Legal News

A Million Little Conflicts: Firms Take Bailout Work Despite Conditions

By Dan Slater

What is it about bailout work that draws law firms to the government’s flame? In Simpson Thacher’s case it surely wasn’t the money that induced the firm to agree to provide Treasury with legal advice in its deployment of the bailout funds. That led some to search for other motives. Does Simpson seek to burnish its patriotic profile? Or perhaps acquire Bailout Bill expertise in order to better serve clients in the future (conflicts notwithstanding)?

The same questions arise again with respect to Hughes Hubbard and Squire Sanders. Last week we noted that both firms have signed on to help Treasury with the crush of transactions it faces. In return, each firm is slated to receive about $5.5 million. So the fee is closer to what we might expect (Simpson is getting $300,000). But, as Am Law Daily writes today, the conflict rules are onerous: both firms agreed not to represent any bank or financial institution that Treasury buys assets from as long as Treasury owns equity in that institution. Experts, writes Am Law Daily, have estimated the capital purchase program may involve as many as 2,500 financial institutions.

“Treasury is being very demanding,” NYU law prof Stephen Gillers told AmLaw. “They are putting the fear of God into these law firms.” Gillers (pictured) says he’s never seen a contract requiring each attorney who works for the client to undergo ethics training in consultation with that client. Ditto for the next clause, which requires each attorney to disclose their “business interests” and those of their family members.

Gillers also was surprised that Treasury took the time to warn the firms that they could be dismissed for failing to report conflicts or even for the appearance of a conflict. “That’s all superfluous,” Gillers says, meaning that all parties know that going in. “It’s (Treasury) reading them the riot act.” Another clause appears to imply that Treasury has the right to unilaterally order the firms to stop representing other clients.

“The client always has the right to fire a firm for any reason at any time,” says Boston University’s Nancy Moore. “What they can’t do is force a firm to withdraw from representing another client, and that’s what I think this is designed to do. Ordinarily, a client can’t just do that on their say-so.”

Full post as published by Law Blog - WSJ.com on November 10, 2008 (boomark / email).