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Most people would not be inclined to compare lawyers to dolphins. Another dorsal-finned denizen of the deep typically gets that honor. But Steven C. Krane, the president of the New York State Bar Association, says that in the case of the 1999 Gramm-Leach-Bliley Act, the comparison is apt. He says lawyers are like “happy dolphins swimming along in the ocean and getting caught in a tuna net.” The tuna net Krane is referring to is the act’s requirement that all financial institutions, such as banks, brokers, credit card companies and insurers, notify their customers each year of their privacy policies and practices and the customers’ right to opt out of sharing their personal financial information with third parties. At the time of its passage, no one seriously considered that the law could also apply to lawyers, said Krane, who is also a partner at Proskauer Rose. But then last summer, several bar associations decided to check with the Federal Trade Commission. Much to the bars’ dismay, the agency refused to give any clear guidance one way or the other. With a July 1 deadline looming, many lawyers sent privacy notices anyway, just in case they were covered. But since, in contrast to Gramm-Leach-Bliley, the bar’s code of ethics typically prohibits lawyers from sharing clients’ financial information, the letters made little sense. “It’s like a square peg in a round hole,” said Warren Dennis, a partner in the Washington, D.C., office of Proskauer Rose. Meanwhile, the bar associations kept pressing the FTC, organizing a series of meetings to try to convince the regulators of their position. Although some at the agency “expressed sympathy,” they felt that they did not have the authority to do anything about it, Krane said. Last month, the agency formalized its position. In a letter to the American Bar Association, J. Howard Beales, the FTC’s director of consumer protection, wrote that they had “carefully considered” lawyers’ concerns, but were unable to provide an exemption to the privacy requirements. ONE MILLION LAWYERS AFFECTED Thus, as things stand right now, around 1 million lawyers will be required to send out privacy notices to their clients by the annual July 1 deadline, or face penalties of up to $10,000 per violation, Krane said. At a minimum, in the agency’s opinion, lawyers who practice in the areas of tax, real estate, trusts and estates and personal bankruptcy are all covered, he added. Left with few other options, the New York State Bar Association has now turned to the courts for relief, suing the FTC in the U.S. District Court for the District of Columbia. It is only the second time in the bar association’s history that it has brought a suit against the federal government. Proskauer Rose is handling the case on a pro bono basis. “It’s our ‘save the dolphins’ case,” Krane said. Even consumer advocates agree that the rule makes little sense when applied to lawyers. “The point of Gramm-Leach-Bliley is to educate people as to their right to control their private information,” said Mikal Condon, a lawyer with the Electronic Privacy Information Center, a consumer protection group in Washington, D.C. “It just seems really silly to apply the act where the [sender] can’t even use the information in question.” Krane said that the expense and hassle of having to mail annual privacy notices is compounded by the client confusion the notices generate. “Clients have been calling their lawyers saying, ‘Does this mean that I don’t get as much protection as before?’” He said the law is a particular burden on lawyers for the poor, such as those working in legal services and solo practitioners, with a multitude of clients and limited resources. “I’ve heard from many of them that this is really a problem,” he said. Although it seems unlikely that the FTC will go after lawyers for failing to send out privacy notices, “nobody wants to be a test case,” Krane said. 33-PAGE COMPLAINT The bar association’s action is an attempt to avoid that possibility. In its 33-page complaint, it argues that the commission acted “arbitrarily, capriciously, and contrary to law” in refusing to exempt lawyers from the provision. “It’s such a huge stretch to say the legislation covers lawyers,” said Warren Dennis, the Proskauer lawyer who co-authored the complaint. “It’s just a tiny bit more of a stretch to say that the milkman who gives you an investment tip is also covered.” He added that the statute specifically authorizes the FTC to grant exemptions. “And when it wants to, the FTC never has a question about its authority,” he said. Joan Warrington, a privacy lawyer at the New York office of Morrison & Foerster, added that lawyers are not even permitted to offer services as contemplated by the FTC. To be covered by its definition, a person has to be “significantly engaged in providing a financial product,” she said. “Under the bar association rules of most states, lawyers are limited to the practice of law, so I would argue very strongly that to the extent there may be financial counseling, it’s tangential to the main service, which is legal,” she said. The complaint also contends that, if applied to lawyers, the act violates the 10th Amendment by interfering with the regulation of the attorney-client relationship traditionally reserved to the states. As a result, a lawyer who wanted to sell his client’s financial information could argue that under the doctrine of federal preemption, he was entitled to do so, Dennis said. John Daly, the FTC lawyer who is handling the case for the agency, said they never even addressed the preemption issue, “because no one ever asked.” Nonetheless, he said, “we think it’s clear that the state bar associations will not be affected. All the act does is impose one additional requirement — notice.” He suggested that, instead, the bar association should “go to Congress and get this fixed.” In fact, a number of members of Congress, including Rep. Carolyn Maloney, D-N.Y., have objected to the agency’s interpretation. But Krane, the bar’s president, said that Congress is not expected to move forward anytime soon. In the meantime, the bar awaits the FTC’s answer, which is due at the end of next month. “We’re not fighting the FTC,” said Krane. “We asked them for guidance and we got it. Now all we are doing is asking the court to decide the issue.”

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