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As litigators, much of our practice turns on motions challenging a statute or procedure and trying to ensure our clients receive a fair trial. These issues often have constitutional components. Further, many of our strongest constitutional arguments can be raised under the Oregon Constitution, which has been found to encompass broader protections than the federal constitution. As I have endeavored to raise these arguments in my practice, I have discovered that many state constitutional arguments have been missed. Frequently where one would expect case law to set out the contours of state constitutional rights, the court has not reached the issue because it was not separately addressed. The court has often noted that “counsel below did not raise the state constitutional issue or ask the court to engage in a separate analysis, thus we will assume that the federal analysis applies.”[1] Therefore, I thought it would be useful to address the framework for state constitutional analysis.

The following article will address (1) the importance of fully briefing state constitutional claims; (2) the methodology for raising Oregon constitutional issues; (3) the areas of the Oregon Constitution that have rich bodies of independent analysis; and, finally, (4) a specific example of an area ripe for argument, specifically corporate rights under article I, section 12 of the Oregon Constitution.

Going back to the basics that we all learned in law school, the United States Constitution is simply the baseline for individual rights. States are free to grant greater rights to their citizens than those already protected by the federal constitution. The Oregon Constitution grants a wealth of rights and protections that often go beyond what is offered by the United States Constitution. Although neither the Equal Protection Clause nor Due Process rights are expressly provided for in the Oregon Constitution, Oregon courts have found similar or even greater protections in other guarantees. However, the analysis is different from these federal counterparts.[2] Oregon courts have also developed nuanced case law regarding challenges made on vagueness and overbreadth grounds. While vagueness and overbreadth challenges are often based on First Amendment litigation in federal courts, Oregon courts have a well-developed body of case law addressing overbreadth that extends beyond freedom of expression.[3]

Under Oregon jurisprudence, our courts have been quick to state that the analysis of a federal constitutional provision should not be used as conclusive authority in interpreting a similar provision of the Oregon Constitution, and will be considered no more binding on the court than a well-reasoned law review article.[4] However, there have also been cases where the appellate courts have concluded that there is no reason to apply a different analysis under the Oregon Constitution when well-established federal analysis exists, because it would only cause confusion.[5] To be clear, this is separate from a situation where an Oregon court is asked to address a federal constitutional right. Under those circumstances, Oregon courts will look first to the U.S. Supreme Court.[6]

In 1981, the Oregon Supreme Court in Sterling v. Cupp explained the methodology for reviewing arguments that raise both state and federal constitutional claims.[7] The court instructed that the reviewing court should first look to the state claims before reaching a federal constitutional claim because “the state does not deny any right claimed under the [F]ederal Constitution when the claim before the court in fact is fully met by state law.”[8] This was followed by State v. Kennedy, which expounded on the necessity of first addressing any questions of state law before ever turning to the Federal Constitution.[9] In Kennedy, the court rejected the state’s contention that it should not apply Oregon constitutional analysis to the issue because it was not properly briefed to the lower courts.[10] While Kennedy endorsed a liberal standard for raising state constitutional claims, more recently the court has required a more detailed showing.[11] The court will decline to consider a party’s state constitutional claim if “he has failed to brief or argue any independent state constitutional theory.”[12]

With Oregon courts focusing on the need for litigators to raise and independently brief state constitutional claims with a consequence of “use it or lose it,” the courts have provided guidance for interpreting state constitutional provisions. In interpreting state constitutional provisions, the court will look at three things: (1) the text; (2) case law that construes the provision; and (3) the historical circumstances surrounding the adoption of the provision.[13] The court’s goal is to determine the founders’ intent in adopting the constitutional provision, in a context that is unique to Oregon’s constitutional history. As the court has noted in interpreting an Oregon constitutional provision, “[article I, section 26 of Oregon’s Constitution] differs from its federal counterpart in text, context, judicial gloss, and historical underpinning.”[14]

Using this analytical framework, litigators have argued for greater protections under various provisions of the Oregon Constitution than what is guaranteed by the Federal Constitution. One example can be found in article I, section 8 of the Oregon Constitution, which states: “[n]o law shall be passed restraining the free expression of opinion, or restricting the right to speak, write, or print freely on any subject whatever; but every person shall be responsible for the abuse of this right.” In State v. Stoneman, the Oregon Supreme Court specifically commented on the breadth of our state’s constitutional guarantee of free expression, as compared to the First Amendment right.[15] The court flatly declined to follow the balancing approach used in First Amendment analysis, finding it contrary to the principles that have guided Oregon’s jurisprudence.[16] In this context, the Oregon Supreme Court has, time and again, provided a rigorous reminder that federal interpretation will not simply be grafted onto Oregon constitutional provisions.[17]

Oregon’s right to free assembly under article I, section 26, the privileges and immunities clause under article I, section 20, and Oregon’s right to public hearings under article I, section 10 all have been interpreted distinctly from their federal counterparts.[18] For example, article I, section 26 of the Oregon Constitution provides the right for groups to freely assemble in order to achieve some political objective. In Lahmann, the court made a point to correct any misassumption that section 26 is coextensive with the right of “expressive association” in the First Amendment.[19 ]The court noted, in contrast to the First Amendment, Oregon’s right to assemble stands in a section separate and distinct from the rights of free speech and free exercise of religion.[20] The court also noted the differences between the text and context within their respective bodies of authority as well as differences between their historical underpinnings. Similarly, under article I, section 20 of the Oregon Constitution, the court has endorsed exacting scrutiny on a broader selection of classes than what is protected by the Equal Protection clause.[21] For example, under article I, section 20, Oregon courts have found unmarried homosexual couples to be not only a true class but a suspect class that is subject to particularly exacting scrutiny when determining if certain privileges and immunities have not been made available to the class.[22] Also, the public hearings rights protected by article I, section 10 have proved to be far more expansive than what is protected by the Due Process Clause.[23] The Oregon Supreme Court has held that under the Oregon Constitution, holding open hearings is a right that belongs to the public. In O’Leary, the court acknowledged that the only exceptions from the constitutional command to hold all trials and hearings open to the public are those hearings that were traditionally closed in 1859.[24] Unlike the federal courts, Oregon courts will not engage in a balancing test with this unqualified command from our Constitution.[25]

