Writing the rules of attorney-whistleblowing: who gets to decide, and how do we make the decision?
INTRODUCTION I. Institutional Choice and Comparative Institutional Choice Microanalysis A. What Is Institutional Choice Theory? 1. Theoretical Background a. Institutional Choice Theory's "Legal Realist" Roots b. Institutional Choice Theory's Social Science Roots 2. "Goal Choice" and "Institutional Choice:" Komesar's Two-Part Conceptualization of Modern Institutional Choice Theory a. "Goal Choice" b. "Institutional Choice" 3. How "Goal Choice" and "Institutional Choice" Relate to "Comparative Institutional Choice Analysis" B. Institutional Choice and Attorney Behavior Regulations 1. The Historical Role of ICT in the Creation of Attorney Conduct Rules a. The Initial Drafting of Model Rule 1.6 b. The Promulgation of SEC Rule 205.3 c. The Second Circuit Decision in United States v. Quest Diagnostics, Inc 2. Attorney Conduct Rulemaking Process's Need for More Rigorous Institutional Choice Analysis a. Lack of Rigorous Public Policy Analysis and the Rules' Relevance in a Growing and Evolving Legal Industry b. Lack of Public Policy Analysis in the Confusing and Contradictory Nature of Ethics Rules C. Institutional Choice Analysis and Attorney Whistleblowing Regulations 1. Institutional Choice Analysis on Attorney Whistleblower Regulations, and Need for More Rigorous Analysis 2. Framework of Comparative Institutional Choice Microanalysis in Future Institutional Analysis II. Conducting a Comparative Institutional Microanalysis of Attorney-Whistleblowing Regulations: What Data Do We Need? A. The Regulatory Context to Which this Note's Microanalysis Will Be Applied B. The Social Goals Implicated by Attorney Whistleblowing Regulation 1. A Lawyer's Ethical Duty of Confidentiality 2. Protection of Investors and the Public's Economic Well-Being 3. The Relationship Between Society's Interest in Confidentiality Protections and Its Interest in Investor Protections C. The Potential Regulating Institutions for Attorney Whistleblowing Regulations 1. The State Judiciary 2. State Legislature III. A Comparative Institutional Microanalysis of State Courts and Legislatures Regarding Their Relative Competence to Draft Attorney-Whistleblowing Regulations A. Institutional Expertise 1. State Judiciary a. Substantive Expertise b. Procedural Expertise 2. State Legislatures a. State Legislatures' Substantive Expertise b. State Legislatures' Procedural Expertise B. Impartiality 1. State High Courts 2. State Legislatures C. Accountability and Accessibility 1. State High Courts 2. State Legislatures D. Conclusion of the Comparative Institutional Choice Microanalysis E. Further Narrowing the Context of Institutional Microanalysis Raises Questions for Future Study Conclusion
Consider the following hypothetical situation: a state legislature, seeking to fight back against corporate financial fraud, enacts an amendment to its state whistleblower laws. This amendment requires corporate attorneys to publicly report the past financial frauds of their clients in certain circumstances--even when this reporting involves the disclosure of otherwise confidential client documents. (1) At first glance, the proposal may seem like it would fall within the purview of a state legislature: the amendment deals with financial fraud prevention and correction, and the state's general economic health, two commonly legislated areas of law. However, the amendment also directly regulates the conduct of practicing attorneys. As such, the amendment would encroach upon the regulatory territory of state judiciary branches, which have traditionally held themselves out as the sole arbiters of attorney conduct. (2)
Attorney behavioral rules, commonly referred to as "rules of professional conduct" or "ethics rules," are typically drafted by professional bar associations, which submit these proposed rules to the state's highest court for approval and enactment. (3) The rules do not become authoritative law in the relevant state unless adopted by the state's highest court, "which is free to draft its own rules, tinker with the bar association proposals, or leave the field unregulated." (4) The attorney-regulation process has thus been dominated by bar associations and, to a lesser extent, the courts, whose philosophies and approaches to regulation have controlled the field. (5)
However, this drafting process has suffered from a lack of rigorous public policy analysis. (6) While public policy concerns such as regulatory effectiveness or economic efficiency have not been wholly ignored, scholars argue that such concerns have been overshadowed by the extraneous effects of politics, compromise, and public opinion. (7) Rule-makers' resulting failure to adequately account for the public policy implications of their ethics rules has had two primary effects on those rules. First, this failure has hampered the ability of drafters to maintain the rules' effectiveness and relevance in a growing and evolving legal industry. (8) Second, the failure has played a role in the confusing and often contradictory nature of ethics rules as they currently stand. (9) These difficulties are compounded by the fact that a growing number of rulemaking institutions have independently begun drafting their own regulations governing overlapping areas of attorney behavior. (10)
