IS IT GOOD TO BE KING: ETHICAL CHALLENGES OF BEING IN CHARGE

Panelists:

Arlene Zalayet

Senior Vice President and General Attorney at Liberty

Mutual

Rhonda Parish

Chief Legal and Risk Officer, General Counsel and

Corporate Secretary of Einstein Noah Restaurant

Group

Major General Clyde “Butch” J. Tate

Deputy Judge Advocate General of United States Army

Anita Kadala

Chief Executive Officer and General Counsel of InGeneron,

Inc.

Moderator

Rafael Zahralddin-AravenaDirector and Shareholder

Chair of Commercial Restructuring Practice

Elliott Greenleaf

Ethical Considerations of Lawyer Management

Major General Clyde “Butch” J. Tate

Deputy Judge Advocate General of United States Army

2013 HNBA National Convention

Rule 5.1: Responsibilities of a Partner or Supervisory Lawyer

Rule 5.1Responsibilities of Partners, Managers, and Supervisory Lawyers

(a) A partner in a law firm, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.

(b) A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct.

(c) A lawyer shall be responsible for another lawyer's violation of the Rules of Professional Conduct if:

(1) the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved;

(2) the lawyer is a partner or has comparable managerial authority in the law firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

The 2002 amendments were intended to clarify that Rules 5.1(a) and 5.3(a) apply not only to partners in conventional law firms but also to managing lawyers in corporate and governmental legal departments and legal services organizations.

ABA, A LEGISLATIVE HISTORY: THE DEVELOPMENT OF THE ABA MODEL RULES OF PROFESSIONAL CONDUCT, 1982–2005, at 566 (2006).

"[T]he managing partner of a law firm has enhanced duties, vis-a-vis other lawyers and employees of the firm, to ensure the law firm‘s compliance with [its] record-keeping and tax obligations under the Delaware Lawyer‘s Rules of Professional Conduct." See In re Bailey, 821 A.2d 851, 853 (Del. 2003) (emphasis added).

Ethical infrastructures consist of the policies, procedures, systems, and structures, the measures that ensure lawyers in their firm comply with their ethical duties and that nonlawyers associated with the firm behave in a manner consistent with the lawyers‘ duties.

Comment on Rule 5.1

[1] Paragraph (a) applies to lawyers who have managerial authority over the professional work of a firm. See Rule 1.0(c). This includes members of a partnership, the shareholders in a law firm organized as a professional corporation, and members of other associations authorized to practice law; lawyers having comparable managerial authority in a legal services organization or a law department of an enterprise or government agency; and lawyers who have intermediate managerial responsibilities in a firm. Paragraph (b) applies to lawyers who have supervisory authority over the work of other lawyers in a firm.

[2] Paragraph (a) requires lawyers with managerial authority within a firm to make reasonable efforts to establish internal policies and procedures designed to provide reasonable assurance that all lawyers in the firm will conform to the Rules of Professional Conduct. Such policies and procedures include those designed to detect and resolve conflicts of interest, identify dates by which actions must be taken in pending matters, account for client funds and property and ensure that inexperienced lawyers are properly supervised

[3] Other measures that may be required to fulfill the responsibility prescribed in paragraph (a) can depend on the firm's structure and the nature of its practice. In a small firm of experienced lawyers, informal supervision and periodic review of compliance with the required systems ordinarily will suffice. In a large firm, or in practice situations in which difficult ethical problems frequently arise, more elaborate measures may be necessary. Some firms, for example, have a procedure whereby junior lawyers can make confidential referral of ethical problems directly to a designated senior partner or special committee. See Rule 5.2. Firms, whether large or small, may also rely on continuing legal education in professional ethics. In any event, the ethical atmosphere of a firm can influence the conduct of all its members and the partners may not assume that all lawyers associated with the firm will inevitably conform to the Rules.

[4] Paragraph (c) expresses a general principle of personal responsibility for acts of another. See also Rule 8.4(a).

[5] Paragraph (c)(2) defines the duty of a partner or other lawyer having comparable managerial authority in a law firm, as well as a lawyer who has direct supervisory authority over performance of specific legal work by another lawyer. Whether a lawyer has supervisory authority in particular circumstances is a question of fact. Partners and lawyers with comparable authority have at least indirect responsibility for all work being done by the firm, while a partner or manager in charge of a particular matter ordinarily also has supervisory responsibility for the work of other firm lawyers engaged in the matter. Appropriate remedial action by a partner or managing lawyer would depend on the immediacy of that lawyer's involvement and the seriousness of the misconduct. A supervisor is required to intervene to prevent avoidable consequences of misconduct if the supervisor knows that the misconduct occurred. Thus, if a supervising lawyer knows that a subordinate misrepresented a matter to an opposing party in negotiation, the supervisor as well as the subordinate has a duty to correct the resulting misapprehension.

