Title: In Re Kennedy
Citation: 442 A.2d 79
Docket Number: N/A
State: Delaware
Issuer: Delaware Supreme Court
Date: February 19, 1982

442 A.2d 79 (1982)
In re John B. KENNEDY, Esquire, a Member of the Bar of the Supreme Court of the State of Delaware, Respondent.

Supreme Court of Delaware.
Submitted October 28, 1981.
Decided February 19, 1982.
F. Alton Tybout (argued), of Tybout, Redfearn, Casarino &amp; Pell, Wilmington, for the Censor Committee.
John B. Kennedy, pro se, and Samuel C. Stretton (argued), Philadelphia, Pa., for respondent.
Before HERRMANN, C. J., and DUFFY and McNEILLY, JJ.
*81 DUFFY, Justice:
This proceeding involves a judicial review of Interpretive Guideline No. 2 of Disciplinary Rule 9-102 which governs the conduct of members of the Delaware Bar, Del.C., Vol. 16, p. 590; Supreme Court Rule 66 relating to the Clients' Security Trust Fund; and Regulation IV(13) of the Clients' Security Trust Fund, Del.C., Vol. 16, p. 632.
The parties to the litigation are John B. Kennedy, a Delaware lawyer (respondent), and the Censor Committee of the Supreme Court of the State of Delaware (Censor Committee). See Rule 62. In a proceeding before the Censor Committee, the parties stipulated as follows:
After respondent had refused to make his books and records available for inspection, as requested by the Trustees of the Clients' Security Trust Fund, the Trustees referred the dispute to the Censor Committee.[*]
The Censor Committee thereafter made findings of fact and announced conclusions of law, as follows:
Those findings and conclusions constituted the Final Report of the Committee which was docketed with the Clerk. See Rule 64. Thereafter, the respondent filed the following Exceptions to the Final Report:
After briefing and oral argument on the Final Report and the Exceptions, the issue was submitted to this Court for decision.
This appeal focuses on the construction of and interrelationship among several Rules and Regulations that govern the conduct of Delaware attorneys: DR9-102, Interpretive Guideline No. 2 to DR9-102, Supreme Court Rule 66 which creates the Clients' Security Trust Fund, and a Regulation adopted by the Trustees who administer that Trust Fund.
On March 22, 1971, this Court adopted The Delaware Lawyers' Code of Professional Responsibility which was modeled after, and based upon, the American Bar Association Code of Professional Responsibility which had been adopted in 1969. Rule 61 specifically provides that:
Thus, the behavior of members of the Bar of this Court is governed by the Code and the Interpretive Guidelines promulgated by this Court. Rule 9-102 of the Code provides as follows:
Because of concern over perceived problems arising from the commingling of attorney and client funds, and possible misapplication of those funds, this Court, on the advice of a committee of members of the Delaware Bar, adopted on May 31, 1975 an Interpretive Guideline to DR9-102 entitled, "Interpretive Guideline No. 2  Re: Preserving Identity of Funds and Property of Client." See Carpenter, The Negligent Attorney Embezzler: Delaware's Solution, 61 A.B.A.J. 338, 339, 340 (1975). The Guideline reads in pertinent part, as follows:
This Guideline requires the maintenance of books and records sufficient to show compliance with DR9-102, and "suggests" a more specific list of records that an attorney should keep. The obvious purpose of the Guideline is to provide direction to an attorney as to what records should be kept but, at the same time, to permit an attorney to be flexible and innovative in his record keeping. The nature or character of the records is not material, so long as they are sufficient to show compliance with DR9-102. See Carpenter, supra at 340.
In a different but related Rule, this Court created the Clients' Security Trust Fund in 1968. In re Member of Bar, Del.Supr., 257 A.2d 382 (1969), appeal dismissed 396 U.S. 274, 90 S. Ct. 562, 24 L. Ed. 2d 464 (1970). The purpose then was, and now is, plainly stated in the Rule,[**] as follows:
The Clients' Security Trust Fund is funded entirely by moneys collected from members of the Delaware Bar (and income generated by the Fund). Annual contributions to the Fund are mandatory as a condition of continuing membership in the Bar of this Court.[1] As we have said, the purpose of the *87 Fund is to impose upon our Bar a collective responsibility for the dishonesty, in a professional matter, of any member. Dishonesty occurs most often when a lawyer holds funds for a client, and that problem has been a concern of the legal profession for many years. Canon 11 of the American Bar Association Canons of Professional Ethics, adopted on August 22, 1908 stated that
See Wise, Legal Ethics, p. 425 (2 ed. 1970).
