Posted Jan 01, 2004 06:44 am CST
Recently, the lawyer’s duty to report wrongdoing by clients has gained greater attention in the wake of corporate scandals and the passage of federal legislation–primarily the Sarbanes-Oxley Act of 2002–aimed at bringing corporate wrongdoing under some measure of control.
Sarbanes-Oxley provided for tougher regulations issued by the U.S. Securities and Exchange Commission that require lawyers representing a corporation to report “up the ladder” when they learn of internal violations of securities and related laws that may harm the corporation or investors.
Soon after those regulations took effect last summer, the ABA’s policy-making House of Delegates changed key provisions in the Model Rules of Professional Conduct regarding a lawyer’s duties to report wrongdoing, particularly in the corporate setting. (The Model Rules serve as the basis for the majority of state codes of professional conduct for lawyers.)
The revisions to Model Rules 1.6 (Confidentiality of Information) and 1.13 (Organization as Client) generally give lawyers more leeway to report wrongdoing by officers or employees of companies they represent. Many states already follow rules incorporating provisions of the revised Model Rules.
In the articles that follow, experts on professional conduct issues discuss the impact of these and other revisions to the ABA Model Rules that are intended to help sort out a lawyer’s duties to clients, as well as other individuals and entities, and when those duties are triggered. In particular, the articles focus on issues that arise in creating the client-attorney relationship, and for lawyers working in corporate, government and insurance defense settings.
New Ethics Rule Provides Guidance on a Lawyer’s Duty to Prospective Clients
The consensus in U.S. jurisdictions is that the creation of a lawyer-client relationship entitles the client to the full panoply of protections under professional conduct rules. Chief among these are the lawyer’s obligations to represent the client competently, to protect the confidentiality of all information relating to the representation and to avoid impermissible conflicts of interest.
The ethics rules are not so clear, however, in the case of a person who contacts a lawyer to discuss the possibility of hiring the lawyer but never actually forms the client- lawyer relationship.
A new rule that addresses duties to a prospective client was adopted in 2002 as part of a package of revisions to the ABA Model Rules of Professional Conduct developed by the Ethics 2000 Commission. But even under the new rule, a lawyer’s duties depend on whether that person is a prospective client or just a prospective client “wannabe.” Until the ABA’s House of Delegates adopted Rule 1.18 (Duties to Prospective Client), the ABA Model Rules contained no reference to prospective clients.
Nevertheless, it was well-understood that a lawyer’s duty of confidentiality typically extended to prospective clients. It was less clear how conflict-of-interest rules applied to would-be clients. Moreover, with the increasing use of e-mails and fax machines, it was unclear whether unsolicited communications to a lawyer might force the lawyer to assume duties adverse to an existing client.
In the absence of ethics rules specific to would-be clients, the courts often reached different conclusions on whether a client-lawyer relationship existed on the basis of very similar fact patterns.
Rule 1.18 confirms that, even when no client-lawyer relationship is formed, “A lawyer who has had discussions with a prospective client shall not use or reveal information learned in the consultation except as Rule 1.9 [Duties to Former Clients] would permit with respect to information of a former client.” (Rule 1.9 prohibits a lawyer from using information relating to the representation of a former client to that party’s disadvantage until the information has become generally known.)
As for conflicts of interest, Rule 1.18 imposes duties on the lawyer that offer substantial protection to the prospective client. Unlike the approach that Rule 1.9 takes toward duties to former clients, however, Rule 1.18 provides greater flexibility for the lawyer. For example, a lawyer who had discussions with a prospective client is disqualified from a subsequent representation that is adverse to the prospective client only when “the lawyer received information from the prospective client that could be significantly harmful to the person in the matter.”
Similarly, a conflict of interest is imputed to other lawyers in the law firm unless the lawyer who received the information took steps to minimize the receipt of confidential information and is screened in a timely and appropriate manner. Of course, as with former clients, adverse representation by either the lawyer or the firm is permissible if the appropriate parties give their informed consent.
But what about the prospective client “wannabe” who sends significant information by e-mail or fax to an unsuspecting lawyer? Recognizing that possibility, Rule 1.18 defines a prospective client as “a person who discusses with a lawyer the possibility of forming a client-lawyer relationship.” The comment to the rule clarifies that a person who communicates unilaterally with a lawyer must have a “reasonable expectation that the lawyer is willing to discuss the possibility of forming a client-lawyer relationship” to qualify as a “prospective client.”
