AUG-21-2881 13:30 Slseso4y1 rears

For example, the Attorney Registration and Disciplinary Commission of the Supreme Court
of Illinois was created by the Supreme Court of Illinois in 1973 and is empowered to

investigate, prosecute and adjudicate allegations of misconduct by lawyers. ILCS S.Ct. Rules
751-71 (West 1993).

Each state’s disciplinary mechanism operates under a sophisticated set of substantive
and procedural mules adopted by the court. The systems are staffed by professionals with
expertise in the rules of professional conduct, including disciplinary counsel, investigators,
auditors and paralegals, There exists a large body of regulatory case law in each jurisdiction.
Disciplinary sanctions administered to lawyers who are found to have violated professional
conduct rules include admonition, reprimand, censure, suspension, disbarment, probation,
and restitution. Courts also may order a disciplined lawyer to comply with specific conditions
such as submission to drug and alcohol testing, and monitoring of client trust accounts. They
also may require a disciplined lawyer to reimburse the involved disciplinary agency for the
costs of the investigation and prosecution. In some states, the court has granted the authority
to the adjudicators of its disciplinary agency/board to impose some lower-level sanctions. In
rare instances the court has granted the board the authority to impose higher-level sanctions.
Ultimately though, final appeals of disciplinary matters are heard by the court. Most
importantly, as noted above, the court always retains the ultimate authority in the area of
lawyer discipline.

Lawyer disciplinary proceedings are unique in nature. Some courts have described
them as quasi-criminal. See, e.g. In re Rufalo, 390 U. 8. 544 (1968); Mississippi State Bar y.
Young, 509 So. 2d 210 (Miss. 1987). Basically, lawyer disciplinary proceedings are not
entirely civil or criminal in nature, but are, rather, sui generis proceedings that result from the
inherent regulatory authority of the courts. See Middlesex County Ethics Committee v.
Garden State Bar Association, 457 U.S. 423 (1982); In re Disciplinary Board of the Hawaii
Supreme Court, 984 P. 2d 688 (Hawaii 1999).

Lawyers in disciplinary proceedings are entitled to some of the due process
protections that apply to defendants in criminal proceedings. For example, lawyers arc
entitled to notice of the charges against them, the right to confront witnesses against them,
the right to present evidence, and the right to assert their Fifth Amendment protections
against self-incrimination. See, ¢.g., In re Rufalo, 390 U.S. 544 (1968); Spevack v. Klein,
385 U.S. 516 (1967); and Willner v. Committee on Character and Fitness, 373 U.S. 96
(1963). On the other hand, courts uniformly have concluded that the Double Jeopardy Clause
is not applicable in disciplinary proceedings. In re Chastain, 532 S.E. 2d 264 (S.C. 2000).
Tn most states, the rules of evidence apply in disciplinary proceedings and the state’s rules of
civil procedure govern pre-trial practice. The ABA Model Rules for Lawyer Disciplinary
Enforcement recommend the application of the rules of evidence and civil procedure in
disciplinary proceedings.

We note in this context that a compelling parallel may be seen in the Commission’s
enforcement authority, under Section 505 of the Act, with respect to “persons providing
insurance”, being committed to state insurance authorities. The existence of an active and
effective disciplinary authority in each state suggests the reasonableness of a similar


AUG-21-2881 13:29 3129885491 rewarwr

universally familiar concept and a hallmark of the trust fundamental to the lawyer-client
relationship, just as it is, for example, within the doctor-patient and priest-penitent
relationships.

Under the professional conduct rules, the disclosure of confidential information by
lawyers is generally impossible without consultation with the client and informed consent.
Absent circumstances in which disclosure of information is compelled by other law, or in
which the client has a dispute with the lawyer, a client must-be informed of, and must agree
to, the disclosure of confidential information by his or her lawyer. Failure to obtain such
client approval subjects a lawyer to disciplinary liability and possible punishment, by means
of an established and effective process described more fully, infra.

