Mod 2230


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Student Name


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Author Note


            This paper was prepared for [INSERT COURSE NAME], [INSERT COURSE ASSIGNMENT] taught by [INSERT INSTRUCTOR’S NAME].





Directions: Please review the questions below and, write a 3-4 page essay analyzing each legal issue presented in this week’s modules readings.  Please apply APA format with in text citing, reference list, and double-space.  Limit your word count to 2,000 words.  Please visit the Academic Resource Center for help with APA format.


If applicable, include arguments from each side.  If a criminal case exists, you would present arguments from the prosecutor and the defense attorney.  If it is a civil case, then you would argue as a plaintiff and defense lawyer.  Be sure that your answers respond to the questions.  Do not restate the problem in your answer.  Mention the facts where relevant to your analysis.  If you are asked for a recommendation, be sure to include one, but do not fail to consider counterarguments.  If your answer depends upon essential information not set forth in the question, state what that information is and how it affects your answer.  If facts are missing in your argument, please state what facts would be pertinent to each party’s case; also list any facts or information that could potentially damage a party’s case.


Read the questions carefully and attempt to answer each directly.  Clear, well-organized, and concise writing will be rewarded.  If there are ambiguities in the questions, discuss the ambiguity and how it impacts your answer.  You may consult your text, lecture notes, or outlines that you have personally prepared.


Submit your responses to the following:




1.   The Georgetown Journal of Legal Ethics published a law review article in the Summer of 2007 entitled “Martha Stewart’s Insider Trading Case:  A Practical Application of Rule 2.1”.  Find this article using LIRN.  What is insider trading?  What were the facts leading up to Martha Stewart being questioned by the SEC?  What is the SEC?  Why was Martha Stewart accused of insider trading?  Was Martha Stewart convicted of insider trading?  Why did Martha Stewart receive jail time?  In the author’s opinion, where did her attorney go wrong?  Do you agree with the author’s assessment?




2.   RICO is Racketeer Influenced and Corrupt Organization Act.  What is it and what criminal entity was it created to target?




3.   What effect did the Supreme Court decision in New York Times Co. v Sullivanhave on the laws of defamation as they existed in the various states?




4.   Torts are wrongful act causing injury to another person or damage to another’s property.  Name a tort and describe what its elements are and provide an example.




5.   Negligence is a breach of a legal duty to act carefully, resulting in injury to another or damage to another’s property.  This lawsuit is normal in a car accident.  If individuals have an accident, what would the plaintiff need to prove if he or she sues under negligence?




6.   Summary judgment is a motion for immediate judgment filed by either plaintiff or defendant based on the information in the complaint and the answer.  How does this affect the outcome of a trial or case?




7.   How can a police officer determine whether a driver is "under the influence"?




8.   Compare the burden of proof required in a civil case mentioned in Chapter 5 with the burden of proof required in a criminal case as mentioned in Chapter 3.  Why do you think a higher burden of proof is required in a criminal case?








Module 2 Journal Assignment


Directions:  Write 2-3 paragraphs reflecting on the following statements:  Procedures for handling criminal matters are often thought to be cumbersome and heavily weighted in favor of the accused. It is important to emphasize that our country was founded with the idea that a person is absolutely considered innocent until proven guilty, and that it is up to the government to prove that guilt. To accomplish this, everything possible must be done to protect the rights of the accused, even though some guilty parties may go free as a result.  Please apply APA format with in text citing, reference list, and double-space.  Limit your word count to 400 words.  Please visit the Academic Resource Center for help with APA format.


























Martha Stewart's Insider Trading Case: A Practical Application  of Rule   2.1


Hoffman, Drew


The Georgetown Journal of Legal Ethics; Summer 2007; 20, 3; ABI/INFORM Complete pg. 707


Martha Stewart's Insider Trading Case: A Practical Application  of Rule 2.1






"Arrogance." That seems to be the public perception of why Martha Stewart received significant criminal penalties and suffered major setbacks in her business ventures for her role in the ImClone Systems, Incorporated ("ImClone") insider trading scandal. However, public perception is often misguided, if not completely wrong, and thus, further research is required to determine where the blame should be placed. After examining the factual circumstances surrounding the insider trading scandal, it becomes clear that Stewart's arrogance did play a considerable role in her convictions and setbacks. Nonetheless, there is one individual who could have, and should have, attempted to stop Stewart from lying about her actions: Stewart's pretrial counsel John Savarese.


