The emergence of "law consultants"

Fordham Law Review

Volumn 75, Issue 3, 2006, Pages 1397-1428

  Rostain, Tanina ^a  

^a NEW YORK LAW SCHOOL   (United States)

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EID: 33846581556     PISSN: 0015704X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (265)

1. Press Release, Kroll, Inc., Senior SEC Enforcement Official Joins Kroll's San Francisco Office (May 1, 2006), available at http://www. krollworldwide.com/news/releases/index.aspx?id=13523.
2. See id. (indicating that Kroll does not perform legal work).
3. Michael Sullivan & Carrie Garcia, Under a Different Shingle: There's a New Breed of Employment Lawyer in the Market-The Employment Law Consultant, HR Magazine, Mar. 2005, at 119.
4. Id.
5. Id.
6. There appear to be no systematic data on how many law-trained professionals are framing their services as consulting services; nor is it easy to determine what specific services fall under this term. In my research, I did not come across any cases or ethics opinions involving law consultants, other than those dealing with lawyers acting as expert witnesses. See infra note 127 and accompanying text. Currently, there are no published studies of lawyers in alternative or hybrid careers.
7. See Robert W. Denney, Law Firm Diversification, in Stephen J. McGarry, Multidisciplinary Practices and Partnerships: Lawyers, Consultants and Clients § 8.01 (Stephen J. McGarry ed., 2002);
8. see also Robert Eli Rosen, "We're All Consultants Now": How Change in Client Organizational Strategies Influences Change in the Organization of Corporate Legal Services, 44 Ariz. L. Rev. 637 (2002).
9. An analogous trend among lawyers can be detected in connection with the rise of the abusive tax shelter market. During the market's peak at the end of the twentieth century, significant numbers of tax lawyers joined accounting firms, investment banks, and specialized boutiques not to practice law, but to design tax shelter "products" intended for sale to high wealth individuals and corporations. See Tanina Rostain, Travails in Tax: KPMG and the Tax Shelter Controversy, in Legal Ethics: Law Stories 89, 90-91 (Deborah L. Rhode & David Luban eds., 2006).
10. Professional institutions are the formal rules, informal norms, and organizational structures that characterize the legal profession. See generally Eliot Freidson, Professional Powers: A Study of the Institutionalization of Formal Knowledge (1986).
11. From early on, managerial consulting firms have included lawyers among their partners and recruited among law school graduates. See infra note 17 and accompanying text.
12. Or so several participants in this Symposium would argue. See, e.g., William H. Simon, After Confidentiality: Rethinking the Professional Responsibilities of the Business Lawyer, 75 Fordham L. Rev. 1453 (2006);
13. W. Bradley Wendel, Lawyers, Citizens, and the Internal Point of View, 75 Fordham L. Rev. 1473 (2006).
14. See Tanina Rostain, Ethics Lost: Limitations of Current Approaches to Lawyer Regulation, 71 S. Cal. L. Rev., 1273, 1280-88 (1998);
15. see also David Luban, Asking the Right Questions, 72 Temp. L. Rev. 839 (1999).
16. Some scholars have applauded the proliferation of compliance mechanisms (and a compliance industry to implement them) as part of a new "soft law" approach to corporate regulation, under which regulated entities are motivated to internalize legal mandates. See, e.g., Ian Ayres & John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (1992);
17. David A. Dana, The New "Contractarian" Paradigm in Environmental Regulation, 2000 Ill. L. Rev. 35 (2000);
18. Michael C. Dorf, Legal Indeterminacy and Institutional Design, 78 N.Y.U. L. Rev. 875 (2003);
19. Jody Freeman, The Private Role in Public Governance, 75 N.Y.U. L. Rev. 543 (2000);
20. Susan Sturm, Second Generation Employment Discrimination: A Structural Approach, 101 Colum. L. Rev. 458 (2001).
21. Others are more skeptical of these claims, raising questions about their empirical validity. See, e.g., Lauren B. Edelman, Sally Riggs Fuller & Iona Mara-Drita, Diversity Rhetoric and the Managerialization of Law, 106 Am. J. Soc. 1589 (2001);
22. Lauren B. Edelman, Howard S. Erlanger & John Lande, Internal Dispute Resolution: The Transformation of Rights in the Workplace, 27 Law & Soc'y Rev. 497 (1993);
23. Kimberly D. Krawiec, Cosmetic Compliance and the Failure of Negotiated Governance, 81 Wash. U. L.Q. 487, 497 (2003);
24. John R. Sutton et al., The Legalization of the Workplace, 99 Am. J. Soc. 944 (1994).
25. See Christopher D. McKenna, The World's Newest Profession: Management Consulting in the Twentieth Century 62-63 (2006) [hereinafter The World's Newest Profession];
26. Christopher D. McKenna, The Origins of Modern Management Consulting, 24 Bus. & Econ. Hist. 51, 54-55 (1995).
27. Banking Act of 1933, ch. 89,48 Stat. 162 (repealed in part 1999).
28. The World's Newest Profession, supra note 13, at 17.
29. Id. at 17-19.
30. Id. at 113-14.
31. Leading consulting firms also imported their managerial and organizational expertise into government agencies and nonprofits. See id. at 111-14.
32. Id. at 192-94.
33. See id. at 181-86.
34. Id. at 198-99.
35. See id. at 198-203.
36. Id. at 199;
37. see also id. at 192-215.
38. Amendments to the Sentencing Guidelines for United States Courts, 56 Fed. Reg. 22,762 (May 16, 1991).
39. See Corporate Compliance Comm., Am. Bar Ass'n (ABA) Section of Bus. Law, Corporate Compliance Survey, 60 Bus. Law. 1759 (2005) [hereinafter Corporate Compliance Survey]. The origins of the Organizational Sentencing Guidelines date to the "defense contracting scandal of the mid-1980s."
40. See Krawiec, supra note 12, at 497.
41. U.S. Sentencing Guidelines Manual § 8C4.1.1 (2004).
42. U.S. Sentencing Guidelines Manual § 8B2.1;
43. see also In re Caremark Int'l Inc. Derivative Litig., 698 A.2d 959, 969-70 (Del. Ch. 1996) (stating that the failure to implement a compliance program may constitute a breach of a director's fiduciary obligations).
44. Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 65 Fed. Reg. 19,618 (Apr. 11, 2000) (Environmental Protection Agency (EPA) regulations);
45. Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violation, 60 Fed. Reg. 66,706 (Dec. 22, 1995) (same);
46. see also Final Policy Concerning the Occupational Safety and Health Administration's Treatment of Voluntary Employer Safety and Health Self-Audits, 65 Fed. Reg. 46,498, 46,502 (July 28, 2000);
47. U.S. Environmental Protection Agency, EPA Audit Policy, www.epa.gov/compliance/incentives/auditing/auditpolicy.html (last visited Nov. 7, 2006).
48. For comprehensive surveys of compliance regimes, see Corporate Compliance Survey, supra note 24;
49. Krawiec, supra note 12, at 510-15.
50. 31 U.S.C. § 5318(h)(1)(2) (Supp. I 2001).
51. 42 U.S.C. §§ 1320d-2(d)(2); 1320d-5(b)(3)(A);
52. Health Insurance Reform: Security Standards, 45 C.F.R. §§ 160, 162, 164 (2006);
53. Standards for Privacy of Individually Identifiable Health Information, id. §§ 160, 164.
54. See 17 C.F.R. § 270.38a-1 (2005);
55. id. § 275.206(4)-7.
56. See Memorandum from Deputy Attorney General Eric Holder to All Heads of Department Components and U.S. Attorneys, Bringing Criminal Charges Against Corporations (June 16, 1999) [hereinafter Holder Memorandum], available at http://www.usdoj.gov/criminal/fraud/policy/Chargingcorps. html.
57. 15 U.S.C. §§ 7262, 7264, 7265 (Supp. II 2002);
58. see also 17 C.F.R. §§ 229.308, 229.401, 229.406 (2005).
59. See 15 U.S.C. § 78j-1.
60. Various private entities have also enacted compliance standards. See Corporate Compliance Survey, supra note 24, at 1776-79.
61. For example, the New York Stock Exchange requires member organizations to promulgate codes of conduct that cover not only senior officers but also directors and employees of the company. See id. at 1777.
62. See Kolstad v. Am. Dental Ass'n, 527 U.S. 526, 545 (1999). Employers can rely on the existence of a compliance program to demonstrate good faith to avoid punitive damages based on the actions of agents acting within the scope of their employment.
63. Burlington Indus. Inc. v. Ellerth, 524 U.S. 742, 765 (1998);
64. Faragher v. City of Boca Raton, 524 U.S. 775, 778 (1998). This defense is only available in cases in which the harassment did not result in a tangible employment action, such as firing, demotion, or reduction of pay. A showing that the employer exercised reasonable care-in effect had an appropriate compliance program-is a necessary but not sufficient condition to establish this defense. The defense fails if the victim availed herself of the program and the program proved ineffective.
65. See Lynnette Khalfani, As Employers Focus on Ethics Training Cottage Industry for Consultants Grows, Wall St. J., Aug. 12, 1996, at B4;
66. Kimberly Reeves, Corporate Ethics Policies Needed in Modern Business, Austin Bus. J. Nov. 14, 1997, available at http://austin.bizjournals.com/austin/stories/1997/11/17/focus7.html.
67. The emergence of the compliance industry is illustrated in the career trajectory of Winthrop Swenson, former Deputy General Counsel to the Federal Sentencing Commission. Mr. Swenson played a central role in the development of the Federal Organizational Sentencing Guidelines (OSGs), chairing the staff task force advisory committee that drafted the guidelines. In 1996, he left the government to join KMPG's new compliance/consulting practice. See Compliance Systems Legal Group, About Our Firm, Attorney Bios, Winthrop M. Swenson, Partner, http://www.cslg.com/swenson.html (last visited Nov. 7, 2006). When he joined KPMG, the firm's compliance services were industry specific and dispersed throughout the organization. Telephone Interview with Winthrop M. Swenson, Partner, Compliance Systems Legal Group, in Warwick, RI (Sept. 22, 2006) [hereinafter Swenson Interview].
68. See Paul Beckett, Accountants Boost Consulting Services on Complying with Securities Laws, Wall St. J., July 20, 1998, at B5.
69. See, e.g., KPMG, Sarbanes-Oxley Section 404, http://www.kpmg.com/ Services/Advisory/RAS/Services/RCS/RServices/Sox404.htm (last visited Nov. 13, 2006);
70. PriceWaterhouseCoopers, Sarbanes-Oxley Compliance, http://www.pwc.com/ extweb/service.nsf/docid/BE3AE945AE3901F085257013005ADD5E (last visited Nov. 13, 2006).
71. See KPMG, supra note 38;
72. see also KPMG, ERP Controls Integration: Sustaining Compliance While Implementing Change (2006), available at http://www.kpmg.com/NR/ rdonlyres/2FF8A99F-7375-46AB-BOE9-9D9B9365ED67/0/Cont rolsIntegration.pdf (describing integration of controls into software installation or upgrade).
73. See, e.g., Deloitte & Touche LLP, Regulatory Consulting for the Life Sciences and Health Care Industry, http://www.deloitte.com/dtt/ section_node/0%2C1042%2Csid%25253 D115213%2C00.html (last visited Nov. 8, 2006);
74. Deloitte & Touche LLP, Regulatory Consulting for the Technology, Media, and Telecommunications Industry, http://www.deloitte.com/dtt/ section_node/0,1042,sid%253D115215,00.html (last visited Nov. 8, 2006);
75. Deloitte & Touche LLP, Regulatory Consulting for the Utilities, http://www.deloitte.com/dtt/section_node/0%2C1042%2Csid%25253D115216%2C00.html (last visited Nov. 8, 2006);
76. KPMG, Fraud and Misconduct, http://www.kpmg.com/ Services/Advisory/FAS/ Issues/Fraud/ (last visited Nov. 7, 2006).
77. Describing its compliance services broadly, KPMG's Web site advertises "compliance health checks and reviews," and "help[ing] management reduce the risk of regulatory intervention." See KPMG, Regulatory & Compliance Services, http://www.kpmg.com/Services/Advisory/RAS/Services/ RCS/RCS. htm (last visited Nov. 7, 2006).
