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ABA opens door for lawyers to tell – Rules favor stopping corporate fraud over client confidentiality
The policy-making board of the American Bar Association, meeting in San Francisco, narrowly approved a new rule Monday that allows attorneys to blow the whistle on corporate clients suspected of financial malfeasance.
Matthew Yi, Chronicle Staff Writer
Opponents of the new measure argued that the rules undermine one of their profession’s most sacred ethical standards: attorney-client confidentiality.
But proponents countered that public good sometimes outweighs such values, especially in the post-Enron era where corporate fraud has financially devastated thousands of investors.
Monday’s vote was a reversal for the ABA, which two years ago struck down a similar proposal.
Times have changed, said James Cheek, a lawyer from Tennessee who led the ABA’s Task Force on Corporate Responsibility that made the recommendations.
"The task force believes the world is very different today than January 2001," Cheek said Monday, referring to high-profile corporate shenanigans by such companies as Tyco and WorldCom.
Speaking before delegates at the ABA’s annual meeting at Moscone Center, Cheek argued that 42 states (California not included) already have similar rules where attorneys are either authorized or required by law to report a client’s planned financial wrongdoing.
He also noted Congress has already taken action by passing the Sarbanes- Oxley Act, which includes a requirement that lawyers of publicly traded companies report suspected securities fraud up the corporate ladder to the board of directors.
But delegate Lawrence Fox, a Pennsylvania lawyer, argued that the ABA needs to be the "beacon of confidentiality."
"Our profession is under attack," he told his colleagues. "This is not the ABA’s response to Enron, but a rehash of old (proposals)." After a 90-minute debate, the delegates voted 218-201 to pass the new rule.
Until Monday, ABA’s standards required attorneys to keep their clients’ confidence except to prevent crimes that threaten death or serious injury.
While ABA’s rules are not law, they are influential in shaping state rules and regulations.
Nanci Clarence, a San Francisco criminal defense lawyer, wasn’t at the meeting but said she is concerned that attorney-client confidence will erode.
"I think our system is an adversarial legal system and its survival depends on clients being able to come to attorneys with confidence. The erosion of that confidence undermines that entire system," she said.
The measures could also make her job as a defense attorney more difficult, she said.
"If a client is worried about how much to say, it’s hard for them to come forward with everything," Clarence said.
Rory Little, a professor at the University of California’s Hastings College of the Law, said ABA’s vote is long overdue.
"The ABA is, frankly in my perspective, just waking up and smelling the coffee," he said. "But I think it’s a healthy move by the ABA."
Little, who did not attend the session, said he thinks the argument that the rules will erode the attorney-client privilege is an exaggeration.
"I don’t think it’s an earth-shattering blow to the attorney-client confidentiality," he said, predicting that the new rule will probably not come into play very often.
It’s unclear how much impact the new rules will have in California, Little said.
While an 1878 state law makes it clear lawyers need to maintain strict confidences with the client, there have been a few court decisions that found exceptions to that rule, Little said.
The ABA is set to consider another proposed change today that seeks to clarify when corporate attorneys should report wrongdoing up the corporate ladder and when to go to authorities.
Guideline changes Some changes in ethics guidelines considered by the American Bar Association in light of financial scandals: — An exception to the rule that discussions between a lawyer and a client are private, allowing lawyers to ethically reveal information to prevent their clients from committing a crime. — A rule that gives corporate lawyers leeway when reporting wrongdoing up the chain of command. Source: Associated Press
E-mail Matthew Yi at [email protected].
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