THE OPM TEACHING EXERCISE

1. THE OPM TEACHING EXERCISE Clark D. Cunningham, Director National Institute for Teaching Ethics and Professionalism (USA) and W. Lee Burge Professor of Law & EthicsGeorgia State University cdcunningham@gsu.edu Home Page: law.gsu.edu/ccunningham

2. Four Component Model of Morality (FCM) (Rest, 1983) Motivation & Identity Professional Misconduct Adapted from presentation by Dr.Muriel Bebeau to 2011 ABA Associate Deans Conference

3. Four Component Model of Morality (FCM) (Rest, 1983) Motivation & Identity Effective Professional Conduct

4. For more on the FCM • Cunningham & Alexander, Developing Professional Judgment: Law School Innovations in Response to the Carnegie Foundation's Critique of American Legal Education • in The Ethics Project in Legal Education(Eds. Michael Robertson, Francesca Bartlett, Kieran Tranter & Lillian Corbin) (London: Routledge-Cavendish 2010) • http://www.teachinglegalethics.org/content/developing-professional-judgment

5. Cunningham, "Remediation Program for Dentists Provides Data on Moral Development Important to All Professions," 76 Journal of the American College of Dentists 50 (2009): http://www.teachinglegalethics.org/content/remediation-program-dentists Dentists referred for misconduct • 14 points lower than dental students on test of moral reasoning (FCM2) • When tested for understanding of “professional responsibilities of a dentist” (FCM3) • On a scale of 1-12, avg score of 3.8

6. OPM LEASING in 1980 • Private company • 50% Mordecai Weissman, Board Chair • 50% Myron Goodman, CEO & Treasurer • One of 5 largest computer leasing companies in US – 250 e’ees, 11 offices • John Clifton, CFO – just an employee

7. Singer Hutner Law Firm • General Counsel for OPM • 60% of firm’s revenue • Andrew Reinhard is the lead partner • Personal friend of both stockholders • Third member of OPM Board

8. Background to Video • Moments before the CEO (Goodman) arrives without an appointment • The outside general counsel (Reinhardt) attorney has read a confidential memo from the company's CFO (Clifton) • raising concerns that the CEO has engaged in fraudulent conduct • if true, there could be civil and criminal liability for the law firm also

9. 1. Ethical Sensitivity 2. Moral Reasoning 3. Professional Identity 4. Effective Implementation Four Discussion Topics

10. THE OPM CASE:What Really Happened[Primarily drawn from Taylor, “Ethics and the Law: A Case History,”New York Times Magazine (Jan 9, 1983)]

11. June 1980 • Hutner meets with Clifton's attorney, William Davis • According to Davis Clifton has evidence that • O.P.M. had perpetrated a multimillion-dollar fraud • the opinion letters Singer Hutner had drawn up to obtain loans for O.P.M. had been based upon false documents • In Clifton’s opinion, to survive OPM would probably have to continue the same type of wrongful activity

12. Singer Hutner obtains outside legal advice from Joseph McLaughlin (Dean, Fordham Law School) and Henry Putzel, a former federal prosecutor • The firm wanted to do the ethical thing, and • The firm wanted to continue representing O.P.M. unless they were ethically and legally obliged to quit.

13. The firm's obligations to O.P.M. might be inconsistent with giving Goodman's secrets the fullest protection. • Thus, a lawyer is found to represent Goodman • Goodman's new lawyer, Lawler ... tells Putzel that he knows of no ongoing fraud.

14. New York Code of Conduct at the time: • A lawyer may reveal .. the intention of his client to commit a crime and the information necessary to prevent the crime.

15. Advice from McLaughlin and Putzel • Singer Hutner can ethically continue to represent O.P.M., based on Goodman's assurances that there was no ongoing fraud. • Singer Hutner is bound to keep everything it had already learned secret, except from Weissman. • It is not necessary to check the authenticity of the computer-lease documents with third parties • Singer Hutner has no legal duty to withdraw past opinion letters • leaving the victims of a past fraud in the dark was not an ongoing fraud.