Sometimes these fruitful areas can be missed. For example, a question remains regarding whether Oregon’s constitutional protection against compelled self-incrimination should be extended to the corporate accused. With the corporate accused constantly subject to discovery demands, an issue exists regarding whether a corporation should be considered a “person” under article 1, section 12 and subject to protection from compelled self-incrimination. This question is particularly significant in light of the fact that other provisions of the Oregon Constitution have been found to apply to corporations. [26] Furthermore, the fact that the U.S. Supreme Court has construed the Fifth Amendment right against self-incrimination to apply only to natural persons, holding that corporations have no protection against compelled selfincrimination,[27 ]is no more binding an interpretation of our constitution then a well reasoned law review article.

The text of article I, section 12 states, “[n]o person shall be put in jeopardy twice for the same offence [sic], nor be compelled in any criminal prosecution to testify against himself.” Under the analysis spelled out in Liberty Northwest Insurance Corp. v. Oregon Insurance Guarantee Ass’n, the court would assume that the framers intended the text to carry the meaning ordinarily given to the words it contains.[28] To determine the “ordinary” meaning of those words to the framers we turn to the historical context and definitions of those words from contemporaneous dictionaries from the mid-nineteenth and early twentieth century.[29] Dictionaries published near the time the Oregon Constitution went into effect in 1859 defined “persons” to include corporate entities and corporations.[30]

Additionally, an examination of the historical context helps us ascertain the framers’ assumptions and intentions in their adoption of article I, section 12. Although there is no direct record of the Oregon framers’ intentions with respect to article I, section 12,[31] a survey of case law near the time the original constitutional provisions were approved offers insight into the historical and political arena within which the framers were working. During the late 1800s and early 1900s, various cases spoke to the understanding that the privilege against self-incrimination was applicable to both natural and corporate entities.[32] Finally, as stated above, Oregon courts have found numerous provisions of the Oregon Constitution to apply to corporations.[33] This is just one example of state constitutional law that has not been fully developed under an independent Oregon analysis.

By carefully analyzing any potential state constitutional issue using the methodology set forth by the Oregon Supreme Court,[34] and by keeping the analysis independent from the federal constitutional analysis, arguments can be made on behalf of our clients that may prevail even when a similar right would not have succeeded under the United States Constitution. Under the principle of “raise it or lose it,” a litigator’s particular attention to state constitutional rights may change the outcome of the case.

 

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[1] In an earlier article the author wrote on the constitutional rights of corporations, it was stated that article 1 section 12 did not apply to corporations. The statement was based on a federal constitutional analysis applied by the State Courts. Later, in representing a corporation served with interrogatories, the issue was freshly analyzed as a case of first impression under an Oregon constitutional analysis. Following that review it appears the earlier statement was in error. Perhaps this article is motivated by a desire to help others not make the same mistake.

[1] See Tanner v. Or. Health Sci. Univ., 971 P.2d 435, 444–48 (Or. Ct. App. 1998) (analyzing suspect classes under Oregon’s privileges and immunities clause).

[2] For example, in State v. Blocker, 630 P.2d 824, 827 (Or. Ct. App. 1981) the Oregon Supreme Court found unconstitutionally overbroad a state law that prohibited the possession of billy clubs because it violated article I, section 27 of the Oregon Constitution.

[3] State v. Soriano, 684 P2d 1220, 1222 (Or. Ct. App. 1984) (proclaiming that “a United States Supreme Court majority is no more binding in Oregon than is a United States Supreme Court minority, a decision of the Supreme Courts of Hawaii, California, or Georgia, or a well-reasoned law review article”).

[4] See State v. Smith, 725 P.2d 894, 906 (Or. 1986) (holding that the federal Miranda rule is sufficient under Oregon constitutional law, and noting that there is “no strong and compelling reason to overturn a long-standing precedent of this court in order to adopt a rule which we consider to be unnecessary and confusing under the present circumstances”).

[5] Mears v. Marshall, 909 P.2d 212, 213 (Or. 1996) (and if unresolved by the Supreme Court, then Oregon courts look to the appellate courts for persuasive authority, but will ultimately end up employing an independent analysis to reach their own conclusion).

[6] 625 P.2d 123, 126 (Or. 1981).

[7] Id. at 126.

[8] 666 P.2d 1316, 1319–21 (Or. 1983). The court declared that “a practice of deciding federal claims without attention to possibly decisive state issues can create an untenable position for this state’s system of discretionary Supreme Court review. It can also waste a good deal of time and effort of several courts and counsel and needlessly spur pronouncements by the United States Supreme Court on constitutional issues of national importance in a case to whose decision these may be irrelevant.” Id. at 1319 (referring to Justice Stevens’ concurring opinion in Oregon v. Kennedy, 456 U.S. 667, 681 n.1 (1982)).

[9] Id. at 1320–21. Later in State v. Hitz, the Oregon Supreme Court distinguished between raising an issue at trial (which is essential to preserving error), identifying a source as support (which is less essential) and making a particular argument (which was considered least essential). 766 P.2d 373, 375 (Or. 1988).

[10] Compare Kennedy, 666 P.2d at 1319–21, with State v. Mendez, 774 P.2d 1082, 1088 (Or. 1989) (declining to consider defendant’s state constitutional claim because it was not raised at trial, or adequately briefed or argued with independent state constitutional analysis). However, the court did address the federal claim, even though it was not raised at trial, because a case cited by defendant on appeal was decided on Sixth Amendment grounds. Id.

[11] Mendez, 774 P.2d at 1088; see also State v. Riggs, 923 P.2d 683, 684–85 (Or. Ct. App. 1996).

