[Link to the full 89-page report in PDF.]                                    [Link to the Task Force Web Site.

 [Link to ABA Press Release.]                                             [Link to Washington Post news story.]

Excerpt from  REPORT OF
THE AMERICAN BAR ASSOCIATION
TASK FORCE ON CORPORATE RESPONSIBILITY *
March 31, 2003 [released April 29, 2003]

* The views expressed herein have not been approved by the House of Delegates or the Board of Governors of the American Bar Association and, accordingly, should not be considered as representing the policy of the American Bar Association. [James H. Cheek, III, Chair of Task Force]

V.      RECOMMENDATIONS CONCERNING THE ROLE OF LAWYERS
          . . . . [The following excerpt is from page 47 through page 55.]

B. Confidentiality and its Limitations
1. Existing Law and Policy
          As many of those commenting on the Task Force’s Preliminary Report emphasized, the attorney-client relationship is one of trust and confidence, dependent upon strong recognition of the lawyer’s general duty to maintain the confidence of client information.84  It is a fundamental principle of the client-lawyer relationship that, except with the client’s informed consent, the lawyer must not reveal to third parties information relating to the representation.85 This principle underlies the trust that should be the keystone of the client-lawyer relationship. A client must feel free to seek legal assistance and to communicate fully and frankly with the client’s lawyer. Without such full and frank communication the lawyer will be unable to represent the client effectively. Many legal rules are complex and most are fact-specific in their application. Lawyers are better situated than non-lawyers to appreciate the effect of legal rules and to identify facts that determine whether a legal rule is applicable. Full disclosure by clients facilitates efficient presentation at trials and other proceedings and in a lawyer's advising functions.

          In the view of the Task Force, however, some commentators who emphasized the importance of trust and confidence in the attorney-client relationship have ignored exceptions to confidentiality principles that have developed to serve other policy purposes. Such exceptions are already well established in the Model Rules and in the lawyer disciplinary rules of most states. For example: 

  • Where a lawyer’s withdrawal from representation will not avoid continued assistance to a client’s crime or fraud, the lawyer may be required under the existing Model Rules to “disaffirm an opinion, document or affirmation or the like” previously given by the lawyer.86
  • Where a lawyer representing a client in an adjudicative proceeding knows that the client has testified falsely, the lawyer may be required, not merely permitted, to disclose the falsity to the tribunal, even if the result is the client’s loss of the case and a prosecution for perjury.87
  • To the extent reasonably believed to be necessary, the lawyer is allowed to disclose information relating to the representation of a client in order to establish a claim or defense in a case against the client, including an action seeking recovery of legal fees.88
  • The lawyer disciplinary rules of forty-one states permit a lawyer to disclose client information in order to prevent a client from perpetrating a fraud that constitutes a crime, and eighteen states permit such disclosure to rectify substantial loss resulting from client crime or fraud in which the client used the lawyer’s services.89
          All of these exceptions could be said to detract from the atmosphere of confidentiality conducive to clients’ disclosure of important information to their lawyers, yet these limitations exist and serve similarly important policy purposes, including the protection of the ultimate client or third parties, and the protection of the professional integrity of the lawyer. This balancing of competing policy interests represents a carefully developed system of lawyer regulation. The Task Force believes that the ABA and the legal profession must be mindful of these competing policies in reviewing the Model Rules as applicable to the lawyer for the organizational client as well as mindful of the potential for further regulatory intrusion into the critical domain of the attorney-client relationship.90

          The Model Rules’ treatment of the lawyer’s obligation of confidentiality is significantly out of step with the policy balance reflected in the rules of professional conduct in most of the states, in Section 67 of the RESTATEMENT THIRD, THE LAW GOVERNING LAWYERS,91 and in the recommendations of the ABA Commission on Evaluation of the Rules of Professional Conduct (“Ethics 2000 Commission”).92  The Task Force believes that this inconsistency has become increasingly dissonant in the last year, as public opinion has demanded that lawyers play a greater role in promoting corporate responsibility.93

2. Conforming Model Rule 1.6 to Existing Law and Policy
          The Task Force therefore recommends that Model Rule 1.6(b) be amended, as proposed by the Ethics 2000 Commission, to provide that:
          (b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary: … 
          (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; [and] 

          (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; … . 

