BUZZARDS ON THE BAR
Scary Attorney Stories
Sightings from The Catbird Seat
~ o ~
From Spoon River Anthology -
John M. Church
- - -
I was attorney for the “Q”
And the Indemnity Company which insured
The owners of the mine.
I pulled the wires with judge and jury,
And the upper courts, to beat the claims
Of the crippled, the widow and orphan,
And made a fortune thereat.
The bar association sang my praises
In a high-flown resolution.
And the floral tributes were many –
But the rats devoured my heart
And a snake made a nest in my skull.
– Edgar Lee Masters, 1915
August 27, 2002
SECRET SETTLEMENTS
AND PUBLIC SAFETY
By Ken Paulson, Gannett News Service
The writer is executive director of the First Amendment Center with offices in Arlington, Va. and Nashville, Tenn.
I must have missed a course in law school.
At the University of Illinois College of Law, I studied contracts, constitutional law and property transactions. But I must have overlooked “Secret Settlements 101.”
Some law schools must be teaching it. Lawyers nationwide have grown accustomed to settling lawsuits with the understanding that there’ll be no public disclosure of the outcome.
It’s easy to understand the appeal of secret settlements to defendants and plaintiffs, particularly in personal injury cases. A bicycle manufacturer who constructs faulty bikes doesn’t want the world to know about his defective products. He also doesn’t want negative publicity that could affect sales of his other bikes. Plaintiffs can get a larger settlement by promising not to disclose the large sum they’ve been paid. A judge – eager to clear the docket – blesses the agreement. In this scenario, the plaintiff is compensated, the defendant is spared embarrassment or scorn and the public is left in the dark.
There’s a long and ugly history of secret settlements in which disclosure would have alerted the public to serious, ongoing dangers:
>> Eleven former employees of the John-Manville Co. filed suit in 1933 claiming that their work had caused asbestosis. The company agreed to pay off the claims, but the secret settlement would not be disclosed for more than 40 years, according to the Coalition for Consumer Rights.
“One can only guess what would have happened if the original 1933 settlement had been made public,” the coalition noted in a report.
“If the hazards of asbestos had been known during the Great Depression, a generation of workers could have been spared horrible respiratory diseases.”
>> Also kept from the public for years were settlements in lawsuits that alleged that Ford pickup trucks were defective, slipping from park to reverse.
The defect allegedly caused more than 200 deaths and 4,600 injuries.
>> Over 10 years, about 100 lawsuits were filed alleging that Firestone manufactured unsafe tires for the Ford Exployer. The National Highway Traffic Safety Administration says 148 deaths and more than 500 injuries may have been caused by these tire tread separations.
Secret settlements hid the potentially lethal problem from the public for years.
>> Amid the recent wave of sexual abuse allegations against priests, it also has been revealed this year that the Catholic Church insisted on secret settlements is cases stretching back to 1985. . . .
These abuses have not gone unnoticed. Some have taken significant steps toward reform, most recently in South Carolina where all 10 federal judges voted for a total ban on sealed, court-approved settlements. Echoing the federal judges’ concerns, South Carolina Supreme Court Chief Justice Jean Toal is now asking state judges to take a close look at secret settlements.
The Association of Trial Lawyers of America aggressively has promoted legislation that would limit secret settlements. Opponents of these bills argue for the need to protect trade secrets and patient privacy, but judges have the tools to address these issues without sealing the entire record. Arkansas, Florida, Louisiana, Washington and Virginia are among states that currently limit secret settlements when there are public safety considerations.
This kind of reform is long overdue. It’s unconscionable to take a lawsuit – filed in public courts, processed by public employees and heard by judges on the public payroll – and seal it for the convenience of the litigants.
Public safety is never a private matter.
* * *
August 27, 2002
Ford Wins Dismissal of
Harassment Suit
By Danny Hakim, The New York Times
DETROIT – A sexual-harassment lawsuit against Ford Motor Co. was dismissed because the plaintiff and her attorneys had discussed with reporters evidence that the Michigan court deemed inadmissible. Much of the information was a matter of public record.
