Watchdog: Accountability

Amidst crisis, CFPB quietly offers legal services to worried managers

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Watchdog,Richard Pollock,Finance and Banking,CFPB,Accountability,Law

Several weeks after a top whistleblower testified of widespread discrimination and retaliation at the Consumer Financial Protection Bureau, agency officials quietly moved to reimburse its managers for legal counsel and offer legal protections, the Washington Examiner has learned.

The new CFPB policies are the first evidence bureau officials might fear their managers could have engaged in civil or criminal wrongdoing and could be exposed to lawsuits by current or former employees.

Last April, CFPB Chief Human Capital Officer Dennis Slagter issued two memos to agency managers and supervisors, offering reimbursement for personal liability insurance policies and outright indemnification if they feel the need to retain personal legal counsel.

On April 17, Slatger signed a memo that initiated the CFPB Professional Liability Insurance Reimbursement Program. He indicated that the bureau would pay up to half the annual premium to eligible supervisors and managers. The insurance policies would provide legal coverage to top CFPB officials who believed they faced exposure to liability or damages while performing official duties.

A week later, on April 22, Slagter issued an "interim indemnification policy." That policy would "reimburse supervisors and managers who have obtained private legal advice and/or representation regarding any actual or potential civil or criminal claim against them related to their employment with the Bureau," according to the memo.

The unusual new legal protections were issued following an April 2 hearing of the House Financial Services Committee in which whistleblower Angela Martin described a workplace riddled with employment discrimination and retaliation.

During the same hearing, Misty Raucci, an independent investigator hired by CFPB, described the bureau's workplace as a "toxic" environment for employees.

Copies of both memos were obtained by the Washington Examiner.

The bureau has since settled with Martin, but other whistleblowers have come forward and testified of being subjected to ethnic slurs and racial discrimination by CFPB managers.

Slagter also suggested that the bureau might be distancing itself from some managers who may have harmed employees or violated their rights.

The employee chief warned that that CFPB's interests and those of its managers could eventually diverge. He told them in the April 17 memo that "circumstances may arise where the interests of the Bureau diverge from the interests of an employee sued for negligence, misconduct, or violations of constitutional or civil rights.”

Slagter advised managers, "In such an instance, the employee may wish to obtain personal representation."

After issuing the two memos, Slagter stepped down from the Office of Human Capital and is now the deputy supervisor for examinations. A review of Slagter's employment history shows 14 years of human relations work and no experience in the complicated field of financial regulatory compliance.

Shortly after the memos were issued, Liza Strong, an employment relations manager in the Human Capital office, retained a top white collar defense lawyer with an influential Washington law firm.

Employment lawyers contacted by the Examiner said they had never heard of such a lawyer fee reimbursement policy being offered across the board by a federal agency, but added it could be used to mollify supervisors who might feel under legal attack.

“They’ve got a level of upper management that’s now somewhat frightened and probably has a morale issue,” said Nick Woodfield. “The agency is doing what it can to deal with a morale issue that’s hitting the very top of the pyramid.”

Woodfield is a practicing attorney with the Employment Law Group and is president of the Virginia Employment Lawyers Association.

Since its creation in 2011, CFPB employees have filed at least 115 grievances against the bureau with the National Treasury Employees Union.

That number is high for an agency like CFPB with 1,300 employees, according to Ben Konop, executive vice president of the union local, in recent congressional testimony.

Strong retained John M. Dowd, a partner in Akin Gump Strauss Hauer & Feld. The firm is the fourth-most expensive in the nation's capital, according to a 2013 review of attorney fees by the National Law Journal. In her testimony before a House Financial Services subcommittee, she said CFPB was reimbursing her for her attorney.

According to the Journal, Akin Gump hourly partner fees run as high as $1,220 per hour. Dowd refused to disclose to the Examiner his hourly fee for representing Strong.

Employment attorneys interviewed by the Examiner said they could not recall a federal agency so publicly broadcasting the availability of the attorneys fee reimbursement to all its managers and supervisors.

“This is the first time that I’ve heard about an agency broadcasting it,” said Woodfield.

Peter Broida, a former labor lawyer who works exclusively in the federal sector on employment law, told the Examiner, “I've not heard of an agency that has a [lawyer] reimbursement policy.”

Broida advises on cases brought before federal civil service agencies, including the Merit Systems Protection Board and the Equal Employment Opportunity Commission.

The reimbursement policy also surprised Kristin Alden, a managing partner at the Alden Law Group, which specializes in employment law. “I'm not aware of an agency that does that, ever,” she said. “It's unusual, at least.”

Joe Kaplan, a former labor lawyer with NTEU and now the founding principal of the law firm of Passman and Kaplan, said CFPB appears to be the first federal agency offering reimbursement for outside legal counsel to such a large number of managers.

“I don’t think I’ve come across that before. It sounds to me a little extraordinary,” Kaplan said.

Ordinarily, the federal government provides legal representation when employees performing official duties are accused of misconduct.

Federal employees are entitled to absolute immunity under the Federal Employees Liability Reform and Tort Compensation Act of 1988.

Woodfield also said the new policy may be evidence that CFPB leaders hope to distance the bureau from what he called “bad actors” in its workforce.

Broida agreed, saying a conflict of interest may occur when an agency and the Justice Department determines a manager’s conduct was indefensible.

Some of the employment attorneys interviewed by the Examiner were surprised that CFPB approved Strong using an attorney with high fees like those of Dowd, but they added that there are few ground rules governing “reasonable” attorney fees in such situations.

Broida, who lists his hourly rate on his website as $350, said it was possible CFPB will pay Dowd’s $1,220 fee.

“I suppose if I charged $1,000 an hour and wanted to litigate it, some agency might end up paying me $1,000 an hour. Do I think it’s reasonable? No. But is it possible? Yes,” he said.

Dowd is listed on Akin Gump’s website as a “partner” and as a “co-leader of the firm’s white-collar defense and corporate investigations practice.”

In addition to being ranked as fourth-most expensive law firm in billing hours in the nation’s capital, Akin Gump is also among the most profitable law firms.

The firm is ranked as the 39th highest-grossing law firm in the world, with $828 million in revenues in 2013, according to an Akin Gump financial report made available by ALM Legal Intelligence, a database company that surveys legal firms.

With 809 attorneys and 308 partners, the company claims its profit per partner is $1.8 million. The average partner receives $1.3 million per year, according to the ALM report. The firm is based in Dallas but its largest office, in terms of practicing attorneys, is in Washington.

Akin Gump’s partner billing rates go up to $1,220, according to the firm’s 2013 annual report, but could also be as low as $615 per hour.

Still the lowest partner fee is higher than the Laffey Matrix, the standard for the hourly rate for government legal representation by outside counsel. It is set by the civil division of the U.S. Attorney's office for the District of Columbia.

The top hourly rate for a top attorney with 20 years experience under the Laffey matrix ranges from $380 to a high of $505 per hour.

Kaplan said CFPB eventually “is going to have to determine whether or not these fees in this kind of case, for this kind of service is reasonable.”

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