Your ABA

Losing Streak

D.C. Circuit Rules Lawyers Should Not Be Regulated as ‘Financial Institutions’

Posted Feb 22, 2006 3:07 AM CDT
By Terry Carter

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After a U.S. court of appeals ruling in December, only the U.S. Supreme Court can now save the Federal Trade Commission’s attempt to regulate lawyers and other professionals as “financial institutions.”

Shortly after the U.S. Court of Appeals for the District of Columbia Circuit struck down the FTC’s regulation Dec. 6, an FTC spokeswoman said the commission had not decided whether to ask the solicitor general to seek review by the Supreme Court.

But if the government does decide to take another swing at saving the regulation, it will be on a count of 0-2 .

The appellate court’s ruling, which affirmed an earlier district court decision, came in a consolidated lawsuit by the ABA and the New York State Bar Association. The bars sued the FTC over its decision in 2001 to consider lawyers financial institutions, triggering a requirement that they send privacy disclosure notices to clients.

The FTC came up with the regulation under its interpretation of the Gramm-Leach-Bliley Act of 1999, which knocked down strictures prohibiting banking, securities and insurance companies from existing together under the same corporate umbrellas.

The ABA and other opponents of the regulation said it would impose an unnecessary burden on lawyers and law firms because they already are bound by strict ethics rules in such matters.

In a rebuke to what it called the agency’s “attempted turf expansion,” the D.C. Circuit did not bother with a discussion of lawyer client privilege and state-by-state regulation of the profession. Instead, the opinion pored over every jot and tittle in the statute itself to see if it squeezed lawyers into one of the definitions of a financial institution. ABA v. FTC, No. 04-5257.

The court found nothing of the kind and borrowed the words of Justice Antonin Scalia in a Supreme Court decision to point out that Congress does not “hide elephants in mouseholes.”

The ruling was issued by a three-judge panel that included now-Chief Justice John Roberts. He did not take part in the ruling, which was decided by the two remaining judges, Douglas H. Ginsburg and David B. Sentelle, who wrote the opinion.

“To find this interpretation deference-worthy,” Sentelle wrote, “we would have to conclude that Congress not only had hidden a rather large elephant in a rather obscure mousehole, but had buried the ambiguity in which the pachyderm lurks beneath an incredibly deep mound of specificity, none of which bears the footprints of the beast or any indication that Congress even suspected its presence.”

Feelings of Vindication

“It’s interesting how in a not-too-subtle way, the court spent six pages in a footnote laying out much of the statute itself on definitions of financial institutions,” says David L. Roll, a Washington, D.C, lawyer who represented the ABA. “The court said, ‘Look, this just doesn’t fit. It’s not in there.’ ”

Friend-of-the-court briefs were filed by 52 state and local bar associations and the Conference of Chief Justices.

“I feel vindicated personally,” says Manhattan lawyer Steven C. Krane, a past president of the New York bar who represented the group in the FTC lawsuit. He also was a member of the ABA’s Task Force on Gramm-Leach-Bliley. Krane pushed for the New York bar to challenge the FTC immediately and was involved in discussions that brought the ABA into the matter soon after.

In a prepared statement, ABA President Michael S. Greco of Boston said, “This ruling underscores that for more than two centuries, we have rightly relied on state supreme courts to exercise responsibility for oversight in order to protect and safeguard the confidentiality of attorney-client communications and the public interest.”

Other groups like the results of the efforts by the ABA and the New York bar. The American Institute of Certified Public Accountants considered joining the suit but decided to let the legal profession go it alone initially, says general counsel Richard Miller. Now, he says of the ruling, “We think it should apply to us.”

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