78. In a similar vein, PriceWaterhouseCoopers offers "independent assurance of regulatory compliance" and "assessment[s] of [a company's] current and future regulatory risk profile and impact of new regulations." See PriceWaterhouseCoopers, Regulatory Compliance and Reporting, http://www.pwc.com/ extweb/service.nsf/docid/ D9DDD3F7AF139A8085257013005A395D (last visited Nov. 8, 2006).
79. See Business Ethics Consulting Group, About Us, http://www.businessethicsconsulting.com/about.html (last visited Nov. 7, 2006); Business Ethics Consulting Group, Business Ethics, http://www. businessethicsconsulting.com/ services.html#ethics (last visited Nov. 7, 2006).
80. See James C. Hyatt, Birth of the Ethics Industry, Bus. Ethics Online, Summer 2005, http://www.business-ethics.com/current_issue/ summer_2005_birth.html.
81. See Sullivan & Garcia, supra note 3.
82. During the last few years, several organizations of compliance specialists have appeared. They include the Society of Corporate Compliance & Ethics (SCCE), an international nonprofit organization launched in the early 2000s, which sponsors a yearly institute dedicated to addressing emerging compliance issues. See Society of Corporate Compliance and Ethics, http://www.corporatecompliance.org/events/events.htm (last visited Nov. 8, 2006).
83. In 2006, the SCCE for the first time offered an exam to become a "Certified Compliance and Ethics Professional" (CCEP). See Press Release, Soc'y of Corporate Compliance and Ethics, Certification for Fast-Growing Compliance and Ethics Profession Available in September 2006 (July 13, 2006), available at http://www.corporatecompliance.org/about/pdfs/ 2006/ PRcertificationCCEP.pdf.
84. According to the society, a CCEP is a "professional with knowledge of relevant regulations and expertise in compliance processes sufficient to assist corporate industries to understand and address legal obligations and promote organizational integrity through the operation of effective compliance programs." Id.
85. By offering certification, the SCCE is providing a market advantage to compliance consultants who can demonstrate expertise. It is also enhancing its own status by becoming a credentialing institution. Smaller compliance service firms may be able to compete with the large professional services firms because of recently enacted limits on the non-audit services that accountants are permitted to provide to their audit clients under Sarbanes-Oxley. See Strengthening the Commission's Requirements Regarding Auditor Independence, Securities Act Release No. 8183, Exchange Act Release No. 47,265, Public Utility Holding Co. Act Release No. 27,642, 68 Fed. Reg. 6006 (Feb. 5, 2003) (codified at 17 C.F.R. pts. 210, 240, 249, and 274 (2003)), available at http://www.sec.gov/rules/final/33-8183.htm.
86. See Kroll, Inc., History, http://www.kroll.com/about/history (last visited Nov. 7, 2006) [hereinafter Kroll, History].
87. Id.
88. In 2004, Kroll, Inc. was acquired by Marsh & McLennan Companies and became one of its operating units. When Marsh ran into regulatory and legal difficulties in 2004, Michael Cherkavsky, the former CEO of Kroll, was named the president and CEO of Marsh. See Press Release, Marsh & McLennan Cos., Jeffrey W. Greenberg Resigns as Chairman and CEO of MMC Michael Cherkavsky Named President and CEO (Oct. 25, 2004), available at http://www.mmc.com/news/pressReleases_209.pdf.
89. See Kroll, History, supra note 44.
90. Kroll offers investigative services in areas such as civil and criminal fraud, management/employee fraud and theft, electronic crimes, secret commissions and kickbacks, and criminal defense investigations. See Kroll, Inc., Investigations, Financial Advisory, and Intelligence, http://www.kroll.com/services/ifai/ (last visited Nov. 7, 2006).
91. See Thor Valdmanis, Sleuthing Comes to This Pair Naturally, Investigators Keep Their Firm Lean, Mean, U.S.A. Today, Oct. 11, 2004, at B6.
92. Other risk consulting firms include Vance International, Inc., formally DSFX and now a division of Garda, see Vance Int'l, Inc., http://www.vanceglobal.com/ (last visited Nov. 24, 2006), and two newer firms, Fortress Global Investigations and Citigate Global Intelligence & Security.
93. See New International Security Solutions Company Formed by High-Profile Former FBI and CIA Officials, Prosecutors, PR Newswire Ass'n, Mar. 13, 2003;
94. Edward J. Kuriansky Joins Citigate Global Intelligence and Security, Bus. Wire., May 29, 2002.
95. Vance offers internal corporate investigations as well as employment law consulting and other services. See Vance Int'l, Inc., Services, Investigations, http://www.vanceglobal.com/whatwedo/services/investigation/ (last visited Nov. 7, 2006).
96. Swenson Interview, supra note 36.
97. See, e.g., Press Release, Kroll, Inc., supra note 1.
98. The most cautious firms, while listing the educational background and legal experience of their lawyer employees, do not list their Juris Doctor degree after their name. See, e.g., Kroll, Inc., Kathleen Bisaccia, http://www.kroll.com/services/ifai/professionals/bisaccia/ (last visited Nov. 1, 2006);
99. Kroll, Inc., Robert Brenner, http://www.kroll.com/services/ifai/ professionals/bbrenner/ (last visited Nov. 7, 2006).
100. Swenson Interview, supra note 36.
101. If a nonlawyer engages in the provision of legal services, she is subject to prosecution for engaging in the unauthorized practice of law, which is prohibited in all states. See ABA Standing Comm. on Lawyers' Responsibility for Client Protection, 1994 Survey on the Unauthorized Practice of Law Nonlawyer Practice (1996) (surveying definitions of "practice of law" in fifty states).
102. These prohibitions cover unlicensed persons as well as lawyers who are not licensed in the state. If a lawyer licensed in a state engages in law practice with a nonlawyer, she is subject to ethical prohibitions against assisting in the unauthorized practice of law, see Model Rules of Prof'l Conduct R. 5.5 (2005), and to prohibitions against sharing fees or becoming partners with nonlawyers. See Model Rules of Prof'l Conduct R. 5.4;
103. see also infra note 109-111 and accompanying text. The exception was a complaint against two of the big professional service firms in 1997. That year, the Texas Unauthorized Practice of Law Committee launched an investigation to determine whether Arthur Andersen and Deloitte & Touche were engaged in unauthorized practice of law in connection with their tax advisory services.
