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Lawyers Can't Be Whistleblowers Says NY Judge

By Jonathan R. Tung, Esq. on December 10, 2015 | Last updated on March 21, 2019

As an in-house lawyer, what should you do if you have reason to believe that your client is up to no good? Can you sing?

Well, if you're in New York, you'd best keep your lips shut -- at least for the time being. Bloomberg reports that a New York State Court recently found that in its opinion, attorney-client confidentiality can preclude an attorney from being a whistleblower. What's more, ratting out on your client is a breach of professional ethics.

In-House Lawyer as Whistleblower

David Danon previously worked in-house for Vanguard, until he decided to expose allegations that the mutual fund had been systematically undercharging its affiliates in a scheme to reduce its tax liability. He brought a number of qui tam whistleblower suits in California, New Jersey, Texas, and New York; then he sat back and held out his hands.

Even California, known generally as a state that jealously guards client-confidences, did not seem to have any objections to Danon's status as an attorney. So far, the only jurisdiction in which this has been an issue so far is the state of New York. The judge ruled that the suit against Vanguard may proceed, but Danon cannot be a part of it, nor can he be allowed to procure a whistleblower award.

Reaction to the NY Ruling

Danon's lawyer, Stephen Sorensen, said that Danon plans to appeal the NY ruling. Meanwhile, Sorensen reports that Texas regulators gave Danon the thumbs up and have awarded him the tidy sum of $117,000 for his work. No word yet as to the other jurisdictions -- which also includes the SEC.

Kathleen Clark, professor of law at Washington University in St. Louis said that the ruling was a head scratcher and that it was surprising that the case would have triggered New York's ethics rule but not Pennsylvania's where both Danon and Vanguard are based.

In the meantime, in-house should probably take copious note and records of all shenanigans and be prepared to comply with court orders on a dime -- as fickle as they can be sometimes.

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