- Very Short Commentary: Eleven Commandments
- Commandment Seven (#7) Avoid Dueling Capacities (Conflict Problems)
- LEGAL ETHICS:COMMANDMENT TEN: MENTOR CAREFULLY BUT HUMANELY: INSIST ON IT.
- LEGAL ETHICS: COMMANDMENT ELEVEN: DOUBT? STRESS? GET HELP!
- LEGAL ETHICS: COMMANDMENT NINE: FIGHT FAIR, DON’T CHEAT
- LEGAL ETHICS; COMMANDMENT EIGHT: KEEP A CIVIL TONGUE IN YOUR HEAD.
- LEGAL ETHICS: COMMANDMENT SEVEN: AVOID DUELING CAPACITIES
- COMMANDMENT SIX: SERVE SILENTLY (SORT OF)!
- COMMANDMENT FOUR: PERFORM PROMPTLY and REASONABLY
- LAWYER CRIMES: COMMANDMENT FIVE: DON’T DO THE CRIME
- LEGAL ETHICS: COMMANDMENT TWO: NEVER, NEVER, NEVER LIE.
- LEGAL ETHICS: COMMANDMENT ONE: DON’T STEAL THE CLIENT’S MONEY
Commandment One Published on December 31, 2014
These disquisitions are revisions something I wrote at least several years ago. First editions of these essays were begun some time ago. Somehow their print got locked in, to some degree, so some parts of the essays were thrown out of kilter and can’t be made right today. This is particularly true along the left margins of some of the essays.
Given the purposes and context in which the early versions of the essays were written, many of the legal rules explicitly numbered are from The Texas Rules that were built upon the ABA Model Rules.
authority than James W. McElhaney has described mendacity as the worst sin of
the trial bar. He bemoans its basic
injustice. It prevents people from
moving the best case they can, and he is worried that there is a “whole
subculture centered around coming as close to the line of deceit as you can
without factually crossing it.” James W.
McElhaney, The Legal Weasel Trap, 86 ABA
J. 68 (January 2000).
and fraudulent things.7
Lawyers who know that clients are about to do dishonest and fraudulent things
must try to dissuade them from doing so.
done something dishonest or fraudulent, he must try to persuade him to take
her to do something contrary to rules of professional conduct, the lawyer must
explain the limitations upon her.
facts or law or fail to make necessary disclosures.
to tribunals which is known to the lawyer to be directly adverse to the
position of the client, when that authority is not disclosed by opposing
anticipation of litigation.
witnesses in testifying falsely.
fail to make epistemicly necessary disclosures. (Sometimes confidential information can be
revealed to avoid problems here. See 1.05(f).)
disinterested to those who don’t know any better.
are fiduciaries of their clients. Frequently, therefore, if lawyers are being
fully truthful is subject to higher standards. Commentary: Here are two important–never to be
forgotten–guiding maxims: No one
loves lying lawyers and Everyone loathes the lying lawyer.8
Contemplate the following situation. L frames X of a crime and participates in apprehension. So we have here a case of felonious framing.Obviously there may be several sorts of forbidden lying going on. See blog with that title in part. 3/15/15.
Here is a particularly outrageous case: A California couple (Cs) hired a lawyer (L) to recover from an insurance company of what appears to be a home owner’s claim. That was in 2006. Recently Cs discovered that L had been disbarred for lying to another client by telling her that an appeal was pending and then providing her with forged court papers when she expressed doubts. The Cs lost several thousand dollars in fees paid though one wonders if they lost anything in the insurance case, since it involved asbestos removal. What is the lesson to be learned here? How’about this one: Nothing takes forever, even in the law. See ABAJ [OnLine 2/9/15)
have good reason to think they may be doing just that. Xanadu Maritime Trust v. Meyer, 21
F.Supp.2d. 1104, 1106 (N.D. Cal. 1998)(expert witness caught lying).
are privileges guarding communications between the lawyer and the client, they
may be destroyed. For example, the
crime-fraud exception to the attorney-client privilege may be triggered. There may be a similar exception to the work
Finlan, 988 S.W.2d 300 (Tex.
App.–Dallas 1999, pet. filed). In
re Snyder, 623 N.W.2d 512 (Wis. 2001).
(Attorney made false statements to probate court. He also lied to beneficiaries.) In this case, a court found that a lawyer
filed a false statement in an affidavit, and the court imposed a monetary
sanction. Id. at 309. The subtext of the Dallas Court of Appeals’
opinion implies that the lawyer was too wily for his own good. It is a very bad
idea for an attorney to make a misrepresentation to a court concerning any past
disciplinary history when he is applying for pro hac vice status. In re Howard, 721 N.E.2d 1126 (Ill.
misrepresentations made to courts, see Florida Breckenridge v. Solvay
Pharmaceuticals, 174 F.3d 1227 (11th Cir. 1999). In this case, one of the litigants had
engaged in a “head-snapping reversal of position[,]” which resulted from his
realization that he had been caught misrepresenting the regulatory status of
some entity and “wishe[d] to avoid a published opinion that would alert the
world to its misdeeds.” “In our
supervisory capacity, however, we feel that we must review the attorneys’
conduct before this court and the district court and determine whether a
disciplinary referral is appropriate.
Careful review of the record has uncovered a pattern of conduct by both
parties’ attorneys designed to mislead and confuse the court with regard to the
regulatory status of [certain entities.]
Unfortunately, we must remind these attorneys that they are officers of
the court. As such, they ‘owe duties of
complete candor and primary loyalty to the court before which they
practice.’ These duties are never
subservient to a lawyer’s duty to advocate zealously for his or her
client. In this case, the attorneys for
both parties have frustrated the system of justice, which depends on their
candor and loyalty to the court, because they wanted to avoid an unpleasant
truth about their client’s conduct. ‘In
short, they have sold out to the client.’”
Id. at 1231-32.
not submit false affidavits to courts.
Forging documents for use in court is lying and is treated in the same
bad as any other form of lying to courts.
Skepnek v. Mynatt, 8 S.W.3d 377 (Tex. App.–El Paso 1999, pet.
denied) (lawyers sanctioned for filing a false special appearance
affidavit). Sprauve v. Mastromonico,
86 F.Supp.2d 519 (D.V.I. 1999) (lawyer disbarred for consistent pattern of
lying in pleadings to courts).
Is it lying to a could for a lawyer that helped a person appearing pro se to ghostwrite a pleadings, brief, or something like it. Some courts have specific rules against this sort of thing without the lawyer identifying him/her self. Given rules of procedure it was dealing with, i.e., nothing precedential, the 2d Cir. said OK. In re Fengling Liu, 664 F.3d 367, 09-9006-am (November 22, 2011.) The lawyer was disciplined for other reasons, however, and was publicly reprimanded. Other circuits have gone the other way, according to the decision in Liu.
