But VAC strives to represent its members and other in-house counsel of zealous prosecutors who confuse legal practice – and the underlying relationship between lawyer and client – with just being another employee or executive. In addition, we would like to provide an analysis of these trends and practical suggestions to help you find the difficult path to balancing your role as a passionate lawyer, prudent and confidential advisor, chief compliance and business leader, and ethical guardian responsible for managing business risk. Custodial responsibility – the framework in which actors such as law firms, investment banks and accountants are held accountable for the wrongs committed by their corporate clients – is one of the most widely used strategies to control corporate misconduct. However, it faces several recognized shortcomings: custodians can do more to avoid liability than to prevent misconduct by their clients; Custodians are financially dependent on clients whose behaviour they need to monitor; And multiple gatekeepers act on important transactions and interact with each other in ways that can lead to gaps and overlaps in the control network, undermining its deterrent power. But there are times when individuals abuse this right by filing repeated and often frivolous documents that place an undue burden on the justice system, incurring unnecessary costs to the parties, and sometimes amounting to harassment of litigants and court staff. In these situations, North Carolina courts have the power to stop the behavior. Judges are empowered to seize «custodial orders» – sometimes referred to as «pre-filing orders» – that prevent a person from filing new lawsuits or other documents without first seeking court approval. See General Succession of Dalenko v. Monroe, 197 N.C. App.
231 (2009). Q: Why shouldn`t in-house counsel be held accountable as custodians, as this could improve the company`s compliance? A: This argument is superficially appealing, but it is profoundly counterproductive to hold business consultants criminally or civilly liable for conduct they do not control. As with most things in this context, the analysis begins with the ethical rules. In the jurisdictions of the developed world, lawyers are called upon to represent their clients diligently within the limits of the law. These lawyers are required to advise their clients on the law, among other things, but they are not responsible for making the underlying decisions that belong solely to the client. Meaning: The responsibility of guards (i.e. the detention of in-house lawyers for the conduct of their clients) criminalizes the exercise of the law. Not only does he misunderstand the relationship between lawyer and client, but he also undermines the goal he seeks to achieve, which is to improve compliance with the law.
I examine how immunity works from the perspective of an underwriter trading on the basis of a nominative offer of securities. I am considering a case of securities fraud by an issuer where its underwriter suspected misconduct early in the transaction process and complied with its reporting obligation by informing regulators of its suspicions. If immunity were interpreted restrictively, the insurer would not automatically be exempt from liability under conventional liability regimes such as article 11 and rule 10b(5). After reporting its suspicions, as required by the new obligation, the insurer should still exercise due diligence to avoid possible liability under section 11 and rule 10b(5). These traditional custodial responsibility provisions require custodians to do more than just report their suspicions. Under a narrow interpretation, immunity could even increase the subscriber`s liability under article 11 and rule 10b(5), since a subscriber suspecting misconduct could be considered aware of the «red flags» and must therefore exercise more due diligence to avoid liability under article 11 and rule 10b(5) than would otherwise be the case. According to a narrow interpretation, the proposed reporting obligation would represent additional costs for the insurer, rather than offering potential relief from existing obligations through immunity. Beyond ethics: When internal consultants are primarily represented within an organization, employees may be less open to them about alleged misconduct or not approach them at all. On the contrary, this misconduct could escalate or become something even more harmful. In response to this dynamic, the government could then try to blame in-house lawyers for what they should have known, but unfortunately, this kind of arbitrary responsibility would only convince the best of us to look for another, less dangerous profession.
While the proposal admirably corrects many of the shortcomings in custodial liability regimes, I submit that its effectiveness will depend on how it interacts with the traditional custodian regimes to which it overlaps. This question depends on how the immunity that the proposal grants to guardians would work. Under the proposed immunity, custodians who report their suspicions of client misconduct will be exempt from liability not only for enforcement actions under the proposed regime, but also for actions «arising out of the information they provide»[3], provided they «continue to act in good faith.» Nevertheless, I am in favour of the proposal and finally propose an extension to encourage guardians to work not with regulators, but with other custodians working in the same commercial transaction. The extension addresses the possibility that custodians will not suspect misconduct – to trigger the proposed reporting requirement – unless they first pool their information or combine their expertise. Description: Previously, lawyers` professional ethics focused on what lawyers should and should not do because they represent their clients. The cry «Where were all the lawyers?» in response to a major corporate debacle puts business consultants in the crosshairs of «gatekeepers» and liability concerns, suggesting that lawyers should be responsible not only for their own conduct and standards, but also for those of their clients. Of course, if one of our members or another in-house lawyer is individually responsible, we do not defend this type of behavior. Rotten apples should be punished appropriately. The proposal holds promise for overcoming the problems often affected by custodial liability regimes. By formulating their threshold for guardian actions in terms that are less likely to strategically defeat guardians, e.B. through a «head in the sand» approach, the strategy creates stronger incentives for guards to vigilantly monitor their clients.
By lowering the threshold at which custodians must act, it requires custodians to be vigilant at an early stage of the transaction process, reducing the likelihood that close ties with clients will cause custodians and their representatives to tolerate client misconduct. And by sharing this information with a single party (a designated regulator) that has the potential to leverage additional expertise as needed, the proposal aims to address the expertise gaps that may arise from the presence of multiple custodians in commercial transactions. A caretaker is the person who coordinates care in a managed care plan. This is the term used to describe the role of the primary care physician in an HMO plan. In an HMO, caretakers are the first point of contact for questions about health needs. A guard also approves referrals to specialists, hospitals, laboratories and other medical services. Can the clerk issue a custodial order on his or her own responsibility? Ideally, the guard`s command gives the clerk at least a superficial instruction in case the work is ignored. In the past, some orders have directed the clerk not to accept bids that violate orders. This type of mandate may be impractical because, in fact, it requires clerks to recognize these orders as soon as they are accepted. A better approach is for the judge to authorize the court clerk`s office not to file documents if the clerk acknowledges the inadequacy of the document at the time of submission. However, the order may order the registrar to take the paper and inform the competent court that the party to the proceedings has attempted to file the document.
The difficulty of calibrating immunity reflects a deeper concern about custodial liability regimes. They are difficult, if not impossible, to justify, at least to the satisfaction of policymakers who are reluctant to impose additional responsibility. This difficulty stems from the need to establish the superiority of custodian responsibility over more direct forms of liability – namely the liability of individuals and companies. The custodian`s liability serves to complement these other forces to deter misconduct and is only justified if, with it, it deters corporate misconduct more profitably than alternative regimes. The task of justifying the custodian`s responsibility depends on compliance with many complex conditions that cannot be easily established. Even more difficult is the task of a system (such as the one proposed) that imposes a new form of accountability on existing guardian regimes and creates complex interactions between regimes. The idea that the right role of a lawyer is not simply to act as a spokesperson for his client, but as a kind of guardian, whatever definition one may give to such a duty, is not new. Elihu Root, a prominent New York lawyer whose turn-of-the-century practice involved representing Andrew Carnegie, said, «Half of a decent lawyer`s practice is telling potential clients that they`re fucking fools and they should stop.»