Flying Under the Radar
After Percolating Quietly, These Legal Issues May Grab Headlines in 2005
Posted Jan 25, 2005 3:24 AM CDT
By Molly McDonough
We live in a news-drenched world. Even with events unfolding at breakneck speed, it seems that nothing—or at least nothing of import—slips under the radar of an ever-vigilant news media that now includes the Internet in its arsenal. It’s tempting to think that if an event or some development or trend didn’t grab headlines over the past year, it’s because it just wasn’t important.
Such a thought couldn’t be more wrong.
Buried amid all the election campaigns, wars, economic scandals, celebrity trials, gossip and other events that consume so much news coverage, developments that will affect the justice system and the legal profession have been unfolding with little notice by the media.
In this article, the ABA Journal puts some of those legal developments on the radar screen. We talked to sources and went back through our notes from covering legal news of the past year to identify some of the developments that are only now beginning to take shape. This article doesn’t pretend to be comprehensive, but it does identify some issues and trends that are likely to get more headlines as 2005 unfolds.
Privilege under Fire
It may be too early to predict the demise of the attorney-client privilege, but recent developments in the United States and overseas have raised concerns among lawyers and their clients—especially corporations involved in complex financial dealings—that it’s becoming steadily weaker.
On the domestic front, the erosion of the privilege, which protects attorney client communications from disclosure in the context of adversarial legal proceedings, stems in part from greater reliance by lawyers and clients on electronic communications. That has triggered more instances of “inadvertent waiver” as information is sent erroneously to unintended recipients.
A weakened attorney-client privilege also is a by product of more intense government investigations into financial activities of corporations, stockbrokers and the financial services industry.
The U.S. Department of Justice, the Securities and Exchange Commission and other federal investigative bodies now have policies that require privilege waivers from parties seeking to cooperate with the government in hopes of mitigating fines and penalties.
These factors are producing a shift from an expectation of privilege to a presumption that all information shared by client and attorney is producible, says Susan Hackett, general counsel of the Washington, D.C.-based Association of Corporate Counsel. “There is a tendency to equate scrutiny of allegations of wrongdoing with the need for companies to cooperate fully,” says Hackett.
The push for cooperation is evident in amendments to the U.S. Sentencing Guidelines that went into effect on Nov. 1, which give a reduced sentence to companies that are in “active cooperation” with government investigators. It isn’t clear, however, whether those amendments will do much to clarify just what a company must do to be in active cooperation so that it qualifies for penalty reductions.
Another issue is whether information released pursuant to privilege waivers in federal government investigations may be shielded later in actions by state governments or by private parties arising out of the same corporate activities.
“At the micro level, in a lot of different areas in the practice, there are potential erosions of the privilege,” says R. William Ide III of Atlanta, a past ABA president. “It’s time to get back to the macro level.”
Ide chairs the new ABA Task Force on the Attorney-Client Privilege. The group is taking a comprehensive look at the privilege and the factors putting its viability into question.
The health of the attorney-client privilege isn’t much better in the 25-member European Union, where American companies do extensive business.
Many U.S. lawyers became painfully aware that their advice to clients overseas isn’t necessarily privileged when the European Commission, the EU’s executive body, began authorizing “dawn raids” on companies suspected of antitrust violations. Corporate communications with in house counsel or with retained counsel from outside the EU member states aren’t privileged, according to a 1982 ruling by the European Court of Justice.
“In the EU, the general counsel’s office is seen as the honey pot of all information,” says Hackett. “That’s where all the close call conversations are.”
Antitrust expert Abbott B. Lipsky urges U.S. lawyers to adjust. “This is a huge issue for the largest U.S. companies that have significant operations in Europe,” says Lipsky of Washington, D.C., who has served as international officer for the ABA Section of Antitrust Law. “Even at this late date, I run into counsel who are not aware that they need to consider the fact that the files and e-mails and all kinds of communications involving inside counsel and counsel not admitted to practice in an [EU] jurisdiction are subject to having their communications confiscated in these dawn raids.”
