Commercial Real Estate Lawyer Blog

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[The statutes, regulations and ABA Model Rules contained herein
were reproduced from Lexis. However, the emphases added,
inserts, citations and annotations therein or thereto were
made by the author.]
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I. SARBANES-OXLEY ACT

§ 7245. Rules of professional responsibility for attorneys
"Not later than 180 days after the date of enactment of this
Act [enacted July 30, 2002], the Commission shall issue rules,
in the public interest and for the protection of investors,
setting forth minimum standards of professional conduct for
attorneys appearing and practicing before the Commission in
any way in the representation of issuers, including a rule--
(1) requiring an attorney to report evidence of a material
violation of securities law or breach of fiduciary duty or
similar violation by the company or any agent thereof, to the
chief legal counsel or the chief executive officer of the
company (or the equivalent thereof); and
(2) if the counsel or officer does not appropriately
respond to the evidence (adopting, as necessary, appropriate
remedial measures or sanctions with respect to the violation),
requiring the attorney to report the evidence to the audit
committee of the board of directors of the issuer or to
another committee of the board of directors comprised solely
of directors not employed directly or indirectly by the
issuer, or to the board of directors."
C.F.R. TITLE 17 -- COMMODITY AND SECURITIES EXCHANGES
CHAPTER II -- SECURITIES AND EXCHANGE COMMISSION
PART 205 -- STANDARDS OF PROFESSIONAL CONDUCT FOR ATTORNEYS
APPEARING AND PRACTICING BEFORE THE COMMISSION IN THE
REPRESENTATION OF AN ISSUER
"§ 205.1 Purpose and scope.
This part sets forth minimum standards of professional
conduct for attorneys appearing and practicing before the
Commission in the representation of an issuer. 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.
§ 205.2 Definitions.
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For purposes of this part, the following definitions
apply:
(a) Appearing and practicing before the Commission:
(1) Means:
(i) Transacting any business with the Commission,
including communications in any form;
(ii) Representing an issuer in a Commission administrative
proceeding or in connection with any Commission investigation,
inquiry, information request, or subpoena;
(iii) Providing advice in respect of the United States
securities laws or the Commission's rules or regulations
thereunder regarding any document that the attorney has notice
will be filed with or submitted to, or incorporated into any
document that will be filed with or submitted to, the
Commission, including the provision of such advice in the
context of preparing, or participating in the preparation of,
any such document; or
(iv) Advising an issuer as to whether information or a
statement, opinion, or other writing is required under the
United States securities laws or the Commission's rules or
regulations thereunder to be filed with or submitted to, or
incorporated into any document that will be filed with or
submitted to, the Commission; but
(2) Does not include an attorney who:
(i) Conducts the activities in paragraphs (a)(1)(i)
through (a)(1)(iv) of this section other than in the context
of providing legal services to an issuer with whom the
attorney has an attorney-client relationship; or
(ii) Is a non-appearing foreign attorney.
(b) Appropriate response means a response to an attorney
regarding reported evidence of a material violation as a
result of which the attorney reasonably believes:
(1) That no material violation, as defined in paragraph
(i) of this section, has occurred, is ongoing, or is about to
occur;
(2) That the issuer has, as necessary, adopted appropriate
remedial measures, including appropriate steps or sanctions to
stop any material violations that are ongoing, to prevent any
material violation that has yet to occur, and to remedy or
otherwise appropriately address any material violation that
has already occurred and to minimize the likelihood of its
recurrence; or
(3) That the issuer, with the consent of the issuer's
board of directors, a committee thereof to whom a report could
be made pursuant to § 205.3(b)(3), or a qualified legal
compliance committee, has retained or directed an attorney to
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review the reported evidence of a material violation and
either:
(i) Has substantially implemented any remedial
recommendations made by such attorney after a reasonable
investigation and evaluation of the reported evidence; or
(ii) Has been advised that such attorney may, consistent
with his or her professional obligations, assert a colorable
defense on behalf of the issuer (or the issuer's officer,
director, employee, or agent, as the case may be) in any
investigation or judicial or administrative proceeding
relating to the reported evidence of a material violation.
(c) Attorney means any person who is admitted, licensed,
or otherwise qualified to practice law in any jurisdiction,
domestic or foreign, or who holds himself or herself out as
admitted, licensed, or otherwise qualified to practice law.
(d) Breach of fiduciary duty refers to any breach of
fiduciary or similar duty to the issuer recognized under an
applicable Federal or State statute or at common law,
including but not limited to misfeasance, nonfeasance,
abdication of duty, abuse of trust, and approval of unlawful
transactions.
(e) Evidence of a material violation means credible
evidence, based upon which it would be unreasonable, under the
circumstances, for a prudent and competent attorney not to
conclude that it is reasonably likely that a material
violation has occurred, is ongoing, or is about to occur.
(f) Foreign government issuer means a foreign issuer as
defined in 17 CFR 230.405 eligible to register securities on
Schedule B of the Securities Act of 1933 (15 U.S.C. 77a et
seq., Schedule B).
(g) In the representation of an issuer means providing
legal services as an attorney for an issuer, regardless of
whether the attorney is employed or retained by the issuer.
(h) Issuer means an issuer (as defined in section 3 of the
Securities Exchange Act of 1934 (15 U.S.C. 78c)), the
securities of which are registered under section 12 of that
Act (15 U.S.C. 78l), or that is required to file reports under
section 15(d) of that Act (15 U.S.C. 78o(d)), or that files or
has filed a registration statement that has not yet become
effective under the Securities Act of 1933 (15 U.S.C. 77a et
seq.), and that it has not withdrawn, but does not include a
foreign government issuer. For purposes of paragraphs (a) and
(g) of this section, the term "issuer" includes any person
controlled by an issuer, where an attorney provides legal
services to such person on behalf of, or at the behest, or for
the benefit of the issuer, regardless of whether the attorney
is employed or retained by the issuer.
