Recent Developments in Legal Ethics, January 2005
2004 was an unusual year for legal ethics in Colorado–the Colorado Bar Association Ethics Committee did not publish a single Formal Ethics Opinion, the first time that has happened in many years. That did not mean, however, that there were not significant developments in legal ethics.
A. Conflict between traditional role of attorney and Sarbanes-Oxley.
The biggest development in legal ethics was Sarbanes-Oxley (“SOX”). Much has been written about SOX already, and more will be. From an ethical standpoint, the crucial issue is the possible requirement for a lawyer to reveal client information to the S.E.C. to remedy a purely monetary wrong.
Traditionally, lawyers could only reveal client information to prevent a crime involving serious bodily injury. More recently, this was expanded to prevent any crime. (1) SOX apparently changes the traditional rule. SOX provides that a lawyer may reveal client information to the Security and Exchange Commission not only to prevent a crime, but to rectify its consequences, including solely monetary consequences. (2) It further provides that where SOX conflicts with state law on the attorney-client relationship, SOX controls. (3)
Colorado Rules of Ethics allow minimum disclosures within the organization to prevent a crime or substantial injury. The attorney’s remedy if this is ineffective is that the attorney can resign. SOX, however, can be interpreted to require disclosure outside the organization after the fact. There will certainly be more developments on this apparent conflict in 2005.
B. Ethical Problems for Counsel of Suppliers of “Compliance” Goods and Services. (with thanks to Holly Gonzales, Hewlett Packard)
SOX has already created an entire industry of suppliers providing goods or services to assist others with SOX compliance. Attorneys working for such vendors must be very careful to not give legal advice in connection with sales, and to ensure they do not assist in the unauthorized practice of law.
For example, a salesman selling SOX compliance software may ask the vendor’s attorney to explain to the buyer how the software will enable the potential buyer to comply with SOX. If any problem later arises, the buyer could argue that it received legal advice regarding the compliance from the seller’s attorney. This creates a myriad of problems, and the simplest solution is to avoid them problem in the first place by making sure the vendor’s lawyer doesn’t communicate with the buyer in any manner.
The way to avoid the problem, however, is not for counsel to instruct the salesman on how the software will enable the potential buyer to comply with SOX. Such an approach runs perilously close to assisting in the unauthorized practice of law, which is prohibited by C.R.P.C. 5.5. (4)
The better solution is to help the salesman to explain the values of the software in non-legal terms. For example, the crucial substantive part of SOX is Section 404, internal financial controls. Thus the salesman can learn to discuss the value of the software in terms of how it functions regarding internal financial controls, rather than compliance with SOX.
There were a couple of changes regarding ethical rules in 2004. In 2003, Rule 8.3 had been changed to provide that communications in “lawyers peer assistance” were protected from disclosure. As modified in 2003, Rule 8.3 did not protect the CBA Ethics Committee “Calling Committee.” In 2004, Rule 8.3 was changed to protect the Calling Committee.
Perhaps as a result of the faux pas of not protecting the Calling Committee, the Supreme Court decided its ad hoc approach to rule changes could be improved. As a result, it formed a Standing Committee on Rules of Professional Conduct. The point of Committee is to act as clearing house for the several existing committees, subcommittees, and ad hoc committees for new changes to the Rules of Professional Conduct. In this way, things such as the incomplete initial change to Rule 8.3 can be avoided in the future.
Surreptitious Recording of Conversations (CBA Formal Opinion 112)
CBA Formal Opinion 112, issued in late 2003, muddies the water considerably in the area of whether a lawyer may ethically surreptitiously tape record a conversation. Every case addressing the issue in Colorado has consistently held it improper. (5) Similarly, in 1962 and in 1994, the CBA Ethics Committee had stated it was improper. (6)
Then the ABA got involved late 2001, and issued ABA 01-422. In short, ABA 422 stated that so long as taping was legal, it was also ethical in all circumstances except a lawyer taping its own client (the ABA took no position on taping one’s own client). The lynchpin of the prior analysis had been that secret recording was deceitful, and deceitful conduct is prohibited by the Rules. With the increasing availability of recording technology, however, the ABA doubted that secret recording was still inherently “deceitful conduct.”
Further, the ABA was concerned that there were so many written and unwritten exceptions to the traditional rule–including criminal investigations, housing discrimination investigations, intellectual property investigations, and the attorney acting privately, that there was no point in maintaining the rule anymore.
Based on this, the CBA looked at the issue, which resulted in CBA Formal Opinion 112. CBA 112 draws distinctions between lawyers acting as a civil lawyer, acting as a criminal lawyer, and acting privately. When acting as a civil lawyer, the CBA maintains the traditional rule that surreptitious recording is unethical.
Recognizing that the controlling case law states that it is always improper, however, CBA 112 then takes the unusual step of setting an aspirational ethical goal that is below the current law. That is, it states that a lawyer, when acting in a criminal case or privately, should be able to record surreptitiously.