While the European Parliament has not shown an inclination to extend legislative protections to the attorney-client privilege, there are hopes that the European Court of Justice, the EU’s judicial arm, may extend the privilege, especially to in house counsel. The ABA took steps to allow for the filing of a “written statement of intervention”—the equivalent of an amicus brief—n support of extending the privilege, in the combined cases of Akzo Nobel Chemicals Ltd., No. T 125/03 R, and Akcros Chemicals Ltd., No. T 253/03 R, but no brief has been submitted.
The International Bar Association and other lawyer organizations are expected to file statements urging the Court of Justice to extend the privilege.
“People are pretty much holding their breath for the Akzo result,” says Lipsky.
Chilling Effect Feared
Lawyers are reluctantly learning to adjust to the new approach to attorney-client privilege in the United States. Ide and Hackett express fears that erosion of the privilege will make it more difficult for lawyers to give their clients advice on sensitive issues and on “the closest calls.”
The perverse implication, in Hackett’s view, is that companies seeking to comply with tougher laws governing their activities or to cooperate with government investigations will lose the benefit of receiving advice from counsel on how to “do the right thing.” “Most sophisticated clients at some level have resigned themselves to that,” says Hackett. “We’ll have to wait and see if there is a significant difference in the way clients do or don’t consult lawyers.”
The ABA’s endorsement of ethics rules that would make it easier for a lawyer from one state to do legal work in another state on a temporary basis signaled a growing recognition that it has become difficult to confine the practice of law to just one jurisdiction.
In the long run, however, the most significant aspect of the movement toward greater acceptance of multijurisdictional practice may be the recognition that it is becoming more difficult to confine the practice of law to just one country.
In October 2002, the ABA’s policy-making House of Delegates revised the Model Rules of Professional Conduct to allow a lawyer licensed and in good standing in one state to practice in another jurisdiction on a temporary basis in a number of circumstances. For example, a lawyer licensed in one state could temporarily practice in another when the work arises out of his or her practice in the first state. Or, the lawyer could temporarily practice in the second state if he or she affiliates with a lawyer licensed there who actively participates in the matter.
Since then, a steady procession of states, most of which pattern their lawyer ethics codes on the Model Rules, have initiated reviews of the ABA’s multijurisdictional practice provisions. By the end of 2004, more than half the states had initiated reviews of ethics rules on MJP. Of those, 13 have adopted the revised ABA model rules on MJP or a variation of them, and recommendations to do so are pending in another 12 states. So far, Connecticut is the only state that has voted against revising its MJP rules.
Giant Step for MJP
The MJP revisions “represented a giant step for the profession,” says New York University law professor Stephen Gillers. “It was a mature act because it put the needs of a national client base and the recognition that lawyers’ work does not stop at state borders above traditional parochial interests.”
But two states—Georgia and Pennsylvania—became the first to incorporate into their ethics codes the ABA’s proposed rules that identify circumstances under which lawyers from other countries may practice temporarily in the United States. They allow a foreign lawyer to practice temporarily in a U.S. jurisdiction for matters that:
• Are done in affiliation with a lawyer licensed in the jurisdiction who actively participates in the matter. • Are related to a proceeding heard by a foreign tribunal before which they are authorized to practice. • Are related to an alternative dispute resolution proceeding that is reasonably related to the foreign lawyer’s practice in a jurisdiction where he or she is licensed. • Are for a client with offices in the jurisdiction where the foreign lawyer is licensed. • Have a substantial connection with the jurisdiction where the foreign lawyer is licensed. • Are governed primarily by international law or the law of a foreign jurisdiction.
Changing the rules makes sense, says William P. Smith III, general counsel of the Georgia State Bar.
“The truth of the matter is that state boundaries are fast becoming irrelevant, and international boundaries are not that far behind,” says Smith. “There’s no way we can build a wall either around the state of Georgia or the United States to keep these people out. Rather than curse the dark, we need to light a lamp.”