The suit was dismissed last week by Circuit Court Judge William J. Glovan, who ruled the plaintiff, Justine Maldonado, and her attorney had disseminated information about a defendant’s previous conviction in an attempt to prejudice potential jurors, and in violation of a Michigan law.
“The behavior in question has been intentional, premeditated and intransigent.” the judge wrote in his dismissal. “It was designed to reach the farthest boundaries of the public consciousness.”
Some legal experts said the finding was highly unusual, particularly in its implications for the right of a plaintiff in a harassment case to speak freely. Courts typically use the screening process during jury selection to resolve concerns about what jurors know.
“I don’t know why it should be that the woman who was the alleged victim of the sex harassment can’t continue to talk about in,” said Herschel Fink, a lawyer who specializes in First Amendment issues. “I believe as a matter of First Amendment law, she has a right to talk about it.”
Miranda Massie, Maldonado’s lawyer, said: “Women have the right to talk about abuse. That’s what this comes down to.”
The harassment case was filed two years ago by Maldonado, an inspector at the Wixom, Mich., assembly plant, against Ford and a supervisor, Daniel P. Bennett. Maldonado is one of four women who have sued Ford related to accusations against Bennett. Three of the suits have been dismissed, though Maldonado said she plans to appeal and another plaintiff already has.
Maldonado contended in her suit that Bennett exposed himself to her many time, demanded oral sex and followed her home.
Ford executives said their investigation of the case concluded that Maldonado’s accusations, and those of the three other women, were without merit.
Part of the company’s legal strategy has been to seek a dismissal of Maldonado’s case on the grounds that she and her lawyer prejudiced potential jurors by talking about Dennett’s conviction in 1995 on charges of exposing himself to three young women. The conviction was expunged from his record last year, as is permissible under Michigan law for meeting various good behavior requirements....
~ o ~
NOW, FOR YOU YOUNG BIRD-WATCHERS WHO STILL THINK THAT ENRON, GLOBAL CROSSING, WORLDCOM, IMCLONE, AND OTHER CORPORATIONS THAT ARE CURRENTLY FEELING THE HEAT OF CORPORATE HELL, ARE A NEW PHENOMENA . . .
From www.jailhurwitz.com/textfiles/talltalefromtexas.txt
The Beebe Network -
The Cast Of Characters and The History
Ben Barnes, former Texas Lt. Governor; business associate of Herman K Beebe, Walter Mischer and John Connally.
Herman K. Beebe Sr., Louisiana financier with offices in Dallas, convicted felon and Mafia associate; many connections to the intelligence community; godfather of the dirty Texas S&L's; did nine months in Club Fed.
Charles Hurwitz introduced Beebe to B G Wylie, half-brother of Carroll Kelly; funded start-up of Contra-related Palmer NB.
Tom Benson, a partner of Stanley Rosenberg in Groos Bank (influenced by H K Beebe) and Bank of Leon Springs; a Beebe associate; partner with Peyton McKnight and Charles Hurwitz(?) in Culebra/1676, a Rosenberg boondoggle.
John Connally, former Texas governor; Connally's law firm, Vinson-Elkins had Walter Mischer as a client; Charles Keating worked on his 1980 Republican presidential race; he and his partner Ben Barnes, borrowed tens of millions of dollars from dirty S&L's; served on Hurwitz's Maxxam Inc's board of directors from 1988 until his death in 1993. Participated in several CIA related covert actions.
Thomas Gaubert, big Democratic fundraiser from Dallas; former head of Independent American Savings, which purchased 20 branch offices from Hurwitz' USAT; owned a piece of Sandia Federal Savings in Albuquerque; head of Telecom; A right-wing flag waver.
Joseph Grosz, Chicago mob associate; worked for Gouletas family; ran Southmark's San Jacinto Savings; director of Gaubert's Telecom.
Stefan Halper, co-founder with fellow George Bush supporter Harvey McLean of Palmer National Bank, which was financed by H K Beebe and funneled private donations to the Contras; former son-in-law of past CIA deputy director Ray Cline; helped set up legal defense fund for Oliver North.