[12] Liberty Nw. Ins. Corp. v. Or. Ins. Guar. Ass’n, 136 P.3d 49, 54 (Or. Ct. App. 2006) (citing Priest v. Pearce, 840 P.2d 65, 66–67 (Or. 1992)); see also Billings v. Gates, 916 P.2d 291, 295 (Or. 1996) (citing Priest, 840 P.2d at 66–67).

[13] Lahmann v. Grand Aerie of Fraternal Order of Eagles, 121 P.3d 671, 677 (Or. Ct. App. 2005) (comparing article 1, section 26 to the right of “expressive association” under the First Amendment of the U.S. Constitution).

[14] 920 P.2d 535, 538–39 (Or. 1996).

[15] Id. at 539.

[16] Oregon’s unique article I, section 8 framework has been recently reaffirmed in State v. Ciancanelli, 121 P.3d 613 (Or. 2005).

[17] Lahmann, 121 P.3d at 677; In re Marriage of McGinley, 19 P.3d 954, 958–961 (Or. Ct. App. 2001); Tanner v. Or. Health Sci. Univ., 971 P.2d 435, 444–48 (Or. Ct. App. 1998); Oregonian Publ’g Co. v. O’Leary, 736 P.2d 173, 175–78 (Or. 1987).

[18] 121 P.3d at 677.

[19] Id.

[20] Tanner, 971 P.2d at 446–47. Although the court admitted the jurisprudence defining and construing article I, section 20, is far from complete and coherent, certain rules can be drawn to guide litigators, and gaps in the jurisprudence leave room for further independent argument and analysis. Id. at 445.

[21] Id. at 446–47.

[22] Article I, section 10, which provides for public hearings, is more protective against closed proceedings than the federal constitution. See O’Leary, 736 P.2d at 175–78.

[23] Id. at 177–78.

[24] See id. at 178. In its conclusion, the court held that “even assuming that the witness has a secrecy interest, it cannot limit the unqualified command of section 10 that justice shall be administered openly. The government cannot avoid a constitutional command by ‘balancing’ it against another of its obligations.” Id.

[25] See Ackerley Commc’ns, Inc. v. Multnomah County, 696 P.2d 1140, 1144 (Or. Ct. App. 1985) (recognizing that corporations have free speech rights under article I, section 8); see also McDowell Welding & Pipefitting, Inc. v. United States Gypsum Co., 193 P.3d 9, 14–20 (Or. 2008) (recognizing that corportations have rights to civil jury trials under article I, section 17).

[26] Hale v. Henkel, 201 U.S. 43, 74 (1906) (pronouncing that “there is a clear distinction . . . between an individual and a corporation, and. . . the latter has no right to refuse to submit its books and papers for an examination at the suit of the [S]tate.”). The Court explained that the corporation “is a creature of the [S]tate,” with powers limited by the State. Id. As such, the State may, in the exercise of its right to oversee the corporation, demand the production of corporate records. Id. at 75.

[27] Liberty Nw. Ins. Corp. v. Or. Ins. Guar. Ass’n, 136 P.3d 49, 54 (Or. Ct. App. 2006) (citing Ecumenical Ministries v. Or. State Lottery Comm’n, 871 P.2d 106, 111 (Or. 1994)); see also Kerr v. Bradbury, 89 P.3d 1227, 1230 (Or. Ct. App. 2004).

[28] Liberty Nw. Ins. Corp., 136 P.2d at 55 (citing Rico-Villalobos v. Giusto, 118 P.3d 246, 251–52 (Or. 2005)).

[29] City of Keizer v. Lake Labish Water Control Dist., 60 P.3d 557, 563 (Or. Ct. App. 2002).

[30] See Claudia Burton & Andrew Grade, A Legislative History of the Oregon Constitution of 1857 – Part I, 37 Willamette L. Rev. 469, 519 (2001).

[31] Wertheim v. Cont’l Ry. & Trust Co., 15 F. 716, 728 (C.C.S.D.N.Y. 1883); In re Knickerbocker Steamboat Co., 136 F. 956, 959 (S.D.N.Y. 1905); S. Ry. v. Bush, 26 So. 168, 174 (Ala. 1899); State v. Strait, 102 N.W. 913, 913–14 (Minn. 1905).

[32] See City of Keizer, 60 P.3d 557, 563 (Or. Ct. App. 2002) (noting that article XI, section 4, provides that “[n]o person’s property shall be taken by any corporation under authority of law, without compensation first being made”). After further examination of the text and history of that provision, the court concluded that “person” applies to artificial persons, including municipal corporations, noting: “authority strongly suggests that the framers would have understood the term ‘persons’…included…corporations.” Id. at 565. See also Ackerley Commc’ns, Inc. v. Multnomah County, 696 P.2d 1140 (Or. Ct.. App. 1985); McDowell Welding & Pipefitting, Inc. v. United States Gypsum Co., 193 P.3d 9 (Or. 2008).

[33] Originally set forth in Priest v. Pearce, 840 P.2d 65, 67 (Or. 1992).

“After a case has been tried and the evidence has been sifted […], a particular fact may be as clear and certain as a piece of crystal or a small diamond. A trial lawyer, however, must often deal with mixtures of sand and clay.”[3]

As litigators we pride ourselves on our ability to take the “sand and clay” we are initially given and develop it to persuade others that our client’s position is correct. We view it as our professional duty to use our skill and credibility on another person’s behalf. Ultimately, through passion and dedication we end up believing in our client’s case, even when our friends and colleagues express skepticism.

The difficulty lawyers face is to know when to step back and question the facts and circumstances when immersed in the work of zealous advocacy. Of course, many lawyers say, “If I have to investigate my own clients before acting on their behalf, I don’t want them as clients.” Or, put another way, “I am entitled to trust my client and what he has told me.”

These sentiments are understandable. But, without such investigation, we risk that the opinion letter we draft, the affidavit we provide, the demand letter we send, or the recommendation we give to withhold from production privileged documents, will be viewed in a different—even criminal—light. When facts that we represented as true turn out to be false, these routine acts of representation could become the grounds for a criminal indictment (against the lawyer and/or the client) or the basis for a disciplinary action by the Bar.

