Calls for Lawyers to Blow the Whistle
The spectacular collapse of Enron Corp. is leading to renewed efforts to alter one of the most sacrosanct relationships in America--that between lawyer and client.
The cloak of confidentiality that guards the relationship has remained largely intact despite earlier attempts at reform triggered by the implication of lawyers in a series of scandals, from Watergate to the failure of Lincoln Savings & Loan.
But questions about the performance of Enron’s attorneys leading up to the firm’s collapse are prompting new calls for lawyers to blow the whistle on a client before financial harm is done to others--in much the same way lawyers are expected to speak up to prevent bodily injury or death.
The American Bar Assn. has rejected a similar proposal twice in recent months, but a leading legal ethicist is preparing to reintroduce a motion to allow lawyers to inform on clients who have used their services in crimes that could cause financial damage to creditors, clients, shareholders or others.
Many state bar associations already have such rules in place, lending credibility to the concept, but legal experts say the blessing of the ABA is crucial because many lawyers defer to ABA rules regardless of state practices.
“This should have been a slam dunk,” said Seth Rosner, a New York lawyer who chairs the Josephson Ethics Institute in Marina del Rey and advises firms on legal ethics. “You’re not talking about good clients. You’re talking about rat clients.”
Rosner, noting that he was not referring to Enron in particular, said he hopes the climate of reform generated by the Enron case will help get the rule adopted this time around.
The role of lawyers was in the spotlight this month as members of Congress questioned Enron’s legal advisors about why they failed to raise a red flag when they were asked to look into the accounting concerns raised by of Vice President Sherron S. Watkins.
The post-Enron scrutiny of corporate governance also is prompting the creation of an ABA task force on corporate responsibility and calls for government regulation of the lawyer-client relationship.
A group of professors from the nation’s most prestigious law schools is urging the Securities and Exchange Commission to adopt a rule requiring lawyers to notify the boards of public companies about instances of wrongdoing that are not being addressed by management. Such a rule would not address attorney-client confidentiality, but would push lawyers to be more aggressive in steering clients away from illegal acts.
“The disclosure obligation we suggest that the SEC expressly impose on lawyers--to tell clients’ directors when they are violating the law--is substantially less demanding than the disclosure obligation expressly imposed by federal law on accountants,” says the letter signed by professors at 20 universities, including Harvard, Yale, UCLA, Stanford and Notre Dame. “We hope that the SEC will also insist that lawyers professionally represent their clients in connection with disclosure obligations under securities laws.”
University of Illinois law professor Richard W. Painter said he drafted the letter to the SEC after the ABA’s failure in February to make looser confidentiality rules a part of a broad revision of professional ethics.
Lawyer-Client Privilege a Hot-Button Issue
SEC Chairman Harvey Pitt “has said in the wake of Enron, we are looking at any and all proposals, and nothing is off the table,” spokeswoman Christi Harlan said.
Long one of the thorniest questions facing the profession, how lawyers should reconcile their obligation to clients with their role in society periodically emerges as a hot-button issue and forces change.
For instance, ethics classes were not a part of the law school curriculum until an appearance at a congressional hearing by John Dean, the former White House lawyer whose testimony contributed to President Nixon’s resignation.
A member of the panel questioned Dean about the asterisks he had doodled next to several names on a list of key Watergate figures, said Robert P. Lawry, director of the Center for Professional Ethics at Case Western Reserve University in Cleveland.
“When asked about it, Dean said, ‘I was just musing to myself how many lawyers were involved,’” Lawry said. “Everybody raised hell, and we immediately began to change the rules. I came into teaching in 1975, in the wake of all that, and ethics were mandated.”
Rosner’s motion is likely to spark a debate over the question of how closely to guard client confidentiality at the ABA’s third and final national assembly in August to hammer out the last details of a major overhaul of its ethical canons.
“People are truly troubled by what role the lawyer should play,” said ABA President Robert E. Hirshon, who is assembling a task force to examine corporate responsibility issues, including the role of lawyers. “There is a tension between a lawyer as a strong adversary for his or her client, and the other side, which is making sure that the right thing gets done.”
One of the most vocal proponents of maintaining strict confidentiality rules is Lawrence J. Fox, former chair of the ABA’s ethics and professional responsibility committee. Because the law has many gray areas, he said, clients must be able to have open discussions with lawyers to get the best counsel.
Without strict confidentiality rules, lawyers would have to preface client calls with some kind of Miranda warning--anything you say can and will be used against you, Fox said.
“Lawyers have an obligation to remonstrate their client,” he said. “Every day in thousands of situations, lawyers do that. They say ‘Pay your taxes,’ ‘Produce the documents.’ Lawyers are regularly wonderful at getting clients to abide by the law. That’s why we want people to consult their lawyers, and we want those discussions to be full and free and frank.”
ABA’s Ethical Canons Carry Symbolic Heft
But Rosner, a former member of the ABA board of governors who 20 years ago argued for Fox’s view, said experience has taught him that a lawyer’s advice to a client isn’t always persuasive, and there are times when a lawyer ought to be able to report imminent financial crimes.
“They don’t tell you about crime and fraud,” he said. “I’ve been a business lawyer for 40 years, and they don’t tell you. You discover it and tell them, ‘You have to stop your criminal toxic discharge into the lake.’ And the client tells you, ‘Go jump in that lake.’”
Nothing the ABA does is binding. The Chicago-based professional organization’s ethical canons, known as Model Rules, are examples of professional conduct that state bar associations may follow. Unlike the ABA, many state bars are empowered by state supreme courts to license and sanction lawyers.
The current ABA rule says a lawyer may betray a client confidence to prevent actions that would likely result in “death or substantial bodily harm.”
California’s rule is considered one of the strictest, closely following the ABA model, allowing disclosure only to prevent death or bodily injury.
About 40 other states have loosened the rules, allowing a lawyer to expose a client secret to prevent financial harm to others. A few states, such as New Jersey, have gone so far as to require lawyers to report certain financial crimes.
Even though they are only advisory, the ABA’s ethical canons carry symbolic heft. In the case of the confidentiality rule, Fox said, he believes more lawyers follow the ABA guideline, regardless of the state rules.
That is exactly why “the ABA ought to revisit this issue in light of Enron,” said Eleanor W. Myers, a Temple University law professor who favors loosening the confidentiality rule.
“ABA rules count even though they are not binding,” she said. “They are the common voice of lawyers. If we suggest that confidentiality and loyalty are the most transcendent values, then that’s what gets transmitted.”
Rosner stressed that loosening the ABA’s confidentiality rule would in no way jeopardize the laws of evidence that protect communications involved in lawsuits and criminal cases.
*
Times staff writer Nancy Rivera Brooks contributed to this report.