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(i) Material violation means a material violation of an
applicable United States federal or state securities law, a
material breach of fiduciary duty arising under United States
federal or state law, or a similar material violation of any
United States federal or state law.
(j) Non-appearing foreign attorney means an attorney:
(1) Who is admitted to practice law in a jurisdiction
outside the United States;
(2) Who does not hold himself or herself out as
practicing, and does not give legal advice regarding, United
States federal or state securities or other laws (except as
provided in paragraph (j)(3)(ii) of this section); and
(3) Who:
(i) Conducts activities that would constitute appearing
and practicing before the Commission only incidentally to, and
in the ordinary course of, the practice of law in a
jurisdiction outside the United States; or
(ii) Is appearing and practicing before the Commission
only in consultation with counsel, other than a non-appearing
foreign attorney, admitted or licensed to practice in a state
or other United States jurisdiction.
(k) Qualified legal compliance committee means a committee
of an issuer (which also may be an audit or other committee of
the issuer) that:
(1) Consists of at least one member of the issuer's audit
committee (or, if the issuer has no audit committee, one
member from an equivalent committee of independent directors)
and two or more members of the issuer's board of directors who
are not employed, directly or indirectly, by the issuer and
who are not, in the case of a registered investment company,
"interested persons" as defined in section 2(a)(19) of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19));
(2) Has adopted written procedures for the confidential
receipt, retention, and consideration of any report of
evidence of a material violation under § 205.3;
(3) Has been duly established by the issuer's board of
directors, with the authority and responsibility:
(i) To inform the issuer's chief legal officer and chief
executive officer (or the equivalents thereof) of any report
of evidence of a material violation (except in the
circumstances described in § 205.3(b)(4));
(ii) To determine whether an investigation is necessary
regarding any report of evidence of a material violation by
the issuer, its officers, directors, employees or agents and,
if it determines an investigation is necessary or appropriate,
to:
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(A) Notify the audit committee or the full board of
directors;
(B) Initiate an investigation, which may be conducted
either by the chief legal officer (or the equivalent thereof)
or by outside attorneys; and
(C) Retain such additional expert personnel as the
committee deems necessary; and
(iii) At the conclusion of any such investigation, to:
(A) Recommend, by majority vote, that the issuer implement
an appropriate response to evidence of a material violation;
and
(B) Inform the chief legal officer and the chief executive
officer (or the equivalents thereof) and the board of
directors of the results of any such investigation under this
section and the appropriate remedial measures to be adopted;
and
(4) Has the authority and responsibility, acting by
majority vote, to take all other appropriate action, including
the authority to notify the Commission in the event that the
issuer fails in any material respect to implement an
appropriate response that the qualified legal compliance
committee has recommended the issuer to take.
(l) Reasonable or reasonably denotes, with respect to the
actions of an attorney, conduct that would not be unreasonable
for a prudent and competent attorney.
(m) Reasonably believes means that an attorney believes
the matter in question and that the circumstances are such
that the belief is not unreasonable.
(n) Report means to make known to directly, either in
person, by telephone, by e-mail, electronically, or in
writing.
§ 205.3 Issuer as client.
(a) Representing an issuer. An attorney appearing and
practicing before the Commission in the representation of an
issuer owes his or her professional and ethical duties to the
issuer as an organization. That the attorney may work with and
advise the issuer's officers, directors, or employees in the
course of representing the issuer does not make such
individuals the attorney's clients.
(b) Duty to report evidence of a material violation. (1)
If an attorney, appearing and practicing before the Commission
in the representation of an issuer, becomes aware of evidence
of a material violation by the issuer or by any officer,
director, employee, or agent of the issuer, the attorney shall
[vs. may] report such evidence to the issuer's chief legal
officer (or the equivalent thereof) or to both the issuer's
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chief legal officer and its chief executive officer (or the
equivalents thereof) forthwith. By communicating such
information to the issuer's officers or directors, an attorney
does not reveal client confidences or secrets or privileged or
otherwise protected information related to the attorney's
representation of an issuer.
(2) The chief legal officer (or the equivalent thereof)
shall cause such inquiry into the evidence of a material
violation as he or she reasonably believes is appropriate to
determine whether the material violation described in the
report has occurred, is ongoing, or is about to occur. If the
chief legal officer (or the equivalent thereof) determines no
material violation has occurred, is ongoing, or is about to
occur, he or she shall notify the reporting attorney and
advise the reporting attorney of the basis for such
determination. Unless the chief legal officer (or the
equivalent thereof) reasonably believes that no material
violation has occurred, is ongoing, or is about to occur, he
or she shall [vs. may] take all reasonable steps to
cause the issuer to adopt an appropriate response, and shall
advise the reporting attorney thereof. In lieu of causing an
inquiry under this paragraph (b), a chief legal officer (or
the equivalent thereof) may refer a report of evidence of a
material violation to a qualified legal compliance committee
under paragraph (c)(2) of this section if the issuer has duly
established a qualified legal compliance committee prior to
the report of evidence of a material violation.
(3) Unless an attorney who has made a report under
paragraph (b)(1) of this section reasonably believes that the
chief legal officer or the chief executive officer of the
issuer (or the equivalent thereof) has provided an appropriate
response within a reasonable time, the attorney shall report
the evidence of a material violation to:
(i) The audit committee of the issuer's board of
directors;
(ii) Another committee of the issuer's board of directors
consisting solely of directors who are not employed, directly
or indirectly, by the issuer and are not, in the case of a
registered investment company, "interested persons" as defined
in section 2(a)(19) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a)(19)) (if the issuer's board of directors has
no audit committee); or
(iii) The issuer's board of directors (if the issuer's
board of directors has no committee consisting solely of
directors who are not employed, directly or indirectly, by the
issuer and are not, in the case of a registered investment
company, "interested persons" as defined in section 2(a)(19)
of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(19))).
