Severance Agreement Between a Prospective Federal Appointee and His Law Firm ( 1980 )

Severance Agreement Between a Prospective Federal
Appointee and His Law Firm
S ev eran ce a rra n g em en ts b etw een a p ro sp e c tiv e a p p o in te e to federal office an d his law
firm d o n o t result in an unlaw ful su p p lem en tatio n o f his federal sa lary in v iolation o f 18
U .S.C . § 209, n o tw ith sta n d in g th e fact th a t th ey d e v ia te in ce rta in resp ec ts from the
term s o f th e law firm ’s p a rtn ersh ip ag reem en t.
May 7, 1980
MEMORANDUM OPINION FOR
TH E DEPUTY COUNSEL TO TH E PR ESID EN T
This is in response to your request of our review of the withdrawal
agreement entered into by Mr. A, a nominee to federal office, and the
law firm of which he is a partner, Firm X. More particularly, you ask
whether the agreement is consistent with the federal conflict of interest
laws, including 18 U.S.C. §209. That statute in general prevents an
officer or employee of the Executive Branch from receiving, or anyone
from paying him, any salary or supplementation of salary for his serv­
ices to the government.
Article VIII of the Firm X partnership agreement, provides for
retirement, with a cash benefit payable in 60 monthly installments, for a
partner who leaves the firm under certain conditions. Mr. A is eligible
for retirement, which under the agreement would terminate his interest
in the partnership. A technique for less than complete severance from
the firm is provided by Article X III-2 of the agreement. It authorizes a
temporary withdrawal of a partner for a period of no longer than
IS months, subject to such terms and conditions as a majority of the
other partners may specify. A temporary withdrawal does not termi­
nate a partner’s interest and he remains a member of the firm. You will
recall that Mr. A informed us at our meeting with him that his firm was
agreeable to his choice of departure under either Article V III or Arti­
cle XIII-2 and would approve the same financial arrangements under
either option. Mr. A chose retirement under Article VIII and the
withdrawal agreement was drawn accordingly.
The withdrawal agreement will come into force on the day of
Mr. A’s confirmation by the Senate. It provides for variations from the
Firm X partnership agreement in connection with his capital account
and the payment of his retirement benefits. Under Article VIII-3(a) and
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VII-2(a) and (d) of the latter document, the capital account would be
paid within 90 days after separation and the monthly retirement pay­
ments would commence at the end of the month following his retire­
ment. However, the withdrawal agreement provides for the firm to
defer liquidation of the capital account until Mr. A requests it and to
defer initiation of the retirement installments for 24 months after his
separation from Firm X, unless he is readmitted to membership before
then or if the 24-month period is extended by mutual consent.
It is appropriate to consider first the element of intent on the part of
Firm X and Mr. A. If the firm and he went beyond the provisions of
Articles VIII and VII-2(a) and (d) with a view to providing something
of value to him as a supplement to his federal salary, then § 209(a)
would be a bar to his filling that office and our discussion would end at
this point. However, there is nothing in the circumstances here to
suggest that the firm was motivated by anything but a desire to accom­
modate Mr. A in recognition of his years of membership in it, or that
he had in mind obtaining from the firm a subsidy of his employment by
the government. We have no difficulty in ruling out both possibilities.
See 41 Op. A tt’y Gen. 217, 221 (1955).
Remaining for consideration in relation to § 209(a) is the question
whether the withdrawal agreement is per se inconsistent with Mr. A ’s
taking and remaining in office. Had that agreement followed the terms
of the partnership compact, there would be no doubt that any benefits
that might flow from it to Mr. A would fall within the exemption from
§ 209(a) granted by § 209(b) with respect to a “bona fide . . . retire­
ment . . . plan maintained by a former employer.” However, the de­
scribed variations raise the question whether the withdrawal agreement
itself bestows on Mr. A a form of “contribution to or supplementation
of salary, as compensation for his services as an officer” of the federal
government that is not waived by § 209(b).
The deferral of the payout of Mr. A ’s capital account will provide no
significant financial benefit to him that we are aware of. On the other
hand, he has stated that he requested the temporary deferment of the
retirement payments in order to reduce the amount of income tax
liability they would otherwise generate. This Office has generally
viewed severance arrangements that minimize a recipient’s tax liability
as not cutting across the prohibition o f § 209(a). Nevertheless, for the
reasons set forth below, we do not find it necessary to pass on the
agreed variations from Firm X’s retirement program in that context.
It appears that if Mr. A and his firm had determined that he should
undertake his projected government service while remaining a member
of the firm under Article X III-2 of its governing instrument, in addition
to forgoing his share of profits during his absence, he would not
receive the return of his capital or any retirement payments. Thus, he
would be in the same position as the withdrawal agreement calls for but
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would have avoided the question under consideration here. As a practi­
cal matter, however, temporary withdrawal under Article XIII-2 was
and is not open to him as a means of avoiding the possible impact of
§ 209(a). That is so because, as you informed him at our meeting, White
House policy prevents a partner of a law firm from serving the govern­
ment under a presidential appointment to a full-time post unless he
withdraws from the firm. That condition would not be met by the mere
temporary suspension of Mr. A under Article XIII-2.
It would be anomalous to conclude on the one hand that § 209(a)
stands in the way of the financial arrangement worked out be­
tween Mr. A and his firm because it deviates to some extent from
certain provisions of the partnership agreement, and to conclude on the
other hand that the same financial arrangement under other provisions
of the partnership agreement would comport with § 209(a). Because the
White House policy that has intervened to prevent resort to the latter
provisions is not based on any prohibition of § 209(a), we do not
believe that any purpose of the statute would be furthered by reading it
to require this formalistic stalemate and the consequent loss of Mr. A’s
services to the government. In short, we are of the opinion that imple­
mentation of the executed withdrawal agreement, just like implementa­
tion of a similar agreement drawn under Article XIII-2, would not
contravene § 209(a).
The withdrawal agreement need not be examined in the light of any
of § 209’s companion conflict of interest statutes except 18 U.S.C. § 208,
which prohibits a federal employee from participating in a matter for
the government in which, to his knowledge, “he, his . . . partner . . .
or any person or organization with whom he is negotiating or has any
arrangement concerning prospective employment, has a financial inter­
est. . . .” The term “financial interest” does not extend to the credi­
tor’s claim against his firm that Mr. A will have when the withdrawal
agreement comes into force. Nevertheless, in order to avoid adverse
appearances, Mr. A should recuse himself from any matter which may
come before him as an official of the government in which Firm X
appears as counsel or otherwise has a financial interest.
L eo n U lm an
Deputy Assistant Attorney General
Office o f Legal Counsel
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