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Two events occurred within a few weeks of each other this summer, each portending momentous changes for the legal profession. First, on July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act). And second, on Aug. 12, 2002, the American Bar Association (ABA) House of Delegates adopted the Report of the Commission on Multijurisdiction Practice. Quite apart from the intrinsic significance of each of these events, they are perhaps most remarkable because they are based on irreconcilable visions of who should regulate the legal profession in the future. SARBANES-OXLEY ACT OF 2002 The Sarbanes-Oxley Act is described as an act “to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws.” It also contains a provision directly affecting lawyers’ professional responsibility obligations. Section 307 of the Sarbanes-Oxley Act states: Not later than 180 days after the date of enactment of this Act, the [Securities and Exchange] Commission shall issue rules, in the public interest and for the protection of investors, setting forth minimum standards of professional conduct for attorneys appearing and practicing before the Commission in any way in the representation of issuers, including a rule: (1) requiring an attorney to report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent thereof, to the chief legal counsel or the chief executive officer of the company (or the equivalent thereof); and (2) if the counsel or officer does not appropriately respond to the evidence (adopting, as necessary, appropriate remedial measures or sanctions with respect to the violation), requiring the attorney to report the evidence to the audit committee of the board of directors of the issuer or to another committee of the board of directors comprised solely of directors not employed directly or indirectly by the issuer, or to the board of directors. Certain questions have already arisen about the language of this section. One particularly troubling issue is what will be considered “evidence” requiring a lawyer to report to the general counsel or CEO? Moreover, what will constitute an “appropriate” response, so that the lawyer does not violate the rule by not further reporting to the company’s board of directors? The SEC has not yet issued its proposed regulations pursuant to � 307. While various federal agencies have previously sought to regulate the conduct of lawyers with reference to their obligations to report corporate wrongdoing, this is the first time that Congress has enacted and the president has signed a statute affirmatively mandating attorney regulation on a national basis by a federal agency. [In the only prior intervention by Congress in the arena of regulation of lawyers, the so-called "McDade Amendment" passed in 1999, Congress actually enforced the states' right to apply their respective versions of Model Rule 4.2 (no contact with represented parties) to federal government lawyers. However, "it may also be seen as representing the willingness of Congress to determine questions of lawyer regulation on their merits, and its willingness to step in (meddle?) if deemed appropriate."] That prediction has come true with a vengeance in � 307 of the Sarbanes-Oxley Act, the avowed purpose of which is to override the states’ inconsistent regulation of lawyers’ duties to report client wrongdoing and impose a national standard. Before turning to the adoption by the ABA of the Report of the Commission on Multijurisdiction Practice, it is worth noting that the ABA has already implicitly involved itself in the debate on the content of the new SEC regulations. ABA PRELIMINARY REPORT � Preliminary Report of the American Bar Association Task Force on Corporate Responsibility. By a report dated July 16, 2002, the American Bar Association Task Force on Corporate Responsibility issued preliminary recommendations relating to lawyers’ duties in relation to corporate representation. The commission was created in response to the recent corporate financial scandals, especially the Enron bankruptcy. The preliminary recommendations are intended to elicit comments, prior to the creation of a final report before the end of 2002. Most significantly, the interim report envisages amendment of the Model Rules of Professional Conduct (or in New York’s case, the Code of Professional Responsibility) — and, therefore, implicitly assumes the continued regulation of the profession by the states. REVISIONS TO MODEL RULES First, the task force recommended that Model Rule 1.13 (in New York, DR 5-109) should be revised t � Make it clear that the lawyer shall pursue the remedial measures set out in the rule not only in a matter related to the lawyer’s representation (as currently provided), but also when a matter “has come to the lawyer’s attention through the representation, where the misconduct by a corporate officer, employee or agent involves crime or fraud, including violations of federal securities laws and regulations.” (The task force noted, however, that the rule should apply only where the lawyer actually learns of the misconduct in cases where the misconduct was not related to the lawyer’s representation, to avoid imposing a duty on the lawyer to inquire into matters unrelated to the lawyer’s representation.) � Make it clear that the suggested remedial measures need not be pursued in sequential order, and that more serious cases may require referral to a higher authority in the corporation at an earlier stage. � Incorporate and/or delete language in the text and the commentary, as necessary, “to avoid unduly discouraging action by counsel to prevent or rectify corporate misconduct, and to encourage lawyers to take the action required by the rule.” The task force further recommended that Model Rule 1.6 (in New York, DR 4-102) be amended: � To expand permissive disclosure to allow lawyers to disclose information to prevent or rectify the consequences of a crime or fraud in which the lawyer’s services were used and that was reasonably certain to result, or had resulted in, substantial injury to the financial interests or property of another; and � To make disclosure mandatory, rather than permissive, in circumstances in which the lawyer knows of client conduct which involves a crime, in furtherance of which the client is using the lawyer’s services, and which is reasonably certain to result in substantial injury to the financial interests or property of another. In addition, the task force recommended revisions to other ethics rules that govern attorney conduct with reference to a lawyer’s actual knowledge, to a standard of what a lawyer knows or “reasonably should know.” While significantly different in approach and scope from the regulations mandated in the Sarbanes-Oxley Act, the task force clearly envisages changes that would completely revise the New York Code of Professional Responsibility if adopted here. MULTIJURISDICTION PRACTICE � The ABA Commission on