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Paul Hastings Advised AIG on Bonus Obligations
The American Lawyer
March 24, 2009
During AIG chief Edward Liddy's testimony last week before an irate congressional committee, Liddy and several members of the committee repeatedly mentioned that AIG checked with its lawyers before concluding that, yes, it was obligated to pay about $200 million in employee bonuses despite receiving about $200 billion in federal bailout money.
The company on Monday confirmed to The Am Law Daily that those lawyers are from Paul, Hastings, Janofsky & Walker. In a six-page letter to the Federal Reserve Bank of New York, written just last week, Paul Hastings employment partner Patrick Shea says the firm was retained "months ago" to advise AIG on whether it had to pay the retention bonuses. Shea's conclusion was emphatic: "We believe there is a clear contractual obligation" on AIG's part to pay the bonuses to any employee -- unless that employee was terminated for cause, resigned without good reason or was terminated for not meeting performance standards in 2008. The letter does not specify what exactly those performance standards were.
What's interesting here is that Shea and Paul Hastings concluded that failure to pay the bonuses would expose AIG to major liability in Connecticut courts, since state law there gives employees the right to sue for double damages and attorney fees in the event that a company unlawfully withholds their wages. (AIG's financial products unit, the epicenter of the meltdown, is located in Wilton, Conn.)
Connecticut lawmakers already are pushing to get that law changed, and Connecticut's attorney general, Richard Blumenthal, has followed New York AG Andrew Cuomo's lead in demanding that AIG turn over information on bonus recipients. Shea also advised the company that failing to pay the bonuses would give employees the right to leave immediately, and that courts in several other jurisdictions in which the financial products division has employees -- including the U.K., France and Japan -- would rule quickly in favor of employees who sued.
Several Paul Hastings employment partners did not return calls seeking comment or declined to comment, and a firm spokeswoman said the firm would not comment on the bonus advice.
Hogan & Hartson also had several lawyers accompany Liddy before Congress last week, but the firm has declined to specify its role in the bonus controversy.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