I am inclined to reason differently. The lawyer has the person for whom she is ghostwriting as a client. That person is representing to the court that he is appearing pro se. This is a lie. He is having a lawyer do work on this case for him and filing it before the court. Thus L is assisting C is the telling a lie to a court and therefore probably a crime. Also, the idea of some courts that ghostwriting is permissible if a rule says its OK so long as the lawyer is identified is self contradictory. Ghostwriting presupposes that the identity of the lawyer is not know. It’s a necessary condition of being a ghost is that it cannot be seen, the old TV show Topper to the contrary, to the extent that it is, not withstanding.
Procedure, counsel for a debtor may not accept fees prior to the payment in
full of the filing fees. A lawyer who
misrepresents to a court that he or she has not been paid attorneys’ fees, when
the lawyer has been paid, is subject to being sanctioned. In re Lain, 760 So.2d 1152 (La. 2000).
courts for these purposes. PUCs are like
courts when they do contested cases, as is the Texas Railroad Commission, as is
matters absolutely must now lie to courts, even on trivial matters if there are
any such things. The cases are uniformly
must be extraordinarily scrupulous with the truth. Certainly no lawyer should make any
misrepresentations with regard to the nature, character, or timing of a
client’s incompetence. Absolutely under
no circumstances should a lawyer ever claim that a client is incompetent when
the client is not. Moreover, the lawyer
should take extraordinary steps to make sure that she has this right. It is unclear who lied to whom, but somebody had to have. Newman v. Rick Harrington, Warden, #12-3725 (7th Cir. August 9, 2013)
i. Lawyering for the Unable. L represented a severely uneducated 16 year old boy who read at the first grade level and had a cognitive level at a 5th grade level. The was evidence that he was cognitively disabled. The boy was sentenced to 47 years in prison in Illinois, and defense counsel made no effort to prevent a trial. The federal district issued a writ of habeas corpus, and the 7th Circuit affirmed.
as lying in courts or lying to clients, but one can’t say that in public, and
attorneys are subject to discipline for lying to government agencies, for
example, about the price a client has paid for something. Dayton Bar Ass’n v. Kinney, 728 N.E.2d
1052 (Ohio 2000).
the lawyer client relationship. That
which corrupts communication corrupts the relationship. Silence not golden. Lying is forbidden: “an attorney’s
consideration of his or her client’s interests and communication with the
client at reasonable times in response to the client’s inquiries [or not] are a
vital and necessary part of the attorney-client relationship.” Florida Bar v. Roberts, 770 So.2d 1207
(Fla. 2000). If silence passively
injures the relationship, lying affirmatively hurts it.10 Making
misrepresentations to clients about what a lawyer is doing in a case can lead
to serious discipline.11 If a lawyer tells a client
that something can be done, when it cannot, it may constitute a lie to a
client. In re Wood, 543 S.E.2d
731 (Ga. 2001), In re Walker, 766
So.2d 536 (La. 2000). At the very least,
it will constitute a culpably negligent misrepresentation. Florida Bar v. Elster, 770 So.2d 1184
(Fla. 2000) (L assured C and family that a deportation could be
stopped when he either knew or should have known that it could not be).
has filed a motion, say, a motion challenging personal jurisdiction, and he has
not, the lawyer will be subject to discipline.
status on any lawsuit may lead to disciplinary action. Klapheke v. Kentucky Bar Ass’n, 31
S.W.3d 895 (Ky. 2000) (attorney had five pending disciplinary actions, advised
plaintiffs misleadingly as to the status of their cases, and failed to file
matters pertaining to transmission of property at the end of life, persons
under disability, or anything of the sort.
has filed a case, he may be guilty of unconscionable conduct under the
DTPA. Latham v. Castillo, 972
S.W.2d 66 (Tex. 1998) (a 5-4 opinion).
Although Latham was decided prior to the 1995 amendment
pertaining to lawyers, it is difficult to see how this amendment would affect
liability in this case. Not everyone who
stands in the client-attorney relationship with a lawyer is a consumer. For example, where lawyers represent the
executors of an estate, and also the beneficiaries of the estate, the executors
may be consumers but the beneficiaries are not.
Vinson & Elkins v. Moran, 946 S.W.2d 381, 408 (Tex.
App.–Houston [14th Dist.] 1997, writ ref’d).
(Of course, only consumers have standing to bring lawsuits under the
constitute a kind of lie and lead to suspension. In one case, a lawyer who did not have
substantial knowledge of immigration matters put the phrase “Immigration
Verification Associates” on his business card.
When a client relied upon his business card and received incompetent
help–really no help at all–the lawyer was suspended for three years. Florida Bar v. Elster, 770 So.2d 1184
(Fla. 2000) (other violations as well).
efforts in general.12 Falsity in ads is
actionable and grieveable. Some direct
mail solicitations are forbidden. Florida
Bar v. Went For It, Inc., 515 U.S.
618 (1995) (targeted direct-mail solicitation of accident victims and their
families in the “immediate aftermath of accidents” is subject to state
regulation). However, targeted
direct-mail solicitation of criminal and traffic defendants within 30 days of
arrest is not subject to prohibitory state regulation. Ficker v. Curran, 119 F.3d 1150,
1154-55 (4th Cir. 1997). Such
solicitation is subject to regulation for truthfulness, however. Internet ads and websites are a whole new
problem, of course. Are hyper linking’s
a form of advertisings?
Statements. Bills are
assertions. Falsified, inflated bills
are lies. So are falsified expense
criminal charges. It is worth taking
note of the fact that the fees in bankruptcy cases are regulated in minute
detail. In re Clipper Int’l Corp.,
154 F.3d 565 (6th Cir. 1998). Falsity
here is very dangerous, indeed. See also
In re Glesner, 606 N.W.2d 173 (Wis. 2000).
does the work on a case, and then charges the client at a higher rate, the
lawyer has not only stolen from the client but lied to him as well. In re Dann, 960 P.2d 416 (Wash. 1998).
with a non-lawyer, and produces a “sham invoice and lies about the represented
arrangement, the lawyer may be suspended from practice, or subject to even more
to a court for fees. If a lawyer
represents C1 but bills C2, then–at least under some
statutes–C1 has not incurred
court costs or fees. If the lawyer
claims that C1 has incurred the fees, when, in fact, it is C2
that incurred the fees, and C2 is not a party to the litigation, the
lawyer may be guilty of a sanctionable false affidavit. Keever v.
Finlan, 988 S.W.2d 300 (Tex.
App.–Dallas 1999, pet. filed).