IL. Nature and Operation of the Lawyer Disciplinary Process

Just as each jurisdiction has its own rules of professional conduct that apply to
lawyers, each jurisdiction has an established system for the efficient and effective
enforcement of those rules.

Regulation of lawyers in the United States falls under the judicial branch of
government of each state, and a jurisdiction’s authority regarding a lawyer’s license to
practice law is not preempted by the U. S. Constitution. See, generaily 7 Am. Jur. 2d
Attorneys at Law, Sec. 2, fn. at p. 55-56. Ineach state and the District of Columbia, the court
of highest appellate jurisdiction has the inherent and/or constitutional authority to regulate
the practice of law. See ¢.g., In re Shannon, 876 P. 2d 548, 570 (Ariz. 1994) (noting that the
state judiciary’s authority to regulate the practice of law is universally accepted and dates
back to the thirteenth century); Hunt v. Maricopa County Emplayees Merit Sys. Comm'n, 619
P. 2d 1036 (Ariz. 1980) (listing cases from numerous states recognizing the authority of the
state supreme courts to regulate the practice of law); In re Attorney Discipline System, 967 P.
2d 49 (Cal. 1998) (noting that in every state the court has the power to admit and discipline
lawyers); People ex rel. Chicago Bar Ass'n v. Goodman, 8 N.E. 2d 941, cert. denied, 302
U.S. 728, reh. denied, 302 U.S. 777; Jn re Intergration of Nebraska State Bar Association,
275 N.W. 265 (Neb. S.Ct. 1937).

Although a state legislature may, under its police power, act to protect the interests of
the public, with respect to the practice of law it does so in aid of the courts—its actions do
not supersede or detract from the courts’ powers to regulate the bar. See, ¢.g., People ex rel.
Chicago Bar Ass’n v. Goodman, 8 N.E. 2d 941, cert. den. 302 U.S. 728, reh. den. 302 U.S.
TTT; In re Intergration of Nebraska State Bar Association, 275 N.W. 265 (Neb. S. Ct. 1937);
Washington State Bar Ass'n v. State, 890 P. 2d 1047 (Wash. 1995).

The entity responsible for investigating, prosecuting and adjudicating allegations of
misconduct (violations of the rules/codes of professional conduct) at the behest of the court
varies in each state. In some states the court has delegated that job to the state bar
association. For example, in California, the State Bar is considered an arm of the court for
this purpose. Jn re Attorney Discipline System, 19 Cal. 4th 582 (Cal. 1998). In other states,
the supreme court has created an agency of the court separate from the state bar association.


AUG-21-2281 13:30 3129885491 r.aorur

derogation of authority, in this case to state judiciaries to enforce policies re; arding
confidentiality. si "

Til. Dangers Presented by Enforcement of the Act Relating to the Attorney-client
Privilege and Work-product Doctrines

The FTC's third inquiry concerns the effect of the exercise of the agency's
enforcement powers regarding lawyers’ privacy policies upon the attorney-client privilege
and the work-product doctrine.

The attorney-client privilege protects the confidentiality of communications between
attorney and client made for the purpose of obtaining legal advice. See American Standard
dne., v. Pfizer Inc,, 828 F.2d 734, 745 (Fed. Cir, 1987). "The work product privilege protects
the attorney's thought processes and legal recommendations." Zenith Radio Corp. v. United
States, 764 F.2d 1577, 1580 (D.C. Cir. 1985). While the attomey-client privilege is intended
to promote communication between lawyers and clients by protecting client confidences, the
work-product privilege is a broader protection, "designed to balance the needs of the
adversary system: promoting of an attorney's preparation in representing a client versus
society's general interest in revealing all true and material facts to the resolution of a
dispute." In re Martin Marietta Corp., 856 F.2d 619, 624 (4th Cir. 1988), cert. denied, 490
U.S. 1011 (1989).