Some experts suggest that the U.S. legal profession is moving toward such a light, thanks to the move by the United States in 1994 to join the World Trade Organization. In doing so, the United States also agreed to participate in GATS—the General Agreement on Trade in Services. GATS governs how each of the WTO’s nearly 150 member countries may regulate providers of services, including lawyers, from other countries.
The United States and other WTO member nations have begun developing proposed practice standards and discussing them in international meetings. Implementation could take place as early as this year.
The process raises particularly tricky issues in the United States, where the legal profession is regulated primarily at the state level. That means the U.S. standards will somehow have to accommodate the rules of practice, including admission and licensing, already in place in the states and the District of Columbia.
So far, those negotiations, which are being coordinated through the Office of the U.S. Trade Representative, don’t suggest that the federal government will seek to take lawyer regulation away from the states, says Laurel S. Terry, a professor at Penn State University’s Dickinson School of Law in Carlisle. She also is a vice chair of the Transnational Legal Practice Committee in the ABA Section of International Law and Practice.
But Terry envisions the possibility that, in maybe a decade or two, a WTO appellate body could have impact on the regulation of lawyers in the United States. There could, for instance, “be an appellate body decision that would find a particular practice inconsistent with GATS,” she says.
While the American legal profession is somewhat behind the curve in responding to GATS, says Terry, the ABA’s revised ethics rules on multijurisdictional practice relating to foreign lawyers are a good start toward catching up.
“One of the reasons why supreme courts and lawyer regulators might want to support them is that they regularize the practice,” says Terry. “To the extent that lawyers are coming in anyway, it gives them an opportunity not to be engaged in gray market matters.”
Moreover, says the Georgia bar’s Smith, the new rules add a measure of accountability. “I can’t protect the public if we don’t acknowledge the existence of a significant portion of the practice.”
Congress and the courts continue to struggle to find ways to equitably account for attorney fees when individuals or groups, who often have limited resources, seek to enforce their rights pursuant to federal or state law.
While lawyers certainly want to get paid for their work, the quandary over how to account for fees in rights enforcement cases is much more than a pocketbook issue for the legal profession. In many cases, it is a key factor in the decision by potential plaintiffs whether to seek to enforce their rights.
Much of the debate right now centers on the so-called “catalyst theory,” which says that plaintiffs may be awarded attorney fees if they prevail in lawsuits against government bodies that serve as catalysts for legislation or changes in law.
The problem is that there is widespread uncertainty right now about just what the catalyst theory means and when it should apply.
In the view of some experts, the U.S. Supreme Court pretty much killed off catalyst theory in 2001, when it decided Buckhannon Board & Home Care v. West Virginia Department of Health and Human Services, 532 U.S. 598.
In cases decided prior to Buckhannon, the Supreme Court had ruled that a “prevailing party” in litigation must actually achieve some sort of judgment or settlement in order to collect attorney fees.
In Buckhannon, the justices affirmed a decision by the 4th U.S. Circuit Court of Appeals rejecting $120,000 in fees for the lawyer who represented a group of nursing home residents who had sued to prevent their facility from being shut down under West Virginia law for violating fire codes. The state eventually changed the law, and the nursing home residents were allowed to stay, but the Richmond, Va.,-based 4th Circuit rejected their attorney’s fees on grounds that his work didn’t result in an “enforceable judgment.”
But other experts aren’t certain it’s time to bury catalyst theory.
“I’m pretty sure this will head back up to the Supreme Court,” says Mark I. Levy, who maintains a Supreme Court practice in Washington, D.C. “It’s not clear whether the Court meant [Buckhannon] to be a broad or a narrow decision.”
Clearing the Air on Prevailing
Some experts still see signs of life for the catalyst theory, as courts interpret statutes that provide for fees to be awarded to prevailing parties. At issue are how far a case needs to advance and the extent of actual court proceedings necessary for a party to qualify as “prevailing.”
