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Wednesday, August 13, 2003

Don't Say A Word

I can't say I'm in favor of this latest vote by the American Bar Association to loosen rules of attorney-client confidentiality.

Though well intentioned, anything that facilitates disclosure to the government about client activity is going to provide a natural incentive for clients to keep secrets from counsel, making it far more difficult for attorneys to perform their representation properly. The end result is not going more transparency, as its advocates hope; it is likelier to produce the opposite effect, as more and more facts get swept under the rug.

It might even lead to some malpractice litigation. Even though a client (in most cases, a corporation) can be said to have brought problems upon itself by failing to notify counsel of all relevant facts during the course of a representation, just you watch - there are going to be cases where a court will impute knowledge of damaging information because a lawyer "should have known" something was wrong.

This would become an even bigger problem if the laws were changed to make it easier for shareholders to sue law firms in derivative actions for breaching their duties to the corporation, as this Washington Post column argues.

I understand why the ABA would pass such a resolution, having rejected each time it was brought up previously. The SEC, as well as state governments, are under some political pressure to require rather than simply permit such disclosures. The result would be even worse under these circumstances, since a client is going to enter a representation with a strong incentive to mislead its counsel, not to mention leaving attorneys to decide between the Scylla of possible bar discipline and malpractice litigation for breaching duties of confidentiality and the Chayribdis of government sanctions or prosecutions for fraud.

However, as it stands now, I do agree that the real-world impact is likely to be minimized by the fact that an attorney eager to blow the whistle on a client has likely damaged his reputation severely. The new rule, probably another product of Enron, Global Crossing, and the rest of the accounting scandals, is similar to what most states have passed now.

But it's still a step in the wrong direction.


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