Legal Ethics: THE LAWYER’S ROLE

WHEN SOMETHING GOES WRONG

October 29, 2014

THE PRACTICING LAW INSTITUTE:FINANCIAL SERVICES INDUSTRY REGULATORY COMPLIANCE & ETHICS FORUM 2014

Lawyers As Whistleblowers

2

The Rules

3

Model Rules of

Professional Conduct

State Bar Ethics Rules

Whistle-blower Rules

False Claims

Act Rules

Anti-Retaliation Provisions

Realities of

Reporting

1. Model Rules of Professional Conduct Governing Public Disclosure of Client Information(a) The ABA Model Rules of Professional Conduct provide six situations that may

be relied upon to permit disclosure of confidential client information in the context of a financial crime or fraud. These are:

(i) MODEL RULE 1.6: DISCLOSING A CLIENT’S CONFIDENTIAL INFORMATION IN CASES OF CLIENT MISCONDUCT

(1) Intended Fraud: The lawyer “reasonably believes” it necessary to prevent a fraud, which is “reasonably certain” to result in “substantial injury” to another’s property or financial interests and for which the client has used or is using the lawyer’s services.

(2) Intended Crime: The lawyer “reasonably believes” it necessary to prevent a crime, which is “reasonably certain” to result in “substantial injury” to another’s property or financial interests and for which the client has used or is using the lawyer's services.

(3) Past Crime or Fraud: The lawyer “reasonably believes” it necessary “to prevent, mitigate or rectify substantial injury” to another’s financial interests or property, which is “reasonably certain” to occur and for which the client has used or is using the lawyer's services.

The Rules

4

Model Rules of

Professional Conduct

5

The Rules

Model Rules of

Professional Conduct

(ii) MODEL RULE 3.3: CANDOR TOWARDS THE TRIBUNAL

(1) Candor Toward the Tribunal: In connection with “the proceedings of a tribunal,” the lawyer “reasonably believes” disclosure is necessary (a) to correct a false statement of material fact or law that the lawyer previously made to the tribunal; (b) to rectify the offering of materially false evidence by the lawyer, the lawyer’s client, or a witness called by the lawyer; or (c) because the lawyer “knows” that a person intends, is or has engaged in criminal or fraudulent conduct.

(iii) MODEL RULE 4.1: TRUTHFULNESS IN STATEMENTS TO OTHERS

(1) Ongoing Crime or Fraud: The disclosure is necessary to avoid assisting the client’s crime or fraud.

(iv) MODEL RULE 1.13: DISCLOSING A CLIENT’S CONFIDENTIAL INFORMATION IN CASES WHERE THE CLIENT IS AN ORGANIZATION

(1) When Client Is An Organization: The lawyer “reasonably believes” (a) the organizational client’s highest authority insists upon clearly violating the law or fails to address in a timely and appropriate manner a clear violation of law that might reasonably be imputed to the organization; (b) the violation is “reasonably certain” to result in substantial injury to the organization; and (c) disclosure is necessary to prevent substantial injury to the organization.

State Bar Ethics Rules

2. State Bar Ethics Rules Governing Public Disclosure of Client Information(a) State Bar Ethics Rules governing attorney conduct in each jurisdiction provide

direction on whether to require, permit or forbid disclosure of client confidence without client consent in the above situations.

(b) The rules may differ from one another AND from the guidance of the ABA. As such, attorney members of State Bars must also be sure to consult with their local provisions.

(c) Addressing Choice of Law Conflicts: Part (b) of Model Rule 8.5 identifies which jurisdiction’s rules of professional conduct should be applied to the lawyer’s conduct. (i) For conduct in connection with a matter before a tribunal, the rules of the tribunal’s jurisdiction

apply.

(ii) For all other conduct, the rules of the jurisdiction in which the lawyer’s conduct occurred applies. However, if the “predominant effect” was in another jurisdiction, that jurisdiction’s rules apply.(1) Lawyers will not to be subject to discipline if their conduct conforms with the rules of a jurisdiction

where the lawyer “reasonably believes” the predominant effect will occur.

6

State Intended Fraud Intended Crime Past Crime or Fraud

Candor Toward the Tribunal

OngoingCrime/Fraud

Client is an Organization

California CRPC 3-100(A)CBPC § 6068(e)

CRPC 3-100(A)CBPC § 6068(e)

CRPC 3-100(A)CBPC § 6068(e)

CRPC 3-100(A)CBPC § 6068(e)

CRPC 3-100(A)CBPC § 6068(e)

CRPC 3-600(c)CBPC § 6068(e)

Delaware DLRPC 1.6(b)(2)

DLRPC 1.6(b)(2)

DLRPC 1.6(b)(3)

DLRPC 3.3(a)(3)and (b)**

DLRPC 1.2(d)

and 4.1(b)

DLRPC 1.13(c)

Georgia GRPC 1.6(a)

GRPC 1.6(b)(1) (i)

GRPC 1.6(a)

GRPC 3.3(a)(2)**

GRPC 1.2(d)

and 4.1(b)

GRPC 1.13(c)

New Jersey RPC 1.6(b)(1) and (2)

RPC 1.6(b)(1) and (2)

RPC 1.6(c)(1)

RPC 3.3(a)(2) and (4)

RPC 1.6(b)(2)

RPC 1.2(d) and 4.1(a)

and (b)

RPC 1.13(c)

New York NYRPC 1.6(a)

NYRPC 1.6(b) (2)

NYRPC 1.6(b) (3)

NYRPC 3.3(a)(3)

and (b)**

NYRPC 1.2(d) and 1.6(b)(3)

NYRPC 1.13(c)

7

Whistleblower Rules

3. Whistleblower Rules under the Sarbanes-Oxley Act Governing Public Disclosure of Client Information (a) Section 307 of Sarbanes-Oxley Act of 2002 required the SEC to adopt the attorney

conduct rule (Part 205).

