BULLETIN
#32 Summer 2001

l BOOK REVIEW - An Essay on Professional Ethics
l NINTH CIRCUIT DECIDES IOLTA CASE CONTRARY TO FIFTH CIRCUIT DECISION
     IN MAZZONE'S FAVOR
l MANDATING UNEMPLOYMENT

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BOOK REVIEW

An Essay on Professional Ethics by Hon. George Sharswood, LL.D. 5th Ed., T. & J.W. Johnson & Co.

Reviewed by D. Tagliavia

With very little fanfare and with no hint of the significant merit of Judge Sharswood's treatise, the authors of the preface to the American Bar Association's Model Rules of Professional Conduct state that the original canons of professional ethics approved by the American Bar Association were based principally on the code adopted by the Alabama Bar Association, which, in turn, was taken from the lectures of Judge George Sharswood published in 1854 as An Essay on Professional Ethics.¹

In fact, the essay is remarkably rational. Given the mixture of rationality and irrationality embodied in the Model Rules, it is somewhat surprising to discover that one of its progenitors is so strikingly sound. What is not surprising is that the essay was written in the mid-nineteenth century.

Sharswood began the study of law "under the preceptorship" of Joseph Ingersoll, then one of the most distinguished advocates of the Pennsylvania bar. Sharswood was admitted to the practice of law at the usual age," and "being in easy circumstances made no haste to secure business but continued his studies with assiduous application."² A period of practice and elected office followed, culminating in Sharswood's appointment to the bench of the District Court of Philadelphia. In the 22 years that he sat on the district court, Sharswood wrote opinions in over 5,000 cases. In 1867 he was elected to the Supreme Court of Pennsylvania and in 1879 became its chief justice.

Sharswood first published his essay on professional ethics after delivering it to law students at the University of Pennsylvania under the title of "A Compend of Lectures on the Aims and Duties of the Profession of the Law." It begins with a discussion of the objective nature of the derivation of the law: "[I]n its true sense [the law] is not the work of mere will---not an act of intellectual caprice. It is a severe and necessary deduction from the relations of things."³

His understanding of the nature and purpose of government is patently Lockean; it is firmly rooted in individual rights. "The final cause," he says, "the reason why man was made a social being---is that society was necessary to the perfection of his physical, intellectual, and moral powers, in order to give the fullest return to the labor of his hands, and to secure the greatest advances in knowledge and wisdom. It is for no vain national power or glory, for no experimental abstraction, that governments are instituted among men. It is for man as an individual. It is to promote his development; and in that consists his true happiness.⁴ The proposition would be still more accurate were it said---

Society is constituted that men

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may be free---free to develop themselves---free to seek their own happiness, following their own instincts or conclusions. Without society---and government, which of course results from it---men would not be free. An individual in a state of isolation might defend himself from savage beasts, and more savage men, as long as his strength lasted, but when sickness or age came on, the product of the labor of his hands, accumulated by a wise foresight to meet such a contingency, would become the prey of the stronger. The comparatively weak-minded and ignorant would be constantly subject to the frauds of the more cunning."⁵

Equally remarkable as his embrace of these political principles is the fact that Sharswood felt it necessary to begin a treatise on legal ethics by endorsing them. Thus, he evidences at least an implicit understanding that professional ethics in our legal system must be derived from, and presumes, an understanding of these principles.⁶

The lawyer functions as part of what Sharswood calls the judiciary department and its function, in his view, is nothing less than spreading "the broad and impregnable shield of its protection over the life, limbs, liberty and property of the citizen, when invaded even by the will of the majority." The "broad and impregnable shield" is the system of laws that is the basis for its adjudication. The lawyer, in acting for his client, functions to assure the rightful application of those laws.

