Professional Responsibility

Fall 2004 - Prof. Stewart

I.
Introduction: Ethics, Corporate Law, and the Real World
The course deals primarily with the ethics of lawyering and the various obligations that
are present for lawyers during certain situations. These situations arise from various
contexts as this outline indicates.
a. Themes:
When going though this outline, think of the following quotes and how they
apply:
1. The life of the Law has not been logic, it has been experience
(Holms)
2. About a half of the practice of a decent lawyer is telling a wouldbe client they are a damned fool and should stop. (Root)
3. Fame is vapor. Popularity is accidental. Riches can be taken
away. Only one thing endures and that is character. (Greeley)*

the most important thing is character

the odds of screwing up in the legal profession are greater
today than ever before
Driving force of the practice today is client focused and
getting the receivable in.
*describes a profession where the lawyer is the dominant
actor. This is not true today. Today, the client is the
dominant actor and runs the show. The client can simply go
to another lawyer

b. Models for Lawyers to Aspire to

What follows are some models of how the lawyer should approach the attorney-client
relationship. As you go through the cases and materials, think which is the best
approach.
1. Lawyer as friend: relationship of trust and personal care. Not
just economic, but looking out for the best interest of the person.
Need honesty. Honesty can be good but can also destroy a
friendship. The key is an honest, objective advice. Problem: Can
lawyer be a friend in the corporate arena.
2. Lawyer as Agnostic: also known as lawyer as the hired gun. In
Rifkinds article, he goes through this. Do what the client tells
you. Put your best foot forward to represent your client. This
model is defended on the notion of the adversary system. The
purpose of the adversary system is to put the best argument from
each side forward. The truth is what comes out perhaps not the
absolute truth, but the courtroom truth. Rifkin argues that the
1

lawyer is in command and cannot simply be a hired gun since a

hired gun follows the dictates of the person holding the gun. Not
true today since the client is the one really in charge. Rifkin also
writes this at a time when there was not considered any duty to
society, only the client. That too has changed.
3. Lawyer as Stool Pigeon: what does a lawyer do to protect
oneself when the client refuses to follow? The tension between
confidentiality and duty to society has changed drastically over
the course of the past three years.
i.
The different Truths
Absolute/Metaphysical Truth: what is true in its purest form.
Also known as metaphysical truth. It is what is true in an
overall sense.
Court Room Truth: this is what is true based upon the rules
that govern our adversarial system: evidence, civil procedure,
the Constitution.
E.g.: Stewart has cocaine in his apartment. The police come
in without a search warrant and arrest him. He is freed. Why?
They did not have a search warrant and thus violated the Bill
of Rights. The two truths are present: he absolutely had the
cocaine but the laws prevent his arrest.
Is this good? According to Rifkin, yes. If we didnt,
everything would be undermined. The floodgates would be
opened. Our court system is thus not about resolving the
truth, but rather resolving a conflict.
4. A Lawyer is what he eats: Can you represent management by
day and do pro bono work for the union at night? Can you
represent GM then wear a John Kerry button at night? Can you
sleep if you represent a crook? Do you become the captive of
your client?
5. A Lawyer as a Statesman (the Lincoln Model): Speaks about
the qualities needed to be a good lawyer. A good lawyer should
negotiate, seek compromise, be a peacemaker, discourage
litigation. The adversarial system can work in a different way.
The winner is the loser in the end.
Think Spitzer & Grasso: Why spend X+Y and litigate when
I could have resolved it and spent X four years ago.
Explain the lost opportunity. Take the high ground.
Tell your client he is a damn fool.
6. Lawyer as a Rebel: Only be a lawyer for the causes you feel are
right. Maybe you can sleep better at night. Can this be applicable
to corporate law? Sounds good, but you probably wont make
much money.
7. Lawyer as Equal: Be a facilitator. Let me help you through
this
2

Rifkind and the Lawyers Role

A.
Generally
1) Lawyers - Role and responsibility as attorney only comes into being
when he is a member of a client-attorney, symbiotic team. Once part of
this team, he works in an environment called the adversary system in
the adversarial process.
2) The Adversarial System - Rifkind argues that it works so long as both
sides give their best effort; then the courtroom truth will be achieved.
Trials are not about finding the absolute truth, otherwise there would
not be one person for the plaintiff, one for the defense and another to
decide among them.
3) Rifkind & the Agnostic Model of Lawyering - Rifkinds model
perpetuates the Agnostic model of lawyering where the lawyer has
the more dominant role. Here Rifkind subscribes to a theory similar to
Elihu Root.

B.

The Adversarial System

1) Lawyer Is Not Final Arbiter - He may urge propositions of which he is
less that certain as he is not deciding the case. The final judgement
emerges from the contest. The courtroom truth emerges from the
antagonism of adversaries. The judge uses the adversarial process for
illumination.
2) Adversarial Process - is a organized and institutionalized form of
confrontation
3) The Question of How Can You Represent X?
a)

Johnsons reply to Boswells question, But What do you think of

supporting a cause which you know to be bad?. Here Johnson
replied by saying that Sir, you do not know it to be good or bad
till the judge determines it . . . An argument which does not
convince yourself may convince the judge to who you urge it; and
if it does convince him, why then sir, you are wrong and he is
right. It is his business to judge
1) Rifkind is getting at the idea that there is no objective absolute
truth, only a courtroom truth.
2) Rifkind calls this a radical notion because it rejects the notion
that the lawyer should not be case-oriented and client-oriented.
3

3) Rifkind writes If only the lay public understood that if the

outcasts, the rejected ones, the deviationists, the unpopular
ones are to be unrepresented, the adversary system would fail
for everyone. When law students protest a firm for
representing a particular client, they subvert the central
tenet of the profession they are about to enter.
4) Better Question - Why didnt you take that case?; one of the
roles of attorneys is to behave in ways that make the
adversarial process work. His object is to achieve for his
client the best which is available within the law.
a)

4)
Rifkinds Model of Being an Amoral Technician Based on blind justice - no morality - The adversarial process
generally works well because we do not seek the objective truth.
This cant happen as there are no right answers. If we were
really searching for an absolute truth, there would be no rules of
evidence and exclusionary rules. Trials resolve controversies, the
do not find the ultimate truth.

b) Arthur Lymon, independent counsel during Iran-Contra was a

successor to Rifkind who vocally supported the idea that
representing through amoral advocacy is not wrong.
c)
5)

This is a position that the government is consistently trying to

undermine by having attorneys roll on clients.
Rifkind On The Public Interest Lawyer

a)

Rifkind is critical of public interest lawyers who go find clients

that fit their agenda. The public interest lawyer does not advance
the cause of the client, but rather, the public interest lawyer selects
the client and advances his own cause.

b) How Do We Locate The Public Interest - Rifkind argues that it is

not as simple as saying that the public interest always sides with
the employee [labor] or the tenant [landlord tenant] in classic legal
controversies. It is not as simple as labeling such preferences.
C.

The Target Of The Trial

1)
The truth is not the target, the target is the resolution of a
controversy

2) Reception of information in court proceedings is conducted through a

complex filtering process:
a)

Filtering is designed to exclude information which is suspect or

which experience has adjudged generally untrustworthy. The truth
found through these filters will be different than the unfiltered
truth.

b) The type of truth achieved in the courtroom would be quite

different if information was unfiltered. Rifkind asserts that the
quality og our justice would suffer if trials were exposed to
unrestricted information.
c)

2 Types of Truth: Courtroom Truth and Absolute

Truth
1) Getting to the absolute truth is not the same as getting to
courtroom truth. In terms of legal process, Rifkind argues that
courtroom truth is better.
D. Rifkind on Attorney Client Relationships - Rifkind flatly rejects the
proposition that attorneys can find their way out of ethical problems through
attempts to convert the lawyer into an informer against his client. Access
between attorney and client, uncensored and uninhibited, is indispensable
to the independence of the bar; and the independence of the bar is the
condition precedent to a free society and a democratic government.

c. Martin Luther King, Jr. Article

The most important document of the 20th Century
His detractors: be patient, let things happen slowly. King is trying to do things
best left elsewhere
Kings response: there are just and Unjust laws
3 examples:
1) Out of harmony with moral laws (Steward: there is
a higher law than the Constitution)
2) Majority for the minority
3) Law imposed on minority that minority had no say
in creation.
Do openly and accept the consequences

II.

i.
ii.
iii.
iv.
v.

Confidentiality Attorney-Client Privilege, and the Work Product Doctrine

the heart of Professional Responsibility is ethics
a. Confidentiality
Ethics Rules written by lawyers for lawyers
These are aspirational rules written by lawyers, state bar
examiners, and academics
i.
NY Confidentiality Rules (DR 4-101)
you have an obligation to guard your client
DR 4-101 (B): Except when permitted a lawyer SHALL
NOT:
i.
reveal a confidence of a client
ii.
use confidence of a client to the disadvantage of the
client
iii.
use confidence to the advantage of a third party
DR 4-101 ( C ): A Lawyer MAY reveal
Confidences with the consent of clients after full disclosure
Confidences where permitted
Prevent a crime
Defend against an accusation of wrongful conduct
Confidences or secrets to the extent implicit in withdrawing a written or oral
opinion or representation previously given by the lawyer and believed by the
lawyer still to be relied upon by a third person where the lawyer has
discovered that the opinion or representation was based on materially
inaccurate information or is being used to further a crime or fraud.
DR 4-101 (D)
i.

A lawyer shall exercise reasonable care to prevent his or her

employees, associates, and others whose services are utilized by the
lawyer from disclosing or using confidences or secrets of a client,
except that a lawyer may reveal the information allowed by DR 4-101
[1200.19] (C) through an employee.

When client comes and tells lawyer x, lawyer CANNOT

go out and tell anyone else x
A breach could result in a state bar discipline, the loss of a
client, a malpractice suit.
You cannot disclose a so-called fraud or white collar crime
You may tell if a client is about to go out and commit a
crime. However, there is no obligation to do this.
The caveat: what if you are wrong and the client doesnt
commit the crime, but you just revealed something. The
issue of liability comes up.

ii.
a.
b.
c.
d.

E.g. You represent Steinbrenner. He is hot-headed and tells

lawyer he is going to run a stake through A.Rods heart.
What does the lawyer do? Steinbrenner may be speaking
just nonsense.
iv.
ABA (Model Rule 1.6)
The ABA recently changed their rules
There are now a list of mays: may reveal to prevent
reasonably certain harm; may reveal the client from
committing a crime or fraud that will result in hurting
someone financially; to prevent or mitigate an injury that
will result from a act the lawyer helped the client with; to
help establish a defense to a charge the client was involved
in.
ABA Model Rule 1.6
i. Lawyer shall not reveal unless client gives informed
consent
A lawyer MAY reveal related to the representation to the extent the
lawyer believes is reasonably necessary:
to prevent reasonably certain death
to prevent the client from committing a crime or fraud that is certain to
result in injury to financial interest of which the client has used or is using
the lawyers services
to prevent or mitigate or rectify injury of the financial interests of another
that is reasonably certain to result from the clients commission of a crime
or fraud in furtherance of the use of the lawyers services
to establish as a defense on behalf of the lawyer.

v.
Sarbanes-Oxley
Now, any attorney who represents a corporation is
governed by the Federal Government
For the 1st time in the 200-year history of the US, the Feds
are governing the client of lawyers
At one point there was a so-called Actual Knowledge
standard: e.g. CEO tells Lawyer an untruth and the lawyer
acts upon that unknowingly. The lawyer is blameless.
Today, the Reasonable Lawyer Standard is enacted. A
lawyer SHOULD have known the untruth, thus lawyer,
today, would be liable.

b. Attorney-Client Privilege
Law of evidence
Goes back to jolly-old England
It is a concept stronger than the Confidence but narrower in scope

i.

The 5 Cs all of them are needed to assert this privilege.