“It’s clear when you get a judgment, you prevail,” says Arthur B. Spitzer, legal director of the ACLU of the National Capital Area in Washington, D.C.
Beyond that, however, things get foggy.
As Spitzer points out, most cases don’t go all the way to a judgment. More often, they result in settlements, many of which involve multiple parties represented by different attorneys, that raise questions about which counsel, if any, might qualify for fee awards. “I think it’s clear that a consent decree is enough,” says Spitzer. But based on recent decisions, he admits to some uncertainty about “what, if anything, less than a consent decree is enough to make a plaintiff a prevailing party.”
Meanwhile, some courts have departed from Buckhannon in their interpretations of statutes that contain fee shifting language rather than a prevailing party test for fee awards.
The 9th Circuit focused on the language differences when it upheld the catalyst theory in a case under the U.S. Endangered Species Act. The plaintiffs claimed that authorities with the U.S. Department of Commerce and National Marine Fisheries Service failed to conduct proper economic and environmental impact statements before enacting a final rule that protected steelhead trout and salmon. Association of California Water v. Evans, No. 03 15380 (Sept. 24, 2004).
The suit was mooted after a subsequent but related lawsuit by the National Association of Homebuilders was filed. That suit resulted in a consent decree in the District of Columbia.
Borrowing logic offered by the 11th Circuit in another case, the San Francisco-based 9th Circuit panel reasoned that the catalyst theory applies to statutes that allow courts to award litigation costs “whenever the court determines such award is appropriate.” Both circuits distinguished between the “whenever appropriate” standard and statutes such as the Americans With Disabilities Act and the Fair Housing Amendment Act that allow only a “prevailing party” to collect attorney fees.
“This issue is a very significant and live one,” says Levy, “contrary to the view of some at the time that Buckhannon applied broadly and rendered all of the fee shifting statutes a dead letter.”
Spitzer says Congress might be in the best position to offer a resolution by clarifying its intent on whether the plaintiff in a case that serves as a catalyst for changes in the law qualifies as a prevailing party entitled to fees. But he sees no indication at this time that federal legislators are in any hurry to address the issue.
Relief from Double Taxation
At the end of 2004, Congress did take at least an initial step toward resolving another attorney fee issue when it included the Civil Rights Tax Relief Act in a larger tax bill, the American Jobs Creation Act.
The law, signed by President Bush in October, relieves plaintiffs who reach settlements or win court awards in an array of federal and state civil rights actions from having to pay taxes on the portion of their awards that comprise attorney fees. Actions covered by the provision include cases alleging discrimination on the basis of race, sex or age. The provision also applies to actions for housing discrimination, wage-and-hour issues, ERISA benefits and whistle-blower laws.
Previously, a prevailing plaintiff was taxed on the entire amount of his or her award, including the portion that was paid in legal fees. Because the attorney was also required to pay tax on that amount, it amounted to a form of double taxation.
In this Supreme Court term, the justices already have heard arguments in two cases that have been combined on whether a taxpayer’s gross income from the proceeds of litigation includes the portion of damages paid to the taxpayer’s attorneys under a contingent fee agreement. The cases are Commissioner v. Banks, No. 03 0892, and Commissioner v. Banaitis, No. 03 0907.
It’s nothing really new to hear court administrators and judges plea for more money from legislatures to maintain operations. But some courts recently have imposed drastic cost cutting steps, adding urgency to the pleas.
The Oregon courts have perhaps been hit the hardest by budgetary woes. In 2002, the state closed courts on Fridays and slashed 25 percent off its employee roster. Oregon court administration special counsel Bradd Swank says he sees a light at the end of the tunnel, but isn’t expecting miracles in 2005.
“We weren’t funded anywhere near a level that would have allowed us to perform where we were before,” says Swank.