That Canon is the predecessor of the modern DR9-102(A) which mandates that a client's funds "shall be deposited" in an "identifiable bank account" in which funds belonging to the lawyer shall not be deposited (with limited exceptions not presently applicable). Despite that long-standing, ethical rule, this Court concluded that the creation of a fund was necessary to reimburse the victims of a lawyer who had misappropriated funds belonging to his client.
This Court has since determined that the assessment made upon Delaware lawyers under Rule 66 meets constitutional standards, that the Rule is a valid exercise of the Court's power to maintain the standards required of the Bar and to uphold its reputation by the imposition of collective responsibility for the conduct of its members, and that refusal by a member of the Bar to pay the assessment is professional delinquency. As stated by Chief Justice Wolcott:
In re Member of Bar, 257 A.2d  at 383-385.
The interface between the Disciplinary Rules and the Clients' Security Trust Fund procedure occurs in the record keeping and audit procedures which are at issue in this proceeding. Thus, the Interpretative Guideline, at (d), provides, in effect, that the "books of account and records of every" Delaware attorney are subject to examination for the purpose of verifying the accuracy of the annual statement filed by that attorney, pursuant to DR9-102(B), certifying that he has complied with the Disciplinary Rule (requiring him to preserve and identify the funds and properties of his clients) and the Guideline relating thereto.
Each such certificate is filed with the Trustees of the Clients' Security Trust Fund who have the responsibility of making arrangements for and directing the examination. Pursuant to the authority in Rule 66, the Trustees have adopted Regulation IV(13) as to such examination. See Del.C., Vol. 16, p. 632, which states as follows:
In this case, Kennedy does not dispute that his name was in fact selected "at random." But, nevertheless, he declined to make his records available for examination or audit by a certified public accountant selected by the Trustees, as required by Regulation IV(13), and in the proceeding which followed he challenged the Guideline and the inspection requirement on several grounds, which we now consider.
Kennedy first argues that his financial records are not "required records" under the ruling in Shapiro v. United States, 335 U.S. 1, 68 S. Ct. 1375, 92 L. Ed. 1787 (1947), and its progeny and, for that reason, DR9-102 and the Guideline deal with private and not public records and thus violate his right of privacy and the attorney-client privilege.
In other words, Kennedy contends that DR9-102 is directed only to the record keeping or accounting which is made directly to a client and so, he continues, the records are private in nature and do not have a "public aspect" which is necessary for application of the Shapiro "required records" doctrine. On that premise, Kennedy apparently finds a positive right to privacy.
In Shapiro, a businessman had refused to permit the Office of Price Administration to inspect his records to determine whether he was complying with certain pricing regulations. The United States Supreme Court held that the records were required to be maintained and that the defendant could not assert a Fifth Amendment privilege against self-incrimination:
68 S. Ct.  at 1392. Cf. Spevack v. Klein, 385 U.S. 511, 87 S. Ct. 625, 17 L. Ed. 2d 574 (1967).
In Grosso v. United States, 390 U.S. 62, 68, 88 S. Ct. 709, 713, 19 L. Ed. 2d 906 (1968), the Supreme Court developed a three-pronged test for determining whether a business record fell within the "required records doctrine":
The Court of Appeals of Maryland applied the required records doctrine described by Grosso and Shapiro to facts similar to those in this case. Andresen v. Bar Association of Montgomery County, 305 A.2d 845 (Md. 1973), cert. den., 414 U.S. 1065, 94 S. Ct. 572, 38 L. Ed. 2d 470 (1973). Andresen involved DR 9-102 and a Maryland Statute authorizing an audit of attorneys who did not comply with statutory procedures in real estate transactions. The Court concluded that the attorneys' financial records were "required records" and that the audit of the lawyers' books and records was proper, saying:
305 A.2d  at 854. See also In re Proposed Rules Relating to Grievance Procedures, N.H.Supr., 115 N.H. 310, 341 A.2d 272 (1975).
While we agree with the statement of the law made in Andresen and so could, for that reason, conclude that the records here in issue are required to be maintained by the Rules adopted by this Court in its unquestioned authority to set minimum standards of conduct for members of the Bar, we need not do so because the flaw in Kennedy's argument is more basic and it is fatal.
He candidly concedes that the "required records" rule is a concept or principle which limits the right of a person to assert the privilege against self-incrimination. And the above-cited cases make that clear. Kennedy has, however, expressly declined to assert that privilege and, since he does not rely on it, there is no reason to discuss a fact situation in which the privilege may or may not be used, or in which there is or is not any limitation on its use. In short, the rule of Shapiro does not apply, nor has any logical reason for its use in this case been suggested.
