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Transactional Attorney Ethics

posted by Adam Levitin

The responses to my post on Scott Brown's activities as a real estate attorney make me think that I need to tee up a broader issue:  the role of attorneys in the financial crisis.  

The practice of law is a service industry. Lawyers don't decide the transactional ends. Instead, they help get their clients from point A to point B. It's a bit like being a cab driver:  the passenger picks the destination, the cabbie just provides the ride. And certainly we wouldn't think that a cabbie had any ethical issues if after dropping off a fare, the passenger proceeded to commit murder. Yet I don't think this means that deal lawyers are ethically immune from the transactional ends they facilitate. There is always the "known or should have known" issue. Lawyer can, and I would submit should, play a gatekeeping role. 

The ethics of transactional lawyering are complicated on the "known or should have known" side because transactional lawyers tend to see the individual deal, not the larger picture. Thus, a deal that by itself is fine might be a problem as part of a larger set of transactions. For example, Enron's swaps with its SPEs were totally fine by themselves, and an attorney papering those swaps wouldn't have know that the SPEs were capitalized with Enron's own stock and had only sham outside capital. In an atomized transactional world, most deal attorneys won't see the big picture. Similarly one pool of aggressive loans to be securitized looks really different than a thousand such pools. 

Transactional lawyers often take ethical shelter in the Wernher von Braun doctrine:

"Once the rockets go up, who cares where they come down? It's not my department," says Wernher von Braun.

Adopting any other approach than the Wernher von Braun doctrine makes life suddenly very complicated and uncomfortable for anyone involved in transactional lawyering or transaction engineering more generally. It's easier to work in an amoral profession than in one with ethical considerations. 

This is especially true given the powerful financial pressures on lawyers to do what the client wants. Sure, lawyers can push back on particular points, but push back too much and you won't have any clients. 

It doesn't help that there isn't great guidance for deal lawyers on the issue. Model rules of professional conduct don't provide much guidance for transactional attorneys except when there is clear fraud involved.  Everything else (including this) is commentary. I think this results in a sense that anything not forbidden is permitted.

After Enron, there was a little bit of introspection about the role of lawyers in the transactions. But I haven't seen any self-reflection on the role of lawyers in the financial crisis:  putting together securitizations, designing transactions to reduce regulatory capital and increase leverage, and allowing robosigning to chug along.  Attorneys played a major role in creating the financial crisis. Securitizations require opinion letters. Lehman Repo 105 required an opinion letter. Lawyers oversaw closing of predatory mortgage loans. MERS was based on an opinion letter (that didn't even have a 50-state analysis for a local law issue!). 

None of this is to say how, if at all, lawyers should have behaved differently. But it's perhaps the most damning indictment of our profession if we don't even reflect on our role in the crisis and assume that transactional lawyering is simply an amoral activity. Lawyers are different from say bankers because we have duties not just to clients but to courts and arguably society. (I would actually argue that bankers have these duties too because of entry-restrictions, but that's another issue.) As far as I can tell, however, to date the introspection about lawyers' role in the crisis has been missing. It shouldn't be. 


You raise an interesting issue, but lawyers are not conditioned to "second guess" their clients regarding the business terms set by their clients, unless they perceive those terms to endanger or adversely affect their clients. For instance, most lawyers will not question an interest rate charged by their client, unless they are concerned that the interest rate might violate the usury laws.

Your cab driver and "Wernher von Braun doctrine" are imperfect illustrations of your point. A cab driver WILL question a rider if the rider asks him or her to take the rider to a destination the driver knows is dangerous or ill-suited to the rider (see the usury example above). Von Braun knows that his rockets are full of explosives when they are shot off; most lawyers do not "know" that the deals they work on will lead to disaster in the future. They are more like the engineers who build the rocket and make sure that the rocket will perform the function for which it is designed; they are not responsible for deciding what payload will be in the rocket or for pushing the button that launches the rocket.

Does a lawyer have a responsibility to raise doubts with a client if he or she believes the client is making a mistake? Yes, but if the client decides to go forward, the lawyer is obligated (as an advocate) to carry out the client's wishes. Does a lawyer have an obligation to refuse to do work for a client when he or she knows that such work assists an illegal scheme? Absolutely -- but to assume that lawyers in 2008 or 2009 would have the knowledge that doing transaction work then would lead to chaos and allegations of fraud in 2012 is Monday morning quarterbacking of the worst kind.

Once the rockets go up, who cares where they come down?

Falling shrapnel, Trust in God that it causes no harm.

Professor..... you are dead on center with this issue.

One of the major players in the “GSE Business Model” is the title company and without their acquiescence and indifference to the fraud foreclosure would not be possible.

Long before my own case was featured on the front page of the Wall Street Journal the Audit Committee and General Counsel of First American Title was fully aware of the fraud upon the court by Bank of America.



Kevin--the problem isn't the cases of a lawyer being asked to facilitate something that is clearly illegal. Those are easy cases. Instead, the trickier situation is when the lawyer is asked to facilitate a transaction that is legal, but has a high likelihood of harming someone. For example, the lawyer who does the closing on a loan that is clearly not appropriate for the borrower. It's legal (well, at least pre-QM it is), but should that doesn't mean it's right. Lawyers aren't nannies, but they aren't inanimate bystanders either. That's what I think makes this tricky.


You teach law in the United States and are unaware tha the US, alone in the english speaking legal world, has an undivided bar. There are no barristers or solicitors here, only lawyers. We are all advocates for our clients, required by ethical rules to "advocate zealously" on behalf of our clients. No state ethical rules differentiate between lawyers "before the bar" or lawyers drawing up papers in a law offices. Since you do not know or understand this fundamental fact, you are disqualified from commenting on the matter. Kindly remove this post and the previous one, do so truly fundamental research on the matter and then try again if you are so inclined. I am in the process of contacting the Warren campaign to say that, until you do, I will not contribute further and I will raise the issue rather loudly before the organized bar. Your lack of basic critical thinking skill and you willingness , based upon such ridiculous and immature "scholarship" to indict an entire segment of the commercial world is insulting, especially to Dr. Warren. It would be unadvisable for you to underestimate my seriousness in this matter.



Chris--before you get all hot under the collar, go read the Model Rules or the Mass Rules. Of course we don't have the formal barrister-solicitor distinction in the US, but there are a bunch of Model Rules specific to litigation or regulatory advocacy, and if you aren't aware of them, it might be time for some ethics CLE. Here's the table of contents:

Rule 3.1      Meritorious Claims and Contentions
Rule 3.2      Expediting Litigation
Rule 3.3      Candor toward the Tribunal
Rule 3.4      Fairness to Opposing Party and Counsel
Rule 3.5      Impartiality and Decorum of the Tribunal
Rule 3.6      Trial Publicity
Rule 3.7      Lawyer as Witness
Rule 3.8      Special Responsibilities of a Prosecutor
Rule 3.9      Advocate in Nonadjudicative Proceedings

Yes, the rules provide that a lawyer should act "zealously" on behalf of the client, but official comment 1 to the Massachusetts rules muddies the waters on this:

[1] A lawyer should pursue a matter on behalf of a client despite opposition, obstruction or personal inconvenience to the lawyer, and may take whatever lawful and ethical measures are required to vindicate a client's cause or endeavor. A lawyer should act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client's behalf. __However, a lawyer is not bound to press for every advantage that might be realized for a client.__ A lawyer has professional discretion in determining the means by which a matter should be pursued subject to Rule 1.2. A lawyer's work load should be controlled so that each matter can be handled adequately.

And a lawyer can also decline a representation. In other words it isn't as cut and dry as you insist.

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