How CalPERS General Counsel Matt Jacobs Violated California Bar Rules

In other CalPERS posts today, we discuss the legal and IT implications of the fact that Christopher Philips, a member of CalPERS’ legal department, posted comments seeking to undermine our credibility and that of board member JJ Jelincic. We explain how Phillips violated California bar rules.

As a result of examining California State Bar Act and the Bar Association rules of professional conduct, we believe CalPERS’ General Counsel Matt Jacobs separately engaged in a much more serious violation of state bar rules in his handling of the recent disciplinary process against Jelincic.

As regular readers will recall, the censure process for Jelincic began formally in January at an offsite in Monterey. The only reason that there is a proper record of this disgraceful episode is that former board member Michael Flaherman heard a plan to railroad Jelincic would be launched then. He understood the significance of the timing: no transcripts are kept at board offsites and few sessions are videoed. He trekked to Monterey to record it. CalPERS’ abuses of procedure and governance, vividly on display in the campaign against Jelincic, motivated Flaherman to run for the board to try to remedy them/¹

At the Monterey meeting, board member Bill Slaton demanded that either Jelincic resign or the board strip him of meaningful authority, which the board actually lacked the power to do. Slaton was in full “sentence first, verdict afterward” mode, presenting no evidence whatsoever to back his slanderous charges, even after Jelincic demanded during the meeting that Slaton cite specific violations.

The General Counsel’s office represents the CalPERS board. As law professor and former general counsel Bill Black pointed out in a post earlier this year, when board member Bill Slaton made this attack against Jelincic, rather than attempting to counter Slaton’s evidence-free accusation and demand for punishment, “Matt Jacobs, the General Counsel did speak up, but solely to implicitly support throwing Jelincic under the bus.” In the unlikely event that Slaton’s diatribe against Jelincic had caught Jacobs off guard, Jacobs should nevertheless have immediately and forcefully have reined him in, as Bill Black described in some detail, and not piled on.

In addition, Board President Robert Feckner stated, and records obtained via the Public Records Act confirm, that Jacobs and Slaton had been conferring on the “Get Jelincic” campaign before the January board meeting. As Feckner said on tape: “Matt and I have had many conversations about it.”

This is a very damaging admission on multiple levels. The manner in which Jacobs allowed this caper to unfold was clear-cut violation of California bar rules. Lawyers are prohibited from working in secret with one client against another.

Yet Jacobs was already participating in the campaign against Jelincic before the January 19 offsite in Monterey. Under California bar rules, Jacobs was required to get a waiver for his conflict of interest from Jelincic or notify him formally that he and the legal department were not representing Jelincic. From Rule 3-300:

(C) A member shall not, without the informed written consent of each client:

(1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or

(2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or

(3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.

The section of the bar rules dealing with “Organizations as Clients” reinforces this notion. From Rule 3-600:

(D) In dealing with an organization’s directors, officers, employees, members, shareholders, or other constituents, a member shall explain the identity of the client for whom the member acts, whenever it is or becomes apparent that the organization’s interests are or may become adverse to those of the constituent(s) with whom the member is dealing. The member shall not mislead such a constituent into believing that the constituent may communicate confidential information to the member in a way that will not be used in the organization’s interest if that is or becomes adverse to the constituent.

If challenged, Jacobs’ justification for so clearly taking one side in a conflict of interest would probably be to contend that there was no proceeding pending when Slaton attacked Jelincic in Monterey, hence any conflict was only theoretical.² But as the video of the January meeting shows, Feckner decided then to move forward with a disciplinary process that was to be public and formal. At that moment, Feckner set the CalPERS legal office, including Jacobs as general counsel, into an adverse posture relative to Jelincic.

Thus immediately after that board meeting, Jacobs was legally obligated to ask Jelicic to give Jacobs a waiver or at least put Jelincic on notice that CalPERS legal department was adverse to him and thus was not representing him. As one California lawyer wrote (emphasis original): “At a minimum after Slaton made his statement in the January board meeting, Jacobs had a duty to inform Jelincic of their adverse interests.”

The legal department continued to ignore this requirement. However, these failings of legal ethics pale in comparison to Jacobs’ subsequent actions, where he violated the most basic principle of legal representation by refusing to allow Jelincic to dismiss the CalPERS legal department from representing him.

On February 10, Feckner sent an e-mail to Jelincic in which Feckner reneged on the commitment to present of the allegations against Jelincic in public and give him the opportunity to rebut them. Instead, Feckner told Jelincic to attend a private meeting to discuss Slaton’s allegations against Jelincic immediately after the upcoming board meetings. As you can see from the second embedded document below, Feckner said that Robert Carlin, a member of CalPERS’ legal team, would participate, making him the sole attorney present.