Relying on general principles as to a right of privacy and citing State ex rel. State Board of Examiners v. Kuhwald, Del.Supr., 389 A.2d 1277, 1281 (1978), Kennedy also asserts that DR9-102 offends the "protection accorded to a "lawyer's office and the private nature of the attorney-client relationship." It should be noted that he does not offer any authority to support his contention that the financial records of an attorney in issue here are protected by a right of privacy.
In our opinion, a lawyer does not have, and surely should not expect to have, any personal or professional right to privacy as to how he has handled moneys which, by definition, belong to other persons.
It is well settled in Delaware that an attorney is bound by a fiduciary duty in his dealings with his client. Melson v. Michlin, Del.Supr., 223 A.2d 338, 344 (1966); In re Goldstein, Del.Supr., 85 A.2d 361, 364 (1951); Vredenburgh v. Jones, Del.Ch., 349 A.2d 22 (1975). As a fiduciary, "an attorney is bound to the highest degree of fidelity and good faith. Strict adherence to this rule of conduct is required by time honored, deeply rooted concepts of public policy." Melson v. Michlin, 223 A.2d  at 344. The attorney is a "trustee for his client." In re Goldstein, 85 A.2d  at 364. It necessarily follows that an attorney acts as a fiduciary when he deals with the funds of his client. Surely, then, it is utterly baseless for an attorney to claim that his right to privacy prohibits a reasonable scrutiny, pursuant to general standards adopted under the authority of the court which had admitted him to the practice of law, of his financial records detailing the management and use of his client's funds.
Even if Kennedy had a reasonable expectation of privacy in the financial records *90 required under DR9-102 and the Guideline, and we conclude that he does not, such a right would still be subject to reasonable governmental regulation.
The Supreme Court set the parameters of the constitutional right to privacy in Roe v. Wade, 410 U.S. 113, 93 S. Ct. 705, 35 L. Ed. 2d 147 (1973), in which it said that:
93 S. Ct.  at 726.
The constitutional right of privacy is not unlimited, however, and is subject to regulation by the State if sufficient legitimate governmental interest in the legislation can be shown. Roe v. Wade, 93 S. Ct.  at 727. If "fundamental rights" are involved, the State must show a "compelling state interest" to justify the regulation, 93 S. Ct.  at 728, but in recent years the Court has not expanded the zone of privacy beyond certain well defined and limited areas. For example, in Paul v. Davis, 424 U.S. 693, 96 S. Ct. 1155, 47 L. Ed. 2d 405 (1976), the Court concluded that a person who had been charged with shoplifting could not challenge, on the basis of a right to privacy, the publication of his name and picture on a "flyer" to local businessmen listing "active shoplifters." 96 S. Ct.  at 1158. In finding that the defendant's acts did not infringe on a recognized "zone of privacy" the Court stated:
96 S. Ct.  at 1166.
In cases involving State action requiring the maintenance and disclosure of financial and corporate records, it appears that courts have required less than a compelling state interest to validate regulations requiring the maintenance and disclosure of records. For example, courts have rejected challenges based on the right to privacy in financial records of corporations and partnerships, Bellis v. U. S., 417 U.S. 85, 94 S. Ct. 2179, 40 L. Ed. 2d 678 (1974); in records relating to prescriptions for dangerous drugs, Whalen v. Roe, 429 U.S. 589, 97 S. Ct. 869, 51 L. Ed. 2d 64 (1977); in medical records required by OSHA, General Motors v. Dir. of Nat. Institute, Etc., 6 Cir., 636 F.2d 163 (1980), United States v. Westinghouse Elec. Corp., 3 Cir., 638 F.2d 570 (1980); in records *91 relating to hospital costs, St. Michael's Convalescent v. State of Cal., 9 Cir., 643 F.2d 1369 (1981); in certain bank records, United States v. Miller, 425 U.S. 435, 96 S. Ct. 1619, 48 L. Ed. 2d 71 (1976); in information subpoenaed by the Internal Revenue Service, U. S. v. Silkman, 8 Cir., 543 F.2d 1218 (1976), cert. den., 431 U.S. 919, 97 S. Ct. 2185, 53 L. Ed. 2d 230 (1973), United States v. Brown, 10 Cir., 600 F.2d 248 (1979), cert. den., 444 U.S. 917, 100 S. Ct. 233, 62 L. Ed. 2d 172 (1979); and in records relating to the finances of candidates for public office and government employees, Goldtrap v. Askew, Fla.Supr., 334 So. 2d 20 (1976), People ex rel. Recktenwald v. Janura, Ill.Ct.App., 59 Ill. App.3d 143, 17 Ill.Dec. 129, 376 N.E.2d 22 (1978).