Oregon still has trouble funding indigent defense and is looking at pushing back cases on the docket by six months or so while funding and staffing levels remain low. Swank says the courts have been getting by, but it’s disappointing not to be able to invest in high tech solutions that could create greater efficiencies and cost the courts less in the long run. “We’ve sort of come near the end of our creative solutions,” Swank says. “Efficiency involves investment.”
Courts in Crisis
While the situation in Oregon is perhaps more serious than in other places, it pretty much reflects the financial concerns of court systems at both the state and federal levels. The courthouses are open for business, but budgets remain tight in 2005. State and federal courts are still operating in crisis mode, and threats of service cuts, staff reductions and furloughs have court administrators looking for creative ways to make do with the funding they have.
Daniel J. Hall, who tracks economic issues for the National Center for State Courts, is optimistic—sort of.
“It looks like things have hit bottom and are beginning to climb back up,” says Hall, who is vice president of the center’s Court Consulting Division in Denver. Yet 42 percent of court administrators surveyed in late 2004 said their budgets are inadequate, he says.
The short-term financial picture for the federal courts isn’t much better than at the state level. Even if Congress funds the courts at current levels, administrators say they are looking at layoffs and service cuts to make up for any shortfalls.
Last year, the federal courts had to reduce staff by 1,000 positions. Barring a major infusion of funding by Congress, the courts will have to cut another 2,000 to 4,000 positions in the next fiscal cycle, according to Carolyn D. King, chief judge of the New Orleans-based 5th U.S. Circuit Court of Appeals. She chairs the executive committee of the U.S. Judicial Conference.
It’s not that Congress is unsympathetic to the financial plight of the courts, says King, but “with the [federal] deficit the way it is, there’s just not enough money to go around.” As of mid-November, the federal courts were still in a holding pattern, waiting for Congress to act, hoping to get a funding increase that would cover current expenses and the courts’ ever increasing workload.
The catch, of course, is that the courts can’t shut down entirely, says King. “We have to keep the courts open,” she says. “There’s not the option of simply cutting our workload.” Nevertheless, she adds, “For us to try to operate at last year’s funding is going to be tough. We can’t provide what we are expected to provide at those levels.”
A Child-Safe Internet
Efforts to reconcile first Amendment rights on the Internet with measures to keep children from viewing pornographic Web sites failed to produce a resolution during the past year.
Whether the courts, government regulators and advocacy groups on various sides of the issue get any closer to a solution during 2005 remains to be seen. But the coming months could see important developments.
“These issues never seem to go away,” says Ann Beeson, associate legal director for the ACLU in New York City. She is preparing for the next round of legal battles over the constitutionality of the Child Online Protection Act.
In another of its ongoing efforts to bring some regulatory controls to the Internet, Congress enacted COPA in 1998. The law imposes fines and imprisonment for persons who post content on the Internet for commercial purposes that is harmful to minors. But the law also provides an affirmative defense to commercial Web site operators who require the use of credit cards as a form of identification to visit their sites.
Legal challenges were filed against COPA on grounds that it was not the least-restrictive means available to the government to shield children from pornographic images on the Internet. In 1999, the U.S. district court in Philadelphia issued an injunction preventing the government from enforcing COPA. The 3rd U.S. Circuit Court of Appeals upheld the injunction.
On June 29, the Supreme Court affirmed the injunction in a 5-4 decision in which the majority expressed reservations about whether the government will be able to prove at trial that COPA employs the least restrictive means to regulate access by minors to pornographic sites on the Internet.
The ACLU’S Beeson is resigned to further proceedings. “While I feel pretty confident, we’re going to have to go through all these motions again,” she says.
But some COPA advocates are start ing to express frustration at the lengthy, and so far largely futile, efforts to impose a regulatory framework on the freewheeling Internet. David Crane, senior vice president of the Washington Group, had a hand in drafting both COPA and a predecessor, the Communications Decency Act, which the Supreme Court struck down in 1997. Later efforts to recast that act using language suggested by the justices themselves still have failed to pass muster with the courts.
