’WPCƒ  ĆĮvHĖŅn{€Sz{śˆ³QA90kW‘Š‹ČŚ– #„Ā„=ņ+xž§0å䌫1ƒ§‡m’X“$ėÜ^ „5–!:Õ¼›‚öZÆe\ŠŪ™Oā]ķpn"ŁéD°ö֋%!›³nµ&e~‡ ²8Q9Ž>ņ~^9¾?B†q“7‹fŽGi ?ķxjHĘ fi0ģ÷`|#;:züĄŲ'³įæܳq]łŽ l:Ńbœ$ h»ĖZ,°H”“ A\¦Ė !‡ĒŠe g)‡Ļ›Ļf‚K§}ļ6Ņvl÷tŖZE^ Īž¦Śaœ„öZ‰,VĶZē°E‘"XµÄóJś‘LŖī2 ĢeōŁ†Q¾-½łk©ćFö³…”—Wöq'v&z V~”‹ĆŒų½ŖdĄ«ś¶ćk‰DaS»-@2 ĮW÷wŁ¤.aåÄJŌJ€Ÿzī! –ŚU•Īķü÷Jv ?ßõ ęzU#!¦UNĒ % 0:^ Uw@a4”µÄ mĘNŻ 0~ß 0D] Å” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” Bf ˜HP LaserJet 4L,ü,,,,,ü0(ÖĆ9 Z‹6Times New Roman RegularX(üœ$””ŌUSUS.,Ōö”‘-‰ DDDHHHH„}„-ź:i¢Ų+003|x’U‹’ĄĄĄ(.(3Ä($¤¤Ż ƒüœ!ŻŌUSUS.,ŌŻ  Żą  ąņņŚ  Ś0Ś  Śóó(#Ć$ņņŚ  Ś0Ś  Śóó »Ż ƒ Ä($ŻŌUSUS.,Ōą  ąņņŚ  Ś1Ś  ŚóóŻ  ŻŌ_ŌŌ‡ōšõXXŌThe€statement€in€the€discussion€paragraph€after€the€text€accompanying€note€50€that€š šThe€ABAššs€ModelŠ ° ŠRule€1.16€requires€even€an€advocate€in€a€criminal€case€to€withdraw,€unless€ordered€not€to€by€a€court,€whereĻcontinuing€the€representation€ššwill€result€in€violation€of€the€rules€of€professional€conduct,šš€as€asserting€frivolousĻdefenses€would,€under€Model€Rule€3.4"€is€wrong€for€many€reasons.€€Suffice€it€to€say€that€it€constitutes€no€legitimateĻbasis€for€the€position€taken€in€the€proposed€standards.€Ō#†X'bXõōše#Ō dŻ ƒüœ!ŻŌUSUS.,ŌŻ  ŻŌ_Ōņ ņŃ8€'bXXdģdČ8Ńą@^ ^ ģąUnited€States€Securities€and€Exchange€CommissionˆŠ ° ŠĢą@žž!ģąFile€No.€33„8150.Ō_ŌwpŌ_ŌˆĢĢą@^^#ģąProposed€Rule:ˆĢą@¢¢ ģąImplementation€of€Standards€of€Professional€Conduct€for€AttorneysˆĢĢą@² ² ģąComments€of€Professor€Thomas€D.€MorganˆĢą@ĘĘ"ģąDecember€17,€2002ˆĢĢĢą@®®ģąIdentification€and€Experience€€€ˆĢó óĢą  ąI€write€to€comment€on€the€Proposed€Rule€in€my€capacity€as€an€academic€lawyer€who€hasĻworked€in€the€field€of€attorney€professional€responsibility€for€over€25€years.€€I€teach€at€TheĻGeorge€Washington€University€Law€School,€having€previously€taught€law€at€the€University€ofĻIllinois,€Emory€University€and€Brigham€Young.€€I€am€co„author€of€ņņProblems€and€Materials€onŠ pĄ ŠProfessional€Responsibilityóó€(7ņņthóó€Ed.€2000),€long€one€of€the€most€widely„used€professionalŠ \¬ Šresponsibility€casebooks€in€the€country.€€I€am€the€only€person€to€have€served€as€an€AssociateĻReporters€for€both€the€American€Law€Instituteššs€Restatement€Third,€The€Law€Governing€LawyersĻ(1986„2000)€and€the€American€Bar€Associationššs€Ethics€2000€Commission€(1998„1999).€€IĻconsult€on€loss€prevention€matters€to€the€Attorneysšš€Liability€Assurance€Society€(ALAS).€€I€alsoĻtestify€as€an€expert€witness€in€cases€challenging€attorney€conduct,€and€in€recent€years,€myĻtestimony€in€a€majority€of€cases€has€been€critical€of€the€challenged€conduct.€ĢĢą@jjģąņ ņGeneral€Principles€and€Overviewó óˆŠ ¼  ŠĢą  ąThe€Commission€has€proposed€carefully€crafted€standards€that,€in€largest€part,€are€ņņóóbothŠ ”ä Šfaithful€to€the€statutory€mandate€of€Section€307€of€the€Ō_ŌSarbanesŌ_Ō„Ō_ŌOxleyŌ_Ō€Act€and€consistent€withĻtraditional€standards€of€attorney€professional€conduct.€€In€particular,€the€proposed€standardsĻcorrectly€focus€on€attorneysšš€treating€corporations,€not€corporate€management,€as€their€clients.€ĻThey€impose€requirements€on€attorneys€based€on€the€attorneysšš€personal,€not€imputed€knowledge.ĻAnd€they€put€primary€responsibility€for€investigating€possible€wrongdoing€where€it€belongs,€withinĻthe€issuer€itself€and€not€upon€the€attorney€or€private€law€firm€that€first€suspected€the€wrongdoing.€ĢĢą  ąThree€important€assumptions€will€run€through€my€comments.€€First,€the€primary€object€ofĻthe€Commissionššs€standards€should€not€be€to€find€people€to€blame€when€something€has€goneĻwrong;€the€primary€object€should€be€to€prevent€the€wrong€from€occurring.€€Ō_ŌSarbanesŌ_Ō„Ō_ŌOxleyŌ_Ō€šš€307Ļand€these€regulations€seek€to€direct€attorneys€to€interdict€client€plans€that€would€otherwise€violateĻfiduciary€standards€and€the€securities€laws.€€The€first€test€of€the€proposed€rules,€then,€should€beĻhow€effective€they€are€likely€to€be€at€stopping€that€corporate€misconduct.ĢĢą  ąSecond,€I€assume€and€believe€that€most€attorneys€and€most€regulated€issuers€want€to€obeyŠ h+ø&* ŠŌ_Ōthe€law.€€There€will€be€exceptions,€of€course,€but€it€is€costly€both€in€reputation€and€defense€cost€toĻface€a€charge€of€wrongdoing.€€Further,€it€does€not€take€the€Sarbanes„Oxley€legislation€to€go€afterĻgenuine€criminals.€€Indeed,€attorneys€and€clients€who€are€truly€dishonest€will€try€to€evade€anyĻregulations€the€Commission€establishes.€€Thus,€the€second€test€of€the€Proposed€Rule€should€be€itsĻrealism€about€the€context€in€which€honest€attorneys€work,€the€kinds€of€questions€with€which€theyĻdeal€every€day,€and€the€demands€the€regulations€put€on€such€attorneys.€ĢĢą  ąThird,€I€believe€the€proposed€standards€should€maximize€their€consistency€with€currentĻstate€rules€that€regulate€attorney€conduct.€€The€Commission€clearly€has€some€authority€to€createĻrules€that€regulate€attorneys;€standards€governing€conduct€in€Commission€hearings€are€an€obviousĻexample€of€such€regulation.€€I€also€recognize€that€one€can€argue€that€the€Commissionššs€authorityĻmay€extend€to€creation€of€additional€standards€that€supercede€some€attorney€regulation€by€theĻstates.€€I€respectfully€suggest,€however,€that€the€last€thing€the€Commission€and€the€investingĻpublic€need€is€a€period€of€litigation€over€the€validity€of€the€Commissionššs€rules.€€Indeed,€even€ifĻCommission€authority€to€issue€additional€rules€were€ultimately€upheld,€confusion€about€whetherĻthe€Commissionššs€standards€apply€in€particular€settings€and€to€particular€kinds€of€conduct€wouldĻonly€complicate€an€attorneyššs€work€and€ultimately€not€serve€the€public€interest.ĢĢą  ąI€will€group€the€specific€comments€that€follow€under€four€major€headings:ĢĢą  ą1.€€An€attorneyššs€duties€run€to€clients.