In light of such cases we conclude that Kennedy did not have a reasonable expectation of privacy in the records in issue, that records relating to the handling of client money are not "fundamental" or "implicit in a concept of ordered liberty," and that this Court has a legitimate interest in protecting members of the public from the defalcations of any Delaware attorney. See Law Students Civil Rights Research Council Inc. v. Wadmond, 401 U.S. 154, 91 S. Ct. 720, 27 L. Ed. 2d 749 (1971). In short, an attorney has no more right of privacy in his records showing what he did with his clients' money than a taxpayer does with respect to records requested by the Internal Revenue Service, or a bank does when confronted by Federal or state bank examiners. The Guideline authorizes a minimum intrusion on the rights of an attorney and does not permit public disclosure of his records; it merely requires that the attorney make his records available for examination by a public accountant selected by the Trustees.
We agree that any right to privacy which Kennedy may have in his financial records may be affected or limited by the attorney-client privilege, under certain circumstances. In defining the attorney-client privilege, several Delaware cases have cited with approval the language of Judge Wyzanski from the landmark case of United States v. United Shoe Machinery Corporation, D.Mass., 89 F. Supp. 357 (1950). See Riggs Nat. Bank of Washington D.C. v. Zimmer, Del.Ch., 355 A.2d 709, 713 (1976); Texaco Inc. v. Phoenix Steel Corp., Del.Ch., 264 A.2d 523, 524 (1970). Judge Wyzanski defined the attorney-client privilege as follows:
The purpose of the privilege is to foster the confidence of a client and to permit him to communicate freely with his attorney, without fear, while seeking legal advice.[2]Riggs Nat. Bank of Washington D.C., supra, 355 *92 A.2d  at 713; Valente v. Pepsico, Inc., 68 F.R.D. 361, 367 (D.Del.1975). In addition, the attorney-client privilege is the privilege of the client and not the privilege of the attorney. Riggs Nat. Bank of Washington D.C., supra, 335 A.2d  at 713; McCormick, supra at § 92.
Applying these principles, we conclude that Kennedy's assertion of the attorney-client privilege is without merit. It is clear that the privilege was not intended to be used as a shield by an attorney to prevent scrutiny by the court of his records to determine whether or not he is meeting his fiduciary and ethical obligations to a client. The purpose of the Disciplinary Rule and Guideline is to protect a client from misappropriation of his funds by his attorney. It would be strange, indeed, if an attorney could frustrate that very purpose, by asserting the attorney-client privilege.
In summary, on the present state of affairs, in which an examination of Kennedy's books and records is sought for the purpose of determining whether he has segregated funds and kept adequate records of money which belonged to clients, we find no basis whatever for permitting him to invoke a privilege which belongs to the client.
Next, Kennedy argues that the random record selection and records maintenance requirements are so vague that they are unenforceable and violate his right to due process. Cf. Grayned v. City of Rockford, 408 U.S. 104, 92 S. Ct. 2294, 33 L. Ed. 2d 222 (1972).
There is no merit to this argument, for several reasons.
First, Kennedy, apparently has had no difficulty in understanding the Guideline because he has submitted certificates four times during the past four years stating that he has complied with it.
Second, his argument is entirely academic at this point: he has not produced his records; we do not know in what respect, if any, they fail to comply with DR9-102 and the (mandatory section of) Guideline. If Kennedy's records do not comply, then a vagueness argument may be relevant when inadequacy has been established.
Third, random selection for audit means just that:
And in this proceeding Kennedy does not dispute that his name was, in fact, selected at "random."
Next, Kennedy contends that he was denied due process when violations were found of which he had not been given notice. Clearly, an attorney is entitled to fair notice of charges against him asserted in disciplinary proceedings. In re Ruffalo, 390 U.S. 544, 88 S. Ct. 1222, 20 L. Ed. 2d 117 (1968); Matter of Rosenbaum, Pa.Supr., 478 Pa. 93, 385 A.2d 1329, 1331 (1978).
Kennedy argues that he should not be found in violation of DR 1-102(A)(1), DR 1-102(A)(5) and DR 1-102(A)(6), as found by the Censor Committee. And he says there are not sufficient facts in the stipulation to support findings that he violated those Disciplinary Rules.
We regard the notice argument as academic. The Committee's rule to show cause issued upon Kennedy did not identify any specific section of the Code but he did not take any exception thereto and he agreed on a stipulation of facts. All of these facts probably amount to a waiver, but it is not necessary to consider that in light of our conclusion that Kennedy should not be disciplined *93 for a good-faith submission of the production requirement issue for final decision here.
