Monday, July 30, 2007

Suing the lawyers

There's another big principal-agent problem in a large corporation: that of the in-house lawyer. Though hired to protect the interests of the company, the lawyers are told what to do by executives, agents of the company. Business Week quotes Stephen Gillers, a NYU law professor as saying with regard to in-house lawyers:"They have to be aware of the risk that their bosses are violating a duty to their clients, and it's a real challenge, because you don't want to accuse your boss of illegal activity."

The Business Week article discussed a Chicago jury's decision to convict the in-house attorney of Hollinger Intl., a company whose former chairman Conrad Black was also recently convicted of fraud.
Prosecutors alleged Black concocted a scheme to demand noncompete payments from buyers of Hollinger publications, and then he and others pocketed the money without telling the board. Kipnis' role in drafting the noncompetes was so extensive, says juror Tina Kadisak, that "we definitely came to the conclusion that he did know what was going on."

The article goes on to say that of 1,236 convictions obtained by a federal Corporate Fraud Task Force in the last five years, 23 were of corporate counsel.
I'm not sure that this can be construed as representing an increasing trend in going after in-house counsel. However, the high profile of this case is making that possibility more apparent. Consider the precedent set.

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