Generally, under Bar disciplinary rules, attorneys are not sanctioned for statements made in reliance on a client’s misrepresentation. However, an attorney may face criminal liability for such statements even when the attorney had no knowledge of the client’s deception.

Below is a brief survey of the regulations and criminal doctrines that counsel should be aware of when deciding whether it is necessary to obtain more facts before advocating on a client’s behalf.

I. Criminal and Regulatory Proceedings

Even if you have no knowledge that your client has given you false information, you are still at risk of criminal prosecution if you make misrepresentations to the court, opposing counsel or third parties in reliance on false information from your client. Prosecutions of lawyers have been brought absent evidence of deliberate misrepresentations, including prosecutions for mail and wire fraud, money laundering, racketeering, obstruction of justice, and perjury, among others.

For example, in U.S. v. Beckner, the government charged a former U.S. attorney and prominent trial lawyer with four counts of aiding and abetting his client’s wire fraud, obstruction of justice, and perjury. He was convicted on the aiding and abetting counts based solely on actions that most of us would consider routine representation: an argument in a brief that securities law did not apply to certain notes, rejection of an associate’s proposal that the firm interview investors, a decision not to produce documents based on assertion of a Fifth Amendment privilege, and a misquoted comment in a newspaper.[4] Indeed, reversing his conviction on appeal, the Fifth Circuit observed that the conviction was based solely on “what trial counsel is supposed to do.”[5]

Joseph Collins, an established transactional lawyer at Mayer Brown, is currently facing similar charges for actions he took during his representation of the now-bankrupt commodities broker Refco. The indictment accuses him of preparing misleading documents sent to investors, filing materially false statements with the SEC, and structuring transactions designed to improperly shuffle debt between Refco and third parties for accounting purposes.[6] Mr. Collins faces charges of securities fraud, wire fraud, and filing false statements with federal regulators.

As Beckner illustrates, investigations and prosecutions of lawyers based on their representation of clients are not limited to far-fetched or extreme circumstances. To avoid misuse of such actions, the Justice Department instituted internal procedures that govern the investigation and prosecution of attorneys based on their representation of clients.[7] Worrisome to counsel, these procedures contemplate nonprosecution agreements with clients under investigation in exchange for testimony against their attorneys.[8]

A. Mail and Wire Fraud

Although mail and wire fraud are probably the last thing on your mind when you are preparing a letter, e-mail or filing for a client, these federal crimes carry hefty maximum prison sentences and fines,[9] and, as interpreted, do not require an actual intent to defraud or actual knowledge of the misrepresentation.[10] Under Ninth Circuit precedent, both the intent and knowledge elements of these crimes can be shown by recklessness.[11] Nor is it necessary to show that the perpetrator of the fraud expected to profit or benefit personally from the fraud.[12] As a result, mail and wire fraud present surprisingly low hurdles for prosecution and should concern attorneys who communicate with third parties on behalf of their clients.[13]

Consider the following scenarios:

A lawyer helps a long-time client prepare a letter to one of the client’s lenders. The lawyer knows the letter will be e-mailed to the lender who will rely on information in the letter to decide whether to call certain loans to the client. The lawyer does not fact-check the letter, relying instead on the client and its accountant for the facts.

A lawyer drafts an opinion letter knowing it will be mailed to investors in his client’s business. The letter is designed to calm investor’s fears. The lawyer relies on facts about the client’s business supplied by the client who the lawyer knows is desperate and under extreme stress at the time. The lawyer knows the client will likely go under if the investors balk.

What is the likelihood that the attorney will be held liable for mail or wire fraud when the facts in these scenarios ultimately turn out to be false or misleading? The issue turns on what is reckless and what can be inferred from the lawyer’s relationship with the client.

Courts define reckless as a conscious disregard of a substantial and unjustifiable known risk.[14] The question then is what quantum of information tips a lawyer off that the situation is not what is being represented by the client. In other words, is the lawyer disregarding information that should lead him to doubt the truthfulness and accuracy of the client’s statement? Cases in non-attorney contexts suggest that, such things as relying on a client’s memory of a key date or other detail without checking to see if the client verified the accuracy of her memory could constitute disregarding a known risk that the client’s recollection is inaccurate. Relying on a client’s extravagant claims without any further investigation may also constitute a reckless disregard for the truth.[15] In such circumstances, if the lawyer proceeds without investigation and it turns out the client’s representation is inaccurate, both the client’s and the lawyer’s credibility are damaged and both may be subject to fraud charges.

In holding that specific intent to defraud may be proved by a showing of recklessness, the Ninth Circuit has also effectively modified the good faith defense generally available to require some level of investigation or diligence (i.e., no recklessness). Other circuits continue to recognize the traditional good faith defense—i.e., an honest belief in the truth or a showing of honest mistake excuses otherwise fraudulent conduct.[16] Courts in the Ninth Circuit, however, have held that a defendant is not entitled to a good faith instruction because it would be duplicative of a proper instruction on specific intent—in other words, if specific intent is proven, good faith is necessarily disproven.[17] Thus, because specific intent can be proven by recklessness alone, good faith is disproven by recklessness.