€€The€duties€established€by€the€Commission€shouldĻrelate€only€to€persons€and€entities€with€which€an€attorney€has€an€attorney„client€relationship.ĢĢą  ą2.€€The€terms€š šreasonablešš€and€š šappropriatešš€inherently€describe€a€range€of€possibleĻaction,€not€a€single€kind€of€response€to€particular€situations.€€To€be€realistic€and€effective,€theĻCommissionššs€standards€should€acknowledge€attorneysšš€discretion€to€act€within€a€zone€ofĻreasonable€and€appropriate€conduct.€ĢĢą  ą3.€€The€conditions€that€trigger€required€attorney€conduct€are€critical€to€achievingĻcompliance€with€the€standards.€€Those€conditions€should€be€described€more€fully.€ĢĢą  ą4.€€While€noisy€withdrawal€represents€a€possible€course€for€attorneys€in€a€narrow€range€ofĻcases,€it€is€the€ultimate€weapon€in€the€attorneyššs€arsenal.€€Noisy€withdrawal€should€not€be€requiredĻby€the€Commission,€and€even€its€permissive€use€should€be€appropriately€limited.€ĢĢą  ąMy€comments€will€be€of€two€kinds.€€In€part,€I€will€suggest€material€in€the€discussionĻaccompanying€the€proposed€standards€that€should€be€made€a€part€of€the€standards€themselves.€ĻThat€will€give€attorneys€and€reviewing€courts€a€more€complete€picture€of€the€CommissionššsĻrequirements.€Second,€I€will€suggest€ways€to€make€the€proposed€standards€more€consistent€withĻthe€law€that€now€governs€attorneys€in€most€states.€€In€some€cases,€that€will€bring€the€proposedĻstandards€more€into€line€with€the€ABA€Model€Rules€of€Professional€Conduct€(hereafter€ModelĻRules).€On€other€important€issues,€it€will€bring€standards€more€in€line€with€the€law€described€in€theĻRestatement€Third,€The€Law€Governing€Lawyers€(hereafter€Restatement)€which€on€some€issues€š!šŠ h+ø&* Šnotably€issues€of€confidentiality€š!š€more€accurately€reflects€the€law€applicable€in€a€majority€ofĻstates.ĢĢą  ąUnder€each€of€my€general€headings,€I€will€try€to€comply€with€the€Commissionššs€requestĻthat€comments€be€focused€and€specific.€€Without€trying€to€suggest€that€my€drafting€is€the€onlyĻpossible€way€to€make€each€point,€I€will€offer€specific€amendments€to€the€Commissionššs€proposedĻstandards.€€ĢĢņ ņą  ą1.€€An€attorneyššs€duties€run€to€clients.€€The€duties€established€by€the€CommissionŠ  ` Šshould€relate€only€to€persons€and€entities€with€whom€an€attorney€has€an€attorney„clientĻrelationship.Ģó óĢą@  ģąņņProposed€Amendment€to€the€Proposed€RuleóóˆŠ Ą  ŠĢņņą  ąThe€definition€in€proposed€šš€205.2(f)€of€š šin€the€representation€of€an€issueršš€should€beŠ ˜č  Šrevised€to€read€š šIn€the€representation€of€an€issuer€means€retained€or€employed€by,€or€otherwiseĻacting€as€the€legal€representative€of€an€issuer.ššĢóóĢą@@@%ģąņņDiscussionóóˆŠ H˜ ŠĢą  ąIn€šš€205.3(a),€the€proposed€standards€correctly€say€that€š š[a]n€attorney€appearing€andĻpracticing€before€the€Commission€in€the€representation€of€an€issuer€represents€the€issuer€as€anĻorganization€and€shall€act€in€the€best€interest€of€the€issuer€and€its€shareholders.šš€€That€concept€isĻconsistent€with€š!š€indeed,€may€be€a€better€statement€of€š!š€the€principle€embodied€in€Model€RuleĻ1.13(a).€€It€is€the€concept€taught€to€all€law€students€and€one€that€all€attorneys€should€know.€€ĢĢą  ąIn€my€view,€the€Commissionššs€approach€in€šš€205.3(a)€represents€the€ideal€way€to€proceedĻin€that€it€reinforces€principles€attorneys€already€know.€€The€Commissionššs€imprimatur€will€makeĻclear€to€attorneys€that€there€is€another€sheriff€in€town€with€an€even€bigger€gun,€but€the€conductĻrequired€will€be€familiar€and€clearly€acknowledged€as€consistent€with€an€attorneyššs€duties.€ĢĢą  ąThe€problem€with€the€definition€in€the€Commissionššs€proposed€šš€205.2(f)€is€that€it€departsĻfrom€that€perception€and,€unless€changed,€it€will€present€serious€problems€at€it€relates€to€attorneysĻwho€represent€individuals€or€even€different€corporate€clients€whose€officialsšš€work€will€beĻš šincorporated€intošš€something€filed€with€the€Commission.€€ĢĢą  ąSuppose,€for€example,€that€the€CLO€of€an€issuer€asks€her€counterpart€at€another€companyĻfor€a€letter€confirming€to€an€auditor€that€a€dispute€between€the€companies,€pending€during€aĻprevious€yearššs€audit,€has€been€resolved.€€In€some€sense,€that€letter€will€be€š šincorporated€intošš€theĻcurrent€audit.€€Assume€the€other€attorneyššs€response€will€be€honest€and€correct.€€ĢĢą  ąGiven€the€way€the€proposed€standards€work,€the€other€companyššs€attorney€now€would€beĻdeemed€to€be€š šappearing€and€practicing€before€the€Commission€in€the€representation€of€[the]Š h+ø&* Šissuer.šš€€If€the€other€attorney€were€to€hear€from€whatever€source€š!š€say€an€executive€of€the€otherĻattorneyššs€client€š!š€that€the€issuer€may€have€unreported€problems,€the€proposed€standards€would,Ļas€written,€require€the€other€attorney€to€report€the€concerns€to€the€issuerššs€CLO.€That€wouldĻseem€to€be€true€even€if€the€other€attorney€learned€the€information€in€a€privileged€conversationĻwith€an€official€of€the€other€attorneyššs€client.€€The€issuerššs€CLO,€in€turn,€would€be€required€toĻreport€highly€sensitive€š!š€probably€privileged€š!š€proposed€corrections€back€to€the€attorney€for€theĻother€company.€ĢĢą  ąThat€surely€cannot€be€what€the€Commission€intends.€€One€might€think€my€illustrationĻimprobable,€but€my€point€is€more€general.€€The€underlying€premise€supporting€the€proposedĻstandards€is€that€the€attorneyššs€duty€to€report€possible€misconduct€grows€out€of€his€or€her€duty€toĻserve€his€or€her€corporate€client€well.€€That€is€why€current€attorney€ethical€standards€such€asĻModel€Rule€1.13(b)€also€create€such€a€duty€to€speak€up.€€But€only€attorneys€who€have€a€fiduciaryĻduty€to€the€corporate€client€can€be€reached€by€the€Commission€under€such€a€theory.€€ĢĢą  ąThe€Commissionššs€own€discussion€accompanying€the€proposed€standards€suggests€noĻsuch€incongruous€results€were€intended.