Inexplicable. Irresponsible. Impenitent. Or, as the Pennsylvania Supreme Court put it, unfathomable, incompetent, and sanctionable. The Court handed former Penn State University General Counsel, Cynthia Baldwin, a public reprimand for failing to recognize—and cut off or fully embrace—her attorney–client relationship with Penn State officials and later revealing their privileged communications to a grand jury.
The Court found that Baldwin breached her clients’ attorney–client privilege and violated Model Rule 1.6, failed to provide competent representation in violation of Rule 1.1, did not recognize a conflict of interest in violation of Rule 1.7, and obstructed the administration of justice in violation of Rule 8.4. Office of Disciplinary Counsel v. Cynthia A. Baldwin, 2020 WL 808757 (Pa. Feb. 19, 2020). You may read the thorough and well-reasoned opinion here.
A Frank Discussion
We derive no joy from the mistakes of our brothers and sisters of the bar. And we discuss those mistakes respectfully. Indeed, to paraphrase Protestant preacher John Bradford’s comment while imprisoned in the Tower of London and watching others march to the gallows, “There, but for the grace of God, go I.”
But another adage, attributed to many, provides that “It is better to learn from the mistakes of others than to wait until you make them yourself.” So, let’s learn from a lawyer’s mistakes that arose from a horrible situation.
This post was originally published on June 9, 2019.
In-house and outside deal lawyers sometimes face this sad love story. Two separate but aligned entities fall in love with a third entity and enter joint-venture negotiations. During the dating period, the aligned entities’ lawyers conduct due diligence, provide their clients with legal advice on the results, and share the privileged information with each other.
Love at First Sight
The Hackensack University Medical Center and Carrier Clinic, Inc., a NJ behavior healthcare provider, wanted to establish a substance abuse and rehabilitation center in Mahwah, NJ, and entered joint-venture negotiations with JNL Management, and its manager, Jonathan Lasko. The parties contemplated that HUMC and Carrier would jointly own a non-profit management entity and JNL would own 100% of a for-profit real-estate entity, and signed a LOI to that effect.
Due Diligence Dating
HUMC and Carrier retained separate counsel, and each oversaw the pre-deal due diligence but shared information and collaborated on the deal. In January 2018, HUMC’s due diligence revealed that Lasko had personal and business ties to Philip Esformes, a Miami healthcare executive who was then under indictment and awaiting trial for Medicare fraud. He was later convicted, as you may read here.
Valentine’s Day Privilege Sharing
On February 14, 2018, HUMC executives, including its General Counsel, participated in a conference call with Carrier’s representatives and outside attorney, who was a former DOJ lawyer. Carrier’s lawyer discussed Lasko’s relationship with Esformes, and the legal risks associated with moving forward with the joint venture. HUMC’s president and Carrier’s outside counsel verified the “legal advice” portion of the conversation in declarations, available here and here, but there was no common–interest agreement between the two.
It’s not a dozen roses, but let’s be honest—sharing privileged information on Valentine’s Day is a cool gift. Except here, where
Microsoft in-house lawyers and KPMG anticipated the federal government’s scrutiny of a tax strategy and communicated about it. But in a later federal suit over Microsoft’s tax liabilities, a federal court found that the communications served a litigation purpose and a business purpose. And with the business purpose predominating, the work-product doctrine did not protect the communications from disclosure. U.S. v. Microsoft Corp., 2020 WL 263577 (W.D. Wash. Jan. 17, 2020). You may read the decision here.
When favorable tax laws changed, Microsoft’s in-house lawyers consulted with KPMG tax advisors and created a new, yet complicated, tax strategy for its Puerto Rico operations. These lawyers and advisors knew that the new approach would trigger IRS interest. And it did.
The DOJ’s Tax Division later examined Microsoft’s tax liabilities and requested communications between Microsoft’s in-house counsel and KPMG. Microsoft refused to produce some communications, saying that its lawyers communicated with KPMG in anticipation of the IRS’s scrutiny. So, Microsoft claimed, the work-product doctrine precluded their disclosure.
In-House Lawyer’s Declaration
The former head of Microsoft’s in-house tax department submitted a declaration to support the work-product claim. He said the Microsoft—not outside counsel—retained KPMG. He “recognized that the IRS would challenge” the new tax strategy.
KPMG prepared its materials at this lawyer’s request and “in anticipation of an administrative dispute or litigation with the IRS.” And he “intended the analyses performed and materials prepared by KPMG to be covered by the work product doctrine.” Read the declaration in full here.
A KMPG tax partner, in a separate declaration you may read here, confirmed that the Microsoft in-house lawyer “made plain that he was hiring KPMG to also help Microsoft prepare its defense to the IRS’s challenge.”
Fairly strong evidence, you think?