It should be obvious that one attorney cannot be representing two or what should actually be three parties: Slaton as the accuser, Jelincic as the accused, and Feckner as the supposedly impartial arbiter.

Carlin’s involvement is particularly troubling given this section of Rule 3-300:

(E) A member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment.

In this context, “confidential” is the information that would be subject to attorney-client privilege. In this case, if Jacobs or any member of the legal department used any information that the legal staff obtained from Jelincic directly as part of the disciplinary process, that would be a per se violation of that rule.

An additional Rule 3-600(D) problem is that Jacobs (since Carlin would not have independent authority to act) was trying to get Jelincic to meet with a member of the legal department, Slaton, and Feckner behind closed doors. Here is the key section:

The [bar] member shall not mislead such a constituent into believing that the constituent may communicate confidential information to the member in a way that will not be used in the organization’s interest if that is or becomes adverse to the constituent.

Jacobs’ position has been that he and his legal staff have an attorney-client relationship with all members of the board. While that is true in ordinary situations, it is an untenable position when serious disputes arise within the board. In this case, Jacobs had clearly aligned himself with the faction of the board that was keen to punish Jelincic.

Moreover, even if Jacobs had not already committed himself to one side, the fact remained that there were two sides involved in a legal proceeding, and he could not advocate for both. In legalese, that meant he had already taken a position adverse to Jelincic or was going to in the immediate future. To make the ethical breach even worse, Jacobs was trying to lure Jelincic into a confidential meeting without having informed Jelincic of the adverse representation, as he was clearly required to do.

Perversely, it was Jelincic who was put in the position of having to send a notice of adverse interests to Jacobs and the CalPERS legal department on February 11. CalPERS effectively acknowledged that Jelincic’s position of adverse interest was correct by agreeing to pay for Jelincic to retain his own counsel and bringing in an outside attorney to represent Feckner and Slaton.³ Notice that the latter position, of having one attorney represent both Feckner and Slaton was confirmation, as we have maintained, that Feckner was not operating as an arbiter, as he has repeatedly claimed, but was out implement Slaton’s demand for a censure in a way that would not get CalPERS in more hot water.

In its next moves, CalPERS’ actions went from riding roughshod over legal proprieties to jumping off a legal ethics cliff. The attorney brought in to handle the censure was a prominent pension lawyer, Ashley Dunning of Nossaman, who had also been recently retained to serve as CalPERS’ fiduciary counsel. She made a last-ditch effort to keep the censure proceedings cloaked in attorney-client privilege. As any lawyer will recognize, that stance is nonsensical given that Jelincic had formally removing himself as a client of CalPERS legal department with respect to this matter via his notice of adverse interest.

Jelincic had every reason to demand his own counsel to contest CalPERS’ kangaroo court. But another implication of Jelincic firing CalPERS legal department was that he would (or should have) gotten control of the treatment of information that CalPERS presented to his side during this process.

As long as Jelincic was represented by CalPERS’ legal department, the attorney-client privilege didn’t actually belong to him, as it normally would in other settings. Instead, it would belong to the entire board. That means a majority vote of the board would be necessary for him to waive the privilege on CalPERS’ legal communications to him if he were deemed a “client”. As a result, CalPERS could run any kind of sham censure process with no public accountability, so long as JJ remained a client and all of the communications were run through the hands of CalPERS’ legal team. This is why it was critically important for Jelincic to have barred Jacobs and the CalPERS legal department from representing him in the censure matter back on February 11.

On March 3, almost a month after Jelincic had fired Jacobs and the CalPERS legal office, Jelincic received an analysis prepared by Jacobs. This document is significant because it is the only thing that CalPERS has prepared that remotely represents charges against Jelincic. Jelincic referred to it in his “Roy Cohn” board statement earlier this month. Jelincic has repeatedly sought to have this report released so that he can rebut it.⁴

On March 21, Dunning sent a letter to Jelincic’s attorney, Karl Olson, in which she attempted to depict Jacobs’ analysis as attorney-client privileged. The fact that the document was sent to Jelnicic when CalPERS legal department was not representing him means it cannot be privileged. Dunning similarly cannot argue that she was representing Jelincic in her capacity as fiduciary counsel without running full bore into the bar violations we described in detail above. She has never obtained or even sought a waiver for her conflict of interest. She thus cannot maintain her pretense of representing “the board” in this matter if it includes Jelincic.