€€ĢĢą  ąThe€first€example€offered€in€the€discussion€of€this€point€is€of€an€attorney€for€a€non„publicĻsubsidiary€operating€under€an€arrangement€in€which€the€attorney€represents€both€the€parent€and€allĻof€its€subsidiaries.€€That€attorney€should€indeed€be€reached€and€can€be€without€the€broadĻproposed€definition.€€My€definition€would€reach€that€attorney€equally€well€because€the€exampleĻexpressly€says€that€the€attorney€represents€the€parent€among€several€joint€clients.€€ĢĢą  ąThe€second€example€the€discussion€offers€is€an€attorney€retained€by€the€issuer€to€reportĻevidence€of€misconduct€by€an€underwriter€or€other€agent€of€the€issuer.€€Again,€my€definitionĻwould€reach€that€attorney€because€the€attorney€represents€the€issuer€in€that€investigation.ĢĢą  ąThe€third€example€is€of€an€attorney€for€an€investment€adviser€to€a€registered€investmentĻcompany.€€The€rationale€for€the€standards€including€such€an€attorney€is€that€the€investment€adviserĻis€at€common€law€an€agent€of€the€investment€company€and€owes€the€company€fiduciary€duties.€€IĻacknowledge€that€one€has€to€take€a€logical€step€to€reach€that€attorney€under€my€definition,€butĻcurrent€law€takes€that€step€and€creates€duties€on€attorneys€for€trustees€to€the€beneficiaries€of€theĻtrust.€€See€Restatement€šš€51(4).ĢĢą  ąI€am€not€arguing€that€labels€should€control€reality€and€artificially€define€whom€attorneysĻrepresent.€€What€I€am€saying€is€that€the€words€š šon€behalf,€at€the€behest,€or€for€the€benefit€of€anĻissuer,€whether€or€not€employed€or€retained€by€the€issueršš€š!š€taken€with€a€rule€that€reachesĻanything€š šincorporated€intošš€a€filing€with€the€Commission€š!š€sweep€much€too€far€and€wouldĻproduce€results€bordering€on€the€absurd.€€The€redrafted€definition€I€have€proposed€satisfies€eachĻof€the€examples€offered€without€such€collateral€effects.ĢĢą  ąIn€discussions€with€other€academic€colleagues,€it€has€been€suggested€that€the€CommissionŠ h+ø&* Šmight€be€trying€to€impose€reporting€duties€on€attorneys€for€individual€executives,€for€example,€orĻattorneys€for€individual€board€members.€€To€that€I€would€simply€say€that€such€individuals€areĻentitled€to€attorneys€of€their€own;€their€decisions€whether€to€report€corporate€misconduct€shouldĻbe€matters€between€the€individuals€and€their€attorneys.€€One€does€not€lose€the€right€to€counsel€orĻthe€attorney„client€privilege€simply€by€becoming€a€corporate€officer.€€Indeed,€to€say€otherwiseĻcould,€in€some€cases,€create€serious€constitutional€issues€under€the€Sixth€Amendment.€ĢĢą  ąAttorneys€retained€to€represent€corporate€subsidiaries,€or€perhaps€the€audit€committee€ofĻthe€board,€do€present€questions€of€interpretation€even€under€my€definition.€€A€wholly„ownedĻsubsidiary€might€appropriately€be€considered€to€be€part€of€the€parent€company,€for€example,Ļalthough€a€subsidiary€in€an€unrelated€business€with€a€separate€CLO,€might€not€be€so€considered.ĻWhen€one€is€dealing€with€a€subsidiary€with€outside€investors,€on€the€other€hand,€the€attorney€forĻthe€subsidiary€ordinarily€has€no€responsibility€š!š€or€authority€š!š€to€reveal€confidential€information€toĻindividual€shareholders,€even€if€one€of€the€shareholders€is€an€issuer€of€securities.€€ĢĢą  ąThe€same€should€be€true€for€the€attorney€for€the€audit€committee.€€Suppose€the€committeeĻthinks€the€company€CLO€is€part€of€the€problem,€i.e.,€she€is€too€close€to€top€management€and€mayĻbe€involved€in€misconduct€herself.€€Situations€play€out€very€differently,€and€the€last€person€toĻwhom€the€audit€committeeššs€attorney€should€be€ņņrequiredóó€to€report€in€such€a€situation€would€beŠ H˜ Šthe€company€CLO.€If€audit€committees€have€separate€counsel,€they€presumably€have€that€counselĻfor€a€good€reason€and€the€independence€of€that€counsel€should€be€respected.ĢĢą  ąMy€point€in€these€examples,€then,€is€to€say€that€the€only€principle€that€will€consistentlyĻwork€well€in€the€real„life€situations€that€will€arise€under€the€Commission€regulations€is€one€thatĻsays€that€attorneys€represent€identified€clients€and€have€duties€to€those€clients.€€Attorneys€forĻother€clients€should€not€be€given€duties€under€the€proposed€rules€that€may€conflict€with€duties€toĻtheir€own€clients.€€My€proposed€amendment€to€the€proposed€rule€would€correct€this€problem.ĢĢņ ņą  ą2.€€The€terms€š šreasonablešš€and€š šappropriatešš€inherently€describe€a€range€ofŠ €Š Špossible€action,€not€a€single€kind€of€response€to€particular€situations.€€To€be€realistic€andĻeffective,€the€Commissionššs€standards€should€acknowledge€attorneysšš€discretion€to€actĻwithin€a€zone€of€reasonable€and€appropriate€conduct.€Ģó óĢą@ī ī ģąņņProposed€Amendments€to€the€Proposed€RuleóóˆŠ #l! ŠĢą  ąa.€€ņņThe€definition€of€š šreasonable€or€reasonablyšš€in€šš€205.2(k)€should€be€revised€to€read:Š ō$D # Šš šReasonable€or€reasonably€denotes€the€range€of€conduct€in€which€a€prudent€and€competentĻattorney€with€the€attorneyššs€training,€experience,€position€and€seniority€might€engage.ššóóŠ Ģ&"% ŠĢą  ąb.€€ņņ€A€second€sentence€should€be€added€to€the€šš€205.2(b)€definition€of€š šappropriateŠ ¤(ō#' Šresponsešš€saying:€š šIn€determining€that€a€response€is€ššappropriate,šš€the€attorney€may€rely€onĻfactual€representations€and€legal€determinations€of€persons€on€whom€a€reasonable€attorney€wouldĻrely€that€respond€to€the€attorneyššs€legal€and€factual€concerns€and€are€otherwise€reasonable.ššóóŠ h+ø&* Š‡ą@@@%ģąņņDiscussionóóˆŠ ° ŠĢą  ąa.€€The€words€š šreasonable€and€reasonablyšš€create€the€objective€test€that€is€one€of€theĻhallmarks€of€the€proposed€standards.€€I€agree€that€such€an€objective€standard€is€appropriate.€ĻOtherwise,€an€attorney€could€try€to€say€that€he€or€she€alone€was€subjectively€š šunawarešš€or€had€aĻparticular€subjective€belief,€and€no€one€could€reliably€prove€the€contrary.