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Enact in haste, repent at leisure. Following a series of corporate scandals, Congress with great dispatch enacted the Sarbanes-Oxley Act of 2002. In recognition of the fact that lawyers are often privy to the fraudulent corporate conduct the act is designed to prevent, the law gives attorneys the legal duty to report securities violations within a company to corporate management and in certain circumstances allows them to report such violations to the Securities and Exchange Commission (SEC). While these provisions were designed to enhance the protection of corporate shareholders, Congress failed to create an adequate mechanism to protect attorneys faced with these new reporting duties from whistleblower retaliation. While the provisions have proved troubling to attorneys in general, they pose unique problems for in-house counsel. Congress’ failure to consider these ramifications will inevitably act as a disincentive to in-house counsel to report misconduct, and will make in-house legal jobs-at a time when they are more complex and important than ever-of far less appeal to those at the top of the profession. In connection with Sarbanes-Oxley, the SEC issued regulations governing the professional conduct of attorneys who represent companies before the SEC, specifically relating to “up-the-ladder” reporting requirements. That chain can include-depending on how effectively the higher-ups respond and take action-the company’s chief legal officer, the company’s audit committee, outside directors, the full board and possibly the SEC. An attorney who does not adhere to these up-the-ladder regulations is subject to civil penalties and disciplinary censure from the SEC. These requirements are especially problematic for in-house counsel, who may be put in the position of whistleblowers and become vulnerable to retaliation by the corporation. It is highly likely that any up-the-ladder reporting will necessitate the disclosure of information protected by the attorney-client privilege. Though the regulations, in effect, excuse such disclosure, that exception to client confidentiality only exists internally and vis-�-vis the SEC. Disclosure to anyone else, including the attorney’s own lawyers, for example, may still be forbidden by state ethical rules. This causes tremendous obstacles for a reporting attorney who needs to seek legal advice or wants to press a claim relating to retaliation. While the issue of disclosing privileged material has not yet been adjudicated with respect to Sarbanes-Oxley whistleblowing, a new decision from the Department of Labor’s (DOL) Administrative Review Board in Willy v. Coastal Corp. and Coastal States Management Co. signals the evisceration of the ability of in-house counsel to seek recourse effectively for retaliation after reporting corporate wrongdoing. Donald Willy, an in-house environmental attorney at Coastal Corp., an oil and gas company since acquired by El Paso Corp., was terminated after refusing to change a report in which he concluded that a subsidiary had violated environmental laws. Willy filed a complaint with the DOL for violation of the whistleblower provisions of the environmental statutes, asserting that Coastal had wrongfully terminated him. In 1988, a DOL administrative law judge found that Willy’s termination was at least partly due to his protected activity. On review, the secretary of labor agreed and went a step further, finding that the smoking-gun report Willy had authored had been properly admitted into evidence. The matter was then appealed to the administrative review board, the final administrative arbiter for all statutory whistleblower claims (including Sarbanes-Oxley). A record bereft of key facts The board, finding that Congress had not spoken to the privilege issue in the federal environmental statutes, looked to federal common law instead to determine whether it was permissible to admit Willy’s report, which contained privileged material, into evidence. It found that Coastal had not waived attorney-client privilege, no crime-fraud exception applied and Willy could not argue that he was defending against a claim that he breached a duty to his client, thereby enabling him to invoke the self-defense exception to the attorney-client privilege. By looking to federal common law only, the board avoided considering state law, mainly based on state ethics rules or American Bar Association Model Rule 1.6, under which in-house counsel may make use of privileged information in order either to defend or establish a claim against an employer-client, including a retaliation or whistleblower claim. Without the protected material, Willy’s claim evaporated. Willy poses a particularly acute problem in the Sarbanes-Oxley context. While the act mandates disclosure to certain entities for the sake of the company, the attorney is foreclosed from disclosing the same material if he or she is punished by the company for fulfilling his or her statutory duties. Congress has thus placed a heightened burden on attorneys without providing them with the same protections afforded to other employees who don’t even have a legal duty to report Sarbanes-Oxley violations. Congress should close the unfortunate loophole it has created. Otherwise, in-house counsel will be faced with the Hobson’s choice of either complying fully with the act and risking their jobs, or subjecting themselves to liability or censure from the SEC for not reporting corporate wrongs. Rashida Adams is an associate, and Debra S. Katz is a partner, at Washington’s Bernabei & Katz, where they practice civil rights law.

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