The Colorado Supreme Court has rejected both these ideas before. In Smith (see endnote 5), the Court expressly rejected the notion of a “criminal law” exception, at least for anyone not actively involved in law enforcement. The Colorado Supreme Court has also repeatedly stated that a lawyer is not relieved from the ethical rules just because he or she is not acting as a lawyer at that particular moment. (7)
The “acting privately” exception in CBA 112 was driven primarily the by the desire to protect attorneys who might be the target of domestic or other threats and to allow them to gather evidence against to protect themselves ethically . This is, essentially, saying that where is a “good reason” ethical Rules are altered. Again, the Colorado Supreme Court has rejected this argument before.
In People v. Pautler, 47 P.3d 1175 (Colo. 2002) attorney Pautler was a district attorney assigned to the crime scene where the bodies of William “Cody” Neal’s three murder victims were found. While at the murder scene with the sheriff, they learned that Neal had raped one other person, kidnaped another two, and then released all three. Mr. Pautler and the sheriff then went to where the kidnap/rape victims were.
While there, the sheriff made contact with Neal via Neal’s cell phone. Neal suggested he was willing to surrender, but wanted to talk to a defense attorney first. After one failed attempt to contact the Public Defender’s office, Mr. Pautler deceived Neal by claiming he was a defense attorney. Neal ultimately surrendered without further incident.
Mr. Pautler was charged with a violation of C.R.P.C. 8.4(c) (deceitful conduct) and 4.3 (communicating with an unrepresented person). Mr. Pautler freely admitted he had violated the Rules of Professional Conduct, but stated he had done so for good reason and that the “greater good” required the same. The Colorado Supreme Court disagreed:
In this proceeding we reaffirm that members of our profession must adhere to the highest moral and ethical standards. Those standards apply regardless of motive . . . .
[Rule 8.4(c)] and its commentary are devoid of any exception. Nor do the Rules distinguish lawyers working in law enforcement from other lawyers, apart from additional responsibilities imposed upon prosecutors. . . .
The Rules of Professional Conduct apply to anyone licensed to practice law in Colorado. The Rules speak to the “role” of attorneys in society; however, we do not understand such language as permitting attorneys to move in and out of ethical obligations according to their daily activities. . . . The obligations concomitant with a license to practice law trump obligations concomitant with a lawyer’s other duties, even apprehending criminals.
Thus if you are even thinking about violating the Rules of Professional conduct–whether by surreptitious taping or otherwise–think about Mr. Pautler, a real life-or-death situation, and ask yourself if your reason is really that good.
Communicating with a Represented Party to Give a Second Opinion (CBA Formal Opinion 111)
In 2002, the CBA Ethics Committee issued CBA Opinion 111, which covers communicating with a represented party for the purpose of giving the party a second opinion regarding the way its current counsel is handling a matter. There was concern among bar members who were asked to perform such functions that by doing so they might be violating C.R.P.C. 4.2, which prohibits communicating with a represented party with counsel’s consent. (8)
Opinion 111 concludes that a lawyer being hired to give a second opinion need not get the consent of th first lawyer for two reasons. First, the purpose of the Rule is to protect the client from lawyers with adverse interests, not to protect the client from its own lawyer. Second, any other rule would infringe upon the client’s inherent right to seek counsel of its own choosing.
Ownership Interest in a Client (CBA Formal Opinion 109)
A lawyer having an ownership interest in its client was a hot issue for outside counsel at the height of the .com boom, when many start-up companies wanted to pay their lawyers with stock. Now such arrangements are less common, and the issue mainly arises regarding in-house counsel, to whom the same ethical rules apply.
Ownership interest in a client is not unethical per se, but it raises serious concerns. Rule 1.8 provides that a transaction by which lawyer obtains interest must be fair and reasonable to an objective person, transmitted to client in writing, and understandable by a lay person. Further, the client must be advised to get outside counsel to review deal, given time to do so, subsequently consent in writing.
This analysis applies to in-house counsel getting stock or stock options as much as it applies to outside counsel accepting stock in lieu of fees.
Inadvertently Received Documents (CBA Formal Opinion 108)
The old rule of simply following instructions of the sending party created several problems. The most obvious problem was that it placed the innocent receiving lawyer in the position of having to decide between professionalism and zealously representing one’s client–two things which are not always in conflict but could be when one receives an inadvertently-sent document that would greatly help one’s client.
CBA 108 provides two rules, depending upon whether it is clear the document was mis-sent or not. For documents which may or may not be misdirected (e.g., document included in mass production but which appears to be attorney-client privileged), the receiving lawyer need only give notice to the sending lawyer. After that, the receiving lawyer may do as it wishes with the document. The sending lawyer may need to file an emergency motion with the Court to have any hope preserving a privilege.