€€ĢĢą  ąWhat€is€missing€in€the€Commissionššs€proposed€rule,€however,€is€a€sense€that€reasonableĻattorneys,€acting€reasonably,€may€act€quite€differently€in€given€situations.€Questions€whetherĻconduct€would€violate€securities€laws€or€violate€fiduciary€duties€often€do€not€appear€in€easy,€non„¼controversial€forms.€€Not€all€questions€are€in€a€gray€area,€of€course,€and€the€zone€of€reasonableĻconduct€is€not€always€large,€but€enough€answers€in€life€are€uncertain€that€any€single€attorneyššsĻanswer€may€not€be€the€only€good€one.€€ĢĢą  ąNo€one€condones€illegal€conduct,€but€the€implication€of€the€proposed€rule€is€that€whatĻš šreasonablyšš€constitutes€š ševidence€of€a€material€violation,šš€for€example,€will€be€self„evident€to€aĻreasonable€person.€€Even€a€momentššs€reflection,€however,€illustrates€that€such€an€expectation€failsĻto€acknowledge€the€complexity€of€many€situations€in€which€attorneys€give€assistance.€€ĢĢą  ąPerhaps€the€point€can€be€helped€by€an€illustration.€€Many€might€be€used,€but€imagine€that€aĻcompany€is€considering€relocating€its€operations€so€as€to€take€advantage€of€a€provision€of€theĻInternal€Revenue€Code.€€If€the€IRS€does€not€challenge€the€proposed€plan,€the€company€believes€itĻwill€realize€substantial€savings€that€will€increase€its€reported€earnings€per€share.€€A€respected,Ļexperienced€tax€attorney€says€that€the€plan€is€lawful,€indeed€common.€€ĢĢą  ąA€different€attorney,€however,€questions€the€plan€and€says€that€the€trend€of€cases€in€theĻlower€courts€cast€doubt€on€its€legitimacy.€€The€second€attorney€says€that€companyššs€reportedĻearnings€may€have€to€be€materially€restated€if€the€company€incurs€a€large€tax€liability€and€thatĻreporting€the€higher€earnings€that€the€tax€savings€were€supposed€to€produce€may€violate€theĻsecurities€laws.€€A€third€tax€attorney€consulted€by€the€CLO€says€that€the€second€attorney€is€wrongĻand€that€the€š štrendšš€to€which€that€attorney€referred€is€a€product€of€that€attorneyššs€imagination.ĢĢą  ąIn€my€example,€which€attorneys€can€be€said€to€š šknowšš€or€have€š š€become€awarešš€of€whatĻwithin€the€mean€of€the€Commissionššs€regulations?€€Would€a€š šreasonablešš€attorney€consider€theĻdispute€at€least€€š ššševidencešš€of€a€material€violationšš?€€Does€that€mean€that€all€of€the€attorneys€š!šĻincluding€the€attorneys€who€believe€the€second€attorney€is€wrong€š!š€must€formally€report€theĻdispute€to€the€CLO€(who€in€the€example,€and€undoubtedly€in€real€life,€already€knows€about€it)?€€ĢĢą  ąThen,€what€is€the€CLO€to€do€in€this€kind€of€situation?€€If€he€gets€an€opinion€from€yet€aĻfourth€attorney,€may€everyone€take€that€as€authoritative?€€Must€they€do€so?€€If€the€secondĻattorney€continues€to€believe€that€the€company€will€lose€the€tax€case,€must€that€attorney€resignĻfrom€all€representation€of€the€company€and€notify€the€Commission€of€that€action?€ĢŠ h+ø&* Šą  ąI€do€not€claim€that€any€single€hypothetical€proves€a€major€point,€but€I€think€this€one€doesĻillustrate€a€reality€that€anyone€who€has€given€legal€advice€has€to€recognize.€€Reasonable€attorneysĻcan€have€reasonable€opinions€that€reasonably€differ€about€whether€a€client€is€really€about€toĻviolate€the€law.€€What€attorneys€do€today€is€make€their€points€forcefully€and€candidly€and€letĻcompany€officers€š!š€or€sometimes€the€companyššs€board€š!š€decide€what€the€company€should€do€inĻthe€face€of€uncertainty.€€ĢĢą  ąI€respectfully€submit€that€that€is€exactly€how€the€system€should€work.€€However,€it€canĻonly€do€work€that€way€if€the€terms€š šreasonable€and€reasonablyšš€that€in€turn€drive€the€definition€ofĻš ševidence€of€a€material€violationšš€and€other€critical€concepts€in€the€proposed€rule€are€given€aĻdefinition€that€acknowledges€that€they€represent€a€range€of€appropriate€behavior,€not€a€singleĻstandard€of€conduct.€ĢĢą  ąb.€€Similarly,€whether€or€not€an€attorney€receives€an€š šappropriate€responsešš€to€a€report€ofĻevidence€of€misconduct€determines€what€the€attorney€must€do€thereafter.€€If€the€response€isĻdeemed€š šappropriate,šš€then€under€šš€205.3(b)(7)€the€attorney€enters€a€safe€harbor€in€which€his€orĻher€responsibilities€are€at€an€end.€€If€the€response€is€not€appropriate,€then€under€šš€205.3(b)(4)€theĻattorney€must€report€to€higher€authority€within€the€corporation,€and€ultimately€may€have€to€makeĻthe€noisy€withdrawal€required€under€šš€205.3(d).€€Thus,€defining€what€conduct€is€š šappropriatešš€isĻalso€critically€important.ĢĢą  ąJust€as€was€true€about€the€term€š šreasonable,šš€an€attorneyššs€conclusion€that€a€response€isĻš šappropriatešš€should€be€evaluated€in€terms€of€whether€if€falls€within€a€range€of€appropriateĻresponses.€€The€language€I€have€proposed€tries€to€describes€how€a€determination€of€appropriate€š!šĻor€inappropriate€š!š€can€reliably€be€made.€€The€proposed€language€is€not€my€own.€€It€is€a€paraphraseĻof€the€second€paragraph€following€the€definition€of€š šappropriate€responsešš€in€the€discussionĻsection€of€the€Commissionššs€proposed€rule.€One€could€š!š€and€perhaps€should€š!š€go€on€as€theĻdiscussion€section€does€and€also€address€what€would€constitutes€adequate€corrective€action,€but€IĻbelieve€the€proposed€language€would€be€sufficient€to€give€an€attorney€a€reliable€basis€to€decideĻwhether€further€steps€are€required.ĢĢņ ņą  ą3.€€The€conditions€that€trigger€required€attorney€conduct€are€critical€to€achievingŠ D!” Šcompliance€with€the€standards.€€Those€conditions€should€be€described€more€fully.€Ģó óĢą@ī ī ģąņņProposed€Amendments€to€the€Proposed€RuleóóˆŠ $X" ŠĢņņą  ąa.€€In€the€first€sentence€of€šš€205.3(b)(1),€the€phrase€š šbecomes€awarešš€should€be€replacedŠ ą%0!$ Šby€š šknows.