COLLATERAL Ethics & Privilege | Ethics | Tips & Insights | Practice Resources

You fi nally made it. No longer the lawyer, now the client. As the in the form of herself head of regulatory affairs, you ask lawyers for advice (even as the corporate decision-maker? If though you know how to fi nd the answers and often do). Life the lawyer/businessperson does not is less complicated, you sigh, not having to worry about those disclose the movement back and forth between hats, will she be estopped pesky ethical rules and reading the endless drivel in those from this quick-change if it prejudices ethics and privilege columns. But you have a nagging feel- an opposing party? And even if the ing. “Am I really free from those confusing ethical rules?” The businessperson does disclose shifting short answer is that no one quite knows, as there are virtually back and forth between lawyer and no cases that address the issue — although one can clearly businessperson hats, are there some envision sanctions being imposed on a person who maintains rules intended to protect laypersons her law degree and engages in conduct that would clearly be that the lawyer should not be able to violative of ethical norms. And the sanctions could adversely so easily manipulate? None of these impact the client as well. are yet known but one can imagine courts and ethics commissions frown- ing upon such conduct by corporate businesspeople trained as lawyers who Wearing Two Hats – the Ethical stray over these unseen chalk lines. So much for ruminations about Conundrum of the Lawyer future problems: now down to facts. First, this entire discussion assumes Acting In a Business Capacity that the lawyer has become a member BY JOHN K. VILLA of some bar and thus is licensed — so we will assume a licensed lawyer. For the most part, ethical rules, such In the modern American corpo- conduct themselves in respect to the as the ABA’s Model Rules of Profes- rate law department, lawyers often ethical norms routinely applied to sional Conduct, address a lawyer’s provide legal advice that includes a the legal profession. Certainly the conduct with respect to the repre- heavy dash of business judgment. In ethical rules give little guidance. It sentation of a client (often using the other areas of the , employ- is precisely in such jurisprudential clause “in the representation of a ees who jokingly refer to themselves vacuums that courts often insert client…”2) and consequently require as “recovering lawyers” hold strictly themselves with harsh and unfortu- the existence of an attorney-client business positions but regularly deal nate consequences for the unwary. relationship for their application. with issues once confi ned to lawyers Let us begin an exploration of this In the absence of such a relation- including regulatory, compliance, ticklish subject, a question to which ship, therefore, a lawyer who acts in negotiating transactions, lobbying- there is unfortunately no comprehen- a purely business capacity will not be legislative advice, tax or disclosure sive answer — yet. subject to the ethical rules and their decisions and related matters. While The short answer to the question of potential limitations if applied in the the aftereffects of the Enron-era whether the ethical rules literally apply business context — such as adver- litigation effectively ended the notion to lawyers other than in the course tising and solicitation restrictions,3 of multi-disciplinary practice (MDP) of providing legal advice is that, in prohibitions on contacts with op- for private law fi rms, American com- general, they literally do not (except posing parties without their counsel panies and corporate law fi rms have for the rules on moral turpitude1). But present,4 heightened restrictions on moved rapidly in the opposite direc- that begs the real question: When is a subsequent employment,5 prohibi- tion. Little thought, however, has lawyer providing legal advice? If the tions on deceptive conduct6 and far been given to the manner in which lawyer is both lawyer and business- greater limitations on disclosures of these hybrid businessperson-lawyers person, is she providing legal advice to information.7 While many business-

JOHN K. VILLA is a partner with Williams & Connolly LLP in Washington, DC. He specializes in corporate litigation (civil and criminal) involving fi nancial services; directors’, offi cers’ and lawyers’ liabilities; securities and related issues. He is an adjunct professor at Georgetown Law School and a regular lecturer for ACC. He is also the author of Corporate Counsel Guidelines, published by ACC and West. He can be contacted at [email protected].

