I am often asked by the readers of this column how I go about selecting my topics.
I wish I had some sort of grandiose reply about doing research and staying up hours into the night. But the truth is that I more often than not find myself pulling a Dick Wolf — the creator of the Law & Order franchise — and ripping my stories from the headlines.
Hence today’s column.
I had started off with plans to write about an entirely different topic but then came across an article about the trial of the former leaders of the now-defunct New York firm of Dewey & LeBouef.
I have written previously about Dewey’s demise. But that was before the current trial, which is offering a bit of juicy TMZ-style gossip for those in the legal profession.
The former head of the firm, the firm’s chief financial officer and former finance director are now all facing criminal charges. Among other things, they stand accused of lying to investors about the firm’s financial condition.
The article that grabbed my attention concerned a low-level employee who had the responsibility of calling the firm’s partners at the end of the year and asking about the collection of receivables, a practice also known as “dialing for dollars.” Following the advice of her superiors, she apparently would not only tell the partners to bring in receivables so the firm could meet its revenue targets, but also would ask them to have their clients backdate payments. Specifically, the calls encouraging the collection of receivables were being made in early January 2010, but the checks were to be backdated to make it appear as though they had been written the previous month.
During direct examination, this client-relationship manager confirmed that a handful of partners had in fact questioned whether the practices were appropriate, but most had not. Of the more than 30 powerful partners who had received an email about the backdating, she said, only a few complained.
These partners clearly had no understanding of the applicable ethics rules. Specifically, Rule 5.1 (Responsibilities of Partners, Managers, and Supervisory Lawyers) states, among other things, that, “A partner in a law firm … shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform (their behavior) to the Rules of Professional Conduct.”
The “rainmakers” involved in the Dewey case were apparently not guilty of initiating the backdating scheme. That makes it no less troubling, though, that they were so willing to go along.
Did these same partners ever consider the firm’s representations to its outside lenders or creditors? As several readers of this column probably know, many firms use debt financing to pay for their operations. Some, for instance, take out a line of credit that can be drawn on during lean months.
The various loan and credit agreements used for these purposes often contain covenants and representations that can require a borrowing firm to provide accurate and detailed pictures of the firm’s finances.
And, as you, my ethical friends, know, a lawyer may not “… engage in conduct involving dishonesty, fraud, deceit or misrepresentation.” (Rule 8.4(c).)
So, here, the Dewey rainmakers, who clearly have “power” within the firm, and arguably have supervisory or managerial duties – however those are defined – shirked their responsibilities and allowed the firm to engage in fraud.
Although some might argue that these partners should not be held responsible for the actions of a small number of people, the simple truth is that Dewey collapsed not only because of how it was being run, but also because of who was running it.
Being a lawyer can be fulfilling, empowering and even lucrative. That does not mean, though, that there are not also great responsibilities.
Dewey collapsed for many reasons. One of those, it is clear now, was that the now-former partners ignored their responsibilities to the firm and to each other.