1. Communication: some dialog between the attorney and client.
They have to speak. An agent can also be involved. But it has to
be a close agent, and not just anyone
2. Client: must be an actual client or a contemplated client.
3. Confidence: must be done in a confidential setting (done in
expectation) (not email, maybe fax, depending on where the fax
is sent to. The fax to the hotel doesnt cut it; the fax to the office
likely does)
4. Counsel (n): There must be an attorney involved
5. Counsel (v): The attorney must be engaged in the counseling of
legal matters within his/her capacity as an attorney
The client is the owner of the privilege and is the only one who can waive the
privilege
E.g.: Bob Woodards book reveals a conversation between Clinton and Bill
Bennett. Clinton never revealed the discussion; it had to have been Bennett. A
case of bad lawyering

C. Work Product Doctrine

Comes out of the Federal Rules of Civil Procedure 26
It is a weaker protection than the Attorney-Client Privilege
There is a protection of the work product unless a strong showing is made
This, unlike the attorney-client privilege, is on behalf of the lawyer
There is one AND ONLY ONE form this takes on a WRITING. Any type of
writing, but must be a writing
There is only one context: IN ANTICIPATION OF LITIGATION. There
needs to be something adversarial in nature. It is not enough to say possibly
one day there will be litigation.
Two types:
1. Opinion: These are things of the mind. This type of work
product gets the most protection
2. Ordinary: all the other mundane stuff
Practice hint: always let your mind be reflected in the work. Therefore, this will get the
heightened protection.
The concepts of attorney-client privilege and work product are further explored in the
cases that follow.
D. Cases
Upjohn Co. v U.S: the seminal case for this course relating to Corps and the ACP.
Facts: Upjohn in a lot of trouble. Their subs were making illegal payments abroad. The
GC sent an internal memo around asking questions. US Gov found out and subpoened the

memos. It was very useful evidence in the case - the info that Upjohn gathered itself. US
wanted the info without doing the work
There had been a rule regarding ACP in the corporate environment called the
control group. The control group was the upper echelon of the company and the
ACP only extended to them. The Policy reason was that, if broader, a huge veil
would cover the entire organization
The lower court held that since the communication was between GC and lower
level (outside the control group), there could not be a ACP
USSC reversed on policy and law. They said the lower court missed the boat on
the ACP :
i.
Only applying ACP to upper echelon is half-assed
ii.
2 things are going on here
a. Counsel (v)
b. And in order to provide counsel (v), you need info to get to the lawyer
(you cant give counsel if you dont know the facts)
c. Who know the facts? Those outside the control group, i.e., the lower-level
employees
d. In order to satisfy the counsel (v) need a two-way street of communication

USSC sees an important policy in insuring a two-way street for everyone

Need certainty in order for ACP to be effective. Without certainty, the entire
purpose of the ACP would be moot,
Applies only to current employees; the jury is out as to former employees

Related: The law in NY State is the same as USSC in Upjohn. Other states not
necessarily: e.g. IL applies only to the control group. BAD trap out there: be careful!
In Re Murphy: work product doctrine
Facts: Murphy gets a subpoena to provide documents. Murphy says no, so judge holds
Murphy in contempt. The documents sought where documents prepared for ANOTHER
litigation. These documents were of the opinion variety: ones reflecting the mind of the
attorney. Murphy prepared a so-called devils advocate memo; making the best argument
against Murphys case (good lawyers do that)
Gov says that it was not done in anticipation of the PRESENT litigation, therefore
the Gov can get it
- 8th Circuit says that mental impressions have practically virtual protection (more
nuances discussed infra) when done in anticipation of litigation or some
adversarial confrontation.
- Then the Gov says this is an extraordinary case because Murphys clients lied to
the patent office
- Ct says so, nothing to do with the lawyer
- Holding: Opinion WP has heightened protection Must be done in
anticipation of the case at bar.
U.S. v Adlman : Part I: ACP

Facts: In-house tax lawyer talks to Accountant about a proposed re-org for the client. The
Accountant prepares a memo outing the possibilities. There was a possibility (actually,
the norm), for the IRS to look into such a re-org. IRS does challenge the re-org and wants
the Accountant memo. The in-house tax lawyer says no and the IRS sought to enforce
- Lawyer claimed both ACP and WP
- The 2nd Circuit (Judge Level (Stewarts hero)) says that one of the 5 Cs is missing
for ACP. The communication is between lawyer and accountant. THERE IS NO
CLIENT HERE. Client, one of the 5 Cs is not here.
- IRS tries to argue a universe theory: the client, lawyer, and accountant were all
working towards the same goal; the argument fails.
- Very important In the post Sarbenes-Oxley world
- Outside person is irrelevant. Held: Communication, in order to be protected
by the ACP, must be between lawyer and client.
U.S. v Adlman: Part II: WP
Facts: Now the in-house tax lawyer argues that the memo is protected by the WP
doctrine. The IRS proceeding is adversarial as enumerated in Fed. R. Civ. Pro. 26 (b) (3)
- Q: Was the memo prepared in anticipation of litigation?
- Up until that time, courts mistreated the WP and used terms like exclusive or
principally or purposeful
- Judge Lavel (Stewarts hero) takes a different approach and said that the test must
be BECAUSE of litigation. If yes, then covered, then the memo is protected.
- That is the standard today
- IMPORTANT: IT IS BECAUSE OF AN ANTICIPATION OF LITIGATION
THAT A WP GETS PROTECTION. NOTHING LESS.
U.S. v Ackert: ACP/Communication and the Third Party
There are conversations between studio and Goldman Sachs about doing a deal. The deal
is done with someone other than Goldman and the IRS investigates and wants to know
everything Acker, an IB at GS, told them. Goldman argues that they cant because of the
ACP.
- Judge Lavel: the ACP only applies to the confidential communication between
counsel and client with counsel (n) applying counsel (v). Remember the 5 Cs!
- Acker is an independent third party, not a lawyer. The discussion has nothing to
do with privilege.
- Acker argues a 1961 decision the Kovel Exception. There, someone was
acting as an interpreter for the lawyer, essentially a translator. Under those
circumstances, the third party falls into this universe.
- But that doesnt apply here, Acker was simply an independent person
- Disclosing to a third person waives the privilege. The narrow Kovel exception
is when the third person is acting as an interpreter; this is a high standard to
overcome.
Practical Solution: How do you apply Kovel easily? Simple: Make the third person
work for the lawyer. People who work for the lawyer get the privilege

10

III.

Other Privileges and Related Imbroglios

In Re Solomon Bros : the so-called Privilege of Self-Critical Analysis

Facts: Documents were prepared for the review of certain trading practices. The
documents are requested and Solomon Bros refuses, citing this privilege developed in a
Harvard Law Review article:
3 Steps:
1. Info must result from a self-critical analysis undertaken by the
party seeking protection
2. Public has an interest in preserving the free flow of the
information sought
3. Flow would be curtailed if discovery were allowed.
This was first applied in a med mal case. The public wanted
an improvement in medical techniques and the material was
beyond the scope of the discovery rules.
The question presented here: would internal examinations
be curtailed if discovery were allowed?
Judge Patterson decides no since this is something that
companies HAVE to do.
Flynn v. Goldman Sachs : the so-called Privilege of Self-Critical Analysis Revisited
Facts: Memos were prepared regarding the study of how women are treated in the
workplace. The documents are sought after for discovery. Goldman cites the self-critical
analysis privilege.
- Here, Judge Woods says these documents are discoverable, although the
distinction between this and In Re Solomon Bros is hard to reconcile.

U.S. v. Arthur Young: Accountants want to be like Lawyers

Facts: Accountants prepare memo for client and then wish to cite a privilege of keeping
the communications confidential. In distinguishing between accountants and lawyers,
Justice Burger illustrates the following:
i.
ii.
iii.
iv.

Accountants are disinterested parties

Job is to further disclosure
Objective, unqualified opinion is key to the accounting profession and the
accountants role.
To summarize: accountants are to let the sun shine in

i.
ii.

Lawyers must zealously representation the client

The first thing is to protect the client; that is where the duty is.

11

Note: People will say that a lawyer is like an accountant with a duty to the public. They
will say the lawyers job is the truth, not confidences. Remember Rifkins two truths.
Samuels v Mitchell Case: Argue both ACP & WP Doctrine
Facts: Here, the lawyer disclosed material to outside accountants. The material is
subpoenaed and the other party says the revelation of the material to the outside
accountants was a waiver of the ACP.
- The court agrees. Confidentiality was broken as to the ACP (remember the 5 Cs),
so there is no ACP.
However, they then argue these documents are protected by the WP doctrine since the
documents were prepared because of an anticipation of litigation
- The court agrees. Rather, the courts generally find a waiver only if the disclosure
"substantially increases the opportunity for potential adversaries to obtain the
information
NY CPLR 4548
CPLR is about email as communication and confidence; yet another accepted mode. But
note encrypted and unencrypted
IV. Loss of Privilege: Work Product
Rules of Evidence 612: Any document that you show a witness to refresh their
memory must be shown to the opposing side. Essentially, this could result in a loss
and/or waiver of the WP protection.
Nynex Case: Question of Document Request
Facts: Employee alleges firing due to racial discrimination. There are notes from a
meeting that the other side wants because that is where the good stuff is.
They argue that this is work product.
But didnt fall within the scope because someone else was there and the
opposing counsel could get the info not from the lawyer but from the other
person. REMEMBER: the great need to get the papers is a way around the
WP. But if someone else has the information, that cannot be used.
Then there was the deposition: each lawyer reviewed the notes and testified to two
different things
Ps lawyer goes to Judge Rubin and says we need this because were getting
conflicting stories. The original protection cannot protect!
Rubin: sounds more like a transcript/not the mental impression. Under 612,
when you show something, gotta show it to everyone else
On Appeal: says work product
Judge then wants an in camera review to see these documents to make a
determination as to their work product status
Determines not work product and determines that the lawyers lied

12

Stewarts Seven Great Lessons from the NYNEX Case

a. NY Times Test: whenever you write something ANYTHING think
how it will look on the front page of NYT. This was an in camera review.
Nothing as bad as this
b. No Absolutes: WP is not absolute
c. Horse shed: preparation of a witness. This is what good lawyers do. Proper
prep is an important lesson
d. Its Litigation Stupid: Here, the document did not refer to anticipated
litigation. PUT THAT IN THE MEMO ITSELF
e. Dont Lie to the Court: Basic no-no. The NYNEX lawyer lied 4x
f. Attorney Not Always An Attorney: Lotsa lawyers do non-legal work
(recall the 5 Cs: C(v) or C(n) may not be present simply because one of
the parties in question has a J.D.
g. Gracie Allan: Under 612, anything that you show a witness must be
disclosed. Practical way to get around thus: ask the witness the facts in the
documents; do not show the witness the documents.
Georgia Pacific Case: C(n) not always acting as C(n)
Facts: There were discovery depositions. In-house counsel gets deposed. He was an
environmental law expert. The company was going through an asset-purchase agreement
and the in-house was asked to assess the environment ramifications of the proposal.
- Wanted to know communication between in-house and the big cheeses
- The lawyer, in response, wanted to cite ACP
- Went to Judge Patterson
- Holding: Counsel(n) is missing, he is really working as a negotiator
- The decision is wrong:
i.
It is true that sometimes a lawyer is not acting as a lawyer and you must look
at the facts in each case.
ii.
However, here Judge Patterson simply says that the lawyer is acting as a
negotiator. But lawyers frequently act as a negotiator and a researcher and a
writer, etc.
iii.
The better question would have been: is the lawyer doing lawyer-like
negotiations (which he was) or something else
iv.
In Rossi, the federal court applies New York law because the case is sitting in
diversity. The court urges that Rossi (NY Ct. of Apps) stands for the
proposition that the scope of the attorney client privilege is limited to that
which is necessary to achieve its purpose. In Rossi, the Court of Appeals
observed that staff attorneys may serve as company officers with mixed
business-legal responsibility [and] their day-to-day involvement may blur the
line between legal and non-legal communications; and their advice may
originate not in response to a clients consultation about a particular problem
but with them, as part of an on-going, permanent relationship with the
organization. In that the privilege obstructs the truth finding process and its
scope is limited to that which is necessary to achieve its purpose. Rossi
stands for the proposition that since in-house counsel may have mixed

13

v.

business-legal responsibility and that the scope of the AC privilege should

be narrow so that the mere participation of an in-house attorney can not be
used to seal off disclosure.
Judge Patterson misquotes Rossi. Rossi does not stand for what he says in the
case; Rossi actually followed Upjohn. Is the decision really consistent with
Rossi? In Rossi, the issue was over memos written by in-house lawyer; there,
the court upheld the privilege even thought the lawyer served in a mixed
capacity of business and law. In GAF, Judge Patterson compels disclosure
base on Rossi holding that lawyers dont negotiate - this is clearly outside of
the realities of modern corporate practices. This case illustrates that much of
what lawyers do is negotiate, aggressively managing risk and helping clients
comply with the law. In GAF, Judge Patterson has an archaic view of the role
of lawyers. Here, the information was available from other sources (i.e. senior
GAF management) rather than GAFs attorneys. While GP could have
deposed senior GAF management, they instead went after the lawyer. Never
have an analysis of a potential consequences done by a non-lawyer because
you want the protection of the AC privilege. Patterson does not seem to like
GAF Roofing and wants to push a settlement by hitting one side over the head
with a bad ruling. Such discovery decisions are generally not appealable
(with the exception of Murphy) until the case is final (i.e. no interlocutory
appeals). Federal judges with lifetime tenure have great latitude in applying
the FRCP.