Peter Munk also an investor in Palmer NB.
J B Haralson, former head of Mercury Savings and Ben Milan Savings, where he was fronting for his old associate George Aubin; old Surety Savings hand, which Hurwitz attempted buy in 1977; managing officer of two other Texas S&L's which that failed; partner of B G Wylie et al in the purchase of Brazaport S&L from Lloyd Bentsen.
Charles Hurwitz, controlled now defunct USAT, majority stockholder of Maxxam Inc; longtime friend of most Houston elite including John Connally; a Milken Insider; often accused of fraud and other security related schemes; knew H K Beebe.
Charles Keating, S&L looter; spawned by Carl Lindner; worked on John Connally's 1980 presidential campaign as Westcoast fundraiser; controlled Lincoln Savings and Loan (the first big deal Lincoln did was with Connally); Lincoln involved in a daisy chain with Larry Mizel's MDC Holdings, Silverado and San Jacinto; his chief pilot in 1979 was CIA operative Ken Qualls.
Carroll Kelly, who epitomized his Kappa Sigma fraternity; owner of Continental Savings and associate of H K Beebe (I'm Beebe's man in Texas," he bragged to S&L regulators.)
Ed McBirney, "Fast Eddie" from Dallas; former head of Sunbelt Savings; associate of H K Beebe, Jarrett Woods and George Aubin; attempted to buy branch offices from Hurwitz' USAT; funded Hurwitz associates including Rosenberg.
Peyton McKnight, powerful Louisianan, an associate of Beebe and a partner with Charles Hurwitz, Stanley Rosenberg and Tom Benson in a Rosenberg deal.
Harvey McLean, Shreveport, Louisiana businessman and close associate of H K Beebe; owned Paris (Texas) Savings and Loan; co-founded Palmer National Bank with Stephan Halper and Beebe's money.
Peter Munk, a Canadian businessman, investor in Palmer NB; an associate of H K Beebe; business partner with Adnan Khashoggi; an associate of John H Roberts Jr and John P Holmes Jr in Goldome FSB.
Clint Murchison Sr. and Jr., Dallas oilmen and wheeler dealers; Sr was involved in business in Haiti with a CIA operative; Jr purchased Mischer's interest in sawmills in Honduras; Jr was involved with a CIA operative in Libya and did business with H K Beebe and Adnan Khashoggi.
David Saks, business associate of Stanley Rosenberg; partner of Doyle Spruil, both convicted felons; borrowed from Beebe controlled S&L's.
Doyle Spruil, business partner of David Saks and Stanley Rosenberg; a convicted felon; borrowed from Beebe controlled S&L's Beebe connections to Barnes-Connally, to Hurwitz, to S&L's, to Mafia CONNALLY-KEATING-LINDNER- BARNES-BEEBE. (Source: References are in "Inside Job")
~ ~ ~
Beebe connections to Barnes-Connally,
to Hurwitz, to S&L's, to Mafia
CONNALLY-KEATING-LINDNER-BARNES-BEEBE
(Source: References are in "Inside Job")
1960's
Beebe starts American Motels, Inc. (AMI); invests in Holiday Inns.
1970's
Beebe & Barnes develop complex business association.
Beebe controls Bossier Bank & Trust, Bossier City, CA.
Barnes invests in Holiday Inns.
1972
Barnes, then Lt. Gov. of TX, involved in Bank & stock fraud scandal. In '71 a grp of TX banks looted a network of businessmen who bought & sold stock in a business owned by Frank Sharp.
Connally bribe to cover indictment led to indictment of Connally; acquitted.
1973
Jul. - Beebe & Barnes from banking and insurance assoc. by 1976 B/B control 19 banks & S&L's in TX & CA
Prior to Charles Keating a ExecVP & Director of Carl
1979
Lindner's American Financial Corp. (AFC); also a founding partner in AFC's law firm Keating, Muething & Klekamp.