[6] Professional misconduct by a lawyer under supervision could reveal a violation of paragraph (b) on the part of the supervisory lawyer even though it does not entail a violation of paragraph (c) because there was no direction, ratification or knowledge of the violation.

[7] Apart from this Rule and Rule 8.4(a), a lawyer does not have disciplinary liability for the conduct of a partner, associate or subordinate. Whether a lawyer may be liable civilly or criminally for another lawyer's conduct is a question of law beyond the scope of these Rules.

[8] The duties imposed by this Rule on managing and supervising lawyers do not alter the personal duty of each lawyer in a firm to abide by the Rules of Professional Conduct. See Rule 5.2(a).

Maintaining The Integrity Of The ProfessionRule 8.4 Misconduct

It is professional misconduct for a lawyer to:

(a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another;

(b) commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects;

(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

(d) engage in conduct that is prejudicial to the administration of justice;

(e) state or imply an ability to influence improperly a government agency or official or to achieve results by means that violate the Rules of Professional Conduct or other law; or

(f) knowingly assist a judge or judicial officer in conduct that is a violation of applicable rules of judicial conduct or other law.

ABA Opinion No. 08-453

•The ABA Committee on Ethics and Professional Responsibility is on record endorsing the use of inside ethics advisors in firms. Because Model Rules 5.1 and 5.3 require that managers take measures to assure that their law firms comply with the ethics rules an internal system is necessary.

•No conflict of interest exists between a firm and the client, requiring disclosure to the client of internal discussions because the firm’s and the client’s interests are aligned by having an internal mechanism to identify and address ethical concerns.

•The process breaks down when the firm starts to worry about its own liability to the client.

•Another consideration is that using an internal system as opposed to retaining outside counsel can lead to the reflection of an assertion of privilege between the lawyer seeking the ethical consult and the firm by Courts. See e.g. Thelen Reid & Priest LLP v. Maryland, 2007 U.S. Dist. Lexis 17482 (N.D. Colo. 2007).

Army Rules of Professional Conduct for Lawyers (ARPCL)

RULE 5.1, Responsibilities of the Senior Counsel and Supervisory Lawyers

(a) Supervisory lawyers shall make reasonable efforts to ensure that all lawyers conform to these Rules of Professional Conduct.

(b) A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to these Rules.

(c) A lawyer shall be responsible for another lawyer’s violation of these Rules if:

(1) the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved; or

(2) the lawyer has direct supervisory authority over the other lawyer and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

(d) A supervisory Army lawyer is responsible for making appropriate efforts to ensure that subordinate lawyers are properly trained and are competent to perform their assigned duties.

Army-Unique Practice Points

1. Army lawyer must have State Bar license and Good Standing.

2. If conflict between Army Rules and State Bar Rules:

• Supervising lawyer will try to resolve the conflict.

• If no resolution, Army Rules will govern for the lawyer’s Army responsibilities; State Bar Rules will

govern for conduct unrelated to Army responsibilities.

3. Most Army lawyers serve the Army (Organization) as Client.

4. Some Army lawyers serve individual clients in criminal defense or legal assistance (family law).

Army Rule 5.1(d) is not in ABA Model Rule 5.1.

Army Rules make supervisory lawyers responsible for training their subordinates and

ensuring they are competent.

Ethical Considerations of the Subordinate Lawyer

Anita Kadala

Chief Executive Officer and General Counsel of InGeneron, Inc.

2013 HNBA National Convention

Rule 5.2: Responsibilities of a Subordinate Lawyer

(a) A lawyer is bound by the Rules of Professional Conduct notwithstanding that the lawyer acted at the direction of another person.

(b) A subordinate lawyer does not violate the Rules of Professional Conduct if that lawyer acts in accordance with a supervisory lawyer's reasonable resolution of an arguable question of professional duty.

Comment on Rule 5.2

[1] Although a lawyer is not relieved of responsibility for a violation by the fact that the lawyer acted at the direction of a supervisor, that fact may be relevant in determining whether a lawyer had the knowledge required to render conduct a violation of the Rules. For example, if a subordinate filed a frivolous pleading at the direction of a supervisor, the subordinate would not be guilty of a professional violation unless the subordinate knew of the document's frivolous character.