Fee applications can be especially problematic in bankruptcy court,
where the temptation to prevaricate seems to be especially strong. In re Lain, 760 So.2d 1152 (La. 2000)
administrative agencies are treated as lies and are grounds for disciplinary
action. Iowa Supreme Court Board of
Professional Ethics and Conduct v. Gallner, 621 N.W.2d 183 (Iowa 2001).
be shiftless to an opponent, under Texas law, it must now be supported by
appropriate time records. Arthur
Anderson & Co. v. Perry Equipment Corp., 945 S.W.2d 812 (Tex. 1997).
narrowly. For due process purposes,
lawyer discipline cases are compared to criminal cases. In re Tocco, 984 P.2d 539 (Ariz. 1999).
See In re Ruffalo, 390 U.S. 544 (1968). This does not mean, however, that the rule of
lenity applies. Laws governing lawyers
are not strictly construed.
impression created by a nondisclosure of a material fact constitutes
‘misrepresentation[.]’” In re Benett, 14 P.3d 66, 70 (Ore. 2000). For fiduciaries, a failure to speak is a
lie. Shapiro, Lifschitz and Schram,
P.C. v. Hazard, 24 F.Supp.2d. 66 (D.C. App. 1998)(“attorneys unquestionably
stand in a fiduciary relationship to their clients for matters related to their
legal representation of their clients.” Id.
at 75 n.10 (citation omitted).) Those
who are fiduciaries must give full disclosure to those for whom they are
fiduciaries. If a lawyer fails to notify
a client that he is not doing work he should be doing, this constitutes willful
silence by a fiduciary and amounts to a lie.
Bamberger v. Kentucky Bar Association, 36 S.W.3d 758 (Ky.
2001). See Attorney Grievance Comm’n
of Maryland v. Cassidy, 766 A.2d 632 (Md. 2001). (In this case, the attorney also failed to
explain to clients that he had been suspended from the practice of law.) In re Grapsas, 622 N.W.2d 750 (Mich.
2001) (similar an outline to Cassidy but involving an immigration case). Even a lawyer who is ill has a duty to
communicate with clients. Courts do not quite
treat this as equivalent of fiduciary-lying, but they are relatively
unforgiving because of the lack of diligence.
In re Starks, 542 S.E.2d 726 (S.C. 2001).
people are not the lawyers’ clients.
Explain to those who work for organizations.
to what is going on avoids malpractice.
If clients understand the context, meaning, and implications of their
decisions, the lawyers are not responsible for those decisions. Sierra Fria Corp. v. Evans, 978
F. Supp. 28 (D. Mass. 1996), aff’d 127 F.3d 175 (1997).
avoid problems, it is nonetheless mandatory.
For instance, misrepresentations designed to hide attorney neglect and
lack of diligence are a very bad idea.
See Iowa Supreme Court Bd. of Prof’l Ethics and Conduct v. Stein,
603 N.W.2d 574 (Iowa 1999) (such acts warranted indefinite suspension). See also In re Watts, 744 So.2d 1278
that there would be “absolutely no problem in getting custody, [that] the case
would be a ‘slam dunk’ and just a formality” is not the kind of representation
a lawyer should make. Kahlig v. Boyd,
980 S.W.2d 685, 687 (Tex. App.–San Antonio 1998, pet. denied).
in advance that he has never tried a jury case does not automatically constitute fraud or the breach of its
fiduciary duty. Pal v. Sinclair,
9 F.Supp.2d 383 (S.D.N.Y. 2000). (Of
course, it was important that representation was before an administrative
agency and not before a jury.)
complicated, and purchasers of securities try to claim that the lawyers for the
issuer had a duty to make disclosures to them.
This gambit seldom succeeds, because non-disclosure constitutes an
affirmative lie only in the fiduciary context.
See immediately below.
courts, they must refrain from misleading courts and from remaining silent when
silence is misleading. Obviously, this
rule can create difficult situations.
Here is an interesting problem from criminal practice: A lawyer should not knowingly place a witness
on the stand when he knows that the witness will assert the Fifth Amendment
upon cross-examination in such a way that his testimony upon direct cannot be
tested for credibility. United States
v. Colon-Miranda, 992 F. Supp. 86 (D.P.R. 1998).
firms either. In Clary v. Schmolke,
977 S.W.2d 883 (Tex. App.–Beaumont 1998, pet denied), an associate in a law
firm agreed to split commissions 50-50 with his firm for every case he
generated. The associate generated a
case, failed to mention it to his firm, and left the firm. He was not permitted to keep the fee. This case could also be classified as a
version of stealing. See C1. Question:
From whom will this fellow get referrals? Sometimes morality, law, and long-range
obligation to disclose directly contrary authority from non-controlling jurisdictions
when they know of it and when there is little authority to go on. Rural Water System #1 v. City of Sioux
Center, 967 F. Supp. 1483, 1498 n.2 (N.D. Iowa 1997). Failure to cite authority from controlling
jurisdiction is a clear violation of disciplinary rules. See, e.g., Tex. Rule 3.03(a)(4); United
States v. Crumpton, 23 F.Supp.2d 1218 (D. Colo. 1998). In this case,
the attorney failed to cite a contrary, controlling decision of a judge in the
same District who had considered the very same statute at issue. The judge in the case stated,
(“. . .I find that it was inappropriate for Crumpton’s counsel to
file her motion and not mention contrary legal authority that was decided by a
Judge of this Court when the existence of authority was readily available to
counsel. Counsel in legal proceedings
before this Court are officers of the court and must always be honest,
forthright and candid in all of their dealings with the Court. To do otherwise, demeans the court as an
institution and undermines the unrelenting goal of this Court to administer
justice.” Id. at 1218-19.)
pleadings for ostensibly pro se parties.
Laremont-Lopez v. Southeastern Tidewater Opportunity Center, 968
F. Supp. 1075 (E.D. Va. 1997).
se litigant, and must state in discovery that she is a lawyer. Wesley v. Don Stein Buick, Inc., 987
F. Supp. 884 (D. Kan. 1997).
appear pro se. Corporations may
not. Pridgen v. Andresen, 113
F.3d 391 (2nd Cir. 1997). Hence, a
lawyer who is ghostwriting must be especially careful about ghostwriting for a
lying broadly. Sometimes, they consider
filing frivolous and fraudulent lawsuits to be a form of lying. In Wallace v. Investment Advisors, Inc.,
960 S.W.2d 885 (Tex. App.–Texarkana 1997, no writ), a lawyer filed a lawsuit
for the sole purpose of taking the deposition of a non-party. It was a securities dispute, subject to
arbitration elsewhere. The lawsuit was
collusive. Both sides wanted to take
someone’s deposition, so one party filed a lawsuit; the other side answered,
and a subpoena was issued. The collusive
use of a scripted lawsuit which was to be dismissed after obtaining the desired
deposition constituted a fraud on the court, according to the majority.
he may very well have a duty to disclose the fact that significant orders have
been erroneously entered due to manifest mechanical administrative error. He may have the duty to notify the court and
opposing counsel. In Grun v. Pneumo
Abex Corp., P.A., 163 F.3d 411, 422 n.9 (7th Cir. 1998), an attorney was
chastised for remaining silent when he knew that the opposing party was unaware
of a dismissal notice.
much a tax lawyer must disclose to the IRS.