This note contains three sections. The first two sections provide a background for Stewart's case. Part I lays out the facts of the case, and Part II presents a synopsis of insider trading law in order to lay the foundation for how Savarese should have advised Stewart in light of the penalties she faced. Finally, Part III focuses on a lawyer's role as an advisor as stated in Rule 2.1 of the Model Rules of Professional Conduct ("Model Rules"). In Part III, Rule 2.1 is broken into two components in order to identify the choices Savarese could have made based on his role as a legal advisor and to demonstrate how Rule 2.1, if followed closely, would have allowed Savarese to have been an effective advisor.




In December 2001, Martha Stewart's friend Sam Waksal, CEO of a biotech company called ImClone, learned that the FDA was going to reject ImClone's application for approval of its cancer drug, Erbitux. 1 Waksal attempted to call his stock broker, Peter Bacanovic at Merrill Lynch, but Bacanovic was on vacation.2 However, Waksal did speak with Doug Faneuil, Bacanovic's assistant, and  told


* J.D./M.B.A., Georgetown University (expected May  2008).


1.         See Press Release, U.S. Securities and Exchange Commission, SEC Charges Martha Stewart with Illegal Insider Trading (June 4, 2003), available at


2.         See Patricia Hurtado, Broker's Assistant Fined $2,000 for Pan in Stewan Scandal, KNIGHT RIDDER TRIB.


Bus. NEWS, Jul. 24, 2004, at 1.




708      THE GEORGETOWN  JOURNAL   OF  LEGAL  ETHICS          [Vol. 20:707


him to sell Waksal's stock in ImClone.3 Following this exchange, Faneuil called Bacanovic and explained the situation.4 Bacanovic, who also served as Stewart's broker, told Faneuil to call Stewart and give her the story.5


Faneuil spoke with Stewart telling her that he thought ImClone's share price was going to drop because Waksal was trying to cash out.6 Upon learning this, Stewart decided to sell all 3,928 of her shares in ImClone, giving this order on December 27, 2001.7 The sale occurred one day prior to the announcement concerning Erbitux's rejection.8


Stewart avoided losses of $45,673 by selling her 3,928 shares of ImClone.9 At the time, Martha Stewart claimed that she was worth $750 million, and thus, this loss would have been equivalent to approximately .006% of her total net worth, beyond miniscule from a business perspective. 10 Therefore, her business risk in not performing this trade was next to nothing. Not only were Stewart's fines about four times greater than what she saved by selling when she did but her many business ventures incurred significant losses. 11 Had Stewart stopped to do a risk-reward analysis, she probably would have realized that the sale was a bad move, particularly with the shadow of pervasive corporate corruption that the Enron fraud had cast upon the business community at that time. 12


Following  the trade, both  Merrill  Lynch  and the SEC began   investigating


3.         See id.


4.         See id.


5.         See Stewart continues to deny the allegations, but these are the allegations brought forth by the Securities Exchange Commission ("SEC") and she was found guilty based upon the facts given by the SEC. Furthermore, a number of witnesses testified that this was the way things transpired. See Keith Naughton and Barney Gimbel, Martha's Fall, NEWSWEEK, March 15, 2004, at 28. Doug Faneuil, Stewart's assistant Ann Armstrong, and Stewart's friend Marianna Pasternak all confirmed the allegations which Stewart denied.


6.         See id., at 28.


7.         See id.


8.         See Deboralt Lohse, Scandal Snares Martha Stewart, KN!GJIT RIDDER Tum. Bus. NEWS, June 5, 2003, at l.


9.         This is how much she would have saved had she waited to sell the shares until the next trading day, December 31, 2001, when the news concerning Erbitux's rejection was released.


