Attorneys face new rules on secrets

Discomfort with rules on confidentiality for corporate wrongdoers persuades the Bar Association to reform.

Few principles are more sacrosanct to lawyers than their right to keep clients' secrets confidential.

Yet this week, the nation's largest association of lawyers approved a change in its professional rules that will allow lawyers to rat on dirty clients.

The measure, approved at the annual convention of the American Bar Association (ABA), adds preventing fraud to the small number of reasons attorneys may be allowed to abandon confidentiality. Preventing bodily harm is another exception to the pact of secrecy.

Similar rules already exist in 42 states. But the proposal still proved highly divisive among ABA delegates, an indication, lawyers say, of deep fears that the attorney-client privilege is being eroded by the backlash against corporate wrong-doing. Although the new exception is based on high-minded goals for reform, it goes against centuries of attorneys being beholden only to their clients.

"Our profession is under attack - maybe more under attack than it has ever been," Lawrence Fox, a Philadelphia trial lawyer told ABA delegates Monday.

The cause for lawyers' alarm is a series of government measures that pressure attorneys representing corporations to reveal their clients' wrongdoing both within the company and to outsiders.

Just last week, new Securities and Exchange Commission rules went into effect that permit lawyers representing publicly traded companies to tip off regulators.

Those new rules were prompted by the Sarbanes-Oxley Act, which Congress enacted last year to tighten corporate governance in the wake of the implosions of Enron and WorldCom. Enron's outside law firm, Vincent & Elkins, was criticized for failing to flag fraudulent activity.

But even before the 2002 corporate scandals, attorneys say the Justice Department became more aggressive in pressuring corporate clients and their lawyers to cooperate.

Corporate clients who don't waive the attorney-client privilege wind up not only tainted as uncooperative under new satellite guidelines but also as unworthy of settlement offers. Criminal-defense lawyers themselves fear becoming the target of investigations aimed at squeezing out information clients reveal to them.

SEC regional administrator Randall Lee told ABA attendees his agency takes the attorney-client relationship "very seriously" but will not shy away from implicating attorneys involved in corporate fraud.

Lawyers say added pressure on the attorney-client relationship makes it more difficult to do their job. Clients clam up if they fear what they say winds up pried out of their lawyers later.

Florida attorney John Lakin says lawyers also fear for their careers. Even a hint of wrongdoing can drive up lawyers' insurance premiums and land them in trouble with state ethics investigators.

But in the wake of corporate scandals, legal ethicists say attorneys must balance responsibility to clients with obligations to the public. "It's very hard for lawyers to set aside their own self interest," says Stanford University law professor Deborah Rhode. "We have to put the public interest first."

Professor Rhode says the changes adopted by the ABA are modest. The new rule allows, but does not require, lawyers to disclose fraudulent behavior in which the client uses the attorney's services to perpetrate the fraud. Already, 42 states have adopted similar rules.

Some ABA delegates suggested the group opted to change rules of professional conduct on its own, fearing the current environment of corporate distrust may have meant outside regulations anyway. The SEC could still enact a "noisy withdrawal" rule that would require lawyers to quit and turn to government regulators if a company failed to address evidence of fraud.

Still, that didn't make the more limited change considered by the ABA any less controversial. Only two years ago, the group's legislative body, the 540-member House of Delegates, rejected a similar measure. This time around, the vote was different - but barely, in a 218-201 decision Monday. The organization representing state Supreme Court chief justices endorsed the plan along with the ABA's current top leaders.

"The lesson we've learned over the past two years is that the substantial injury is not just to the big guys who can shoulder the injury," said incoming ABA President Dennis Archer. "We're talking about the employees who lost not just their jobs but their pensions."

The plan was also endorsed by many lawyers who work inside public companies and view the new rule as a way to force clients to rectify their behavior. "Clients don't deserve the protection of privilege if they seek to use the lawyers' services to perpetrate fraud," says Susan Hackett of the American Corporate Counsel Association.

Many trial lawyers, though, criticized the ABA caving into public pressure. William G. Paul, former ABA president said the organization was "bartering away a piece of our professional soul to gain some hoped-for public approval."

ABA delegates were expected to debate another measure Tuesday that would require lawyers to report wrongdoing up corporate chains of command and turn to outsiders if the company fails to act.

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