ACC Docket 118 November 2009 people would be surprised to learn the rule is intended to prevent a user nor a law-related service, the ethical this, it is often recognized that a law- of the law-related services from both rules, other than the rules proscrib- yer’s higher ethical duties, if applied believing that an attorney-client rela- ing morally reprehensible conduct,14 to everyday business, would raise tionship exists between the user and do not apply.15 Even if the service is the standards: as recognized by one the provider and, because of that rela- law-related, the lawyer’s work is not commenter, “[a]pplication of the rules tionship, from assuming that all of the subject to the ethical rules as long as of ethics to the business relationship protections inherent in such relation- precautionary measures have been [can] greatly impact the conduct of ship apply — for example, protection made to assure persons using the the ancillary business.”8 of client confidences and prohibitions services that those services are not The ethical rules have not, against conflicting representations.10 legal services and that there is no however, totally ignored the fact attorney-client relationship. Seems that lawyers provide other services relatively straightforward — ethics — ancillary to the provision of legal Even if the service is commissions applying the rule (or advice. This has led to the ancillary law-related, the lawyer’s the jurisdiction’s counterpart to the services rule which, unfortunately, rule)16 to particular types of services seems to apply primarily to small work is not subject to the have had no difficulty in concluding scale law firm practice and does little ethical rules as long as that lawyers testifying as expert wit- to answer our broader questions. The precautionary measures nesses17 or lawyers having an owner- ABA adopted a rule setting forth the have been made to ship interest in a separate business18 ethical obligations of lawyers en- assure persons using the are not subject to the rule. gaged in what it has characterized as services that the services But is the rule a model of clarity “law-related services.”9 Model Rule are not legal services and when pushed beyond the small law 5.7 provides as follows: that there is no attorney- firm model? Although the com- (a) A lawyer shall be subject to the mentary provides some guidance Rules of Professional Conduct with client relationship. as to what types of services might respect to the provision of law-re- be covered by the rule, and ABA lated services . . . if the law-related Thus, where the services are law- has cautioned against construing services are provided: related as defined in the rule — such the rule to reach beyond the intent 1. by the lawyer in circumstances as “title , financial plan- of its drafters,19 the definition of that are not distinct from the ning, , trust services, real the term “law-related services” as lawyer’s provision of legal ser- estate counseling, legislative lobby- encompassing services “performed vices to clients; or ing, economic analysis, social work, in conjunction with and in substance 2. in other circumstances by an psychological counseling, tax prepa- . . . related to the provision of legal entity controlled by the lawyer ration, and , medical or envi- services,” is so vague that it would individually or with others if ronmental consulting”11 — the ethical be difficult to conclude that many the lawyer fails to take reason- rules will apply, even if the services business-related services routinely able measures to assure that a are provided through an entity dis- engaged in by lawyers — for ex- person obtaining the law-related tinct from the law firm,12 unless the ample, strategic planning, financial services knows that the services lawyer can establish that reasonable analysis or contract negotiation — are not legal services and that measures were undertaken to com- would fall outside the definition. For the protections of the client-law- municate the precise nature of the this reason, a better basis for insulat- yer relationship do not exist. relationship between the user and the ing ancillary business-related services (b) The term “law-related services” lawyer.13 This rule thus addresses the from coverage of the ethical rules denotes services that might reason- movement that began in the 1980s would be to ensure that the provi- ably be performed in conjunction for law firms to buy or start ancillary sion of these services remains clearly with and in substance are related that provide consulting to distinct from the provision of legal to the provision of legal services, law firm clients rather than to farm services,20 and that persons receiving and that are not prohibited as out the work. such services understand that the ser- unauthorized practice of law when According to the clear import of vices are not legal services to which provided by a nonlawyer. Rule 5.7, therefore, where the work the protections of the attorney-client As indicated in the commentary, neither constitutes the practice of law relationship apply.21

ACC Docket 119 November 2009 COLLATERAL Ethics & Privilege | Business Ethics | Tips & Insights | Practice Resources