10.       See Interview by Barbara Walters with Martha Stewart, 20/20 (Nov. 7, 2003). Stewart claimed that the


$45,673 was .006% of her total net worth.


11.       See Wlkipedia She was ordered to pay a $30,000 fine in the criminal trial and a $195,000 fine from the civil trial, equaling $225,000, which is


4.93 times $45,673. See also, Brooks Barnes, Moving the Market: Martha Stewart Settles With SEC on Civil Charges, THE WALL ST. J. JoURNAL, Aug. 8, 2006, at C3. Her business setbacks included a ban from serving on the Board or as a Director of any publicly traded company for five years, a ban from serving as CEO or chairwoman of her own company, Martha Stewart Omnimedia, until 2011, having her show dropped from UPN and CBS, and having her magazine shelved indefinitely.


12.       See Keith Naughton & Barney Gimbel, Martha's Fall, NEWSWEEK, March 15, 2004, at 28. The authors claim that Martha's trial "became a symbol of an era when it seemed that everyone was getting rich, but it was really only the well connected." Id. Furthermore, the article points out that one member of her jury, juror Hartridge, cast Martha as "the poster CEO for all the corporate scandals and hoped her conviction is an overdue victory for the little guy. Investors may feel a little more comfortable now that they can invest in the market and not worry about these scams and that they'll lose their 40l(k)," said Hartridge.




Stewart's trade, leading to the questioning of Bacanovic and Faneuil. 13 Itis at this critical juncture where Savarese should have stepped in and explained the possible implications of lying about this trade. Savarese accompanied Stewart to her first interview with the SEC, but nonetheless, Stewart, in conjunction with Bacanovic  and Faneuil, fabricated  a story to explain the remarkably  coincidental


sale of stock.14


Faneuil, at Bacanovic's suggestion, told the investigators that Stewart sold her stock in order to offset other tax gains.15 Both Bacanovic and Stewart claimed that they were in agreement to sell ImClone if it fell below $60.16 Further, Stewart's assistant witnessed Stewart erase Bacanovic's message concerning ImClone's impending downward turn though Stewart later told investigators that she did not know if there ever was a message. 17 Following the erasing of the message, Bacanovic produced a worksheet with an "@ $60" entry that referred to the alleged  agreement  between  Stewart and Bacanovic  to sell ImClone  if  it  fell


below $60.18 It is worth noting that the only entry on the worksheet that was in different ink was the "@  $60"  entry.19


There were a number of charges brought against Stewart, who  continues to claim that she did nothing wrong.20 These charges  included,  inter  alia, conspiracy to obstruct the SEC's investigation, making false statements, and perjury. 21 The insider trading charges for the actual trade, however, were stayed until the completion of Stewart's criminal trial regarding lying about the trade.22 Eventually the insider trading charges were settled. Under the terms of the settlement, Stewart agreed to pay $195,081 and did not have to admit or deny any wrongdoing. 23 Thus, the most significant penalties Stewart received, such as jail time, arose from the cover-up. The likelihood of charges being brought, while   not


13.       See Press Release, SEC Charges Martha Stewart with Illegal Insider Trading (June 4, 2003), available at


14.       See id.


15.       See Patricia Hurtado, supra note 2, at l.


16.       See Jake Ulick, Martha Revelations-a Year Later, CNN/, May 19, 2003, http://


17.       See Mark Hamblett, Prosecution Sees Stewart's Lawyer as Potential Witness, N.Y. L. J., Feb. 11, 2004,


available at 1076428295505.


18.       See Matthew Rose and Kara Scannell, Executives on Trial: Stewart's Case Goes to the Jury; Panel Deliberates for Four Hours and Asks to See Key Testimony; Panel Will Return This Morning, THE WALL ST. J., Mar. 4, 2004, at Cl.