Lee H. Henkel, a Republican, was Treasury Dept. & IRS Counsel in the Nixon Administration. Later a tax attorney and real estate developer in Atlanta.
Jul. 02 - SEC v. Keating, Muething & Klekamp a judgment against Lindner, Keating & Klekamp enjoins self-dealing in an Ohio bank subsidiary.
Keating buys Continental Homes of Phoenix, Inc. from Lindner & renames it American Continental Corp. (ACC)
1980
Henkel & Keating are Connally for Presidents' East & West Coast financial chairs. Henkel is Keating's attorney.
1983
Oct. - ACC buys Lincoln Savings with DBL issued junk bonds
1984
Lincoln makes $70mm loan to Connally on a land deal near Austin, TX and $134mm loan to Henkel; Connally defaulted leaving Lincoln (and not the taxpayers) holding a $70mm loss (Nation 11/19/90)
1986
Herman Beebe associate Ben Barnes in partnership with Connally borrows from 17 S&L's in 3 states ($40mm from Vernon S&L and some unknown amount from Credit Banc (where Barnes' son worked)
ACC employed Mark Connally son of John Connally
Aug. - Press reports Beebe & Marcelolo control Continental S&L (Houston). Fails in 1988.
1987
Feb. 13 - WSJ reports Lincoln S&L made at least $61.9 million in loans to corporations & partnerships in which Lee Henkel had an interest
In mid-August 1987 the records of Southmark, San Jacinto SA, Strauss, Barnes, Connally and about 200 others were seized according to the Dallas Times Herald. Southmark had done about $90 million in business with Beebe who held 62% of its Series E Pfd according to Southmarks 10K85. Southmark bought Beebe's nursing homes and also owned 37% of Pratt Hotels. Beebe did business with Morris Shenker and also was related to many Contra figures. Southmark also purchased the Beebe built AMI tower in or before 1988. AMI had 17 subs and 14 affiliates.
1988
SEC v. MDC Holdings, MDC (has close ties with Silverado), is caught in shady deal with Lincoln S&L.
Neal Bush is loaned $550m for a house
Connally elected to Maxxam BOD. . . .
..........
The above two articles were located by a Google search for Lee H. Henkel, attorney:
www.jailhurwitz.com/textfiles/talltalefromtexas.txt
... partner in AFC's law firm Keating, Muething & Klekamp, Lee H. Henkel, a Republican, was Treasury Dept. & IRS Counsel in the Nixon Admin. Later a tax attorney ...
... Muething & Klekamp. Lee H. Henkel, a Republican, was Treasury Dept. & IRS Counsel in the Nixon Admin. Later a tax attorney and real estate developer in Atlanta. ...
...........
For more on Lee H. Henkel, GO TO > > > Dirty Money, Dirty Politics & Bishop Estate
For more on Maxxam, GO TO > > > Heavens and Earth
* * *
February 29, 2000
Pluck, leaks helped McCain
to overcome S&L scandal
By Walter V. Robinson, Globe Staff
A decade ago, Senator John McCain's role in the most politically corrosive episode of the $150 billion savings and loan debacle threatened to end a political career that now holds some promise of concluding instead with a McCain presidency.
Back then, McCain said the Keating Five scandal was a more nightmarish experience than his years in a North Vietnamese prison camp.
What a difference a decade makes: One mischievous commentator recently suggested that the Keating Five was a rock group. And nowadays, McCain dismisses the tawdry Senate scandal as a mere asterisk in his career, in hopes the electorate will too. . . .
He was a close friend and early congressional ally of Charles H. Keating Jr. - the figure at the core of scandal - and one of the leading beneficiaries of Keating's political and personal largesse. Yet, he benefited from decisions by the Senate Ethics Committee that minimized his culpability and the resulting sanction.
And there is evidence that McCain averted major damage to his public image with well-choreographed news leaks from his office that undermined three of the four other senators caught up in the controversy. In 1992, McCain denied under oath that he or his aides had anything to do with the leaks.