Having rooted his code of professional ethics in the principles of rational government, Sharswood goes on to prescribe specific precepts to guide counsel in his practice. Broadly stated, they are "fidelity to the court, fidelity to the client, and fidelity to the claims of truth and honor." From these broad principles are derived some of the canons which are recognizable in today's codes of ethics---the proscription against practicing deceit upon the court, warm zeal in the maintenance and defense of a client's rights, exertion of the utmost learning, avoidance and disclosure of conflicts of interest, to name a few.

While some of the precepts are familiar, they are cast in an interesting historic light and thus Sharswood's essay not only is commendable for its insight, but it is intriguing. For example, if an attorney represents a defendant he knows is guilty, Sharswood takes the position that it is basely immoral for him to attempt to pin the blame on someone else. By way of illustration, he describes with considerable concern the circumstances "attending the defence of Courvoisier, indicted for the murder of Lord William Russell," and the accusation after Courvoisier's conviction that his barrister, Charles Phillips, Esq., endeavored to fasten suspicion on others although Courvoisier had confessed his guilt to counsel.⁷

Sharswood's essay ends with the admonition "to use no falsehood." "Truth," he states, "in all its simplicity---truth to the court, client, and adversary---should be indeed the polar star of the lawyer." The ill consequences of veering from the truth are felt not only in the legal system but are, he recognizes, profoundly personal: "Let him begin by swerving from truth or fairness, in small particulars, he will find his character gone---whispered away, before he knows it."

Copies of Sharswood's essay are available in local academic law libraries. They can also be purchased online. It is an essay well worth reading, especially in light of ongoing efforts by the American Bar Association to revise the Model Rules under the auspices of the Ethics 2000

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Commission. TAFOL will have more to say on the subject of ethics and about Judge Sharswood in its forthcoming law review.
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Notes:

1. The American Bar Association approved 32 canons based on the Alabama model on August 27, 1908. Initially, the ABA treated the canons as private law governing lawyers who chose to join the ABA. However, in 1978, after the Antitrust Division of the Department of Justice stated that it had antitrust issues with lawyers agreeing together to abide by certain purportedly "ethical" restrictions on, for example, advertising or fees, the ABA formally acknowledged that its code was a "model" code, with the power of disciplinary enforcement residing within the judiciary.

2. See the "memorial" preceding the text of the essay's fifth edition.

3. Although Sharswood admits of the necessity of man's discovering "the relation of things," he is (like Locke) demonstrably religious and contends that man made law can only aim at certainty.

4. Sharswood is at some pains to say that he does not endorse a trend that espouses the idea that it is "the duty of government to promote the happiness of the people." "The phrase," he goes on to say, "may be interpreted so as to mean well, but it is a very inaccurate and unhappy one. It is the inalienable right of men to pursue their own happiness; each man under such restraints of law as will leave every other man equally free to do the same. The true, and only true object of government is to secure this right."

5. Sharswood's treatise contains an unusually emphatic endorsement of property rights. Sharswood states that although our Bill of Rights are "not mere enunciations of abstract principles, but solemn enactments by the people themselves, guarded by a sufficient sanction," he goes on to say that they have not "carried far enough their provision for the security of property from the unjust action of government." Property, he says, "eminently stands in need of every parchment barrier, which has been or can be thrown around it." His statement is prescient, particularly in light of the Ninth Circuit's recent holding in one of many IOLTA cases. See the IOLTA article infra.

6. While Sharswood's treatise addresses professional ethics in a legislative as well as an adjudicative context, he is quick to admonish lawyers to take a comprehensive view of their responsibility to the Constitution and laws both as legislators and practitioners.

7. Phillips denied the accusation.
Sharswood, however, is of the view that it is moral for an attorney to represent a criminal defendant he believes is guilty. He believes that to encourage an attorney to decline representation on the ground of the defendant's guilt invests the attorney with arbitrary discretion to determine a cause according to the attorney's own notions of justice. "Every case," he states, "is to be decided by the tribunal . . . upon the evidence, and upon the principles of law applicable to the facts. . . . The lawyer, who refuses his professional assistance because in his judgment the case is unjust and indefensible, usurps the function of both judge and jury." A number of Objectivists take a contrary position: that the lawyer who makes his services available to a defendant he believes is guilty, acts immorally. The legal profession in general follows Sharswood's view.