          The Task Force believes that the interest of society, and the bar, in assuring that a lawyer’s services are not used by a client in the furtherance of a crime or a fraud justifies an exception to the important principle of confidentiality, as most states have recognized. The importance of protecting both society and the bar from the consequences of a client’s misuse of the lawyer’s services in the furtherance of a serious crime or fraud must be balanced against the importance to the client-lawyer relationship of the principle of confidentiality.94 [Emphasis added.]

          The Model Rules leave no room for doubt as to whether a lawyer may permit his services to be used by a client for criminal or fraudulent activity. Model Rule 1.2(d) provides that a lawyer “shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.” And Model Rule 4.1 provides that, in the course of representing a client, a lawyer “shall not knowingly . . . make a false statement of material fact or law to a third person,” and that a lawyer shall not knowingly “fail to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client.” But what if the client has misled the lawyer, leading the lawyer to believe that the client is pursuing a lawful and honest purpose while in fact using the lawyer’s work product to perpetrate a crime or fraud? In such circumstances should the lawyer be prohibited from taking action to prevent or rectify such misuse of the lawyer’s services?

          The Ethics 2000 Commission believed, and the Task Force agrees, that the use of the lawyer’s services for such improper ends constitutes an abuse by the client of the client-lawyer relationship, forfeiting the client’s absolute entitlement to the protection of Model Rule 1.6. In such circumstances, the Task Force believes that the lawyer must be permitted, where the crime or fraud has resulted or is reasonably certain to result in substantial injury to the financial interests or property of third parties, to reveal information relating to the representation as reasonably believed necessary to prevent the commission of, or to prevent or rectify the consequences of, the crime or fraud.95 [Emphasis added.]

          As noted earlier, there is a long-standing exception to Model Rule 1.6 that permits a lawyer to reveal information relating to a representation “to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client.” We believe that it is at least as important to society, and to the integrity of the profession, to permit disclosure in order to prevent the lawyer’s services from being used in the commission of a crime or fraud as it is to permit disclosure in order to collect the lawyer’s fee or to protect the lawyer from a client’s unmeritorious civil claim.

          In opposition to the proposal to amend Model Rule 1.6, it has been suggested that the disclosure to third parties permitted under the laws of most states is “rarely if ever employed,” and there is therefore no need to amend Rule 1.6.96  The Task Force is not persuaded by this suggestion. Even if the authorization to disclose afforded by most states’ disciplinary rules is not often used, the existence of the such authority gives lawyers the opportunity to use that power to encourage the client to remediate or refrain from unlawful conduct.



Footnotes:

84See, e.g., testimony of Hon. Charles B. Renfrew on behalf of the American College of Trial Lawyers; Preliminary Statement of Attorneys’ Liability Assurance Society, Inc., at 6-7; testimony of Patricia Lee Refo on behalf of the ABA Section of Litigation, at 11-12; letter of Oct. 30, 2002 on behalf of the Los Angeles County Bar Association; testimony of the State Bar of California Committee on Professional Responsibility, at 7-10. All of these submissions are available on the Task Force Web Site. See also Comment c to RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §68 (2000) (discussing the rationale for the attorney-client privilege, including the view that “clients would be unwilling to disclose personal, embarrassing, or unpleasant facts unless they could be assured that neither they nor their lawyers could be called later to testify to the communication.”).

85 This paragraph paraphrases Comment [2] to Model Rule 1.6.

86 Model Rule 4.1(b), and Comment [3]. As that comment explains, Model Rule 4.1(b)’s duty to disclose is simply “a specific application of the principle set forth in Rule 1.2(d) and addresses the situation where a client’s crime or fraud takes the form of a lie or misrepresentation.”