(i) Part 205 of the SEC whistleblower award rules contains exceptions to the general exclusion to attorneys from eligibility for monetary whistleblower awards if they try to use information obtained while performing their professional duties to blow the whistle on a client.

(ii) Part 205 applies only to attorneys who are appearing and practicing before the SEC in the representation of an issuer and sets forth “minimum standards of professional conduct.”

(iii) Part 205 rules do not prohibit disclosure of confidential client information without client consent. However, the disclosure of client confidences outside the organization is permittedonly as a last resort.

(1) Lawyers must report evidence of material violations of the securities laws to the company’s chief legal officer and, if he or she fails to act, only then outside the organization to regulators.

(2) In addition, compliance and internal audit personnel, internal and external accountants, and external auditors doing non-audit work are eligible for monetary awards if they blow the whistle on covered conduct.

8

False Claims Act Rules

4. The False Claims Act Rules Governing Public Disclosure of Client Information(a) The FCA states that “a person” may serve as a qui tam relator. Courts have

accepted that means that any person, including attorneys and other corporate officers with fiduciary duties.

(i) Yet, Courts also have concluded that the federal FCA does not preempt State Bar Ethics rules governing attorney disclosure of client confidences.

(1) An attorney may be a qui tam relator if he or she either fits within the ABA and state rules governing disclosure of client information OR has sufficient non-confidential information to meet the pleading requirements for fraud.

(2) If a compliance officer attempts to rely on confidential information to bring a False Claims Act case, as a licensed attorney he must abide by the same ethical considerations as in-house counsel.

9

Anti-retaliation Provisions

5. Anti-retaliation Provisions Protecting Public Disclosure of Client Information(a) Under the Sarbanes-Oxley Act, whistleblowers who experience retaliation cannot

file suits in federal court until they exhaust their administrative remedies.(i) Section 806 of the Sarbanes-Oxley provides whistleblower protection for employees of

publicly traded companies if they report conduct they “reasonably believe” is in violation of federal laws regarding mail, wire and bank fraud, securities fraud or "any rule or regulation of the Securities and Exchange Commission” to federal regulatory and law enforcement agencies, Congress, an employee’s supervisor, and internal corporate investigators. The law also protects employees who participate or testify in SEC regulatory proceedings or other federal proceedings related to fraud against shareholders.

(ii) Remedies include reinstatement, back-pay with interest, compensation (including restoration of seniority/sick leave, etc), “special damages” (for emotional distress and loss of professional reputation), fees and costs, and “affirmative relief” (such as requiring a letter of apology and formal posting of the decision).

(iii) Sarbanes Oxley requires an individual to file a complaint with the Occupational Safety and Health Administration (OSHA), an agency within the US Department of Labor, not later than 90 days after the alleged retaliation. The law does not specifically require disclosure to the SEC.

10

Anti-retaliation Provisions

(b) Dodd-Frank provides a private cause of action for whistleblowers who suffer retaliation. (i) Dodd-Frank defines a whistleblower as any individual who discloses potential

wrongdoing "to the Commission."

(ii) To allege retaliation, a plaintiff must demonstrate that they engaged in a protectedactivity, suffered an adverse employment action, and the adverse action was causallyconnected to the protected activity. Remedies include double back-pay, attorneys’ fees,expert witness fees and costs.

(iii) Section 922 of Dodd-Frank expands protection to Sarbanes Oxley whistleblowers in thefollowing ways:(1) Prohibits retaliation, regardless of whether the employee reasonably believes the

complained-of conduct violates the law.

(2) Statute of limitations lengthened from 90 to 180 days to file a complaint with OSHA.

(3) Plaintiffs are now entitled to a jury trial, which is still an unsettled question.

(4) Broadened companies covered (non-publicly traded subsidiaries of publicly traded companies and Nationally recognized statistical ratings organizations).

(5) Pre-dispute arbitration and waiver agreements seeking to limit Sarbanes-Oxley rights and remedies are not enforceable.

11

Anti-retaliation Provisions

(c) Under Section 3730 of the False Claims Act, an employer that terminates a compliance officer or attorney who it suspects is a relator may be subject to a retaliation claim even if the information necessary to make out a complaint for retaliation involves confidential material. Remedies include reinstatement, double back-pay with interest, special damages which include litigation costs and reasonable attorneys’ fees.

12

Consequences of reporting provide additional consideration.

Realities of Reporting

6. Realities of Reporting: 2013 by National Business Economics Survey (“NBES”):

13

Hearing from a Whistleblower

15

Jay PalmerIn November 2013, Infosys Corporation, an Indian consulting, technology, and outsourcing company, settled allegations of corporate visa fraud and abuse of immigration processes with the Department of Justice. The $34 million settlement was the largest payment ever levied in an immigration case. Mr. Jay Palmer was the whistleblower who brought the case to the Government’s attention.

Contact Information

17

Savaria B. HarrisPartnersavaria.harris@dlapiper.com1251 Avenue of the Americas, New York, New York, 10020-1104, United StatesT: +1 212 335 4553 F: +1 212 335 4501

Savaria Harris an experienced litigator with trials in state and federal courts as well aswith government and internal investigations in the white collar context.

Her practice centers on providing clients with an integrated approach to addressingfraud, whistleblower and government actions under the False Claims Act and its localequivalents. She is experienced in risk assessments, internal investigations, ethics andcompliance training, as well as litigation and trial representation. In addition to herpractice, Savaria is an adjunct professor of Workplace Ethics at Georgetown University,a member of the Advisory Council for the Association of Certified Fraud Examiners anda member of the NYU Program on Corporate Compliance and Enforcement.