October 15, 2013

Bill Schuette is in a conflict of interest

LANSING — Michigan Attorney General Bill Schuette is in a conflict of interest in the Detroit bankruptcy case by acting on behalf of city retirees on one side and the State of Michigan and Gov. Rick Snyder on the other, according to two legal experts.

Schuette has insisted since July there is no conflict that would prevent his dual role, but his office acknowledged last week that Snyder’s office has signed a conflict-of-interest waiver — a document a client signs acknowledging his attorney may have a conflict but saying he wants to proceed with the representation anyway.

The two legal experts — Robert Sedler, a law professor at Wayne State University who specializes in constitutional issues, and Larry Dubin, a professor at University of Detroit Mercy School of Law who is an expert on legal ethics — say Schuette’s conflict in the Detroit bankruptcy case is so fundamental they don’t think it can be waived.

Snyder gave the green light for Detroit’s bankruptcy in a move retirees say violated the state constitution by putting their pension benefits at risk.

“It seems obvious that the legal interests of the former workers is in conflict with the legal interests of the City of Detroit and the governor in pursuing the bankruptcy proceeding,” Dubin said.

It’s not uncommon for the attorney general to represent two state agencies on opposing sides of a lawsuit. It has happened many times under Schuette and his predecessors, Mike Cox, Jennifer Granholm and Frank Kelley, who took office in 1961.

What’s different in the Detroit bankruptcy case is that Schuette is not just an attorney for a state agency, but a named party on behalf of city retirees and the state constitution.

That creates a conflict of interest best resolved by U.S. Bankruptcy Judge Steven Rhodes appointing an independent special assistant attorney general to represent Snyder and other state officials, Sedler and Dubin told the Free Press.

Sedler said, “Only when the attorney general is not a party” to a case may he represent opposing state agencies. “I consider this to be a conflict of interest,” he said.

John Sellek, a spokesman for Schuette, said talk of a conflict — whether one exists or not — is “a nonissue” because “we do have a waiver here from the governor’s office to be sure the i’s are dotted and the t’s are crossed.”

He wouldn’t release a copy of the waiver, citing “attorney-client privilege.” Snyder’s spokeswoman, Sara Wurfel, did not respond to requests to release the waiver. Neither would say when the waiver was signed.

Not all conflicts of interest can be resolved through a client waiver.

“It’s unlikely this conflict would be or could be waived,” Dubin said before Sellek disclosed the existence of the waiver. “If the conflict remains, it blurs the loyalty that the Attorney General’s Office will have in this proceeding.”

Sedler said it might be possible for Snyder’s office to waive the conflict in terms of legal ethics, but “as far as the constitutional role of the attorney general, it cannot be waived. The attorney general is defending the pensioners,” he said.

Snyder signed off on the nation’s largest municipal bankruptcy in July after recommending the appointment of Detroit emergency manager Kevyn Orr, who has said the pensions of Detroit retirees must be reduced as part of the city’s financial restructuring.

Schuette is arguing on behalf of retirees that the state constitution, which says public pension benefits may not be “diminished or impaired,” prohibits cuts to those same pensions.

Dubin points to a Michigan Court of Appeals opinion from 2000, in Attorney General v. Public Service Commission.

In that 2-1 decision, the court ruled that then-Attorney General Granholm was in a conflict of interest representing the PSC in a case in which she was also a party opposing the state agency.

“Because the attorney general is a named party, the authorities on which she relies do not support her position,” wrote Judge Richard Griffin, supported by Judge Michael Talbot.

“On the contrary, this line of authority holds that when the attorney general is an actual party to the litigation, independent counsel should be appointed for the state agency in order to remedy the ethical impediment to the legal action brought by the attorney general.”

Schuette “does not represent retirees directly, but instead is more akin to an amicus,” said Sellek, referring to a non-litigant who files legal pleadings in support of a party’s position.

Retirees have their own attorneys in the case, but Schuette made no mention of playing a secondary role in his July 27 news release. He said he was “joining the City of Detroit federal bankruptcy case on behalf of southeast Michigan pensioners who may be at risk of losing their hard-earned benefits.”

The case involving the PSC was different because the agency wanted outside counsel, Sellek said.

“At Gov. Snyder’s request, we plan to continue our representation,” he said. “Our attorneys are doing a fantastic job in an extremely complicated situation, and the taxpayers should be proud.”

Dubin said the conflict relates to the Michigan Rules of Professional Conduct, which say that generally “a lawyer shall not represent a client if the representation of that client will be directly adverse to another client.”

For Sedler, it’s also a constitutional issue. A lawyer wanting to defend the city retirees’ pensions might want to file several constitutional challenges, possibly including a challenge to the state’s emergency manager law, he said. The attorney might also want to challenge whether it was lawful to put the city into bankruptcy when doing so potentially put those pensions at risk, Sedler said.

William Wertheimer, a Bingham Farms attorney representing some of the Detroit retirees, declined to comment on whether Schuette has a conflict. But he questioned why Schuette was “late to the game” in protecting the pensions of Detroit retirees.

Wertheimer said Schuette could have advised Snyder to put restrictions on the bankruptcy filing to protect pensioners, but a transcript shows Snyder testified in a deposition Wednesday he couldn’t recall whether he spoke with Schuette about the issue prior to the bankruptcy filing.

“Where was the attorney general on that issue?” Wertheimer asked. “The attorney general already knew that Orr had publicly said that bankruptcy law trumps the state constitutional provision.”

Sellek said Schuette is “not going to get drawn into the kind of political sniping everyone is so tired of because that would be a disservice to the cops, firefighters and others who worked tough jobs in tough cities, and through no fault of their own may be facing the loss of their only income during retirement.”