Public Corporations Ethics Outline
Confidentiality Owed to Existing and Former Clients (DONE)
1. Fundamental Tension
I. Lawyers owe a duty of confidentiality to their client which prohibits them from revealing information relating to their representation. But…
II. Lawyers also cannot assist a client in conduct the lawyer knows is criminal or fraudulent.
i. So when will an attorney’s silence facilitate a client’s illegal activity and when can an attorney break that silence?
2. Starting Point: Total Confidentiality
I. Rule 1.6(a) Confidentiality of Information
i. A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out representation or the disclosure is permitted by paragraph (b).
II. Why do we require confidentiality?
i. We place value in treating the criminally accused fairly
ii. Non-criminal consultation requires confidentiality because clients would withhold information that an attorney requires to perform their duties effectively.
3. When can that confidence be broken?
I. Rule 1.6(b) permits disclosure when attorney reasonable believes its necessary:
i. To prevent reasonably certain death or substantial bodily harm
ii. To prevent the client from committing a crime or fraud that is reasonable certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer’s service; or
iii. To prevent, mitigate, or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client’s commission of a crime or fraud in furtherance of which the client has used the lawyer’s services.
II. SEC 17 CFR 205.3(d)(2) likewise permits disclosure to the SEC to prevent or rectify significant financial harm by a client without their consent.
III. A Corporate Client
i. Problem with constituents
1. Corporate Voice: Because a corporation acts through constituents, the attorney must determine whether they are acting on behalf of or independent from the entity.
2. Rule 1.13(b) directs an attorney to “proceed as is reasonably necessary in the best interest of the organization,” including “referring the matter to the highest authority that can act on behalf of the organization as determined by applicable law.
3. SOX Section 307 directs an attorney to report first to CLO and CEO, and if appropriate action is not taken, to the audit committee or the BoD
4. SEC 17 CFR 205.3 directs an attorney to report up the ladder in an identical manner.
ii. Confidentiality within corporation (See section on Corp. Internal investigations)
1. Rule 1.13 cmt. 2
(a) a lawyer may not disclose to such constituents information relating to the representation except for disclosures explicitly or implicitly authorized by the organizational client in order to carry out the representation or as otherwise permitted by Rule 1.6.
4. What if your work is used for fraud or crime?
I. May withdraw
i. Model Rule 1.16(b)(2): If the client plans to use the attorney’s work to perpetrate a fraud, the ABA Model Rules permit the lawyer to withdraw from representation.
ii. Model Rule 1.16(b)(3): If the client has used the lawyers services to perpetrate a crime or fraud.
II. Must withdraw
i. Model Rule 1.16(a)(1): If continued representation will result in a violation of applicable law or ethical rules, the attorney must withdraw.
1. What Can’t the Lawyer Do in that Confidential Relationship?
a. Rule 1.2 Can’t Assist Client in Crime
a. (d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.
b. Why can't we help clients commit crimes?
1. There is a duty owed to society by attorneys to uphold the law.
2. But the attorney has the ability to discuss consequences of potentially illegal action. Encourages the client to seek advice and stay on the right side of the law.
Rule 1.4 Communicate These Limitations
(a) A lawyer shall:
(5) consult with the client about any relevant limitation on the lawyer's conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.
Why do lawyers have to explain?
· Attorneys have an affirmative duty to tell clients that the attorney can't do something because it is illegal or unethical.
· Clears any confusion around the legality or illegality of the desired course of conduct.
1. When Can/Must Lawyers Divulge Confidential Information?
a. Can Divulge: Rule 1.6 Confidentiality Of Information
(b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary:
(1) to prevent reasonably certain death or substantial bodily harm;
(2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services; (ability to rectify the wrongful use of the lawyer's services)
(3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services;
(4) to secure legal advice about the lawyer's compliance with these Rules;
(5) to establish a claim or defense on behalf of the lawyer in a controv
her a crime or fraud
b. Successor Council
i. If approached by successor council after ending representation for ethical reasons, best to restate the principle that you cannot discuss the reason for resignation without the client’s approval. Should put the attorney on notice to investigate further.
4. Additional Issues
a. Corporations and their constituents: Rule 1.13
i. The lawyer may not disclose to such constituents information relating to the representation except for disclosures explicitly or implicitly authorized by the organizational client in order to carry out the representation or as otherwise permitted by Rule 1.6.
ii. Remember, the corporation, not its employees or owners, is your client.
1) What must attorneys report to the SEC?
a) Lawyers must report up violation of the securities laws, first to general counsel, then to audit committee if insufficient response.
i) Adopted in 2002 after the financial scandals of Enron and WorldCom in SOX
ii) These parties instead of the CEO because of potential conflicts and incentives in place for them to hide the fraud. Or perhaps they are involved in the fraud.
iii) If neither of these respond appropriately and you believe the company is actually acting fraudulently, then you must withdraw and may report further up the chain to regulators or other authorities.
2) What happens if you don’t?
a) SEC can bar lawyers from doing SEC filings for:
i) Unethical or improper professional conduct or
ii) Willfully aiding and abetting the violation of the securities laws
3) So are attorneys more like auditors? SEC Commissioner: “in securities matters (other than those where advocacy is clearly proper) the attorney will have to function in a manner more akin to that of the auditors than to that of the advocate.” What are the implications?
a) Lawyers would probably be kept from information that would reveal to them that their client was engaging in illegal activity.
b) They may, however, have more incentive to report.
c) The difference between auditors and lawyers is that lawyers are fired all the time with little consequence. The firing of auditors indicates, especially to the stock market, that the company is likely engaging in illegal activity.
i) Company is required to disclose the termination of auditors
ii) Auditors are entitled to provide their side of the story if they don't agree with the reported reasoning of the company.
iii) Auditors are able to demand disclosure from their clients, rather than relying on trust.