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(4) If an attorney reasonably believes that it would be
futile to report evidence of a material violation to the
issuer's chief legal officer and chief executive officer (or
the equivalents thereof) under paragraph (b)(1) of this
section, the attorney may report such evidence as provided
under paragraph (b)(3) of this section.
(5) An attorney retained or directed by an issuer to
investigate evidence of a material violation reported under
paragraph (b)(1), (b)(3), or (b)(4) of this section shall be
deemed to be appearing and practicing before the Commission.
Directing or retaining an attorney to investigate reported
evidence of a material violation does not relieve an officer
or director of the issuer to whom such evidence has been
reported under paragraph (b)(1), (b)(3), or (b)(4) of this
section from a duty to respond to the reporting attorney.
(6) An attorney shall not have any obligation to report
evidence of a material violation under this paragraph (b) if:
(i) The attorney was retained or directed by the issuer's
chief legal officer (or the equivalent thereof) to investigate
such evidence of a material violation and:
(A) The attorney reports the results of such investigation
to the chief legal officer (or the equivalent thereof); and
(B) Except where the attorney and the chief legal officer
(or the equivalent thereof) each reasonably believes that no
material violation has occurred, is ongoing, or is about to
occur, the chief legal officer (or the equivalent thereof)
reports the results of the investigation to the issuer's board
of directors, a committee thereof to whom a report could be
made pursuant to paragraph (b)(3) of this section, or a
qualified legal compliance committee; or
(ii) The attorney was retained or directed by the chief
legal officer (or the equivalent thereof) to assert,
consistent with his or her professional obligations, a
colorable defense on behalf of the issuer (or the issuer's
officer, director, employee, or agent, as the case may be) in
any investigation or judicial or administrative proceeding
relating to such evidence of a material violation, and the
chief legal officer (or the equivalent thereof) provides
reasonable and timely reports on the progress and outcome of
such proceeding to the issuer's board of directors, a
committee thereof to whom a report could be made pursuant to
paragraph (b)(3) of this section, or a qualified legal
compliance committee.
(7) An attorney shall not have any obligation to report
evidence of a material violation under this paragraph (b) if
such attorney was retained or directed by a qualified legal
compliance committee:
(i) To investigate such evidence of a material violation;
or
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(ii) To assert, consistent with his or her professional
obligations, a colorable defense on behalf of the issuer (or
the issuer's officer, director, employee, or agent, as the
case may be) in any investigation or judicial or
administrative proceeding relating to such evidence of a
material violation.
(8) An attorney who receives what he or she reasonably
believes is an appropriate and timely response to a report he
or she has made pursuant to paragraph (b)(1), (b)(3), or
(b)(4) of this section need do nothing more under this section
with respect to his or her report.
(9) An attorney who does not reasonably believe that the
issuer has made an appropriate response within a reasonable
time to the report or reports made pursuant to paragraph
(b)(1), (b)(3), or (b)(4) of this section shall explain his or
her reasons therefor to the chief legal officer (or the
equivalent thereof), the chief executive officer (or the
equivalent thereof), and directors to whom the attorney
reported the evidence of a material violation pursuant to
paragraph (b)(1), (b)(3), or (b)(4) of this section.
(10) An attorney formerly employed or retained by an
issuer who has reported evidence of a material violation under
this part and reasonably believes that he or she has been
discharged for so doing may notify the issuer's board of
directors or any committee thereof that he or she believes
that he or she has been discharged for reporting evidence of a
material violation under this section.
(c) Alternative reporting procedures for attorneys
retained or employed by an issuer that has established a
qualified legal compliance committee. (1) If an attorney,
appearing and practicing before the Commission in the
representation of an issuer, becomes aware of evidence of a
material violation by the issuer or by any officer, director,
employee, or agent of the issuer, the attorney may, as an
alternative to the reporting requirements of paragraph (b) of
this section, report such evidence to a qualified legal
compliance committee, if the issuer has previously formed such
a committee. An attorney who reports evidence of a material
violation to such a qualified legal compliance committee has
satisfied his or her obligation to report such evidence and is
not required to assess the issuer's response to the reported
evidence of a material violation.
(2) A chief legal officer (or the equivalent thereof) may
refer a report of evidence of a material violation to a
previously established qualified legal compliance committee in
lieu of causing an inquiry to be conducted under paragraph
(b)(2) of this section. The chief legal officer (or the
equivalent thereof) shall inform the reporting attorney that
the report has been referred to a qualified legal compliance
committee. Thereafter, pursuant to the requirements under §
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205.2(k), the qualified legal compliance committee shall be
responsible for responding to the evidence of a material
violation reported to it under this paragraph (c).
[Paragraphs (b) and (c) are up-the-latter reporting, as
opposed to withdrawal or disclosure to the SEC.]
(d) Issuer confidences. (1) Any report under this section
(or the contemporaneous record thereof) or any response
thereto (or the contemporaneous record thereof) may [vs.
shall] be used by an attorney in connection with any
investigation, proceeding, or litigation in which the
attorney's compliance with this part is in issue.
(2) An attorney appearing and practicing before the
Commission in the representation of an issuer may [vs.
shall] 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.
§ 205.4 Responsibilities of supervisory attorneys.
(a) An attorney supervising or directing another attorney
who is appearing and practicing before the Commission in the
representation of an issuer is a supervisory attorney. An
issuer's chief legal officer (or the equivalent thereof) is a
supervisory attorney under this section.