One way in which drafters of ethics rules can overcome these problems--and create more effective and efficient regulations--is by studying potential applications of rules through a form of public policy analysis called "comparative institutional choice microanalysis." (11) The purpose of such analysis is to help rule-makers better understand how to achieve their desired public policy goals on a case-by-case basis. (12) Comparative institutional choice microanalysis informs decision-makers' choices through the lens of "institutional choice theory" (ICT), which stands for the proposition that the effectiveness of a rule is determined by particular qualities of the institution tasked with drafting or enforcing said rule. (13) According to ICT, the ability to make informed decisions regarding which institution to entrust with regulatory control is the key to creating successful behavioral regulations. (14)
ICT is particularly useful in the area of attorney conduct regulation, where the social interests underlying a given regulation are both varied and complex. (15) ICT suggests that, where individuals may struggle to fully understand and act on those social interests, rule-making institutions possess a wide variety of characteristics that better qualify them to develop and apply regulations to further those goals. Because no institution is perfect, a public policy analysis applying ICT should consist of relative comparisons of the institutions that could regulate a particular behavior. Further, because the conduct governed by attorney ethics rules is so wide-ranging and complex, the best institution to regulate one sub-field of attorney conduct is not necessarily the best institution to regulate all such subfields. Thus, a comparison of conduct-regulating institutions should be conducted on a case-by-case, context specific basis, labeled in this Note as "microanalysis."
Combining these features, "comparative institutional choice microanalysis" is an ideal framework for helping scholars and policy makers to improve the effectiveness, efficiency, and consistency of the rules of professional responsibility. Because this framework must be applied independently to particular regulatory contexts, an effective institutional choice microanalysis must revolve around a specific rule or set of rules, as applied in a specific set of circumstances. (16) Therefore, in providing an example of what a "comparative institutional choice microanalysis" might look like, this Note selects one particular regulatory context which has garnered significant attention and controversy in recent years: confidentiality regulations governing an attorney's ability to blow the whistle on a corporate client.
Part I of this Note outlines the theoretical foundation for ICT, tracing its development from the "legal realism" movement of the early twentieth century to its more modern form. It then discusses institutional choice theory's impact on the creation and development of attorney conduct regulations in general, and attorney-whistleblowing regulations in particular. It stresses that this application has so far been rudimentary at best. Part I then introduces a practical framework for applying ICT--comparative institutional choice microanalysis--and discusses how this framework can be applied to analyze the effectiveness of particular attorney conduct regulations from a public policy perspective.
Part II of this Note lays out the basic set of facts required for a thorough institutional choice analysis of attorney whistleblowing regulations. First, because institutional microanalysis is so context-specific, the relevant factual scenario must be understood in significant detail. (17) The social goals and interests at stake in that context should then be analyzed. (18) Based on that understanding, the range of institutions which play some role in regulating those social goals and interests must be determined. (19) Finally, the institutional characteristics most relevant to achieving those goals must be set out and understood. (20) Part II lays out this required background information for a comparative institutional analysis of the hypothetical legislature-judiciary debate presented by the
Introduction to this Note.
Part III of this Note presents the comparative institutional microanalysis itself. To that end, Part III consists of side-by-side comparison of three types of institutional characteristics that affect state high courts and legislatures' ability to create attorney-whistleblowing regulations. First, this Part discusses the two institutions' expertise. Expertise is further divided into two categories--substantive expertise and procedural expertise. Substantive expertise relates to the institutions' knowledge and understanding of particular areas of law or human behavior, and procedural expertise relates to their relative capacities to create rules in general. Part III of this Note then discusses the institutions' impartiality, analyzes their institutional "accountability," and the public access they provide to their decision-making process.