šš€€The€term€š šknows,šš€presently,€should€then€be€defined€in€šš€205.2€to€mean€š šactualĻknowledge€of€the€fact€in€question,€not€information€that€merely€could€be€imputed€to€the€attorney.€ĻActual€knowledge€can€be€inferred€from€circumstances;€an€attorney€cannot€evade€knowledge€byĻclosing€the€attorneyššs€eyes€to€the€obvious.ššóóŠ )ą$( ŠĢņņą  ąb.€€In€šš€205.2(e),€the€following€should€be€added€to€the€end€of€the€definition€of€š ševidenceŠ h+ø&* Šof€a€material€violationšš:€š šEvidence€of€a€material€violation€within€the€meaning€of€this€definitionĻdoes€not€include:€(1)€acts€undertaken€where€the€law€is€unsettled,€even€if€a€court€might€in€theĻfuture€hold€the€acts€violate€the€securities€laws,€(2)€acts€not€declared€illegal€in€states€where€theĻissuer€does€business,€and€(3)€acts€that€a€corporate€officer€or€employee€might€decide€not€toĻundertake.ššĢóóĢņņą  ąc.€€The€term€š šsimilar€violation,šš€presently€undefined,€should€be€defined€to€mean€š šany€otherŠ 8 ˆ Šviolation€of€a€legal€obligation€by€the€issuer€or€violation€of€law€which€reasonably€might€be€imputedĻto€the€issuer.ššĢóóĢą@@@%ģąņņDiscussionóóˆŠ č 8  ŠĢą  ąThe€critical€issue€for€an€attorney€seeking€to€comply€with€the€proposed€standards€isĻwhether€what€are€traditionally€called€the€š štriggeringšš€conditions€are€present€that€require€action.€ĻIn€the€ABA€Model€Rules,€those€conditions€are€described€in€Rule€1.13(b).€€In€the€CommissionššsĻproposed€rule,€they€are€described€in€šš€205.3(b)(1)€and€the€definitions€that€underlie€its€terms.€€IĻhave€proposed€three€changes€in€the€definitions€to€help€clarify€the€attorneyššs€responsibilities.ĢĢą  ąa.€€The€extent€to€which€information€is€sufficiently€apprehended€by€an€attorney€to€trigger€aĻrequired€response€has€been€among€the€most€difficult€issues€for€rule€drafters€to€express.€€The€termĻthat€has€been€most€consistently€used,€however,€has€been€the€most€obvious.€€An€attorney€must€actĻbased€on€what€the€attorney€š šknows.ššĢĢą  ąThe€text€accompanying€notes€42€„€44€in€the€discussion€of€the€proposed€standards€suggestsĻthat€š šknowledgešš€may€be€too€high€a€standard.€€The€problem€is€said€to€be€the€chronic€one€that€noĻone€truly€knows€what€they€know.€€Thus,€it€might€seem,€an€attorney€could€always€justify€inactionĻby€saying€that€he€or€she€could€not€be€completely€sure€whether€apprehended€facts€were€really€true,Ļor€if€true,€what€they€meant€for€appropriate€action.€ĢĢą  ąMy€suggested€definition,€however,€is€an€amalgam€taken€from€several€places€in€the€ModelĻRules€and€makes€clear€that€such€reasoning€would€not€justify€inaction.€An€attorneyššs€knowledgeĻcan€be€inferred€from€circumstances;€an€attorney€knows€what€a€reasonable€attorney€in€the€situationĻwould€know.€€An€attorney€may€not€be€š šconsciously€ignorant,šš€i.e.,€the€attorney€may€not€close€hisĻor€her€eyes€to€the€obvious.ĢĢą  ąThe€problem€with€the€Commissionššs€š šbecomes€awarešš€phrase€is€that€it€has€all€of€theĻambiguity€of€š šknowsšš€with€none€of€the€history€helpful€in€defining€the€term.€€š šBecomes€awareššĻimplies€that€apprehension€of€facts€is€an€evolving€process.€€Sometimes€that€may€be€true,€but€it€doesĻnot€advance€understanding€of€when€the€attorney€is€required€to€act.€€€Surely€action€is€not€requiredĻwhen€the€attorney€is€only€š šdimly€aware,šš€for€example.€€In€short,€it€does€not€take€much€reflectionĻto€see€that€the€š šawarenessšš€contemplated€by€the€proposed€standard€is€š šknowledgešš€under€anotherĻname,€a€name€with€much€less€history€and€less€basis€for€reasonable€construction.€€ĢŠ h+ø&* Šą  ąIn€addition,€I€have€added€a€phrase€to€the€proposed€definition€that€makes€clear€theĻknowledge€an€attorney€is€deemed€to€have€is€personal,€not€imputed.€€I€understand€that€some€of€myĻacademic€colleagues€may€challenge€that€view€in€their€own€comments€to€the€Commission,€so€I€willĻexplain€my€position€briefly.ĢĢą  ąClearly,€no€attorney€will€in€fact€be€able€to€act€on€anything€other€than€personal€knowledge;Ļimputation€is€a€fiction€that€at€most€creates€a€duty€for€attorneys€to€share€information.€€Suppose,€forĻexample,€that€a€litigator€in€a€law€firmššs€St.€Louis€office€knows€one€fact€about€a€client€that€seemsĻinnocent€in€itself,€while€a€transactional€attorney€in€the€firmššs€Boston€office€knows€a€different,Ļequally€innocent€fact.€€If€the€two€attorneys€had€happened€to€share€the€two€facts,€however,€theyĻmight€have€learned€something€about€possible€client€wrongdoing.€€ĢĢą  ąThe€law€implicitly€says€for€purposes€of€conflicts€of€interest€that€all€attorneys€in€a€firm€areĻassumed€to€know€whom€that€firm€represents.€€They€do€not€know€that,€of€course,€but€the€ruleĻworks€because€firms€maintain€client€lists€and€can€do€conflicts€checks€at€the€outset€of€aĻrepresentation.€€In€the€case€of€the€random€information€that€I€have€described,€however,€imputingĻinformation€from€one€attorney€to€another€would€be€an€utter€fiction.€€ĢĢą  ąThe€proposed€standards€should€not€countenance€willful€blindness,€but€neither€should€theyĻsubject€an€attorney€to€a€professional€duty€to€act€upon€information€the€attorney€would€have€noĻreason€to€know€in€the€course€of€his€or€her€ordinary€work€for€a€client.€€If,€given€the€nature€of€theirĻwork€for€the€client,€attorneys€share€files€or€and€regularly€read€each€otherššs€memoranda,€forĻexample,€under€the€Commission€standards€as€already€proposed€one€could€say€that€each€should€beĻdeemed€to€have€actual€knowledge€of€what€is€in€the€files.€€The€Commission€should€not,€however,Ļattribute€knowledge€among€people€who€ordinarily€would€have€no€reason€to€exchange€it.ĢĢ€ą  ąb.€€The€fundamental€issue€for€an€attorney€under€the€proposed€standards€will€be€whatŠ Øų Šconstitutes€š ševidence€of€a€material€violationšš€and€thus€what€must€be€documented€and€reportedĻš šup€the€ladderšš€pursuant€to€šš€205.3(b).