104. See Elizabeth MacDonald, Texas Probes Andersen, Deloitte on Charges of Practicing of Law, Wall St. J., May 28, 1998, at B15.
105. A year later, the complaint was dismissed. See Tom Herman, A Special Summary and Forecast of Federal and State Tax Developments, Wall St. J., July 29, 1998, at A 1;
106. see also William D. Elliot, Unauthorized Practice of Law: Failure of Proof or Failure of Will, 81 Tax Notes 517 (1998).
107. Tax is an especially treacherous battle-ground to wage unauthorized practice battles because lawyers and accountants have overlapping jurisdictions in the tax area. See, e.g., Circular No. 230, 31 C.F.R. 10.3 (2005) (defining who may practice before the Internal Revenue Service).
108. See Barlow F. Christensen, The Unauthorized Practice of Law: Do Good Fences Really Make Good Neighbors-or Even Good Sense?, 1980 Am. B. Found. Res. J. 159, 180-81.
109. The classic critique of unauthorized practice provisions is Deborah L. Rhode, Policing the Professional Monopoly: A Constitutional and Empirical Analysis of Unauthorized Practice Prohibitions, 34 Stan. L. Rev. 1 (1982).
110. Christensen, supra note 54, at 191-93.
111. See, e.g., Charles W. Wolfram, Modern Legal Ethics 829-34 (1986).
112. See Susan Hackett, The Corporate Client's Perspective: Legal Services for Clients Who Do Business in the Twenty-First Century, in Multidisciplinary Practices and Partnerships: Lawyers, Consultants and Clients, supra note 7, § 12.02(1) (describing the American Corporate Counsel Association's position that "clients have the right (and they are sophisticated enough to exercise it) to choose whatever service providers they wish to engage to solve their problems"). The bar would also encounter doctrinal difficulties in claiming that compliance services constitute the practice of law. Since the 1930s, courts and the bar have struggled and failed to draw a clear boundary between the provision of legal advice and similar services that do not constitute legal practice.
113. See ABA Comm'n on NonLawyer Practice, NonLawyer Activity in Law-Related Situations: A Report with Recommendations 20-22 (1995).
114. The most recent attempt by the bar to delineate the scope of practice occurred in 2002-03, when Alfred P. Carlton, Jr., then-President of the American Bar Association, commissioned a task force to develop a model definition of the practice of law. After a year's study, the task force decided not to propose a comprehensive definition, but concluded that "each jurisdiction's definition should include the basic premise that the practice of law is the application of legal principles and judgment to the circumstances or objectives of another person or entity." ABA, Report of Task Force on the Model Definition of the Practice of Law 13 (2003), available at http://www.abanet.org/cpr/modeldef/taskforce_rpt_803.pdf.
115. The task force's effort was widely criticized as unfairly broad and unworkable. See Tamara Loomis, Defining Law Practice., N.Y. L.J., Jan. 9, 2003, at 5.
116. Even the Federal Trade Commission and Justice Department got involved, suggesting that the definition of law practice originally proposed by the task force constituted anticompetitive behavior under the Sherman Act. See Adam Liptak, U.S. Opposes Proposal to Limit Who May Give Legal Advice, N.Y. Times, Feb. 3, 2003, at A11. Adam Liptak, U.S. Opposes Proposal to Limit Who May Give Legal Advice
117. See ABA, Comm'n on Multidisciplinary Practice, Report to the House of Delegates (1999), available at http://www.abanet.org/cpr/mdp/ mdpfinalreport.html.
118. See Wendy Davis, ABA Emphatically Rejects MDPs, Nat'l L.J., July 24, 2000, at A5. For an elaboration of the legal profession's core values in the context of the MDP debate, see N.Y. State Bar Ass'n, Report of Special Committee on Multi-Disciplinary Practice and Legal Profession, Preserving the Core Values of the American Legal Profession (1999), available at http://www.law.cornell.edu/ethics/mdp.htm.
119. See Hackett, supra note 57, § 1202 (legal profession should recognize reality that corporations buy multidisciplinary services as needed).
120. See 31 U.S.C. § 5318(h)(1)(2) (Supp. I 2001);
121. see also 15 U.S.C. §§ 7262, 7264, 7265 (Supp. II 2002) (financial controls under Sarbanes-Oxley);
122. C.F.R. §§ 229.308, 229.406, 229.401 (2005).
123. As the steps for effective compliance under the OSGs make clear, compliance can never be fully automated. The regulatory guidance offered under the OSGs, like other compliance mandates, requires the designation of personnel whose responsibility is overseeing compliance. See U.S. Sentencing Guidelines Manual § 8B2.1 (2004).
124. Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 65 Fed. Reg. 19,618 (Apr. 11, 2000) (EPA regulations);
125. Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 60 Fed. Reg. 66,706 (Dec. 22, 1995) (same).
126. Swenson Interview, supra note 36.
127. See, e.g., U.S. Sentencing Guidelines Manual § 8B2.1.
128. The ABA Model Rules of Professional Conduct presume that the services provided by an attorney to a client involve representation. See, e.g., Model Rules of Prof'l Conduct pmbl., R. 1, 2 (2005).
129. Model Rules of Prof'l Conduct R. 5.7. Under Rule 5.7(b), "law related services" are "services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer."
130. John S. Dzienkowski & Ronald D. Rotunda, Legal Ethics: Lawyers Deskbook of Professional Responsibility § 5.7-2 (2006)
131. Professor Linda Galler has suggested that law-related services offered by a lawyer are governed by the ethics rules. See Linda Galler, Problems in Defining and Controlling the Unauthorized Practice of Law, 44 Ariz. L. Rev. 773, 778-79 (2002). The language of Rule 5.7 makes clear, however, that the rules only apply in situations where there is a risk of potential confusion.