The ABA takes the position that since the IRS is not a tribunal, lawyers
have no duty to cite adverse controlling authority. See Formal Opinion 314 (1965) and Formal
Opinion 85-352 (1985). The IRS has a
very different view, which is expressed in Circular 230, as well as the several
penal provisions of the Code.13
information to the Internal Revenue Service while assisting a client constitutes
not only criminal conduct under 26 U.S.C. § 7203 and 18 U.S.C. § 2,
but also conduct which can lead to discipline.
Similarly, filing false federal income tax returns for a corporation
justifies disbarment. In re Bock,
750 A.2d 87 (N.J. 2000) (L also convicted of income tax evasion). See In re John H. Haley, 60 F.Supp.2d
926 (E.D.Ark. 1999) (more from the Independent Counsel). See also Office of Disciplinary Council
v. Price, 732 A.2d 599 (Pa. 1999) (also involved making false assertions
misrepresentations. Obviously, lawyers
dealing with those near the end of their lives, those who have access to trust
funds, and the like, may have a need for securities expertise may find
themselves involved in securities matters.
Falsified CLE reports can lead to discipline. In re Diggs, 552 S.E.2d 298 (S.C.
2001). This case involved lying about
how many different CLEs a lawyer had taken.
Thought Question: don’t
lawyers lie all the time about whether they attend sessions they sign up for?
fraudulently claim to know that certain legal propositions are true, and then
people–even non-clients–take action based upon the lawyer’s observations. Waterloov Gutter Protection Systems Co. v.
Absolute Gutter Protection, 64 F. Supp.2d 398 (E.N.J. 1999). (In this case, a lawyer for A (and
maybe for B), advised B that a certain type of gutter could be
protected for international patents. The
lawyer’s observation may have constituted a fraudulent statement, upon which B
relied in investing in a start-up business.)
Lying to creditors is impermissible.
People v. Reed, 942 P.2d 1204 (Colo. 1997) (suspension from the
bar for one year and one day).
Interrogations. Lawyers should not tell
prospective witnesses that they represent people that they don’t
represent. Nor should they deny that
they represent people whom they do represent.
investigations inquiring into whatever, a lawyer should not either
affirmatively mislead employees, or permit them to believe that the lawyer
lawyer represents them, and the lawyer does not, the lawyer needs to see to it
that the court’s misunderstanding is immediately dispelled. E. F. Hutton & Co. v. Brown, 305
F.Supp. 371 (S.D. Tex. 1969). In this
case, a lawyer who failed to speak under these circumstances was
About Credentials. False claims
concerning one’s credentials are grounds for disciplinary action. In re Lemmons, 522 S.E.2d 650 (Ga.
1999) (misrepresentations by attorney that he was a CPA resulted in two-year
953 S.W.2d 435 (Tex. App.–Austin 1997, no writ). A lawyer filed a false affidavit in support
of a summary judgment where he was the party, and not the lawyer. He was still sanctioned after mounting a
number of technical defenses, each of which failed miserably.
fire? After all, lawyers are permitted
to do so in evidentiary battles and in argumentative battles. Why is lying different, if it is?15 This can be just as large a problem in
negotiational, advisory, and investigational law practice as in
litigation. The problem surrounds and
afflicts in-house counsel as much as it does out-house counsel. Consider the fact that the consulting firm
KPMG reported not long ago in its 2000 Organizational
Survey that 76% of all employees in all industries admitted to observing
violations of the law or company policy during 1999. Almost 50% of those employees who stated that
they believed that if the misconduct were made public the companies would lose
a significant amount of public trust.16 Some studies suggest that a
majority of all oral verbal communication contains some form of deceit. This includes, “lies, exaggerations,
half-truths, secrecy, or diversionary tactics[.]”17
violations are fraud or akin to fraud.
Obviously, they are therefore lying or akin to lying. Lawyers involved in securities cases have
substantial exposure to both primary and secondary liability.18
Interstate Bank of Denver, 511 U.S. 164 (1994). Probable implication: If a lawyer speaks directly to a third-party,
for example, in negotiations, or prepares an opinion letter, or prepares any
other comparable document for the benefit of third-party investors, there is a
possibility of primary liability. This may arise under Rule 10b–5 or
under state law. Contours of primary
liability are far from clear.19 In general, law firms are
not sellers of securities, and they simply act as counsel to underwriters or
issuers. They are therefore immune from
liability under § 12 of the Securities Act of 1933. Wilson v.
Saintine Exploration & Drilling Corp., 872 F.2d 1124 (2nd Cir.
Abetting. The scope of aiding and
abetting cases has been sharply limited under § 10(b) of the Securities
Exchange Act of 1934 and Rule 10b–5.
Dinsmore v. Squadron,
Ellenoff, Plesent, Sheinfeld & Sorkin, 135 F.3d 837 (2nd Cir. 1998) (in Central Bank, the Supreme
Court of the United States barred not only aiding and abetting claims but
conspiracy claims for those who are only secondarily liable. “[W]here the requirements for primary
liability are not independently met, they may not be satisfied based solely
upon one’s participation in a conspiracy in which the other parties have
committed a primary violation.” Id. at
843. Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1225 (10th Cir.
1996)(The “critical element separating primary from aiding and abetting
violations is the existence of a representation, either by statement or
omission, made by the defendant, that is relied upon by the plaintiff.” A similar standard has been applied to
accountants. In re Software Toolworks
Inc. Securities Litigation, 50 F.3d 615 (9th Cir. 1994). (Plaintiffs alleged that accountants violated
§ 10(b) by participating in the drafting of two letters sent by their
client to the SEC. The first letter
referred expressly to the involvement of the accountants. The second letter did not. Nevertheless, the Ninth Circuit concluded
that the second letter, as well as the first, reported § 10(b) liability. Those who “played a significant role in
drafting and editing” the second letter might be primarily liable under
§ 10(b). Id. at 628
n. 3. It is still possible to state
§ 10(b) and Rule 10b–5 actions against lawyers. Wenneman v. Brown, 49 F. Supp.2d 1283, 1287-90 (D. Utah, 1999).
Cir. 1997). Lawyers who draft documents
can be primarily liable.20
Act of 1995 (PSLRA). 15 U.S.C.
