Writing the rules of attorney-whistleblowing: who gets to decide, and how do we make the decision?

• Author: Bein, Alex
• Position: II. Conducting a Comparative Institutional Microanalysis of Attorney Whistleblowing Regulations: What Data Do We Need? B. The Social Goals Implicated by Attorney-Whistleblowing Regulation through Conclusion, with footnotes, p. 992-1017

2. The Social Goals Implicated by Attorney-Whistleblowing Regulation

   1. A Lawyer's Ethical Duty of Confidentiality

      Current regulations governing attorney-whistleblowing revolve primarily around the doctrine of attorneys' ethical duty to maintain client confidences. (149) The centrality of this ethical duty within the practice of law is discussed in Comment 2 of the American Bar Association's Model Rule of Professional Conduct 1.6, which calls a lawyer's duty to protect client confidentiality "a fundamental principle in the client-lawyer relationship." (150) The ABA broadly defines the scope of confidential information as "all information relating to the representation, whatever its source." (151)

      Proponents of strict confidentiality rules argue that such protections are vital to the proper functioning of American legal practice. (152) This is, they assert, in part because advice from lawyers is essential in ensuring that individuals are able to act in accordance with the complex laws and regulations that they might not otherwise appreciate or understand. (153) Many lawyers argue that this advice is only accurate and effective if clients are able to share the potentially damaging details of their legal situations in confidence. (154) In such situations (argues the ABA), "lawyers know that almost all clients follow the advice given, and the law is upheld." (155)

      The most influential formulation of the rule governing an attorney's ethical duty of confidentiality is the ABA's Model Rule of Professional Conduct 1.6. (156) Model Rule 1.6 generally requires lawyers to maintain the confidentiality of client information learned during the course of the lawyer's representation. (157) The full extent of confidentiality protections provided by this rule is made clear by the scope of its exceptions. Model Rule 1.6(b), for example, provides seven such exceptions that potentially limit an attorney's confidentiality obligations and allow him to disclose the confidential information of a client or former client. (158) Most relevant to this Note are 1.6(b)(2) and 1.6(b)(3), which were added to Model Rule 1.6 in 2003 in the wake of the Enron and WorldCom scandals. (159)

      Rule 1.6(b)(2) and 1.6(b)(3) deal with a lawyer's ability to disclose client confidences to prevent a client's future financial crime, or rectify one that has already taken place. The relevant portions of these provisions read as follows:

      (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;

      (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 ... (160)

      The permissive language of Rule 1.6 ("a lawyer may reveal ...") provides an attorney with discretion to make her own determination whether to report client confidences and provides the circumstances under which she may do so. (161) The rule limits permissible disclosures to those "the lawyer reasonably believes necessary" under the circumstances, which ostensibly provides some guidance as to how much information an attorney may disclose. (162)

      Many jurisdictions base the language of their confidentiality rules on the ABA rule's formulation. (163) For example, New York Rule of Professional Conduct 1.6 is the primary rule regulating an attorney's duty of confidentiality while practicing law in the state of New York. (164) NY RPC 1.6 maintains the permissive language of the Model Rule, but allows for a reporting of client confidences under broader, and less-well-defined circumstances. (165)

      The relevant portion of the law reads as follows:

      (b) A lawyer may reveal or use confidential information to the extent that the lawyer reasonably believes necessary:

      (2) to prevent the client from committing a crime. (166)

      NY RPC 1.6 is thus both broader and narrower than the ABA Model Rule. (167) Primarily, the New York rule provides for the reporting of otherwise confidential information to "prevent the client from committing a crime," with no requirement that the lawyer's assistance be used in furtherance, like in the equivalent ABA rule. (168) However, NY RPC 1.6 only allows for disclosure of confidences to prevent a future crime, and provides no exception to allow for the mitigation or rectification of past crimes. (169)

