From: Mackay, Scott W [scott.w.mackay@lmco.com] Sent: Wednesday, December 18, 2002 9:33 AM To: 'SEC Rule Comments' Subject: File No. 33-8150.wp December 16, 2002 By Electronic Message Mr. Jonathan G. Katz Secretary United States Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0609 Re: Comments to Proposed Rule: Implementation of Standards of Professional Conduct for Attorneys (17 CFR Part 205) File No. 33-8150.wp Dear Mr. Katz: Lockheed Martin Corporation opposes the application of proposed Part 205, which serves as an amendment to Title 17, Chapter II, of the Code of Federal Regulations, to an issuer's employees who have law degrees and who work in non-legal capacities. As noted in the section-by-section discussion to proposed section 205.2, the definition of "appearing and practicing" is sufficiently broad to include an employee of an issuer who has a law degree but works outside the issuer's legal department in a non-legal capacity. In that regard, the Commission "requests comment on whether the definition should require, with respect to in-house counsel, that the attorney actually provide legal services to the issuer such that an attorney-client relationship exists, so as to exclude attorneys employed by issuers in non-legal capacities, even if they prepare portions of documents submitted to or filed with the Commission." As proposed, the definition of "appearing and practicing" is overly broad and is beyond the statutory authority provided to the Commission by Section 307 of the Sarbanes-Oxley Act of 2002. Section 307 authorizes rules regulating the conduct of those attorneys appearing and practicing before the Commission only in the representation of issuers. An employee of an issuer who has a law degree and works for the issuer in a non-legal capacity does not provide legal advice or other legal representation to an issuer and does not perform his or her duties "in the representation of" an issuer. Consequently, with respect to in-house counsel, the proposed definition of "appearing and practicing" should be limited to those in-house counsel who act "in the representation of the issuer," that is, by actually providing legal services to the issuer such that an attorney-client relationship exists. Issuers employ many individuals with law degrees - including individuals who are licensed or unlicensed to practice law and who are admitted or not admitted to a state bar - to work in non-legal capacities in a variety of functional areas outside the legal department, including, but not limited to, human resources, tax, finance, engineering, and contracts. These employees report to non-attorney supervisors in their respective functional areas or to non-attorney supervisors in programs or other components of the issuer's organization outside the legal department. These employees do not report to the issuer's chief legal officer (CLO) nor do they have a "supervisory attorney," within the meaning of that term as proposed in section 205.4. Unlike in-house counsel working in an issuer's legal department, an employee with law a degree working in a non-legal capacity does not provide legal representation for or serve in the role as a legal representative of the issuer. In recognition of that fact, courts have regularly held that communications of an employee with a law degree acting in a non-legal capacity with other employees of the entity are not protected by the attorney-client privilege or work product doctrine. See, e.g., Georgia Pacific Corp. v. GAF Roofing Mfg. Corp., 1996 WL 29392 (S.D.N.Y. 1996)(attorney employed by a company who negotiated a contract's environmental provisions did not do so as a lawyer and communications with him about the negotiation were not privileged). Section 307 of the Act, in directing the Commission to establish minimum standards of professional conduct for attorneys, specifically limits the scope of that authority to attorneys appearing and practicing before the Commission "in the representation of issuers" . . . [emphasis added]. See Proposed Section 205.1. Purpose and Scope. In its discussion of proposed section 205.3(a), the Commission appears to recognize that Congress sought to limit the scope of the implementing regulations to only those attorneys representing an issuer, explaining that section 205.3(a) is "grounded in a lawyer's well-established duty to act with reasonable competence and diligence in representing a client . . ." Absent the required legal representational relationship between an employee with a law degree working in a non-legal capacity and his or her issuer employer, proposed Part 205 is without statutory authority to include that employee within its scope. Moreover, practical considerations dictate that the definitions of attorney and "appearing and practicing" in proposed Part 205 should not include an employee with a law degree working for an issuer in a non-legal capacity. As proposed, Part 205 effectively makes an issuer's CLO responsible for the conduct and training of an issuer's employees with law degrees who not only do not work in a legal capacity, but who do not work for or report to the CLO and whose law degrees are unknown to the CLO. Proposed section 205.4, Responsibilities of Supervisory Attorneys, contemplates in section 205.4(b) that an issuer's CLO, who is defined as a supervisory attorney in proposed section 205.4(a), has the responsibility for ensuring that subordinate attorneys comply with the rule. As noted in the section-by-section discussion, proposed section 205.4(a) ". . . states that an issuers chief legal officer is a supervisory attorney, and cannot avoid responsibility under the rule by claiming a lack of knowledge of, or supervision over, the actions of subordinate attorneys." The discussion explains that section 205.4 is based, in part, on Rule 5.1 of the ABA's Model Rules, which (1) mandates that supervisory attorneys (including partners at law firms and attorneys exercising similar management responsibilities at law firms) must make reasonable efforts to ensure that attorneys at the firm confirm to the Rules of Professional Conduct; and (2) provides that a supervisory attorney may be held liable for violative conduct by another attorney which he or she knowingly ratifies or which he or she fails to prevent when able to do so. The CLO of an issuer, as a practical matter and analogous to a partner or other attorney with management responsibilities in a law firm, should be responsible under the proposed rule only for those attorneys over whom he or she has the authority to exercise control. Typically, a CLO's control extends over those attorneys in an issuer's legal department who report to him or her, whether directly, indirectly, or functionally. The effect of proposed Part 205 is to place the CLO of an issuer in the untenable position of being responsible for employees who happen to have law degrees, but who neither perform legal duties nor report to him or her within the legal organization. Similarly, the "up the ladder" reporting requirement contemplated by proposed Part 205 suffers from the same infirmity insofar as it contemplates that an employee with a law degree working for an issuer in a non-legal capacity outside the legal department will report evidence of material violations to the CLO. The reporting process outlined in proposed section 205.3 assumes that an issuer's attorneys work for the issuer's CLO and that any such attorney's journey up the reporting ladder would necessarily be through or ultimately to the CLO. As previously mentioned, employees of an issuer with law degrees who work in non-legal capacities typically do not report to another attorney nor do they have any reporting or organizational relationship with the legal department or the CLO. Proposed Part 205 ignores these practical realities and difficulties by seeking to include within its scope an issuer's employee with a law degree who works in a non-legal capacity. For the foregoing reasons, Lockheed Martin Corporation urges the Commission to modify the proposed definition of "appearing and practicing" in proposed section 205.2, to require, with respect to in-house counsel, that the attorney actually provide legal services to the issuer such that an attorney-client relationship exists, so as to exclude attorneys employed by issuers in non-legal capacities. Sincerely, /s/ Scott W. MacKay Associate General Counsel Litigation & Compliance Lockheed Martin Corporation 6801 Rockledge Drive Bethesda, Maryland 20817