An Oregon State Bar panel has found (PDF) two prominent lawyers guilty of conflicts of interest and misrepresentation in a long-running case that dates to 2000.
The three-member trial panel ruled that Barnes Ellis and Lois Rosenbaum violated Bar ethics rules governing conflicts of interest between current clients whose interests diverged and were also guilty of misrepresentation in their failure to disclose certain information to some of those clients.
The panel found the pair not guilty on numerous other conflict of interest charges related to the same representation. In all, the bar found Ellis guilty on three of 12 "causes of complaint" and found Rosenbaum guilty on four of 10.
As WW reported last year, Ellis, 73, the former longtime head of the securities practice at Stoel Rives, the city's largest law firm, and his protegee, Rosenbaum, 63, stood accused of ethical breaches. (Since the Bar case began, Ellis retired from Stoel Rives and became general counsel for Mercy Corps).
The Bar sought to have both lawyers' licenses suspended for a year but the trial panel proposed a lesser penalty of a public reprimand.
At issue in the Bar trial was the representation the two lawyers provided to FLIR Corp., a Wilsonville defense contractor and several of its employees. In 2000, the federal Securities and Exchange Commission launched an investigation of the publicly-traded FLIR's accounting practices. That probe eventually led to civil sanctions and to criminal charges brought by the federal Department of Justice.
As the civil and criminal cases proceeded, the Bar alleged in 2008, Ellis and Rosenbaum found themselves in increasingly difficult positions because FLIR's interests and the interests of employees accused of wrongdoing could be seen to diverge. Despite that divergence of interest, the Bar alleged, the two Stoel Rives lawyers continued to represent both the corporation and individual employees.
When a lawyer's clients' interests diverge, bar rules require the lawyer to disclose potential conflicts to their clients and to seek written conflict waivers. Some conflicts cannot be waived.
The underlying ethical issues were unusually complex. The trial, which ended Nov. 14 after 12 days, saw the introduction 492 exhibits, and the expenditure of $250,000 for expert witnesses for the defense. The trial transcript is 3,088 pages long.
The volunteer trial panel—lawyers John Langslet and Lisa Caldwell, and Charles Martin, a retired accountant—pored over the record for months before producing an 89-page decision.
A big portion of the trial turned on the the Bar's complaints about lawyers' representation of FLIR and multiple employees during the SEC accounting investigation. The bar alleged that "Ellis and Rosenbaum undertook the multiple representation without full disclosure to each client of the potential adverse impact of the multiple representation, which created a current client conflict of interest."
Ellis and Rosenbaum argued, however, that SEC investigations are fundamentally different from civil and criminal cases and that multiple representation served clients' interests by maximizing the amount of information clients could receive. The trial panel agreed with that argument.
Ellis says the Bar's allegations about the SEC case were central to the Bar's case. That the trial panel found him and Rosenbaum not guilty on the multiple representation complaint, he says, represents a substantial victory.
"It's important that the part of the case the Bar seemed most focused on—multiple client representation in front of the SEC—the trial panel threw out," Ellis says. "Ninety percent of what the Bar brought, the panel threw out."
He and Rosenbaum expressed surprise and disappointment that the panel found against them on other parts of the Bar's case.
"I think we should have been fully exonerated and we still expect to be," Rosenbaum says.
The trial panel took issue with the lawyers' written communication with the SEC in which they made a statement that could have benefited FLIR at the expense of the employees they also represented.
"To the extent wrong-doing may have occurred, we understand that the SEC is pursuing fraud claims against one or more individuals who may have been responsible," the lawyers wrote to the SEC.
The panel read that sentence as a voluntary admission that employees might have committed fraud.
"The Trial Panel concludes that a likely conflict of interest did exist between the objective personal, business or property interests of FLIR and Ellis and Rosenbaum's current or former individual clients," the decision says in regard to that communication with the SEC.
Both lawyers disagree with that conclusion. Ellis says the sentence on which the panel reached its decision is "innocuous."
"And the sentence had no reference to individual clients we represented," he adds.
The trial panel also found that in the criminal phase of the FLIR case, Ellis and Rosenbaum "knowingly" misrepresented clients interests by not disclosing to them a letter from a Department of Justice prosecutor and by responding to DOJ's request for documents regarding FLIR's executive compensation without disclosing to clients they were doing so.
"Both Ellis and Rosenbaum knew that they possessed information that they did not convey to their current or former clients or their other attorneys when they asked for consent to continue to represent FLIR, although in a limited function, during the DOJ investigation," the panel wrote.
Rosenbaum says the panel is wrong about misrepresentation. She says the letter from the DOJ prosecutor to her and Ellis contained inaccurate and irrelevant information and the compensation documents they produced at DOJ's request contained information already publicly available.
"I don't believe it was material for us to disclose that we were responding to DOJ's request for documents that were readily available on the Internet," Rosenbaum says.
In deciding on a reprimand rather than license suspension, panel members cited mitigating circumstances, including Ellis and Rosenbaum's "excellent character" and "impeccable reputations," their lack of previous disciplinary penalties and the amount of time that has elapsed since the conduct in question.