87 Model Rule 3.3(b), and Comments [10] – [11].

88 Model Rule 1.6(b)(3), and Comment [9].

89 States that permit disclosure to prevent crime: Alaska (Alaska Rules of Prof’l Conduct R. 1.6 (2001)); Arizona (Ariz. Rules of Prof’l Conduct ER 1.6 ( 2002)); Arkansas (Ark. Rules of Prof’l Conduct R. 1.6 (2002)); Colorado (Colo. Rules of Prof’l Conduct R 1.6 (2002)); Connecticut (Conn. Rules of Prof’l Conduct R. 1.6 (2002)); Florida (Fla. Rules of Prof’l Conduct R. 1.6(2002)); Georgia (Ga. State Bar R. 1.6 (2002)); Hawaii (Haw. Rules of Prof’l Conduct R.1.6 (2002)); Idaho (Idaho Rules of Prof’l Conduct. R. 1.6 (2002)); Illinois (Ill. Rules of Prof’l Conduct R.1.6 (2002)); Indiana (Ind. Rules of Prof’l Conduct R.1.6 (2002)); Iowa (Iowa Code or Prof’l Responsibility DR 4-101(2002)); Kansas (Kan. Sup. Ct. Rules R. 1.6 (2001)); Massachusetts (Mass. Rules of Prof’l Conduct R. 1.6 (2002)); Maryland (Md. Rules of Prof’l Conduct R. 1.6 (2002)); Maine (Me. R. Bar 3.6 (2002)); Michigan (Mich. Rules of Prof’l Conduct R 1.6 (2002)); Minnesota (Minn. Rules of Prof’l Conduct R. 1.6 (2001)); Mississippi (Miss. Rules of Prof’l Conduct R. 1.6 (2002)); Nebraska (Neb. Code of Prof’l Responsibility DR 4-101 (2002)): Nevada (Nev. Rules of Prof’l Conduct R. 156(2002)); New Hampshire (N.H. Rules of Prof’l Conduct R. 1.6 (2002)); New Jersey (N.J. Rules of Prof’l Conduct R. 1.6 (2002)); New Mexico (N.M Rules of Prof’l Conduct R.16-106 (2002)); New York (N.Y. Code of Prof’l Responsibility DR 4-101(2002)); North Carolina (N.C. Rules of Prof’l Conduct R. 1.6 (2002)); North Dakota (N.D. Rules of Prof’l Conduct R. 1.6 (2002)); Ohio (Ohio Code of Responsibility DR4-101) (2002)); Oklahoma (Okla. Rules of Prof’l Conduct R.1.6 (2002)); Oregon (Or. Code of Prof’l Responsibility DR 4-101(2002)); Pennsylvania (Pa. Rules of Prof’l Conduct R.1.6 (2002)); South Carolina (S.C. Rules of Prof’l Conduct R. 1.6 (2001)); Tennessee (Tenn. Rules of Prof’l Conduct R. 1.6 (2003)); Texas (Tex. Rules of Prof’l Conduct R. 1.05(2002)), Utah (Utah Rules of Prof’l Conduct R. 1.6 (2002)); Vermont (Vt. Rules of Prof’l Conduct R. 1.6(2001)); Virginia (Va. Rules of Prof’l Conduct R. 1.6 (2002)); Washington (Wash. Rules of Prof’l Conduct R. 1.6 (2002)); Wisconsin(Wis. Rules of Prof’l Conduct R. 1.6 (2002)); West Virginia (W. Va Rules of Prof’l Conduct R. 1.6 (2002)); Wyoming (Wyo. Rules of Prof’l Conduct R. 1.6(2002)).

States that require such disclosure: Florida (Fla. Rules of Prof’l Conduct R. 1.6(2002)); New Jersey (N.J. Rules of Prof’l Conduct R. 1.6 (2002)); Virginia (Va. Rules of Prof’l Conduct R. 1.6(2002); Wisconsin (Wis. Rules of Prof’l Conduct R. 1.6(2002)).

States that permit disclosure to rectify substantial loss resulting from client crime or fraud using the lawyer’s services: Connecticut (Conn. Rules of Prof’l Conduct R. 1.6 (2002)); Hawaii (Haw. Rules of Prof’l Conduct R.1.6 (2002)); Massachusetts (Mass. Rules of Prof’l Conduct R. 1.6 (2002)); Maryland (Md. Rules of Prof’l Conduct R. 1.6 (2002)); Michigan (Mich. Rules of Prof’l Conduct R. 1.6 (2002)); Minnesota (Minn. Rules of Prof’l Conduct R. 1.6 (2001)); Nevada (Nev. Rules of Prof’l Conduct R. 156 (2002)); New Jersey (N.J. Rules of Prof’l Conduct R 1.6 (2002)); North Carolina (N.C. Rules of Prof’l Conduct R. 1.6 (2002)); North Dakota (N.D. Rules of Prof’l Conduct R. 1.6 (2002)); Ohio (Ohio Code of Prof’l Responsibility DR 7-102(B)(1) (2002)); Oklahoma (Okla. Rules of Prof’l Conduct R. 1.6(2002)); Oklahoma (Okla. Rules of Prof’l Conduct R. 1.6 (2002)); Pennsylvania (Pa. Rules of Prof’l Conduct R. 1.6(2002)); South Dakota (S.D. Rules or Prof’l Conduct R. 1.6 (2002); Texas (Tex. Rules of Prof’l Conduct R. 105 (2002)); Utah (Utah Rules of Prof’l Conduct (2002)); Virginia (Va. Rules of Prof’l Conduct R. 1.6(2002)); Wisconsin (Wis. Rules of Prof’l Conduct R. 1.6 (2002)).