Drafting legislation to put limits on the Internet is “like shooting at a moving target,” says Crane, but he expects the formula will evolve eventually into a law that satisfies the courts. “While there certainly was an element of social conservatism that was driving these issues,” he says, “when you look at the votes [on the measures in Congress], they were overwhelmingly bipartisan. Everyone is concerned about the welfare of their children.”
On a related front, many of the Justice Department’s obscenity prosecutions are on hold until the government’s criminal case against Los Angeles based Extreme Associates is resolved. Justice brought charges in U.S. district court in Pennsylvania after investigators ordered sexually explicit films, depicting rape and murder scenarios, from the company via mail and over the Internet.
Elsewhere, New York City fetish artist Barbara Nitke has teamed with the National Coalition for Sexual Freedom to challenge what’s left of the Communications Decency Act, in Nitke v. Ashcroft, No. 01 CIV. 11476. A district court panel is expected to rule this year on whether those provisions still standing after earlier challenges to the act are constitutional.
A primary issue in both cases is whether the entire Internet can be censored by the community with the highest decency standards. So far, the Supreme Court hasn’t figured out a way to apply community standards to the Internet.
New York lawyer John Wirenius, who represents the plaintiffs in Nitke, maintains that the definition of obscenity, traditionally in the purview of a local community, should not apply to the Internet, especially if the most conservative local community gets to set the standard. He expects the justices to adopt either a cyber-zoning strategy with Internet specific community standards or set a national community standard. Wirenius doesn’t like either option, but says they are more likely scenarios than keeping the Internet subject to his preference, the most liberal community standard.
Right now, says Wirenius, the Internet is a “great equalizer” and “the way to keep free speech vibrant in this new age.” That would disappear, he says, “if we allow the Internet to become an area where government dictates what’s said.”
Drug Goes Bust
Pharmaceutical giant Merck & Co. last year voluntarily recalled Vioxx, one of its most popular products, after clinical trials revealed that the drug used primarily to relieve arthritis pain increases the risk of heart attacks and strokes. Now, both plaintiff and defense lawyers are mobilizing for the expected flood of class actions, product liability suits and possibly even a congressional investigation.
Much of the reason for all the interest is that Vioxx was a general purpose drug used by millions of people around the world, says Todd Smith of Chicago, who is president of the Association of Trial Lawyers of America.
Since the Food and Drug Administration approved Vioxx in 1999, Merck has sold it in more than 80 countries, pulling in $2.5 billion in sales in 2003.
Lawyers also are starting to look more closely at possible harmful effects of similar drugs, including Pfizer’s Celebrex.
Smith says the Vioxx cases will likely differ from suits against manufacturers of such products as the diet drug Fen Phen because those cases occurred in the context of a higher assumption that a person knew there were risks involved in using drugs to diet. Similar issues arise with birth control drugs and devices, he says.
But Mobile, Ala., defense lawyer Ed Sledge says, “There is no absolutely safe drug. They all have risks involved.”
Sledge says the Vioxx cases are merely the latest mutation of mass tort litigation, which has gained a foothold in the pharmaceutical and medical device industry over the last four years. Yet he says he is optimistic about possible defenses, primarily because the “vast majority” of claimants don’t have an injury to report.
“A lot of the claims are based on thin scientific evidence,” says Sledge, who serves as vice chair of the Drug and Medical Device Committee for Chicago-based DRI, a national defense bar association. “The issue of science, lack of injury and causation are great opportunities for the defense bar.”
Smith wonders whether the Vioxx controversy will raise questions about the FDA’s process for approving drugs, especially the extent to which it relies on self-reporting by the industry. One problem, he says, is that if the industry is not completely candid, the FDA cannot do much about it.
“There has to be somebody out there keeping an eye on what’s going on,” Smith says. “The courthouse should be down the list for regulation purposes.”
Molly McDonough is a legal affairs writer for the ABA Journal.