Thursday, August 08, 2013
What About the Lawyers?
Picking up where I left off earlier this week, some of the problems associated with modern-day compliance monitorships are highlighted by the scenario below, which is inspired by real-world cases.
After wrongdoing is discovered at a Company, the SEC and the Company ask a district court to enter a consent order stating that the Company agrees to retain a corporate compliance monitor (“Monitor”), amongst other things. An agreement between the SEC and the Company states that the parties intend for the Monitor’s Reports to remain confidential and, in 2009, the parties ask the court to enter an order stating that only the SEC and the Company are permitted access to the Monitor’s Reports. The Company is concerned about public disclosure of proprietary information. The Court issues the order, the Company retains a lawyer to act as its Monitor, and the Monitor spends three years conducting the monitorship. In 2012, the Monitor provides his recommendations as well as a more detailed report to the Company and the Government, and the monitorship concludes. Surprisingly, in 2013, a reporter files a motion with the court in an attempt to gain access to the Monitor’s Report. After some legal maneuvering, the court grants the reporter’s request and orders the Monitor’s Report to be disclosed in its entirety.
Imagine the implications for the lawyers involved in this case. The Company was likely advised by its representative-lawyer that the confidentiality of the Monitor’s Report would be upheld after the court order, and now the Company isn't very happy with its representative-lawyer. The Monitor, an attorney, believed that his actions and report were to remain confidential. Furthermore, the SEC attorneys involved in the case required the Monitor to include certain information in the Monitor’s Reports that might not have been required if they had known the court would rescind its prior order. The lawyers in this case went from intending a confidential relationship in 2009 and believing they were involved in a confidential relationship from 2009-2012 only to have that belief shattered by legal maneuvering in 2013.
Now, where does this leave the lawyers? How could the Company, the Government, and the Monitor have structured the monitorship to avoid this outcome? Does it make sense to require parties to enter into agreements that require the retention of monitorships without any bright-line rules governing the monitorship? In part, this will likely depend on what function the Monitor is providing—which I will address in my upcoming blog posts.
Posted by Veronica Root on August 8, 2013 at 12:07 PM | Permalink
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Prof. Root, as you probably know, in the legal ethics field we often debate the question about what, if anything, a lawyer can and should say to the client about the exceptions under which otherwise confidential or privileged material would be discoverable. I wonder if your hypo doesn't frame the same issue.
If the monitor lawyer in your hypo had asked my advice, I probably would have counseled her to inform the client that while the odds of continued confidentiality and privilege were good, they were far from certain. I'd also counsel her to write her reports as if the documents were to end up published by the NYT -- to write the documents candidly but prudently and moderately.
Posted by: John Steele | Aug 8, 2013 1:54:03 PM
I struggle to see how or why anyone would confidently think the monitor's report would remain confidential. It was not privileged pursuant to the attorney-client privilege. It does not qualify as work product. One would have to think that a court would rescind a confidentiality order upon good cause shown. So I am generally aligned with John: as a lawyer for the company you advise the client that the confidentiality of the report cannot be assured. If you are the monitor, you draft your reports carefully in the event of their disclosure to third parties. If you are a lawyer for the monitor, you counsel careful drafting.
Posted by: Doug Richmond | Aug 8, 2013 3:02:54 PM
Agreed. A good lawyer for the Company would explain that the confidentiality was not inviolate. Confidentiality isn't privilege, which is one of the difficulties associated with monitorships that this scenario highlights.
The problem with the Monitor's Report doesn't, however, appear to be easily fixed by counseling the Monitor to draft the reports assuming disclosure to third-parties. This is another challenge with modern-day monitorships.
As currently structured, monitorships are facilitating the Government's concerns with policing the Company. Thus, the agreements usually require that the Government have full access to what the Monitor knows and right now that information is typically communicated to the Government in the Monitor's Report. Thus, it wouldn't seem appropriate for the Monitor to withhold information in its report that would give the Government a more complete picture of what the Monitor had done, because the Monitor is worried about potential disclosure to third-parties. The Monitor doesn't appear to have a formal "duty" to the Company under the current system. Now the regime could be changed--the Monitor, instead of a full written report as to the Monitor's activities, could give the Government an oral presentation and then provide the Government with a bare bones report on its activities. But that's not the world we live in now and that might be quite inefficient. Another option might be to have the Monitor's Report disclosed as a redacted-document, although that might not satisfy the reporter's concerns depending on how heavily the document is redacted. Similar reports in the FTC area are disclosed in a heavily redacted form, much to the consternation of the groups attempting to access them via FOIA requests.