19.       See Friend: Martha Aware of Waksal's Sale, CNN/, May 26, 2006,




20.       See Martha Stewart to Contest SEC Insider Trading Charges, USA TODAY, May 26, 2006, available at


21.       United States v. Stewart, 433 F.3d 273, 279 (2d. Cir. 2006); see Friend: Martha Aware of Waksal's Sale,


CNN/, May 26, 2006, 9/news/companies/martha/index.htrn.


22.       See Martha Stewart to Contest SEC Insider Trading Charges, USA Today, May, 26, 2006, available at


23.       See Litigation Release No. 19794, U.S. Securities and Exchange Commission, SEC v. Martha Stewart and Peter Bacanovic, Compl. 03 CV 4070 (Aug. 7, 2006), available at




an absolute certainty, should have been recognized as probable by Savarese. If the potential charges and the severity of the liability that Stewart potentially faced were brought to Stewart's attention, she may have refrained from lying. However, pursuant to the Model Rules, if Stewart did not listen to Savarese's advice, he could have and should have withdrawn from the case, an issue that will be discussed in Part III.24




In order to evaluate the decision Stewart faced, it is appropriate to examine the likelihood of conviction on the insider trading charges and the potential punishment that would accompany such a conviction.


Insider trading refers to the buying or selling of securities by a person who has obtained nonpublic information that is likely to be important to a reasonable investor and who employs that nonpublic information in breach of an obligation of confidence or trust.25 The term used to describe the "importance to a reasonable investor" is "material."26


This explanation of insider trading can be applied to Stewart's sale of her ImClone shares. First, Stewart sold securities, a factual issue that is not in question.27 Second, she obtained nonpublic information. The public was not aware that lmClone's CEO was selling his shares of lmClone because of the impending drop of lmClone's share price and, as a result, this was nonpublic. Third, the information was material. Everyone who had an interest in ImClone knew that the FDA was soon to make a decision on Erbitux. In that context, a reasonable investor would want to know that the CEO was selling stock. Fourth, Stewart may have breached a duty of obligation or trust, though this element is not altogether clear. Stewart was not an officer, a director, or a majority shareholder of lmClone; accordingly, she owed the shareholders no fiduciary duty.28 Therefore, there seems to be no breach of confidence or trust. As a result, this does not seem to be an inside trade.


lr19794.htm; see also Landon Thomas, Jr., Martha Stewart Settles Civil Insider-Trading Case, N.Y. TIMEs,Aug. 7, 2006 at Cl.


24.       See MODEL RULES OF PROFESSIONAL CONDUCT R. l.16(b)(2) (2004) [hereinafter MODEL RULES]; see also Comments on a draft by John Harrison, Esq., Professor of Legal Aspects of Business Decisions Georgetown McDonough School of Business, in Washington, D.C. (Oct. 27, 2006) on file with author.. "Ina criminal case in particular, ifa lawyer cannot gain control of his client, then he or she should withdraw from the case. You cannot represent a client effectively if you do not have their complete confidence and that includes the idea that your advice must be followed." [hereinafter Harrison Comments]


25.       See U.S. Securities and Exchange Commission,


26.       See id.


27.       See Stocks are defined as securities.


28.       Cf. Singer v. Magnavox Co., 380 A.2d 969, 976-77 (Del. 1977). Singer indicated that majority shareholders, directors, and officers owe shareholders a fiduciary duty. Stewart held none of these positions in ImClone.




However, there is a tipper/tippee section included in the insider trading regulations which provides that an individual is liable for securities fraud  if he/she receives a piece of information originating from an insider and purchases or sells a security based upon this information.29 In such circumstances, the receiver becomes a tippee.30 Moreover, if the tippee passes this  insider information along, the new receiver also becomes a tippee.31 Accordingly, in an extenuated manner, Stewart could be considered an insider and  subject  to securities  fraud liability.


Nonetheless, this is an incredibly litigious issue and it certainly is not cut-and-dry that the trade Stewart made constituted insider trading. Therefore, there is no guarantee that if Stewart had come clean and been honest about what transpired that she would have been found guilty of insider trading. Savarese should have advised her in a manner that made this clear. This point will be dealt with in greater detail in Part  III.


