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In re American Continental Corporation/Lincoln Sav. And Loan Securities Litigation

Citation. In re American Continental Corp./Lincoln Sav. & Loan Sec. Litig., 794 F. Supp. 1424, Fed. Sec. L. Rep. (CCH) P97,005 (D. Ariz. June 15, 1992)
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Brief Fact Summary.

In the aftermath of the early ’90s savings and loan scandal, law firm Jones, Day, Reavis & Pogue was alleged to have condoned-and possibly even assisted in-an ongoing cover-up of serious regulatory violations committed by Lincoln.

Synopsis of Rule of Law.

The court considers a summary judgment motion brought by Jones Day to dismiss the claims brought against them.


In the course of its representation of these savings and loan corporations, Jones Day was alleged to have actively assisted its clients in attempting to cover up business practices that it knew to be fraudulent. In the course of an audit, Jones Day attorneys became aware of a variety of regulatory violations and deficiencies, but never challenged or reported them. Attorneys were actually instructed to “rectify” incriminating deficiencies and destroy any evidence of having done so. In its defense, Jones Day argued that its fiduciary duty prevented any other action, and that any attempt to advise the client otherwise would have been futile.


This case presented the following major issues:
To whom does corporate counsel’s fiduciary duty primarily extend?

When does corporate counsel’s knowledge of possible regulatory violations and/or deficiencies overcome the duty of confidentiality and trigger the obligation to withdraw representation?

Is an attorney acting as an “expert” for purposes of Section 11 when he issues an opinion letter advising a client as to an SEC registration statement?


Jones Day’s motion for summary judgment was denied.
An attorney’s highest fiduciary duty is to the corporate client itself, not to its directors, officers, and other affiliates.

An attorney has the duty to raise concerns about possible regulatory violations with the client, and to withdraw representation if the client insists on continuing with them. An attorney may not continue representation when it is apparent that such representation may be a “substantial factor” in allowing such violations to continue.

An attorney providing an opinion letter used in connection with an SEC registration statement is acting as an “expert” for the purposes of Section 11.


Jones Day’s behavior in this case represents a particularly extreme example of what can happen when attorneys lose their ethical perspective in the course of the zealous representation of a client. Attorneys should avoid all appearance of impropriety whenever possible, and be sure to be advise the client as various possible violations arise. If a corporate client is unable or unwilling to change its behavior, the attorney’s highest duty is to the corporation itself, and fulfilling this duty may require the attorney to withdraw representation.

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