NINTH CIRCUIT DECIDES IOLTA CASE CONTRARY TO FIFTH CIRCUIT DECISION
IN MAZZONE'S FAVOR
With the Circuits Split, Supreme Court Review is Likely

The IOLTA saga continues. It is a study of how badly, and in how many absurd directions, law can be made to go astray if it is not objectively derived. In this case the culprit is the Takings Clause of the Fifth Amendment of the United States Constitution. Instead of generally proscribing the taking of property by the government, it forbids taking without just compensation. A great deal of doctrine has been spawned by the judiciary as a result in an effort to define when government theft is appropriate and when it is not, heaping bad principles on top of a doctrine that is at root immoral.

In our last issue we reported that former TAFOL president Michael Mazzone, as plaintiff in a case involving the Texas IOLTA program, scored a victory in the Fifth Circuit when that court held the program unconstitutional. Applying a so-called "per se" doctrinal analysis of the

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Takings Clause, the Fifth Circuit held that because the purpose of the Texas IOLTA program is to take all the interest generated from specified client-funds and use it to fund legal services for the indigent, the program makes no provision for payment of just compensation. In fact, a just compensation remedy would entail an "utterly pointless set of activities" because the IOLTA program would be compelled to compensate the interest owners dollar for dollar for the interest taken. Hence, the program was unconstitutional.

In contrast, the Ninth Circuit utilized the so-called "ad hoc" doctrinal analysis of the Takings Clause. It examined an IOLTA program in Washington applicable to "Limited Practice Officers" (LPOs) performing document preparation incident to real estate closings. In applying the ad hoc analysis it used a three-factor test to determine whether the program passed constitutional muster. It examined whether there was an economic impact of IOLTA regulations on the clients whose funds were deposited in IOLTA accounts, the extent to which the regulations interfered with the clients' distinct investment-backed expectations, and the "character" of the governmental action.

As a preliminary matter the Ninth Circuit concluded that there was no economic impact on the LPOs' clients from the taking of their interest. Here is a synopsis of the legerdemain by which the court reached that conclusion: Federal banking regulations restrict the setting up of interest-bearing demand or checking accounts (NOW accounts) for pooled funds of individuals who deposit money in small amounts or for short periods of time. These regulations apply to for-profit organizations. Thus, escrow and title companies generally do not use NOW accounts because of the expense and difficulty involved in crediting the proper amount of interest to each affected person and because many of their clients are for-profit organizations. IOLTA mandates the deposit of such funds in IOLTA accounts and skirts the for-profit issue by dedicating the funds to indigent representation. Therefore, the court "reasoned" that because no interest would be earned on client funds in absence of the IOLTA program, there was no economic impact on the clients.

Likewise, the Ninth Circuit concluded that the IOLTA program did not interfere with the clients' distinct investment-backed expectations.

Lastly, and most revealingly, the Ninth Circuit concluded that there was no taking at all because of the "character" of the government action. Essentially, what the court said was that if you view the principal and interest in the aggregate, what you have is not the taking of 100% of the clients' property, but the "regulation" of the aggregate. Such regulation is appropriate if the government's action is imbued with the right "character."

It is so imbued because both the banking industry and the legal profession are already highly regulated such that "this additional unobtrusive regulation" does not exceed what is just and fair. The program is just and fair in the court's view because the LPOs' clients are not being singled out to bear a burden that should be borne by the public as a whole. "They, as participants in our legal system, are required to place their money in IOLTA trust accounts that generate funds at no cost to them and that expand [someone else's] access to the legal system from which they benefit." This, of course, is a perversion of the word "benefit." Only if one misconceives of a "benefit" in terms of collectivist or altruistic notions can one imagine that a benefit has been conferred. Clearly, the clients do not benefit individually since the interest is unlikely to be used to defray their legal costs.