States that require such disclosure: Hawaii (Haw. Rules of Prof’l Conduct R. 1.6 (2002)); Ohio (Ohio Code of Prof’l Responsibility DR 4-101(2002)); Oklahoma (Okla. Rules of Prof’l Conduct R. 1.6 (2002)).

90 As noted above, the SEC has deferred action on a proposal to require the lawyer to report illegal conduct to the SEC in order to permit further public comment and consideration of a company reporting alternative. Commenting on that action, former SEC Chairman Arthur Levitt noted: “The Commission wisely delayed action requiring lawyers who uncover securities law violations to resign and notify the SEC if the company does not take appropriate action. This does not mean the issue should die. The legal community and the SEC have a duty to find a creative solution that doesn’t pierce attorney-client confidentiality yet sends a strong message to investors that their ultimate ownership will be honored.” Arthur Levitt, Jr., “The SEC’s Repair Job,” Wall Street Journal, Feb. 10, 2003.

91 The “RESTATEMENT.”

92 Ethics 2000 Report with Recommendation to the House of Delegates (August 2001), available at http://www.abanet.org/cpr/e2k-report_home.html.

93See Lisa H. Nicholson, A Hobson’s Choice for Securities Lawyers in the Post-Enron Environment: Striking a Balance Between the Obligation of Client Loyalty and Market Gatekeeper, 16 GEO. J. LEGAL ETHICS 91 (2002).

94 The Task Force’s Preliminary Report (at 32) proposed a balance in which the lawyer would be required, not just permitted, to disclose client information “in order to prevent client conduct known to the lawyer to involve a crime, including violations of federal securities laws and regulations, in furtherance of which the client has used or is using the lawyer’s services, and which is reasonably certain to result in substantial injury to the financial interests or property of another.” This proposal engendered strong criticism (see notes 76 and 84, supra), and the Task Force has determined to modify that recommendation. The ABA’s comment letter to the SEC on the proposed Part 205 Rules (note 9, supra) explains the reasons for that modification in the following passage commenting on the proposal to require lawyers to report to the SEC:

We believe that the proposed Section 307 rules that mandate withdrawal from representation, notice to the SEC and disaffirmance risk destroying the trust and confidence many issuers have up to now placed in their legal counsel, creating divided loyalties and driving a wedge into the attorney-client relationship. Providing notice to the SEC that the attorney has withdrawn "for professional considerations" and disaffirming specific documents will have a similar effect as a violation of client confidences, and may itself be a violation of the attorney's duties to the client under state court rules, because it will promptly trigger an enforcement investigation and potentially civil lawsuits. As a consequence, some issuers might not even consult qualified attorneys regarding close issues of whether or not to disclose information in a filing or otherwise because the attorney might engage in a noisy withdrawal even though all that may have been involved was a matter of business judgment as to the materiality of certain information. 

Moreover, mandating withdrawal and disaffirmance removes the flexibility that lawyers need in order to have time to counsel their corporate clients effectively. In some instances, premature withdrawal and disaffirmance of documents might seriously and unfairly harm the issuer and its shareholders or create disruption in the market for issuer's securities, when more time spent with managers or expert advisers might have avoided the need for the attorney to employ so extreme a measure. Such consultations also may prove the attorney to be wrong in believing any material violation will occur. 

95 Comment f to RESTATEMENT §67 further explains:
Once use or disclosure of information has been made to prevent, rectify, or mitigate loss under Subsection (2), the lawyer is not further warranted in actively assisting the victim on an ongoing basis in pursuing a remedy against the lawyer's client or in any similar manner aiding the victim or harming the client. Thus, a lawyer is not warranted under this Section in serving as legal counsel for a victim …, volunteering to serve as witness in a proceeding by the victim, or cooperating with an administrative agency in obtaining compensation for victims. The lawyer also may not use or disclose information for the purpose of voluntarily assisting a law-enforcement agency to apprehend and prosecute the client, unless the lawyer reasonably believes that such disclosure would be necessary to prevent, rectify, or mitigate the victim's loss.
96 Statement of Patricia Lee Refo on behalf of the ABA Section of Litigation, Nov. 11, 2002, at 11, available on the Task Force Web Site.