(b) A supervisory attorney shall make reasonable efforts
to ensure that a subordinate attorney, as defined in §
205.5(a), that he or she supervises or directs conforms to
this part. To the extent a subordinate attorney appears and
practices before the Commission in the representation of an
issuer, that subordinate attorney's supervisory attorneys also
appear and practice before the Commission.
(c) A supervisory attorney is responsible for complying
with the reporting requirements in § 205.3 when a subordinate
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attorney has reported to the supervisory attorney evidence of
a material violation.
(d) A supervisory attorney who has received a report of
evidence of a material violation from a subordinate attorney
under § 205.3 may report such evidence to the issuer's
qualified legal compliance committee if the issuer has duly
formed such a committee.
§ 205.5 Responsibilities of a subordinate attorney.
(a) An attorney who appears and practices before the
Commission in the representation of an issuer on a matter
under the supervision or direction of another attorney (other
than under the direct supervision or direction of the issuer's
chief legal officer (or the equivalent thereof)) is a
subordinate attorney.
(b) A subordinate attorney shall comply with this part
notwithstanding that the subordinate attorney acted at the
direction of or under the supervision of another person.
(c) A subordinate attorney complies with § 205.3 if the
subordinate attorney reports to his or her supervising
attorney under § 205.3(b) evidence of a material violation of
which the subordinate attorney has become aware in appearing
and practicing before the Commission.
(d) A subordinate attorney may take the steps permitted or
required by § 205.3(b) or (c) if the subordinate attorney
reasonably believes that a supervisory attorney to whom he or
she has reported evidence of a material violation under §
205.3(b) has failed to comply with § 205.3.
§ 205.6 Sanctions and discipline.
(a) A violation of this part by any attorney appearing and
practicing before the Commission in the representation of an
issuer shall subject such attorney to the civil penalties and
remedies for a violation of the federal securities laws
available to the Commission in an action brought by the
Commission thereunder.
(b) An attorney appearing and practicing before the
Commission who violates any provision of this part is subject
to the disciplinary authority of the Commission, regardless of
whether the attorney may also be subject to discipline for the
same conduct in a jurisdiction where the attorney is admitted
or practices. An administrative disciplinary proceeding
initiated by the Commission for violation of this part may
result in an attorney being censured, or being temporarily or
permanently denied the privilege of appearing or practicing
before the Commission.
(c) An attorney who complies in good faith with the
provisions of this part shall not be subject to discipline or
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otherwise liable under inconsistent standards imposed by any
state or other United States jurisdiction where the attorney
is admitted or practices.
(d) An attorney practicing outside the United States shall
not be required to comply with the requirements of this part
to the extent that such compliance is prohibited by applicable
foreign law.
§ 205.7 No private right of action.
(a) Nothing in this part is intended to, or does, create a
private right of action against any attorney, law firm, or
issuer based upon compliance or noncompliance with its
provisions.
(b) Authority to enforce compliance with this part is
vested exclusively in the Commission."
[emphasis added throughout]
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II. ABA MODEL RULES OF PROFESSIONAL CONDUCT
A. RULE 1.0. TERMINOLOGY
Amended February 5th, 2002, American Bar Association House of Delegates,
Philadelphia, Pennsylvania, per Report No. 401.
. . .
"(f) "Knowingly," "known," or "knows" denotes actual knowledge of the fact in
question. A person's knowledge may be inferred from circumstances."
B. RULE 1.6. CONFIDENTIALITY OF INFORMATION
Amended August 11, 2003, American Bar Association House of Delegates,
Denver, Colorado, Report No. 119A.
"(a) A lawyer shall not reveal information relating to the representation of a
client unless the client gives informed consent, the disclosure is impliedly
authorized in order to carry out the representation or the disclosure is permitted
by paragraph (b).
(b) A lawyer may [vs. shall] reveal information relating to the
representation of a client to the extent the lawyer reasonably believes
necessary:
(1) to prevent reasonably certain death or substantial bodily harm;
(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;
(4) to secure legal advice about the lawyer's compliance with these Rules;
(5) to establish a claim or defense on behalf of the lawyer in a controversy
between the lawyer and the client, to establish a defense to a criminal charge or
civil claim against the lawyer based upon conduct in which the client was
involved, or to respond to allegations in any proceeding concerning the lawyer's
representation of the client; or
(6) to comply with other law or a court order.
Comment
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[1] This Rule governs the disclosure by a lawyer of information relating to the
representation of a client during the lawyer's representation of the client. See
Rule 1.18 for the lawyer's duties with respect to information provided to the
lawyer by a prospective client, Rule 1.9(c)(2) for the lawyer's duty not to reveal
information relating to the lawyer's prior representation of a former client and
Rules 1.8(b) and 1.9(c)(1) for the lawyer's duties with respect to the use of such
information to the disadvantage of clients and former clients.
[2] A fundamental principle in the client-lawyer relationship is that, in the
absence of the client's informed consent, the lawyer must not reveal information
relating to the representation. See Rule 1.0(e) for the definition of informed
consent. This contributes to the trust that is the hallmark of the client-lawyer
relationship. The client is thereby encouraged to seek legal assistance and to
communicate fully and frankly with the lawyer even as to embarrassing or legally
damaging subject matter. The lawyer needs this information to represent the
client effectively and, if necessary, to advise the client to refrain from wrongful
conduct. Almost without exception, clients come to lawyers in order to determine
their rights and what is, in the complex of laws and regulations, deemed to be
legal and correct. Based upon experience, lawyers know that almost all clients
follow the advice given, and the law is upheld.
