More on AIG Bonus Counsel

Patrick Shea, Paul Hastings

We previously reported that Weil Gotshal and Hogan & Hartson advised Treasury Secretary Tim Geithner and others in the administration on paying retention bonuses to employees of AIG Financial Products.

The Am Law Daily has received confirmation from AIG that the government was also advised by employment partner Patrick Shea (Scranton BA ’78, Yale JD ’81) of Paul Hastings.  The site reports that

Shea and Paul Hastings concluded that failure to pay the bonuses would expose AIG to major liability in Connecticut courts, since state law there gives employees the right to sue for double damages and attorney fees in the event that a company unlawfully withholds their wages. (AIG’s financial products unit, the epicenter of the meltdown, is located in scenic Wilton, Conn.)

That’s exactly the sort of advice we criticized for being myopic and result-oriented. Shea’s letter to Thomas Baxter, GC of the NY Fed, is available here.  The letter reaches the conclusion that “there is a clear contractual obligation on the part of AIGFP — which is guaranteed by AIG — to pay” the bonuses and failure to pay “would expose AIGFP and AIG to double damages and attorneys fees under the [Connecticut] Wage Act.”

Shea completely fails to address any of the issues outside the four corners of the contract.  Having read the letter now, I’m even more surprised by the narrow focus and absence of any real counsel. In one short paragraph, the only affirmative defenses Shea even considers are impossibility and illegality, both of which he dismisses out of hand.  Countless pundits have argued at length to the contrary.  The Deal Professor makes the point that, even if the contracts are bulletproof, no attempt was ever even made to negotiate the payments down or away.

Clients turn to firms like Paul Weiss for guidance on thorny issues with an understanding of the larger issues at work; to provide insight and analysis beyond the black-letter law.  But this is a case of lawyer-as-scrivener at its worst – Shea and a bunch of associates apparently did nothing more than look up and regurgitate a bunch of statutes.  That’s hardly “advice” or “counsel.”  A second-year law student could have come up with the same unsophisticated dreck.

Did anyone evaluate whether it was worse to be faced with potential double damages from a bunch of vilified, overpaid investment bankers or ignite the outrage of the entire country?  Hell, even some of the people who were paid are voluntarily giving the money back.

Related posts:

1. A Tale of Two Bonus Dilemmas
2. AIG FP Finally Getting a Clue?
3. Mendelson on Susskind's End of Lawyers
4. Weil, Hogan Reportedly Advised on AIG Bonus Payouts
5. Jones Day Sticking Up for the Little Guys

Tagged as: aig, hogan & hartson, paul hastings, weil gotshal