132. The focus on regulatory incentives is not meant to exclude other explanations, based on quality of life, work satisfaction, or pay differential, that might lead lawyers to join compliance consulting firms over traditional corporate law firms. There is no data on how these two settings compare across these variables.
133. In the criminal context, internal investigations have become a growth area for defense lawyers, particularly those with prior experience as prosecutors, and many elite law firms have started to list corporate investigations among the services they offer. See Andrew Longstreth, Double Agent: In the New Era of Internal Investigations, Defense Lawyers Have Become Deputy Prosecutors, Am. Law., Feb. 2005, at 68-69.
134. Although they enjoy the lions' share of the market, firms like Kroll are beginning to make inroads. Id.
135. In the employment context as well, law consultants are competing with lawyers in law practice. See Sullivan & Garcia, supra note 3, at 119-20.
136. See infra notes 97-98 and accompanying text.
137. See infra notes 99-100 and accompanying text.
138. Others include the reputational benefits of hiring a lawyer over a consultant. These may have declined as well.
139. See United States v. United Shoe Mach. Corp., 89 F. Supp. 357, 358-59 (D. Mass. 1950).
140. See, e.g., Fed. R. Civ. P. 26(b)(3).
141. 8 John Henry Wigmore, Evidence in Trials at Common Law § 2291 (John T. McNaughton ed., 4th ed. 1961).
142. 449 U.S. 383 (1981).
143. Id. at 392.
144. Id.
145. See Edna Selan Epstein, The Attorney-Client Privilege and the Work-Product Doctrine 106-07 (2001).
146. United States v. Chevron Texaco Corp., 241 F. Supp. 2d 1065, 1082 (N.D. Cal. 2002);
147. see also In re Sealed Case, 146 F.3d 881, 884 (D.C. Cir. 1998);
148. United States v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998);
149. Logan v. Commercial Union Ins. Co., 96 F.3d 971, 976-77 (7th Cir. 1996);
150. Martin v. Bally's Park Place Hotel & Casino, 983 F.2d 1252, 1258 (3d Cir. 1993);
151. Nat'l Union Fire Ins. Co. v. Murray Sheet Metal Co., 967 F.2d 980, 984 (4th Cir. 1992).
152. Upjohn, 449 U.S. at 386-89.
153. Id. at 395-96 (citing Philadelphia v. Westinghouse Elec. Corp., 205 F. Supp. 830, 831 (E.D. Pa. 1962)).
154. Model Rules of Prof'l Conduct R. 4.2 (2005). Rule 4.2 prohibits a lawyer from contacting a client whom the lawyer knows is represented by counsel in a matter. Applied in the corporate context, it would arguably prohibit government lawyers from directly contacting employees who may be involved in a matter under investigation without permission of counsel that has been retained in the matter. The application of Rule 4.2 to government lawyers and their agents has been the subject of some controversy. Government lawyers have long argued that criminal investigations would be severely impeded if they had to abide by the Rule. See, e.g., Ethical Standards for Attorneys for the Government (Reno Rules), 28 C.F.R. § 77.1 (1999).
155. In 1998, the U.S. Court of Appeals for the Eighth Circuit held that the Justice Department did not have the authority to issue rules that superseded the state ethics rules on this subject. See United States v. McDonnell Douglas Corp., 132 F.3d 1252 (8th Cir. 1998). That same year, Congress passed the McDade Amendment, which provided that lawyers for the federal government are "subject to State laws and rules, and local Federal court rules, governing attorneys in each State where such attorney engages in that attorney's duties, to the same extent and in the same manner as other attorneys in the State." 28 U.S.C. § 530B (2000). Under ABA Model Rule of Professional Conduct 3.4(f), a lawyer is permitted to request an employee of a client to refrain from voluntarily providing information to another party so long as the lawyer "reasonably believes that the person's interests will not be adversely affected by refraining from giving such information." Model Rules of Prof'l Conduct R. 3.4(f)(2) (2005). Companies are also able to exert indirect pressures to discourage employees from cooperating with investigations.
156. In investigating wrongdoing by or within a corporation, a prosecutor is likely to encounter many obstacles that arise from the nature of the corporation itself. As a Department of Justice memorandum notes, It will often be difficult to determine which individual took which action on behalf of the corporation. Lines of authority and responsibility may be shared among operating divisions or departments, and records and personnel may be spread throughout the United States or even among several countries. Where the criminal conduct continued over an extended period of time, the culpable or knowledgeable personnel may have been promoted, transferred, or fired, or they may have quit or retired. Memorandum from Larry Thompson, Deputy Attorney Gen., to Heads of Dep't Components and U.S. Attorneys, Principles of Federal Prosecution of Business Organizations (Jan. 20, 2003), available at http://www.usdoj.gov/dag/ cftf/corporate_guidelines.htm [hereinafter Thompson Memorandum].
157. Report of the American Bar Association's Task Force on the Attorney-Client Privilege, 60 Bus. Law 1029,1043 (2005) [hereinafter Task Force Report].
158. See infra notes 35-36 and accompanying text.
159. Task Force Report, supra note 87, at 1044;
160. Longstreth, supra note 71, at 72.
161. The Holder Memorandum stated, One factor the prosecutor may weigh in assessing the adequacy of a corporation's cooperation is the completeness of its disclosure including, if necessary, a waiver of the attorney-client and work product protections, both with respect to its internal investigation and with respect to communications between specific officers, directors, and employees and counsel. Holder Memorandum, supra note 31, at 192;
162. see also Thompson Memorandum, supra note 86.
163. In the fall of 2006, the waiver provisions of the Thompson Memorandum came under mounting criticism. See The Thompson Memorandum's Effect on the Right to Counsel in Corporate Investigations Before the S. Comm. on the Judiciary, 109th Cong. (2006), available at http://judiciary.senate. gov/hearing.cfm?id=2054;
164. Letter from Former Justice Department Officials to Alberto Gonzales (Sept. 5, 2006), available at http://www.acca.com/public/attyclientpriv/ agsept52006.pdf.
165. See U.S. Sentencing Guidelines Manual § 8C2.5 (2004).
166. As comment 12 notes, "Waiver of attorney-client privilege and of work-product protections is not a prerequisite to a reduction in culpability score... unless such waiver is necessary in order to provide timely and thorough disclosure of all pertinent information known to the organization." Id.
