Transcript CALE-OPM-22Oct11 - International Forum on Teaching Legal

THE OPM TEACHING EXERCISE
Clark D. Cunningham, Director
National Institute for Teaching Ethics and
Professionalism (USA)
and
W. Lee Burge Professor of Law & Ethics
Georgia State University
[email protected]
Home Page: law.gsu.edu/ccunningham
Four Component Model of Morality (FCM) (Rest, 1983)
Reasons (Predictors)
Moral
Blindness
Faulty
Reasoning
Lack of
Motivation & Identity
Motivation
Ineffectiveness
Character or Competence
Professional Misconduct
Adapted from presentation by Dr.Muriel Bebeau to 2011 ABA Associate Deans Conference
Four Component Model of Morality (FCM) (Rest, 1983)
Moral Capacity
(Predictors)
Moral
Sensitivity
Operational Definition
• capacity to interpret ambiguous
clues in real-life settings
• capacity to analyze moral issues
Moral
and provide justifications for
Judgment
decisions
Moral
• capacity to internalize and give
Motivation & Identitypriority to professional values
Motivation
Moral
Implementation
• capacity for empathic interaction
and problem solving
Effective Professional Conduct
For more on the FCM
 Cunningham & Alexander, Developing
Professional Judgment: Law School Innovations in
Response to the Carnegie Foundation's Critique of
American Legal Education
 in The Ethics Project in Legal Education (Eds.
Michael Robertson, Francesca Bartlett, Kieran Tranter &
Lillian Corbin) (London: Routledge-Cavendish 2010)

http://www.teachinglegalethics.org/content
/developing-professional-judgment
4
Cunningham, "Remediation Program for Dentists
Provides Data on Moral Development Important to All
Professions," 76 Journal of the American College of
Dentists 50 (2009):
http://www.teachinglegalethics.org/content/remediationprogram-dentists
Dentists referred for misconduct
 14 points lower than dental students on test of
moral reasoning (FCM2)
 When tested for understanding of “professional
responsibilities of a dentist” (FCM3)
– On a scale of 1-12, avg score of 3.8
OPM LEASING in 1980

Private company
– 50% Mordecai Weissman, Board Chair
– 50% Myron Goodman, CEO & Treasurer
One of 5 largest computer leasing
companies in US – 250 e’ees, 11 offices
 John Clifton, CFO – just an employee

Singer Hutner Law Firm

General Counsel for OPM
– 60% of firm’s revenue

Andrew Reinhard is the lead partner
– Personal friend of both stockholders
– Third member of OPM Board
Background to Video
Moments before the CEO (Goodman)
arrives without an appointment
 The outside general counsel (Reinhardt)
attorney has read a confidential memo
from the company's CFO (Clifton)
 raising concerns that the CEO has
engaged in fraudulent conduct
 if true, there could be civil and criminal
liability for the law firm also

8
Four Discussion Topics
1. Ethical
Sensitivity
3. Professional
Identity
2. Moral
Reasoning
4. Effective
Implementation
THE OPM CASE:
What Really Happened
[Primarily drawn from Taylor, “Ethics and the Law: A Case History,”
New York Times Magazine (Jan 9, 1983)]
10
June 1980
Hutner meets with Clifton's attorney, William
Davis
 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
11

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 firm wanted to continue representing
O.P.M. unless they were ethically and legally
obliged to quit.
12

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.
13
New York Code of Conduct at the time:

A lawyer may reveal .. the intention of his
client to commit a crime and the
information necessary to prevent the
crime.
14
Advice from McLaughlin and Putzel
Singer Hutner can ethically continue to represent
O.P.M., based on Goodman's assurances that
there was no ongoing fraud.
 Singer Hutner is bound to keep everything it had
already learned secret, except from Weissman.
 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.
15
Summer 1980
Singer Hutner continues closing loans for
O.P.M. without checking the legitimacy of
underlying Rockwell leases.
16
September 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.
17
Duty of Confidentiality to OPM
The 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.
18
October 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."
19
December 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
20
February 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.
21
March 1981
OPM files bankruptcy
22
December 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.
23
The 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.
24
The 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 inhouse counsel and Kaye Scholer as OPM’s
lawyers

25
1983
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.

26
If OPM happened today
Rule 1.13: Duty to protect organization
 Rule 1.6(b): Duty to protect third parties

Special Duties of Corporate Counsel
NYRPC 1.13
 If, despite the lawyer's efforts …
the highest authority that can act
on behalf of the organization
insists upon action, or a refusal to
act, that is clearly in violation of
law and is likely to result in a
substantial injury to the
organization,


the lawyer may reveal confidential
information only if permitted by
Rule 1.6, and may resign in
accordance with Rule 1.16.
ABA MR 1.13
 if despite the lawyer's efforts ...
the highest authority that can act
on behalf of the organization
insists upon or fails to address in a
timely and appropriate manner an
action, or a refusal to act, that is
clearly a violation of law, and the
lawyer reasonably believes that
the violation is reasonably certain
to result in substantial injury to
the organization,

then the lawyer may reveal
information relating to the
representation whether or not
Rule 1.6 permits such
disclosure, but only if and to
the extent the lawyer
reasonably believes necessary
to prevent substantial injury
to the organization

Confidentiality Exceptions in 2011

NYRPC 1.6(b)
A lawyer may reveal or use
confidential information to the
extent that the lawyer
reasonably believes necessary
... to withdraw a written or
oral opinion or representation
previously given by the lawyer
and reasonably believed by the
lawyer still to be relied upon
by a third person, where the
lawyer has discovered that the
opinion or representation was
based on materially inaccurate
information or is being used to
further a crime or fraud
ABA 1.6(b)
 A lawyer may reveal information
… reasonably believes necessary
to prevent the client from
committing a crime or fraud that
is reasonably certain to result in
substantial injury to the financial
interests or property of another
and in furtherance of which the
client has used or is using the
lawyer's services [or]to prevent,
mitigate or rectify substantial
injury to the financial interests or
property of another that is
reasonably certain to result or has
resulted from the client's
commission of a crime or fraud in
furtherance of which the client has
used the lawyer's services