For documents clearly mis-sent (such as a fax addressed to the sending lawyer’s client or a document about which the lawyer was notified prior to receipt), the recipient should abide by the sender’s instructions, including destroying or returning the document unread.
The effect of this Opinion is to put the burden to resolve the ethical problems on the sending lawyer–the lawyer who erred–rather than the innocent receiving lawyer.
1. Rule 1.6, the Colorado Rules of Professional Conduct (“C.R.P.C.”) provides:2. SOX § 205.3(d) provides:3. SEC §205.1 provides, in pertinent part: 4. People v. Macy, 789 P.2d 188 (Colo.1990) (attorney suspended for reviewing living trust packages prepared by non-lawyers, answering questions by non-lawyer salespersons regarding customer’s concerns, and accepting fee from salespersons); People v. Boyls, 197 Colo. 242, 591 P.2d 1315 (1979) (attorney suspended for working with non-lawyer salesmen to answer customer questions, preparing promotional materials, and assisting customer in setting up trusts).5. People v. Ellis, 70 P.2d 346, 101 Colo. 101 (1937) (attorney suspended for secretly bugging the Governor’s Office); People v. Selby, 606 P.2d 45 (Colo. 1979) (“[a] lawyer may not secretly record any conversation he has with another lawyer or person. . . . . Surreptitious recording suggests trickery and deceit.”); People v. Smith, 778 P.2d 685 (Colo. 1989) (attorney suspended for cooperating with FBI in investigation and secretly taping conversations with former clients). 6. CBA Formal Opinion 22 (1962) stated:7. Eg., People v. Rishel, 50 P.3d 938 (Colo. 2002) (attorney disbarred for converting Colorado Rockies season ticket pool money). 8. C.R.P.C. 4.2 provides:John M. Tanner
(a) A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b) and (c).
(b) A lawyer may reveal the intention of the lawyer’s client to commit a crime and the information necessary to prevent the crime. . . (Emphasis added.)
Rule 1.13, C.R.P.C., provides:
(b) If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law which reasonably might be imputed to the organization, and is likely to result in substantial injury to the organization, the lawyer shall proceed as is reasonably necessary in the best interest of the organization. In determining how to proceed, the lawyer shall give due consideration to the seriousness of the violation and its consequences, the scope and nature of the lawyer's representation, the responsibility in the organization and the apparent motivation of the person involved, the policies of the organization concerning such matters and any other relevant consideration. Any measures taken shall be designed to minimize disruption of the organization and the risk of revealing information relating to the representation to persons outside the organization. Such measures may include among others: (1) asking reconsideration of the matter;
(2) advising that a separate legal opinion on the matter be sought for presentation to appropriate authority in the organization; and
(3) referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act on behalf of the organization as determined by applicable law.
(c) If, despite the lawyer's efforts in accordance with paragraph (b), the highest authority that can act on behalf of the organization insists upon action, or a refusal to act, that is clearly a violation of law and is likely to result in substantial injury to the organization, the lawyer may resign in accordance with Rule 1.16. (Emphasis added.)
An attorney appearing and practicing before the Commission in the representation of an issuer may reveal to the Commission, without the issuer's consent, confidential information related to the representation to the extent the attorney reasonably believes necessary:
(I) To prevent the issuer from committing a material violation that is likely to cause substantial injury to the financial interest or property of the issuer or investors;
(ii) To prevent the issuer, in a Commission investigation or administrative proceeding from committing perjury, proscribed in 18 U.S.C. 1621; suborning perjury, proscribed in 18 U.S.C. 1622; or committing any act proscribed in 18 U.S.C. 1001 that is likely to perpetrate a fraud upon the Commission; or
(iii) To rectify the consequences of a material violation by the issuer that caused, or may cause, substantial injury to the financial interest or property of the issuer or investors in the furtherance of which the attorney's services were used. (Emphasis added.)
These standards supplement applicable standards of any jurisdiction where an attorney is admitted or practices and are not intended to limit the ability of any jurisdiction to impose additional obligations on an attorney not inconsistent with the application of this part. Where the standards of a state or other United States jurisdiction where an attorney is admitted or practices conflict with this part, this part shall govern. (Emphasis added.)
[W]e believe that the large majority of persons would not suspect that a conversation with an attorney was being surreptitiously recorded. Moreover, one reason for an attorney intentionally not disclosing that a particular conversation or statement is being recorded may be a belief that the person whose conversation is being recorded would choose his words more carefully, or speak less freely, or not at all, if such knowledge were imparted to him.
[T]here is inherent in the undisclosed use of a recording device under these circum stances an element of deception, artifice or trickery which falls below the standard of candor and fairness which all attorneys are bound to uphold.
In 1993, Colorado changed from the Model Code to the Model Rules. The CBA Ethics Committee issued an update to CBA 22 saying it was still in effect, relying on Rules 1.4(b), 4.1(a), and 4.4.