Waiver usually is an "all-or-nothing" proposition. "Once the attorney-client privilege
‘has been waived, the privilege is generally lost for all purposes and in all forums. The client,
therefore, may no longer use the privilege to prevent access to the communications in
question by either the party who successfully challenged the privilege claim or by anyone
else in the present or future litigation. Having had the opportunity to assert and address the
privilege claim in a judicial proceeding, the privilege holder is thereafter barred, under the
doctrine of res judicata and collateral estoppel, from relitigating the resolved claim.”
Genentech, Inc. v. United States Int'l Trade Comm'n, 122 F.3d 1409, 1416-17 (Fed. Cir.
1997).

In a case involving a lawyer's voluntary disclosure to a government agency, Jn Re
Penn Central Commercial Paper Litigation, 61 F.R.D. 453 (D.C.N.Y. 1973), plaintiffs
moved to compel a lawyer to answer certain questions about his client's purported violations
of securities law. Previously, the lawyer was asked to appear before the Securities and
Exchange Commission ("SEC") to answer questions concerning his client's conduct. The
lawyer voluntarily appeared and gave testimony. In the latter proceeding, the defendant
resisted the motion to compel a transcript of the lawyer's testimony, claiming that the
attomey-client privilege was not waived by its lawyer's participation in the SEC
investigation. The court disagreed, stating that it is established law that the voluntary
disclosure or consent to the disclosure of a communication, otherwise subject to a claim of
privilege, effectively waives the privilege. Id at 463-64.

Although the attorney-client privilege ordinarily does not protect the identity ofa
client, see Clarke v. American Commerce Nat'l Bank, 974 F.2d 127, 129 (9th Cir.), reh'g


Defending Liberty
Pursuing Justice

GOVERNMENTAL AFFAIRS

one AMERICAN BAR ASSOCIATION Governmental Affairs Office
740 Fifteenth Street, NW
a Washington, DC 20005-1022
nase Dee (202) 662-1760
(202) 662-1765 FAX: (202) 662-1762

rdevans@staff.abanet.org (202) 662-1032

‘SENIOR LEGISLATIVE COUNSEL .
Denise A.Cardman August 22, 2001
(202) 662-1761
cardmand@staff.abanet.org

Kevin J. Driscoll
(202) 662-1766
driscollk@staff.abanet.org

Lillian 8, Gaskin
(202) 662-1768
gaskinl@staff.abanet.org

LEGISLATIVE COUNSEL

anes ae J. Howard Beales, [II
frsbyr@staffabanetorg Ditector

Bache Bureau of Consumer Protection
gainesk@staffabanet.org Federal Trade Commission

Mandi Kumbula-Fraser 600 Pennsylvania Avenue, NW
kumtulam@saflabaret og Washington, DC 20580
Ellen MeBamere
eo Gee 1787; Dear Director Beales:

mebamee@staff.abanet.org

E, Bruce Nicholson

(202) 662-1769 Thank you, again, for our meeting on July 26, 2001. We appreciate the
nicholsonb@staffabanet.org d : me s
time and attention you have given to our concern at the application of Title V
DIRECTOR GRASSROOTS of the Gramm-Leach-Bliley Act of 1999 to attorneys engaged in the practice of
OPERATIONS a
Julie M. Strandlie aa
(202) 662-1764

strandlj@staff abanet.org . : # es
During our meeting and in other communications, your staff had posed

EXECUTIVE ASSISTANT several questions regarding the state level regulation of the le; rofession b
Diane Crocker-McBrayer Gl as J Bi
(202) 662-1777 the judicial branch. Attached please to find a memorandum drafted by
— American Bar Association staff expert in the area of ethics law tesponding to
INTELLECTUAL PROPERTY those questions.
LAW CONSULTANT
Hayden Gregory a : ai
(202) 662-1772 Thank you for your kind attention to this issue. We look forward to
gregoryh@staff.abanet.org,

working with you and you staff to achieve an acceptable solution.