The scandal's raw content is unflattering: McCain and four other senators - indelibly known ever since as the Keating Five - pressuring federal regulators on behalf of Keating, a prodigious fund-raiser and owner of the Lincoln Savings & Loan Association. His bank's subsequent $3.4 billion failure made Keating the most enduring symbol of the devil-may-care S&L excesses of the 1980s.
To be sure, the record shows that McCain did less for Keating than most of the others, and abandoned Keating the moment he learned there might be criminal charges against his friend. The Senate Ethics Committee gave McCain, along with Senator John Glenn, the lightest of reprimands, saying they displayed ''poor judgment'' for going to two meetings with banking regulators. . . .
But in an interview this month, Clark B. Hall, a former FBI agent and congressional investigator who led the GAO investigation, told the Globe he had no doubt, after doing scores of interviews and obtaining documentary evidence, that McCain was one of the principal leakers. But Hall said the Ethics Committee ''smoothed it over.''
''You don't betray other people to protect yourself, and that's what he was doing,'' Hall said. ''And he was breaking Senate rules to do it.'' The targets of the leaks were Democrats Dennis DeConcini of Arizona, Alan Cranston of California, and Donald Riegle of Michigan. (In the end, DeConcini and Riegle would be sharply criticized by the committee; Cranston drew a formal reprimand.) . . .
A pugnacious strategy
From the beginning, Keating also adopted a pugnacious strategy in his attempts to outfox, intimidate, and even seize control of the federal regulatory apparatus that sniffed big trouble in the way his Lincoln Savings & Loan Association was lending depositors' money for risky ventures. Many of the loans were for real estate developments by Keating's Phoenix-based American Continental Corp., which purchased the California-based Lincoln S&L in 1984.
As federal banking regulators closed in, Keating deployed powerful allies against them. He raised enormous sums for members of Congress - $1.3 million for the five senators alone, $112,000 of that for McCain's campaigns. He and his lobbyists prevailed on McCain and others to write letters and support congressional resolutions condemning Federal Home Loan Bank Board regulations that would restrict risky direct investments like those Lincoln's deposits were used for.
In 1989, Keating himself left no doubt that the campaign funds he lavished on the five senators were designed to produce results, when he declared to reporters: ''One question, among the many others raised in recent weeks, had to do with whether my financial support in any way influenced several political figures to take up my cause. I want to say in the most forceful way I can: I certainly hope so.''
Months before he pushed the five senators to meet with regulators, Keating even sought to seize control of the bank board by asking his congressional allies to support two of his choices for the three-member board that was overseeing the investigation of Lincoln. One of the two, Lee H. Henkel Jr., was appointed to the board in November 1986.
During the Ethics Committee investigation, one of the leaked stories that benefited McCain reported that DeConcini and Riegle, at Keating's behest, had lobbied the White House for Henkel's appointment. But in a little noticed finding in its final report, the committee reported that McCain had, too.
Alone among the five senators, McCain counted Keating as a personal friend; their families vacationed together from 1983 to 1986 - the four years McCain served in the House - flying to Keating's private retreat in the Bahamas aboard corporate aircraft paid for by Keating's company.
In 1986, McCain's wife, Cindy, and her father, James W. Hensley, also invested $359,100 in a Phoenix shopping mall developed by a subsidiary of Keating's American Continental Corp.
When the scandal became public, and along with it his family's personal and business links to Keating, McCain reimbursed Keating $13,433 for the flights and vacations. By not reporting them and reimbursing Keating at the time they occurred, McCain had violated House ethics rules. (He was elected to the Senate in 1986.)
But the Senate Ethics Committee decided that the vacation subsidies were House matters - outside its jurisdiction. The committee did not consider the mall investment germane. Nor was it troubled by McCain's lobbying for Henkel.
With public hearings looming, the bipartisan panel - three members from each party - split over whether to follow the urging of its counsel, Robert M. Bennett, that the case against McCain and Glenn be dropped. The committee Democrats resisted, and McCain has long insisted they did so because he was the sole Republican among the five and they feared that a pared-down ''Keating Three'' would be recast as a Democratic scandal.