§ 77z-2(c)(1). It protects false or
misleading forward-looking statements if they are accompanied by “meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those in the forward-looking statement, [15
U.S.C. §§77z-2(c)(1)(A)(i), or if the plaintiff fails to prove that the
statement “was made with actual knowledge by that person that the statement was
false or misleading.” 15 U.S.C. § 77z-2(c)(1)(B)(i). Kennsington Capital Management v. Oakley, 1999 WL 816964 (C.D. Cal. 1999).
PSLRA provides a mechanism for deciding controversies regarding who will
represent plaintiff’s class. For an
unseemly controversy that involved one group of lawyers paying brokers and
dealers for assistance, see Frank W.
Knisley v. Network Associates,
Inc., 77 F. Supp.2d 1111 (N.D. Cal.
1999). (The paying lawyers were
not found to be incapable of adequately representing the class and were not
Sheinfeld & Sorkin, 135 F.3d 837 (2d Cir. 1998) (allegations of
conspiracy amount to allegations of aiding and abetting). Probably, some conspiracies involve
scienter. If so, then they are more serious
than some forms of aiding and abetting.
Under some circumstances, conspiracy should provide a foundation for
as to the validity of the loan and its documents, the lawyer and his law firm
may be held liable for securities fraud for failure to make securities
disclosures. Rubin v. Schottenstein,
Zox & Dunn, 143 F.3d 263 (6th Cir. 1998) (en banc). (In this case, the lawyer was not involved in
any securities deals.) Usually, lawyers
for issuers of securities or underwriters do not have an attorney-client
relationship with the purchasers of the security. Marshall v. Quinn-L Equities, Inc., 704 F.Supp. 1384, 1395 (N.D. Tex. 1988) (also remarking that investors had no
business misrepresentation claim against such lawyers). Normally, attorneys for issuers of securities
do not have an affirmative duty to disclose misrepresentations made by those
issuers. Abell v. Potomac Ins.
Co., 858 F.2d 1104 (5th Cir.
1988), vacated on other grounds 492 U.S. 914 (1989). See Schatz v. Rosenburg, 943 F.2d 485, 490-91 (4th Cir.
1991) (distinguishing between silence and affirmative misstatement: even if an attorney knows of a misstatement,
he does not owe a duty to speak to the purchaser).21 Knowingly assisting in making
misrepresentations, of course, is an entirely different matter. See also Bernstein v. Portlands
S&L Ass’n, 850 S.W.2d 694, 702
(Tex. App.–Corpus Christi 1993, pet.
dism’d) (simple failure to disclose by a lawyer does not constitute fraud or
they will be distributed to investors can be liable for negligent
Technology Corp. v. Valentine, 925 F.2d 910, 916-17 (6th
Cir. 1991). If a lawyer permits an issuer to release a
tax opinion letter, the lawyer may be guilty of negligent
misrepresentation. The lawyer’s consent
to the release of his opinion letter can be inferred from circumstantial
evidence, including evidence internal to the letter. Ackerman v. Schwartz, 947 F.2d 841, 847-48 (7th
Cir. 1991) (scathing opinion by Judge
Easterbrook). When an attorney organizes
a tax sheltered deal, the attorney can be liable for negligent misrepresentation
to the purchasers of the deal. Eisenberg
v. Gagnon, 766 F.2d 770 (3rd Cir.
1985). Eisenberg has been
an influential case. See Klein
v. First Western Government Securities,
Inc., 24 F.3d 480 (3rd Cir.
1994). In this case, the court
held that “attorneys may be liable for both misrepresentations and omissions
where the result of either is to render an opinion letter [in this case a tax
opinion letter] materially inaccurate or incomplete.” Id. at 485-86.
“We are dealing here with a situation in which [the lawyer] by authoring
[his] opinion letters, has elected to speak regarding the transactions at
issue. Plaintiffs allege that this
speech was misleading because [the lawyer] failed to include in [his] opinion
letters information that, if included, would have undermined the conclusion
reached in those letters. In contrast,
the cases cited by the district court [below] , as well as those cited by [the
lawyer] for the proposition that attorneys may not be held liable for omissions
absent the duty to disclose concern the question of whether a law firm or
similar entity has a duty to ‘blow the whistle’ on its client. That is, those cases concern situations where
the alleged omissions were unrelated to the validity of a law firm’s opinion
letter or similar communication. . . . .[T]his case, in
contrast, presents the question of whether, once a law firm has chosen to
speak, it may omit facts material to its non-confidential opinions. Here. . . , the allegedly
omitted facts bear directly on the accuracy of the tax opinion.” Id. at 490-91.
See also Trust Company of La. v. N.N.P. Inc., 104 F.3d 1478, 1488
(5th Cir. 1997) (negligent misrepresentation by a lawyer for the issuer is
actionable under Louisiana law).22
statements in a prospectus renders misrepresentations and omissions contained
therein non-actionable. . . .As we see it, ‘bespeaks caution’ is
essentially shorthand for the well-established principle that a statement or
omission must be considered in context, so that accompanying statements may
render it immaterial as a matter of law. . . .The prospectus
here took considerable care to convey to potential investors the extreme risks
inherent in the venture while simultaneously
carefully alerting investers to a variety of obstacles the Taj Mahal
[gambling palace in Atlantic City] would face, all of which were relevant to a
potential investor’s decision concerning purchase of the bonds. We conclude that, given these warning signals
in the text of the prospectus itself, the plaintiff-investors could not
establish actionable misrepresentation by a careless stray sentence taken in
isolation. In re Donald J. Trump Casino Securities Litigation–Taj Mahal
Litigation, 7 F.3d 357, 365 (3rd Cir.
1993). Although this litigation
was not against a lawyer, it seems to suggest how lawyers could involve being
genuinely exposed in such litigation:
insist on plentious cautionary language.
See Kensington Mgmt v. Oakley, 1999 WL 816964 (C.D. Cal.
lawyers for misrepresentation, plaintiffs must prove that they relied upon
either misrepresentations or
omissions. In general, law firms or
underwriters do not acquire any sort of duty to make full disclosure on their
own to potential securities purchasers. Abell
v. Potomac Ins. Co., 858 F.2d 1104, 1123-1126 (5th
their clients are telling them. Mere
negligence does not appear to be enough to generate liability. Recklessness quite clearly is. There is a significant “stem case” that
indicated that if a lawyer consistently fails to investigate even obvious
factual assertions made to him by his clients, the attorney may have liability,
even if he does not actually know that he is being lied to or that his clients
are acting recklessly. Escott v. Barchris Construction Corp., 283 F. Supp.
