Third Party Legal Fee Payments – A Problem for Trump But Not for Corporations

Editor’s Note: The author is the Louis Stein Chair at Fordham Law School, where he directs the Louis Stein Center for Law and Ethics.

By Bruce A. Green, Fordham Law School

It was widely reported in October that President Trump offered $430,000 out of his own pocket to pay his aides’ legal fees in connection with Special Counsel Robert Mueller’s criminal investigation. Was this merely an expression of generosity?  At least one knowledgeable critic responded that the President’s offer “raises substantial questions under federal criminal law.”  What’s the problem?

Consider how this would look in an organized crime case.  It was once common for crime kingpins to hire lawyers for underlings who were hauled before the grand jury or charged with a crime.  By the 1980’s, prosecutors had wised up to this practice and began turning the tables.  When witnesses and defendants showed up with lawyers whom they obviously couldn’t afford, prosecutors began demanding that the lawyers disclose who paid their fees.

When it turned out that it wasn’t an innocent but devoted relative who was footing the bill, but rather someone higher up in the criminal organization, prosecutors used proof of these so-called “benefactor payments” against both the client and the payor.  Lawyers became witnesses against their clients.

Prosecutors argued that the payments were evidence of a conspiratorial understanding: In exchange for keeping silent about the benefactor’s criminal involvement, the beneficiary received the services of a high-priced lawyer.  The payment of legal fees bought a confederate’s silence – an act bordering on obstruction of justice (if not crossing the border).

Even if the third-party payments did not become an issue in the criminal investigation, they raised a problem for the defense lawyers.  Lawyers had a conflict of interest in accepting payments from third parties who might themselves be the subject of a criminal investigation.  Clients needed disinterested advice about whether to cooperate with the prosecutors, perhaps in exchange for leniency.  If clients agreed or were obliged to answer prosecutors’ questions, their lawyers had to prepare them to answer truthfully.  But lawyers might conceivably be swayed, even if subtly and unconsciously, by the benefactors’ interests.  Lawyers might sell out their clients and serve the payors’ interests, whether out of gratitude for the payments or out of fear that they payments might dry up.

Of course, third party payments of legal fees look very different in the corporate context.  Corporations regularly pay their officers’ and employees’ legal fees, in criminal no less than civil cases.  Corporations sometimes have a contractual or statutory obligation to so.  In the ordinary case, one would not infer, merely from a corporation’s willingness to pay its employees’ legal fees, that the corporation and its officers were conspiring together.

Indeed, this is a corporate expenditure that many would encourage.  The law assumes that the public is best served if individuals with legal problems have access to lawyers’ advice and assistance, and so a corporation acts in a public-spirited manner when it finances its employees’ legal fees.  Nor is this a corporate giveaway.  Corporations promote employees’ loyalty when they agree to pay the legal fees of employees whose need for a lawyer arises out of their work for the corporation.  If a corporation is a fundamentally lawful enterprise, employee loyalty is worth cultivating.

Prosecutors may not be enamored when corporations help their employees secure counsel, but prosecutors cannot do much about it.  Federal prosecutors in New York learned this lesson a decade ago in United States v. Stein, a tax fraud prosecution of former KPMG employees.  KPMG stopped paying its former employees’ legal expenses under pressure from prosecutors.  The district judge found that prosecutors had improperly interfered with the defendants’ access to counsel and dismissed the indictment as a remedy.

If President Trump’s offer to finance aides’ legal fees ever became an issue at trial, he could deny that he was offering the equivalent of hush money.  Rather, he could say, his avowed willingness to offset his aides’ legal fees was benign, like that of KPMG.  Even so, given that firing FBI director Comey raised similar obstruction-of-justice concerns, the President did not serve himself well by offering payments that might appear to be designed to interfere with a criminal investigation of which he is a part.

But there is at least one saving grace.  The President’s offer underscores the importance of supporting people with legal problems who need lawyers but cannot afford them.  Federally funded legal services lawyers serve only a fraction of low-income clients with unmet legal needs.  Given lawyers’ essential public role, to which the President has now called attention, perhaps he can be persuaded to support the Legal Services Corporation, which funds lawyers for low-income clients.  No one would conceivably spin that as an act of obstruction.