addresses difficult situations where an attorney for an organization has to try to act when one or more constituents of the entity are trying to have the organization undertake wrongful activity.

Ms. Yates was doing her job, acting in what she considered the best interests of the United States by advising that the Justice Department not waste the United States’s resources attempting to defend an indefensible Executive Order.

The President’s firing of the Acting Attorney General because she refused to adhere to his interpretation of the law is shameful.  It would be shameful if members of the public had any good faith reason to believe that the current President actually understands or cares much about the law.  The statement the President issued to justify the firing does not do anything to help anyone think that the President actually understands or cares much about the law.  The statement is as childish as it should be frightening:

The acting Attorney General, Sally Yates, has betrayed the Department of Justice by refusing to enforce a legal order designed to protect the citizens of the United States. This order was approved as to form and legality by the Department of Justice Office of Legal Counsel.

Ms. Yates is an Obama Administration appointee who is weak on borders and very weak on illegal immigration.

It is time to get serious about protecting our country. Calling for tougher vetting for individuals travelling from seven dangerous places is not extreme. It is reasonable and necessary to protect our country.

Tonight, President Trump relieved Ms. Yates of her duties and subsequently named Dana Boente, U.S. Attorney for the Eastern District of Virginia, to serve as Acting Attorney General until Senator Jeff Sessions is finally confirmed by the Senate, where he is being wrongly held up by Democrat senators for strictly political reasons.

“I am honored to serve President Trump in this role until Senator Sessions is confirmed. I will defend and enforce the laws of our country to ensure that our people and our nation are protected,” said Dana Boente, Acting Attorney General.

Things are moving fast, but the attorney who has agreed to be the new Acting Attorney General, Mr. Boente, was not the lawyer next in the line of succession pursuant to an Executive Order issued during President Obama’s tenure and last night there was speculation about that in a number of places and why that was.  It is still possible that the President may have turned to other attorneys before Mr. Boente to offer them the position and those attorneys turned him down, but that particular Executive Order does have language that makes clear that the President still retained the power to depart from what was set out in that order in selecting an Acting Attorney General.  Of course, I doubt very much this kind of Nixonian effort was what the 44th President had in mind.

Either way, history is going to have its eyes in a number of places over the next few days.  One of those places is going to be on the new Acting Attorney General and whether he is in any way someone who sees himself as representing the United States distinct from the President or not.  And while he may have stated in the press release that he will serve in the position until Senator Jeff Sessions is confirmed, my guess is that may not happen all that fast now, if at all.

What is happening fast, however, is that the U.S. is already quite deep in the midst of a full-blown constitutional crisis.  History will also have its eyes on the members of the U.S. Senate, both Democrats and Republicans.  In these circumstances, giving the man serving as the 45th President the Attorney General he wants is the kind of action that seems very likely to be something history would not view kindly.

At the very least, there should be some further hearings so that Mr. Sessions can be asked the same question that he posed to Ms. Yates at her confirmation hearing.  After all, her adherence to her answer just got her fired.  You can watch the exchange here.

Ethics Roadshow 2014 update … in-house counsel edition

This week a former in-house counsel whose travails were discussed at last years Ethics Roadshow finds himself back in the news this week as he is testifying at his boss’s trial.  At the Roadshow we discussed that the former GC for PetroTiger Ltd. had been disbarred in late November of last year as a result of being convicted for his part in bribing a Colombian official in order to land a nearly $40 million oil services contract.

In January of this year, the former GC was back in the news when it came out that he visited Joseph Seigelman, who had been the CEO of PetroTiger, while equipped with a tiny sound-activated camera at the FBI’s behest.  In March 2015, the news came out that six current and former officers of the state-controlled oil company on the alleged receiving end of the bribes were arrested in Colombia.

This week, Seigelman’s Foreign Corrupt Practices Act trial has commenced with the former GC serving as the star witness against the defendant, and the trial is making news with a focus on the aggressive nature of how the Department of Justice pursues its undercover investigations in such cases.  Bloomberg has done some excellent reporting on this case, and I commend the linked articles for some fascinating reading.

Ethics issues for in-house counsel can be complicated at times under RPC 1.13 but this looks like a situation in which only one of two things can be true.  Neither of them leave this now-disbarred former in-house counsel looking very good.