It is important to further understand the possible legal consequences Stewart faced from the insider trading charges in order to effectively critique Savarese's role as an advisor. A person is subject to Rule 1O(b)(5) of the Securities Exchange Act when one intentionally performs an inside trade.32 The maximum penalty for a violation of Rule10(b)(5) includes imprisonment for up to 25 years and/or $5 million in fines.33 Stewart was a stockbroker for seven years in the 1960s and was on the Board of Directors for New York Stock Exchange, 34 which suggests that she is a very savvy business person. Accordingly, a court may have found that she acted intentionally.35


It is incredibly unlikely, however, that she would have received jail time and


29. See SEC v. Maio, 51 F.3d 623, 632 (S.D. Ind. 1995).


30.  See id.


31. See id.


32.       See Sec. Exchange Act 10(b)(5) (1934); In re Cady, Roberts & Co., 40 S.E.C. 907, 910-911 (S.E.C. 1961). Intentionally means that one is fully aware that they completed an inside trade, not just intentionally completed a trade.


33.       See Sec. Exchange Act 10(b)(5) (1934).


34.       See,  e.g.  Biography  Resource  Center,  Martha  Stewart,  entry  updated  on  Sep.  29,  2005, http :1/0galenet.galegroup. = 149&0P= contains&locID = wash43584&srchtp=name&ca=3&c= l&AI=U13004878&NA=Martha+Stewart&ste= l2&tbst=prp&tab= l&n= lO&docNum=Hl000121337&bConts=47; Wikipedia Insider_Trading Charges.


35.       Cf Harrison Comments, supra note 24. "Perhaps everyone assumed that as a former stockbroker she


would be aware of this technique. Quite often when one is an expert: lawyer, stockbroker, insurance executive, doctor, etc., there is the risk of being treated as an expert by other experts and therefore as someone that does not need to have such simple things explained to them. However, we all tend to manage our personal affairs as personal, sometimes completely divorcing them from our business acumen and knowledge. How often have you used the techniques taught to you in business school to analyze your own portfolio? Did this happen to Martha? Many experts try to counter this all too common treatment by reading now and then very basic books about their professions which remind them about all of the stuff that they used to know very well, but have somehow forgotten over the years, and by telling all professionals to treat them just like they treat all of their other clients. Both are good ideas."








millions in fines for completing a trade which was not clearly an inside trade and that only netted her approximately $45,000. It is more likely that the penalties described in Section 21(A) of the Securities Exchange Act of 1934 would have been   imposed.36    This   section   provides   that   "The   amount   of   the    penalty


. . . shall be determined . . . in light of the facts and circumstances, but shall not exceed three times the profit gained or loss avoided."37 In order to determine the "facts and circumstances" courts usually perform a six factor analysis focusing on 1) the egregiousness of the violations; 2) whether the violation was an isolated incident; 3) the degree of scienter involved; 4) the defendant's economic stake in the violation; 5) the defendant's role or position when engaged in the fraud; and


6) the likelihood that the misconduct will recur.38 In Stewart's case, the violation


1) was not very egregious;39 2) was completely isolated; 3) arguably  involved a low level of scienter because it was not clear whether the trade she performed was an inside trade; 4) involved a very low economic stake relative to her total net worth; 5) did not involve a company in which she was an officer, director, or majority shareholder; and 6) will arguably not be repeated because the other five factors fall heavily in her favor.40 This relevant information should have been disclosed to Stewart by Savarese, so she could best weigh her options. Given this information, it would have been evident that her best option was, beyond any reasonable  doubt, to come clean and admit the  trade.






There are two major components of Rule 2.1.41 The first is the exercise of independent professional judgment and the candid advice that should come from such judgment. 42 The second is the lawyer's application of factors beyond purely legal ones as they are relevant to the client's situation.43 The two components will be addressed separately, using Stewart's story as a case study for how Rule 2.1 should be utilized.