How much benefi t does this see also ABA Formal Op. 336 (1974) services are not covered by the rule, provide the corporate lawyer who (focusing on actions reflecting moral the lawyer is still subject to the rules turpitude and fraud and broadly stat- governing lawyer conduct such as that moves breezily between her roles as ing that “a lawyer must comply at all proscribed in Rule 8.4). a lawyer and a businessperson with- times with all applicable disciplinary 15 However, as the commentary cautions, out notice to the others with whom rules of the Code of Professional Re- even though all of the rules do not ap- she comes in contact and perhaps to sponsibility whether or not he is act- ply, the lawyer’s conduct will still be their detriment? Not much. If corpo- ing in his professional capacity[.]”). subject to “principles of law external rate lawyers who hold business posi- 2 See, e.g., ABA, Model Rules of Profes- to the Rules, for example, the law of tions — or both business and legal sional Conduct, Rule 1.1 (stating that principal and agent,” as well as to positions — want to protect them- “a lawyer shall provide competent other legal principles. See id., cmt. 11. representation to a client[.]) (emphasis 16 While not all jurisdictions have selves from criticism or rulings that added); ABA, Model Rules of Profes- adopted Model Rule 5.7, see ABA, may damage their careers or their sional Conduct, Rule 1.3 (stating that Center for Professional Conduct, corporate employers, they should: “[a] lawyer shall act with reasonable Charts Comparing Professional • Make sure to clearly identify diligence and promptness in repre- Conduct Rules as Adopted by States what hat they are wearing as they senting a client[.]”) (emphasis added). to ABA Model Rules, available on the engage in any conduct that could 3 See ABA, Model Rules of Professional ABA website, www.abanet.org/cpr/ even arguably be misconstrued. Conduct, Rules 7.1 through 7.3. jclr/charts.html, the rule has provided 4 See ABA, Model Rules of Profes- guidance for some ethics commissions • When acting as the corporate sional Conduct, Rule 4.2 (governing that have addressed issues arising in lawyer, make sure that there is contacts with persons represented connection with ancillary businesses some person who is acting as the by counsel), and Rule 4.3 (governing engaged in by lawyers. See Ohio Bd. corporate businessperson/client. contacts with unrepresented persons). Com. Griev. Disp., Op. No. 2003-1 Courts are reluctant to shield all 5 See ABA, Model Rules of Profes- (April 11, 2003). conduct from review under priv- sional Conduct, Rule 1.9 (governing 17 See ABA Formal Op. 97-407 (May 13, ilege or confi dentiality grounds. conflicts of interest with respect to 1997). former clients). 18 See Pa. Bar Assn. Comm. Leg. Eth. • Steer well clear of those rules 6 See, e.g., Midwest Motor Sports v. Prof. Resp., Op. 2002-07 (May 29, that are intended to protect lay- Arctic , Inc., 347 F.3d 693 (8th 2002). persons from being exploited by Cir. 2003) (defendant’s attorneys 19 See ABA Formal Op. 97-407, supra n. lawyers, including the rules that acted impermissibly when they sent 8, at 4. prevent a lawyer from having an investigator, posing as a customer 20 ABA, Model Rules of Professional direct contact with an unrepre- who was equipped with a hidden tape Conduct, Rule 5.7, cmt. 8. See, e.g., sented opposing party in nego- recorder, to talk to employees of the Pa. Bar Assn. Comm. Leg. Eth. Prof. tiations or litigation. defendant’s adversaries in an attempt Resp., Op. 2002-07 (May 29, 2002) to obtain statements for use as admis- (finding that ethical rules did not ap- There are few certainties in law sions against the plaintiff). ply to operation of ancillary insurance and ethics but one very strong likeli- 7 See ABA, Model Rules of Professional business partly owned by law firm hood is that the rules governing the Conduct, Rule 1.6 (governing the and to which law firm referred clients businessperson lawyer will change — confidentiality of information relating for insurance services, where lawyers probably dramatically in some to the representation of a client). were excluded from providing insur- reported decision — and inside law- 8 Patricia A. Wilson, Ethics for the Real ance services, the billings of the law yers will regret not having consid- Estate Lawyer, 570 PLI/Real 153 180 firm and the insurance business were (Spring, 2009); see also Pa. Bar Assn. separate, the operations of the law ered the issue more carefully. Comm. Leg. Eth. Prof. Resp., Op. firm and the insurance business were 2002-07 (May 29, 2002) (comment- physically separated, and custom- Have a comment on this article? ing that many lawyers have noted that ers of the insurance business were Email [email protected]. applying the ethical rules to an ancil- required to sign disclosures revealing lary business can affect the viability the law firm’s interest in NOTES of the business). the business, stating that the presi- 1 See ABA, Model Rules of Profes- 9 ABA, Model Rules of Professional dent of the business is not affiliated sional Conduct, Rule 8.4 (prohibiting, Conduct, Rule 5.7. with the law firm, and declaring that inter alia, criminal acts that reflect 10 Id., Rule 5.7, cmt. 1. the services provided by the business adversely on a lawyer’s honesty, trust- 11 Id., cmt. 9. are not legal services). worthiness, or fitness as a lawyer, 12 Id., cmt. 3. 21 See ABA, Model Rules of Professional or conduct that involves dishonesty, 13 Id., cmt. 3, 7. Conduct, Rule 5.7 (a) and cmt. 3. fraud, deceit or misrepresentation); 14 Id., cmt. 2 (noting that even when the

ACC Docket 120 November 2009