[3] The principle of client-lawyer confidentiality is given effect by related bodies
of law: the attorney-client privilege, the work product doctrine and the rule of
confidentiality established in professional ethics. The attorney-client privilege and
work product doctrine apply in judicial and other proceedings in which a lawyer
may be called as a witness or otherwise required to produce evidence concerning
a client. The rule of client-lawyer confidentiality applies in situations other than
those where evidence is sought from the lawyer through compulsion of law. The
confidentiality rule, for example, applies not only to matters communicated in
confidence by the client but also to all information relating to the representation,
whatever its source. A lawyer may not disclose such information except as
authorized or required by the Rules of Professional Conduct or other law. See
also Scope.
[4] Paragraph (a) prohibits a lawyer from revealing information relating to the
representation of a client. This prohibition also applies to disclosures by a lawyer
that do not in themselves reveal protected information but could reasonably lead
to the discovery of such information by a third person. A lawyer's use of a
hypothetical to discuss issues relating to the representation is permissible so
long as there is no reasonable likelihood that the listener will be able to ascertain
the identity of the client or the situation involved.
Authorized Disclosure
[5] Except to the extent that the client's instructions or special circumstances
limit that authority, a lawyer is impliedly authorized to make disclosures about a
client when appropriate in carrying out the representation. In some situations,
for example, a lawyer may be impliedly authorized to admit a fact that cannot
properly be disputed or to make a disclosure that facilitates a satisfactory
conclusion to a matter. Lawyers in a firm may, in the course of the firm's
practice, disclose to each other information relating to a client of the firm, unless
the client has instructed that particular information be confined to specified
lawyers.
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Disclosure Adverse to Client
[6] Although the public interest is usually best served by a strict rule requiring
lawyers to preserve the confidentiality of information relating to the
representation of their clients, the confidentiality rule is subject to limited
exceptions. Paragraph (b)(1) recognizes the overriding value of life and physical
integrity and permits disclosure reasonably necessary to prevent reasonably
certain death or substantial bodily harm. Such harm is reasonably certain to
occur if it will be suffered imminently or if there is a present and substantial
threat that a person will suffer such harm at a later date if the lawyer fails to
take action necessary to eliminate the threat. Thus, a lawyer who knows that a
client has accidentally discharged toxic waste into a town's water supply may
reveal this information to the authorities if there is a present and substantial risk
that a person who drinks the water will contract a life-threatening or debilitating
disease and the lawyer's disclosure is necessary to eliminate the threat or reduce
the number of victims.
[7] Paragraph (b)(2) is a limited exception to the rule of confidentiality that
permits the lawyer to reveal information to the extent necessary to enable
affected persons or appropriate authorities to prevent the client from committing
a crime or fraud, as defined in Rule 1.0(d), that is reasonably certain to result in
substantial injury to the financial or property interests of another and in
furtherance of which the client has used or is using the lawyer's services. Such a
serious abuse of the client-lawyer relationship by the client forfeits the protection
of this Rule. The client can, of course, prevent such disclosure by refraining from
the wrongful conduct. Although paragraph (b)(2) does not require the lawyer to
reveal the client's misconduct, the lawyer may not counsel or assist the client in
conduct the lawyer knows is criminal or fraudulent. See Rule 1.2(d). See also
Rule 1.16 with respect to the lawyer's obligation or right to withdraw from the
representation of the client in such circumstances, and Rule 1.13(c), which
permits the lawyer, where the client is an organization, to reveal information
relating to the representation in limited circumstances.
[8] Paragraph (b)(3) addresses the situation in which the lawyer does not learn
of the client's crime or fraud until after it has been consummated. Although the
client no longer has the option of preventing disclosure by refraining from the
wrongful conduct, there will be situations in which the loss suffered by the
affected person can be prevented, rectified or mitigated. In such situations, the
lawyer may disclose information relating to the representation to the extent
necessary to enable the affected persons to prevent or mitigate reasonably
certain losses or to attempt to recoup their losses. Paragraph (b)(3) does not
apply when a person who has committed a crime or fraud thereafter employs a
lawyer for representation concerning that offense.
[9] A lawyer's confidentiality obligations do not preclude a lawyer from securing
confidential legal advice about the lawyer's personal responsibility to comply with
these Rules. In most situations, disclosing information to secure such advice will
be impliedly authorized for the lawyer to carry out the representation. Even
when the disclosure is not impliedly authorized, paragraph (b)(4) permits such
disclosure because of the importance of a lawyer's compliance with the Rules of
Professional Conduct.
[10] Where a legal claim or disciplinary charge alleges complicity of the lawyer in
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a client's conduct or other misconduct of the lawyer involving representation of
the client, the lawyer may respond to the extent the lawyer reasonably believes
necessary to establish a defense. The same is true with respect to a claim
involving the conduct or representation of a former client. Such a charge can
arise in a civil, criminal, disciplinary or other proceeding and can be based on a
wrong allegedly committed by the lawyer against the client or on a wrong alleged
by a third person, for example, a person claiming to have been defrauded by the
lawyer and client acting together. The lawyer's right to respond arises when an
assertion of such complicity has been made. Paragraph (b)(5) does not require
the lawyer to await the commencement of an action or proceeding that charges
such complicity, so that the defense may be established by responding directly to
a third party who has made such an assertion. The right to defend also applies,
of course, where a proceeding has been commenced.
[11] A lawyer entitled to a fee is permitted by paragraph (b)(5) to prove the
services rendered in an action to collect it. This aspect of the rule expresses the
principle that the beneficiary of a fiduciary relationship may not exploit it to the
detriment of the fiduciary.
[12] Other law may require that a lawyer disclose information about a client.
Whether such a law supersedes Rule 1.6 is a question of law beyond the scope
of these Rules. When disclosure of information relating to the representation
appears to be required by other law, the lawyer must discuss the matter with the
client to the extent required by Rule 1.4. If, however, the other law supersedes
this Rule and requires disclosure, paragraph (b)(6) permits the lawyer to make
such disclosures as are necessary to comply with the law.