Von Bulow: No limited waiver of ACP unless you are Alan Dersherwitz
Facts. Clause is accused of murdering his wife. He is found guilty, hires Derscherwitz for
appeal, and is freed. Dersherwitz writes a book and discloses info about the case. Now
Sunnys (Clauses wife) kids want the docs because, they allege, the ACP and WP are
waived.
Dersherwitz cites ACP
Trial Judge says it was waived
Derserwitz says a so-called extrajudicial waiver doesnt count (outside of
the area of law)
Judge says cant use it as a sword (by putting the info in the book) then
use it as a shield (ACP protects)
On Appeal in the 2nd Circuit: only what is in the book is waived, not
everything.
Stewart: This is clearly wrong. Once waived, all waived. Only Alan
Dersherwitz can get away with this.
In Re Kidder Peabody Securities Litigation (SDNY, 1996)
FACTS: Shareholder securities litigation that grew out of an announcement by
Kidder Peabody that it had discovered that one of its most prominent traders,
Joseph Jett, had swindled Kiddder. According to Kidder, Jett had perpetrated a
highly profitable fraud by engaging in money-losing patterns of trades in
government securities while creating a record of phantom profits on Kidders
14

bookkeeping system that totaled hundreds of millions of dollars over 28 months.

By doing so, Kidder alleges that Jett induced the company to pay him millions
of dollars in bonuses. Since the alleged scheme had caused Kidder to
substantially overestimate its earnings during the relevant period, shareholders
quickly brought suit against Kidder, Jett and Kidders parent company, General
Electric. During discovery, many disputes over the production of documents
arose.
The principal conflict concerns the refusal of Kidder to produce a quantity of
attorney notes and memoranda reflecting numerous interviews conducted by
Kidder by its current trial counsel, Davis Polk. Kidder asserts that these
documents are work product and that some are also protected by the attorney
client privilege. The shareholders and co-defendant Jett argue that the
documents were not prepared in contemplation of litigation, and that any
protection has been waived by the public release of an investigative report by
the Davis Polk firm in which counsel summarized their factual findings and
recommendations for reform to Kidder, as well as by Kidders use of that report
for litigation purposes. Plaintiff and Jett also argue that further waiver may be
implied from Kidders production in discovery of a draft of the report as well as
some copies of interview documents. Finally, the shareholders argue that Kidder
cannot withhold the documents from GEs Shareholders, to whom the company
owes a fiduciary duty.
In addition, plaintiffs and Jett seek production of several other, narrower
categories of documents from Kidder. In addition , they seek identification of
any individual interviewed by Kidders attorneys since the issuance of the
report.
Finally, Jett has withheld notes created by his attorney during his appearances at
the SEC and US Attorneys office, contending that these and subsequently
created memoranda are work product. In reponse, Kidder presses the notion that
it should be entitled to their production if the Davis Polk notes and memoranda
are deemed not to be protected.
A. The Kidder Peabody Interview Documents Kidder has identified notes
and memoranda reflecting aprox. 120 interviews conducted by David Polk
attorneys of 65 present or former employees. Davis Polk was retained by
Kidder in 1994 to perform legal services for it. Among the services
performed, David Polk as (1) represented Kidder in a variety of proceedings
that evolved from the discovery of Jetts alleged misconduct and (2) the
preparation of an 85 page report for Kidder summarizing in detail the facts
uncovered by the firm in the course of its investigation and making
recommendations for reform of its methods of supervision to ensure against
a repetition of these events. Kidder asserts that the documents are protects
as work product and that some are protected under the AC privilege.
Plaintiff and Jett argue that to the extent that the documents reflect

15

statements made by the interviewees, they should be produced. Here the

court concludes that those potions of the documents are discoverable.
(1) Work Product To invoke the protection of the rule, the party resisting
discovery bears the burden of establishing that the documents in
question were prepared principally or exclusively to assist in
anticipated or ongoing litigation. Even if the documents are found
protected, that protection is conditional and may be set aside if the
discovering party can demonstrate a sufficiently pressing need for the
data (has a substantial need of the materials in the preparation of its
case and that it is unable without undue hardship to obtain the
substantial equivalent elsewhere)
(a) Application of this rule to Kidders assertion of WP protection over
factual summaries of statements of interviewees cannot stand.
Kidder failed to sustain its burden to demonstrate that the
documents at issue were created principally or exclusively to assist
in contemplated or ongoing litigation. Kidder General Counsel
Liftin and Davis Polk partner Gary Lynch recited in affidavits that
after learning of the Jett problem, Liftin approached Lynch about
Davis Polk representing Kidder in all litigation and proceedings
that could be anticipated to arise in connection with this matter.
However, the affadavit also states that the report was not disclosed
by Kidder to secure any advantage in this litigation, but rather to
answer legitimate questions from the press, public, customers and
counterparties as to how Jetts scheme was perpetuated. Since the
documents at issue refer to interviews conducted by Davis Polk in
the course of preparing the report as well as preparing for
litigation, the court cannot determine whether the documents were
created principally for litigation. Kidders only proof is a
recitation of the legal standard for WP protection.
(b) Lynch Announcement One day after hiring Mr. Lynch and Davis
Polk, Kidder pubically announced the discovery of the scheme and
Jetts termination. At the same time, it announced the retention of
Mr. Lynch, described as former head of enforcement at the SEC
who was to lead a comprehensive investigation into what went
wrong and to recommend steps to prevent a recurrence. A Kidder
official was quoted in the New York Times as saying that the real
object of the Lynch investigation was to find out why it took so
long to find out. Liftin reported that the conclusions of the Lynch
investigation would be shared with the SEC and would probably be
made public.

16

(c) Kidder Sends Draft of Lynch Report to SEC In August, 1994,

Kidder sent a draft of the Lynch report to the SEC, together with a
letter asking the SEC for its comments.
(d) Public Release of Lynch Report On August 4, 1994, GE released
the Lynch report to the public, accompanied by an announcement
of personnel actions and institutional changes designed to carry out
reforms suggested by the report. The new CEO of Kidder made
comments that the report made it clear that the scheme was the
work of one employee and identifies the system failures that
allowed the scheme to go undetected.
(e) Lynchs Comments/Kidders Public Position Lynch confirmed
that the preparation of the report had been an essential part of his
role in representing Kidder and that his mandate was to get to the
bottom of the situation. In an interview with Business Week,
Lynch said that his only mandate was to give [his] best
assessment of what happened an why, based on the facts he
found. Kidder make like representations of Lynchs role.
(f)

Courts Conclusions:
(i) No reason to doubt Kidders representation that it hired Davis
Polk to represent it in all impending lawsuits, arbitration and
agency investigations. In order to do this, Davis Polk were
obliged to undertake a thorough investigation of the events at
issue, which in turn required interviews of a large number of
witnesses and the creation of notes and memos summarizing
what the interviewees said. Nevertheless, the court notes that
these steps would have been taken even if Kidder had no
interest in Davis Polk conducting an inquiry and preparing
a report for the purposes of institutional reform and public
relations.
(ii) When Kidder hired Lunch, it did so in part for the specific
purpose of having him conduct an internal inquiry in order to
(1) find out what Jett had done and why it took so long to
uncover and (2) prepare a report summarizing his factual
conclusions in detail and making recommendations for
corrective action by Kidder.
(iii) Most Crucial Kidder would have hired outside counsel to
perform such inquiry even if no litigation had been threatened
at that time. The Jett episode presented Kidder with a major
business crists. Kidder could have faced ruinous liability. Mr
Lynch was selected because he was the former Director of

17

Enforcement at the SEC, with a reputation for stringent

enforcement of the securities laws. This background made
him the ideal choice for Kidder for the role of counsel; he
would convince the public of Kidders desire to root out
wrongdoing. Kidders unique public profile made it urgent
that an internal investigation by an independent and
incorruptible outsider be well publicized.
(iv) Conclusion The court finds that the interviews conducted by
Lynch and his colleagues were not undertaken principally to
assist in contemplated or ongoing litigation. The Lynch
inquiry was required for pressing business purposes and
would have been undertaken regardless of whatever
litigation was threatened. Litigation was at most, an
inducement equivalent in importance to the business
necessities discussed above. Since the standard governing
work product claims requires Kidder to demonstrate that the
documents in question were prepared principally if not
exclusively for litigation purposes, it has not sustained its
burden.
(v) Conclusion Would Be The Same Under Another Analysis If
the but for analysis were not appropriate for determining the
relative significance of multiple purposes for the creation of a
document, the result would have been the same. Kidders
business purposes were entirely independent of its need to
prepare for litigation.
(vi) Held The interview documents, insofar as they embody
summaries of what the interviewees said concerning the
Jett transaction and related matters, are not protected by
the WP rule as they were not created primarily or
principally in anticipation of litigation.
(2) Attorney Client Privilege Kidder argues that some of the interview
documents are protected by the AC privilege. Specificially, Kidder
invokes the privilege to cover interviews of individuals who were
employed by Kidder at the time of the interview. Plaintiffs and Jett
oppose the invocation of the AC privilege on a number of grounds.
They argue that (a) Kidder waived the protection of the privilege by
both the public disclosure of the Lynch report which relies on many of
the witnesses statements and by Kidders affirmative use of the report
in litigation; (b) Jett argues that he has a compelling need for the
interview documents; (c) Plaintiffs assert the so-called fiduciary
exception to the attorney client privilege precludes Kidder from
withholding the documents fro the shareholders of its parent and (d)

18

Plaintiffs argue that Kidder waived the privilege by producing some of

the documents in discover and by turning over a draft of the report to
the SEC.
(a) Standards for the AC Privilege To invoke the attorney client
privilege, a party must demonstrate that there was: (1) a
communication between client and counsel, which (2) was
intended to be and was in fact kept confidential and (3) made
for the purpose of obtaining or providing legal advice. Here,
plaintiffs do not argue that the AC privilege applies, but rather that
its protection has been waived.
(b) Standards for the Waiver of the AC Privilege The AC privilege is
waived if the holder of the privilege voluntarily discloses or
consents to disclosure of any significant part of the matter or
communication. (Westinghouse) Here, plaintiffs and Jett point to
2 actions of Kidder that they argue waived the AC privilege for the
underlying interview documents:
(i) Kidder Released Final Lynch Report to the Public since the
document contains not only a factual summary based on the
interview documents, but also paraphrases for the interviews,
plaintiffs asset that they are entitled to complete interview
summaries.
(ii) Jett and Plaintiffs argue that since Kidder used the report in
not only this litigation, but in the arbitration in connection
with the SEC and US Attorney investigation, such partial
disclosure is unfair since Kidder is effectively relying on
Lynchs characterization of a factual record embodied in the
interview documents, and that this implicit reliance on the
underlying documents justifies their demand for the
production of the undisclosed record.
(c) Implied Waivers of Attorney Client Privilege It is conceded that
Kidder did not disclose the interview documents themselves and
that the Lynch report, which it has disclosed, contains only
illusions to the witnesses statements. Thus the court looks to see
whether Kidders handling of the report operated as an implied
waiver of the protections.
Conclusion - Kidder is guilty of the exact conduct that the
subject matter waiver doctrine was formulated to
address. It was using the substance of the documents as
a sword while and the same time invoking the privilege
as a shield to prevent disclosure of the very materials

19

that it invited courts to rely upon. This it cannot do.

