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What did they know and when did they know it? Congress, regulatory agencies and shareholders all ask the same hard questions when it comes to grilling corporate management. But senior executives aren’t the only ones who may find themselves under the klieg lights. Associate or deputy general counsel can also wind up in the hotseat. What these subordinates say there can have devastating consequences for their employers — to say nothing of their own legal careers. If you are the associate or deputy GC at a troubled company and, worse yet, you’re in conflict with your GC on ethical concerns, you’ll need to study up on ethics rules and the relevant case law. Regardless of the actions you take, as the highly publicized corporate debacles have already demonstrated, the results can be messy. To familiarize yourself with this terrain, first consider the kinds of ethical quandaries that subordinate lawyers face. These fall mainly into two categories: 1) the question of whether to report another lawyer’s misconduct and 2) the question of whether to report misconduct within the corporation, such as theft by corporate executives or the transmission of false financial statements. Hopefully, in your career, this catalog of woe will remain strictly academic. But in the event you find yourself embroiled in an ethics blowup, take a deep breath and keep reading. Here are some tips on what to do next. SMELLING A RAT When the issue is a fellow attorney’s misconduct, look for guidance to the so-called “rat rule,” generally defined by the American Bar Association. The rule says that when one lawyer knows another has violated a disciplinary rule — anything from dishonesty, deceit and conflict to the unauthorized practice of law outside the attorney’s jurisdiction — the first attorney has a duty to report the misconduct to the appropriate professional authority. CORPORATE SKULDUGGERY The second category, the misconduct of others within a corporation, is more complicated. More and more, today’s associate or deputy counsel wrestles with misconduct related to corporate principals. Certainly, a subordinate corporate lawyer serves his company. However, that lawyer also takes direction from legal supervisors whose interests may not be aligned with the corporation’s. In the event that the junior attorney reports misconduct to a superior within the legal department — and that senior person unreasonably refuses to act — the subordinate must move outside the legal department and take those concerns to corporate executives or board members. Under these circumstances, no one can predict if the lawyer, himself, will later be accused of negligence, malfeasance or acquiescence to the conduct of corporate officers and senior attorneys. So if you are the subordinate attorney in question, you’re well advised to work out all the angles in advance to protect yourself down the road. USE COMMON SENSE Another serious problem occurs when the subordinate believes that it is appropriate to take action, but a senior lawyer says that any move at this juncture is unwarranted. What should the junior lawyer do? In addition to the more general fiduciary responsibilities that a subordinate corporate lawyer has to the corporation, the lawyer has a separate layer of responsibility dictated by his or her state’s disciplinary rule structure. Because this issue is often a matter of context, courts and disciplinary bodies are likely to apply common sense when imposing sanctions. Certainly, the subordinate corporate attorney can expect some consideration for having had to “take orders.” But the attorney must later be able to document his good-faith efforts to report misconduct. Keeping a detailed record of every move you make, therefore, is essential under these circumstances. KNOW WHAT YOU KNOW A particular problem arises when the subordinate lawyer knows of actual misconduct. The 2nd U.S. Circuit Court of Appeals’ seminal decision in Doe v. Federal Grievance Committee addressed the question of what “knowledge” means. The ruling said that to know something is to actually know it and not merely suspect it. But the term “knowledge” has teeth; it cannot be sidestepped by willfully ignoring the cold hard facts. A lawyer’s deliberate attempt to disregard vital information relating to illegal client activity is perilous. In fact, the courts generally instruct juries evaluating possible lawyer misdeeds to consider the probability of criminal conduct. The lesson here? Be clear about what you know, as well as what others think you know. KEEP YOUR NOSE CLEAN Recent cases have focused on the issue of lawyers putting their heads in the sand rather than disclosing damning facts. In a recent federal case, the judge admonished jurors that “[i]n determining whether the defendant [attorney] acted knowingly, you may consider whether the defendant deliberately closed his eyes to what would otherwise have been obvious to him.” What a junior lawyer does or doesn’t know has special significance for a subordinate whose superior advises him not to take action. This harks back to the earlier statement that an attorney serving a corporation has a “duty to inquire.” Consider another case, F.D.I.C. v. O’Melveny. Here, the receiver of a failed savings and loan institution sued a law firm, claiming negligence in the legal advice and services it provided. Rejecting the firm’s defense that a lawyer has no duty to uncover a client’s fraud, the court ruled that “[a]n important duty of securities counsel is to make a ‘reasonable, independent investigation to detect and correct false or misleading materials.’” Surely the same principle applies to a lawyer working within a corporation. PROCEED WITH CAUTION The next few decades may well be the era of “dangerous lawyering.” A single misstep by an in-house attorney may later be portrayed as integral to a sinister criminal scheme. Even a lawyer’s judgment that there was insufficient information to act may later be viewed as willing participation in a corporation’s misconduct — or, at best, acquiescence in that misconduct. Associate or deputy general counsel are particularly vulnerable to legal consequences for the simple reason that their access to information is limited and they are often directed by others. At a time when corporate malfeasance grabs the headlines almost daily, caution must be the guiding principle for subordinate corporate lawyers. Certainly, they should be forewarned that “doing the right thing” may entail challenging superiors all the way up the corporate ladder. Yet in the end, that course of conduct may be their only option. Michael S. Ross is the principal attorney in the New York City-based Law Offices of Michael S. Ross, where he concentrates his practice on attorney ethics and criminal law. Yanna Sukhodrev, a student at the Benjamin N. Cardozo School of Law, assisted with research for this article.

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