167. cmt. 12 Although the sentencing guidelines are advisory, courts are still required to consider them. United States v. Booker, 543 U.S. 220 (2005);
168. United States v. Fanfan, 542 U.S. 963 (2004).
169. In April 2006, the U.S. Sentencing Commission voted to amend the corporate sentencing guidelines to eliminate the incentive for prosecutors to require disclosure of privileged information as a condition of receiving credit for cooperating with the government. See Statement, Michael S. Greco, President, ABA, Re: U.S. Sentencing Commission Vote Rescinding 2004 Privilege Waiver Amendment (Apr. 6, 2006), available at http://www.abanews.org/ statementsletters/sttwaiver.html.
170. See Securities and Exchange Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, Exchange Act Release. No. 44,969, 76 S.E.C. Docket 296 (Oct. 23, 2001), available at http://www.sec.gov/litigation/investreport/34-44969.htm;
171. see also Stephen M. Cutler, Dir., Div. of Enforcement, SEC, The Themes of Sarbanes-Oxley as Reflected in the Commission's Enforcement Program, Remarks at UCLA School of Law (Sept. 20, 2004), available at http://www.sec.gov/news/speech/spch092004smc.htm.
172. See, e.g., In re Columbia/HCA Healthcare Corp. Billing Practices Litig., 293 F.3d 289 (6th Cir. 2002);
173. Letter from Steven Schell, Partner, Black Helterling LLP, to ABA Task Force on Attorney-Client Privilege (Feb. 10, 2005), available at http://www.abanet.org/buslaw/attorneyclient/publichearing20050211/testimony/ 2005211000 000.pdf.
174. See, e.g., McKesson HBOC, Inc. v. Adler, 562 S.E.2d 809, 811-12 (Ga. Ct. App. 2002) (discussing the SEC's amicus brief in support of allowing waiver of the privilege for purposes of cooperating in its investigation);
175. see also Securities and Exchange Committee Report Pursuant to Section 704 of the Sarbanes-Oxley Act of 2002, at 45 (2003), available at http://www.sec.gov/news/studies/sox704report.pdf (recommending that legislation be enacted recognizing selective waiver in connection with government investigations).
176. See, e.g., In re Columbia/HCA Healthcare Corp., 293 F.3d 289; United States v. Mass. Inst. of Tech., 129 F.3d 681 (1st Cir. 1997);
177. Genentech, Inc. v. U.S. Int'l Trade Comm'n, 122 F.3d 1409 (Fed. Cir. 1997);
178. In re Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988), cert. denied, 490 U.S. 1011 (1989);
179. Permian Corp. v. United States, 665 F.2d 1214 (D.C. Cir. 1981).
180. Longstreth, supra note 71, at 70, 72.
181. See United States v. Kovel, 296 F.2d 918, 921 (2d Cir. 1961).
182. Model Rules of Prof'l Conduct R. 5.3 (2005).
183. See, e.g., 2,022 Ranch, L.L.C. v. Superior Court, 7 Cal. Rptr. 3d 197, 213-14 (2003) (finding factual investigations done by an in-house claims adjuster licensed to practice law not subject to attorney-client privilege);
184. see also ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 97-407 (1997).
185. See infra notes 109-30 and accompanying text.
186. Kroll, Inc., Investigations, Financial Advisory and Intelligence, http://www.krollworldwide.com/services/ifai (last visited Nov. 8, 2006).
187. Their clients include not only private multinational corporations, but also state and federal agencies, foreign financial institutions, and nonprofits. Id.
188. The attorney-client privilege is also under pressure from auditors who are subject to heightened obligations to detect wrongdoing in publicly traded companies. Historically, a tension always existed between an auditor's need to obtain internal information from a company to attest to its financial statements and a lawyer's obligation to keep information about the company confidential. The professions resolved this problem through joint professional standards that allowed auditors to obtain adequate assurances from a company's attorneys about its potential liabilities while limiting auditors' need to have access to documents subject to privilege. See Documents Subject to Lawyer-Client Privilege, AU § 9337(4) (Am. Inst. of Certified Pub. Accountants (AICPA) 1977);
189. ABA, Statement of Policy Regarding Lawyers' Responses to Auditors' Requests for Information 8 (1977), available at http://www.abanet.org/ buslaw/attorneyclient/policies/aicpa.pdf.
190. In response to the financial reporting scandals that came to light in 2001, new regulations place an onus on auditors to identify and appropriately address suspected fraud. Under SAS 99, a new standard adopted by the AICPA in 2002, an auditor is required, inter alia, to identify the risk factors signaling possible fraud and respond appropriately. Consideration of Fraud in a Financial Statement Audit, SAS 99, AU § 316 (Am. Inst. of Certified Pub. Accountants 2002).
191. In 2004, the Public Company Accounting Oversight Board (PCAOB), the new agency charged with overseeing audits of publicly traded companies, issued standards that encourage more rigorous scrutiny in audits. PCAOB, Auditing and Related Professional Practice Standards, Auditing Standard No. 2: An Audit of Internal Control over Financial Reporting Conducted in Conjunction with an Audit of Financial Statements (Mar. 2004); Auditing Standard No. 3: Audit Documentation (June 2004), available at http://ww.pcaob.org/Rules/ Rules_of_the_Board/Auditing_Standard_3.pdf;
192. see also Codification of Statements on Auditing Standards, AU § 9326.22 (Am. Inst. of Certified Pub. Accountants Apr. 2003) (regarding support for tax matters).
193. For a detailed discussion, see David M. Brodsky et al., The Auditor's Need for the Client's Detailed Information vs. The Client's Need to Preserve the Attorney-Client Privilege and Work Product Protection: The Debate, The Problems and Proposed Solutions (2004), available at http://www.abanet.org// buslaw/attorneyclientypublichearing20050211/testimony/brodsky2.pd f;
194. see also Sue Reisinger, Your Papers Please, Corporate Counsel, June 2006, at 78.