Multijurisdiction Practice We have discussed multijurisdiction practice in a number of previous columns. In the end, the ABA adopted its commission’s report, with remarkably little debate. Key elements of the report are the adoption of a revised Model Rules 5.5 and 8.5 and of revisions to the jurisdictional language of Rules 6 and 22 of the ABA Model Rules of Lawyer Disciplinary Enforcement. In New York, to effect the necessary changes it will be necessary to amend �� 476-a,b and c, and 478 of the Judiciary Law, and the Rules of the Appellate Divisions regarding attorney discipline, e.g., 22 NYCRR Part 603 in the First Department, as well as DR 1-105). PROPOSED ETHICAL RULE The proposed ethical rule (or in states like New York, statutory provision) governing multijurisdictional practice would be: [RULE 5.5:] UNAUTHORIZED PRACTICE OF LAW; MULTIJURISDICTIONAL PRACTICE OF LAW (a) A lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so. (b) A lawyer who is not admitted to practice in this jurisdiction shall not: (1) except as authorized by these Rules or other law, establish an office or other systematic and continuous presence in this jurisdiction for the practice of law; or (2) hold out to the public or otherwise represent that the lawyer is admitted to practice law in this jurisdiction. (c) A lawyer admitted in another United States jurisdiction, and not disbarred or suspended from practice in any jurisdiction, may provide legal services on a temporary basis in this jurisdiction that: (1) are undertaken in association with a lawyer who is admitted to practice in this jurisdiction and who actively participates in the matter; (2) are in or reasonably related to a pending or potential proceeding before a tribunal in this or another jurisdiction, if the lawyer, or a person the lawyer is assisting, is authorized by law or order to appear in such proceeding or reasonably expects to be so authorized; (3) are in or reasonably related to a pending or potential arbitration, mediation or other alternative dispute resolution proceeding in this or another jurisdiction, if the services arise out of or are reasonably related to the lawyer’s practice in a jurisdiction in which the lawyer is admitted to practice and are not services for which the forum requires pro hac vice admission; or (4) are not within paragraphs (c)(2) or (c)(3) and arise out of or are reasonably related to the lawyer’s practice in a jurisdiction in which the lawyer is admitted to practice. (d) A lawyer admitted in another United States jurisdiction, and not disbarred or suspended from practice in any jurisdiction, may provide legal services in this jurisdiction that: (1) are provided to the lawyer’s employer or its organizational affiliates and are not services for which the forum requires pro hac vice admission; or (2) are services that the lawyer is authorized to provide by federal law or other law of this jurisdiction. PROPOSED RULE The proposed rule regarding disciplinary authority over lawyers practicing in states where they are not admitted (which in New York would need to be adopted by the appellate divisions as part of the rules governing attorney discipline) is as follows: RULE 8.5 DISCIPLINARY AUTHORITY; CHOICE OF LAW (a) Disciplinary Authority. A lawyer admitted to practice in this jurisdiction is subject to the disciplinary authority of this jurisdiction, regardless of where the lawyer’s conduct occurs. A lawyer not admitted in this jurisdiction is also subject to the disciplinary authority of this jurisdiction if the lawyer provides or offers to provide any legal services in this jurisdiction. A lawyer may be subject to the disciplinary authority of both this jurisdiction and another jurisdiction for the same conduct. (b) Choice of Law. In any exercise of the disciplinary authority of this jurisdiction, the rules of professional conduct to be applied shall be as follows: (1) for conduct in connection with a matter pending before a tribunal, the rules of the jurisdiction in which the tribunal sits, unless the rules of the tribunal provide otherwise; and (2) for any other conduct, the rules of the jurisdiction in which the lawyer’s conduct occurred, or, if the predominant effect of the conduct is in a different jurisdiction, the rules of that jurisdiction shall be applied to the conduct. A lawyer shall not be subject to discipline if the lawyer’s conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer’s conduct will occur. As a prelude to these proposals, the ABA House of Delegates adopted the following resolution: RESOLVED, that the American Bar Association affirms its support for the principle of state judicial regulation of the practice of law.(Emphasis added). CONCLUSION We live in a strange world. Virtually all practicing lawyers engage in multijurisdictional practice in one form or another on a daily, if not hourly, basis yet in order for the common-sense changes proposed by the ABA for the appropriate treatment of this topic to be implemented, each of the states will need to adopt those changes. On the other hand, when it comes to the most dearly prized core values of our profession, the rules governing the protection of client confidences and secrets, the federal government has set in motion the process whereby state regulation will be pre-empted. In the future, the circumstances when the ethics rules protecting of client confidences do or do not not apply, and when lawyers will have reporting — in some instances mandatory reporting — duties will be governed by federal law. Whether or not the proposals of the ABA Task Force on Corporate Responsibility are ultimately adopted by the states may be irrelevant — at least when lawyers are involved in advising clients whose activities are governed by the federal securities laws. Both the Sarbanes-Oxley Act and the ABA Corporate Responsibility Task Force’s preliminary report promise to provoke lively debate within our profession in the months to come. But we (and the state courts and legislatures that presently regulate the profession) will ignore the deeper implications of the Sarbanes-Oxley Act at our peril. Unless state regulators are willing to act with a hitherto unimaginable uniformity in changing ethics rules to conform to the new federal legislation and rule-making, it may prove to be but the first round in the process of federalizing legal ethics in particular and the regulation of the profession generally. A positive first step, to demonstrate that the states are indeed capable of such uniformity, would be the early adoption by all of the states of the rules and related changes called for by the ABA to accommodate multijurisdictional practice. Anthony E. Davis is a partner at Moye, Giles, O’Keefe, Vermeire & Gorrell, www.moyelaw.com, and author of “The Essential Formbook: Comprehensive Management Tools for Lawyers,” published by the Law Practice Management Section of the American Bar Association.

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