Most important, the committee concluded it was not improper for five senators to seek two separate meetings with regulators, even though Keating orchestrated the April 1987 meetings. The first meeting was with bank board chairman Edwin J. Gray, at a time when Gray was seeking Senate approval for a $15 billion bailout bill to rescue hundreds of failing thrifts. Gray was summoned to a meeting in DeConcini's office and told to come alone. The second meeting, a week later, was with regulators who were directly overseeing the investigation.
Fred Wertheimer, then president of Common Cause, which filed the official complaint that prompted the Ethics investigation, said the committee's decision on the propriety of the meetings was unfortunate.
''The meetings themselves were wrong and should not have occurred. The five senators involved put undue and inappropriate pressure on regulators,'' Wertheimer said. The meetings, Common Cause argued in 1990, were ''seemingly designed to put the maximum senatorial pressure on the board to accede to Keating's wishes.''
McCain's own role remains a puzzle. Before the meetings, he had a falling out with Keating when he learned that Keating wanted the senators to negotiate on his behalf. McCain, new to the Senate and concerned about recent publicity over Keating's fund-raising for him, said he would attend the meetings only to assure himself that regulators were treating Keating fairly.
But at both meetings, first with Gray and then with thrift regulators flown in from San Francisco, McCain looked on as DeConcini pushed the regulators to give Lincoln a dispensation on a board regulation that barred further risky investments - a ban that Lincoln had already exceeded by $600 million.
Two years later, Gray told a House committee that the meetings were an attempt to ''subvert'' the regulatory process.
William Black, one of the regulators who attended the second meeting, said in an interview that Keating clearly intended to intimidate the bank board by assembling ''one-twentieth of the US Senate, to include two bona fide American heroes, a Democratic leader [Cranston] and the man who was about to become chairman of the Banking Committee [Riegle].''
McCain, despite his later insistence that he had refused to negotiate on Keating's behalf, did not raise objections to DeConcini's advocacy for Keating, according to Black.
But Dowd, McCain's attorney, said McCain ''did nothing improper, and he didn't know that...DeConcini was going to misbehave.''...
* * *
From www.dcia.com/settlement.html:
BILLIONS WON BY INVESTORS
The Arizona Republic
Damages and out of court settlements won by investors in Charles H. Keating Jr.'s American Continental Corp. who filed a $1.2 billion fraud and racketeering lawsuit in U.S. District Court in Tucson:
DAMAGES AWARDED BY JURY:
Defendants will share in a judgement of $1.8 billion in compensatory damages returned by a jury Friday against:
Charles Keating, former chairman of American Continental, who also owes $1.5 billion in punitive damages.
Editor's note: Now that really sounds wonderful but what does it mean? Since Keating says he is broke that $1.5 billion just disappears form the equation. Now there is just chicken feed left for the investors. This headline is a lie. Notice (buried at the very end of the article!) the amount Michael Milken had to pay and remember he was making $550 million per year when he was stopped. That is what it means to have attorneys like the Dershewitz brothers, Melvin McDonnald, and John Dowd. I can think of about 200 million people who would think serving a few years in the pen and keeping all that loot was a pretty good deal!!
Saudi European Investment Corp. of Paris, was a financial partner.
Conley Wolfswinkel of Tempe, was a borrower from Lincoln Savings and Loan Association, an American Continental subsidiary.
Continental Southern Inc., Atlanta, was a Lincoln borrower.
SETTLEMENTS REACHED
Former executives of American Continental and Lincoln Savings, $4.75 million.
Law firms and individual lawyers
Jones, Day, Revis & Pogue, Cleveland: helped Lincoln prepare for a 1986 federal examination, $24 million.
Kaye, Scholer, Fierman, Hays & Handler, New York: represented Lincoln in its disputes with federal regulators, $20 million.
Parker, Miliken, Clark, O'Hara & Samuelian, Los Angeles: worked with American Continental's Lincoln subsidiary in connection with investigations by California regulators, $5.65 million
Sidley & Austin, Chicago: represented Lincoln in dealings with federal regulators, $4 million.