To avoid incurring unwanted obligations to prospective clients, lawyers should either discourage unilateral e-mails and faxes or urge would-be clients to avoid communicating sensitive information until the lawyer has done a conflicts check. These precautions can be taken both in gen- eral advertising and on the lawyer’s Web site.
Nancy J. Moore is a professor at Boston University School of Law. She served as chief reporter to the ABA Commission on the Evaluation of the Model Rules of Professional Conduct, known as the Ethics 2000 Commission.
Rules on Reporting Corporate Wrongdoing Impose New Duties on Lawyers
Ethics rules offer a deceptively simple answer to the question of who the client really is when a lawyer represents a corporation.
Rule 1.13 of the ABA Model Rules of Professional Conduct, for instance, states: “A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.” If only it were that simple.
This so-called “entity theory” works well enough in run-of-the-mill matters, but it just isn’t adequate to cover all circumstances of corporate representation.
One example of these difficulties is the close corporation where different lawyers represent separate stockholder interests and one of the lawyers also represents the corporation. When conflicts of interest are apparent, informed consent of each affected client under Model Rule 1.7 (Conflict of Interest: Current Clients) is required to permit the same lawyer to represent adverse interests. For the clients’ consent to be effective, however, the lawyer also must reasonably believe he or she can provide “competent and diligent” representation to each of the clients and the representation must not involve asserting one client’s claim against another in the same litigation.
Lawyers also must reassess who it is they represent when control of the corporation changes.
Recent corporate scandals put a new focus on the duties of a lawyer representing a company when wrongdoing occurs. In August, the ABA House of Delegates adopted key amendments to Model Rules 1.13 (Organization as Client) and 1.6 (Confidentiality of Information).
As amended, Model Rule 1.13 states that a lawyer must report wrongdoing by a corporate official that is likely to substantially injure the corporation to higher authority within the corporation, including to the highest authority legally authorized to act for the corporation on the matter.
If the highest authority fails to address appropriately an official’s clear violation of law, the lawyer is permitted under revised Model Rule 1.13 to report confidential information outside the corporation, but only to the extent reasonably believed necessary to prevent substantial injury to the corporation.
The Sarbanes-Oxley Act of 2002 and rules issued by the Securities and Exchange Commission pursuant to it also may govern the responsibilities of lawyers who represent “issuers” (generally, publicly owned corporations and those about to become so). First, a lawyer representing an issuer in a securities matter must report evidence of a material violation of securities law (and certain other violations) “up the ladder,” if necessary, to a committee of independent directors or the board, similar to the Model Rule 1.13 requirements. Second, the SEC rules–like Model Rule 1.6–permit (but do not require) a lawyer to report information outside the corporation if, among other things, the lawyer does not receive an appropriate internal response.
Proposed SEC rules would require lawyers to make an immediate “noisy withdrawal” representing a public corporation when corporate officials do not appropriately address reported material violations. This change would raise additional conflicts issues. Nearly as problematic is an alternative proposal that would require the lawyer to withdraw and the corporation (but not the lawyer) to disclose the withdrawal.
Both proposals require lawyers to give undue weight to the interests of the investing public, even when they conflict with the interests of the corporation as a whole and current stockholders. Traditionally, lawyers must withdraw from representing clients when continuing to do so would assist a client’s crime or fraud, or a corporate official’s breach of fiduciary duty.
The SEC’s more rigid withdrawal mandate creates such potentially serious liabilities for lawyers that concern for themselves may interfere with their exercise of independent professional judgment when advising the corporation on close compliance questions. Lawyers representing corporations must take care in determining who is actually the client. Lawyers also must remain alert to changed circumstances that alter their representational obligations.
M. Peter Moser of Baltimore chairs the ABA Task Force on Section 307 of Sarbanes-Oxley. He is a past chair of the ABA Standing Committee on Ethics and Professional Responsibility.
The Relationship Between Insurers, Insureds and Defense Lawyers Can Become Cloudy
Insurance liability claims occur so frequently that one would think all the underlying legal and ethics issues involved in defending them would have been resolved long ago. But that isn’t the case.
