Attorney Disclosure: the Model Rules in the Corporate/securities Area
| Publication year | 1983 |
| Pages | 1975 |
| Citation | Vol. 12 No. 12 Pg. 1975 |
1983, December, Pg. 1975. Attorney Disclosure: The Model Rules in the Corporate/Securities Area
In August 1983, the American Bar Association ("ABA") approved the Model Rules on Professional Conduct ("Rules"). The result of six years of debate, the Rules reflect a more realistic attitude toward the role and function of the corporate/securities lawyer than does the Code of Professional Responsibility ("Code"). In the Preamble, the Rules recognize that the lawyer is not only an advocate, but also serves as an advisor, negotiator, intermediary and evaluator.
Although Rule 1.13 presents specific guidelines which are applicable to the organizational client, as to the issue of disclosure, "[t]he keystone of . . . the entire legislative scheme of the securities laws,"(fn1) the Rules do not supply adequate flexibility. Effective disclosure has been said to protect the investor and promote business integrity.(fn2) While this may be true, it also places the corporate attorney in a position of conflict, and the Rules do not provide complete resolution. Furthermore, in apparent reaction to the lack of mandatory reporting requirements, federal legislation has been introduced which challenges the entire system of disclosure as outlined by the ABA.
This article examines the disclosure provisions under which attorneys may be sanctioned, including the Rules, the Code,(fn3) Rule 2(e) of the Securities and Exchange Commission ("SEC")(fn4) and Senate Bill 485.(fn5) It presents a comparison between the Rules and the Code and identifies the areas in which the Rules conflict with substantive law.
The Rules actually expand the principle of confidentiality in some respects and narrow it in others.(fn6) Under DR 4-101 of the Code, the confidentiality requirement applies only to a "confidence," information governed by the attorney-client privilege, and to a "secret," information "gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client." Under the Rules (Rule 1.6), confidentiality attaches to all information relating to the representation, and there is no distinction between a "confidence" or a "secret." It is imposed regardless of whether the information was acquired before or after the relationship existed.
Rule 1.6 states that the lawyer "shall not reveal information relating to representation of a client" unless the client consents; the disclosure is impliedly authorized in order to carry out the representation; or disclosure is made to prevent the client from committing a crime which is likely to result in "imminent death or substantial bodily harm." In contrast, DR 4-101(C)(3) of the Code provides that a lawyer can, at his discretion, reveal the intention of his client to commit a crime and the information necessary to prevent the crime. No restriction regarding the seriousness or type of result is imposed by the Code.
As to crime or fraud occurring during the course of representation, a lawyer under Rule 1.2(d) is not allowed to assist or counsel a client to participate in conduct which the lawyer knows is criminal or fraudulent. However, there is no mandatory reporting requirement. DR 7-102(B)(1) of the Code mandates revelation of a fraud committed in the course of the representation if the client refuses or is unable to correct it and the information is not privileged.
Both the Rules and the Code provide for disclosure if it is mandated by other law. However, the Code includes this provision as part of DR 4-101, while it is found only in the Comment to Rule 1.6. Under the Rules, the Comments are considered to be interpretative guidelines and do not carry the authoritative weight of the Rule itself.
Rule 1.13 sets forth guidelines for the attorney whose client is an organization and appears to provide a degree of flexibility which is lacking in Rule 1.6. However, the Comment to Rule 1.13 states that it is not intended to "limit or expand the lawyer's responsibility under Rule 1.6."
Basically, Rule 1.13 provides procedural steps for a corporate attorney who "knows" that a person associated with the organization is or, in the future, will act in a way which violates a legal obligation to the organization or violates the law, and which will likely result in substantial injury to the corporation. In this situation, after weighing relevant considerations, the attorney may ask for reconsideration of the matter; advise that a separate legal opinion be sought and presented to the appropriate corporate authority; or refer the matter to a higher authority in the organization. If the highest authority for the organization refuses to act on the advice and there is a violation of the law which is likely to result in substantial injury to the organization, the lawyer may resign.
The only Rule which appears to supersede Rule 1.6 is Rule 3.3, "Candor Toward the Tribunal," which requires disclosure to the court "even if compliance requires disclosure of information otherwise protected by Rule 1.6."
Under both the Code and the Rules, the principle of confidentiality applies to the attorney-client privilege in the law of evidence. Specifically recognizing the importance of this doctrine, the Preamble to the Rules states that they are "not intended to govern or affect judicial application of either the attorney-client or work product privilege." Rule 1.6 states in the Comment that a lawyer may not disclose information except as authorized by "other law." However, a conflict exists because the substantive exceptions to the general doctrine are, in some instances, broader than those promulgated in the Rules.
The attorney-client privilege doctrine rests on the supposition that legal assistance can be obtained only if the client is free from apprehension of disclosure.(fn7) If the conditions are met which create the existence of the privilege,(fn8) disclosure of communications is prohibited.(fn9)
The privilege, as it applies to corporations, has been recognized by the bar, the legislature and the courts.(fn10) Also, the definition of the "corporate client" is relatively well settled.(fn11) However, the privilege is not absolute and there are instances where an exception to the doctrine may apply, the privilege may be waived or an underlying social policy may be considered of greater importance than the existence of the privilege. These areas cause concern because there is only a moderate amount of accommodation found in the Rules.
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