State bar sues FTC over privacy notices

Daily Record (Rochester, NY), May 6, 2002 by Daily Record Staff

Arguing that practicing lawyers should be exempt from issuing recently mandated privacy notices to clients because their Code of Professional Responsibility provides far more protections for consumers of legal services, the New York State Bar Association filed suit against the Federal Trade Commission to stop enforcement of the Gramm-Leach-Bliley Act as it applies to lawyers.

"Lawyers are already subject to strict ethical rules, under our Code of Professional Responsibility, requiring us to keep client confidences and secrets. It is bureaucratic, unnecessary and inefficient to require that we send out so-called "privacy notices" as well," said NYSBA President Steven C. Krane. As outlined in the complaint, filed in U.S. District Court for the District of Columbia, the action is based on two points: (1) as it applies to lawyers, the act is unconstitutional under the 10th Amendment; (2) the FTC has acted arbitrarily and capriciously in refusing to exempt lawyers from compliance with the act. There is no evidence that Congress intended that the GLB Act should apply to lawyers. The GLB Act, officially known as the Financial Services Modernization Act of 1999, requires financial institutions to provide "a clear disclosure to all their clients concerning privacy policies," as well as to explain how that institution shares information with affiliates and third parties. This marks only the second time in its 125-year history that the NYSBA has filed suit against the federal government. In 1998, the lawyers' group won its suit against then Attorney General Janet Reno in the "Granny's Advisor Goes to Jail Act." Chief U.S. District Court Judge Thomas J. McAvoy (U.S. District Court for the Northern District of New York) struck down a law that criminalized advising clients of legal asset transfers for Medicaid eligibility. As defined by the FTC, a financial institution is a company that provides services to clients that are considered "financial activities" within the meaning of the Bank Holding Act of 1956. Lawyers were told they fit that definition. After a series of meetings with FTC officials, Krane said "it became clear that in the agency's opinion, lawyers engaged in such practice areas as tax planning and transactions, estate planning, real estate closings and personal bankruptcy, at a minimum, are covered by the new law. The estimated one million lawyers affected nationwide by the GLB requirement would risk civil sanctions of up to $10,000 per violation for failure to properly notify past, present and future clients. "Our clients have always enjoyed far greater privacy protections under the Code than that provided by any policy that has or may now exist in the commercial marketplace," he said. According to Krane, New York's Code, which governs the daily business and ethical practice of lawyers admitted in the state, provides greater protection of a client's personal information and subjects a lawyer who violates that trust to professional disciplinary action, including disbarment. A mandatory "Statement of Clients' Rights and Responsibilities" provides this information to all clients of New York lawyers. The Washington, D.C. office of Proskauer Rose LLP is representing the NYSBA on a pro bono basis. Warren Dennis and Susan Brinkerhoff are lead counsel. Members of the NYSBA's Litigation Oversight Committee are A. Thomas Levin of Mineola (Meyer Suozzi English & Klein), Sharon Stern Gerstman of Buffalo (confidential law clerk, Supreme Court, Eighth Judicial District) and Susan B. Lindenauer of New York (The Legal Aid Society).