Mariscal, Weeks McIntyre & Freidlander, Phoenix: represented Lincoln in dealings with federal regulators, particularly in disputes over appraisals of properties, including the Phoenician Resort, $2 million.
Barbara Thomas, New York, $90,000.
Accountants
Arthur Young & Co. (succeeded by Ernst& Young); audited Lincoln and Continental's financial statements for 1986 and 1987, $63 million.
Arthur Anderson & Co.: audited Lincoln and American Continental's financial statements for 1984 and 1985, $22.8 million.
Touche, Ross & Co.: audited Lincoln and American Continental from November 1988 until April 1989, $7.5 million, plus $1 million in services for accounting and distribution of payments to investors.
Lincoln borrowers
MDC Holdings, Denver, $1 Million
Isaac Heimbinder, US Homes president, Houston, $1 million.
C.V. Nalley, Atlanta, $750,000
Lee H. Henkel Jr., Atlanta, $100,000
E.C. Garcia & Co., Phoenix $90,000
Others
Offerman & Co., Minneapolis, investment bankers, $1.5 million.
Lexecon Inc., Chicago Financial Consultant, $1 million in services for investors.
Jeffery C. Patch, PHX, appraiser, $500, 000
Richard Fenn, former vice chairman of Saudi European Investment Corp. a financial partner, $16,000
ANTICIPATED SETTLEMENTS
Drexel Burnham Lambert Inc. Investment bankers, $40 to $50 million
Michael Milken, former head of junk bond sales for Drexel, $35 million to $50 million.
Emerald Homes, PHX, Lincoln borrower, $200, 000
* * *
From: Where does Kaye Scholer Leave Us?
"Ethical Responsibilities in Regulatory Practice: Where does Kaye Scholer Leave Us?"
By Professor Dorothy J. Glancy
ASHVILLE, N.C., September 30, 1993
"Kaye Scholer" has come to stand for a variety of administrative and civil actions brought against attorneys by banking regulators in connection with the failure of Lincoln Savings & Loan and other financial entities controlled by Charles H. Keating, Jr.
Most of the legal actions against Lincoln Savings lawyers have now been settled. But the settlements seem to have left the legal profession, especially lawyers engaged in practice involving regulatory agencies, with a great many more questions regarding ethical responsibilities than answers....
Settlements in the Banking Cases
Over the past several years, three federal regulatory agencies which regulate financial institutions, including the Office of Thrift Supervision (OTS), the Resolution Trust Corporation (RTC) and the Federal Deposit Insurance Corporation (FDIC), have brought roughly 100 claims against lawyers for several hundred failed banks and over 700 savings and loans. The failure of Lincoln Savings & Loan was the most prominent source of claims against professional service providers.
Accounting firms, as well as law firms and lawyers who had worked for Lincoln Savings were charged with professional misconduct which allegedly resulted in losses of more than $2 billion to the taxpayers and more than $250 million to the bondholders of Lincoln Savings' parent corporation, American Continental Corporation.
Banking regulators and American Continental bondholders brought monetary claims against at least eleven professionals who served Lincoln Savings. Eight of the eleven were law firms and lawyers.
Over the past two years, settlements of these professional liability claims related to Lincoln Savings have amounted to more than a third of a billion dollars - at least $337.65 million, to be more precise. Of these settlements, legal professionals paid approximately 53%, amounting to at least $180.15 million.
Additional costs resulting from these and other settlements by former lawyers for Lincoln Savings and other failed thrifts will affect most of the legal profession through increased malpractice insurance premiums. Natural resources, energy and environmental lawyers are among those with an interest in the professional responsibility aspects of these cases involving lawyers for financial institutions....
~ ~ ~
Money is surely not the measure of the ethical responsibilities of lawyers. Large dollar figures certainly should not be allowed to obscure the real issues of professional responsibility which lie behind these figures. However, regulators believe that large monetary settlements direct attention to important issues regarding the ethical responsibilities of lawyers, particularly those engaged in regulatory practice....