Therefore, Kidders affirmative use of the Lynch report,
an by implication, of the underlying interview
documents, triggers a waiver of the privilege for those
portions of the documents that embody the substance of
any statements by Kidder employees interviewed by the
Lynch team prior to its issuance of the report.
Diversified Industries v. Meredith (8th Cir, 1977, J. Henley) - Limited Waivers HKC 222, 264
NOTE: The holdings in Diversified Industries and In re Subpoena Duces
Tecum can not be reconciled. Many decisions in the world of Professional
Responsibility cannot be reconciled as they are very dependent on the judge and
the court.
FACTS: Instant cases arises from a case pending in DC where Weatherhead
Companies is suing Diversified. Divcersified manufactures and processes
metals and Weatherhead sells and manufactures brass products. In 1974 and
1975, during a proxy fight, facts surfaced that indicated that Diversified may
have established and maintained a slush fund to bribe purchasing agents of
companies.
In the pending case, Weatherhead claims that employees of Diversified paid
large funds out of a slush fund to bribe purchasing agents at Weatherhead, with
the result that Weatherhead purchased large amounts of inferior copper from
Diversified.
Diversified subsequently hired the law firm of Wilmer Cutler to investigate.
During the investigation, the firm interviewed several Diversified employees,
including some who were not in a position to control or take a substantial part in
a decision the corporation might make based on the law firms advice.
Here, Diversified seeks to protect from discovery the contents of the memo and
written report, both prepared for the benefit of Diversified by the law firm
Wilmer, Cutler. The report summarized the interviews, analyzed the accounting
data, evaluated the conduct of certain employees, drew conclusions about their
conduct and made recommendations for Diversified. Diversified also seeks
protection of certain corporate minutes in which reference is made to the memo
and report of the law firm. Weatherhead sought to obtain the materials and a
motion for production of documents to which Diversified objected. The DC
overruled the objection without opinion.
Diversified contends that the documents in question are not subject to disclosure
because they fall within the scope of both the AC privilege and WP privilege.
Weatherhead argues that the material in question is not protected by either
privilege, or in the alternative, any privilege was waived for the purposes of

20

litigation when Diversified turned the materials over to the SEC without protest
in response to an agency subpoena in the course of an investigation.
PANEL SUMMARY AND DISCUSSION - The panel held that neither the AC
nor WP privileges applied as (1) the AC did not apply as the law firm was not
hired to give legal advice and (2) WP did not apply as the work was not done in
anticipation of litigation (Wright test). The panel does not get to the issue of
waiver of the privilege because they found that no privilege applied.
1.

Attorney Client Privilege - Much of the panels discussion was devoted to

determining whether or not the attorney client privilege applied, requiring
that the parties to the communication in question have the relationship of
attorney and client. Since the case was decided prior to Upjohn, much of
the discussion about which test to apply in determining attorney-client
privilege is irrelevant. However, the panel finds it unnecessary to decide
whether persons interviewed by the law firm were in fact clients because
the court is persuaded that the firm was not hired by Diversified to
provide legal services or advice. It was employed solely for the purpose of
making an investigation of facts and to make business recommendations
with respect to the future conduct of Diversified . . . the work that the firm
was employed to perform could have been performed just as readily by
non-lawyers aided to the extent necessary by a firm of public
accountants.

2.

Work Product Privilege - While the panel concedes that the report
constituted work product containing mental impressions, conclusions,
etc., the court holds that the firms work was not done in anticipation of
litigation even though the parties must have been aware that the conduct of
Diversified employees might ultimately result in future litigation. The
work product rule does not come into play merely because there is a
remote prospect of future litigation.
a.

Wright & Miller Test - The court then turns to the Wright and Miller
test of whether a document is prepared in anticipation of litigation. Whether, in light of the nature of the document and the factual
situation in the particular case, the document can be fairly said to have
been prepared or obtained because of the prospect of litigation. But
the converse of this is that even though litigation is already in prospect,
there is not work product immunity for documents prepared in the
regular course of business rather than for purposes of the litigation.
(1) Here the panel finds that the investigation was not made because of
any prospect of litigation involving Diversified - rather, it was
because the Board of Diversified wanted to know what had been
going on.

21

EN BANC HEARING (J. Heaney, who concurred and dissented above)

1.
Attorney Client Privilege - Determining Who Is The Client in
Corporations - Two tests:
a.

Control Group Test (EDPA) - Employees statement not considered a

corporate communication unless the employee is in a position to
control or even take a substantial part in a decision about any action
which the corporation may take upon the advice of the attorney, or if
he is an authorized member of a body or group which has that
authority.
(1) Criticism - The court criticizes the control group test as inhibiting
the free flow of information to a corporations legal advisor and
thus defeats the purpose of the AC privilege because those
employees with the most knowledge (i.e. the street level employee)
will not fall within the control group.

b.

Harper & Row Test (7th Cir, 1970) - An employee of a corporation,

though not a member of it control group, is sufficiently identified with
the corporation where the employee makes the communication at the
direction of his superiors in the corporation and where the subject
matter upon which the attorneys advice is sought by the corporation
and dealt with in the communication is the performance by the
employee of the duties of his employment.

c.

Modified Harper & Row Test Fashioned in Diversified (en banc) - The
attorney client privilege is applicable to an employees communication
if the requirements below are met. The corporation has the burden of
demonstrating that the conditions are met.
1) The communication was made for the purpose of securing legal
advice
2) The employee making the communication did so at the direction of
his corp. superior
3) The superior made the request so that the corp. could obtain legal
advice
4) The subject matter of the communication is w/in scope of emps.
Corp. duties
5) The communication is not disseminated beyond those persons
who, because of the corporate structure, need to know its contents.

2.

Attorney Client Privilege - Were Employee Interviews Within Scope of the

Attorney Client Privilege:

22

a.

Were The Communications Made For Purpose of Securing Legal

Advice - Here the court holds that the communications were made for
the purpose of securing legal advice because the matter was (1)
committed to a professional legal advisor, and (2) there was no showing
that it was not submitted for legal advice. Furthermore, the report
contained communications that were uniquely legal.
(1) Here the court recognizes the possibilities of abuse, but goes on
to add that the application of the of the attorney-client privilege to
this matter and others like it will encourage corporations to seek
out and correct wrongdoing in their own house and to do so with
attorneys who are obligated by the Code of Professional
Responsibility.

3.

Was The Attorney Client Privilege Waived By Diversifieds Surrendering It

To the SEC - The court concludes that a limited waiver occurred. To hold
otherwise may have the effect of thwarting corporations from going to
outside, independent counsel to investigate and advise them in order to
protect shareholders and customers.
a.
Encourages good corporate deeds and uncovering of wrongdoing
b.
Promotes use of outside counsel to conduct investigations of
possible wrongdoing

GENERAL RULE: Held that disclosures made in a voluntary effort to

cooperate with the government waive the privilege only as to the government - a
form of limited waiver. The goal of such rulings is to encourage voluntary
cooperation with the government.
CLASS DISCUSSION
1.

Public Policy Argument for Limited Waivers - The En Banc decision in

Diversified (8th Cir.) is based on the notion that we want to have companies
undertake internal investigations. The decision also encourages cooperation
with the government - we want companies to be good public citizens.
Allowing corporations to confide in outside counsel allows these lawyers
help the corporations to do the right thing." Limited Waivers promote this
- otherwise, companies will not go to the government.

2.

Getting Greater Protection For Clients - Throw in language about giving

advice in anticipation of litigation rather than merely issue a report. Thus
the clients protection is maximized through both (1) Attorney-Client
privilege protection and (2) Work-Product protection.

3.

Work Product - The 8th Circuit En Banc decision did not reach the issue of
work product since it only applies where the documents are created in

23

anticipation of litigation (i.e. because of). Remember, the Attorney-Client

privilege attaches even if there is no litigation prospect. Always argue both
AC and WP to maximize client protection.
4.

2.

Misunderstanding of Judges - The AC privilege extends to both

communications from C to A and A to C. Too many judges fail to recognize
that Upjohn applies to communications flowing both C to A and A to C. ???

In re Subpoena Duces Tecum - Fulbright Jaworski and Tesoro Corp. (DC

Cir, 1984, J. Davis)
No Limited Waivers - HKC 265
NOTE: The holdings in Diversified Industries and In re Subpoena Duces
Tecum can not be reconciled. Many decisions in the world of Professional
Responsibility cannot be reconciled as they are very dependent on the judge and
the court.
FACTS: Tesoro Petroleum provided the SEC with information on illegal
foreign bribes in exchange for a more lenient treatment from the SEC. This
disclosure was made under an SEC established voluntary disclosure program
that was created in response to increased improper corporate payments to
domestic and foreign officials. Following a SEC request made to Tesoro for
disclosure, the company hired Fulbright to perform a self-investigation on that
subject and also to help set up a special committee of independent directors to
oversee it. Included in the disclosure to the SEC were a copy of the
investigations final report and several binders which contained pertinant
corporate records and documents of Tesoro, as well as the notes of the lawyers
taken during the course of the investigation.
In a derivative suit against the corporation (pending actions), shareholders
sought the documents Tesoro provided to the SEC. The shareholders alleged
that corporate officers were trying to convert the public company into a private
one to get around disclosure requirements.
DISTRICT COURT - Rejected Tesoros AC and WP arguments
ISSUES - Whether the DC correctly determined that Tesoros voluntary
disclosure of the documents to the SEC effected waivers of attorney-client and
work-product privileges with respect to the documents now sought in the
derivative suits against Tesoro.
ATTORNEY CLIENT PRIVILEGE:
1.

Purpose of AC Privilege - Privilege is held by clients as a means of

encouraging their candor in discussing their circumstances with their
attorneys. The AC privilege promotes open, candid communication

24

between attorney and client. However, the privilege is not absolute - any
voluntary disclosure by the holder of the privilege is inconsistent with the
confidential relationship and this waives the privilege. (Permian, DC Cir.,
1981)
2.

3.

Limited Waiver Argument - Tesoro argues that the waiver was limited to the
SEC. Tesoro cites Diversified (8th Cir.) as authority for the proposition that
a waiver can be so limited. Here, the DC Circuit disagrees with the 8th
Circuitand holds that the DC correctly interpreted and applied precedent by
finding that the AC privilege had been waived by disclosure to the SEC.
Courts Reasoning For Rejecting Limited Waivers of the AC Privilege:
a.

Cant Use Privilege As Both Sword and Shield - A client cannot waive
the privilege in circumstances where disclosure would be beneficial,
while maintaining it in other circumstances where nondisclosure would
be beneficial.

b.

No Favoritism - The court does not recognize any congressional or

judicial priority system that places a higher value on cooperation with
the SEC than any other regulatory agency.

WORK PRODUCT PRIVILEGE - The DC Circuit says this is a harder

question because the WP doctrine is based on the adversarial system. PS asks if
this makes any sense. ???
1.

Purpose of Work Product Privilege - While the AC privilege is intended to

promote communication between attorney and client by protecting client
confidences, the work product privilege is a broader protection, designed to
balance the needs to the adversary system to promote an attorneys
preparation in representing a client against societies interest in revealing all
true and material facts relevant to a case. The work product privilege does
not exist to protect a confidential relationship, but rather to promote the
adversary system by safeguarding the fruits of an attorneys trial preparation
from discovery attempts of an opponent.

2.

Courts Reasoning For Rejecting Limited Waiver of Work Product Doctrine

- Decision that there was a waiver of the WP privilege rested on tree factors:
a.

Use Inconsistent With Purpose of Privilege - The party claiming the

privilege seeks to use it in a way that is not consistent with the privilege
- to balance the needs of the adversary system.

b.

Expectations of Confidentiality - Tesoro had no reasonable basis for

believing that the disclosed materials would be kept confidential by the
SEC. There was no common interest between Tesoro and the SEC that

25

might establish a basis for expectations of confidentiality. The court

also held that confidentiality regulations of the SEC investigations did
not apply.
(1) Joint Defense Agreements - parties with common interests work
together by sharing information. This allows the parties to share
information without running afoul of the confidentiality
requirements of the AC privilege.
c.