STAFF DIRECTOR FOR
STATE LEGISLATION ,
Kenneth Goldsmith Sincerely,
(202) 662-1780
goldsmithk@staff.abanet.org,

a
>
cae aiteenen = (eae WS) Fe

INFORMATION SERVICES
Sharon Greene
(202) 662-1014
sreenes@staffabanet.org Robert D Evans

iy

EDITOR WASHINGTON LETTER
Rhonda J. McMillion

(202) 662-1017 hm ent
memillionr@staff.abanet.org Attac



AUG-21-2881 13:31 3129885491 Paro

denied, 977 F.2d 1533 (9th Cir. 1992), courts have recognized an exception to this rule when
disclosure would implicate the client in criminal wrongdoing, or when disclosure, in
conjunction with information already provided, would be tantamount to revealing an

“indubitably confidential communication." In Baird v. Koerner, 279 F.2d 623 (9th Cir.
1960), an Internal Revenue Service summons to a lawyer sought disclosure of the identity of
a client on whose behalf the lawyer had made an anonymous tax payment. The court found
the privilege applicable, because to reveal the identity of a person who had sought legal
assistance for such a purpose would also reveal that the person had effectively acknowledged
his guilt of a tax offense. See id. at 633.

Thus, although lawyer or law firm compliance with any FTC enforcement inquiry
that required only revelation of clients’ identities ordinarily would not involve disclosures
that effectively would waive the attomey-privilege, Baird provides support for serious
concern that there may be occasions on which compliance would have such effect.

CONCLUSION

In light of the greater degree of protection that is afforded client confidential
information in the context of the client-lawyer relationship and the existence of effective
mechanisms that exist throughout the United States for enforcing lawyers’ profcssional
conduct, lawyers and law firms should be deemed to be in compliance with the objectives
and procedures mandated in the Act. Such a determination will also prevent any potential
loss of the attorney-client privilege and nullification of the work-product doctrine, both of
which could result from the FTC’s enforcing compliance with the provisions of the Graham-
Leach-Bliley Act.

TOTAL P.27


AUG-21-2681

13:28 3129885491 rewerwe
Defending Liberty
Pursuing justice
seat TOR AMERICAN BAR ASSOCIATION Center for Professional
merida duane Responsibility
AND ADMINISTRATION 14th Floor
PROGRAM DIRECTOR 541 North Fairbanks Court
Brad Hoffman Chicago, Illinois 60611-3314
_ ee i Pax: Jai) ens 5260
Roraier MEMORANDUM : ie
ENE SS RNEY ctrprofresp@abanetorg
SRALECALPROIECT COORONATOR To: Robert D. Evans, Associate Executive Director
ADMINISTRATIVE ASSISTANT From: George Kuhiman, Ethics Counsel, and Ellyn Rosen,
scarey Associate Regulation Counsel, Center for Professional
SPECIAL PROVECTS Responsibility
SPECIAL COUNSEL Date: . August 21, 2001
cusnr rrorecToN couse, Re: Federal Trade Commission Inquiries
Susan Wiel . With assistance from Associate Ethics Counsel Fileen Libby and
ETHICS Lawyer’s Manual on Professional Conduct Editor Elizabeth Cohen, we
a submit this memorandum in response to questions that Legislative
ASSOCIATE ETHICS COUNSEL Counsel Ellen McBarnette referred to us from representatives of the
mucseanceer, Federal Trade Commission in late July. Please feel free to contact
Pater I Geraghty either of us if you believe we can be of additional assistance.
RESEARCH COUNSEL
Patrick Sean Ginty
RESEARCH ASSISTANT OVERVIEW
‘Amy Maley =e.
pects The subject under consideration is the application of provisions of
Susan J. Michmerhuizen the Graham-Leach-Bliley Act (15 U.S.C. Sec. 6801 et seg., 1999) (“the
a ean Act”) to lawyers and law firms. The Act requires a financial institution to
ASSISTANT FOTTOR provide notices of its privacy policies and practices at least annually io its
gia customers during the continuation of a customer relationship. The notices
Geraci must be clear and conspicuous and accurately reflect the privacy policies and
eee Te Cua practices then in effect. F.T.C. Privacy of Consumer Financial Information,
ASSISTANT 16 C.F.R. Part 313, § 313.5 (May 24, 2000). Section 313.6, which
MORSONAGiien Met —-—-itplements Section 503 of the Act, identifies the items of information that
Peeletii ed must be included, such as initial and annual notices, a description of policies
Gale and practices with respect to, among. other things, disclosing nonpublic
wanes. personal information to affiliates and nonaffiliated third parties. Pursuant to
RECUATION COUN. ~—-—-Section 505(a)(7) of the Act, the Federal Trade Commission (“FTC”) has
Rep eee ae authority over ‘‘financial institutions’ and “‘other persons’’ to enforce these
hyn $. Rotem and all other provisions of the Act. The FTC has taken the position that
REGULATION PARALEGAL these provisions apply to lawyers and law firms providing certain services.
DATA BANK ATTORNEY
eae We were advised that representatives of the FTC presented ABA
chagtaa rey Legislative Affairs Counsel with inquiries in three areas: 1) client