Part III of this Note argues that, when it comes to drafting attorney whistleblower regulations, state courts have greater substantive expertise, but inferior procedural expertise; state courts are far less "independent" from the target of their regulations; and state courts are far less accountable or accessible to the public throughout the regulation process. Based on this analysis, Part III of this Note concludes that state legislatures would constitute the better institution to regulate attorney whistleblowing conduct.
Significantly, this analysis assumes that all state legislatures and all state courts share the same general characteristics; it does not take into account differences in public institutions that may occur from state to state. This Part notes two jurisdictions in particular--New York and Delaware--where relevant characteristics of the courts and legislatures vary significantly from those of other states. (21) Part III suggests additional analyses of these two jurisdictions as a useful topic for further institutional analysis study.
I. INSTITUTIONAL CHOICE AND COMPARATIVE INSTITUTIONAL CHOICE MICROANALYSIS
A. What Is Institutional Choice Theory?
1. Theoretical Background
a. Institutional Choice Theory's "Legal Realist" Roots
Modern institutional choice theory has its foundations in the legal realism movement of the late nineteenth and early twentieth centuries. (22) Legal realism stands for the general proposition that the effect of particular laws can only be fully understood in light of their larger social context. (23) For example, legal realism suggests that a party or observer cannot accurately predict the outcome of a case without taking into account the ideology of the judge or trends in society at the time of a ruling. (24) While judges are technically not supposed to base judicial decisions on political beliefs or real world experiences, legal realism argues that it is impossible for even the most independent of judges to completely separate himself from such extraneous concerns.
In the same vein, ICT posits that the effect of rules governing particular social behaviors can only be fully understood in light of characteristics of the institutions responsible for enforcing them. (25) Proponents of ICT and legal realism argue that behavioral regulations are most effective when based not on pure legal doctrine or precedent, but on an analysis of the practical strengths and weaknesses of the various institutional actors competing for regulatory control over a particular social behavior. (26) In other words, understanding the broader social context of a policy decision is vital in ensuring that its goals can be achieved effectively and efficiently. (27)
b. Institutional Choice Theory's Social Science Roots
The importance of public institutions in the policy-making process is further supported by social science studies regarding the limitations of individuals' decision-making capacity. (28) Among the limitations theorized by scholars is the concept of "bounded rationality," developed by political scientist Herbert Simon. (29) The concept of bounded rationality suggests that the rational capacity of an individual is limited by that person's finite capacity to obtain and understand all the information necessary to make informed decisions. (30) Rationally "bounded" individuals increase their decision-making capacity by relying on institutions to "simplify and regularize a complex environment" beyond the bounds of their own knowledge and experience. (31) This reliance better enables them to "reach decisions in a socially coherent manner and to communicate those decisions to other members of society." (32) In incorporating this concept, institutional choice theory thus stands for the proposition that members of society most effectively solve complex regulatory problems not by directly choosing their own goals and solutions, but by designating particular institutions to do so on their behalf. (33)
2. "Goal Choice" and "Institutional Choice:" Komesar's Two-Part Conceptualization of Modern Institutional Choice Theory
While the concepts behind ICT can be traced back for centuries, its treatment by scholars has seen a reinvigoration in the last several decades. (34) Of particular importance to this Note's analysis is the comprehensive formulation of modern institutional choice theory developed by Professor Neil Komesar. (35) Komesar conceptualizes ICT as a framework for assessing society's pursuit of social goals through various public institutions, each of which skews the decision-making process in unique ways. (36) Under this framework, ICT deals with both how society chooses its goals, and how society determines which institutions will be responsible for carrying out those goals. Komesar labels these two related aspects of ICT as "goal choice" and "institutional choice." (37)
a. "Goal Choice "
Goal choice analysis compares how society selects its social goals and values, prioritizing certain goals over others to achieve a desired outcome. (38) Such social goals can include promoting economic growth, efficiently allocating resources, protecting private property rights, and promoting public safety. (39) Depending on the particular social context, these goals may be broad or narrow in scope; (40) they might conflict with each other, or they might complement each other. (41) Public decision-making entities are often faced with choices between such varying goals when determining public policy.