Waiver Does Not Undermine Policy of Privilege / Fairness - Waiver of

the privilege in these circumstances would not trench on any policy
elements now inherent in this privilege. The advantage that Tesoro
seeks for their attempt to selectively disclose their work product is
greater than the law must provide to maintain a healthy adversary
system. Fairness and consistency require that they not be allowed to
gain the substantial advantages accruing to voluntary disclosure of the
work product to one adversary (the SEC) while maintaining another
advantage inherent in protecting that same work product from other
adversaries.
(1) Corporation Makes The Choice - When a corporation elects to
participate ina voluntary disclosure program like the SECs, it
necessarily decides that the benefits of participation outweigh the
benefits of confidentiality. It forgoes some of the traditional
protections of the adversary system in order to avoid some of the
traditional burdens of the adversary.
(2) Benefits of Cooperation - By making the disclosure, Tesoro chose
to participate in return for which it received the quid pro quo of
lenient punishment for wrongdoings exposed in the process. It
would be unfair and inconsistent to allow them to select
according to their own self-interest to which adversaries they will
allow access to their materials..

d.

No Policy Factor Favors SEC - Court believes that there is no policy

factor now inherent in the WP privilege that calls for a special
exception for the SECs voluntary disclosure program.

HOLDING: The court held that the privilege was waived as to those
documents, rejecting the argument that the waiver doctrine should yield to the
public policy in favor of encouraging voluntary cooperation with the
government (i.e. like the 8th Circuit held in Diversified above)
CLASS DISCUSSION OF IN RE SUBPOENAS DUCES TECUM

26

A. Public Policy and Cooperation With The Government - Cooperation with

the government has nothing to do with the attorney-client privilege. By
cooperating, the corp is trying to get a slap on the wrist rather than a punch
in the head. The choice is in the hands of the corporation (see Steinhardt).
The corporation can cooperate (losing the privilege) or fight (retaining the
privilege). Furthermore, the is no evidence that corporations are influenced
in their decisions by the availability of limited waivers.
3.
In re Steinhardt Partners, LP (2nd Cir, 1993, J. Tenney)
FACTS: Defendants Steinhardt are codefendants with other parties in a civil
class action suit alleging manipulation of the market for two-year Treasury notes
during the Spring and Summer of 1991. At the same time, the SEC began an
informal investigation of the Treasury markets. As part of this informal
investigation, they asked Steinhardt among others to provide documents related
to its trading activities. In August, 1991, the SEC began a formal investigation
of the Treasury markets and issued subpoenas to Steinhardt, and they complied
with the subpoenas. In the Spring of 92, the SECs Enforcement Division met
with Steinhardt and explained that it had not yet decided whether to initiate
enforcement proceedings against Steinhardt. The Enforcement division asked
Steinhardts counsel to submit a memorandum addressing the facts and issues
involved in the case and discuss relevant legal theories. The memorandum was
prepared and submitted to the SEC with a notive reading FOIA Confidential
Treatment Requested. Nevertheless, it is clear that there was no agreement that
the SEC would maintain the confidentiality of the memorandum. While the
SEC investigated the Treasury markets, civil suits commenced against
Steinhardt, alleging various acts of fraud and manipulation of the Treasury
markets. During discovery, the civil plaintiffs requested all documents
previously produced by defendants to any investigating government agency.
AT ISSUE: In answer to a discovery request in the class action suit, Steinhardt
identified a memorandum prepared by its attorneys and previously submitted to
the SEC. Steinhardt refused to produce the memorandum, claiming that it was
attorney work product. Plaintiffs moved to compel production.
DISTRICT COURT: Granted the motion to compel, holding that the prior
disclosure of the memorandum to the SEC waived the claim for work product
protection. Steinhardt filed this action to prevent discovery of the document.
MANDAMUS ISSUE: Appellate court allows the use of mandamus to review
a DC order because the 2nd circuit had not yet addressed the issue of whether
disclosure of attorney work product in connection with a government
investigation waives the privilege in later civil discovery. In addition, the
alleged privilege would be lost if review were forced to wait until final
judgement because the DC order undermines the privilege. On the merits, the
court applies a stringent standard of review of petitions for mandamus. The

27

court requires a showing of an extreme need for reversal - it is not enough that
the Court of Appeals may disagree with the DC decision.
DISCUSSION:
1.

Court of Appeals Assumes that the Document Is Work Product - In the DC,
plaintiffs did not dispute the fact that the memorandum constituted attorney
work product, and the issue was not raised at the DC, so the Court of
Appeals assumes that the memorandum includes mental impressions,
conclusions, opinions, etc.

2.

Does Voluntary Waiver To An Adversary Waive the WP Privilege In

Subsequent Civil Suits - The DC found that Steinhardt voluntarily disclosed
the WP to an adversary, and therefore, as a matter of law, waived the
privilege in subsequent civil suit. Here the district court followed the
Westinghouse (3rd Cir, 1991, waiver of WP and AC upon voluntary
disclosure to the SEC and DOJ) and In re Subpoenas Duces Tecum (DC Cir,
1984, waiver of WP and AC upon voluntary disclosure to SEC) opinions
and the policy considerations of the WP doctrine.

3.
Law?

a.

Voluntary Disclosure - Ct. of Apps. finds that the DC finding that

Steinhardt voluntarily disclosed the memorandum to an adversary was
not erroneous. Therefore, the case is distinguishable from cases where
disclosure to adversaries is only obtained through compulsory legal
process.

b.

SEC as Adversary - This was not a case where a party complied with a
benign request to assist the SEC in performing its regulatory duties.
The determinative factor on this point is the fact that Steinhardt knew it
was subject of a SEC investigation and that the memo was sought as
part of this investigation. Even though the SEC never took action
against Steinhardt, the presence of an adversarial relationship does not
require litigation. Furthermore, cooperation with the SEC does not turn
an adversarial relationship into a friendly one.

Does Voluntary Disclosure to SEC Waive The Privilege As A Matter of

a.

Purpose of WP Protection - Work product doctrine is based on the idea

that opposing counsel should not enjoy free access to an attorneys
thought process (legal theories, litigation strategies, trial tactics, sifted
information, etc.) The WP protection shelters the mental processes of
the attorney, providing a privileged area within which he can analyze
and prepare a case.

28

b.

Voluntary Disclosure Undermines Purpose - Once a party allows an

adversary to share the otherwise privileged thought process of counsel,
the need for the privilege disappears. The waiver doctrine is accepted
by the courts as a limitation on work product protection. The waiver
doctrine provides that voluntary disclosure of WP to adversaries waives
the privilege to other parties.

c.

Steinhardts Argument Relying on Diversified (8th Circuit) - In

Diversified, the 8th Circuit held that voluntary disclosure of privileged
material to an investigating government agency does not waive the
privilege as to subsequent private litigants. While the en banc opinion
in Diversified was limited to the AC privilege and not WP, this is not
fatal to the argument since the reasoning may have greater applicability
in the context of WP.

d.

2nd Circuit Differs With Diversified and 8th Circuit - Holds Steinhardt
waived any work product protection by voluntarily submitting the
memorandum to the SEC.
1) Court Rejects 8th Circuit Rationale - 8th Circuit based its
selective waiver theory on the policy consideration that if
voluntary disclosure to the SEC waives the privilege as to
subsequent litigants, parties might be discouraged from
cooperating with the government investigators.
2) D.C. Circuit Rationale in In Re Subpoenas Duces Tucum - Court
agrees that selective assertion of privileges should not be another
tool in the attorneys toolbox - parties should not be permitted to
manipulate use of the privilege through selective assertion. The
client cannot be permitted to pick and choose among his
opponents, waiving the privilege for some and resurrecting it with
others.
3) Benefit of Voluntary Disclosure - Corporations generally made
voluntary disclosures because there is some benefit to be gained
(avoid extended litigation and investigation, leniency, etc). The
SECs amicus brief argues that the protection of the privilege is not
necessary to get parties to cooperate with investigations. The SEC
has continued to receive voluntary disclosures notwithstanding the
rejection of the selective waiver doctrine by 2 circuits.
4) Not A Hobsons Choice - Steinhardt argues that a waiver of the
privilege will put those in similar situations with a Hobsons
Choice of either (a) waiving work product protection through
cooperation or (b) not cooperating. However, the court finds this
unpersuasive - the mere fact that a difficult choice must be made

29

is insufficient justification for carving out a big exception to the

waiver doctrine. The 2nd Circuit is not very sympathetic - no
one is forcing you to spill your guts!!! The Choice is:
a.

Voluntary Disclosure - When companies elect to cooperate, it

necessarily decides that the benefits of participation outweigh
the benefits of confidentiality. It forgos the protections of the
adversary system to avoid the burdens of the adversary. While
the party gets off with the investigative agency (i.e. the SEC),
there are implications in Act II because of the disclosure and
waiver of the privileges. In subsequent suits, they may be
forced to pay up with money damages.

b.

No Disclosure - While there is no waiver, the party must fight

both the investigation and any potential subsequent litigation.

4.

Court Denies to Adopt A Per Se Rule - The 2nd Circuit decliens to adopt a
per se rule that all voluntary disclosures to the government waive work
product protection.
Rather, they choose to craft rules relating to
governmental investigations on a case-by-case basis (following Upjohn),
applied in a common sense manner in light of reason and experience.
Establishing a rigid rule would fail to anticipate situations in which the
disclosing party and government may share a common interest, or in which
the SEC and the disclosing party have entered into an explicit agreement
that the SEC will maintain the confidentiality of all disclosed materials.

5.

Upshot of Steinhardt - Class Discussion

a.
Wiggle Room In The Holding - The No Per Se Rule & Maintaining
Privileges:
1) Non-adversarial posture of counterparts - is there a common
interest in developing legal theories and analyzing information?
2) Did the non-disclosing party agree to maintain confidentiality of
disclosed materials? NOTE - the SEC does not agree to such
arrangements.
3) If litigating in the 2nd Circuit, repeat the mantra, No per se rule Up to the point of litigation with the non-disclosing party, you can
use this as a hook for an argument.

V. Conflict of Interest

30

Model Rule 1.13: Organization as Client

a) a lawyer employed or retained by the organization represents the organization
b) If lawyer knows that an O, etc is engaged in action contrary the organization that
is likely to result in injury to the organization, then the lawyer shall proceed as
reasonably necessary in the best interest of the organization. Unless lawyer
believes not necessary, the lawyer shall refer the matter to a higher up.
c) Despite the lawyers efforts in accordance with Bif the higher authority fails to
act and there is a violation of law and the lawyer believes reasonably certain
to result in injury then lawyer may reveal information relating to the
representation even if in circumvention of Model Rule 1.6but only if necessary.
d) C shall not apply to information relating to lawyers representation of an
organization to investigate an alleged violation or to defend
e) A lawyer who believes he or she was discharged because of the actions in B or C,
then lawyer can go to the organizations highest authority
f) Lawyer should explain to O or D or E that he/she represents the organization
g) Lawyer representing an organization may also represent D or O or E subject to
Rule 1.7

Model Rule 1.7: Conflict of Interest

a) Except as provided in B, a lawyer shall not represent a client if the representation
involves a concurrent conflict of interest
1) representation of one client will directly adverse the another client, or
2) risk that the rep. of one or more will be materially limited by the lawyers
responsibilities to another client, a former client, or a third person or by a personal
interest of the lawyer.
b) Notwithstanding the existence of the concurrent conflict of interest under A, a
lawyer MAY represent a client if:
1) the lawyer reasonably believes that the lawyer will be able to provide competent
and diligent representation to each affected client
2) representation not prohibited by law
3) representation does not involve a claim by one client against another client
represented by the lawyer in the same litigation
4) each affected client gives informed consent
Miranda Warning: Informing an officer of the corporation that you, lawyer, represent the
company and not the officer as an individual.
In NYS, there you must give a Miranda warning if there is a suspicion. Under the ABA,
you have to know.
EF Hutton v. Brown:
FACTS: The court disqualified the firm represening Hutton on the ground that
previously the firm had jointly represented Huttons former officer, Brown, in a
personal capacity while serving as corporate counsel. The firm claimed that it

31

had represented only the company and that its dealings with Brown were in his
official capacity as an officer of Hutton.
HOLDING: The court placed great emphasis on these facts, stating:
An attorneys appearance in a judicial or semi-judicial proceeding
creates a presumption that an attorney-client relationship exists
between the attorney and the person with whom he appears. This
presumption shifts to Hutton, the burden of persuasion. When the
relationship is also evidenced by the entry of a formal appearance
(as was the case here) by the attorney on behalf of the person with
whom he appears, the presumption becomes almost irrefutable.
- The court observed that corporate counsel have an obligation to ensure that there is
no misunderstanding by the officer.
Fears of adverse effects on corporate
representation were found unjustified: Only those counsel who permit the officer to
believe that they represent him individually will disable themselves from appearing in
subsequent litigation against him.