His argument as to the sufficiency of a factual stipulation is academic for the same reason. We add only that it is undisputed that he failed to produce his books and records for examination under the authority granted in the Guideline. That is the critical and, for present purposes, the determinative factual question.
In light of the challenges made by Kennedy to the Guideline and the audit procedures, it should be noted that the purpose of the audit of his books is the same as an audit of the books of any other attorney whose name is selected at random; that is, to "verify the accuracy of the certificates of compliance" which he has filed. A Delaware lawyer may not prevent verification, of what he has certified, by asserting the general rights of his clients when the purpose of verification is to assure that he has met his duty to those clients, under the governing ethical standards to which he is bound as a lawyer.
We find nothing in either the Rule or the procedure which in any way threatens the independence of the Bar nor the attorney-client relationship. On the contrary, compliance with the Rule and the Guideline will create confidence in the integrity of the Bar by stating to the public, in effect, that: a Delaware lawyer is bound by specific written standards, that those standards are published, that a lawyer certifies annually that he complied with the standards, that his books are subject to be audited on a random selection basis to verify his certificate of compliance and that, through the Clients' Security Trust Fund he annually contributes to a fund the only purpose of which is to compensate members of the public who have been victimized by a dishonest lawyer.
Since Kennedy's records have never been provided, we cannot say that he has not complied fully with the Rule and the Guideline as he has certified. And we have no reason to believe that Kennedy's failure to produce his books and records was other than to make a good-faith challenge to the production requirements issue for final decision here. For that reason, he will not be disciplined.
A mandate will issue ordering John B. Kennedy, as a member of the Delaware Bar, to promptly submit his books and records for examination by the public accountant or certified public accountant selected by the Trustees of the Clients' Security Trust Fund under the authority granted by this Court in Interpretive Guideline No. 2 to DR9-102.
[*]  Rule 66 provides in part, as follows:

"(c) Powers and Duties of Trustees.
(i) In addition to the powers granted elsewhere in this rule, the trustees shall have the following powers and duties:
. . . . .
(10) In order to determine compliance with DR 9-102 and its Guidelines: (a) To require each member of the Bar of this Court to submit to the trustees such financial and accounting data or similar information as may be prescribed from time to time by the Court; (b) to conduct selected examinations of books and records required by the Court to be kept by members of the Bar, such examinations to be conducted in accordance with the rules and regulations approved by the Court; and (c) to report to the Censor Committee any member of the Bar found to be in noncompliance with DR 9-102 or any failure by any member of the Bar to furnish required data or information."
[**]  The Rule was originally designated as Number 32A; it now appears as Rule 66(a)(ii).
[1]  This Court recently amended Rule 66(e)(iv) to increase the upper limit of the Fund from $200,000 to $500,000. The order implementing that change, effective, January 1, 1982, states in part as follows:

"(2) That the said upper limit of $200,000 was established by Rule amendment, effective January 1, 1972;
(3) That, during the intervening years, the number of members of the Delaware Bar has substantially increased; and there has been a continuous annual increase in the rate of monetary inflation;
(4) That it is the responsibility of this Court and the Trustees of the Clients' Security Trust Fund to exercise reasonable judgment and to attempt to evaluate the number, nature, and size of claims which may be asserted against the Fund in the foreseeable future;
(5) That, under all existing circumstances, the sum of $200,000. established in 1972 has become an unrealistic upper limit for the future fulfillment of the purposes of the Fund as set forth in Rule 66, and that the sum of $500,000. is now a more realistic upper limit for the said purposes."
[2]  Wigmore described the purpose of the attorney-client privilege as follows:

"The policy of the [attorney-client] privilege has been plainly grounded since the latter part of the 1700s on subjective considerations. In order to promote freedom of consultation of legal advisers by clients, the apprehension of compelled disclosure by the legal advisers must be removed; hence the law must prohibit such disclosure except on the client's consent . . . . In short, all four of the elements already noted (§ 2285) as essential to such a privilege are here deemed to exist." 8 Wigmore on Evidence § 2291, p. 545 (McNaughton rev. 1961).
The four elements referred to (§ 2285) are as follows:
"(1) The communications must originate in a confidence that they will not be disclosed.
(2) This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties.
(3) The relation must be one which in the opinion of the community ought to be sedulously fostered.
(4) The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for correct disposal of litigation."
8 Wigmore on Evidence § 2285, p. 527 (emphasis in original). See also McCormick on Evidence § 87 (2d ed. 1970).