Blowing the whistle on unethical lawyers (cont.)
The letter is initially shown to prospective tax-shelter investors for marketing purposes, but otherwise remains confidential. If, however, the investors who sign up get audited and the IRS determines the tax shelter is bogus, the opinion letter remains valuable. That's because the investor can still wave it in the face of the IRS auditor and say, "How should I have known it was illegal? Such-and-such big-name law firm told me it was fine. Here's their letter!"
At least until 2004 - when tax laws were modified to address abuses - the erroneous letter would typically suffice to immunize the taxpayer from both civil penalties and criminal prosecution.
The problem is even worse, Simon contends, when the client seeks a self-serving opinion not from a law firm but from an ostensibly above-the-fray law professor. "The norms of the academy regard openness and transparency as an essential guarantee of the reliability of a scholar's views," Simon writes. But these norms do not pertain in litigation contexts. On the contrary, rules of confidentiality give the client control over the opinion's release, and generally bar the expert from otherwise discussing the matter.
The academic "invokes the authority of her role and institution as emblems of both acuity and impartiality," writes Simon, "yet she forswears the norms of openness that the academic world regards as essential to such claims."
Simon cites a good example. Prior to the Enron debacle, the Oscar for most dubious performance by a law firm in a supporting role would have gone to New York's Kaye Scholer, which represented Charles Keating Jr.'s now notorious Lincoln Savings & Loan in the late 1980s. Kaye Scholer had imported the scorched-earth tactics of a New York litigation shop into the ordinarily cooperative setting of a bank examination, aggressively hampering regulators from doing their job.
In 1989, when the regulators finally seized Lincoln, the taxpayer-insured institution was $2.5 billion in the red. In 1992 thrift regulators sued Kaye Scholer, accusing it of having knowingly misrepresented Lincoln's financial soundness. Kaye Scholer then disseminated to the press a 22-page summary of the opinion of "Professor Geoffrey C. Hazard, Jr., of the Yale Law School, the nation's foremost authority on legal ethics," who strongly defended the firm's conduct.
(Hazard later admitted to The American Lawyer magazine that the summary had actually been drafted by Kaye Scholer itself, albeit after discussions with Hazard.)
When other academics - like Simon - tried to draw Hazard into a debate at the time over what they saw as glaring omissions in his opinion, Hazard generally declined to engage out of respect for client confidence. Simon writes, "In effect, Hazard rented the university's imprimatur to Kaye Scholer for his own profit, allowing the firm to make virtually unconditional use of it." (Kaye Scholer later paid $41 million to settle the regulators' suit but acknowledged no wrongdoing.)
Hazard, now with the University of Pennsylvania Law School, was then, and probably still is, the nation's leading authority on legal ethics. For many years he has also been its leading dispenser of expert witness testimony on this subject. His rate is $800 an hour, and according to a 2007 curriculum vitae, he testified as an expert in 78 cases from 1999 through 2006. (That doesn't include engagements that never led to litigation.) He is also a major target of Simon's article.
Professor Hazard says his Kaye Scholer opinion was justified. "It happened that the government was at the very time in the process of engaging heavyweight private-firm litigation counsel against the client," he writes in an e-mail. "The situation seemed to me to be countering the government's aggression with an equal but defensive position."
He adds, "Professor Simon's attack on me and others drawn into the focus of his wrath may have some connection to observations I had made about a position he set forth in a book some years ago." Simon says he wasn't aware of Hazard's comments until I asked him about them.
In any case, to prevent law professors from exploiting academe's aura while flouting its norms, Simon unleashes the "shaming" weapon. The lawyers he eviscerates are constrained from freely responding by confidentiality obligations. But that's exactly Simon's point. To the extent that free and open discussion can't take place, the opinions aren't worth the respect they're being accorded. If such discussion could occur, he suggests, the retained experts would be forced to make healthy qualifications - like, "Yes, if X could be proven, then, of course, my opinion would have to change."
The qualifications would make the opinions more reliable but would also often render them worthless to the client. The qualifications would also render less likely the chances of the expert's receiving lucrative future consulting assignments.
After roasting Wolfram and Hazard on a spit, Simon devotes the last half of the article to an in-depth "case study." It involves an unusual settlement reached in 2000 - endorsed at various stages by three academic experts, including Hazard - that sought to resolve litigation that had been threatened but not filed. (Thus, the settlement was not subject to judicial supervision.)
The deal was struck between Nextel Corp. (now part of Sprint Nextel (S, Fortune 500)) and 587 of its employees, who were represented by a law firm called Leeds Morelli & Brown on a wide range of work-related grievances. Under the deal, Nextel agreed to pay Leeds Morelli $7.5 million in attorney fees, expenses, and other remuneration, while it agreed to confer upon the firm's clients only the right (or obligation, depending on how you look at it) to have their grievances determined through binding alternative dispute resolution.
Dissatisfied clients sued Leeds Morelli in a class-action malpractice suit (settled under confidential terms) and in several other suits (one of which was resolved in Leeds Morelli's favor after a trial). Simon himself acted as an unpaid expert witness for certain plaintiffs.
One expert who defended the Nextel settlement, Fordham School of Law professor Bruce Green, has written a response to Simon's article that will be published in the same issue of the Stanford Law Review. His piece is 35,000 words - more than twice the length of Simon's. Green takes issue with Simon's premises (including the notion that there is any problem to begin with) and with all his proposals.
Simon's own article, he argues, shows that "academic writing designed to regulate professional colleagues is... likely to be unreliable, if not misleading, both factually and legally, as well as trivial from a scholarly perspective."
Green stresses that Simon's own unhappy experience in the Nextel litigation demonstrates that his effort to import academic "openness" into the real world just won't fly. Green cites the fact that the plaintiffs lawyer who had been planning to call Simon as a witness dropped him once he read a draft of Simon's law review article, evidently judging that its inflammatory content would make Simon look like a man with an ax to grind. Thus, Green writes, Simon "hurt his clients by writing about their lawsuit while it was ongoing."
In a reply to Green's response, Simon dismisses Green's critique as largely "ad hominem," although here the pot-and-kettle distinctions grow nearly impossible to untangle.
I am now sufficiently old and decrepit to describe myself as a longtime observer of the American legal system. For what it's worth, I find Simon's analysis of what's wrong with legal ethics testimony to be not just dead-on, but cathartically so. How gratifying to finally hear someone speak truth to power so bluntly, boldly, and persuasively. The ethics emperors have no clothes on, and thank goodness the socially oblivious little boy has finally said it.
That said, "shaming" essays like Simon's aren't likely to become standard fare, and that too is probably for the best. Despite superficial bows toward scholarly decorum, the Simon-Green point-counterpoint gradually takes on the quality of a Punch-and-Judy show. In the drafts that Green and Simon have let me see, Green postulates that it may have been unethical for Simon to write his article, given that it led to his expulsion as a witness, hurting his clients. "There is no indication," he writes, "that the plaintiffs understood the risks."
That's true, Simon counters, "only in the sense that it is true that 'there is no indication' that Green is not embezzling from Fordham Law School or assisting al Qaeda."
Gentlemen. Order. Order in the academy!
You can read more about Simon and other important legal issues affecting Corporate America on Roger Parloff's blog, Legal Pad.