[2] When lawyers in a supervisor-subordinate relationship encounter a matter involving professional judgment as to ethical duty, the supervisor may assume responsibility for making the judgment. Otherwise a consistent course of action or position could not be taken. If the question can reasonably be answered only one way, the duty of both lawyers is clear and they are equally responsible for fulfilling it. However, if the question is reasonably arguable, someone has to decide upon the course of action. That authority ordinarily reposes in the supervisor, and a subordinate may be guided accordingly. For example, if a question arises whether the interests of two clients conflict under Rule 1.7, the supervisor's reasonable resolution of the question should protect the subordinate professionally if the resolution is subsequently challenged.

John B. Bowden started work as a managing associate for the Forquer Law Firm in Greenville, S.C. Bowden discovered that the firm was inflating government recording fees on settlement statements for HUD-1 real estate transactions. When he asked his boss in the Charlotte, N.C., office about it, Robert Forquer told him the practice was legal and ethical.

The South Carolina Office of Disciplinary Counsel informed Bowden that the firm’s Greenville office failed to keep sufficient records of recording fee charges and failed to track client funds relating to those fees. Forquer was apparently using excess fees to cover office expenses and make various payments to himself, according to a ruling by the South Carolina Supreme Court in a disciplinary action against Bowden.

Bowden wasn’t aware of the misappropriation of funds. Bowden acknowledged that it was his duty to tell clients that their bills were inflated and to assure that HUD-1 forms were accurate in closings he supervised. He also acknowledged an ethical duty to assure that other lawyers in his office complied with state ethics rules. In the Matter of John B. Bowden, No. 25978 (May 9, 2005).

In the Matter of John B. Bowden, No. 25978 (May 9, 2005).

Maintaining The Integrity Of The ProfessionRule 8.3 Reporting Professional Misconduct

(a) A lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority.

(b) A lawyer who knows that a judge has committed a violation of applicable rules of judicial conduct that raises a substantial question as to the judge's fitness for office shall inform the appropriate authority.

(c) This Rule does not require disclosure of information otherwise protected by Rule 1.6 or information gained by a lawyer or judge while participating in an approved lawyers assistance program.

A lawyer’s ethical duties do not end with refusing to comply with any unethical directives from supervisors. The lawyer also is bound by ABA Model Rule 8.3 to report the supervising lawyer to a disci plinary agency if he or she knows the other lawyer has committed an ethics violation that raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer, even if it implicates the subordinate lawyer in the unethical activity.

Subor di nate lawyers also have obligations toward affected clients under ABA Model Rule 1.6. which prohibits lawyers from revealing information about rep resentations unless clients give informed consent or the information falls within an excep tion to the rule. Model Rule 8.3 specifically states that lawyers are not required to disclose infor mation that is otherwise protected by Rule 1.6.

Whether or not client consent is required before disclosure of an ethics violation varies from state to state despite the admonition in some states not to reveal confidential or privileged information.

Maintaining The Integrity Of The ProfessionRule 8.3 Reporting Professional Misconduct continued…

Ethical Considerations of Non Lawyer Utilization

Arlene Zalayet

Senior Vice President and General Attorney

Liberty Mutual

2013 HNBA National Convention

Rule 5.3: Responsibilities Regarding Nonlawyer Assistant

With respect to a nonlawyer employed or retained by or associated with a lawyer:

(a) a partner, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person's conduct is compatible with the professional obligations of the lawyer;

(b) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer; and

(c) a lawyer shall be responsible for conduct of such a person that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer if:

(1) the lawyer orders or, with the knowledge of the specific conduct, ratifies the conduct involved; or

(2) the lawyer is a partner or has comparable managerial authority in the law firm in which the person is employed, or has direct supervisory authority over the person, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

Rule 5.3: Responsibilities Regarding Nonlawyer Assistant continued…

Comment on Rule 5.3

[1] Paragraph (a) requires lawyers with managerial authority within a law firm to make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that nonlawyers in the firm and nonlawyers outside the firm who work on firm matters act in a way compatible with the professional obligations of the lawyer. See Comment [6] to Rule 1.1 (retaining lawyers outside the firm) and Comment [1] to Rule 5.1 (responsibilities with respect to lawyers within a firm). Paragraph (b) applies to lawyers who have supervisory authority over such nonlawyers within or outside the firm. Paragraph (c) specifies the circumstances in which a lawyer is responsible for the conduct of such nonlawyers within or outside the firm that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer.

