Confidentiality Controversy

By a slim 17-vote margin, the American Bar Association's House of Delegates during the association's annual meeting changed model rules governing the attorney-client privilege in the hopes of combating corporate fraud.

The proposal allows lawyers to breach the duty of confidentiality if a client uses the lawyer's advice to commit a crime or fraud. The rules were drawn up in the aftermath of the Enron, WorldCom and other corporate scandals that shook the nation's financial markets.

“We're talking about employees who lost their jobs and in some cases their pensions,” said ABA President-Elect Dennis Archer. “This is in the best interests of our profession. It is in the best interests of the country.”

Supporters of the change defeated three proposed amendments that would have, in various degrees, gutted the language of the new rules.

One proposal by Mark Tuft, of San Francisco's Cooper, White & Cooper, would have removed all mention of the word “fraud” from the new rules, allowing disclosure only in cases of clear criminal activity.

Tuft said non-criminal fraud was not “a concept of certainty.”

“We need a certain degree of certainty in our rules,” Tuft said.

The voice vote on the rule change was so close that floor “tellers” had to take a manual head count. The final tally was 218-201.

Opponents of the rules argue that it could lead to the exclusion of lawyers from corporate boardrooms when questionable conduct is being considered. Supporters argue that 42 states already have some variation of the rule on the books, with no evidence of such consequences.

California, which is one of the “purest” states when it comes to the sanctity of the attorney-client privilege, does not have a so-called crime-fraud exception in its State Bar rules.

Vermont lawyer Peter Langrock spoke in support of the amendment, saying he didn't go to law school so that his advice could help “perpetrate a fraud on a widow trying to save money for her daughter's education.”

New York University School of Law professor and legal ethics expert Stephen Gillers also spoke in support of the change. He pointed out that not one lawyer from a state with a crime-fraud exception on the books has stepped forward to say that the profession suffered because of it.

Also speaking in support were two past presidents of the ABA, as well as the outgoing president, Alfred Carlton Jr.

Philadelphia lawyer Lawrence Fox opposed the changes.

“They do not have a single nexus between the changes and what happened in any of the frauds,” Fox said.

By the end of the afternoon, delegates were anxious for an up-or-down vote on the changes. Two speakers who had lined up to speak on the third proposed amendment never got to the podium.

The ABA's model rules of professional conduct merely provide guidance. They have no force unless adopted by individual state bar associations.

The House of Delegates will also deliberate on two more proposed changes aimed at dealing with corporate fraud. Those proposals are not considered as controversial as the attorney-client privilege rule.

By a slim 17-vote margin, the American Bar Association's House of Delegates during the association's annual meeting changed model rules governing the attorney-client privilege in the hopes of combating corporate fraud.

The proposal allows lawyers to breach the duty of confidentiality if a client uses the lawyer's advice to commit a crime or fraud. The rules were drawn up in the aftermath of the Enron, WorldCom and other corporate scandals that shook the nation's financial markets.

“We're talking about employees who lost their jobs and in some cases their pensions,” said ABA President-Elect Dennis Archer. “This is in the best interests of our profession. It is in the best interests of the country.”

Supporters of the change defeated three proposed amendments that would have, in various degrees, gutted the language of the new rules.

One proposal by Mark Tuft, of San Francisco's Cooper, White & Cooper, would have removed all mention of the word “fraud” from the new rules, allowing disclosure only in cases of clear criminal activity.

Tuft said non-criminal fraud was not “a concept of certainty.”

“We need a certain degree of certainty in our rules,” Tuft said.

The voice vote on the rule change was so close that floor “tellers” had to take a manual head count. The final tally was 218-201.

Opponents of the rules argue that it could lead to the exclusion of lawyers from corporate boardrooms when questionable conduct is being considered. Supporters argue that 42 states already have some variation of the rule on the books, with no evidence of such consequences.

California, which is one of the “purest” states when it comes to the sanctity of the attorney-client privilege, does not have a so-called crime-fraud exception in its State Bar rules.

Vermont lawyer Peter Langrock spoke in support of the amendment, saying he didn't go to law school so that his advice could help “perpetrate a fraud on a widow trying to save money for her daughter's education.”

New York University School of Law professor and legal ethics expert Stephen Gillers also spoke in support of the change. He pointed out that not one lawyer from a state with a crime-fraud exception on the books has stepped forward to say that the profession suffered because of it.

Also speaking in support were two past presidents of the ABA, as well as the outgoing president, Alfred Carlton Jr.

Philadelphia lawyer Lawrence Fox opposed the changes.

“They do not have a single nexus between the changes and what happened in any of the frauds,” Fox said.

By the end of the afternoon, delegates were anxious for an up-or-down vote on the changes. Two speakers who had lined up to speak on the third proposed amendment never got to the podium.

The ABA's model rules of professional conduct merely provide guidance. They have no force unless adopted by individual state bar associations.

The House of Delegates will also deliberate on two more proposed changes aimed at dealing with corporate fraud. Those proposals are not considered as controversial as the attorney-client privilege rule.