Recalling one’s ethical duty to the corporate client

Issue March/April 2017 By Richard P. Campbell and Suzanne Elovecky

Corporations are legal fictions that are nonetheless treated as "persons" in most of our laws and in most circumstances by our courts. But as one academic put it when describing a corporation and a theoretical right of privacy:

Corporations can no more be injured by an invasion of their 'privacy' than they can swear, scratch, make love, or engage in any other flesh-and-blood activities that the walls of privacy serve to protect from unwanted observation.

Russell B. Stevenson, Jr., Corporations and Information: Secrecy, Access, And Disclosure, at 69 (1980).

With regard to a corporate client, a lawyer "represents the organization acting through its duly authorized constituents." Rule 1.13 (a). Restated, the lawyer owes loyalty and fealty to the corporation; she does not owe loyalty and fealty to the duly authorized constituents. They are not her clients. The distinction is easy to articulate but very difficult to apply in the real world. After all, the duly authorized constituents (like the general counsel or staff lawyer) are the individuals who hold the decision making authority to hire and fire lawyers. Biting the hand that feeds you is not an optimum pathway to financial success.

What happens when the duly authorized constituents are acting in ways that violate the law or are likely to bring about serious harm to the corporation? The background facts and circumstances (set forth in the published report of the outside independent investigation team) leading General Motors Corporation to recall motor vehicles incorporating the so-called Cobalt ignition switch offers unique insights. (See, e.g.,;

The Cobalt ignition switch was defective in design because it could be inadvertently moved or bumped from a "run" position to an "accessory" position while the vehicle was in motion on a highway or street resulting in a "moving stall." Engine stall in a moving vehicle is itself a dangerous condition because it creates the possibility of loss of control. More importantly, when the ignition was in the "accessory" position, the vehicle airbags could not fire because the electrical circuit needed to cause deployment was open. The driver of an out-of-control vehicle (for example, running off the road) could bump the ignition switch and render her airbags useless.

General Motors incorporated the subject ignition switch into six different vehicle types beginning in calendar year 2002 (Saturn Ion -MY 2003; Chevrolet Cobalt -MY 2005; Chevrolet HHR -MY 2006; Pontiac G5 -MY 2007; Saturn Sky -MY 2007; and Pontiac Solstice -MY 2006). Customer complaints about the switch were manifest by 2005. By 2010, unexplained airbag non-deployments were so significant that outside counsel warned staff counsel that awards of punitive damages were likely. In 2013, outside counsel described plaintiffs' cases for airbag non-deployment as "compelling" and raised again the likelihood of punitive damages. In December 2013, more than 8 years after manifest consumer complaints, the Cobalt Ignition Switch finally reached the executive committee responsible for issuing recalls. On January 31, 2014, the executive committee issued a recall, but it did not cover all models that used the faulty ignition switch design. By March 2014, General Motors' recall included over 2 million vehicles at a cost of roughly $106.2 million. Thereafter, on May 16, 2014, NHTSA and General Motors executed a consent decree that included a $35 million penalty for General Motors' failure to provide timely notice of the product safety defect and gave NHTSA invasive control over General Motors' safety related decision-making.

General Motors' "duly authorized constituents" included staff lawyers working in various positions up to and including the General Counsel (themselves governed by the code of professional responsibility) as well as corporate engineers and executives leading to the chief executive officer and members of the board of directors. General Motors' outside national counsel (one of the nation's renowned law firms) likewise were governed by the rules of professional conduct. The Highway Safety Act imparts significant civil and criminal penalties (including a potential imprisonment of 15 years) to motor vehicle manufacturers like General Motors and to individuals who violate its mandates. 49 U.S.C. 301§§ 65 and 70. Because General Motors is a publicly traded company, federal security laws were also relevant. Sarbanes-Oxley Act of 2002, §307 mandates that an attorney (practicing before the SEC) report evidence of a breach of fiduciary duty to the chief legal counsel or CEO, and, if there is no appropriate response, report the evidence to the Audit Committee of the board of directors. 15 U.S.C. 7245; 17 C.F.R. Part 205.3. But for the purpose at hand in this article, the applicable rules of professional conduct are most directly pertinent.

Rule 1.13 provides that a lawyer representing a corporation must "proceed as is reasonably in the best interest of the organization" when she knows "that an officer, employee, or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation of the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization." In such circumstances, "the lawyer shall refer the matter to higher authority in the organization" and if need be, "to the highest authority that can act on behalf of the organization." (Sarbanes-Oxley regulations identify the audit committee of the board of directors as the highest authority in a corporation.) Recognizing the dicey position of informing "duly authorized constituents" that their conduct is improper and harmful to the organization, the rules permit a lawyer who is discharged (or withdraws) because she took requisite actions to protect her client to "proceed as the lawyer reasonably believes necessary to assure that the organization's highest authority is informed of the lawyer's discharge or withdrawal." Rule 1.13 (e).

The scope of the lawyer's representation, as set forth by Rule 1.2(a), is the pursuit of "the lawful objectives" of the client "through reasonably available means permitted by law and these rules." In pursuing the client's lawful objectives, the lawyer must represent the client "zealously within the bounds of the law." Did General Motors' staff lawyers and outside counsel working on the Cobalt ignition switch claims and litigation for many years run afoul of their professional obligations to the organization by failing to raise the problem to the attention of the highest authorities in the company? Or were they pursuing General Motors' lawful objectives zealously and within the bounds of the law? Read Anton Valukas' 315 page report and draw your own conclusions.

Richard P. Campbell is a fellow of the American College of Trial Lawyers and a past president of the Massachusetts Bar Association. He founded Campbell Campbell Edwards & Conroy, P.C., a firm with a national practice, in 1983.

Suzanne Elovecky practices at Todd & Weld LLP, where she enjoys a diverse complex commercial litigation practice representing individuals and corporations in contract disputes, employment disputes, automobile dealership matters, shareholder disputes, and trademark, trade secret and copyright disputes. Suzanne is a member of the Women's Bar Association, the Boston Bar Association and the Massachusetts Bar Association (Complex Commercial Litigation Committee; Professional Ethics Committee).

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