36.       See Sec. Exchange Act 21(a) (1934).


37.       Id.


38.       See SEC v. Youmans, 729 F.2d 413, 415 (6th Cir. 1984); SEC v. Patel, Fed. Sec. L. Rep P 98,340, 4 (S.D.N.Y. 1993); SEC v. Brethren, Fed. Sec. L. Rep. P 97210, 23 (S.D. Ohio 1992).


39.       See SEC v. Patel, Fed. Sec. L. Rep P98,340, 4 (S.D.N.Y. 1993) (holding that $453,203 was not egregious as compared to others); SEC v. Brethren, Fed. Sec. L.Rep. P 97210, 24 (S.D. Ohio 1992) (holding that $569,819 was not egregious).


40.       The sixth factor seems to weigh the other five factors or take into account the factors the court finds most relevant. See generally SEC v. Patel, Fed. Sec. L. Rep P98,340, 4 (S.D.N.Y. 1993).


41.       See MODEL RULES R. 2.1 ("In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation.").


42.       See id.


43.       See id.




Many professionals, in many different professions, take on the role of advisor within their practice. In education, teachers advise students concerning school matters as well as on vocational matters; in medicine, doctors serve as advisors to patients and their families concerning medical decisions; and in the pastorate, ministers and the like counsel people regarding their relationships with a higher power. In each of these disciplines, the counseling mentioned concerns the professional's  area of expertise.


The scope of these professionals' counseling duties does not necessarily end there. For instance, a student may come to a teacher for advice about how to deal with a tough family situation. Similarly, when a doctor speaks with a family member about their loved one's condition and options, she takes on a role of confidante. She is someone who can be trusted and is there to help the family understand the benefit of each option not just regarding the health of the ill party but also concerning the effect of a decision on the life of the family generally. Pastors also find themselves advising members of their congregation about more than their relationship with God. Professionals in each  of  the  areas discussed must be capable of advising those whom they come into contact with in their professional lives beyond the basics of their  profession.  In this  regard, lawyers are no  different.44


Lawyers should be willing to advise their clients in a manner that goes beyond purely technical legal advice.45 They should also be capable of advising in this manner. In fact, Rule 2.1 of the Model Rules speaks to this issue exactly. Rule 2.1 states that "In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant  to the  client's situation."46


As Rule 2.1 indicates, a lawyer must be prepared to advise his/her clients using aspects outside the realm of legal issues.47 Thus, it is imperative that lawyers see themselves as advisors in a general sense. This is not to say, however, that  a lawyer should pretend to know everything.48 Rather, a lawyer should call upon all of  his  relevant  knowledge  and  experience,  in the  law  and otherwise,  when


44.       See id.


45.       See MODEL RULES R. 2.1, cmt. 2 ("Advice couched in narrow legal terms may be of little value to the client . . . Purely technical legal advice, therefore, can sometimes be inadequate.").


46.       MODEL RULES R. 2.1.


47.       See MODEL RULES R. 2.1 ("In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation.").


48.       See American College of Trust and Estate Council (ACTEC), ACTEC Commentaries on the Model Rules of Professional Conduct, Commentary on MRPC 2.1, 504#Comm2. la. ("As advisor the lawyer may appropriately counsel the client with respect to all aspects of the representation, including nonlegal considerations. In doing so the lawyer should recognize his or her own limitations and the risks inherent in attempting to assist a client with respect to matters beyond the lawyer's expertise.").




advising a client concerning his or her case.49 Inthis mode, a lawyer will be able to assist clients more meaningfully and, most likely, lead the client to make the best choices regarding their legal matter.


Along these same lines, a lawyer must realize that in order to fulfill his duties as an advisor under Rule 2.1, he must give his client both professional and commonsense advice.50 A client may want an attorney to draft a contract for a business deal, but at the same time may want the lawyer's own opinion as to whether the deal is a good one or not. Thus, lawyers, in this day and age, must be willing to give both kinds of advice to their clients. Inorder to do so effectively, the lawyer will often have to look beyond technical legal issues. Stewart's story demonstrates this well.


