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Attorneys are not subject to federal privacy laws that govern financial institutions, a federal judge in Washington. D.C., ruled yesterday.

The ruling marks another victory for attorneys, led by the New York State Bar Association, against the Federal Trade Commission (FTC), which had refused to exempt attorneys from the 1999 law, known as the Gramm-Leach-Bliley Act.

Under the act, financial institutions like banks and credit card companies must annually notify customers of their privacy policies. The notices also must explain that customers have a right to opt out of having their information shared with third parties.

Attorneys have argued that they should not be subject to the law because attorney-client privilege and ethics rules already govern the relationship between lawyers and their clients.

The FTC, however, notified attorneys two years ago that it did not have the power to declare them exempt from the regulations.

Yesterday’s ruling, from Judge Reggie B. Walton of U.S. District Court for the District of Columbia, found that the FTC’s decision was “arbitrary and capricious.” The ruling granted summary judgment to the State Bar Association.

The possibility that attorneys would have to send clients annual privacy notices particularly rankled lawyers who handle real estate settlements, tax-planning, tax preparation and other financial matters.

Among the concerns raised by the bar association were that the notices would confuse clients, who might think that some sort of “opt in” clause was being attached to the attorney-client privilege. The notices also are costly to produce and send, and the bar association argued that the cost fell heavily on small firms and solo practitioners.

“It was a big burden and caused a lot of confusion, all of it unnecessary,” said Steven C. Krane, a partner at Proskauer Rose and a past president of the State Bar Association.

In April 2002, the FTC sent a letter to the American Bar Association saying it had “carefully considered” the concerns of attorneys but was unable to exempt them from the privacy requirements.

The New York State Bar Association immediately sued, and in August 2003 Judge Walton denied the FTC’s request to dismiss the suit.

It was “doubtful,” the judge wrote, that “Congress would alter a regulatory scheme that has always been under the authority of the states without even a hint that newly enacted legislation was venturing into that area.”

Borrowing colorful language in a 2001 opinion from the U.S. Supreme Court, the judge added: “In other words, the delegation of authority to the FTC by Congress to regulate the ethical conduct of attorneys in the face of approximately two hundred years of exclusive state regulation in such a subtle way would be, in the words of Justice [Antonin] Scalia, like ‘hid[ing an] elephant[] in a mousehole.’”

In his opinion yesterday, Judge Walton said he found the FTC’s records on how it reached its conclusion to be devoid of anything that suggested the agency “engaged in any type of reasoned decision-making.”

Warren Dennis of Proskauer Rose was the lead litigator on behalf of the State Bar Association until he died in February. Mr. Krane has since assumed the lead role.

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