Recently released portions of briefs in the sealed case involving the question whether an attorney for a public charity may disclose confidential information to the Attorney General without regard to the usual standards of the Rules of Professional Conduct have cast a slightly different light on the case before the Pennsylvania Supreme Court. (See Nonprofit Issues, February, 2015) The briefs suggest that the ultimate issue before the Court is whether the Attorney General may utilize improperly disclosed information as the basis on which to start an investigation.
The case known as Redacted v. Redacted, (Redacted v. Redacted, 145 MAP 2014)because the parties, the issues, and the lawyers involved are all undisclosed took on a somewhat different appearance when the Court unsealed about 8 pages of the 36-page brief for the party supporting the attorney’s disclosure (apparently the Attorney General) and about 21 pages of the 58-page brief for the party objecting to the disclosure (apparently the charity being investigated). Significant arguments on other questions and a clear statement of the facts have not been made public.
The party arguing that disclosure is appropriate does not argue, at least in the material made public, that the disclosure was permissible under the Rules of Professional Conduct. It argues instead that counsel for a nonprofit corporation who “believes a public charities’ [sic] board of directors are unlawfully diverting charitable assets may disclose this information to the Attorney General as parens patriae for the public to whom the directors owe a fiduciary obligation.”
While acknowledging that no Pennsylvania court has ever so ruled, the party says “this narrow rule is well-grounded in existing Pennsylvania law governing fiduciaries and beneficiaries.” Citing a county Orphans’ Court decision, the party argues that the attorney has a duty to a beneficiary of a private trust to provide complete information concerning the administration of the trust.
“We submit that the same rule that applies to private trusts should apply as well to public charities,” the party argues. “Public charities, like private trusts, exist not to serve their directors but to serve their beneficiary: the general public.”
“Thus, where charitable assets are being diverted, by the very fiduciary obligated to protect those assets, the beneficiary — the public — has a right to know it and the charity’s attorney has a right to disclose it. The proper recipient of such a disclosure is the Attorney General, to who [sic] has been delegated the Commonwealth’s parens patriae function of protecting the public interest in the administration of public charities.” The party goes on to argue that “by electing to structure itself as a public charity supported by tax exemptions, [redacted] has forgone any right to have its lawyer, who has fiduciary obligations of her own, to hide its activities from the Commonwealth.”
The party opposing the disclosure states in its summary of argument that “there is no duty more sacred than the duty of confidentiality that a lawyer owes to his or her client…. These confidentiality rules lie at the heart of the attorney-client relationship because they give clients, such as nonprofit corporations, certainty that they can deal freely and openly with their lawyer; whatever information is provided to the lawyer will be kept in trust by the attorney absent a very narrow, clear set of circumstances, spelled out in detail in the ethics rules.”
It then goes on to argue a previously undisclosed line of argument. “Because confidentiality is fundamental to the attorney-client relationship, violations of the confidentiality rules are treated by courts with the utmost seriousness. When courts confront cases like this one — built upon flagrant violations of the confidentiality rules — they have uniformly deprived the party seeking to exploit the confidential information of any possibility of doing so…. As a result of this uniform body of law, most law enforcement bodies around the country have developed protective measures for handling cases that potentially involve attorney-client information… Not so here.”
The party says: “The record is undisputed that when the Companies’ then-current counsel, [redacted], approached [redacted] to discuss information she had expressly learned during the scope of her representation, [redacted] failed to proceed with care. Nor did it have any policies for doing so. Instead, it barreled forward without any deliberation, securing as much information as it could from [redacted] about her clients [redacted]. [Redacted] then proceeded to negotiate with [redacted] as the opposing counsel on behalf of the targets on whom she had purported to blow the whistle. And then, when informed that [redacted] unethical conduct and their facilitation of it warranted dismissal and disqualification under a uniform body of case law, [redacted] responded by [redacted] creating post-hoc justifications for their conduct and [redacted] conduct.”
The party opposing disclosure argues that the comparison to private trusts is not justified and that “traditional attorney-client relationships would be fundamentally altered, if not destroyed, by the extension of the exception to the nonprofit corporation context.”
“No other prosecutorial body at the state or federal level has ever sought such power to our knowledge,” the opponents argue. Since the Attorney General is the chief prosecutor of charity fraud in the state, the language of the argument suggests that the party seeking the benefit of the disclosure may be the Attorney General herself.
The identity of the party seems to become even clearer in the opponents’ next argument. “The main irony of this case is that [redacted] with its expansive parens patriae powers, has no need for any ‘fiduciary’ exception and no explanation for why it cannot follow the typical rules jurisdictions such as the federal government have in place for investigations into for-profit corporations.”
The brief goes on to cite a series of whistleblower cases in which prosecutorial agencies have been unable to use tainted information in prosecutions. “[Redacted] does not and cannot explain why it could not abide by the same rules,” it argues. “Instead it seeks a rule that would encourage disgruntled in-house attorneys for nonprofit corporations, [redacted] to use [redacted] as a pawn in their employment disputes with their employers. The Commonwealth Court recognized the folly of such an approach, and this Court should as well.”
The brief concludes by stating that “[redacted] is inviting this Court to remedy its lack of prudence in dealing with [redacted] by adopting an unnecessary rule that would fundamentally undermine the attorney-client relationship for every nonprofit organization in Pennsylvania. The Court should respectfully decline the invitation, just as the court below did.”
YOU NEED TO KNOW
Although the context of the argument has changed with the release of the significantly more extensive arguments, the crux of the issue is still the same. Should charitable organizations have the benefit of the same rules of confidentiality that are the bedrock of our legal system that apply to other clients? The party arguing to change the rule, apparently the Attorney General, has argued that organizations give up such rights by becoming charities, but certainly has not justified the argument.
If the rule were to be extended to charities, where else might it be extended? Would it also be extended to public officials, for example? To paraphrase the proponent’s argument: where governmental assets are being diverted, by the very fiduciary obligated to protect those assets, the beneficiary — the public — has a right to know it and the official’s attorney has a right to disclose it. The proper recipient of such a disclosure is the Attorney General or the District Attorney, to whom have been delegated the Commonwealth’s function of protecting the public interest in the administration of governmental affairs. By electing to run for office, the official has forgone any right to have his or her lawyer, who has fiduciary obligations of her own, hide such activities from the Commonwealth.
And why limit disclosure to a law enforcement officer? Why shouldn’t the lawyer just go directly to the beneficiary public, through leaks to the newspaper or postings on social media?
Do we really want a system where clients cannot feel safe in asking lawyers for legal advice?