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44th Street Notes


Protecting the Public and the Privilege


Feb 2003

The ever-present threat of terrorism has resulted in a strong response by our government that has evoked a call for caution from many who see a different threat emerging, that to our civil liberties. At the same time, our government is fighting another war at home, against corporate greed and dishonesty – a domestic crisis which has destroyed our public confidence in the integrity of our business institutions. The fall of the market, no doubt exacerbated by America’s corporate debacle, has eroded many billions of dollars of the public’s investments to the point that many of our retired elderly are forced to re-enter the workforce to make ends meet. Several of our committees have been hard at work examining these threats to our nation and the resulting actions of our government. A dozen committees are engaged in a broad analysis of different responses to terrorism. The issues raised include:

– the secrecy of immigration proceedings, and more generally the right of access to government proceedings; – special alien registration requirements for citizens of certain nations; – the detention of persons designated as enemy combatants; – the extensive and pervasive ramifications of the Homeland Security Act; – incursions by government into the attorney-client privilege; – the proper role for and the authority and independence of the federal courts; – pre-emptive self defense and the application of multi-national arms control treaties to terrorism.

We have held public forums to encourage and facilitate balanced discussions of these issues, and our committees are working on reports which will be issued in the forthcoming weeks. In order to help address the economic crisis, Congress passed the Sarbanes-Oxley Act, which among other aspects, provided that the Securities and Exchange Commission promulgate rules setting forth minimum standards of professional conduct for attorneys appearing and practicing before the SEC. Six committees of the Association expressed interest in commenting on the rules, and I am delighted with the result of their work. A joint subcommittee, chaired by Judge James Yates, submitted an extensive analysis of the rules with proposed revisions. You can read the comments on our website, www.abcny.org. It has become apparent that both the Justice Department’s actions in fighting terrorism and the SEC’s efforts to regulate corporate governance include policies which weaken the attorney-client privilege. While the privilege has long been a pillar of the rule of law in this country, it has become a target of the Justice Department and regulators, who apparently misperceive or choose to disregard its fundamental role in our system of justice. Our Professional Responsibility Committee spoke out against the Justice Department’s policy of eavesdropping without judicial approval on lawyer-client conversations of people the government deemed to be terrorist threats. Similarly, our comments on the Sarbanes-Oxley rules criticize the rules’ attempt to invade the privilege and client confidentiality. The comments express support for Section 307 of the Act as requiring lawyers to report evidence of securities law violations or breaches of fiduciary duty “up the ladder” of the corporation she/he is representing, from the chief legal counsel to the Board itself if the appropriate response is not produced. We also support the disclosure of confidences in certain situations (such as to prevent a crime or disaffirm an opinion based on materially inaccurate information), consistent with ethical rules. However, the SEC’s proposed rules go beyond the Act in a number of ways, several of which undermine the attorney-client privilege. For example:

– a lawyer would be required to withdraw from representation, and announce that withdrawal to the SEC, even when the misconduct is unrelated to the attorney’s services. The announcement that the withdrawal is “for professional reasons” would constitute a red flag - an invitation to enforcement action and adverse litigation. Our comment notes that withdrawal can be accomplished quietly, with notice only to the client, consistent with the lawyer’s obligation to protect the client’s interest.

– a corporation’s chief legal officer is mandated to notify the Commission of past, present and future violations of which the CLO learned and which have not been rectified or prevented by the issuer regardless of whether there is a risk of ongoing or future injury to the issuer or investors, if an issuer does not comply with directives of the issuer’s Qualified Legal Compliance Committee. The CLO must then disaffirm, to the SEC, all false or materially misleading documents submitted by the client, whether prepared by the CLO or submitted by others – even in circumstances where the disaffirmance may harm the issuer or its investors.

While these rules may appeal to the public, the price to be paid is steep – a corporation’s loss of confidence in the ability to confide in its lawyer. Corporations may eliminate or greatly reduce the sharing of information with their lawyers, making it harder for them to comply with the law, or even to know the law. The attorney-client privilege fosters this open communication, making the lawyer the valued adviser the client sought in the first place. As the Supreme Court said in Swidler & Berlin v. United States, 524 U.S. 399, 403 (1998), the purpose of the privilege is “to encourage full and frank communications between attorneys and their clients and thereby promote broader public interest in the observance of law and the administration of justice.” As government officials seek to eliminate terrorism and corporate misdeeds, they must recognize the importance of clients’ – whether corporate or individual – knowing their legal rights and responsibilities. Discouraging full and free communications with one’s attorney will lead to more, rather than less, lawlessness. In seeking to address the crises of our time, the central role of the law in our society need not be jeopardized. There is a delicate, but achievable, balance.

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