Nonlawyers Within the Firm[2] Lawyers generally employ assistants in their practice, including secretaries,

investigators, law student interns, and paraprofessionals. Such assistants, whether employees or independent contractors, act for the lawyer in rendition of the lawyer's professional services.

A lawyer must give such assistants appropriate instruction and supervision concerning the ethical aspects of their employment, particularly regarding the obligation not to disclose information relating to representation of the client, and should be responsible for their work product. The measures employed in supervising nonlawyers should take account of the fact that they do not have legal training and are not subject to professional discipline.

The extent of this obligation will depend upon the circumstances, including the education, experience and reputation of the nonlawyer; the nature of the services involved; the terms of any arrangements concerning the protection of client information; and the legal and ethical environments of the jurisdictions in which the services will be performed, particularly with regard to confidentiality. See also Rules 1.1 (competence), 1.2 (allocation of authority), 1.4 (communication with client), 1.6 (confidentiality), 5.4(a) (professional independence of the lawyer), and 5.5(a) (unauthorized practice of law).

When retaining or directing a nonlawyer outside the firm, a lawyer should communicate directions appropriate under the circumstances to give reasonable assurance that the nonlawyer's conduct is compatible with the professional obligations of the lawyer.

Nonlawyers Outside the Firm

[3] A lawyer may use nonlawyers outside the firm to assist the lawyer in rendering legal services to the client. Examples include the retention of an investigative or paraprofessional service, hiring a document management company to create and maintain a database for complex litigation, sending client documents to a third party for printing or scanning, and using an Internet-based service to store client information. When using such services outside the firm, a lawyer must make reasonable efforts to ensure that the services are provided in a manner that is compatible with the lawyer’s professional obligations.

[4] Where the client directs the selection of a particular nonlawyer service provider outside the firm, the lawyer ordinarily should agree with the client concerning the allocation of responsibility for monitoring as between the client and the lawyer. See Rule 1.2.

When making such an allocation in a matter pending before a tribunal, lawyers and parties may have additional obligations that are a matter of law beyond the scope of these Rules.

Nonlawyers Outside the Firm continued…

The commission began by noting that lawyers, law firms and corporate counsel have been steadily increasing their use of outsourced services from providers located both in the United States and overseas. The commission also noted that while the ABA Standing Committee on Professional Responsibility has issued Formal Opinion 08-451 Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support Services(2008) and several other state and local bar associations have issued ethics opinions on the topic, the ABA Model Rules do not specifically address outsourcing.

In this draft proposal, the commission concluded that changes to the black letter Model Rules are not necessary (with the exception of a minor change to Rule 5.3 changing its title from Responsibilities Regarding Non Lawyer Assistants to Nonlawyer Assistance; the reason for this change being to clarify that the Rule applies not only to services provided by individuals but also by nonlawyer entities such as cloud computing providers and e-discovery vendors.). It did, however, state that the comments to the some of the rules should be clarified so that lawyers could better understand their ethical obligations with respect to outsourcing.

ABA 20/20 Commission

The commission stated:

…In particular, the resolutions that accompany this Report propose three changes.

First, the Commission proposes a new comment to Model Rule 1.1 that identifies the factors that lawyers need to consider when retaining lawyers outside the firm to assist on a client’s matter (i.e., outsourcing legal work to other lawyers).

Second, the Commission proposes new comments to Model Rule 5.3 in order to identify the factors that lawyers need to consider when using nonlawyers outside the firm (i.e., outsourcing work to nonlawyer service providers).

Finally, the Commission proposes a new sentence to Comment [1] to Model Rule 5.5 in order to clarify that lawyers cannot engage in outsourcing when doing so would facilitate the unauthorized practice of law. In each of these cases, the Commission’s goal is to clarify how existing rules and principles apply to the particular context of outsourcing.

In Formal Opinion 08-451 the ABA Standing Committee on Ethics and Professional Responsibility addressed several ethical issues relating to outsourcing legal and non-legal support services to independent contractors.

The opinion observes that outsourcing covers a wide range of activities, from the use of local photocopy shops to the use of foreign lawyers to prepare motion papers for filing in U.S. proceedings.

ABA Issues Ethics Opinion Regarding Legal Outsourcing.

Opinion 08-451 also addresses the type of due diligence that may be necessary, which varies depending upon the nature of the work that is outsourced and the nature of the contractor providing the services.