All-in-all, monitorships are challenging relationships for all involved, particularly the lawyers, and this scenario is providing an example of some, although not all, of those challenges.
Posted by: Veronica Root | Aug 8, 2013 3:53:31 PM
I agree that the monitor can't withhold information from the Government. But the monitor can think hard about how she phrases things, how she characterizes things (while still being truthful), etc. This is, of course, an incomplete solution. Facts are still facts, and, from the corporation's perspective, some of them might be bad. And the end of the day, though, this is more a problem for the company than it is for the lawyers involved--at least from a professional responsibility or liability perspective.
Posted by: Doug Richmond | Aug 8, 2013 7:12:25 PM
On that point, we will have to agree to disagree. I conceive of professional responsibility as being much broader than being concerned with liability or the responsibilities a lawyer has for his individual client. Lawyers hold a special place in our society. Lawyers are asked to serve all sorts of roles outside of the confines of the attorney-client relationship. And society needs, even if it doesn't always expect, for the lawyers who take on these roles to be able to fulfill the responsibilities they've undertaken in an ethical manner. While the Model Rules don't give much guidance to the lawyer-monitor, there is an argument to be made that they should. And if the guidance isn't in the Model Rules, it may be that it should come from somewhere else. When we as a profession see that lawyers are being utilized in new and exciting ways, it is important to think about what the ramifications are for these new roles. Lawyers are often asked to be corporate compliance monitors and this has been going on for at least a decade in the specific situations I'm looking at in my current project. Looking critically at the role these lawyers are providing and the duties that should or should not attach from the lawyer to the company or the government is of use to the lawyers who will one day serve as monitors, but it also serves to better understand the demands society is placing on members of our profession. This may be an example of something lawyers have always done--dressed up in new words with new types of actors--but that's worth investigating and thinking about.
Posted by: Veronica Root | Aug 8, 2013 8:00:52 PM
Fine, conceive of professional responsibility as being broder than professional liability or rules of professional conduct. That clearly is appropriate. And lawyers are regulated by sources other than ethics rules, with agency law springing immediately to mind. But nothing in your original post suggested that you were concerned about societal issues. As I read your initial post, this is all about structuring and maintaining workable relationships in the course of the monitor's performance of his or her responsibilities. If I misunderstood you, any fault for that is solely mine. But make no mistake about it, monitors' conduct is amply regulated by the Model Rules of Professional Conduct--think Rules 4.1 and 8.4(c)--even though the monitor perhaps has no client in the truest sense of the word. Doesn't thinking of the government as the monitor's client solve the monitor's professional responsibility concerns, no matter how they are conceived? That may pinch the company, but it solves the monitor's problems, doesn't it? And the company can't copmplain too much--after all, it agreed to the arrangement to avoid other undesirable consequences. The company has picked its poison. (I am not a big fan of compliance monitors.)
Posted by: Doug Richmond | Aug 9, 2013 12:34:57 PM
The scenario I outlined in the original post raised some of the difficulties associated with monitorships, with a particular emphasis on the challenges facing lawyers. My discussion of societal issues in the comments, which I am quite interested in, highlights that this is a problem facing lawyers.
I believe further guidance for monitors would be helpful, in part, because as currently structured the monitor has no "clients" or "principals." As is correctly mentioned above, Rule 4.1 doesn't apply because the monitor has no client. It is also correct that Rule 8.4(c), which prohibits "conduct involving dishonesty, fraud, deceit or misrepresentation," applies to lawyer-monitors. But we are still left with the concerns monitorships raise regarding confidentiality/privilege/third-party disclosure/lack of bright-line rules. As currently structured, the lawyer-monitor is most akin to a third-party neutral under Rule 2.4, but it might be appropriate to rethink the text of Rule 2.4, because it seems pretty specific to mediators/arbitrators and the role of a corporate compliance monitor is a little different. But to be clear, I don't get into a robust discussion of the Model Rules in the current project.
Thanks for the thoughtful comments. It is always good to know research projects are of interest to folks!
Posted by: Veronica Root | Aug 9, 2013 2:51:22 PM