Just to be sure the coffin was nailed down beyond all hope of either principal or interest

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escaping, the Ninth Circuit stated that even if a taking had occurred, no compensation would be due because the LPOs' clients did not lose anything.

However, the Ninth Circuit remanded the case for consideration of First Amendment issues. The court directed the district court below to determine what speech, if any, was at issue and whether the IOLTA program violated any rights the clients had emanating from the First Amendment.

Given that there is now a split in the circuits on the issue of whether IOLTA is unconstitutional under the Takings Clause, the issue may yet go up again to the Supreme Court. Stay tuned.

MANDATING UNEMPLOYMENT

Living wage laws, the altruist's modernized euphemism for compulsory wage rates, have met a setback, of sorts, in a Missouri lower-court ruling. Attempting to avoid state-law preemption which barred cities from imposing minimum wage laws higher than the state's, St. Louis voters adopted a living wage ordinance requiring that contractors who, directly or indirectly, deal with the city must pay $8.84 an hour, with health care benefits, or $10.76 without. Striking down the ordinance, the Missouri Circuit Court found three fatal errors: (a) the title of the legislation did not match its core purpose, violating the state constitution; (b) imposing "comprehensive family medical coverage" on city contractors was unconstitutionally vague, and (c) the ordinance was in conflict with state-mandated minimum wage laws. Elaborating the final point, the judge found that private enterprise, having little or no direct connection to the city's grants or subsidies, would be required to pay the living wage rates. As an example, an accountant retained by a grantee of the city to audit the grantee's books at a site that was receiving financial aid would be subject to the wage requirements of the ordinance, and the requirement would have to be maintained long after the city's financial assistance was terminated. This, the court held, caused the ordinance to be in conflict with the state minimum wage law.¹

The stricken legislation was bad both morally and economically. Distilling the paradoxes of minimum wage laws, monopolistic labor unions and unemployment, Ayn Rand in 1963 wrote, "As a result of the high [union-coerced] wage rates, employers can afford to hire fewer workers; as a result of curtailed production, employers need fewer workers. Thus, one group of workers obtains unjustifiably high wages at the expense of other workers who are unable to find jobs at all. This---in conjunction with minimum wage laws---is the cause of widespread unemployment. Unemployment is the inevitable result of forcing wage rates above their free-market level. In a free economy, in which neither employers nor workers are subject to coercion, wage rates always tend toward the level at which all those who seek employment will be able to obtain it.

"It is relevant to consider against what obstacles businessmen have had to fight and to go on producing---when one hears labor leaders proclaiming, in indignant tones, the workers' right to a ''larger share'' of the ''national product.'' To paraphrase John Galt: A larger share---provided by whom? . . . For excellent, more detailed discussion of these issues, see Ludwig von Mises, Planning for Freedom, especially the chapter entitled ''Wages, Unemployment and Inflation,'' and Henry Hazlitt, Economics in One Lesson (New York: Harper and Brothers, 1946), especially the chapters entitled "Minimum Wage Laws'' and ''Do Unions Really Raise Wages?''²

The City of St. Louis has been spared increased unemployment---temporarily. Temporarily

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because the court did not rule living wage laws inherently unconstitutional. In fact, as a local leader of the Association of Community Organizations for Reform Now (ACORN) declared, the judge had laid out the ways that the ordinance could be changed to make it legal.
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References:

1. Missouri Hotel and Motel Assn. v. City of St. Louis, Div. 3, Mo. 22nd Cir. Ct. (7/18/01)

2. Capitalism: The Unknown Ideal, Signet PB, pages 86, 88
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Copyright © 2001 The Association for Objective Law. All rights reserved. The Association for Objective Law is a Missouri non-profit corporation whose purpose is to advance Objectivism, the philosophy of Ayn Rand, as the basis of a proper legal system.