While understanding how an institution chooses from among society's goals is important for evaluating public policy outcomes, Komesar asserts that mere analysis of a decision-maker's choice of social goal is not enough to understand how effective a policy will be in achieving that desired outcome. (42) These social goals can be achieved in many ways using a variety of social processes, and a given regulation could be applied in conformity with any one of a broad range of social goals. (43) Thus, a decision-maker's reasoned balancing of social goals alone does not allow it to fully understand which rules to apply, or how to apply them, in furtherance of those goals. (44)
b. "Institutional Choice "
According to Komesar, the missing piece of this public policy analysis is the determination of who should be responsible for determining what an efficient outcome should look like and how it should be achieved. (45) Komesar labels the process of deciding who decides as "institutional choice." (46) Institutional choice analysis connects the choice of goal with the eventual public policy outcome by determining the "best" process to use to achieve that result. (47)
The institutional processes responsible for achieving these public policy goals are wide-ranging and complex. (48) Komesar focuses on three institutional processes, each of which can be broken down into smaller components: the political process, the adjudicative process, and the market process. (49) Public institutions responsible for overseeing the political process include city councils, state legislatures, and Congress. (50) Institutions overseeing the adjudicative process include state courts, federal courts, and some administrative agencies. (51) The market process refers generally to a reliance on supply and demand and market transactions to achieve social goals. (52)
"Institutional choice" in this context refers to an actor's decision to select one regulatory process over another to achieve a particular social goal. (53) For example, when a judge decides a case based on the balancing of parties' interests, he designates a substantial regulatory role to the court system; on the other hand, when a judge applies a narrow rule or exception to a case, he allocates more authority to carry out judicial directives on the markets or legislature. (54) In this context, an actor's "institutional choice" decision is just one (albeit the most important) aspect of ICT as a whole. (55)
3. How "Goal Choice" and "Institutional Choice" Relate to "Comparative Institutional Choice Analysis"
Because no regulating institution is perfect at its job, the goal-achieving potential of a particular institution cannot be fully assessed without comparing it to other institutions that may share some of the same characteristics. (56) Thus, no institutional choice decision is fully informed without a side-by-side comparison of the strengths and weaknesses of the different decision-making bodies which could potentially have an impact on the regulatory process. (57) Komesar calls this form of inquiry "comparative institutional analysis." (58)
Comparative institutional analysis is the methodological framework by which scholars and decision-makers can apply the lessons of "goal choice," "institutional choice," and ICT in general, to practical real-world situations. (59)
B. Institutional Choice and Attorney Behavior Regulations
1. The Historical Role of ICT in the Creation of Attorney Conduct Rules
Application of ICT can be found throughout the history of the development of attorney conduct rules--particularly within the development of rules regarding an attorney's duty of confidentiality to a sophisticated corporate client. (60) While ICT-based arguments have provided significant public policy support for particular confidentiality rules, public policy analysis of the process has often been overshadowed by the influences of political dispute, practical compromise, and public opinion (or lack thereof). (61) The following events in the development of confidentiality and attorney-whistleblowing provisions provide examples of institutional choice's visible, but sometimes limited impact.
