Sarbanes-Oxley Act and In-House Legal Counsel: Suggestions for Viable Compliance, The

Georgetown Journal of Legal Ethics, The, Summer 2005 by Noorishad, Kaveh

I. INTRODUCTION

In July 2002, the Sarbanes-Oxley Act was signed into law in an effort to eliminate corporate misconduct and protect public confidence by regulating management, accountants, and legal counsel that represent corporations. While rules and procedures were already in place to combat corporate misconduct, President George W. Bush and Congress wanted to "use the full weight of the law to expose and root out corporate acts of corruption."1 They attempted to accomplish this objective by enacting section 7245 of the Sarbanes-Oxley Act which sets forth "minimum standards of professional conduct" for attorneys.2 By setting forth these minimum standards, the Sarbanes-Oxley Act attempts to compel attorneys to breach the sacrosanct attorney-client privilege by disclosing client confidences in an effort to curb corporate misconduct.

Part II of this Note provides different interpretations, purposes, and descriptions of what client confidence is and how it relates to the attorney-client privilege. It outlines what the current state of the law is on the attorney-client privilege and when that privilege can be breached. Part III examines to whom the attorney owes a fiduciary duty by considering who is the attorney's actual client. Part IV discusses the rules and fiduciary obligations imposed on legal counsel by the Sarbanes-Oxley Act. This section examines when the Sarbanes-Oxley Act mandates that the attorney disclose client confidences and the sanctions placed on attorneys who do not comply. Part V considers the practical effects the Sarbanes-Oxley Act will have on attorneys and their disclosure of client confidences. Finally, Part VI provides an analysis of current challenges existing under the Sarbanes-Oxley Act and provides recommendations that would improve attorney compliance with the Act.

II. DESCRIPTION OF CLIENT CONFIDENCES AND THE ATTORNEY-CLIENT PRIVILEGE

Comment 2 to the American Bar Association ("ABA") Model Rules of Professional Conduct ("Model Rules") Rule 1.6 suggests why the fundamental principle of maintaining confidentiality within the attorney-client relationship exists. The Comment states: "[t]he client is encouraged to seek legal assistance and to communicate fully and frankly with the lawyer even as to embarrassing or legally damaging subject matter."3 The lawyer needs this information to represent the client effectively and, if necessary, to advise the client to refrain from wrongful conduct. The comment to Delaware Lawyers' Rules of Professional Conduct Rule 1.6 essentially copies the ABA's approach.4 Delaware law is of significance because the vast majority of large corporations are incorporated in Delaware5 and, as a result, its case law is arguably the most developed in the area of corporate law.

Regardless of where a corporation is incorporated and whether state or federal law governs, trust has always been the hallmark of the attorney-client relationship. It is important that this trusting relationship be preserved so that the lawyer can properly advise clients as to their rights without clients being concerned with disclosures that their attorney may make to law enforcement or other authorities. This is a reason why common law has recognized that clients' confidences must be protected from disclosure.6 The purpose of the attorney-client privilege "is to encourage full and frank communication between attorneys and their clients. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client."7 Over one hundred years ago, the Supreme Court stated that the attorney-client privilege "is founded upon the necessity, in the interest and administration of justice, of the aid of persons having knowledge of the law and skilled in its practice, which assistance can only be safely and readily availed of when free from the consequences or the apprehension of disclosure."* Thus, for over a century the courts have tried to protect and promote this sacrosanct relationship between an attorney and his client.

However, the attorney-client privilege is not without its exceptions. Model Rule 1.6(b) provides instances where this confidence may be breached by the attorney.9 One such limitation of the attorney-client privilege is that it does not apply to communications made by a client to his attorney before, during, and in certain circumstances, after the commission of a crime or fraud for the purpose of being aided or assisted in its commission.10 The Model Rules have recently been amended to include situations where the attorney may breach the attorney-client privilege by disclosing information regarding a crime or fraud committed by the client after the crime or fraud was committed. For example, in situations where the "loss suffered by the affected person can be prevented, rectified or mitigated . . . the lawyer may disclose information relating to the representation to the extent necessary to enable the affected persons to prevent or mitigate reasonably certain losses or to attempt to recoup their losses."11 Therefore, there are situations where the potential harms to society from nondisclosure are greater than the advantages resulting from safeguarding that privilege.