Of course, the government can prove actual knowledge of the misrepresentation by circumstantial evidence. Reviewing courts have held that evidence that a lawyer had a particularly close relationship with the client was sufficient to prove knowledge of the client’s fraud, despite no direct evidence of the lawyer’s knowledge. In one wire fraud case, the court suggested that knowledge of a client’s misrepresentation may be inferred by the jury from “an intimate association with the client’s activities,” such as that of an in-house lawyer.[18] But, in that case, where the lawyer was outside trial counsel, the court concluded that the evidence was not sufficient to support an inference that the lawyer knew about the client’s fraud. There, the court observed that the lawyer was not a confidant or everyday advisor to the client, that he specifically disclaimed sophistication in the matters later called into question (SEC matters), and that he sought assistance from other lawyers with expertise in those matters.[19] Similarly, another reviewing court held that a lawyer’s act of simply “papering a deal” or acting as a mere “scrivener” was insufficient to infer knowledge of a client’s misrepresentation.[20] In contrast, a lawyer’s acts of vouching for and promoting his client have been sufficient to support a jury’s inference of knowledge.[21]

The line between a lawyer who papers a deal and a lawyer who vouches for a client can be murky, however. In Schatz v. Rosenberg, where the court held that merely papering a deal could not support inferred knowledge of the client’s underlying misrepresentation, the lawyer had drafted a contract that included client misrepresentations but had not participated in contract negotiations or solicitations. Other courts have held that the evidence was insufficient when the attorney’s involvement was limited to revising or reviewing documents[22] or drafting documents where general misstatements contained therein could not be “specifically attributed” to the lawyer.[23] On the other hand, the evidence was sufficient to support an inference of knowledge in Bonavire v. Wampler, where the lawyer made personal affirmative representations about the client such as vouching that he was an “honest straightforward businessman.”[24]

The risk a lawyer will be held to have knowledge of a client misrepresentation increases the more the lawyer is personally involved in the deal. In Bonavire, the court noted that the lawyer not only vouched for the client but also acted as the escrow agent for the parties.[25] When a lawyer is also a friend of, investor in, or partner with the client, or receives fees in the form of shares in the client company the likelihood of inferred knowledge increases even more.[26] It is no surprise that multiple cases have successfully been brought under those circumstances.[27]

In summary, because the mens rea elements of mail and wire fraud may be satisfied by a showing of recklessness or inferences drawn from the lawyer’s relationship with the client or the lawyer’s acts of promoting or vouching for the client, a lawyer should conduct sufficient independent investigation and analysis of the client’s facts to feel confident in them before presenting them to third parties. The greater the lawyer’s connection to the client, the higher the risk to the lawyer if the representations turn out to be inaccurate. Lawyers who have a pecuniary interest in the client’s venture, a long-term relationship, a friendship or other particularly close relationship with the client are particularly at risk of being deemed to have acted recklessly or to have knowledge of or motive to participate in the fraud.

B. Other Criminal Statutes

a. Securities Fraud[28]

As is the case under the federal mail and wire fraud statutes, a lawyer can face liability under the state and federal securities laws without actual knowledge of the fraud or misrepresentation. Under federal securities law, the accused must have the intent to defraud buyers or sellers of securities and knowledge of the misrepresentation.[29] However, as in the mail and wire fraud context, the Ninth Circuit has held that reckless disregard for the truth satisfies these elements.[30]

Oregon law is more expansive than federal securities law in its scope. In Oregon, the attorney who drafts fraudulent securities offering material can be criminally liable under the Oregon Securities Fraud statute, ORS § 59.115(3).[31] Although the statute does not specify the culpable mental state required for a criminal conviction, the Oregon Court of Appeals has affirmed a criminal conviction where the prosecution plead and proved knowing misrepresentation.[32] However, the far lesser mens rea of negligence may also be sufficient. Arguably, because the securities statute is outside the criminal code and contains no mental state, ORS 161.605(3) applies, which allows criminal liability based on criminal negligence only.[33] Each criminal violation of the Oregon Security Fraud statute constitutes a Class B felony punishable by up to 10 years in prison and a $250,000 fine.[34]

b. Obstruction of Justice
Consider the following scenario: A client company asks if it can delete some flippant internal e-mails. No action has been filed against the client, but the client and the lawyer are aware of a weblog that has accused the CEO of insider trading and inflating reported revenue. The client assures the attorney that the accusations are unfounded and were made by a disgruntled employee. Concluding that the e-mails are not relevant to the accusations, are highly prejudicial, and deleting them is consistent with the client’s document retention policy, the attorney tells the client that it is alright to delete the e-mails. Ultimately both criminal and SEC actions are brought against the client and, in the face of a government subpoena, the client says, “my lawyer told me I could destroy the records.”

Is the lawyer guilty of obstruction of justice? If so, the lawyer could face up to 20 years in prison.[35]

Traditionally, obstruction of justice required a corrupt intent to obstruct a pending official proceeding.[36] Clearly, the lawyer in the above scenario would not be guilty of traditional obstruction. But, as modified by Sarbanes-Oxley, obstruction in many contexts no longer requires a pending proceeding[37] and, where the obstruction is of a federal agency investigation, it no longer requires a corrupt intent.[38] Under the obstruction actions created by Sarbanes-Oxley, it is sufficient that the defendant contemplated the possibility of a proceeding at the time the obstruction occurred.[39] And, in the context of non-pending federal agency proceedings (e.g., SEC investigations), the defendant need not have acted with corrupt intent.[40] Under this laxer standard, the lawyer in the scenario above could face liability because the lawyer knew a proceeding was theoretically possible (in light of the disgruntled employee’s complaint on the weblog) and nevertheless recommended deleting the e-mails. Although the lawyer did not intend to destroy relevant evidence, the lawyer intended to delete prejudicial e-mails, thus possibly satisfying the lesser mens rea (i.e., by intentionally impeding fact finding, albeit of irrelevant facts).[41]

A corrupt intent is still required to prove obstruction in other contexts (e.g., judicial investigations and proceedings and pending agency proceedings).[42] The Supreme Court has defined “knowingly corruptly,” the mens reain Section 1512(b)’s witness and jury tampering prohibition, as consciousness of wrongdoing, where wrongdoing is wrongful, immoral, depraved, and evil acts.[43] Despite this, an Oregon attorney was convicted of obstruction (but granted a new trial) based only on circumstantial evidence of knowledge.[44] There, the attorney received a call from a client who was in jail pending a criminal trial. The client asked the attorney to wind up the affairs of a small business unrelated to his crime. The client provided a list of instructions to relay to one of his employees, which included the location of a hidden envelope that he wanted destroyed. The attorney passed on the information and was subsequently arrested and prosecuted for obstruction of justice. The attorney argued that he thought he was legitimately helping his client secure his property and business assets in anticipation of a lengthy sentence; he testified that “none of the flags were up,” that he thought the letter was a love letter. The government’s theory of criminal intent was that any reasonable person, especially an attorney, would have known he was being asked to impair or destroy evidence when someone in jail calls him and requests that something be destroyed. The government did not argue that the attorney assisted in the destruction of the envelope to advance any personal interest of the attorney.[45]