Stewart's plan to deny all culpability was misguided for two major reasons, both of which should have been brought to Stewart's attention by Savarese. First, there were too many people who knew about the cover-up. There was Stewart's assistant who Stewart asked to erase the message concerning the impending drop of Im.Clone's share price,51 Faneuil, and Bacanovic himself. As Stewart's advisor, Savarese should have helped her recognize a very common-sensical, yet vital, point: the truth will come out.


The second major reason was the fact that corporate scandal was an incredibly hot topic at that time. Enron was the biggest name of a number of big corporations that created a gigantic cloud of suspicion over any and all big businesses and business leaders, and Stewart's alleged insider trade came to light at the peak of the big business scandals.52 The public was inundated every day with stories of the rich lying, cheating, and stealing to get richer and the public was fed up.53 Seemingly every newscast included video of CEOs, CFOs, and the like being handcuffed and led to police cars, followed each time by some middle class employee talking about how their life savings were lost when Enron, for example, went bankrupt. As a result, there could not have been a worse time for Stewart to become involved in a scandal of her own. Of course, Stewart's insider


49.       See MODEL Rill.ES R. 2.1. ("In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation.").


50.       See id.


51.       See Mark Hamblett, Prosecution Sees Stewart's Lawyer as Potential Witness, N.Y. L. J., February 11, 2004, available at 1076428295505.


52.       It was announced that Stewart's sale would be investigated on June 6, 2002. That same year Congressional hearings regarding Enron began (January 24, 2002), Arthur Anderson was convicted of obstruction of justice for its role in the Enron scandal (June 15, 2002), and a number of Enron insiders were indicted (Andrew Fastow, former CFO on November 1, 2002; and John Forney, former energy trader, in December 2002). See , Risky Business, framesource_time.html.


53.       See generally Naughton & Gimbel, supra note 12, at 28..Juror Hartridge cast Martha as "theposter CEO for all the corporate scandals and hoped her conviction is an overdue victory for the little guy. 'Investors may feel a little more comfortable now that they can invest in the market and not worry about these scams and that they'll lose their 401(k),' said Hartridge."








trading issues had nothing to do with her company, but she was a well-known business mogul caught up in a financial scandal. Thus, her public persona could take a mighty hit. She, as well as Savarese, should have been even more wary of what the illegal sale of the ImClone shares would do to her image because of the corporate atmosphere.


Notice here that the second component of Rule 2.1 is implicated.54 Savarese, in


discussing these issues with Stewart, should have been looking to relevant issues beyond just the law involved. Their discussion should have covered business aspects as well as moral concerns, both of which were relevant to Stewart's case. The Model Rules give further advice concerning the lawyer's role as an advisor in Comment Two of Rule 2.1. The Comment states that "Advice couched in narrow legal terms may be of little value to the client. . . . Purely technical legal advice, therefore, can sometimes be inadequate."55 Thus, the Model Rules make it clear that legal advice is not the only concern of the lawyer. Certainly, it is the number one priority, as one comes to a lawyer for legal advice, but as Comment Two notes, technical legal advice, on its own, can be inadequate.56 This fits with the business and moral aspects that Savarese needed to point out to Stewart.


Savarese's role as an advisor should not have ended with the non-legal issues, however. He also should have explained the legal implications involved with insider trading and the consequences that could arise from being found guilty of lying about the trade.57 He should have made it clear that denying culpability was not really an option, and he should have done this regardless what  Stewart's opinion  on the matter  was. This point  brings  us  to the first component  of   Rule




When a client comes to an attorney, the attorney must "abide by a client's decisions concerning the objectives of representation . . . ."59 Thus, the attorney must listen to and respect the client's decisions concerning the characteristics of the representation. As Rule 2.1 states, however, the lawyer must also exercise independent judgment regarding the means to achieve the client's objectives.60 The lawyer, while serving as an advisor, must be candid about his thoughts regarding the client's decisions concerning the representation. 61 Otherwise, the lawyer will not serve the client properly. Similarly, a lawyer must be able to  speak






54.       See MoDEL RULES R 2.1. ("In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation.").


55.       Id. cmt. 2.


56.       Id.


57.       Neither Stewart nor Savarese has discussed the specifics of their meetings. Thus, he may have done this. Regardless this is what he should have done.