a. The Initial Drafting of Model Rule 1.6
In 1978, the Securities and Exchange Commission (SEC) proposed a liberal attorney-whistleblower provision based on its complaint in SEC v. Nat'l Student Mktg. Corp., (62) which argued that attorneys practicing before the SEC could be held liable for failing to disclose the fraudulent activities of their clients. (63) However, the SEC decided to table its proposal because the American Bar Association (ABA) was considering the same issues in its Model Rules drafting process. (64) The ABA drafting committee then sought to craft an attorney-whistleblower provision that would "be tough enough to convince the SEC to back off, yet hedged enough to keep lawyers' relations with managers comfortable." (65) From an institutional choice perspective, the SEC's decision to table its own proposal implied a belief that the ABA, not the SEC, was the proper institution for the regulation-drafting role at that time. (66)
In 1983, the American Bar Association revised an earlier version of its primary confidentiality rule, Model Rule 1.6, to allow for disclosure of client confidences to prevent a crime resulting in death or serious injury, but not to prevent or mitigate the effects of financial or property-related crimes. (67) Believing that the ABA's final formulation of Model Rule 1.6 created a haven for white-collar criminals, United States Senator Arlen Specter introduced a bill in the Senate that would make the prior version of Model Rule 1.6 (allowing for disclosure of client confidences to prevent financial crimes, not just death or bodily harm) into federal criminal law. (68)
In response, "even the bar leaders who had opposed the amendment to Rule 1.6 in the ABA House of Delegates opposed the Specter bill, arguing that lawyers are and should be regulated at the state level and by courts, not legislatures." (69) The bar leaders believed that "Congress, as a matter of policy, should leave even this non-litigation aspect of law practice to the governance of the state supreme courts, which could be expected to show more deference than Congress to the ABA rule." (70) The Specter amendment was withdrawn, and states were able to rely on the ABA's formulation of Model Rule 1.6 in enacting their own binding confidentiality regulations. (71) Here, Congress' deferral to the ABA's rule-drafters (and by implication, state courts) acted as an implicit acceptance of the ABA's leading role in the matter of drafting confidentiality rules for the legal profession. This ICT-based argument in opposition to the Specter amendment clearly played an important role in the ABA's maintenance of rulemaking authority over attorney-client confidentiality. (72)
b. The Promulgation of SEC Rule 205.3
The SEC and ABA rule-drafters again found themselves at odds in 2002 over the SEC's promulgation of SEC Rule 205.3 and its proposed "noisy withdrawal" provision. (73) In the wake of the Enron and WorldCom scandals, Congress passed the Sarbanes-Oxley Act, which mandated in part that the SEC create new attorney confidentiality rules allowing corporate attorneys more leeway in reporting clients' financial frauds. (74) Pursuant to this delegation of authority, the SEC enacted Rule 205.3(d), which allows attorneys to reveal the confidential information of their clients to prevent or mitigate financial fraud in some circumstances. (75) Additionally, the SEC proposed a "noisy withdrawal" provision, which would have required corporate attorneys to withdraw from representation of a client, and announce the withdrawal to the SEC, upon discovery of client fraud in certain circumstances. (76)
At the time, the primary ABA Model Rule addressing this conduct (Rule 1.6(b)), allowed attorneys to disclose client confidences to prevent crimes likely to result in death or serious bodily injury, but not crimes resulting in purely financial injury. (77) In fact, the ABA had recently rejected an amendment of its own that proposed expansion of the confidentiality exception to allow for the reporting of client fraud. (78) As a result of the outcry connected to the Enron and WorldCom collapse, the ABA agreed to reconsider its position on lawyers' responsibility to report, or "blow the whistle," on clients' fraud. (79)
In a compromise between the SEC and the organized bar, the SEC tabled its "noisy withdrawal" rules pending further consideration. (80) The SEC limited its finalized regulation, SEC Rule 205.3, to allow for the reporting of client frauds using confidential information under certain circumstances, but it did not mandate the reporting or "noisy withdrawal." (81) The ABA, in turn, amended its Model Rule 1.6(b) to correspondingly broaden its exceptions to confidentiality rules by allowing attorneys to report client financial frauds using otherwise confidential client information (rather than only to report crimes resulting in death or serious bodily harm). (82)
c. The Second Circuit Decision in United States v. Quest Diagnostics, Inc.
