Extract from E. Norman Veasey, "The New Model Rules of Professional Conduct, the Ethics 2000 Recommendations, Congressional Activity and Concerns Over Federalism,"
The Bencher (Nov./Dec. 2002) pages 15-18.
(The 24-page issue is posted at American Inns of Court website in Adobe Acrobat PDF.)
Rule 1.6
There has always been a tension between the “core value” of the profession in keeping inviolate the client’s confidences and the need to deal with situations where the lawyer knows of a client fraud and reasonably believes it necessary to take some action to protect the corporation, investors, third parties or the legal system from substantial harm. The most provocative debate in the House was over the commission’s proposed 1.6(b)(2) that would permit, but not require, the disclosure of client information to the extent the lawyer reasonably believes necessary to prevent client crimes or frauds that are reasonably certain to cause substantial economic injury, and in furtherance of which the lawyer’s services have been used. The commission’s proposal, however, was rejected by the ABA House.
When the Model Rules were first adopted in 1983 there was no provision permitting disclosure under any circumstances of a client’s financial crime, although the Kutak Commission had recommended a reasonable proposal similar to the Ethics 2000 proposal. Yet, forty-one jurisdictions have departed from the 1983 Model Rules and now permit or require disclosure of a client confidence to prevent the client from perpetrating a fraud that constitutes a crime. As a result of the House action rejecting the Ethics 2000 proposals, there continues to be no such anti-crime or anti-fraud provision in Model Rule 1.6. The Model Rule now in effect permits disclosure only when reasonably necessary to prevent reasonably certain death or substantial bodily harm, to enable the lawyer to obtain legal advice about the lawyer’s ethical responsibilities or in response to a court order.
The Commission’s proposed Rule 1.6(b)(2) and its companion Rule 1.6(b)(3) to prevent, mitigate or rectify fraud damage is even more limited than the rules in most of the states in permitting or requiring disclosure. In light of the public expectations of lawyers’ responsibilities in today’s corporate environment, and the rules in these forty-one jurisdictions, the ABA House vote rejecting the Ethics 2000 Commission’s reasonable and balanced anti-fraud proposals was a serious mistake, in my view. Significantly, the Conference of Chief Justices, at its Annual Meeting on August 1, 2002, unanimously expressed its support for the Ethics 2000 proposed Rules 1.6(b)(2) and 1.6(b)(3). I think it highly unlikely that the 41 states referred to would turn back the clock to eliminate the disclosure now permitted in their states, and I hope the ABA will eventually adopt a curative amendment to Model Rule 1.6.Multifaceted Issues of Ethics Regulation and Federalism
In today’s tense economic and ethics environment, the issues are not only complex, but also they cut across the legal profession at several levels. If one focuses only on the lawyer for the corporate entity, these tensions become palpable. In my opinion, a proper reading of Model Rule 1.13 makes it clear that in the serious corporate fraud case the lawyer must act promptly to prevent the fraud by going up the chain of command to the board of directors if necessary. In most instances the lawyer representing the corporation who successfully goes up the Rule 1.13 chain of command and stops the malfeasance, or whose “noisy withdrawal” permitted by Rules 1.6 and 1.16 sends up red flags for the world to see, will have avoided the need to disclose his client’s confidences outside the organization.
The Ethics 2000 proposed Rule 1.6(b)(2), like the existing rules in 80% of the states, accomplishes at least three ends: (a) it gives the corporate lawyer leverage to force a satisfactory intra-corporate remedy or prevention while using Rule 1.13; (b) it is the ultimate resource if the highest authority in the entity thumbs its corporate nose at the lawyer; and (c) it brings the ABA in line with those 41 states and the expectations of the public.
Finally, there is the federalism dimension. Model Rule 1.13 already requires internal reporting of serious fraud within the corporation. Whether or not that Model Rule needs “strengthening” is debatable. Federal rules in this area are problematic for several reasons, including some troubling drafting problems in the Act and a potential threat to principles of federalism. It is important that the SEC rules called for in the legislation clarify and limit the many drafting and federalism problems raised by the Act.Conclusion
Ethics 2000 has set the table for a new era in professional responsibility. Most state supreme courts are conducting a review of their ethics rules in this new environment. Sarbanes-Oxley implicates a tilt to some limited federal regulation of lawyers. It is my hope that the tilt can be contained. We await the SEC rules as we also await action by state supreme courts.