      In contrast to the broad discretion provided to attorneys in deciding whether to report client confidences under NY RPC 1.6(b), New Jersey's relevant confidentiality rule affirmatively requires attorneys to report client confidences in certain situations. The relevant provision reads:

      (b) A lawyer shall reveal such [confidential] information to the proper authorities, as soon as, and to the extent the lawyer reasonably believes necessary, to prevent the client or another person:

      (1) from committing a criminal, illegal or fraudulent act that the lawyer reasonably believes is likely to result in death or substantial bodily harm or substantial injury to the financial interest or property of another.... (170)

      Like the New York rule, New Jersey's Rule of Professional Conduct 1.6 provides an exception to its confidentiality rule only to prevent future crimes, not to mitigate or rectify past crimes. (171) However, its mandatory language also removes all discretion from the attorney in deciding whether or not to make use of this exception in reporting confidences in the face of client fraud. (172)

      Another important rule defining an attorney's ethical duty of confidentiality is ABA Rule of Professional Responsibility 1.13, succinctly titled "Organization as Client." (173) Model Rule 1.13 addresses what measures an attorney may take when they discover potentially harmful misconduct occurring within a client organization. (174) It states that, when a lawyer discovers such misconduct in the client organization, the lawyer should first report such wrongdoing up to the client's top management. (175) If, however, top management fails to act in a timely or appropriate manner to address the issue, and the lawyer reasonably believes that the wrongdoing will result in injury to the client organization, then "the lawyer may reveal information relating to the representation whether or not Rule 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization." (176)

      Rule 1.13 thus provides an additional, if limited, exception to the Model Rules' confidentiality requirements. (177) It permits an attorney to disclose confidential information by "reporting out," to regulators or courts, but only after meeting Rule 1.13's "reporting up" requirements by bringing his concerns to the client's top management. (178) As can be seen from such examples of confidentiality regulations, states and bar associations have numerous rules governing the attorney's ethical duty of confidentiality. However, the breadth of such rules is limited by the rules' exceptions allowing lawyers to blow the whistle on their clients using that very same confidential information.

   2. Protection of In vestors and the Public's Economic Well-Being

      In order to conduct a fully informed institutional choice analysis of attorney-whistleblower regulations, one should also understand society's interest in allowing for greater transparency and disclosure of client confidences that may be harmful to society as a whole. To that effect, attorney whistleblowing regulations also implicate a significant public interest in preventing financial frauds perpetrated against public companies and government institutions. (179) Many whistleblowing provisions cite this public policy justification in encouraging individuals to blow the whistle on clients, employers, customers, or others who commit financial wrongdoing. (180) However, because fraud comes in many forms and has different effects when perpetrated in different economic contexts, the strength of, and need for, anti-fraud whistleblowing regulations varies from context to context. (181) Two of the most significant areas of anti-fraud whistleblowing legislation in recent years relate to fraud against government spending programs, (182) and fraud against the investing public. (183)

      The qui tarn provision of the FCA is the primary whistleblowing provision related to the prevention of fraud against the federal government. (184) The FCA provides a private right of action for individuals, known as relators, to file suit on behalf of the government against anyone who brings a false claim for payment to the federal government. (185) The FCA further provides up to thirty percent of the potential judgment to the relator as a reward for whistleblowing against the fraudsters and prosecuting their fraud. (186) To justify these rewards, Congress cited the growth of "sophisticated and widespread fraud" against the federal government, stating that "only a coordinated effort of both the Government and the citizenry will decrease this wave of defrauding public funds." (187) As one commentator notes,

      Qui tarn's champions point to its rapid growth and spectacular results--some seven thousand cases since 1986 with judgments now approaching three billion dollars annually, easily rivaling and even eclipsing securities and antitrust litigation--as evidence of massive corporate fraud committed against the United States and, in turn, the need for a robust private enforcement role. (188) Thus, the success of the FCA's whistleblower regime in uncovering fraud against the government presents at least some argument in favor...