The 2013 Second Circuit opinion in United States v. Quest Diagnostics, Inc. (83) provides a more recent example of how the choice of regulatory institution can affect the creation and application of confidentiality rules. (84) The plaintiffs in Quest brought a federal False Claims Act (FCA) suit against defendant Quest Diagnostics, claiming that the medical diagnostics laboratory engaged in illegal kickbacks by underpricing some of its services in order to obtain other federally funded business. (85) The principal plaintiff, Mark Bibi, based his kickback allegations in part on confidential information he had obtained from the defendant through his years of service as the defendant's in-house counsel. (86) Bibi first argued that the broad disclosure of his former client's confidential information was permitted under New York's Rule of Professional Conduct 1.6(b)(2) (NY RPC 1.6(b)(2)), which permits an attorney to "reveal or use confidential information to the extent that the lawyer reasonably believes necessary ... to prevent the client from committing a crime ..." (87) However, the court made it clear that Bibi's disclosures went far beyond what would have been "reasonably necessary" under NY RPC 16.(b)(2), and thus would have constituted a violation of the ethics rule, if it were to apply here. (88)
To the extent that his wide-ranging disclosures went beyond what was permitted under NY RPC 1.6(b)(2) as "reasonably necessary" under the circumstances, Bibi argued that NY RPC 1.6(b)(2)'s "reasonable necessity" limitation should not apply. (89) This is because, he argued, NY RPC 1.6(b)(2) is preempted by 31 U.S.C. [section] 3730(b)(2) of the federal False Claims Act. (90) Rather than limiting potential disclosures to those which are necessary to prevent or disclose fraud, [section] 3730(b)(2) requires a potential False Claims Act plaintiff to make disclosure of "substantially all material evidence and information the person possesses" as a prerequisite to a successful FCA claim. (91) Bibi argued that the application of FCA's "substantially all material evidence" standard would allow for the disclosure of a far broader range of confidential information than would be permitted under the New York conduct rules. (92) In asking the court to apply the FCA standard, Bibi believed he should be allowed to move forward with his FCA complaint based on his broad disclosure of confidential client information. (93) Bibi's argument effectively forced the court to decide whether to apply NY RPC 1.6(b)(2) and its restrictive "reasonable necessity" standard, or the FCA and its broader "substantially all material evidence" standard to Bibi's disclosures. (94)
In determining which rule to apply, the Second Circuit acknowledged what Komesar would call a "goal choice" problem. (95) The court noted that "the central purpose of the N.Y. Rules--to protect client confidences--can be inconsistent with or antithetical to federal interests, which under the FCA, are to encourage private individuals who are aware of fraud being perpetrated against the government to bring such information forward." (96) The plaintiff asked the court to prioritize the goal of encouraging whistleblowers to come forward in cases like this by applying the FCA's "substantially all material evidence" standard, while the defendants asked the court to prioritize the goal of protecting stronger lawyer-client confidentiality by applying the more narrow "reasonable necessity" standard. (97)
However, the court did not to enter into a detailed "goal choice" analysis of these competing social interests, nor did it provide its own view regarding which underlying goal should be prioritized in this situation. (98) Rather, the court merely stated that the New York ethics rule's "reasonable necessity" standard "implicitly accounts for the federal interests at stake in the FCA," so it "need not give way to section 3730(b)(2)'s requirement of full disclosure of material evidence." (99) Thus, the Second Circuit resolved the problem in Quest with what Komesar would call an "institutional choice" decision. (100) The court's deferral to NY RPC 1.6(b)(2) regarding the proper balance of state and federal interests suggests a belief on the part of the panel that the institution responsible for the drafting of NY RPC 1.6 (the New York state court system) was more competent than Congress, or the panel itself, to regulate lawyers' behavior in the particular context discussed in Quest. (101)
However, the Quest court's institutional choice analysis appears superficial at best, including only cursory policy analysis in support of its decision. (102) For the Quest court to maximize the public policy benefits of its decision regarding "which rule to apply" to Bibi's behavior situation, ICT would suggest that the court would first need a more rigorous analysis of "which institution should govern" behavior like Bibi's in the first place. Thus, from a public policy perspective, the result would be enhanced by a comparative institutional choice discussion analyzing the following question: What are the relative strengths and weaknesses of the New York state court system, the federal courts, and congress, in weighing the importance of protecting client confidences against the importance of encouraging anti-fraud whistleblowing?
