Transactional Attorney Ethics

The responses to my post on Scott Brown's activities as a real estate attorney make me think that I need to tee up a broader issue:  the role of attorneys in the financial crisis.  

The practice of law is a service industry. Lawyers don't decide the transactional ends. Instead, they help get their clients from point A to point B. It's a bit like being a cab driver:  the passenger picks the destination, the cabbie just provides the ride. And certainly we wouldn't think that a cabbie had any ethical issues if after dropping off a fare, the passenger proceeded to commit murder. Yet I don't think this means that deal lawyers are ethically immune from the transactional ends they facilitate. There is always the "known or should have known" issue. Lawyer can, and I would submit should, play a gatekeeping role. 

The ethics of transactional lawyering are complicated on the "known or should have known" side because transactional lawyers tend to see the individual deal, not the larger picture. Thus, a deal that by itself is fine might be a problem as part of a larger set of transactions. For example, Enron's swaps with its SPEs were totally fine by themselves, and an attorney papering those swaps wouldn't have know that the SPEs were capitalized with Enron's own stock and had only sham outside capital. In an atomized transactional world, most deal attorneys won't see the big picture. Similarly one pool of aggressive loans to be securitized looks really different than a thousand such pools. 

Transactional lawyers often take ethical shelter in the Wernher von Braun doctrine:

"Once the rockets go up, who cares where they come down? It's not my department," says Wernher von Braun.

Adopting any other approach than the Wernher von Braun doctrine makes life suddenly very complicated and uncomfortable for anyone involved in transactional lawyering or transaction engineering more generally. It's easier to work in an amoral profession than in one with ethical considerations. 

This is especially true given the powerful financial pressures on lawyers to do what the client wants. Sure, lawyers can push back on particular points, but push back too much and you won't have any clients. 

It doesn't help that there isn't great guidance for deal lawyers on the issue. Model rules of professional conduct don't provide much guidance for transactional attorneys except when there is clear fraud involved.  Everything else (including this) is commentary. I think this results in a sense that anything not forbidden is permitted.

After Enron, there was a little bit of introspection about the role of lawyers in the transactions. But I haven't seen any self-reflection on the role of lawyers in the financial crisis:  putting together securitizations, designing transactions to reduce regulatory capital and increase leverage, and allowing robosigning to chug along.  Attorneys played a major role in creating the financial crisis. Securitizations require opinion letters. Lehman Repo 105 required an opinion letter. Lawyers oversaw closing of predatory mortgage loans. MERS was based on an opinion letter (that didn't even have a 50-state analysis for a local law issue!). 

None of this is to say how, if at all, lawyers should have behaved differently. But it's perhaps the most damning indictment of our profession if we don't even reflect on our role in the crisis and assume that transactional lawyering is simply an amoral activity. Lawyers are different from say bankers because we have duties not just to clients but to courts and arguably society. (I would actually argue that bankers have these duties too because of entry-restrictions, but that's another issue.) As far as I can tell, however, to date the introspection about lawyers' role in the crisis has been missing. It shouldn't be.