58.       See MODEL RULES R. 2.1. ("In representing a client, a lawyer shall exercise independent professional judgment and render candid advice.").


59.       MODEL RULES R. 1.2.


60.       See MODEL RULES R. 2.1.


61.       See id..




his mind, regardless of whether his opinion might upset his client and thus cause harm to their personal or business relationship. Application of these principles to Stewart's case allows for a closer examination of Rule 2.1.


Martha Stewart is intelligent, strong-willed, unshakably confident, and indepen­ dent, and, as a result, saying no to her regarding anything would probably be difficult. When she has made a decision that will greatly affect her own life, however, saying no regarding the decision would most likely be even more difficult. Nonetheless, a lawyer, Savarese in this case, needs to exercise independent judgment and give candid advice.62 This is true regardless of whether the person qn the other end is receptive or not.63 In fact, Rule l.16(b)(4) allows a lawyer to withdraw when there is a fundamental disagreement with the client.64 In this instance, there should have been a fundamental disagreement between Savarese and Stewart once Stewart decided to claim that she did nothing wrong.


As previously mentioned, Savarese needed to explain the legal implications involved with insider trading and the consequences that could arise from being found guilty of lying about the trade. Had he done this, it would have been clear that Stewart could have walked away with significantly less severe penalties had she come forward with the truth. In fact, it is possible that it would have been determined that she did not complete an insider trade. As a result, if Stewart had come clean with exactly what happened and argued that her role did not constitute insider trading, she could have walked away scot-free. It was imperative that Savarese make this clear to Stewart, and if Stewart would not listen to reason, Savarese should have withdrawn pursuant to Model Rule l.16(b)(4).65 To take this one step further, had Savarese been aware that Stewart was acting fraudulently, then he had even more reason to withdraw.66 Either way, Savarese should have done one of two things: 1) demonstrate to Stewart why her plan was so incredibly misguided and compel her to change her plan or, if this was not possible, 2) withdraw.




Model Rule 2.1, coupled with Stewart's story, demonstrates a couple of very important lessons. First, it should be clear that a lawyer must, at times, be able to


62.       See id..


63.       See id. ("[A] lawyer shall exercise independent professional judgment and render candid advice."). Thus, the lawyer, even in the face of a non-receptive client, must exercise their judgment based not on what the client wants to hear, but rather on the lawyer's independent professional judgment.


64.       See MODEL RULES R. l.16(b)(4) ("[A] lawyer . .. shall withdraw from the representation  of a client if .. . [T]he client insists upon taking action that the lawyer considers repugnant or with which the lawyer has a fundamental disagreement.").


65.       See MODEL RULES R. l.16(b)(4).


66.       See MODEL RULES R. l.16(b)(2) ("[A] lawyer may withdraw . . . if ...[T]he client persists in a course of action involving the lawyer's services that the lawyer reasonably believes is criminal or fraudulent.").




give his client something more than technical legal advice. This means a lawyer must take an objective point of view weighing the costs and benefits of a decision and give advice accordingly. In many instances, a lawyer must call on such far-ranging concepts as moral and economic consequences in order to weigh the costs and benefits of a decision and, in tum, effectively advise his client.


Second, it should be clear that a lawyer must give his client independent and candid advice. This is so even if the client takes issue with the advice. When a lawyer recognizes that the client is taking a path with which the lawyer fundamentally disagrees, it is imperative that the lawyer point this out. At times, this may compel the client to fire the lawyer or might compel the lawyer to withdraw if the client does not change paths. Even in the face of these difficult situations, however, a lawyer must stay the course.


Armed with the capability of calling on concepts outside the legal realm and with the ability to give independent, candid advice, a lawyer will be best suited to serve the interests of the client.



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