[13] A lawyer may be ordered to reveal information relating to the
representation of a client by a court or by another tribunal or governmental
entity claiming authority pursuant to other law to compel the disclosure. Absent
informed consent of the client to do otherwise, the lawyer should assert on
behalf of the client all nonfrivolous claims that the order is not authorized by
other law or that the information sought is protected against disclosure by the
attorney-client privilege or other applicable law. In the event of an adverse
ruling, the lawyer must consult with the client about the possibility of appeal to
the extent required by Rule 1.4. Unless review is sought, however, paragraph
(b)(6) permits the lawyer to comply with the court's order.
[14] Paragraph (b) permits disclosure only to the extent the lawyer reasonably
believes the disclosure is necessary to accomplish one of the purposes specified.
Where practicable, the lawyer should first seek to persuade the client to take
suitable action to obviate the need for disclosure. In any case, a disclosure
adverse to the client's interest should be no greater than the lawyer reasonably
believes necessary to accomplish the purpose. If the disclosure will be made in
connection with a judicial proceeding, the disclosure should be made in a manner
that limits access to the information to the tribunal or other persons having a
need to know it and appropriate protective orders or other arrangements should
be sought by the lawyer to the fullest extent practicable.
[15] Paragraph (b) permits but does not require the disclosure of information
relating to a client's representation to accomplish the purposes specified in
paragraphs (b)(1) through (b)(6). In exercising the discretion conferred by this
Rule, the lawyer may consider such factors as the nature of the lawyer's
relationship with the client and with those who might be injured by the client, the
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lawyer's own involvement in the transaction and factors that may extenuate the
conduct in question. A lawyer's decision not to disclose as permitted by
paragraph (b) does not violate this Rule. Disclosure may be required, however,
by other Rules. Some Rules require disclosure only if such disclosure would be
permitted by paragraph (b). See Rules 1.2(d), 4.1(b), 8.1 and 8.3. Rule 3.3, on
the other hand, requires disclosure in some circumstances regardless of whether
such disclosure is permitted by this Rule. See Rule 3.3(c).
Acting Competently to Preserve Confidentiality
[16] A lawyer must act competently to safeguard information relating to the
representation of a client against inadvertent or unauthorized disclosure by the
lawyer or other persons who are participating in the representation of the client
or who are subject to the lawyer's supervision. See Rules 1.1, 5.1 and 5.3.
[17] When transmitting a communication that includes information relating to
the representation of a client, the lawyer must take reasonable precautions to
prevent the information from coming into the hands of unintended recipients.
This duty, however, does not require that the lawyer use special security
measures if the method of communication affords a reasonable expectation of
privacy. Special circumstances, however, may warrant special precautions.
Factors to be considered in determining the reasonableness of the lawyer's
expectation of confidentiality include the sensitivity of the information and the
extent to which the privacy of the communication is protected by law or by a
confidentiality agreement. A client may require the lawyer to implement special
security measures not required by this Rule or may give informed consent to the
use of a means of communication that would otherwise be prohibited by this
Rule.
Former Client
[18] The duty of confidentiality continues after the client-lawyer relationship has
terminated. See Rule 1.9(c)(2). See Rule 1.9(c)(1) for the prohibition against
using such information to the disadvantage of the former client."
C. RULE 1.13. ORGANIZATION AS CLIENT
Amended August 12, 2003, American Bar Association House of Delegates,
Denver, Colorado, Report No. 119B.
"(a) A lawyer employed or retained by an organization represents the
organization acting through its duly authorized constituents.
(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 that reasonably might be
imputed to the organization, and that is likely to result in substantial injury to
the organization, then the lawyer shall [vs. may] proceed as is
reasonably necessary in the best interest of the organization. Unless the lawyer
reasonably believes that it is not necessary in the best interest of the
organization to do so, the lawyer shall refer the matter to higher authority in the
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organization, including, if warranted by the circumstances, to the highest
authority that can act on behalf of the organization as determined by applicable
law.
(c) Except as provided in paragraph (d), if
(1) despite the lawyer's efforts in accordance with paragraph (b) the highest
authority that can act on behalf of the organization insists upon or fails to
address in a timely and appropriate manner an action or a refusal to act, that is
clearly a violation of law, and
(2) the lawyer reasonably believes that the violation is reasonably certain to
result in substantial injury to the organization,
then the lawyer may [vs. shall] 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.
(d) Paragraph (c) shall not apply with respect to information relating to a
lawyer's representation of an organization to investigate an alleged violation of
law, or to defend the organization or an officer, employee or other constituent
associated with the organization against a claim arising out of an alleged
violation of law.
(e) A lawyer who reasonably believes that he or she has been discharged
because of the lawyer's actions taken pursuant to paragraphs (b) or (c), or who
withdraws under circumstances that require or permit the lawyer to take action
under either of those paragraphs, shall proceed as the lawyer reasonably
believes necessary to assure that the organization's highest authority is informed
of the lawyer's discharge or withdrawal.
(f) In dealing with an organization's directors, officers, employees, members,
shareholders or other constituents, a lawyer shall explain the identity of the
client when the lawyer knows or reasonably should know that the organization's
interests are adverse to those of the constituents with whom the lawyer is
dealing.
(g) A lawyer representing an organization may also represent any of its
directors, officers, employees, members, shareholders or other constituents,
subject to the provisions of Rule 1.7. If the organization's consent to the dual
representation is required by Rule 1.7, the consent shall be given by an
appropriate official of the organization other than the individual who is to be
represented, or by the shareholders.
[In Itskowitz v. White and Williams, 2005 Phila. Ct. Com. Pl. LEXIS 595 (2005),
the Court cited and sought to apply 10 factors to determine whether an attorneyclient
relationship had been formed, informally, between the attorney for a
partnership and one of the partners of that partnership.]
