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., http://www.nytimes.com/interactive/2014/06/05/business/06gm-report-doc.html?_r=0;
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
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
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