2. Attorney Conduct Rulemaking Process's Need for More Rigorous Institutional Choice Analysis
a. Lack of Rigorous Public Policy Analysis and the Rules' Relevance in a Growing and Evolving Legal Industry
The legal industry has seen substantial change over time. For example, while legal practice in the nineteenth and early twentieth centuries revolved around litigation, the vast majority of lawyers today rarely see the inside of a courtroom. (103) Additionally, the unified nature of the legal industry has long since given way to diversification and specialization of individual practice areas. (104) Scholars have noted a drastic shift in the economics of legal practice: where lawyers once possessed specialized legal knowledge unique to members of the bar, many sophisticated corporate clients now have their own law departments and in-house counsel providing them with competing sources of legal advice. (105)
However, ethics rules governing the practice of law have failed to keep pace with these structural changes in the legal industry. (106) Scholars argue that, as a result, many aspects of the current ethics rulemaking regime are based on outdated assumptions of the past, rather than characteristics of the modern legal industry. (107) For example, some scholars criticize the "one-size-fits-all" nature of modern ethics rules, which are intended to apply to every facet of legal practice despite vast differences between specific legal disciplines. (108) To combat such anachronisms in the ethics rulemaking process and develop more relevant and effective rules, decision-makers should pay closer attention to the public policy and institutional choice implications of ethics rules throughout the drafting and application process. (109)
b. Lack of Public Policy Analysis in the Confusing and Contradictory Nature of Ethics Rules
The lack of public policy analysis in the drafting of modern ethics rules, combined with the continued maintenance of the "one-size-fits-all" ethics regime, has also played a role in the overwhelming complexity of the current rulemaking regime. (110) Ethics rules purport to cover a vast range of attorney behaviors and ethical situations. However, state high courts responsible for adopting the rules are rarely clear about the practical effect those rules should have on lower courts or disciplinary committees when ruling on specific instances of attorney conduct. (111) Some courts have been hesitant to apply sanctions or hold attorneys liable for their conduct even after conclusively determining that they had violated a particular rule of professional conduct. (112) Conversely, others have applied a broad range of sanctions for violations of conduct rules. (113) While ethics rule makers may have legitimate reasons for providing such a wide variety of standards for attorney conduct, the practice can tend to lead to confusing and inconsistent results. (114)
Problems with the ethics rules' effectiveness, consistency, and relevance are further exacerbated by the presence of a growing number of institutional actors who have assumed some role in attorney conduct regulation. (115) For example, in 2002 Congress enacted [section] 307 of the Sarbanes-Oxley Act, which gave the SEC 180 days to promulgate rules "establishing minimum standards of conduct for attorneys representing public companies before the SEC." (116) Pursuant to [section] 307, the SEC promulgated its own rule, [section] 205.3, which allows attorneys to report the past financial fraud of corporate clients in certain circumstances. (117)
This complexity creates a daunting barrier to the effective application of institutional choice analysis to the field of attorney conduct regulation. At the same time, the confusing and unpredictable nature of the current regime of attorney conduct rules is a main reason that an institutional analysis of the field is so important. In describing how best to create or apply an attorney conduct rule to achieve a desired result, institutional choice can help designers of the rules create a more coherent regime of conduct regulation, and help regulators themselves apply the rules more consistently and with greater effect. (118)
C. Institutional Choice Analysis and Attorney Whistleblowing Regulations
1. Institutional Choice Analysis on Attorney Whistleblower Regulations, and Need for More Rigorous Analysis
Choices between competing regulatory institutions have prominent roles in both the creation and application of attorney-client confidentiality rules over the last thirty years. While institutional choice decisions have helped the ABA, SEC, Congress, and federal courts further their chosen social goals, these examples also suggest that the policy analysis behind such decisions has been far from rigorous. Institutional choice decisions like the ones discussed supra have been driven as much by political realities, self-interest, and public opinion, as they have by reasoned public policy analysis. (119) Given this need for more thorough public-policy analysis by the relevant institutional decision-makers, and the obvious historical importance of institutional choice theory, it is surprising to find that the body of scholarship actually comparing the relative competence of attorney-conduct-rule-drafting institutions is sparse. (120)
Professor David Wilkins published what is considered by many to be the pioneering study of institutional choice in the legal ethics context. (121) In his 1992 Harvard Law Review article, Wilkins argued that scandals like the Lincoln Savings and Loan crisis, (122) in which lawyer malfeasance was implicated, combined with the significant growth and change of the American legal industry, created a need to rethink the efficacy of the current lawyer-controlled system of attorney conduct regulation. (123) Wilkins divided the field of attorney conduct regulation into two distinct sub-categories--rule creation and rule enforcement--focusing his attention on a public policy analysis of the "rule enforcement" category. (124) He then proceeded to provide a framework for what such a public policy review might look like, further dividing rule enforcement into smaller categories and comparing characteristics of the different institutions which could be responsible for regulation of each aspect of attorney conduct. (125)