Here is a typical scenario: Blue car and red car collide. Driver of blue car sues driver of red car. Red car driver’s insurance company retains a lawyer to defend the lawsuit.
Most often, the defense lawyer takes direction from the insurance company and settles the lawsuit to the mutual satisfaction of the insurance company and its insured driver. More than 90 percent of auto liability lawsuits are settled without a trial, and almost never using the insured driver’s money.
Nevertheless, courts and scholars continue to grapple with a most fundamental question: Whom does the defense lawyer actually represent? Is it only the driver or is it also the insurance company?
While the complexities of this “tripartite” or “triangular” relationship have not been definitively resolved, it’s probably because there has been little controversy in the way liability suits are currently handled. Meanwhile, however, legal theorists struggle over whether that which works in practice also works in theory.
Most insurance defense lawyers warn against tinkering with practices that seem to have worked well for decades. In counterpoint, ethics scholars question whether such long-standing practices square fully with modern ethical rules. And they are reluctant to fashion special rules that would distinguish insurance companies from other third-party payors.
Both camps agree, however, that whether a lawyer-client relationship exists is a question of substantive law rather than legal ethics. Only when the legal status of the relationship has been defined do ethics issues crystallize.
There is general agreement on one aspect of the relationship: The insured is a client of the lawyer. Accordingly, the lawyer owes to the insured undivided loyalty and all of the other duties that flow from lawyers to their clients. But at this point the road divides.
a few judicial opinions conclude that the insured is the lawyer’s only client or require parties to give special consent to dual representation of both insured and insurer. Most decisions, however, have found that, absent a conflict of interest, the lawyer ordinarily represents both the insured and the insurance company. (Some qualify this by saying the insured is the “primary” client.)
But many jurisdictions leave the issue of “single” versus “dual” representation hopelessly muddled.
Jurisdictions that have adopted the single-client view must wrestle with a number of related questions. If, for example, the insurance company is not a client of the lawyer:
• Are the communications between the company and the lawyer protected if the plaintiff seeks discovery?
• Does the insurance company have the legal right to direct the lawyer’s activity?
• Does the insurance company, which paid the lawyer’s fees and the judgment against the insured, have a remedy for the lawyer’s malpractice?
And regardless of whether the jurisdiction recognizes the insurance company as a client, insurance defense lawyers should inform insureds about the relationship in accordance with Rule 1.4 (Communication) of the ABA Model Rules of Professional Conduct, avoid conflicts of interest proscribed by Rule 1.7 (Conflict of Interest: Current Clients), and abide by Rule 1.8. Under subparagraph 1.8(f), a lawyer may not accept compensation from an insurance company to represent its insured unless the lawyer exercises independent professional judgment on be- half of the insured, protects the insured’s confidences, and obtains the insured’s informed consent.
Even if the practical aspects of handling insurance liability appear to be settled, defense lawyers must recognize that even the most elementary red car/blue car cases require more than an assessment of liability and damages. From the moment the insurance company asks the lawyer to defend a lawsuit, the lawyer has to consider ethical obligations and to whom they are owed.
Michael E. “Buck” Bragg is associate general counsel at State Farm Insurance Co. in Bloomington, Ill. He is a member of the ABA Standing Committee on Ethics and Professional Responsibility.
Government Lawyers Must Distinguish Their Duties from the Obligations of Clients
In the 20 years I worked for the federal government, I never really figured out who my client was.
At first, I didn’t think much about the issue, being concerned mostly about getting along with the people who supervised me. But later on, in policy and management positions, I struggled with it almost daily. I remember feeling a little irritated by assertions (usually by people who had never been in government) that the government lawyer’s client is the general public.
I found it particularly hard to reconcile my duties to the client (whoever it was) under legal ethics rules with the statutory duties imposed on me as a government employee. Looking back, I can see that my difficulty was in confusing the ethics obligations of a government lawyer with the legal obligations of a government client. This confusion, unfortunately memorialized in the scope section of the ABA Model Rules of Professional Conduct, is a common source of trouble for government lawyers. The tendency to blur roles in public sector lawyering causes particular problems in deciding whether to disclose confidential information, how to resolve conflicts of interest, and what latitude government lawyers have to bring personal values to bear on their work.