195. In addition, regulators have signaled their intent to scrutinize and sanction auditors that fail to catch fraud by their clients. See Brodsky et. al, supra, at 4-8;
196. Hackett, supra note 57;
197. Task Force Report, supra note 87, at 1053.
198. Attorneys themselves may also feel pressure to disclose privileged information to auditors to avoid liability for "misleading" an accountant engaged in an audit. See 17 C.F.R. § 240.13b2-2(b)(1) (2003);
199. John K. Villa, Audit Letter Responses in the Wake of Sarbanes-Oxley, ACC Docket., Oct. 2003 at 164, 168.
200. In this strengthened regulatory climate, auditors are requesting documents that had previously been considered off limits under the attorney-client privilege or work-product immunity. Considerable uncertainty exists as to the scope and application of waiver doctrines in the context of documents provided by attorneys in response to auditor requests. See Task Force Report, supra note 87.
201. In addition, courts have divided on the issue of whether the work-product protection is waived in these circumstances. Compare Medinol, Ltd. v. Boston Scientific Corp., 214 F.R.D. 113, 115 (S.D.N.Y. 2002) (recognizing the waiver of work-product immunity),
202. with Merrill Lynch & Co. v. Allegheny Energy, Inc., 229 F.R.D. 441 (S.D.N.Y. 2004).
203. Attorneys representing corporations have also been subject to mounting pressures to reveal client wrongdoing to government authorities. In 2003, the organized securities bar barely defeated an attempt by the Securities Exchange Commission (SEC) to enact a rule pursuant to section 307 of Sarbanes-Oxley that would have required lawyers to make a noisy withdrawal to the SEC, if a corporation's board of directors failed to address a lawyer's report of evidence of fraud. See Susan P. Koniak, When the HurlyBurly's Done: The Bar's Struggle with the SEC, 103 Colum. L. Rev. 1236 (2003).
204. In the wake of the abusive tax shelter problem, Congress enacted section 815 of the American Jobs Creation Act, which requires lawyers involved in creating and promoting abusive tax shelters to maintain and disclose client lists to the Internal Revenue Service. See 26 U.S.C.A. §§ 6111, 6112 (West 2005).
205. Burlington Indus, v. Ellerth, 524 U.S. 742, 745 (1998). An employer also had to show that "the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided."
206. Faragher v. Boca Raton, 524 U.S. 775, 807 (1998).
207. Swenson v. Potter, 271 F.3d 1184, 1193-94 (9th Cir. 2001);
208. Dougherty v. Henderson, 155 F. Supp. 2d 269 (E.D. Pa. 2001).
209. See Cotran v. Rollins Hudig Hall Int'l, Inc., 948 P.2d 412 (Cal. 1998).
210. See, e.g., Walker v. County of Contra Costa, 227 F.R.D. 529 (N.D. Cal. 2005);
211. Brownell v. Roadway Package Sys., Inc., 185 F.R.D. 19 (N.D.N.Y. 1999);
212. Harding v. Dana Transp., Inc., 914 F. Supp. 1084 (D.N.J. 1996).
213. See Sullivan & Garcia, supra note 3, at 122-23.
214. See supra notes 51-52 and accompanying text.
215. Kroll's Web site notes that it advises clients on how to proceed after it has conducted investigations. See Kroll, Inc., supra note 101.
216. The Rules of Professional Conduct, adopted in some version in most states, presume and are organized around attorney-client relationships.
217. Model Rules of Prof'l Conduct R. 5.4 (2005).
218. The history and justifications for this prohibition are discussed in Bruce A. Green, The Disciplinary Restrictions on Multidisciplinary Practice: Their Derivation, Their Development, and Some Implications for the Core Values Debate, 84 Minn. L. Rev. 1115 (2000),
219. and Ted Schneyer, Multidisciplinary Practice, Professional Regulation, and the Anti-Interference Principle in Legal Ethics, 84 Minn. L. Rev. 1469, 1510-14 (2000).
220. See Kroll, Inc. supra note 101;
221. see also James Cox, More Firms Hire Sleuths to Avoid Nasty Surprises: Due Diligence Checks Become Routine Before Many Corporate Deals, USA Today, June 26, 2001, at B1.
222. In international investigations, investigative consulting firms deploy the expertise of "ex-FBI, CIA, IRS, DEA, and Secret Service Agents; former police, prosecutors, customs agents, federal marshals and military intelligence experts; veterans of Britain's M16, Europe's Interpol or the Royal Canadian Mounted Police; and lawyers, forensic accountants, database specialists and journalists." Id.
223. On the value of firm-specific knowledge and skills generally, see Seth D. Harris, Cause's Paradox and the Inefficiency of Permanent Strike Replacements, 80 Wash. L.Q. 1185, 1250-52 (2002).
224. Model Rules of Prof'l Conduct R. 1.13(f) (2005).
225. See David Hechler, Know Your Lines: Do You Need to Use a Script When Telling Employees of Their Rights in an Internal Investigation?, Corporate Counsel, Feb. 2006, at 17.
226. Compare United States v. Hart, No. 92-219, 1992 WL 348425, at *1 (E.D. La. 1992) (stating that employees of a company who reasonably believed the company's attorneys were representing them were entitled to assert attorney-client privilege with regard to disclosures made to attorneys),
227. with E.F. Hutton & Co. v. Brown, 305 F. Supp. 371 (S.D. Tex. 1969) (holding that even though the employee reasonably believed his employer's lawyers represented him, the employee was not entitled to assert the attorney-client privilege as to communications with lawyers).
228. See ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 97-407 (1997). In a 1997 formal opinion, the ABA Standing Committee on Ethics and Professional Responsibility considered two possible guises in which a lawyer might be retained by a law firm as an expert consultant. When a lawyer is hired to provide "expert legal advice" to a firm and its client in a matter, she occupies the role of cocounsel and is bound by all the duties that apply to lawyers representing a client.