643, 689-92 (S.D.N.Y. 1968). It
is unclear how much precedential force the doctrines in this case have. It is an enormously prestigious case,
however, so its language is important.
It is also important to remember that this is not a case brought against
a lawyer for being a lawyer. It is a
case brought against the lawyer for being a director. However, a lawyer designed the disclosure
statement. Here is the key language of
the case: “The defendant lawyer claims
‘that a lawyer is entitled to rely on the statements of his client and that to
require him to verify their accuracy would set an unreasonably high
standard.’ This is too broad a
generalization. It is all a matter of
degree. To require an audit would
obviously be unreasonable. On the other
hand, to require a check of matters easily verifiable is not unreasonable. Even honest clients can make mistakes. The statute imposes liability for untrue
statements regarding whether they are intentionally untrue. The way to prevent mistakes is to test oral
information by examining the original written record.” Id. at 690.24
stock as a legal fee, when there is less than full disclosure about the nature
of the legal fees or of the legal services.
When sued in this manner, the lawyer may be both remiss in fiduciary
duties and guilty of a securities law violation. Popovice v. Milides, 11 F. Supp.2d 638 (E.D. Pa. 1998).
process the more exposure he has to personal liability.” Lewis D.
Lowenfels, Attorneys’ Liability for Failure to Disclose or for
Misrepresentation to Third-Party Non-clients in Private Civil Actions Under the
Federal Securities Law, 14 PLI/NY 707,
730 (February 1998) [PLI Order No. F0-000L].
violations of the securities laws. Many
of these are informal. Among the formal
ones are court actions and administrative proceedings.
securities fraud. One case involved a
lawyer dealing with nontransferable securities.
His violations cost him his job at Skadden Arps. He was suspended from the practice of law for
eighteen months and received an order to pay double his profits plus
pre-judgment interest. SEC v. Jaqubowski, 150 F.3d 675 (7th Cir. 1998).
securities. SEC v. Cavanaugh, 155 F.3d 129 (2nd Cir. 1998) (lawyers unlawfully selling securities
enjoined from doing so and assets frozen).
Abetting. This is probably the hot
button for securities litigation where lawyers are involved.
regard itself as bound by Central Bank.
See, SEC Press Release, April 19, 1994 (1994 WL 136934). This means that classic aiding-and-abetting
cases brought against lawyers by the SEC are still good law. See SEC v. Coven, 581 F.2d 1020 (2d
Cir. 1978) (involving the improper closure of an escrow account for an
“all-or-none” portion of an offering) and SEC v. Spectrum, Ltd., 489
F.2d 535 (1973) (sloppy opinion letter).
This is not a matter of any significant controversy, although some
lawyers disagree. The Courts have gone
with the SEC.
violating securities laws where the conduct is repeated, intentional, knowing,
outrageous, or some combination of a majority of these factors. SEC v.
Nat’l Student Marketing Corp., 457 F. Supp.
682 (S.D.N.Y. 1978).
97 F.3d 1276 (9th Cir. 1996). (The SEC may bring injunctive actions against
those who aid and abet violations of the Securities Exchange Act. This is authorized by the Private Securities
Litigation Reform Act of 1995). When a
lawyer recklessly assists in a scheme which turns out to be fraudulent, he may
be enjoined by the Securities Exchange Commission from further such conduct,
even if he did not subjectively realize what he was doing. SEC v.
Electronics Warehouse, Inc., 689 F.
Supp. 53 (D. Conn.
1988), aff’d sub. nom. SEC v.
Calvo, 891 F.2d 457 (2nd Cir. 1989).
sorts of injunctive relief in courts, including judicial orders barring others
from serving as either directors or officers.
Hazen, § 9.5 (p. 433).
trading, enjoin misconduct, and mandate disgorgement of ill-gotten gains. Chiarella v. United States, 445 U.S.
222 (1980). Lawyers can be insiders for
the purpose of insider trading regulation.
Dirks v. SEC, 463 U.S. 646 (1983) “Under certain circumstances,
such as where corporate information is revealed legitimately to an underwriter,
accountant, lawyer or consultant working for the corporation, these outsiders
may become fiduciaries of the shareholders.
The basis for recognizing this fiduciary duty is not simply that such
persons acquired nonpublic corporate information, but rather that they have
entered into a special confidential relationship in the conduct of the business
of the enterprise and are given access to information solely for corporate
purposes. When such a person breaches
his fiduciary relationship, he may be treated more properly as a tipper than a
tippee. For such a relationship to be
imposed, however, the corporation must expect the outsider to keep the
disclosed nonpublic information confidential, and the relationship must at
least imply such a duty.” Id. at
655 n.14. For a general account of
insider trading, see Donald C. Langevoort, Insider
Trading Handbook (1986). See also, Alan Strudler and Eric W. Orts, Moral
Principle in the Law of Insider Trading, 78 Tex.
L. Rev. 375 (December 1999).
Theory and Insider Trading.
Plaintiffs can use a “misappropriation theory” to demonstrate a violation
of § 10(b) of the Securities and Exchange Act of 1934 and
Rule 10b–5. United States
v. O’Hagan, 521 U.S. 642
(1997). “The ‘misappropriation theory’
holds that a person commits a fraud ‘in connection with’ a securities
transaction, and thereby violates § 10(b) and Rule 10b–5, when he
misappropriates confidential information for securities trading purposes, in
breach of a duty owed to the source of the information [in O’Hagan’s
case, this was a law firm that briefly represented one of the parties to a
tender offer transaction.] Under this
theory, a fiduciary’s undisclosed self-serving use of a principal’s information
to purchase or sell securities in breach of a duty of loyalty and
confidentiality defrauds the principal of the exclusive use of that
information. In lieu of premising
liability on a fiduciary relationship between company insider and purchaser or
seller of the company’s stock, the misappropriation theory premises liability
on the fiduciary–turned-A trader’s deception of those who entrusted him with
access to confidential information.” Id.
at 652. Often, nondisclosure does
not constitute a deception, but it does when the nondisclosing deceiver is a
fiduciary of a relevant party. In this
case, O’Hagan was disbarred, convicted of state court violations, and convicted
of federal crimes. (Before he violated
federal securities law, O’Hagan embezzled large sums from his well-known law
firm.) There are limits. What is left of Chiarella and Dirks
against lawyers. See generally Simon M.
Lorne and W. Hardy Callcott, Administrative Actions Against Lawyers Before
the SEC, 50 Bus. Law 1293
(1995). The SEC has the power to issue
cease and desist orders. It may hold
administrative hearings in the course of exercising supervisory authority over
a variety of players in the securities market.
Indeed, under the 1990 Remedies Act, the SEC acquired a number of
person” from practicing before it “in any way.”