Comment
The Entity as the Client
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[1] An organizational client is a legal entity, but it cannot act except through its
officers, directors, employees, shareholders and other constituents. Officers,
directors, employees and shareholders are the constituents of the corporate
organizational client. The duties defined in this Comment apply equally to
unincorporated associations. "Other constituents" as used in this Comment
means the positions equivalent to officers, directors, employees and
shareholders held by persons acting for organizational clients that are not
corporations.
[2] When one of the constituents of an organizational client communicates with
the organization's lawyer in that person's organizational capacity, the
communication is protected by Rule 1.6. Thus, by way of example, if an
organizational client requests its lawyer to investigate allegations of wrongdoing,
interviews made in the course of that investigation between the lawyer and the
client's employees or other constituents are covered by Rule 1.6. This does not
mean, however, that constituents of an organizational client are the clients of the
lawyer. The lawyer may not disclose to such constituents information relating to
the representation except for disclosures explicitly or impliedly authorized by the
organizational client in order to carry out the representation or as otherwise
permitted by Rule 1.6.
[3] When constituents of the organization make decisions for it, the decisions
ordinarily must be accepted by the lawyer even if their utility or prudence is
doubtful. Decisions concerning policy and operations, including ones entailing
serious risk, are not as such in the lawyer's province. Paragraph (b) makes clear,
however, that when the lawyer knows that the organization is likely to be
substantially injured by action of an officer or other constituent that violates a
legal obligation to the organization or is in violation of law that might be imputed
to the organization, the lawyer must proceed as is reasonably necessary in the
best interest of the organization. As defined in Rule 1.0(f), knowledge can be
inferred from circumstances, and a lawyer cannot ignore the obvious.
[4] In determining how to proceed under paragraph (b), the lawyer should give
due consideration to the seriousness of the violation and its consequences, 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 considerations. Ordinarily, referral to a higher authority would be
necessary. In some circumstances, however, it may be appropriate for the
lawyer to ask the constituent to reconsider the matter; for example, if the
circumstances involve a constituent's innocent misunderstanding of law and
subsequent acceptance of the lawyer's advice, the lawyer may reasonably
conclude that the best interest of the organization does not require that the
matter be referred to higher authority. If a constituent persists in conduct
contrary to the lawyer's advice, it will be necessary for the lawyer to take steps
to have the matter reviewed by a higher authority in the organization. If the
matter is of sufficient seriousness and importance or urgency to the organization,
referral to higher authority in the organization may be necessary even if the
lawyer has not communicated with the constituent. Any measures taken should,
to the extent practicable, minimize the risk of revealing information relating to
the representation to persons outside the organization. Even in circumstances
where a lawyer is not obligated by Rule 1.13 to proceed, a lawyer may bring to
the attention of an organizational client, including its highest authority, matters
that the lawyer reasonably believes to be of sufficient importance to warrant
doing so in the best interest of the organization.
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[5] Paragraph (b) also makes clear that when it is reasonably necessary to
enable the organization to address the matter in a timely and appropriate
manner, the lawyer must refer the matter to higher authority, including, if
warranted by the circumstances, the highest authority that can act on behalf of
the organization under applicable law. The organization's highest authority to
whom a matter may be referred ordinarily will be the board of directors or similar
governing body. However, applicable law may prescribe that under certain
conditions the highest authority reposes elsewhere, for example, in the
independent directors of a corporation.
Relation to Other Rules
[6] The authority and responsibility provided in this Rule are concurrent with the
authority and responsibility provided in other Rules. In particular, this Rule does
not limit or expand the lawyer's responsibility under Rules 1.8, 1.16, 3.3 or 4.1.
Paragraph (c) of this Rule supplements Rule 1.6(b) by providing an additional
basis upon which the lawyer may reveal information relating to the
representation, but does not modify, restrict, or limit the provisions of Rule
1.6(b)(1) - (6). Under paragraph (c) the lawyer may reveal such information
only when the organization's highest authority insists upon or fails to address
threatened or ongoing action that is clearly a violation of law, and then only to
the extent the lawyer reasonably believes necessary to prevent reasonably
certain substantial injury to the organization. It is not necessary that the
lawyer's services be used in furtherance of the violation, but it is required that
the matter be related to the lawyer's representation of the organization. If the
lawyer's services are being used by an organization to further a crime or fraud by
the organization, Rules 1.6(b)(2) and 1.6(b)(3) may permit the lawyer to
disclose confidential information. In such circumstances Rule 1.2(d) may also be
applicable, in which event, withdrawal from the representation under Rule
1.16(a)(1) may be required.
[7] Paragraph (d) makes clear that the authority of a lawyer to disclose
information relating to a representation in circumstances described in paragraph
(c) does not apply with respect to information relating to a lawyer's engagement
by an organization to investigate an alleged violation of law or to defend the
organization or an officer, employee or other person associated with the
organization against a claim arising out of an alleged violation of law. This is
necessary in order to enable organizational clients to enjoy the full benefits of
legal counsel in conducting an investigation or defending against a claim.
[8] A lawyer who reasonably believes that he or she has been discharged
because of the lawyer's actions taken pursuant to paragraph (b) or (c), or who
withdraws in circumstances that require or permit the lawyer to take action
under either of these paragraphs, must proceed as the lawyer reasonably
believes necessary to assure that the organization's highest authority is informed
of the lawyer's discharge or withdrawal.