Dunning attempted to conflate the idea of attorney-client privilege with the board’s privilege and asserted Jelincic was bound by that. Any confidential status accorded to board material went poof when handed to an outside party. Jelincic became an outside party with respect to the disciplinary action once he sent in his notice of adverse interest on February 11

Nevertheless, CalPERS continues to maintain that the document is privileged and used that claim as a basis for refusing to provide it in response to Public Records Act requests. Jacobs and Dunning can’t have their cake and eat it too. The only rationale for keeping the document confidential would have been that CalPERS was representing Jelincic as of March 3, when Jacobs sent the analysis to Jelnicic. But Jelincic had fired Jacobs on this matter weeks earlier. It is a grave bar violation to claim to represent a client against his will.

The continued insistence that there was no conflict of interest when the reverse is blindingly obvious puts both lawyers on untenable grounds as far as bar rules are concerned.

In fact, what actually happened is that Jacobs’ March 3 legal analysis, and that includes any confidential material it contained, such as material from any confidential board meetings, lost its privileged and confidential status when it went into the hands of Karl Olson, Jelincic’s attorney. Even if Olson had not yet been formally retained, CalPERS was treating Olson as Jelincic’s representative prior to March 3. For instance, CalPERS was pushing Olson to schedule a meeting on the Jelnicic censure in late February. In other words, multiple actions by CalPERS confirm that it acknowledges Jelincic’s status as adverse well before March 3.

Moreover, CalPERS did not require Olson to sign a confidentiality agreement as a condition of his engagement. Dunning’s letter is a one-sided “stuff the genie back into the bottle” effort to assert the material was protected to solve a problem of Jacobs’ inattention.

This situation is so far beyond the pale of professional norms that a writer of fiction may be best able to capture the spirit of what took place. From Terry Pratchett:

“How can people kill like that? Without even thinking about it?”….

It was a shame, and there wasn’t a man among them who couldn’t hear the hot whine of guilt all down their backbones. But, as so often happens by that strange alchemy of the soul, the guilt made them arrogant and reckless.

This combination of sloppiness and bulldozing is typical of Jacobs. It may work from time to time in litigation, but it does not sit well in the general counsel’s role, particularly for an institution in a political and media fishbowl like CalPERS. CalPERS need someone better suited to Jacobs’ job.

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¹ Jelincic has endorsed Flaherman, who is running for the seat Jelincic is vacating.

² This position is farcical since we have documented the board and its former fiduciary counsel Robert Klausner were operating against Jelincic since at least December 2015. From a post then:

This section of the Governance Committee meeting clearly shows that the board, aided and abetted by Klausner, is in the process of establishing a procedure for implementing trumped-up sanctions against Jelincic, presumably so as to facilitate an opponent unseating him in his next election. But Jelincic’s term isn’t up until 2018, so from their perspective they are stuck with an apostate in their ranks for an uncomfortably long amount of time. Part of their strategy appears to harass him into compliance with the posture the rest of the board, that of ceding authority to staff and conducting board meetings that are largely ceremonial. We strongly urge you to watch the pertinent portion in full, and have provide a link and annotations at the end of this post.

³ Jacobs may argue that the outside attorney was representing Feckner, but that lawyer, CalPERS’ fiduciary counsel Ashley Dunning, has made the remarkable claim that she was representing “the board” in this matter. That implies that there was no daylight between Feckner and Slaton. That confirms the idea that Feckner was acting as an impartial judge was a sham.

In addition, the choice of Dunning for this role was another way for the legal department to put its finger on the scale. The idea that the fiduciary counsel, who in theory has the board and not the staff as its primary client, actually gives the board its primary allegiance is a convenient fiction. The fiduciary counsel ostensibly serves the board and staff, replicating the existing conflict problem. Moreover, the fiduciary counsel’s loyalties lie with staff. The current fiduciary counsel Dunning and her precedessor clearly stated in their board interviews that they would take direction primarily from staff. Staff does the initial screening of fiduciary counsel candidates and in the last board selection process, eliminated an applicant that had served previously as fiduciary counsel and had been well liked by the board. Perhaps most important, the general counsel and not the board receives all bills from the fiduciary counsel and controls payment to them.

⁴ Readers may reasonably ask why Jelincic does not release the Jacobs document if Jelncic believes it is not attorney-client privileged. Recall what Jelincic has just been through. He has been censured on trumped-up charges. As we have indicated, Jelincic has been accused of leaking confidential material when the information at issue was not in fact secret, even though the board due to its ignorance and prejudice against Jelnicic, convinced itself otherwise. The board has set a precedent that it will engage in a bogus process to beat dissident board members into line. So even if Jelincic is in the right, he can readily be put through a procedural and reputational wringer yet again.