Opinion 08-451 indicates that when substantive legal work is outsourced to those in foreign countries, the outsourcing lawyer may find it necessary to visit the contractor's facility "regardless of its location or the difficulty of travel, to get a first hand sense of its operation and professionalism …."

The outsourcing lawyer may also find it prudent to evaluate the judicial system of the country where the services will be provided to assess the risk to the client if a dispute arises between the outsourcing lawyer and the contractor.

Due Diligence

Client Confidentiality

• Opinion 08-451 concludes that, in some situations, the lawyer may be required to:

• (a) inform the client of the outsourcing arrangement; and

• (b) obtain the client's informed consent, particularly if the outsourcing involves providing the contractor with client confidences covered by Rule 1.6.

To protect client confidences, Opinion 08-451 strongly recommends the use of written confidentiality agreements and also notes that the outsourcing lawyer should verify that the contractor is not providing services to the client's adversary on the same or related matters.

Client Billing

With respect to client billing, Opinion 08-451 concludes that subject to certain conditions, it may be permissible to add a surcharge to the amount paid to a contract lawyer. If the outsourcing costs are passed on as a disbursement, no mark-up is permitted.

Opinion 08-451 concludes by observing that if the activities of the contractor "are held to be the unauthorized practice of law, and the outsourcing lawyer facilitated that violation of law by action or inaction, the outsourcing lawyer will have violated Rule 5.5(a)."

Unauthorized Practice of Law

Ethical Infrastructures

• Addressing the “Balance of Power” concept: Real and Perceived

• Training is Key to Supervision and Prevention

• Rigorous Mandatory Training• Timing of Training

36

Orientation

On boarding and annually thereafter, Law Firm should document attendance and completion for each staff member, attorneys and non attorneys.

37

Content of Training• Train the Lawyer and Non Lawyer Assistant

– Duty of Confidentiality– Scope of Authority– Appropriate Tasks– Right Skill Sets– Proper Client Communication Limits– Understanding Boundaries

38

Office Protocols

• Office Protocols are Critical to Prevention of Problems– Clear workflow on how to work is to be

performed– Mutual understanding of roles and

responsibilities for work product– Stated deadlines for task delivery– Joint training sessions with attorneys and

non lawyer assistant so all hear the same message

39

Ethical Awareness

• Create a Culture of Ethical Awareness– Include ethics issues in weekly staff

meetings– Highlight non lawyer assistant potential

“danger zones” during office meetings– Stress ethical goals during leadership visits

or “Town Hall” sessions

40

Proscribe and Publicize

• Need to Proscribe and Publicize• Design a Detailed Path for Every

Employee to follow• Facilitate Identification

– Issue Spotting Use videos or FAQ approach to illustrate

41

Proscribe and Publicize

• Circulate sample scenarios of typical “pressure points”– Place this on firm Intranet or SharePoint site

• Publicize “Escalation” Contact Path– Firm internal “Helpline”– Firm internal “Hierarchy” as contact– Make it clear that ANY supervisor or partner can be

contacted

42

Firm Leadership

• Firm Leadership Must Know How to Activate the Response Team when a Problem Occurs– “Drills” on a regular basis– Select response team based on appropriate

strengths– Designate “point person” by niche issue or

state specificity

43

External Counsel Team• Devise an External Counsel Team that

can Be Immediately Activated– Counsel to consult what is already knowledgeable

about your firm structure and operations– Time is usually “ of the essence” so ethics counsel

needs to have a strong foundational understanding in advance of the emergency

– Multi-state firms may need a “network” of external ethics experts and counsel in pace at all times

– Firm leadership should re assess the network periodically to ensure effectiveness

44

Hiring and Promotion Process

• Screen for Ethical Aptitude in Initial Interviews

• Include Ethical Behavior as element of performance evaluation

• Promote those with high Ethical Quotient (the new EQ)

45

Client and External Stakeholders• The Client's "right" to notification of an ethical

error by a non lawyer assistant– Establish the procedure for disclosure

• Internal Performance Management implications of Ethical Mistake– Establish and publish clear potential ramifications– Need to act quickly if decision is termination or

suspension– Need a Clear Method for Determining the Obligation

to Notify External Stakeholders - Adversary, Bench, Bar

46

Compliance and Business Ethics for the Manager

Rhonda Parish

Chief Legal and Risk Officer, General Counsel and Corporate Secretary of

Einstein Noah Restaurant Group

2013 HNBA National Convention

Compliance and Supervision

Speaking to business lawyers in 2002, SEC Chairman Harvey Pitt stated that he was:

“not impressed, or pleased, by the generally low level of effective responses we receive from state bar committees when we refer possible disciplinary proceedings to them.”