Government Agency
[9] The duty defined in this Rule applies to governmental organizations. Defining
precisely the identity of the client and prescribing the resulting obligations of
such lawyers may be more difficult in the government context and is a matter
beyond the scope of these Rules. See Scope [18]. Although in some
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circumstances the client may be a specific agency, it may also be a branch of
government, such as the executive branch, or the government as a whole. For
example, if the action or failure to act involves the head of a bureau, either the
department of which the bureau is a part or the relevant branch of government
may be the client for purposes of this Rule. Moreover, in a matter involving the
conduct of government officials, a government lawyer may have authority under
applicable law to question such conduct more extensively than that of a lawyer
for a private organization in similar circumstances. Thus, when the client is a
governmental organization, a different balance may be appropriate between
maintaining confidentiality and assuring that the wrongful act is prevented or
rectified, for public business is involved. In addition, duties of lawyers employed
by the government or lawyers in military service may be defined by statutes and
regulation. This Rule does not limit that authority. See Scope.
Clarifying the Lawyer's Role
[10] There are times when the organization's interest may be or become adverse
to those of one or more of its constituents. In such circumstances the lawyer
should advise any constituent, whose interest the lawyer finds adverse to that of
the organization of the conflict or potential conflict of interest, that the lawyer
cannot represent such constituent, and that such person may wish to obtain
independent representation. Care must be taken to assure that the individual
understands that, when there is such adversity of interest, the lawyer for the
organization cannot provide legal representation for that constituent individual,
and that discussions between the lawyer for the organization and the individual
may not be privileged.
[11] Whether such a warning should be given by the lawyer for the organization
to any constituent individual may turn on the facts of each case.
Dual Representation
[12] Paragraph (g) recognizes that a lawyer for an organization may also
represent a principal officer or major shareholder.
Derivative Actions
[13] Under generally prevailing law, the shareholders or members of a
corporation may bring suit to compel the directors to perform their legal
obligations in the supervision of the organization. Members of unincorporated
associations have essentially the same right. Such an action may be brought
nominally by the organization, but usually is, in fact, a legal controversy over
management of the organization.
[14] The question can arise whether counsel for the organization may defend
such an action. The proposition that the organization is the lawyer's client does
not alone resolve the issue. Most derivative actions are a normal incident of an
organization's affairs, to be defended by the organization's lawyer like any other
suit. However, if the claim involves serious charges of wrongdoing by those in
control of the organization, a conflict may arise between the lawyer's duty to the
organization and the lawyer's relationship with the board. In those
circumstances, Rule 1.7 governs who should represent the directors and the
organization."
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D. RULE 1.16. DECLINING OR TERMINATING REPRESENTATION
Amended February 5th, 2002, American Bar Association House of Delegates,
Philadelphia, Pennsylvania, per Report No. 401.
". . .
(b) Except as stated in paragraph (c), a lawyer may [vs. shall]
withdraw from representing a client if:
(1) withdrawal can be accomplished without material adverse effect on the
interests of the client;
(2) the client persists in a course of action involving the lawyer's services that
the lawyer reasonably believes is criminal or fraudulent;
(3) the client has used the lawyer's services to perpetrate a crime or fraud;
(4) the client insists upon taking action that the lawyer considers repugnant or
with which the lawyer has a fundamental disagreement;
(5) the client fails substantially to fulfill an obligation to the lawyer regarding the
lawyer's services and has been given reasonable warning that the lawyer will
withdraw unless the obligation is fulfilled;
(6) the representation will result in an unreasonable financial burden on the
lawyer or has been rendered unreasonably difficult by the client; or
(7) other good cause for withdrawal exists.
(c) A lawyer must comply with applicable law requiring notice to or permission of
a tribunal when terminating a representation. When ordered to do so by a
tribunal, a lawyer shall continue representation notwithstanding good cause for
terminating the representation.
(d) Upon termination of representation, a lawyer shall take steps to the extent
reasonably practicable to protect a client's interests, such as giving reasonable
notice to the client, allowing time for employment of other counsel, surrendering
papers and property to which the client is entitled and refunding any advance
payment of fee or expense that has not been earned or incurred. The lawyer
may retain papers relating to the client to the extent permitted by other law.
Comment
. . .
Mandatory Withdrawal
[2] A lawyer ordinarily must decline or withdraw from representation if the client
demands that the lawyer engage in conduct that is illegal or violates the Rules of
Professional Conduct or other law. The lawyer is not obliged to decline or
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withdraw simply because the client suggests such a course of conduct; a client
may make such a suggestion in the hope that a lawyer will not be constrained by
a professional obligation.
. . .
Optional Withdrawal
[7] A lawyer may withdraw from representation in some circumstances. The
lawyer has the option to withdraw if it can be accomplished without material
adverse effect on the client's interests. Withdrawal is also justified if the client
persists in a course of action that the lawyer reasonably believes is criminal or
fraudulent, for a lawyer is not required to be associated with such conduct even
if the lawyer does not further it. Withdrawal is also permitted if the lawyer's
services were misused in the past even if that would materially prejudice the
client. The lawyer may also withdraw where the client insists on taking action
that the lawyer considers repugnant or with which the lawyer has a fundamental
disagreement.
[8] A lawyer may withdraw if the client refuses to abide by the terms of an
agreement relating to the representation, such as an agreement concerning fees
or court costs or an agreement limiting the objectives of the representation.
Assisting the Client upon Withdrawal
[9] Even if the lawyer has been unfairly discharged by the client, a lawyer must
take all reasonable steps to mitigate the consequences to the client. The lawyer
may retain papers as security for a fee only to the extent permitted by law. See
Rule 1.15."
[emphasis added throughout]
D. NOT ALL MEETINGS WITH THE COMPANY ATTORNEY ARE
PRIVILEGED AND NOT EVERYTHING SAID AT SUCH MEETINGS IS
PRIVILEGED.
Arizona v. Schneider, 212 Ariz. 292, 130 P.3d 991 (2006);
Neuder v. Battelle Pacific Northwest National Laboratory, 194
F.R.D. 289, 2000 U.S. Dist. LEXIS 9764, 48 Fed. R. Serv. 3d
(Callaghan) 929 (2000).