Impelled by a wave of corporate scandals, tax evasion and concerns over terrorism, government regulators and prosecutors have taken a variety of steps that seek to limit what some lawyers say is a core principle of their profession: the ability to protect their clients' confidences.
Many lawyers have reacted to the new restrictions by arguing that the lawyer-client privilege is not only a traditional tool in their arsenal but a critical one in the proper functioning of the legal system.
But even the American Bar Association seems prepared to cede some ground on the issue. The association, which began its annual meeting late last week in San Francisco, will consider changes to its model code of conduct, which state judiciaries draw on in defining lawyers' responsibilities. The changes would recommend permitting lawyers greater discretion to disclose client confidences, although lawyers would not be required to do so, as the regulators are insisting.
Still, many lawyers said they could not remember such a broad encroachment by the federal government on how they practice.
"In my experience, since the early 60's, there's been nothing like this," said Stefan F. Tucker, a tax lawyer in the Washington office of Venable, who said that he was worried about the impact of new rules from both the Justice Department and the Securities and Exchange Commission. "You can do something that is perfectly kosher, it's perfectly above board, and someone can come in after the fact and say it wasn't proper."
Earlier this year, the S.E.C. adopted a rule requiring lawyers to report potential fraud to corporate boards and this fall it may well propose additional rules; the Federal Trade Commission has filed suit to force law firms to comply with a 1999 law on disclosing privacy policies to clients; the Internal Revenue Service is trying to make law firms disclose which clients bought questionable tax shelters; and the Justice Department, which has already said that conversations between lawyers and terrorism suspects are subject to eavesdropping, is also pressing corporate defendants harder to waive their confidentiality privilege in order to avoid prosecution.
The government agencies do not appear to be working in concert and very different kinds of clients are affected by each new policy. Each agency is reacting to a different crisis but the overall result is worrying to many lawyers and law professors.
"The tradition has always been that lawyers were the protectors and were most concerned with a client's rights, trying to achieve for them through the legal system the best results they could," said Timothy Terrell, a law professor at Emory University. "The twist is, lawyers also have duties."
Just how worried lawyers are became apparent to Dana Welch, a lawyer in the San Francisco office of Ropes & Gray, when she led a presentation in June on the S.E.C. rules on reporting potential fraud. "All the tables were filled," Ms. Welch recalled, adding that the visibly tense attendees peppered her with questions. "People were very concerned about the rules and the effect on their life."
Supporters of some of the new government rules argue that lawyers should not stand idly by when a client does something wrong. And, while some lawyers are trying to turn the debate into one about client confidences, they say the real issue is less about the administration of justice and more about lawyers' desire to avoid regulation.
"Prestige, autonomy and money — all these are at stake," said David Wilkins, a law professor at Harvard. Lawyers traditionally have not been heavily regulated, Mr. Wilkins said, and they are reluctant to see that situation change, "especially in a way that could drive clients away."
Two years ago, the bar association rejected changes to its model code of conduct to permit lawyers more latitude in disclosing client confidences to prevent fraud. But the association seems to be more open to the idea now that the government may impose more stringent responsibilities on the profession.
Alfred P. Carlton Jr., president of the bar association, also pointed to the influence of recent financial scandals and the terrorism battle.
"We are facing the gravest threat to our internal security in over 60 years, and we are facing the greatest crisis of confidence in our capital markets in over 70 years," said Mr. Carlton, who supports the proposed changes in the code of conduct. "The confluence of those events is what is causing all this. It is a new day."
If the changes are approved, the code would permit, but not compel, a lawyer to disclose client confidences to prevent or to mitigate "injury to the financial interests or property of another," when the lawyer's services were used to further a client's crime. In 2001, the delegates approved a narrower change, permitting a lawyer to breach client confidentiality "to prevent reasonably certain death or substantial bodily harm," but even that change was controversial.
In late July, the chief justices of all 50 states adopted a resolution in favor of the current proposal, putting pressure on the bar association. Ronald M. George, chief justice of the California Supreme Court, said the changes were necessary at least to make clear to lawyers that they would not be disciplined for disclosing client confidences to prevent fraud. But adopting the change might serve another purpose. "To the extent the legal profession polices itself, it makes itself less susceptible to outside regulation," he acknowledged.