A financial stake in the client’s business can be particularly problematic if the attorney is later accused of obstruction. Not only can the financial interest provide evidence of corrupt intent, it may provide a basis for viewing otherwise routine acts of representation as obstruction. In U.S. v. Cueto, a federal agent working undercover as a corrupt state liquor agent had solicited a bribe from the client as part of a sting operation on the client’s illegal gambling operation. The attorney reported the corrupt state agent to the state, asked the state prosecutor to file charges against the agent, and subsequently filed a civil complaint in state court alleging the agent was corrupt. Referring to the attorney’s financial interest in the client’s illegal gambling operation, the court concluded that the attorney’s motions and filings constituted obstruction.[46]

The law does provide a safe harbor under 18 U.S.C. § 1515(c): an attorney cannot be prosecuted for providing lawful, bona fide, legal services. But this safe harbor may provide little help when corruptly impeding legal process is by definition unlawful and otherwise legal motion practice can be “corrupt” in the wrong context. Particularly in agency investigations, where corrupt intent is not required, the risk that an attorney’s presumably lawful, bona fide advice (e.g., that a client need not produce a privileged document) may constitute obstruction is worrisome.

II. Bar Disciplinary Proceedings

The Oregon Rules of Professional Conduct prescribe the ethical standards for Oregon lawyers. Under the Rules a lawyer cannot assist a client in illegal conduct (Rule 1.2); a lawyer cannot make a materially false statement or omission of fact or law to a third person (Rule 4.1); a lawyer cannot knowingly make a materially false statement to a tribunal (Rule 1.6); and, broadly, a lawyer cannot engage in conduct involving dishonesty or misrepresentation (Rule 8.4).[47]

The Rules of Professional Conduct do not directly address whether or to what extent an attorney must investigate the accuracy of a client’s statements. The Rules require actual knowledge of a misrepresentation, but recognize that knowledge may be inferred from the circumstances.[48] Mere recklessness by an attorney as to the accuracy of his own statement will not subject him to discipline, however.[49]

Clearly, an attorney has actual knowledge when the client has informed the attorney of a fact.[50] The question is what circumstances trigger an inference of knowledge. In the following two examples, actual knowledge was not inferred from the circumstances:

Upon hearing his client’s mother testify that his client was not the father of her child, an attorney got “an inkling” that paternity was in question and believed further investigation was warranted. Later, without conducting any independent investigation, the lawyer prepared and filed an affidavit for his client, in which the client averred that he was the father. The court concluded that the evidence did not establish that the lawyer knew he was making a misrepresentation and therefore the conduct did not constitute disciplinable conduct.[51]

After conducting only a “cursory” review of a filing, an attorney filed bankruptcy schedules that contained material errors. The attorney considered his role in the filing to be minimal; he did not prepare the filing, sign it, or review the attached bankruptcy schedules for accuracy. He also had not participated in the client’s business operations. The court concluded that the evidence did not establish that the attorney acted “knowing that his conduct was culpable” and therefore the conduct was not disciplinable.[52]

However, the court did conclude that the following evidence was sufficient circumstantial evidence of a knowing misrepresentation in a letter drafted by an attorney to constitute disciplinable conduct: (1) the lawyer had participated in the negotiations underlying the representations in the letter; (2) the lawyer personally vouched for the information in the letter (the letter began with a statement that the accused lawyer’s signature was intended to confirm the representations contained in the letter); and (3) the lawyer admitted that he had read the letter in its entirety with an eye toward confirming the truth of the legal matters it contained and the representation at issue was conspicuously listed and legal in nature.[53]

In summary, a mere suspicion or inkling of a client misrepresentation is not sufficient to trigger a duty to investigate under the Rules. Nor do the Rules generally sanction reckless or careless reliance on client representations.[54] As in the criminal context, however, knowledge may be inferred where a lawyer has vouched for the client or the representation at issue.

III. Practice Tips

Traditionally, the Oregon Bar has enjoyed a congenial relationship with state and federal prosecutors. Many of the cases discussed above come from other jurisdictions. However, to protect both themselves and their clients, lawyers should undertake reasonable precautions to assure that the representations they make to third parties on their clients’ behalves are accurate.

In relying on your client’s statements, especially under exigent circumstances and tight time constraints, you will provide the maximum protection to your client and yourself if you step back and question the facts, viewing them as critically as the lawyer on the other side would. Talk to the key players, review the main documents and determine for yourself if what you are being asked to say or do on your client’s behalf makes sense in terms of the big picture. This assessment does not undercut the lawyer’s duty of zealous advocacy. Rather, it allows the lawyer to better serve the client. Your client may not always have the clearest sense of the facts or what statements are in their best interest, especially when they are betting their company’s or their financial future. It is easy to rush in and advocate for a factual position that—with time to investigate—turns out to be inaccurate. Such misrepresentations imperil both the client’s and the lawyer’s credibility and create possible criminal exposure. It is best in the words of the old cliché to “Stop, Look and Listen” to all the facts before crossing the street.