€€The€standard€will€also€be€relevant€to€the€issuer,€becauseĻreports€received€will€require€undertaking€extensive€investigation€and€potential€action€by€the€boardĻor€a€committee€of€independent€directors.€€In€short,€it€is€important€that€the€definition€of€š ševidenceĻof€a€material€violationšš€have€some€outer€boundary;€otherwise,€there€may€be€too€manyĻinvestigations€instituted€š!š€not€too€few€š!š€as€attorneys€try€to€protect€themselves€against€the€outsideĻchance€that€they€will€be€said€to€have€reported€too€little.ĢĢą  ąThe€discussion€accompanying€the€definition€in€the€second€paragraph€following€the€textĻaccompanying€note€46€in€the€Commissionššs€proposed€standards€provides€helpful€perspective€onĻthe€scope€of€intended€reporting.€€The€language€I€have€proposed€to€add€is€taken€directly€from€thatĻparagraph.€€Once€published€in€the€Code€of€Federal€Regulations,€this€discussion€material€is€likely€toĻbe€less€accessible€to€attorneys€seeking€to€comply€with€šš€205.3(b)€as€the€Commission€intends.€ĻThus,€the€addition€of€the€proposed€sentence€to€the€rule€should€focus€attorneys€on€reportingĻevidence€of€misconduct€that€directly€puts€the€issuer€at€risk€of€violating€the€law,€but€not€reportingĻrandom€information€that€does€not€entail€a€significant€risk.€Š h+ø&* Š‡ņņóóą  ąc.€€Inclusion€of€the€term€š šsimilar€violationšš€in€Sarbanes„Oxley€šš€307€was€unfortunateŠ ° Šbecause€it€is€understandably€hard€to€know€what€content,€if€any,€to€give€to€it.€€Left€undefined,Ļhowever,€it€is€likely€to€be€a€source€of€endless€confusion€and€potential€risk€for€attorneys.€€ĢĢą  ąMy€proposed€definition€is€derived€directly€from€Model€Rule€1.13(b)€and€šš€96(2)€of€theĻRestatement.€€Thus,€it€reflects€matters€attorneys€should€understand€they€are€already€required€toĻreport€within€a€corporate€client.€€Furthermore,€the€definition€is€limiting€in€the€sense€that€itĻreferences€a€violation€of€law€š!š€something€on€which€the€attorney€is€presumably€expert€š!š€not€simplyĻa€business€judgment€that€might€turn€out€later€to€be€unwise€but€not€illegal.ĢĢņ ņą  ą4.€€While€noisy€withdrawal€represents€a€possible€course€for€attorneys€in€a€narrowŠ č 8  Šrange€of€cases,€it€is€the€ultimate€weapon€in€the€attorneyššs€arsenal.€€Noisy€withdrawal€shouldĻnot€be€required€by€the€Commission,€and€even€its€permissive€use€should€be€appropriatelyĻlimited.€Ģó óĢą@ī ī ģąņņProposed€Amendments€to€the€Proposed€RuleóóˆŠ „Ō  ŠĢą  ąa.€€ņņThe€alternatives€provided€in€šš€205.3(b)€&€(c)€should€each€be€said€to€satisfy€anŠ \¬ Šattorneyššs€reporting€obligation€completely.€€Then,€šš€205.3(d)(1)€and€references€to€it€should€beĻdeleted.ĢóóĢņņą  ąb.€€In€šš€205.3(d)(2),€at€the€end€of€the€introductory€clause,€after€the€words€š šproperty€of€theŠ  \ Šissuer€or€of€investors,šš€the€word€š šbutšš€should€become€š šthatšš€and€after€the€words€š šis€not€ongoingššĻthe€words€š šbut€in€which€the€attorneyššs€services€were€employed€and€the€injury€from€which€can€beĻprevented,€rectified€or€mitigatedšš€should€be€added.óóŠ Š  ŠĢą  ąa.€€In€the€discussion€section€of€the€proposed€standards,€at€the€discussion€of€šš€205.3(c),€theĻCommission€acknowledges€that€š šCongress€itself€did€not€explicitly€direct€the€Commission€toĻaddress€by€rule€what€an€attorney€who€had€reported€evidence€of€a€material€violation€should€do€inĻthe€event€that€an€issuerššs€directors€did€not€respond€appropriately.šš€ĢĢą  ąThe€same€discussion€also€says€that€guaranteeing€that€a€report€completely€satisfies€theĻattorneyššs€obligation€under€the€regulation€š šmay€well€encourage€attorneys€to€report€evidence€of€aĻmaterial€violation€more€promptlyšš€because€the€attorney€will€not€thereby€assume€an€obligation€toĻevaluate€the€response€to€that€report€and€possibly€make€a€noisy€withdrawal.ĢĢą  ąEither€of€those€reasons,€taken€alone,€should€convince€the€Commission€of€the€wisdom€ofĻeliminating€any€requirement€for€a€noisy€withdrawal€from€the€proposed€rule.€€Taken€together,€theĻneed€to€eliminate€the€requirement€of€mandatory€action€is€inescapable.ĢĢą  ąI€have€described€noisy€withdrawal€as€the€attorneyššs€š šultimate€weapon.šš€€That€may€be€a€bitĻof€hyperbole€but€it€makes€an€important€point.€€Interaction€of€the€proposed€standards€with€stateĻattorney„client€privilege€and€attorney€confidentiality€requirements€is€clearly€the€most€sensitiveŠ h+ø&* Šissue€for€attorneys€that€the€proposed€standards€present.€€Indeed,€I€expect€it€will€be€the€subject€ofĻthe€most€frequent€comments€the€Commission€receives.€€ĢĢą  ąThe€proposed€standards€purport€to€decree€that€no€disclosure€under€the€standards€willĻresult€in€loss€of€the€attorney„client€privilege.€€Courts€tend€to€be€jealous€of€their€right€to€recognizeĻand€construe€that€privilege,€however.€€Ultimate€recognition€of€the€Commissionššs€efforts€to€protectĻthe€privilege€in€later€state€or€federal€proceedings€in€which€the€issuer€is€involved€simply€cannot€beĻguaranteed€by€Commission€order.€ĢĢą  ąIn€general,€the€proposed€standards€do€a€reasonably€good€job€of€avoiding€conflict€withĻprinciples€of€confidentiality€except€as€those€are€defined€in€a€few€states€(most€prominentlyĻCalifornia).€€But€I€respectfully€suggest€that€the€discussion€accompanying€the€standardsĻoversimplifies€the€state€of€current€law€and€creates€more€conflict€with€that€law€than€is€necessary.€ĢĢą  ąThe€discussion€of€the€proposed€standards€is€clearly€correct€in€saying€that€disclosure€to€theĻCLO€and€others€in€the€client€corporation€does€not€threaten€the€corporate€attorney„client€privilege.ĻOn€the€other€hand,€noisy€withdrawal€will€call€attention€of€many€more€people,€including€manyĻoutside€the€corporation,€to€the€fact€something€may€be€wrong€and€thus€may€result€in€immediateĻinjury€to€the€corporate€client€and€its€shareholders.