Professor Benjamin Barton took up the task of conducting a comparative institutional analysis of rule creation, the second of Wilkins' two sub-categories. (126) Barton's study took a top-down approach to attorney behavior regulation, analyzing the relative strengths and weaknesses of several institutions which could be responsible for such rule creation as a whole. (127) He compared the institutions along three interrelated goals of attorney conduct regulation: limiting the potential for rent-seeking, maximizing procedural efficiency, and democratization. (128) In conclusion, Barton found that "although each institution has substantial weaknesses that likely will result in lawyer dominance of the regulatory process, a legislative body--either Congress or state legislatures--would be more likely to produce public-minded regulation and limit lawyer rent-seeking." (129)
2. Frame work of Comparative Institutional Choice Microanalysis in Future Institutional Analysis
As the number of parties involved in the dispute and the complexity of their interaction grows, a court's institutional choice becomes more and more complicated. (130) More parties means higher transaction costs and less predictable outcomes, which detracts from the ability of courts to craft efficient regulations over the social behavior in question. (131) The increasing breadth and complexity of the regulated behavior also makes scholars' institutional choice analysis in those areas more complex. (132)
Comparative institutional choice analysis thus becomes more challenging to apply to specific factual scenarios as the relevant social issues and institutions grow in complexity. (133) This difficulty highlights the limitations of Komesar's and Wilkins' analyses, which the scholars have acknowledged. (134) Their broad frameworks were not intended to be applied directly to any given policy decision, but rather were provided as overviews of institutional choice concepts to be further developed and applied to particular situations by future public policy analyses. (135)
Some scholars have argued that meeting the challenge of real-world application requires narrowing the scope of a comparative institutional analysis to very limited, fact-specific contexts. (136) Professor Edward Rubin, (137) who terms this context-specific application "institutional microanalysis," suggests that such narrow application is necessary in applying institutional choice analysis to specific regulatory fields such as attorney conduct regulation. (138) This is in part because attorney conduct regulations have different results when applied to different factual situations; broad analyses purporting to cover such wide-ranging regulations would be far less effective at predicting a particular regulatory outcome. (139) For these reasons, this Note adopts Professor Rubin's "microanalysis" framework in applying Komesar's, Wilkins', and Barton's broader institutional analyses to the specific area of attorney-whistleblowing regulations. (140)
II. CONDUCTING A COMPARATIVE INSTITUTIONAL MICRO ANALYSIS OF ATTORNEY-WHISTLEBLOWING REGULATIONS: WHAT DATA DO WE NEED?
As discussed supra Part I, some preliminary information is required before a thorough comparative institutional analysis can be conducted. First, because institutional microanalysis is so context-specific, the relevant factual scenario must be understood in significant detail. (141) The social goals and interests at stake in that context must then be analyzed. (142) Based on that understanding, the range of institutions which play some role in regulating those social goals and interests must be determined. (143) And finally, the institutional characteristics most relevant to achieving those goals must be set out and understood. (144) This Part lays out this required background information for a comparative institutional analysis of the hypothetical legislature-judiciary debate presented by the Introduction to this Note.
A. The Regulatory Context to Which this Note's Microanalysis Will Be Applied
The hypothetical situation presented in the Introduction to this Note establishes a situation in which a state's legislature seeks to enact a regulation determining the circumstances under which an attorney must disclose otherwise confidential client information in order to prevent or remedy a client's fraud. (145) The state judiciary, on the other hand, has already enacted a similar rule that does not "require" reporting of such confidences, but only "permits" it under certain circumstances. (146)
The context of this Note's "microanalysis" is relatively narrow in that it deals only with the specific sub-field of attorney conduct regulation relating to confidentiality and whistleblowing regulations. (147) However, it is very broad in that the analysis assumes that state institutions share common characteristics across all jurisdictions, and is thus meant to apply generally across all U.S. jurisdictions. Thus, where the practice of law and the makeup of governing institutions are shared by individual states, the lessons of this analysis can be generalized across those jurisdictions. (148)
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|Title Annotation:||Introduction through II. Conducting a Comparative Institutional Microanalysis of Attorney Whistleblowing Regulations: What Data Do We Need? A. The Regulatory Context to Which This Note's Microanalysis Will Be Applied, p. 967-992|
|Publication:||Fordham Urban Law Journal|
|Date:||May 1, 2015|
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