Of course, even after taking the precaution of stopping, looking and listening to the facts, a lawyer may still unwittingly act as a spokesperson for a client misrepresentation—whether in court or to the press, shareholders, potential investors, or some other third party. Recent fraud and obstruction cases provide examples of steps lawyers can take to minimize the risk that routine acts of representation will result in prosecution and conviction. For example, you should keep detailed log notes of your clients’ statements, the investigations you conduct, and the expert opinions you obtain. You should carefully avoid stepping over the line from advocacy to vouching. If you do become aware your client has implicated you as the lawyer in a fraud or has committed perjury or violated a discovery rule, you must counsel your client of the need to immediately correct the misrepresentation or violation and you must insure the misrepresentation or violation has in fact been corrected. If your client refuses to grant you authority to correct the misrepresentation or violation, you should withdraw. In any event, if you believe your client intentionally used you to perpetrate a fraud, there is a conflict of interest that warrants withdrawal. During a judicial proceeding, when a misstatement occurs, counsel must take steps to immediately correct the misstatement or move to withdraw. If not allowed by the court to withdraw, counsel must ensure that the misstatement is not integrated as part of trial counsel’s advocacy. Lawyers with personal, financial, long-term, or other close relationships with their clients should undertake these steps with extra care.

 

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[1] 1 Corinthians 13:12.

[2] Thanks and credit also go to Erin J. Snyder and Adam Gibbs for their assistance with preparation of this article.

[3] Nix v. Whiteside, 475 U.S. 157, 190 (1986) (Stevens, J. concurring).

[4] U.S. v. Beckner, 134 F.3d 714 (5th Cir. 1998). Donald Beckner’s client was under investigation by the SEC for fraudulently soliciting investments. The SEC obtained a preliminary injunction preventing the client from soliciting funds unless he used his own assets for security. In apparent compliance, the client continued fund raising by granting collateral mortgages on his residence. In response to suggested irregularities, Mr. Beckner took corrective action, but did not interview investors. Later, after learning that his client was improperly withholding investor files from the SEC, Mr. Beckner withdrew from the representation.

[5] 134 F.3d at 721. Mr. Beckner was tried three times for wire fraud based on these actions before his conviction was reversed on appeal.

[6] Indictment,U.S. v. Collins, Cr. 01170-LBS-1 (S.D.N.Y Dec. 17, 2007).

[7] See, e.g., United States Attorney’s Manual (USAM) at 9-2.032, 9-13.420 (notice, search warrant and subpoena requirements); Dec. 10, 1999 Blue Sheet from Assistant Attorney General James K. Robinson (recusal considerations); Department of Justice Criminal Resources Manual at §§ 2306-2307 (civil and criminal forfeiture requirements related to attorneys’ fees).

[8] USAM at 9-2.032. See U.S. v. Wallach, 935 F.2d 445, 458 (2d Cir. 1991) (overturning conviction of lawyer based on perjured client testimony).

[9] 18 U.S.C. §§ 1341 and 1343. The statutory maximum for mail and wire fraud is 20 years and/or a $250,000 fine (30 years and/or $1 million fine if a bank is involved).

[10] The mail and wire fraud statutes expressly require a scheme to defraud using the mails or wires and a specific intent to defraud. Id. §§ 1341 and 1343.

[11] See, e.g., U.S. v. Munoz, 233 F.3d 1117, 1136 (9th Cir. 2000); U.S. v. Beecroft, 608 F.2d 753, 757 (9th Cir. 1979). Of course, evidence of willfulness would also suffice for conviction. Such willfulness is found where there is a “high probability” of fraudulent conduct coupled with a deliberate avoidance of the truth. U.S. v. McDonald, 576 F.2d 1350, 1358 (9th Cir 1978).

[12] See, e.g., DeMier v. U.S., 616 F.2d 366, 369 (8th Cir. 1980) (citing Calnay v. U.S., 1 F.2d 926 (9th Cir. 1924)).

[13] In Collins, the four counts of wire fraud are based on four e-mails: one from the law firm’s Chicago office to its New York office, attaching a redline version of a letter from the client to an investor, and three others from the law firm to representatives of investors. Indictment at 51-52, supra note 6. Although the indictment alleges intent to defraud and knowledge of misrepresentations, it does not reveal what facts the government will rely on to prove those elements.

[14] U.S. v. Albers, 226 F.3d 989, 995 (9th Cir. 2000) (recklessness is deliberate disregard of a substantial and unjustifiable known risk); Farmer v. Brennan, 511 U.S. 825, 837 (1970) (“The criminal law, however, generally permits a finding of recklessness only when a person disregards a risk of harm of which he is aware.”).

[15] See U.S. v. Petry, 67 Fed. App’x 433, 434 (9th Cir. 2003) (defendant’s failure to confirm terms of his restraining order prior to buying a handgun was reckless); U.S. v. Cusino, 694 F.2d 185, 187 (9th Cir. 1982) (inventor’s failure to confirm claim that invention amplified energy by a 9:1 ratio was reckless).

[16] See, e.g., U.S. v. Alkins, 925 F.2d 541, 550 (2d Cir. 1991); U.S. v. Williams, 728 F.2d 1402, 1404 (11th Cir. 1984) (failure to give jury instruction that good faith is a complete defense is error where any evidentiary basis exists for defense). Where good faith is recognized as a complete defense, the prosecution has the burden of disproving the defendant’s good faith.

[17] See, e.g., Cusino, 694 F.2d at 188; U.S. v. Shipsey, 363 F.3d. 962, 967 (9th Cir. 2004).

[18] Beckner, 134 F.3d at 720.

[19] Id.

[20] Schatz v. Rosenberg, 943 F.2d 485, 495 (4th Cir. 1991).

[21] Bonavire v. Wampler, 779 F.2d 1011, 1014-15 (4th Cir. 1985).

[22] Renovitch v. Kaufman, 905 F.2d 1040 (7th Cir. 1990).

[23] Friedman v. Arizona World Nurseries, Ltd., 730 F. Supp. 521, 533 (S.D.N.Y. 1990)
[24] 779 F.2d at 1014.

[25] Id. at 1016.

[26] There is no express prohibition on such intermingling of business and professional relations between attorney and client. The Oregon Rules of Professional Conduct prohibit an attorney entering into a business transaction with a client where their interests will be adverse (ORPC 1.8(a)). The Rules also prohibit acquiring a proprietary interest in ongoing litigation (ORPC 18(i)).