€€ĢĢą  ąAt€the€very€least,€such€a€noisy€withdrawal€could€be€alleged€to€be€a€breach€of€the€attorneyššsĻduty€of€loyalty€to€the€client,€particularly€where€the€board€itself€or€a€committee€of€its€independentĻdirectors€has€decided€that€action€is€not€required.€€Even€where€the€withdrawing€attorney€turns€outĻto€be€right€about€the€clientššs€potential€violation€of€law,€the€need€to€encourage€candor€betweenĻcorporate€officials€and€corporate€counsel€requires€that€a€noisy€withdrawal€not€be€made€withoutĻclear€justification.€€If€the€attorney€turns€out€to€be€wrong€about€his€or€her€concerns€š!š€as€certainlyĻmay€happen€in€many€close€cases€like€my€earlier€illustration€š!š€the€need€to€avoid€unwarranted€injuryĻto€a€company€and€its€investors€dictates€that€the€noisy€withdrawal€only€be€undertaken€as€a€lastĻresort.€€Use€of€any€weapon€of€last€resort€š!š€almost€by€definition€š!š€should€not€be€mandatory.ĢĢą  ąFurthermore,€the€authority€for€such€a€noisy€withdrawal€today€is€derived€from€theĻrequirement€in€Model€Rule€1.2(d)€that€an€attorney€not€š šcounsel€a€client€to€engage,€or€assist€aĻclient,€in€conduct€that€the€attorney€knows€is€criminal€or€fraudulent.šš€€Comment€[14]€to€ModelĻRule€1.6€goes€on:€ĢĢą0  ąą ` ąš šIf€the€lawyerššs€services€will€be€used€by€the€client€in€materially€furthering€a€courseĻof€criminal€or€fraudulent€conduct,€the€attorney€must€withdraw,€as€stated€in€RuleĻ1.16(a)(1).€€After€withdrawal€the€attorney€is€required€to€refrain€from€making€disclosure€ofĻthe€clientsšš€confidences,€except€as€otherwise€provided€in€Rule€1.6.€€Neither€this€Rule€norĻRule€1.8(b)€nor€Rule€1.16(d)€prevents€the€attorney€from€giving€notice€of€the€fact€ofĻwithdrawal,€and€the€attorney€may€also€withdraw€or€disaffirm€any€opinion,€document,Ļaffirmation,€or€the€like.€*€*€*€ššŠ (#(# ŠŠ h+ø&* Šą  ąTaken€together,€these€provisions€make€clear€that€š šnoisy€withdrawalšš€is€a€measure€byĻwhich€an€attorney€avoids€counseling€or€assisting€a€clientššs€criminal€or€fraudulent€conduct.€€It€isĻnot€a€general€purpose€device€by€which€an€attorney€calls€attention€to€conduct€about€which€theĻattorney€knows.€€See€also€ABA€Formal€Opinion€92„366€(1992)€(attorney€who€has€given€opinionĻbased€on€what€attorney€now€knows€to€be€false€information€must€withdraw€from€the€representationĻand€disavow€prior€opinion€lest€it€continue€to€mislead).ĢĢą  ąI€understand€that€some€of€my€academic€colleagues€may€be€telling€the€Commission€thatĻmandatory€noisy€withdrawal€is€not€so€bad€because€a€corporation€can€always€create€a€QLCC€andĻavoid€that€possibility.€€My€own€reaction€to€that€observation€is€precisely€the€oppositeńń€of€theirsńń.€€If€noĻmandatory€reporting€regime€is€required€under€a€QLCC€regime,€there€should€be€none€under€theĻotherwise€largely€parallel€system€in€which€the€report€is€made€initially€to€the€CLO.ĢĢą  ąIndeed,€the€effect€of€deleting€šš€205.3(d)(1)€as€I€have€proposed€ńń€ńńwould€be€to€make€theĻapproach€for€reports€to€a€QLCC€in€šš€205.3(c)€also€the€model€for€šš€205.3(b)€reports€to€a€CLO.€ĻPresumably,€many€companies€will€adopt€the€QLCC€as€an€effective€way€to€guarantee€a€thorough,Ļindependent€analysis€of€attorney€reports.€€Smaller€companies€or€those€with€simpler€operationsĻmight€continue€to€have€reports€go€to€the€CLO,€but€either€way,€the€ultimate€decision€whether€aĻreported€problem€requires€action€should€rest€with€the€companyššs€directors.€€ĢĢą  ąUnder€šš€205.3(b)(3)€as€currently€drafted,€the€CLO€must€make€a€report€of€remedial€actionĻadopted€and/or€sanctions€imposed€to€the€audit€committee€or€the€full€board.€€Under€šš€205.3(b)(4),Ļthe€original€reporting€attorney€must€also€report€to€the€audit€committee€or€another€committee€orĻthe€full€board€if€he€or€she€believes€the€CLOššs€report€is€inadequate€or€untimely.€ĢĢą  ąThus,€what€a€board€or€independent€board€committee€will€have€before€it€under€šš€205.3(b)Ļwill€be€the€š ševidence€of€a€material€violationšš€from€the€reporting€attorney,€a€response€from€theĻCLO€saying€either€that€there€was€no€material€violation€or€that€it€was€corrected€(which€responseĻmay€itself€be€based€on€reports€of€outside€counsel),€and€a€response€from€the€reporting€attorney€thatĻthe€CLOššs€response€is€inadequate.€€In€short,€the€board€will€have€before€it€an€honest€disputeĻbetween€reputable€attorneys€about€what€the€law€does€or€does€not€require€in€a€particular€context.€ĢĢą  ąAs€argued€above,€such€a€dispute€among€reasonable€attorneys€presents€a€classic€situationĻrequiring€the€board€membersšš€judgment,€not€unilateral€action€by€either€or€both€attorneys.€€BoardĻmembers€might€decide€to€get€yet€another€legal€opinion;€they€might€read€the€opinions€they€haveĻand€conclude€they€show€a€business€risk€but€not€likely€illegality;€they€might€decide€that€action€isĻindeed€illegal€or€at€least€too€risky.€€In€any€event,€however,€board€members€and€the€top€officers€ofĻthe€issuer€will€focus€on€and€be€held€responsible€for€their€decisions.€ńń€ńńńń€ńńThey€will€have€every€incentiveĻto€make€that€decision€correctly.€€ĢĢą  ąJust€as€šš€205.3(c)€would€leave€the€final€decision€with€the€directors,€šš€205.3(b)€should€asĻwell.€€Otherwise,€the€proposed€standards€will€create€a€situation€in€which€the€reporting€attorneyĻmight€consider€him„€or€herself€required€to€take€a€matter€to€the€Commission,€with€all€the€collateralŠ h+ø&* Šconsequences€that€entails,€when€the€board€or€its€independent€directors€had€decided€the€proposedĻconduct€was€not€illegal.€€Surely,€such€a€result€would€be€totally€inconsistent€with€any€reasonableĻtheory€of€corporate€governance.€ĢĢą  ąb.€€The€effect€of€deleting€mandatory€withdrawal€under€šš€205.3(d)(1)€would€ńństill€ńńbe€ńńńństillńńńńńńńń€ńńńńto€retainĻpermissive€withdrawal€under€šš€205.3(d)(2),€(d)(4),€šš€205.3(e),€and€šš€205.5(d).€€That€is€still€a€lotĻof€the€š šultimatešš€arsenal€to€retain.