One of Baltimore's most prestigious law firms received more than $27,000 in fees last year from Old Court Savings and Loan Association while it served as chief counsel to the private corporation that insured and regulated state thrifts including Old Court, according to court documents.
The various roles played by lawyers at Venable, Baetjer and Howard -- including performing legal work for Old Court Savings and Loan, its president, Jeffrey Levitt, and the private Maryland Savings-Share Insurance Corp. (MSSIC) -- have raised questions about a potential conflict of interest by the state's largest law firm.
Those questions have been aired publicly in a $2.4 billion class-action lawsuit filed recently by four Old Court depositors against Venable, MSSIC and Old Court. But the issue has been circulating privately within Baltimore's close-knit legal community.
The disclosure of management problems at Old Court last month triggered the state's savings and loan crisis by creating a near-panic run by depositors. The lawsuit by Old Court depositors, filed in Baltimore County Circuit Court, contends that Venable "failed to sound an alarm" and advise MSSIC board members to take disciplinary action against Old Court during a period in which MSSIC inspectors had identified violations of state financial regulations at the Baltimore thrift.
As a result, the suit says, Venable "breached its trust" to MSSIC and the depositors of MSSIC-insured thrifts. The suit says that Venable was "absolutely liable" for its failure to disqualify itself from representing Old Court, Levitt or MSSIC.
Venable recently retained the Washington law firm of Covington & Burling to represent it in the case. Charles Ruff, the former U.S. attorney for the District who is handling the Venable case for Covington & Burling, said this week that the Baltimore firm "denies any impropriety" but declined to comment further.
Contacted yesterday at his firm's Washington office, Jacques T. Schlenger, managing partner of Venable, said: "While we cannot control who files a lawsuit, we believe strongly we will successfully dispose of all litigation and that we have no liability . . . . We did nothing wrong."
According to the American Bar Association's Code of Professional Responsibility, law firms are generally barred from taking clients whose interests may conflict with those of existing clients, even where cases are wholly unrelated, unless prior consent is obtained from both the old and new clients. MSSIC's president, Charles Hogg, said he was notified of Venable's representation of Old Court and did not object.
But courts have ruled that, in some instances, conflicts can't be waived even if both parties agree, according to Richard Rotunda, a University of Illinois professor who has written a textbook on legal ethics.
"If I'm representing you, I owe you a duty of loyalty, and that loyalty is diminished if I'm representing somebody in an adversarial position," said Rotunda. "The reason is I might pull in my horns . . . .
"The mere fact that MSSIC had knowledge of Venable's work for Old Court doesn't throw out the plaintiff's case. It would be relevant to know exactly what MSSIC knew and whether they realized there was almost $30,000 of billings, which is not nominal."
The extent of Venable's work for Old Court and Levitt -- and whether the firm disclosed all that work to the MSSIC board -- remains unclear. Documents filed by Maryland Attorney General Stephen Sachs in support of the state's petition to place Old Court under conservatorship last month show that Venable received at least $27,147.57 in fees from two Old Court subsidiaries during 1984.
State officials have said that these documents do not represent a comprehensive list of Old Court payments and that there may have been other fees paid by Old Court to the law firm. In addition, the documents do not indicate the nature of the legal work Venable performed for Old Court.
Court records show that Venable partner Gerald M. Katz filed incorporation papers last October on two of Levitt's personal business ventures, a carwash and a miniature golf course in Ocean City, Md. Katz also did legal work on a Jacksonville, Fla., land development company of which Levitt is a director, according to a state official.
The law firm of Jerome Cardin, who is an 18 percent owner of Old Court, is the official law firm of record for the thrift. But one source familiar with Old Court's business said the thrift "considered Venable one of their key law firms" and that Venable did "more than considerable work" for the savings and loan.
Hogg, the president of the now-defunct MSSIC, said, "I was aware that in some tax matters, Venable represented some Old Court interests. I think it was restricted to tax matters . . . . Venable is an honorable firm." He said he doesn't remember when Venable notified MSSIC of its work for Old Court.
John C. Donohoe, a MSSIC board member, said yesterday he only recently learned of Venable's relationship with Old Court. "I was kind of shocked . . . . It disturbed me," he said.
MSSIC inspectors first began identifying management problems at Old Court -- including extensive insider loans and unsecured loans -- last year. Throughout last fall and continuing into the spring, MSSIC's officers and its board wrestled with what action to take against Old Court.
The Venable partner who did MSSIC's work, Terry F. Hall, attended some of those meetings, according to a state official who asked not to be identified. Some of MSSIC's last board meetings before it was abolished by the state in May were held in Venable's Baltimore headquarters, according to legal sources.
Hall could not be reached yesterday, and Katz declined to comment.
The conflict-of-interest charge appears to have divided Baltimore's legal community, where Venable has long been considered a pillar of the city's establishment. The firm, whose members and alumni include Sen. Paul Sarbanes, former U.S. attorney general Benjamin Civiletti and federal appeals judge Frank Murnaghan, has represented clients such as the A.S. Abell Publishing Co., owner of the Baltimore Sunpapers, and the Mercantile Safe Deposit and Trust Co.
"I would be absolutely stunned given the firm's reputation and people I know there if there was any impropriety," said Lowell Bowen, managing partner of Miles & Stockbridge, another silk-stocking Baltimore law firm.
But, added Bowen, "In hindsight, I bet they wish they hadn't done it."