[27] See, e.g., U.S. v. Wolf, 820 F.2d 1499, 1503 (9th Cir. 1987); U.S. v. Olano, 62 F.3d 1180 (9th Cir. 1987).

[28] For a detailed treatment see, Marc I. Steinberg, The Corporate/Securities Attorney as a “Moving Target,” 46 Washburn L. J. 1 (Fall 2006).

[29] 15 U.S.C §§ 78j(b) and 78ff; 17 C.F.R § 240.10b-5.

[30] U.S. v. Tarallo, 380 F.3d 1174, 1188-89 (9th Cir. 2004). Attorneys may also be liable under the Securities Exchange Act in SEC enforcement actions and third-party civil actions. 17 C.F.R. § 240.10b-5. Although the Supreme Court reaffirmed last term that there is no private cause of action for aiding and abetting securities fraud, secondary actors such as attorneys can be primarily liable under the Act in both the civil and enforcement contexts. Stoneridge v. Scientific-Atlanta, 128 S.Ct. 761, 771 (2008). Moreover, attorneys can be liable for aiding and abetting securities fraud in the SEC enforcement context. Primary liability can attach to a lawyer who makes a directly attributable statement (such as in an opinion letter) or who drafts an SEC document that the client subsequently files, even if the filing is not signed by or attributed to the lawyer. S.E.C. v. Wolfson, 2008 WL 4053027 at *10 (10th Cir. Sept. 2, 2008). In enforcement actions under section 10b-5, the SEC must prove that the lawyer (or other secondary actor) caused misstatements or omissions to be made with knowledge that those misstatements would reach investors. Id.

[31] O.R.S § 59.115(3). To prove a violation or civil liability under the Oregon securities fraud statute, the prosecutor or plaintiff need only prove that the defendant made a negligent misrepresentation or omission (as well as the other elements of the offense); no intent to defraud is required. State v. Pierre, 30 Or. App. 81, 86
(1977).

[32] State v. Jacobs, 55 Or. App. 406, 414 (1981).

[33] See id. (observing without further discussion that prosecutor elected to bring criminal charges pursuant to O.R.S. 161.105(3) provision); see O.R.S. § 165.105(3) (“the culpable commission of [an offense defined by a statute outside the Oregon Criminal Code] may be alleged and proved, in which case criminal negligence constitutes sufficient culpability”).

[34] O.R.S. §§ 59.991, 59.995, 161.605, and 161.625.

[35] See 18 U.S.C. § 1519 (providing for fines and a maximum prison term of 20 years); see also id. § 1512(k) (penalty for conspiracy to commit Section 1512 obstruction subjects conspirators to same penalties as those proscribed for the underlying offense).

[36] Under the traditional obstruction statute,18 U.S.C. § 1503, a grand jury authorized investigation (U.S. v. Aguilar, 515 U.S. 593 (1995)) or civil suit (U.S. v. Lundwall, 1 F.Supp.2d 249 (S.D.N.Y. 1998)) must be underway at the time the obstruction occurred. The defendant also has to know or have notice of the proceeding. U.S. v. Frankhauser, 80 F.3d 641, 650 (1st Cir. 1996).

[37] 18 U.S.C. §§ 1512(f) and 1519.

[38] Id.§ 1519 (including knowingly destroying a document with the intent to impede an investigation).

[39] Id.§§ 1512(f) and 1519 (no pending proceeding required); see also Arthur Anderson LLP v. U.S., 544 U.S. 696, 707-708 (2005) (holding that Section 1512 obstruction, which imposes liability for knowingly corruptly obstructing a non-pending official proceeding, requires that the proceeding must have been contemplated by defendant).

[40] 18 U.S.C. § 1519.

[41] See id. § 1512(f)(2) (the document need not be admissible or free from a claim of privilege).

[42] See, e.g., id. §§ 1503 (corrupt intent required to obstruct pending judicial proceedings), 1505 (corrupt intent required to obstruct administrative and congressional proceedings and inquiries) and 1512(c) (corrupt intent required to obstruct pending or non-pending judicial proceedings).

[43] Arthur Andersen, 544 U.S. at 705; see also id. at 705 n.9 (observing that definition of knowingly corruptly may not apply to Sections 1503 or 1505, where the word “corruptly” is not modified by the word “knowingly”) and 707 (“corrupt” conduct cannot be innocent).

[44] U.S. v. Kellington, 217 F.3d 1084 (9th Cir. 2000).

[45] Compare U.S. v. Cueto, 151 F.3d 620, 631 (7th Cir. 1998) (facts showing attorney’s financial interest in client’s illegal operation established corrupt intent to obstruct investigation of that operation).

[46] Id.

[47] ORPC 1.2, 4.1, 1.6, and 8.4(a)(3) respectively. ORPC 8.4(a)(3) does not specify a mental state. However, this rule—almost identical in substance to former DR 1-102(A)(3) and (4)—has been interpreted to require knowledge. See, e.g., Formal Opinion No. 2005-34, In re Hoffman, 14 D.B. Rptr. 121 (2000).
[48] ORPC 1.0(h).

[49] See, e.g., In re Skagen, 342 Or. 183, 203-204 (2006) (recklessness as to accuracy of billing statement not dishonest conduct under ORCP 8.4).

[50] In re Hawkins, 305 Or. 319, 324 (1988) (client told attorney of factual errors on consent form, which the attorney did not correct prior to filing).

[51] In re Trukositz, 312 Or. 621, 630-632 (1992).

[52] In re Conduct of Cobb, 345 Or. 106, 125 (2008).

[53] In re Conduct of Fitzhenry, 343 Or. 86, 105-06 (2007).

[54] Cobb, 345 Or. at 125 (discussing DR 1-102(A)(3) and observing that careless or reckless conduct may bring exposure to other forms of liability, but is insufficient to trigger discipline).