17 C.F.R. § 201.2(e)(3).
This power has been used against lawyers on a number of occasions. See Hazen, at § 9.5, pp. 446-447
n.182. There has been some question about
the use of sanctions under Rule 2(e), since there is no express statutory
authority for the promulgation of a rule.
However, the Second Circuit has upheld the rule. Touche Ross & Co. v. SEC, 609 F.2d
570, 579 (2d Cir. 1979). See Chechosky
v. SEC, 23 F.3d 452 (D.C. Cir. 1994).
See also Davy v. SEC, 792 F.2d 1418, 1421-22 (9th Cir. 1986).
enforce the FCPA, 15 U.S.C. §§ 78dd-1, 78dd-2 and 78m (1999), against
lawyers. Matthew Shabat, SEC
Regulation of Attorneys Under the Foreign Corrupt Practices Act: Decisions and
Efficiency in Their Role in International Anti-bribery Efforts, 20 U. Pa. J. Int’l Econ. L. 987
(1999). Obviously, this is a problem
both for firm lawyers and for in-house lawyers.
Enron scandal. It almost certainly
contains implications for lawyers who do securities work.
review ads before they are placed. This
is true in Texas, for example.
Rule 7.07(a). In addition,
rules against misrepresentation are construed quite strongly and broadly.
ads have a certain content. For example,
many states require that attorneys state that they are not board certified, if
they are not. Walker v. Board of
Professional Responsibility of the Supreme Court of Tennessee, 38 S.W.3d
540 (Tenn. 2001). Texas is like
this. Rule 7.04(b)(3).
Business Transactions. Lawyers do
not provide mere legal advice. Lawyers
support the business transactions of their clients, including review of
business plans, financial statements and agreements which document complicated
transactions. In difficult economic
times transactions which have an adverse impact on the value of a company come
under greater scrutiny and the question of what is the role of legal counsel
takes on new significance.
recently have generated allegations of improper activity by corporate
executives and accountants. The public
is also looking at what the lawyers involved could and should have done.
Elkins, have come under scrutiny for its reivew of some of the transactions
that led to the energy giant’s collapse.
The U.S. Securities and Exchange Commission (“SEC”) and two congressional
committees have hit the law firm with subpoenas for documents. Enron directors, conducting an internal
investigation, have asked V&E to explain its role in what happened. In addition, Arthur Levitt, former chairman
of the SEC, has publicly called on the American Bar Association (“ABA”) to
change its ethics code to make lawyers more responsible for reporting
participate in any illegal actions or practices, they do not have a mandatory
obligation to publicly disclose unethical business or accounting
practices. Failing to squeal for actions
resulting in economic loss falls well within the ethical guidelines for
creating such a duty to squeal. In
August 2001, the ABA tried to expand the circumstances set forth in its
Model Rules of Professional Conduct in which a lawyer could reveal confidential
information of its client to niclude: (i) to prevent the client from
committing a crime or fraud that is reasonably certain to result in substantial
injury to the financial interests or property of another and in
furtherance of which the client has used or is using the lawyer’s services; and
(ii) to prevent, mitigate or rectify substantial injury to the financial
interests or property of another that is reasonably certain to result or has
resulted from the client’s commission of a crime or fraud in furtherance of
which the client has used the lawyer’s services.27
the eight jurisdictions (including Texas) that permit disclosure when clients
threaten crimes or frauds likely to result in substantial injury to the
financial or property interest of another and the 25 jurisdictions that permit
a lawyer to reveal the intention of a client to commit any crime. The Commission’s proposal is also in accord
with Section 67 of the American Law Institute’s Restatement of the Law
confidential information of its client when the lawyer has reason to believe it
is necessary to do so in order to prevent the cleint from committing a criminal
or fraudulent act. A “fraudulent
act” denotes conduct having a purpose to deceive and not merely negligent
misrepresentation or failure to apprise another of relevant information. This is not, however, a mandatory duty to
disclose such as the one imposed upon a lawyer in receipt of confidential
information clearly establishing that a client is likely to commit a criminal
or fraudulent act that is likely to result in death or substantial bodily harm
to a person.28
2002, the Commission again rejected proposals to allow lawyers to breach
confidentiality to protect assets rather than lives, but did introduce new
commentary explaining the relationship between the lawyer’s duty to third
parties under Rules 1.2(d) (Scope of Representation) and 4.1(b) (Truthfulness
to Others), and the lawyer’s duty of confidentiality to the client under
Rule 4.1 notes that: “Ordinarily
a lawyer can avoid assisting a client’s crime or fraud by withdrawing from the
representation. Sometimes it may be
necessary for the lawyer to give notice of the fact of withdrawal and to
disaffirm an opinion, document, affirmation or the like. In extreme cases, substantive law may require
a lawyer to disclose certain information relating to the representation to
avoid being deemed to have assisted the client’s crime or fraud. If the lawyer can avoid assisting a client’s
crime or fraud only by disclosing this information, then under
paragraph (b) the lawyer is required to do so, unless the disclosure is
prohibited by Rule 1.6.”30
they regulators, corporate executives or directors. The duty of confidentiality to the client is
paramount, for now. Client confidences
are under some attack in some states.
Recently, the Ohio Supreme Court created an exception to the
attorney-client privilege where a plaintiff has pleaded bad faith against an
insurance company. “A lack of good faith
in determining coverage involves conduct that occurs when assessment of
coverage is being considered. Therefore,
the only attorney-client and work-product documents would contain information
relating to the bad faith claim, and, thus, be unworthy of protection,
which would have been created prior to the denial of coverage.” [Emphasis added.] “[W]e hold that in an action alleging bad
faith denial of insurance coverage, the insured is entitled to discover claims
file material containing attorney-client communications relating to the issue
of coverage that were created prior to the denial of coverage.” Boone v. Vanliner Ins. Co., 744 N.E.2d
154 (Ohio 2001).
a substantial literature on lawyer lying.
Joseph Boyle, The Absolute Prohibition of Lying and the Origins of
the Casuistry of Mental Reservation: Augustinian Arguments and Tomistic
Developments, 44 Am. J. Juris. 43
(1999). Marcy Ressler Harris, Getting
Wise About Résumé Lies, 25 Litigation 21 (1999) (lawyers attacking
lies of others); Richard K. Burke, “Truth in Lawyering”: An Essay Lying and Deceit and the Practice of
Law, 38 Ark. L. Rev. 1 (1984)
(“This is not, and is not intended to be, a research article on the law
of lawyer lying and deceit. It is a
normative essay on ethics. . .that questions both the
implicite assumptions and explicit assertions that duplicity, deception, and
lying are either necessary or desirable concomitance of the professional
practice of law. Id. *. Christopher J. Shine, Deception and
Lawyers: Away from the Dogmatic
Principle and Toward a Moral Understanding of Deception, 64 Notre Dame L. Rev. 722 (1989);
Lisa G. Lerman, Lying to Clients, 138 U.Pa. L. Rev. 659 (1990) (some empirical
research). Floyd Abrams, Why
Lawyers Lie?, New York Times Magazine
54 (1994). There is a considerable
self-help literature which treats lying, as well. See Brad Blanton, Radical Honesty: How to
Transform your Life by Telling the Truth (1996).