Professional Principles Asserted by Regulators of Financial Institutions
In presiding over early litigation involving Lincoln Savings, Federal District Judge Stanley Sporkin denounced professional ethics failures on the part of both accountants and lawyers for Lincoln Savings in a series of haunting questions:
Where were these professionals ... when these clearly improper transactions were being consummated?
Why didn't any of them speak up or disassociate themselves from these transactions?
Where also were the outside ... attorneys when these transactions were effectuated?
What is difficult to understand is that with all the professional talent involved (both accounting and legal), why at least one professional would not have blown the whistle to stop the overreaching that took place in this case.
Here it is clear that the private sector was not willing to cooperate with the public oversight regulators. Indeed, the private sector at times impeded the regulatory authorities from discharging their duties....
Perhaps the most expansive expression of the professional ethics theories which banking regulators enforced against the Lincoln Savings lawyers has been offered by former OTS General Counsel Weinstein. In a 1992 speech, he suggested six professional principles:
The first is that a lawyer must be sensitive to the role he or she chooses to play, for the rules and principles that govern an advocate in the courtroom do not apply to the lawyer as advisor or to the lawyer in the bank examination process.
The second is the need to practice the whole law. So-called "loophole lawyering" must be illuminated by the whole body of law that pertains to an issue.
The third is that a lawyer is at all times governed by a duty to deal honestly with the facts and to comply with the disclosure and other regulations that govern submissions to the regulatory agency.
The fourth is that a lawyer advising a fiduciary must not forget that the fiduciary's conduct must be in the best interests of the institutional client.
The fifth is that a lawyer must report unlawful client activity up the corporate chain of command, going as far as the corporate board of directors.
The sixth is that a lawyer may not knowingly further a client's unlawful activity.
More recently, Mr. Weinstein suggested that four professional principles should guide the professional conduct of lawyers for financial institutions:
[1] That a lawyer should, if necessary, go up the corporate chain of command to seek to induce a corporate client to abandon an illegal course of conduct.
[2] That a lawyer may not assist a client in implementing an illegal plan.
[3] That a lawyer must give serious consideration to resignation if the client persists in going forward illegally.
[4] And that a lawyer may not tell misleading partial truths in circumstances where the law would make such action by the client actionable. . . .
A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.
Model Rule 1.6 provides with regard to Confidentiality of Information:
(a) A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraph (b).
(b) A lawyer may reveal such information to the extent the lawyer reasonably believes necessary:
(1) to prevent the client from committing a criminal act that the lawyer believes is likely to result in imminent death or substantial bodily harm; or
(2) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer's representation of the client.
Portions of Model Rule 1.13 provide with regard to the Organization as Client,
(a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.
(b) If a lawyer for an organization knows that 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 to the representation that is a violation of a legal obligation to the organization, or a violation of law which reasonably might be imputed 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 interests of the organization ... Such measures may include among others:
(1) asking reconsideration of the matter;
(2) advising that a separate legal opinion on the matter by sought for presentation to appropriate authority in the organization; and
(3) referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act in behalf of the organization as determined by applicable law.
(c) If, despite the lawyer's efforts in accordance with paragraph (b), the highest authority that can act on behalf of the organization insists upon action, or a refusal to act, that is clearly a violation of law and is likely to result in substantial injury to the organization, the lawyer may resign in accordance with rule 1.16.
Portions of Model Rule 1.16 regarding Terminating Representation provide:
(a) ...a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:
(1) the representation will result in violation of the rules of professional conduct or other law;...
(b) ...a lawyer may withdraw from representing a client if withdrawal can be accomplished without material adverse effect on the interests of the client, or if:
(1) the client persists in a course of action involving the lawyer's services that the lawyer reasonably believes is criminal or fraudulent;
(2) the client has used the lawyer's services to perpetrate a crime or fraud;
(3) a client insists upon pursuing an objective that the lawyer considers repugnant or imprudent;...
(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by oth