understanding of confidentiality policies applicable in legal representation;
2) the authority and enforcement mechanisms for lawyer discipline; and 3)


AUG-21-2881 13:28 3129885491 P.usar

the effect that enforcement of the Act might have, in the context of legal services, on the
attorney-client privilege and the attorney work-product doctrines. We understand that these
inquiries have been presented, at least in part, to facilitate a Tesponse by the FTC to a recent
letter sent by former ABA President Martha Barnett urging that the provisions of the Act not
be applied to lawyers or law firms.

L Client Recognition of Confidentiality Policy in Legal Representations

The objective of the Act is to assure that individuals understand, and to.a limited
extent agree to, the circumstances in which certain types of information they expect to be
confidential may be disclosed.

In the legal profession, the principle of client-lawyer confidentiality is given effect in
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. These doctrines are
codified in the body of the laws of evidence, in whatever manner each state has chosen to
adopt them, rather than in the body of professional responsibility law. As such, your office
will recognize that they fall outside the expertise of the staff of the Center. The rule of client-
lawyer confidentiality applies in situations other than those where evidence is sought from
the lawyer through compulsion of law, and is codified in each state’s rules of professional
conduct for lawyers. The confidentiality rule 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 by the client or
required by those rules of professional conduct or other law.

The rules of professional conduct for lawyers that have been adopted in various forms
throughout the United States, in virtually all instances by each state’s highest court and
substantively patterned on the ABA Model Rules of Professional Conduct, (whether in the
ABA “Model Rules” format or in the predecessor format known as the “Model Code of
Professional Responsitility”), provide a strict and comprehensive approach to the protection
of clients’ information (both that revealed by clients and any other information obtained by a
lawyer in his or her representation of clients). In doing so, they provide protections to clients
that in fact exceed the protections that are guaranteed to consumers of other services under
the provision of the Act. They flatly prohibit disclosure of any information relating toa
representation without prior discussion with and consent from the affected clients, except in a
limited, and essentially legally mandated, number of situations. These professional conduct
rules, adopted by the judicial branch of government, carry the force of law. See, ¢.g., Post v.
Bregman, 707 A. 2d 806 (Md. 1998); In. re Vrdolyak, 560 N.E. 2d 840 (Ill. 1990); and
Louisiana State Bar Ass'n v, Harrington, 585 So. 2d 514 (La. 1990).

Although most lawyers are likely to refer to their confidentiality obligations in initial
communcations with prospective or regular clients, no professional conduct rule imposes an
affirmative duty on lawyers to explain the confidentiality policies. Nonetheless, the principle
of client-lawyer confidentiality, including the attorney-client privilege and the work-product
doctrine, although not necessarily understood in a technical sense by most non-lawyers, is a