Harvey L. Pitt, Remarks Before the Annual Meeting of the American Bar Association Business Law Section (Aug. 12, 2002), available at http://www.sec.gov/news/speech/spch579.htm.

Sarbanes Oxley and “Noisy Withdrawal”

I would suggest that in securities matters (other than those

where advocacy is clearly proper) the attorney will have to

function in a manner more akin to that of auditor than to that

of the attorney. This means that [the attorney] will have to

exercise a measure of independence that is perhaps

uncomfortable if [the attorney] is also the close counselor of

management in other matters . . . . It means that [the

attorney] will have to adopt the healthy skepticism toward

… management which a good auditor must adopt. It means

that [the attorney] will have to do the same thing the auditor

does when confronted with an intransigent client-resign.

A.A. Sommer, Jr. SEC Commissioner circa 1974

LAWYER AS GATEKEEPER

There is a great deal of controversy over the tension between duties to a client and to other entities, such as the Court, which predates SOX.

SOX refocused the debate on the policy considerations related to protection of the public under the federal securities laws.

Section 307 of the Sarbanes-Oxley Act authorizes the SEC to prescribe “minimum standards of professional conduct” for attorneys “appearing or practicing” before it.

Section 307 Reporting

SOX requires that the SEC include a reporting obligation for the attorney

Early versions of the rule, found at 17 CFR Part 205, required a noisy withdrawal.“Noisy Withdrawal” - A lawyer suddenly withdraws his appearance and "disaffirms prior oral and written representations." 

Over 79 firms wrote comments disfavoring such a requirement in the rule – it was the most controversial part of the new rule.

Rule 205.3, promulgated in August of 2003, eliminated the noisy withdrawal requirement, with a caveat from the SEC that they are still considering the issue, which is still “open” to this day.

“Up the Ladder”

Elements of 205.3(b)

Duty: Report evidence of a material violation.

Who: An attorney appearing and practicing before the Commission in the representation of an issuer.

To whom: The attorney shall report such evidence to the issuer’s chief legal officer and its chief executive officer (or the equivalent of each).

Safe Harbor: “By communicating such information to the issuer’s officers or directors, an attorney does not reveal client confidences or secrets or privileged or otherwise protected information related to the attorney’s representation of an issuer.”

Further up the Ladder

The duty then shifts under 205.3(b)(2) to the chief legal officer to investigate or report such evidence to a qualified legal compliance committee if such a committee has been established prior to the report of the evidence of a material violation.

If the lawyer does not believe the CLO has responded appropriately or in a timely manner, the lawyer “shall” report the evidence to:

1) Audit Committee

2) Another independent committee (if no Audit Committee has been formed)

3) the Board of Directors (if there is no independent committee)

If the lawyer believes reporting to the CLO and CEO would be futile, it can proceed directly to the committee option instead under 205.3(b)(5)

Lawyers hired to investigate or provide defense to a material obligation by either the CLO or a committee are exempt from any reporting obligation under 205.3(b)(8) and (9)

205.3(c) allows for an alternative reporting by either a lawyer or the CLO to any previously established qualified legal compliance committee instead of the procedures under 205.3(b)

WHISTLE BLOWER PROTECTION: 205.3 (b) (10) if a lawyer employed or retained by an issuer believes they were discharged in retaliation for reporting a material violation can notify the board of directors or any committee of the BOD of the retaliation.

ABA Resources List

Comparisons currently available for selected Model Rules

http://www.americanbar.org/groups/professional_responsibility/policy/rule_charts.html

The following resource list can be found at:

http://www.americanbar.org/groups/professional_responsibility/resources.html

•ABA Formal Ethics Opinions

•Model Rules of Professional Conduct

•Model Code of Judicial Conduct

•Directory of State Disciplinary Agencies

•Model Disciplinary Rules, Standards and Surveys

•Client Protection Model Rules, Directories and Surveys

ABA Professional Responsibility Policy

Additional Professional Responsibility Resources: ABA, State, National and International

Global Resources

Lawyer Advertising

Lawyer Mentoring Programs

Lawyer Specialization  

Sources for Lawyer Certification

Professionalism Codes, Commissions and Reports

Resources for the Consumers of Legal Services

ABA National Lawyer Regulatory Data Bank

Thanks

Moderator

Rafael Zahralddin-Aravena

Director and ShareholderChair of Commercial Restructuring Practice

Elliott Greenleaf

2013 HNBA National Convention