US v Keplinger
FACTS: In Keplinger (7th Cir.), below, a corporate officer who had been
convicted of mail and wire fraud claimed that evidence admitted against him
should have been excluded under the AC privilege. The corporations lawyers
accompanied him to a meeting with the FDA and FDA officials referred to the
lawyers as your counsel. The court distinguished the case from Hutton on the
grounds that the lawyers had not entered formal appearances as counsel and that
the officers subjective belief that counsel was representing him as an individual
was not sufficient to demonstrate that an attorney-client relationship existed:
No individual AC relationship can be inferred without some finding that the
potential clients subjective belief is minimally reasonable. Since this case was
an appeal of a DC decision, the court applies the clearly erroneous standard of
review.
Scope of Attoney Client Relationship The scope of the AC relationship
hinges upon the clients belief that he is consulting a lawyer in that capacity as
his manifested intention to seek professional legal advice. (citing Westinghouse
v. Kerr-McGee, 7th Cir.) While the court agrees with that statement, they add
that an individuals mere subjective belief that he is represented individually by
corporate counsel will not always suffice to demonstrate that such relationship
existed for the purpose of attorney client privilege. There must be evidence that
the party either sought legal advice on an individual basis, or manifested a belief
that they were being represented individually.
SIGNIFICANCE The case helds you understand why the corporate Miranda
warning is important as you do not want to get into subjective impressions of
clients. Nevertheless, it is important to recognize that such warnings may

32

chill the information gathering process. Hopps, Hutton and Keplinger are the
reasons why we have Model Rule 1.13
Universal City Studios v. Reimerdes
Facts: Defendants new counsel is Plaintiffs counsel in another case. The attorney must
zealously represent his client. Can he do this in such a situation? No evidence that he
cannot. Counsel cannot undertake two adverse clients and then choose between them.
Rite Aid Corp
Facts: A lawyer who has formerly represented a client in a manner shall not thereafter
represent another person in the same or a substantially related matter in which that
persons interests are materially adverse to the interests of the former client unless the
former client consents after full disclosure of the circumstances and consultation. Hot
Potato doctrine: it is impermissible to drop a client like a hot potato in order to represent
a more favored client.
Deutsch v. Cogan
Facts: Lawyer served as director to company. His fiduciary duties as lawyer and director
were at conflict. Lawyer could not ignore fiduciary duties as director in favor of its law
client. To block ACP to block access may lead to fraud.
VI. Client Fraud
Model Rule 1.16: Declining or Terminating Representation
a. Except as in ( c ), a lawyer shall NOT represent a client or, where
representation has commenced, shall withdraw if:
1. the representation will result in a violation of the model rules or other law
2. the lawyers physical or mental condition materially impairs the lawyers ability
to represent the client; or
3. the lawyer is discharged
b. A lawyer MAY withdraw when
1. can be accomplished without material adverse effect on the client
2. the client persists in course of action involving the lawyers services that
the lawyer reasonably believes is criminal
3. the client has used the lawyers services to perpetuate a crime or fraud
4. the client insists on action the lawyer believes is repugnant
5. the client fails substantially to fulfill an obligation to the lawyer regarding
the lawyers services
6. the representation will result in an unreasonable burden on the lawyer
7. other good causes exist
c. A lawyer must comply with the regulations of a tribunal when terminating
representation. When ordered to do so, a lawyer must continue
representation

33

d. Upon termination, the lawyer shall take steps reasonably practical to

protect the clients interests.

The OPM Case

The Actors:
Davis: Accountants Lawyer
Fishbein: Partner in Kaye Schroder
Hutner: Named Partner in Singer Hutner
Jacobs: Partner at Singer Hutner
Lawler: Weissmans Personal Attorney
Mattioli: Attorney at Singer Hutner
McLaighlin: Dean of Fordham Law
Putzel: Expert on Ethics
Reinhold: Friend of Goodmans Brother.
Rubino: Associate at Singer Hutner
Major Issues of This Case:
i. 60% of Singer Hutners business came from OPM (BAD THING)
Makes it difficult to be honest (remember the quotes at the beginning)
When an in-house lawyer, 100% of your business is with one client
Clear example of you can do it, but
ii. When did Singer Hutner learn of the fraud?
Goodman had 22 felony counts
This should have raised a red flag
The transactions with Rockwell should have set the red flag notice
iii. What is THE Red Flag Moment?
Clifton the accountant has evidence.
Goodman goes to Singer Hutner, confesses he did a bad thing, but will not say
what that bas thing is.
Hutners blunder: they told Goodman that they also represented him.
Wrong: Singer Hutner represented the corp., OPM. Recall Model Rule 1.13.
iv. Important Model Rule
ABA 1.13: Advise the higher ups when there is an obvious problem
NY: Advise when it appears there is a problem.
Hutner should have told Goodman to get a new lawyer to represent him
(Goodman) personally.
v. Daviss Mistakes
34

He tells Clifton that they should rely on Hutner to do the right thing
WRONG: Davis should have gone to the Prosecutor and get immediate help
for his client, Clifton.

vi. If important meeting, always make sure you have a witness.

vii. Hutner and Putzel are retained
Hutner wants to retain the ACP and keep OPM as a client
Putzel advises Singer Hutner to continue representation and have Goodman
assure going forward that everything will be legitimate.
This was premised on one KEY thing: the prior conduct was bad and the
continuing conduct was not.
viii.
Putzels Advice
ripwal advice
a. not supposed to repeat
b. do not have to report past fraud
c. not estopped from future representation
d. do not have to disavow WP
The Problem with this advice?
a. Technically correct
b. But the facts are from Goodman
c. Counsel(v) in the abstract is worthless; real lawyers provide
Counsel(v) with facts.
d. Advises Goodman to get his own lawyer
e. They simply should not have retained Goodman individually as a
client.
ix. More red flags
the accountant quits
Goodman wants to jump out the window
And while all this is happening, more loans are closing.
x. Hutner asks Putzels Advice
Hutner was taken by Goodman
But Putzel advises that all this is still in the past: NOT GOOD ADVICE.
LOOK AROUND YOU.
Goodman used WP to close those deals
Hutner not ethically obligated to quit.
xi. Firm Resigns
- Meets with Goodman
- Resigns slowly and quietly.
- Following Putzels advice, no press conference (done quietly)
- They resigned slowly and got a retainer while doing it
35

- The withdrawal period was when they slowly left

- All during this time, Goodman continued with the bad loans
Brick Wall: No matter where the brick wall is, the conduct is ALWAYS on the
other side (i.e. in the past)
Gary Simon shows up as Goodmans new lawyer: he knows Zippo about loans
Because Simon knows nothing, he is given a cheat sheet created by Goodman
Hutner wants to hand over OPM to a friend
Hutner is concerned about being deceitful and asks advice from Petzul
Petzul advises KEEP MOUTH SHUT
Hutzer follows the advice
More fraud goes on
Putzel is certain that the advice he give is correct based upon what he knows.

The Lessons of OPM:

1)

i.

Knowledge of Fraud:
When does the lawyer know the client is doing this?
When does past become on-going?
When is lawyer able to uncover the facts?
When do you disclose? When you know for certain or reasonably believe?
This has changed considerably from actual knowledge to an objection
standard under Sarbanes/Oxley
ii.
When is this reasonably done? After the fact?

Remember the gridier element: some lawyers may be abetting the client
fraud. There has NEVER been ANYTHING in the rules that agreed for a
justifiable involvement in client wrongdoing

Disclosing wrong doing is different from co-conspirator

2) Responsibility to a Third Party?

Some obligation when reliance is present
3) Is there an obligation to go back and correct the past fraud/wrongdoing?
In NY cannot go back and correct.
ABA: MAY disclose when injured and used your services.
ABA is the same as under Sarbanes Oxley
4) When can you pass the torch?
Avoid handing over
How do you overcome this? Get explicit authorization from the client.
IF CLIENT REFUSES, THIS IS THE REDDEST FLAG
5) Withdrawal:
No right of noisy withdrawal.

36

 CPAs do this; Lawyers cannot do this.

Mandatory when the fraud is on-going (Model Rule 1.16 (a)(1)
Permissive when there is a suspicion (Model Rule 1.16 (b) (2)
6) Disclosure:
no right to disclose in NY because of the brick wall
How about the trial situation? Candor at the Tribunal: big trouble
VI Securities and Regulatory Issues
Baker v. Hendersen
Facts: The claim is that the lawyer engaged in fraud. The court dismissed this: the
lawyers role was insufficient.
Not part of the control group. The group that controlled the fraud was not a part
here.
Law firm name never on paper that supported these documents.
Reliance is the key: names could make people rely. That was not the case here.
P says lawyer had obligation: should have done something
If lawyer had duty not to disclose, he had duty not to disclose. Ethics comes first.
Schatz v. Rosenberg
Facts: Lawyer knew that his client passed a false document to another and that the other
would rely on it to the third partys detriment.
Lawyer had no duty to speak and no duty to disclose
There was no relationship to the third party, the lawyer was not part of the
preparation of that document, and the fiduciary obligations were missing.
Stewart: Very bad
1) no fid duty between the 3rd person and lawyer
2) lawyer made no affirmation/was passive observer
3) therefore, no duty to speak
4) troubling but principally akin to Baker
Klein v Boyd
Facts: Partnership was formed with some fraudulent materials and P wish to hold
attorneys liable. These involved registration documents. It was during discovery that the
attorneys involvement was uncovered. Under Central Bank, there is no aiding and
abetting liability, so there must be a pleading of primary liability. The Klein court held the
following.
1) The lawyers prepared some documents and then the client took the documents
and made their changes
2) Holding: A lawyer who authors or co-authors a document can be held liable
when done with scienter when the lawyer knew people would rely on the
misstatements. Even if the P did not know the lawyer was involved, this
would still hold up.
37

3)
4)
5)
6)

The law firm knew their opinion letter reached their clients
Silence absent a duty to speak is not actionable
When the lawyer, however, elects to speak, he has a duty to speak
Preparing a document knowing others will rely is effectively the lawyers
election to speak, which then imposes upon him a duty
7) Only when the participation is significantly sufficient

Ziemba v Cascade
Facts: Cascade became a public co. in 1985 and was traded on the NASDAQ. The
company reported significant gains but it was subsequently found out that it wasnt so.
The P alleges that the law firm, GY&S is liable w/ respect to the following:
1. GY&S represented Cascade on a number of issues
2. GY&S advised that all the information in the registration statement must be
accurate
3. GY&S made a recommendation to get out of an agreement w/ Conston
The claims are that the attorneys are in violation of Rule 10b5. However, under Central
Bank, the USSC held that aiding and abetting liability was not available.
Holding: In order for a secondary actor to be primarily liable, the P must show reliance
on the Ds misstatement or omission in order to recover. (cited CHIARELLA case)
The alleged misstatement or omission upon which P relied must have been publicly
attributable to the D at the time of the Ps investment decision.
Misrepresentation: No alleged misstatements made (DISTINGUISH FROM KLEIN)
Omissions: only when there is a duty to disclose. The GY&S attorneys had no duty to the
Ps. There was no AC relationship here, GY&S could not disclose info relating to
Cascade because of the fiduciary duty.
In re Carter (Dissenting Opinion)
Facts: The issue concerns again the liability of an attorney who aids and abets
violations of the securities law. In order to be found liable the aider and abettor must
knowingly and assist the conduct that constitutes the violation and the aider and abettor
must be aware or know that his role is part of an illegal activity. The issue turns on the
state of mind scienter.
The majority found that none existed; the dissenting judge found that the facts
indicated the contrary.
Per the dissent, the facts indicate that Carter knew that the materials were
misleading, not accurate, and not a full disclosure. Thus, Carter aided and
abetted.
The dissent agrees that Carter was not an aider and abettor for subsequent
disclosures; presumably he know nothing about this.