Thigpen, 526 S.E.2d 839 (Ga. 2000) (misrepresentation to client regarding
progress on cases sanctionable). See Office
of Disciplinary Council v. Wallace, 729 N.E.2d 343 (Ohio 2000) (L
suspended for lying to client about progress on case), In re Williams,
527 S.E.2d 541 (Ga. 2000). Cuyahogh
Cnty Bar Ass’n v. Hunisger, 683 N.E.2d 1270 (Ohio 1997) (lawyer lied to
client about having filed a dissolution action and provided his client with a
false decree of divorce).
comprehensive review of these problems, and others, see Camilla E. Watson, Tax
Lawyers, Ethical Obligations, and the Duty to the System, 47 U. Kan. L. Rev. 847 (May 1999). Here’s the essence of Watson’s view: “There is no discrete duty owed by the lawyer
qua lawyer either to society or to the tax system. Instead, as a private citizen and a member of
society, the lawyer has the same duty that is imposed upon every person: to obey and uphold the law. As a professional, the lawyer has a duty to
behave as a moral, upstanding person, adhering to the rules of professional
responsibility while representing the client tot he best of her ability. finally, as a member of the legal profession,
the lawyer has a duty to act in the best interest of the profession as a
whole. If the lawyer adheres to these
duties, there should be no separate duty owed either to the tax system or to
the society.” Id. at 851. This position raises obvious problems. “The duty of disclosure raises several thorny
problems for tax practitioners. chief
among them is what happens if the lawyer determines that a position taken on a
tax return lacks a realistic possibility of success, and thus should be
disclosed in accordance with the government’s rules and regulations, but the
client refuses to disclose. [Whatare]
the lawyer’s dut[ies] of disclosure when an IRS agent makes a mistake in the
client’s favor[?] Does the lawyer’s duty
of candor under circular 230 and duty of fairness to opposing party under
the Model Rules trump the duty of confidentiality to the client, or vice
versa?” Id. at
852. Watson’s view that a “lawyer has a
duty to behave as a moral, upstanding person” raises certain questions. Isn’t the lawyer suppose to represent the
client’s interests, so long as they are within the law? How can Watson’s view be squared with Lord
Brougham’s one-sided view of vigorous advocacy:
“The lawyer knows but one set of interests in all the world, and those
are his client’s.” See C6
§ N below.
one lawyer-scholar has criticized moralists who “over-condemn lying.” He tries to develop a case for “morally
appropriate lying, develops a critique of what he calls “quasi-categorical
Moralism,” which he says “is a more dangerous forest than the impulse to moral
self-assertion that it deprecates.
William H. Simon, Virtuous Lying:
A Critique of Quasi-Categorical Moralism, 12 Georgetown J. of Legal Ethics 433 (1999). Simon, a law professor at Stanford, argues
for a contextual approach to determining when lying is appropriate and possibly
even obligatory. Obviously, C2
qualifies as at least Quasi-categorical Moralism.”
“nearly one-third [of these deceits] represented ‘individual endeavors to
negotiate a positive validation of [the speaker’s] announced identity.’” Loyal Rue, By
the Grace of Gile: The Role of Deception
in Natural History and Human Affairs 154 (1994) (citing and discussing
Ronny E. Turner, Charles Edgley, and Glen Olmstead, Information Controlling
Conversations: Honesty is Not Always the
Best Policy, 11 Kan. J. of Sociology
69, 72 (1975). Rue presents a
comprehensive hypology of various kinds of deceptions. Strangely, he argues that, at some very basic
level, widespread deception about fundamental values is adapted and,
therefore, in some sense good and valuable. Can this position possibly be consistent?)
C. Langevoort, Words from on High About Rule 10b-5: Chiarella’s History and Central
Bank’s Future, 20 Del. J. Corp. L.
865, 886-97 (1995). For a general
overview of this entire area, see Ben D. Orlanski, Comment, Whose
Representations Are These Anyway?
Attorney Prospectus Liability After Central Bank, 42 UCLA L. Rev. 885 (1995).
recent survey of the general area, see Robert S. De Leon, The Fault Lines
Between Primary Liability and Aiding and Abetting Claims Under Rule 10b–5, J. Ct. L. 723 (1997). See also, The Primary Liability of
Securities Lawyers, 50 SMU L. Rev. 383
(1996). For another interesting argument, see Robert A. Prentice, Locating
that “Indistinct” and “Virtually Nonexistent” Line Between Primary and
Secondary Liability under Section 10(b), 75 N.C.L. Rev. 691 (1997) (the title being descriptive of the
essay.) Aiding and abetting liability is
a less serious matter in private lawsuits than it once was. See Hazen § 7.8 at 370.
court in Shatz v. Rosenburg went too far in protecting the attorneys in
question while at the same time sacrificing appropriate limits on client
misrepresentation. The SEC has indicated
that an attorney’s failure to blow the whistle and thereby prevent a securities
fraud puts the attorney in breach of his or her professional responsibility and
may also establish an aiding and abetting claim. . . .[A]n attorney who prepares documents and then,
with knowledge, sits by while a fraud is perpetrated cannot (and should not)
reasonably expect to be free from being held accountable[according to
Hazen]. Similarly, the presentation of
legal opinions may form the basis of a primary Rule 10b–5 violation. This is true even though the opinion is
expressly stated to be based on the facts provided by the client.” Hazen, § 7.10(p. 379). Hazen goes on to discuss the Schatz
case in some detail.
Steinberg, Attorney Liability and Conflicts of Interest: A Guide for the Corporate and Securities
Lawyer, UT-LST Conference on Security Regulations and Business Law Problem
(February 18, 19, 1999) (More than half of this document consists of
chapters from the earlier book, Marc I.
Steinberg, Corporate and Securities Malpractice, B1-1 through 37
(PLI 1991).) However, the first fourteen
pages are a newly prepared outline, which demonstrates the continuity between
past and present.
to Hazen, “[t]he bespeaks caution doctrine, which applies both to material
misstatements and omissions, should not be applied too quickly. Cautionary language will not always be
adequate to prevent an antifraud claim; it must be sufficient to negate any
reasonable reliance on predictions that appear optimistic.” Hazen at § 7.3 (p. 329).
Originally posted on 01/16/2015 @ 6:58 pm