229. See id. at 1.
230. When, on the other hand, a lawyer is retained to testify as an expert witness, no attorney-client relationship has been formed. Agency and other law may govern the lawyer's conduct, but not the Rules of Professional Conduct. Id.;
231. see also Equal Employment Opportunity Comm'n v. Exxon Corp., 202 F.3d 755 (5th Cir. 2000) (concluding that former government attorneys were not prohibited by ethics rules from testifying as expert witnesses for private parties in connection with the matter they previously handled on behalf of the government);
232. Estate of Sexton v. Comm'r of Internal Revenue, Nos. 19418-98, 3076-99, 2003 WL 403063 (U.S. Tax Ct. 2003) (finding that the attorney hired by the IRS to provide an expert report did not represent the IRS for purposes of determining conflicts of interest). Investigative consulting firms, which are not holding themselves out as lawyers, would presumably argue that they do not offer legal advice and therefore never occupy the role of cocounsel. Their obligations would therefore be governed exclusively by agency law and the terms of the consulting contract.
233. While Rule 1.13(f) is written with an attorney-client relationship in mind, it is arguably applicable when a law consultant seeks to invoke her authority as a lawyer in her dealings with employees of the company. Were she to identify herself as a lawyer in such interactions, she would presumably be required to explain that she was hired by the employer. Even though she was hired in a consulting capacity, her self-identification as an attorney would create a risk that an employee would unduly defer to her judgment on the assumption that the attorney has the employee's interests in mind.
234. See Sullivan & Garcia, supra note 3, at 122.
235. Id.
236. Id.
237. Longstreth, supra note 71, at 72.
238. A law consultant, like any other person, cannot actively mislead an employee or third person without running afoul of tort or criminal law. See, e.g., Damon Darlin, Ex-Chairwoman Among 5 Charged in Hewlitt Case, N.Y. Times., Oct. 5, 2006, at A1. In this context, tort and criminal law impose lower standards than the Model Rules of Professional Conduct.
239. Model Rules of Prof'l Responsibility R. 3.7 (2006).
240. See Longstreth, supra note 71, at 73.
241. See Sullivan & Garcia, supra note 3, at 122 (employment law consultants can serve as "prepared, professional witnesses");
242. see, e.g., Kroll Worldwide, Case Studies, http://www. krollworldwide.com/services/investigations/case_studies/ (last visited Nov. 8, 2006).
243. Model Rules of Prof'l Conduct R. 3.7 (2005).
244. Model Rules of Professional Conduct R. 1.10(a) applies most of these prohibitions to lawyers working in the same firm. Although Rule 1.9 is less concerned with loyalty than with the misuse of confidential information, a residual concern for loyalty remains in the prohibition against a lawyer's taking on a representation against a former client that involves work done on its behalf. See Model Rules of Prof'l Conduct R. 1.10(a) cmt. 1.
245. A lawyer who is employed as an expert witness by a client does not assume the duties implicit in an attorney-client relationship and is not bound by the rules prohibiting conflicted representation. See ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 97-407 (1997). A lawyer who first represents a client and then later becomes an expert in litigation against the former client is in a different situation.
246. In this second scenario, the lawyer continues to have residual obligations to the former client. See Patriot Scientific Corp. v. Moore, 178 F. App'x 18 (Fed. Cir. 2006) (disqualifying a lawyer who represented a former client in a patent dispute from serving as an expert witness in a related case against the former client).
247. See, e.g., Hosp. Computer Sys. v. Staten Island Hosp., 788 F. Supp. 1351 (D.N.J. 1992);
248. Analysts Int'l Corp. v. Recycled Paper Prod., Inc., No. 85 C 8637, 1987 WL 12917 (N.D. Ill. 1987);
249. Richard A. Rosenblatt & Co. v. Davidge Data Sys. Corp., 743 N.Y.S.2d 471 (App. Div. 2002);
250. RKB Enters, v. Ernst & Young, 582 N.Y.S.2d 814 (App. Div. 1992).
251. In some cases, courts have held that professionals who provide consulting alongside professional services are liable for violation of professional standards of care. See Diversified Graphics Ltd. v. Groves, 868 F.2d 293 (8th Cir. 1989) (finding an accounting firm providing computer consulting services liable for violations of accounting professional standards);
252. Fort Wash. Res. v. Tannen, 846 F. Supp. 354 (E.D. Pa. 1994) (finding a doctor providing consulting services liable for violation of medical standards of care).
253. See Hosp. Computer Sys., 788 F. Supp. at 1361.
254. The formal characteristics that define professional status give rise to the fiduciary obligations owed by professionals to their clients. In general, courts find fiduciary relationships between commercial parties when there is unequal bargaining power between the parties and an unusual degree of dependency and trust. Educational requirements, licensing, and an ethics code engender a degree of trust in a professional that removes the relationship from the realm of conventional contractual dealings. See Richard A. Glaser & Leslee M. Lewis, Redefining the Professional: The Policies and Unregulated Development of Consultant Malpractice Liability, 72 U. Det. Mercy. L. Rev. 563, 573-80 (1995).
255. This is at best an educated guess. As mentioned earlier, there are no data that break out compliance consulting services from all consulting services purchased by corporations. We accordingly do not know whether companies are spending more on traditional legal services or compliance consulting services.
256. Hackett, supra note 57, § 12.12(1).
257. See supra notes 54-57 and accompanying text.
258. See Task Force Report, supra note 87.
259. During the hearing, Deputy-Attorney General Paul McNulty assured the committee that the department would revisit its policies with a view to revising those that impinge on the attorney-client privilege. See The Thompson Memorandum's Effect on the Right to Counsel in Corporate Investigations Before the S. Comm. on the Judiciary, 109th Cong. 5, 10 (2006) (testimony of Deputy Attorney General Paul J. McNulty).
260. See Upjohn Co. v. United States, 449 U.S. 383 (1981). For the classic critique,
261. see Daniel R. Fischel, Lawyers and Confidentiality, 65 U. Chi. L. Rev. 1 (1998).
262. Task Force Report, supra note 87.
263. See, e.g., Robert W. Gordon, A New Role for Lawyers?: Counselor After Enron, 35 Conn. L. Rev. 1185, 1189, 1195-97 (2003);
264. see also Koniak, supra note 101.
265. As Lauren Edelman has shown, in the human resources area, legal mandates focusing on racial, gender, and ethnic diversity have been translated into a managerial discourse that emphasizes intersubjective differences, many of which are not recognized legally. See Edelman, supra note 12.