38

Inaction as aiding and abetting: dissent believes that the inaction to stop
known violation constitutes aiding and abetting. The natural consequences of
inaction lead to aiding and abetting.
In this case, the lawyers advised advised advised! But the client wouldnt
listen. A reasonable lawyer should have realized something here.
No premature resignations

In re Gutfreud, Strauss, & Meriwhether

Facts: Mozer, the head of Solomons Government Trading Desk was guilty of submitting
a number of false bids in violation of a number of SEC rules. Senior Management:
Gutfried, Strauss & Merriweather were aware of what happened, but didnt take the
necessary steps to correct the issue; there apparently was confusion as to would take on
the onous of reporting the activity, etc. S
Section 15b of the 34 Act puts the responsibility on supervisors who fail to
reasonably supervise with a view of preventing violations. The SEC is authorized
to impose sanctions on those people who fail to do this.
Gutfreid, Strauss, and Merriwether, as Mozers supervisors, failed in their
obligations under Section 15b and thus were found in violation.
Merriwether started Long Term Capital and continued to get in trouble years later.
The issue concerning us is Feuerstein, the Chief Legal Office for Solomon. He
was informed of the false bid and consulted with the other supervisors. He
advised that Mozers activities was criminal.
Fuerrestein was given an option to resign. He resigned, so he incurred no liability.
But he was still cited in the 21A Report, which was really designed to prevent
future conduct.
But is Feuerstein a supervisor under Rule 15b and liable for Mozers actions?
The SEC found in the affirmative; a chief Legal or Compliance Officer, while not
a direct supervisor of Mozer, is in a supervisory role and thus could be found
liable under Section 15b.
A person in Feurestein role has an affirmative duty to respond to Mozers
conduct; like the others, Feuerstein did not live up to his duty.
Furthermore, once someone like Feuerstein takes steps in formulating a response,
i.e., doing what Feuersetin did in advising the other supervisors, he (Feuerstein)
has an affirmative duty to ensure that steps are taken.
If management, i.e., the supervisors in this case; fail, the attorney has an
obligation to bring the matter to others to ensure resolution, e.g., the BOD.
In summary: Chief in-house counsel is a supervisor under Section 15b and is
obligated to oversee and ensure procedures are in place. Furthermore, once the inhouse legal counsel knows of securities violations, he must take all necessary
steps to ensure correction, bringing this matter, if necessary, to the highest point
in the organization (sounds quite similar to ABA Model Rule 1.13)

39

So someone in Feurestein is essentially told to 1) inform the board (but Gotfriend

WAS Mr. Solomon Bros.; not practical) 2) resign (but that doesnt resolve the
problem) 3) disclose to SEC (what about confidentiality). ALL ARE WRONG AS
A MATTER OF LAW, POLICY, and WALL STREET.

SEC v. National Student Marketing:

Summary: National Student Marketing was a corporation who entered in negotiations to
merge with Interstate National Corp. The issue is that the opinion letter contained
inaccurate and misleading statements regarding the financial conditions of the two
companies involved in the merger. Lawyers had a financial interest in the company it was
working for (on the merger). The specific issue, for our purposes, is the liability of the
attorneys, to whom they owed a duty, and to what extent they must disclose.
Holdings of the case:
Condition precedent on comfort letter prepared by Accounting Firm and opinion
letter prepared by law firm.
Elements of aiding and abetting a violation of the antifraud provisions of the
securities law: 1) another person committed the fraud; 2) alleged aider and abettor
had a general awareness that his role was improper; 3) knowingly assisted in the
violation
When it was revealed that the financials were inaccurate (discovered by Pete
Marwich), the attorney for the merging corporation had a duty to the merging
corporations shareholders to delay the transaction until the financials were
corrected. This breach of the duty constituted aiding and abetting as outlines.
Query: So the corporate counsel has a duty to the corporation, his/her client,
which includes the SH.
At deal, the comfort letter has not arrived. There was pressure on Interstate to get
this deal done so they could cash out on stock.
They call partner at White & Case for comfort letter and have them dictate it
over the phone so deal can close.
Comfort letter said accounting adjustments had to be done.
Marion Epley, lawyer at White & Case for NSMC left room and went to his
office and hid under his desk this is a red flag.
Lord, Bissell & Brook, law firm to Interstate reads letter.
NSMC assures Interstate that the adjustments will be worked out, dont worry..
LBB negotiates with NSMC to close deal. And presents alternatives to Interstate
client.
1. Get shareholders approval first, which means delaying closing

40

2. Go through with deal now

3. Call off deal
Interstate goes through with deal now. But get assurances that the adjustments
were only problems and adjustments will be made.
Interstate demands comfort letter signed by W&C lawyer (Marion Epley).
Epley gives verbal assurances to comfort letter but wont sign it. Before he gave
verbal assurances - he had found that the PM had dictated another paragraph that
spoke about a NSMC loss that was not included in the letter.
PM is getting more nervous PM urges NSMC to go back and get shareholder
approval.
Epley (W&C) says its too late, deal is closed.
PM is sending comfort letter with 2 addtl paragraphs that consists a loss for
NSCM so stock needs to be re-evaluated to Interstate.
Then Epley (W&C) lies I didnt know about the addtl paragraphs and those
paragraphs dont add anything anyway.
Stock is major consideration and affects their decision making process.
Epley is a very dirty dog!
We are concerned about LBB (law firm). SEC wants to fry them. Asks for
injunction.
Lawyers failed to handle closing issues- aiding and abetting and failing to
interfere with the closing.
Court holds attorneys failed in their DUTY to Speak.

Stewart says.They didnt fail to speak they gave their clients 3 options.
And then the client made a business decision based on this legal advice. Clients
make decisions (not lawyers).
So actually the law firm (LBB) actually spoke! LBB gave the wrong advice. But
this is NOT the test under securities laws.

i.
ii.
iii.
iv.
v.

Marian Epley is terrified and hides in his office.

The question of inaction: when there is a duty to disclose and inaction can be
considered aiding and abetting. But if the inaction did not facilitate anything, the
attorney would not be found liable. Question: Does the issue then come down to
disclosure: whether the attorney has a duty to disclose? If he does, then does that
constitute aiding and abetting?
The attorney could only be held liable for actions in the past
Take away:
Attorney has a duty to disclose information to his client. If the client is a
corporation, that extends to the SH (as in here, the case of the merger).
The duty to speak falls under the Aiding and Abetting analysis
Important to determine to whom the attorney owes the duty to.
An attorney cannot participate in a fraud, as if his opinions were connected to
information he knew was false
The attorney has no obligation to rectify past fraud
41

vi.

Reliance is also key:

FDIC v OMM
Facts: Summary Judgment Motion. OMM (law firm) charged with negligence in
connection with services rendered. FDIC was the receiver of the bank, which had the
claims against bank..
- FDIC, as receiver, is thrust into the shoes involuntary (unlike a normal trustee)
- FDIC is not a normal assignee. Equitable defenses are not imputed as necessary
against the receiver.
- FDIC now owns the privilege
- OMM did not investigate and also had a duty to speak.
- OMM prepared substantial memorandum and due diligence for the bank.
- Since OMM owed a duty of care to bank. FDIC now is owed that duty (because
of the receivership)
- Even if the officers of ADSB had unclean hands, that does not stop the corp. a
separate legal entity from litigating.
Central Bank: No Aiding and Abetting Liability
Facts: 1st Interstate bought bonds. Central Bank served as indenture trustee of the bonds
Holding: Under the SEC, there is no secondary liability for aiding and abetting.
- SEC holds that secondary liability makes their job easier
- SEC wants gatekeeper liability
- What would Rifkind say? SEC POSITION IS BAD! YOUR DUTY IS TO THE
CLIENT FIRST, LAST, AND ONLY!
- No money damages, but SEC can go after for aiding and abetting
SARBANES OXLEY
- came about because of the crime of capitalism
- congress felt that they had to do something
- John Edwards proposed 307: lawyers accountable under federal laws akin to
Model Rule 1.13
Two Specific Proposals Under the SEC
i. Noisy Withdrawal
- deals with ratting out
- Sally sees worrisome behavior. She goes to the GC. She does not get a satisfactory
response. She goes to the audit committee . She still does not get a response. Then she
can: quit, disavow her WP, and ratt out to the SEC.
If you do the noisy stuff, what happens if you are wrong? Get sued by the company and
the SH
If you dont do the noisy stuff and are wrong? SEC comes along and the 3rd party who
relied will come along.

42

Human Nature: no one in the company will confide in the lawyer, knowing the possibility
of revealing confidences.
(think: Upjohn and the two-way communication)
-

the proposed rule received negative comments

so the SEC changed the proposal a bit and put the new proposal in suspended
animation

Sally goes to GC, unsatisfied, goes to the audit committee, unsatisfied, quits,
disavows WP, and files a noisy memo to the BOD with the information

This essentially has the same effect; doesnt take care of the human nature
problem.

ii. What the SEC did finalize

- serious of MAY disclosures
- MAY prevent fraud
- MAY to rectify a past fraud
- The Feds are now regulating the legal profession
- ABA 2003: adopts these rules
- NY and other states dont, but the pre-emption problem lingers
- Now there is a reasonable lawyer standard: YOU SHOULD HAVE KNOWN
- Idiot is no longer a defense
- Lawyers: BE AFRAID, BE VERY AFRAID
VII Attorney As Whistle Blower
Balla v. Gambro
Facts: Balla was in-house counsel to Gambro, a firm that manufactured kidney dialysis
machines. Balla served in both a legal capacity (counsel) and a business capacity.
Some machines that were manufactured had a risk of danger to the users. Ballo told
company to reject the shipment; they initially did and then changed course. Ballo was
subsequently fired and then claimed a retaliatory discharge. The next day, Ballo contacted
the FDA to report the problem machines.
- The trial court found that Balla was clearly doing legal work and they had an
absolute right to discharge him because he was employed at-will.
- The appellate court found that there was no cause of action for retaliatory
discharge under these facts. A cause for retaliatory discharge, even in the context
of an at-will employment relationship, is usually based on public policy concerns.
IL Model Rules require him to blow the whistle in a case like this.
- Ball said he had a Hobsons Choice: his job or his legal duties.
- The court responds there is no choice: lawyer duties come first
- The Supreme Court agrees with the appellate in that the tort of retaliatory
discharge is not relevant here. If it applied, the nature of the ACP could be
disrupted because of the fear of discharge and the tort claims. See the purposes of
ACP as cited in Up john.

43

Rather, in-house counsel must abide by the rules of professional conduct.

Under Il Model Rules 1.16, an attorney must withdraw if continued representation
would result in violating the model rules (ABA 1.16a)
Under IL Model Rule 1.6, an attorney shall reveal confidences in certain
situations (ABA 1.6: MAY to prevent certain death)
What about if he learned about the crime not in the lawyer role, but in a layman
role? Issue of fact, but in the case at bar, there is no issue of fact.
Balas mistake: he should have gone to the BOD.