16. Summer 1980 Singer Hutner continues closing loans for O.P.M. without checking the legitimacy of underlying Rockwell leases.

17. September 1980 • 1st week of September, Goodman tells Hutner some of the details of the fraud • September 23 the firm votes formally to resign as O.P.M.'s general counsel • The firm quits O.P.M. gradually • assume that an abrupt withdrawal would cause O.P.M. to collapse • will handle legal business until OPM can find new counsel.

18. Duty of Confidentiality to OPM The firm • tells nothing to the corporations and bankers who had been defrauded • responds to inquiries from lenders and other interested parties by saying Singer Hutner and O.P.M. had agreed to part ways. • honors Goodman's demand that Gary Simon, the O.P.M. in-house lawyer who was preparing to handle new loan closings, be kept in the dark.

19. October 1980 • Peter Fishbein, a Kaye Scholer partner and an old friend, phones Hutner asking • "is there anything I should be aware of" in considering Goodman's invitation to represent OPM • Hutner tells him only that • "the decision to terminate was mutual and that there was mutual agreement that the circumstances of termination would not be discussed."

20. December 1980 • Singer Hutner completes withdrawal • Rockwell International • Receives bank inquiry and upon investigation • Discovers it was paying OPM on two leases for which it lacked documentation • After further investigation, Rockwell and the bank contact the U.S. Attorney's Office

21. February 1981 • A federal grand jury issues a number of indictments • Although federal prosecutors investigated Reinhard, neither he nor any of the other Singer Hutner lawyers are indicted.

22. March 1981 OPM files bankruptcy

23. December 1982 • Goodman pleads guilty to 16 counts of conspiracy, mail fraud, wire fraud and making false statements to a bank • given a 12 year prison sentence. • Weissman also pleads guilty and receives a 10 year sentence.

24. The Truth about OPM • O.P.M. was short for "other people's money." • Almost from the start, the company was basically insolvent and survived by means of fraud and bribery. • A single computer would be used as collateral for two or three loans with different banks • the value of a given piece of equipment would be inflated to obtain larger loans.

25. The Financial Consequences • OPM had defrauded banks and other lenders of more than $210 million before the company went bankrupt in 1981 • June - August 1980: $61 million in fraudulent loans were closed with Singer Hutner as OPM’s lawyers • December 80 - Jan 81: $15 million in fraudulent loans were closed with in-house counsel and Kaye Scholer as OPM’s lawyers

26. 1983 • Settlement of lawsuit filed by 19 lending institutions against Singer Hutner, Rockwell, Lehman Brothers and two accounting firms. • Total payment of $65 million • Singer Hutner contributed approximately $10 million.

27. If OPM happened today • Rule 1.13: Duty to protect organization • Rule 1.6(b): Duty to protect third parties

28. NYRPC 1.13 If, despite the lawyer's efforts … the highest authority that can act on behalf of the organization insists upon action, or a refusal to act, that is clearly in violation of law and is likely to result in a substantial injury to the organization, the lawyer may reveal confidential information only if permitted by Rule 1.6, and may resign in accordance with Rule 1.16. ABA MR 1.13 if despite the lawyer's efforts ... the highest authority that can act on behalf of the organization insists upon or fails to address in a timely and appropriate manner an action, or a refusal to act, that is clearly a violation of law, and the lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization, then the lawyer may reveal information relating to the representation whether or not Rule 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization Special Duties of Corporate Counsel

29. NYRPC 1.6(b)A lawyer may reveal or use confidential information to the extent that the lawyer reasonably believes necessary ... to withdraw a written or oral opinion or representation previously given by the lawyer and reasonably believed by the lawyer still to be relied upon by a third person, where the lawyer has discovered that the opinion or representation was based on materially inaccurate information or is being used to further a crime or fraud ABA 1.6(b) A lawyer may reveal information … reasonably believes necessary to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services [or]to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services Confidentiality Exceptions in 2011