Atty Scandals Don't Have To Taint Firm: Experts

By Erin Fuchs

Law360, New York (November 05, 2009) -- Ethics scandals, such as the arrest of a Ropes & Gray LLP associate for alleged insider trading and claims that a Troutman Sanders LLP partner scored kickbacks, can cast a pall over an entire firm even if only one attorney gets nabbed, industry experts say.

The news Thursday of the alleged malfeasance by a Ropes & Gray associate and the head of two of Troutman Sanders' real estate practice groups doesn't necessarily signify a BigLaw culture of corruption, experts said, even in an industry that also spawned the infamous Marc S. Dreier.

But experts stressed that law firms still need to act quickly to control the damage of unscrupulous lawyers because of the spotlight that the public shines on professionals who take oaths to uphold the law.

"There's more scrutiny of lawyers because more is expected of them," said Gary Klein, founder and president of attorney recruiting firm Klein Landau & Romm Inc. "I think the reason why it's newsworthy when a lawyer breaks bad is because of the inherent belief that lawyers should conduct themselves in a manner which is significantly higher than that of the typical citizen."

Still, Klein acknowledged that the legal industry has had its share of ethics breaches among lawyers recently.

The news at Ropes & Gray and Troutman Sanders actually pales in comparison to the Dreier debacle and the corruption at the plaintiffs firm Milberg Weiss LLP, said Jack Zaremski, founder and president of Hanover Legal Personnel Services Inc.

Four senior partners at Milberg were ultimately convicted in a scandal that Zaremski said still hurts the firm's ability to attract talent, even though the firm managed to emerge from the storm as Milberg LLP.

The Ropes & Gray arrest only involved an associate, Zaremski pointed out, while the Troutman Sanders news involved a single attorney, albeit a prominent one.

While neither incident rises to the level of a Dreier or Milberg scandal, the allegations involving Troutman's Leonard Grunstein have more potential to do damage to that firm than the allegations involving the Ropes & Gray attorney because in the former instance a high-level partner rather than a rogue associate is involved, Zaremski said

"Troutman Sanders is more significant," Zaremski said. "Senior people have more of an impact on the general character of the firm ... It's more of a poison that has the power to infiltrate downward."

The allegations against Grunstein involve a hefty sum of money. The U.S. Department of Justice has accused him of playing a role in a scheme to get $50 million from drug supply giant Omnicare Inc., in exchange for continuing pharmacy contracts with nursing homes.

Meanwhile, Ropes & Gray associate Arthur Cutillo was arrested as part of an ongoing probe into insider trading at hedge funds and stock trading firms that last month ensnared Raj Rajaratnam, founder of Galleon Group.

The two firms reacted to the crises differently. Troutman Sanders issued a statement saying Grunstein would take a leave of absence until the matter is resolved, expressing the firm's confidence that he'd return to work.

Ropes & Gray, however, yanked Cutillo's name from its Web site, saying in a statement that the firm was "deeply disappointed to learn about this situation, which suggests an extreme breach of this person's duty of trust to our clients and to the firm."

Zaremski suggests using the latter strategy, saying firms should distance themselves from attorneys once they're under the cloud of an investigation.

A firm also must immediately acknowledge the ethical breach and apologize for it, according to BTI Consulting Group Inc. President Michael B. Rynowecer. "Acting swiftly and decisively is the only thing you can do," he said.

Law firms would be well advised to keep crisis management professionals on retainer — or at the very least available on a minute's notice — to handle a scandal, Klein said. "Can you prepare to have one of your top lawyers indicted? I don't think so. (But) life is about assessing risks, and attempting to deal with them proactively," he said.

"Having a major partner indicted is much like having a meteor hit your building. It just doesn't happen that often," Klein added. "There is no end, no end, to human conduct."

In what Klein describes as his "dim view" of humanity, it's nearly impossible for law firms to weed out criminal attorneys 100 percent of the time. Most law firms already have compliance programs and ethical seminars in place, Klein said. "Unfortunately, it's completely futile in the case of those who want to conduct themselves in a criminal manner," he said.

"One never knows when someone is going to break bad," he said.

Zaremski, meanwhile, said that firms shoulder a certain amount of responsibility when a partner gets caught in a scandal.

He pointed to the "truly great" firms — Cravath Swaine & Moore LLP, Simpson Thacher & Bartlett LLP, Debevoise & Plimpton LLP and Cleary Gottlieb Steen & Hamilton LLP, to name a few — that he said have been able to evade major scandals involving partners.

"There's much less tolerance for any character flaws" at those firms, he said.

Firms can take several steps to discourage lawyers' illegal activity, according to Zaremski, such as increasing their internal oversight and investigations into attorneys' behavior that might "cross the line," he said.

Firms can also bring on more ex-prosecutors to create an atmosphere of intolerance of illegal activity, he said.

"The more of those types you have on board, the more likely it is that there's going to be an aura at these firms of oversight and zero tolerance for any sort of criminal activity," he said. "If your partner is a former federal prosecutor, you're probably going to be a little more wary of engaging in criminal activity."

--Additional reporting by Jacqueline Bell and Hilary Russ