€€However,€the€amendment€I€have€proposed€to€(d)(2)€isĻimportant€to€bring€it€into€line€with€current€law€and€the€requirements€of€the€other€cited€sections.ĢĢą  ąThe€situation€described€in€proposed€šš€205.3(d)(2)€is€one€in€which€the€attorney€knows€aĻfraud€was€committed€in€the€past€that€caused€substantial€injury€to€the€issuer,€its€investors€or€both.€ĻWithout€the€amendment€that€I€have€proposed,€however,€the€proposed€standards€assume€that€theĻattorney€played€no€part€in€the€misconduct€and€that€nothing€can€now€prevent,€mitigate€or€rectifyĻthe€consequences€of€that€misconduct.€€I€suggest€that€the€proposed€rule€should€require€bothĻattorney€involvement€and€the€possibility€of€doing€some€good€before€even€permitting€a€noisyĻwithdrawal.€€ņņóóŠ „Ō  ŠĢą  ąAs€discussed€above,€the€theory€under€which€an€attorney€may€engage€in€noisy€withdrawalĻat€all€is€that€it€allows€the€attorney€to€avoid€counseling€or€assisting€a€clientššs€crime€or€fraud.€€ThatĻis€the€source€of€the€requirement€that€the€attorney€have€played€a€part€(unknowing€to€be€sure)€in€theĻmisconduct.€€Another€way€of€putting€this€point€is€that€the€ultimate€weapon€is€appropriate€becauseĻthe€client€has€duped€the€attorney€into€rendering€an€opinion€or€otherwise€assisting€the€misconduct.ĢĢą  ąThis€state€of€the€law€is€confirmed€by€Restatement€šš€67,€which€goes€farther€than€any€otherĻauthority€on€the€subject€to€permit€disclosure€of€client€fraud.€€That€section€was€drafted€ńńveryŠ 0€ ŠńńcarefullyĻand€after€considerable€research€and€discussion.€€The€Restatement€expressly€says€ńńthat€ńńńńthat€ńńdisclosure€isĻonly€permitted€where€š šthe€client€has€employed€or€is€employing€the€attorneyššs€services€in€theĻmatter€in€which€the€crime€or€fraud€is€committed.šš€€See€Restatement€šš€67(1)(d)€and€Comments€ņņeŠ ”ä Š&€fóó.׃ׯ ƒ #ĆŻņņŚ  Ś1Ś  ŚóóŻ  Ż×  ׊ €Š ŠĢą  ąFurther,€allowing€conduct€that€clearly€can€do€harm€to€a€client€but€by€definition€can€do€noĻgood€for€others€is€more€than€common€sense€would€permit.€€The€purpose€of€my€amendment€is€notĻto€perpetuate€a€cover„up.€€Indeed,€the€issuer€may€conclude€that€it€is€better€for€the€issuer€to€revealĻwrongdoing€now€than€to€have€it€discovered€later€by€the€Commission€or€someone€else.€€TheĻamendment€simply€acknowledges€that€confidentiality€of€attorney„client€communications€is€anĻimportant€value€for€all€issuers€of€securities€and€should€not€be€impaired€without€a€reasonable€beliefĻthat€noisy€withdrawal€will€at€least€mitigate€or€rectify€the€consequences€of€misconduct.€€Ō_ŌŠ ą%0!$ Š‡ą  ąIndeed,€proposed€standard€205.3(e)(2),€corresponding€to€Model€Rule€1.6(b)(2)€&€(3)€asĻproposed€by€the€ABA€Ethics€2000€Commission,€imposes€exactly€the€kinds€of€conditions€I€amĻproposing€in€the€above€amendment.€€As€I€read€šš€205.3(d)(4),€the€conditions€are€implicit€there€asĻwell.€€I€respectfully€suggest€that€the€Commission€would€get€only€a€minimal€number€of€extraĻvoluntary€disclosures€or€noisy€withdrawals€by€stating€a€broader€right€of€disclosure€than€isĻpermitted€by€current€law€(and€hopefully€one€day€by€the€Model€Rules).€€The€benefits€associatedĻwith€making€the€Commissionššs€proposed€standards€consistent€with€current€law€š!š€and€avoidingĻunnecessary€confusion€and€conflict€with€that€law€š!š€seem€likely€to€be€much€greater.ĢĢą  ąņņSummary€and€ConclusionóóŠ ü L  ŠĢą  ąThe€changes€in€the€proposed€standards€recommended€here€are€modest€and€are€designed€toĻhelp€make€the€standards€better€achieve€what€Congress€and€the€Commission€intended.€€TheĻchanges€would€focus€responsibility€for€reporting€on€attorneys€who€have€a€current€fiduciary€dutyĻto€a€corporate€client.€€They€would€retain€an€objective€standard€by€which€to€judge€the€attorneyššsĻacts,€but€they€would€acknowledge€the€range€of€conduct€in€which€an€attorney€might€reasonablyĻengage.€€The€changes€would€better€suggest€when€initial€reporting€is€required,€and€they€wouldĻplace€the€decision€about€how€to€proceed€in€the€face€of€legal€uncertainty€where€it€belongs,€in€theĻboard€of€directors.€€Noisy€withdrawal€would€not€be€mandatory,€and€would€be€permitted€where€š!šĻbut€only€where€š!š€current€law€developed€over€many€years€would€permit€such€action.€€ĢĢą  ąIn€addition,€I€believe€the€Commission€should€create€š!š€or€ask€Congress€to€create€š!š€a€safeĻharbor€protection€from€private€suits€of€at€least€the€same€scope€and€nature€granted€to€auditors€byĻ15€U.S.C.€šš€78j„1(3)(c).€€The€requirements€of€€šš€205.3,€even€if€amended€as€suggested€in€theseĻcomments,€will€necessarily€involve€attorneys€struggling€in€good€faith€with€whether€or€not€a€reportĻis€required.€€Especially€so€long€as€the€report€is€made€only€to€the€corporate€client,€the€CommissionĻpresumably€will€want€attorneys,€in€close€cases,€to€err€on€the€side€of€reporting.€ĢĢą  ąNevertheless,€it€will€be€inevitable€that€even€internal€reports€may€have€a€negative€effect€onĻthe€careers€of€particular€officers€or€employees€who€may€claim€defamation.€€If€the€report€leadsĻultimately€to€noisy€withdrawal,€the€damage€to€the€client€may€be€substantial€and€a€claim€for€breachĻof€fiduciary€duty€could€follow.€€Even€if€the€attorney€were€to€prevail€in€such€litigation,€the€cost€ofĻdefense€would€likely€be€significant€and€anticipation€of€that€cost€can€be€expected€to€deter€reportingĻearly€when€it€might€do€the€most€good.€€Efforts€to€grant€protection€against€such€suits€thus€seemĻessential€to€help€achieve€the€Commissionššs€goal€of€getting€to€the€level€of€reporting€required€in€theĻinterest€of€investors.€€ĢĢą  ąWhatever€the€Commission€does€will€be€criticized€by€some,€but€with€the€changes€proposedĻhere,€I€respectfully€suggest€that€the€Commissionššs€proposed€standards€will€make€an€importantĻcontribution€to€corporate€governance€and€corporate€responsibility.