In re Hammel
Facts: Himmel, a lawyer, represented Forsberg. Forsberg had a claim against Casey, who
represented her in another suit. Casey was accused of misappropriating Forsbergs funds.
The issue surrounds Himmels obligations as an attorney to disclosure to the
Commission in Illinois the misbehavior of Casey, another lawyer.
- Rule 1 103(a) of the Code: A lawyer possessing unprivileged knowledge of a
violation of Rule 1-102(a)(3) or (4) shall report to the tribunal. This parallels ABA
DR1- 103(a).
- Himmel argues that his client didnt want him to pursue a claim against Casey.
- Himmel argues that the information is privileged and thus he should not reveal.
The court finds that it was not privileged because Forsberg had conversation with
Himmel in front of her mother and sister; thus the C of confidence was missing to
assert the ACP.
- Thus, Himmel should have complied with his requirements under the code.
- Himmel was suspended from the practice of law for one year.
Wieder v. Skala
Facts: Attorney was fired from his firm after he complained that his firm failed to file
disciplinary charges pursuant to DR1-103a against another attorney with the firm who
committed legal malpractice and fraud. The attorney accused of legal malpractice did so
in the context of work for the other attorney.
- Ct of Appeals took everything he said as true: this was the tactical screwup
- Attorney says he was wrongfully fired because of his insistence that the firm file
charges, which they were hesitant to do.
- Attorney says breach of employment contract, but he couldnt succeed on this
issue because he was an employee-at-will. There further was no express or
implicit contract between attorney and firm
- However, the court examines the employment relationship under the ethic codes
and concludes that the implicit in the employment relationship is that each party
will adhere to the ethic codes.
- Not acting ethically is a frustration of the purpose of the employment relationship.
- The breach of contract claim is based on the implied-in-law contract that each
party would uphold their ethical obligations. This is what he gets

44

General Dynamics
- California: a must not state in terms of revealing the client fraud
- The trial court overruled a corporation's demurrer to an in-house counsel's
complaint arising from defendant corporation's termination of plaintiff. Plaintiff
alleged two theories of relief. First, he claimed that there was an implied contract
that he would not be terminated without good cause. Second, he alleged that he
was terminated for multiple reasons, each of which violated public policy, in that
he led an investigation of employee drug use at defendant's plant, he protested
defendant's failure to investigate the bugging of the office of the chief of security,
and he advised defendant that its salary policy might be in violation of federal
law. In demurring to the complaint, defendant asserted that, as an attorney,
plaintiff was subject to discharge at any time, "for any or no reason."
- The Supreme Court affirmed the judgment of the Court of Appeal and remanded
the cause to that court with directions to order further proceedings. As to the
implied contract claim, the court held that plaintiff adequately pleaded facts to
withstand a general demurrer that the implied contract existed, and his status as
in-house counsel did not operate to defeat his claim. Although defendant had a
right to discharge a member of its general counsel's staff in whom it had lost
confidence, it could not do so without honoring antecedent contractual
obligations. As to the public policy claim, the court held that an in-house attorney
is not precluded from pursuing an action in tort for retaliatory termination. More
than with outside counsel, corporate in-house counsel may be faced with a moral
dilemma between ethical norms and the client's interest, since in-house counsel is
dependent on one employer to provide his or her livelihood and career success.
Therefore, an in-house attorney faced with a choice between the demands of an
employer and the requirements of an ethical code has an even greater claim to
judicial protection than a nonattorney employee. However, the court held that the
cause of action for retaliatory discharge may not result in a breach of the attorneyclient privilege.
- Contract Claim: implied in fact contract: attorney no different thanany other
employee
- Tort Claim: that is where the money is
- Attorney failed to refuse to violate the mandatory rules/non-attorney brings a
claim w/o violating ACP
When A Lawyer Lies by Steven Brill
Fortenberry was an associate with Donovan Leisure. He worked with Perkins, a senior
partner. Fortenberry was on the partner-track. During a case, Perkins lied about the
availability of documents opposing counsel sought to discover; Fortenberry knew of the
lie but said nothing. Eventually, Perkins admitted to the lie, the firm lost the case BIG
TIME, Perkins resigned from the firm, and was brought up on disciplinary charges. But
what about Fortenberry?
- Fortenberry had an obligation under DR 7-102(B)(2) to reveal the fraud to the
tribunal and report when he knows another lawyer has acted unethically (DR 8102(A)).
- Problem of law-firm life: what is an associate to do?

45

Clear in a case like Perkins: associate should go to another partner and report it.
But what about the other issues like frivoulous motions or bilking a client?
should have told someone else

VIII: Talking to other Lawyers Clients

Model Rule 4.2
In rep. a client, a lawyer shall not communicate about the subject of the rep. with a
person the lawyer knows to be rep by another lawyer in the matter, unless the lawyer
has the consent of the other lawyer or is authorized to do so by law or court order.
In NY: it is a party, not a client. So ABA is much more expansive. NY means just in
litigation.
Niesig v. Team I (NY Ct. of Apps, 1990, Judge Kaye)
FACTS: Plaintiff in a personal injury action wants to have his counsel conduct
ex parte (private) interviews with a corporate defendants employees who
witnesses the accident. Defendants opposed the request asserting that DR 7104(A) barred unapproved contact by plaitiffs lawyer with any of its
employees.
ISSUE: Are the employees of a corporate party also considered parties under
DR 7-104(A)(1), which prohibits a lawyer from communicating directly with a
party known to have counsel in the matter. The trial court and the Appellate
Division both answered that an employee of a counseled corporate party in
litigation is by definition also a party within the rule and prohibited the
interviews. For reasons of policy, the NY Court of Appeals Disagreed.
REASONING:
a.

DR 7-104 is a disciplinary rule and not a statute - Court notes that unlike
interpreting a statute, they are not bound to implement the will of the
legislature. While unquestionably important, the DR does not have the force
of law. This distinction is significant in litigation, the rules are applied with
due regard for the broad range of interests at stake.

46

b.

DR 7-104(A)(1) - General thrust of rule is to prevent situations in which a

represented party may be taken advantage of by adverse counsel. The rule
protects clients interests. Problems arise when applying the DR to corporate
parties.
1) Rule unquestionably covers corporations, but the rule does not define
parties. In litigation, only the entity and not its employee, is the
actual named party. Since corporations can only act through its
employees, the question is which corporate employees should be
deemed parties for the purposes of the rule.

c.

Defendants Argument - Upjohn definition - argue for a blanket rule

should apply, correlating corporate party and all of its employees. The
Supreme Court recognized that a corporations AC privilege includes
communication with low- and mid- level employees. Ds argue that the
existence of an AC privilege also signifies an AC relationship for the
purposes of DR 7-104(A)(1). The court rejects Ds argument.
1) Upjohn Addresses A Different Subject - The court says that Upjohn
addresses an entirely different subject with policy objectives having
little relation to the question whether a corporate employee should be
considered a party for the purposes of the DR.
a)

Privilege only applies to confidential communications with

counsel, not the underlying facts. It does not immunize the
underlying facts from disclosure to an adversary.

b) Attorney client privilege serves the societal objective of

encouraging open communication between client and counsel, a
benefit not present in denying formal access to factual information.
Thus, a corporate employee who may be a client for the purpose
of the AC privilege is not necessarily a party for the purposes
of the DR.
c)

Blanket Rule is Too Broad - Blanket rule would make things easy,
but not necessary to achieve purposes of the rule. Problem with
such blanket rule is that it closes off informal discovery of
information that may serve both the litigants and the entire
justice system by uncovering relevant facts.
(1) Not Necessary To Safeguard Corporate Interests - Court finds
the blanket rule unnecessary to safeguard the corporations
interests. Informal interviews between lawyer and employees
do not necessarily involve sessions to elicit unwitting
admissions.

47

(2) Corporation Has Protection - Court says that the corporation

has possession of its own information and unique access to
its employees; the corporate lawyer has the earliest and best
opportunity to gather the facts and elicit information, and
prepare employees so they will not make disclosures that
engendered the rule.
d.

Plaintiffs Argument - Control Group Test - Would define party to

include only the most senior management exercising substantial control
over the corporation. While the court finds that this narrow definition
would best serve the policy of promoting open access to relevant
information, they reject the test finding that it does not satisfy the
principles behind DR 7-104(A)(1). This is because the definition disregards
the idea that corporate employees other than senior management can also
bind the corporation. The control group test all but nullifies the benefit
of the DR to corporations.

e.

Court of Appeals Definition of Party In Niesig - Includes corporate

employees whose acts or omissions in the matter under inquiry are
binding on the corporation (in effect, the corporations alter egos) or
imputed to the corporation for purposes of its liability, or employees
implementing the advice of counsel. All other employees may be
interviewed informally.

1) Specifically Targeted At DR 7-104(A)(1) - potential for unfair

advantage of extracting concession and admissions from those who will
bind the corporation is negated when employees with speaking
authority, and employees who are so closely identified with the
interests of the corporate party as to be indistinguishable from it are
deemed parties for the purposes of the DR.
2) Allows Access to Fact Witnesses
Gidatex
Defendant is a furniture store and warehouse. The plaintiff is the registered trademark
owner. The furniture store lost rights to sell a certain brand name Saporito Italia.
Undercover agents were used to elicit statements from sales people at the furniture
store regarding the status of the Brand Name and the furniture sold at the store.
Issue: Is it ethical to use undercover agents (who do not advise that they are doing a
legal inquiry)? Is the evidence excluded or excludable? Even if unethical, not
required to be excluded in NY.
Investigative techniques unethical? No, simple elicit in the ordinary course of
business
Technique a deceit? If the identity disclosed, the needed information never would be
obtainable.

48

Campaniello argues sales clerks are parties for purposes of ethic rules? They had no
authority to bind the corporation and would normally not be parties.
Actual requirements for misconduct exist, but these rules do not apply in this
instance.
Judge Schinllin gave a pass. Even if technically ethical violation, still not excluded
as evidence.
This is wrong!: you CANNOT hire someone to do what you are ethically prohibited
from doing.
Mr. Bailey could not have spoken to the sales people ex-parte.
This case stands for: better be lucky than good. DO NOT TAKE THIS AS BINDING
AUTHORITY.
IX: Dealing With The Government
SEC v. Johnson
Facts: The SEC says that the Statute of Limitations does not apply to them. The DC
Circuit disagreed. The SEC views Johnson as one court, but not all courts. They
continue to take the position that SROs are not governed by the Statute of
Limitations.
SEC v. Cromwell
Facts: NASD says no Fifth Amendment Rights. Claim they are a private entity and
not the state, therefore the Con. Does not apply to their actions.
#1. The scariest part of the rather complicated situation in Serpent on the Rock is the
statement found at the very start of the article: executives enforcing securities law
requirements would be responsible if the firm (Prudential) failed to comply with the
securities laws. It would appear to me that the executive responsible for ensuring the
securities law requirements would be the GC (and his/her staff). This also appears to be a
precursor (I say precursor because this situation occurred pre-Sarbanes-Oxley) to the socalled reasonable-lawyer standard. Thus, if laws are broken and the GC/lawyer is not
aware or is blatantly deceived by a wrong-doer, the GC/lawyer would be held
responsible because a reasonable lawyer in like situation should have known of the
wrongdoing. This truly puts a scary burden on the GC/lawyer.
#2. Kaye Scholer got what it deserved. The question revolves around whether Kaye
Scholer was zealously representing its client and thus allowing the truth to be resolved
by the ultimate arbitrator, i.e., the judge and jury, or whether Kaye Scholer was assisting
Lincoln in committing a fraud. There are strong indications that Kaye Scholer, Fishbein,
et al not only knew of Lincolns activities, but actively concealed these activities. While
attorneys must keep certain confidences as the varied aspirational rules require, no where
has it ever allowed an attorney to participate in a crime or fraud. With evidence (through
the receivership of the Attorney-Client Privilege) that Kaye Scholer participated in said
activity, they got what they deserved.

49

#3. The policy where CPAG is so closely related to Regulator, a private entity, and the
government is bad policy. The facts of the case illustrate that CPAG is a conduit of sorts
between the Government and Regulator, i.e., it facilitates information obtained from the
private investigation to the Government to aid the Governments investigation. While
CPAG may officially be separate from Regulator, nonetheless the walls between the
two of them are too porous. The government, in its investigation, appears to be able to get
around its obligations. The issue comes down to the two truths, as Judge Rifkind would
assert. Here, the truth is the resolve a controversy. That truth, as Judge Rifkind pointed
out, involves adherence to all the rules: the Constitution; Rules of Evidence; Rules of
Civil Procedure. In this situation, the rules appear to be dispensed with, in a round-about
way.
X. International Practice of Law.
Birbauer
Facts: California Supreme Court says lawyer not admitted to the California Bar
cannot practice there.
ABA Exceptions
Non-purposeful: disavowed
If purposeful: slack is given

50