Several government agencies have recently demonstrated their willingness to take a tougher stance by pursuing law firms directly. The I.R.S. is weighing a lawsuit against Jenkens & Gilchrist, a law firm based in Dallas that has refused to give up the names of clients who invested in questionable tax shelters; Jenkens & Gilchrist has said it will fight the I.R.S. in court, if necessary.
The F.T.C. is battling the American and the New York State Bar Associations in federal court over whether law firms are subject to a 1999 law requiring financial institutions to send privacy notices to clients. Lawyers argue that they are subject to state codes of conduct that, they say, are more stringent than those in the legislation.
The S.E.C. has gone further, adopting rules that took effect last week requiring lawyers to report "up the ladder" to top executives or the board of a public company that is a client if they find "evidence of a material violation" of securities laws. Several New York lawyers said that big firms were sending out memos to partners and associates, advising them of what their new responsibilities were — even though no one, lawyers say, is sure precisely what might be evidence of a material fraud, let alone what kind of response by a client told of such evidence would be appropriate.
The S.E.C. will probably consider whether to require lawyers or their clients to report to the agency as well, said Harvey J. Goldschmid, one of the commissioners. "We expect to revisit that sometime in the fall," Mr. Goldschmid said.
The focus on lawyers is appropriate, he added, because "lawyers are critical gatekeepers, and asking them to bear certain burdens to protect shareholders and investors, and separate themselves from loyalty to managers in appropriate circumstances, just makes sense."
Some lawyers say they will fight further reporting requirements that the S.E.C. is considering, which they say would lead clients to withhold information from outside legal advisers. Mr. Carlton, the bar association president, said his group stood "united in our opposition" to such possible S.E.C. rules.
"The client wants assurance that what he or she discusses with an attorney, something that's happened, that the attorney will not make a judgment that can be made public," said David Bernstein, a corporate lawyer in the New York office of Clifford Chance. More clients might ask their lawyers to sign confidentiality agreements, Mr. Bernstein said — something he regarded as unnecessary in the past.
The confidentiality privilege belongs to a client, Mr. Bernstein said, and only the client can waive it. Besides, it is rarely a black and white question whether a client's plan is illegal, and it is not the lawyer's job to make that determination, he said.
The Justice Department has taken two steps that affect very different kinds of clients when they talk to their lawyers. The department announced shortly after the Sept. 11 attacks that its agents might eavesdrop on conversations between lawyers and terrorism suspects "for the purpose of deterring future attacks."
The department also has increased the pressure on corporations to effectively waive the privilege by sharing information on potential fraud with the government, lawyers say. That means the lawyer has to decide very quickly to fight or to cooperate, even before a full investigation of potential fraud may be completed, said Michael J. Shepard, a lawyer at Heller Ehrman White & McAuliffe in San Francisco.
The decision whether to cooperate with regulators has already made conversations with clients that much more stressful, Mr. Shepard said. "The stakes are much higher, because there are a bunch of people running around with their knives out, looking to cut off the heads of corporations and their executives."
If lawyers are duty-bound to report to the government when their clients have or will commit some kind of crime, Mr. Terrell, the Emory professor, said, lawyers will have to tell clients not to share confidences with them — in effect, to lie — a perverse result of efforts to improve the justice system, he said. "The lawyer will have to say, 'I cannot hear you say, "I did this crime" — that's something I can never know.' "
Some lawyers say the bar association's proposed changes would only catch up its model code, which serves as a template for states' regulation of lawyers, to what exists in the vast majority of states. While some states prohibit disclosure of client confidences except to prevent crimes that would cause death or serious bodily injury, codes of professional conduct in 42 states already permit disclosure in cases of economic crime or fraud, legal scholars say.
"All of these issues, when they arise, they try to turn into, 'This is snitching on clients and it will fundamentally affect the lawyer-client relationship,' " said Roger C. Cramton, a law professor at Cornell University who supports the proposed changes to the model. "They will never affect an honest client who is going to an honest lawyer."
Besides, Mr. Cramton said, lawyers who have been defrauded by clients have the right to disclose client confidences to defend themselves, and it is not clear why others victimized by fraud should not have access to the same information. "They don't really think much of the sanctity of the relationship if it's a self-defense situation," he said.www.nytimes.com/2003/08/11/business/11LAW.html?hp=&pagewanted=print&position=E-mail this article