Government lawyers are not their own clients. Like all lawyers, they have an ethical duty to maintain a certain distance from their clients. And, like lawyers in the private sector, they have an ethical duty to know who the client is.
Under Rule 1.13 (Organization as Client) of the ABA Model Rules of Professional Conduct, the process of identifying the client begins and ends with a legal question: “Who has authority to speak for the client?” The U.S. Supreme Court approved this analytical approach to determining corporate clients in Garner v. Wolfenbarger, and the reasoning seems to apply as well to government.
Thus the government client can be found where the law commits the authority to determine the organization’s interest in a matter. In short, the identity of the government client is a matter of law independent of any ethics precept or evidentiary rule. A good illustration of this analytical approach–what professor Michael Stokes Paulsen has called the “government garner” test–comes from the litigation over the Clinton White House lawyers’ right to resist subpoenas from the Whitewater independent counsel.
In the end, the government lawyers who had advised the president and Mrs. Clinton were compelled to disclose information that had been given to them in expectation of confidence because, under the applicable statutory scheme, the independent counsel had the final authority to speak for the United States in that criminal matter. The confidences had been given to the White House lawyers in their capacity as government lawyers, and their obligation of confidentiality was controlled by the independent counsel, and not by the Clintons.
The “government garner” test permits efficient allocation of authority between lawyers and agency officials, and orderly decision-making processes within a government law office. It takes a certain burden of accountability off lawyers’ shoulders and puts it with the legally responsible government decision-makers.
The “government garner” approach is flexible enough to accommodate the special responsibilities of all government officials–including lawyers–to serve the public in accordance with their oaths of office. Yet it provides a constant reminder that government lawyers are bound by the same ethics norms as lawyers representing private clients in deciding how to conduct themselves in an adversary setting and in making choices on behalf of the government client. (If this implies a somewhat less exalted status for the government lawyer, it may also imply a somewhat more demanding view about how a private lawyer ought to behave.)
There are important ways in which a lawyer’s ethical obligations to a government client differ from those that lawyers owe to private clients, but these differences almost always derive from laws designed to protect the government client and not from legal ethics rules. (Rule 1.11 is the only ABA Model Rule that establishes a distinctive ethical standard for government lawyers, and it deals with a very limited set of issues that arise after the lawyer leaves government.)
Government lawyers must interpret their ethical responsibilities in light of statutes that compel (or forbid) disclosure, that create exceptions to the ordinary obligation to obey a supervisor’s directive, and that allocate decision-making authority outside the agency chain of command.
The superseding role of statutes is recognized in the commentary to Model Rule 1.13, which notes that a government lawyer “may have authority under applicable law to question [the conduct of government officials] more extensively than … a lawyer for a private organization under similar circumstances.” Thus, for example, sunshine and privacy laws may significantly rearrange the lawyer’s duties under Rule 1.6 (Confidentiality of Information), and national security may trump the lawyer’s duty under Rule 3.3 (Candor Toward the Tribunal) to inform the tribunal of a misrepresentation. Similarly, 28 U.S.C. § 516 gives Department of Justice lawyers authority to override the wishes of “client agency” officials in litigation. In practical effect, these laws simply override what would otherwise be the “government garner” result.
It is worth emphasizing that government lawyers operate under different ethics constraints only to the extent that the law specifically requires it, and not because they have some generalized “higher duty” toward their adversaries, tribunals or the public. Government clients may have a higher ethical duty to the public than a private corporate client would, and government lawyers may be obliged to advise them of it. But government lawyers, as lawyers, do not have that duty.
So before we blame the lawyers for the government policies they defend and the tactics they employ, we should think about who is really in charge of making decisions about such things. We need to focus our higher expectations on the government client, and let government lawyers find common ground with their private sector brothers and sisters. Identification of the government client is a civic duty for each of us.
Margaret Colgate Love of Washington, D.C., serves on the editorial board of the ABA/BNA Lawyers’ Manual on Professional Conduct. She is a past chair of the ABA Standing Committee on Ethics and Professional Responsibility, and she served on the ABA Commission on Evaluation of the Rules of Professional Conduct.