Avoiding (or at Least Mitigation) Civil and Bankruptcy Liability

By: Joseph J. Wielebinski (Co-speaker) and Davor Rukavina (Co-speaker)
Presented at the University of Texas' Sixth Annual Telecommunications Law Conference
March 2004

I. INTRODUCTION
It is a dangerous, ever-changing world as far as the duties and potential professional and monetary liabilities of corporate counsel is concerned. In the wake of recent corporate scandals, and especially if a bankruptcy petition is filed, counsel may find every one of his actions second-guessed; counsel may find that the attorney-client privilege will be waived or pierced; and counsel may find, if he is also an officer or director, that the company’s officers and directors liability insurance will provide little if any protection. Moreover, recent federal law has increased the duties and possibly the liabilities of corporate counsel working for a company under the jurisdiction of the Securities and Exchange Commission (“SEC”).

In short, if the company stumbles or fails and the assets are insufficient to satisfy all claims, corporate counsel may find himself under the microscope and subject to personal or derivative liability. It is imperative, therefore, that counsel become familiar with his duties and obligations, with the sources of potential liability, and with the potential problems associated with insurance, indemnification from the company, and with the repercussions of a bankruptcy – not only for the sake of the corporate client, but, perhaps more importantly, for the sake of counsel’s own professional well-being and personal exposure.

Accordingly, this section of the article will examine some of the duties, and hence the potential sources of liability, that apply to corporate counsel. Recognizing that in-house or outside counsel is frequently an officer or director of the company, this section will analyze how counsel’s dual role may affect his duties and resulting liabilities. This section will then examine some possibilities open to counsel to avoid personal liability. Finally, consideration will be given to certain aspects of bankruptcy that may be particularly applicable to corporate counsel, officers, and directors.

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