DC Circuit Holds GLB Privacy Provisions Do Not Apply to Lawyers

December 6, 2005. The U.S. Court of Appeals (DCCir) issued its opinion [34 pages in PDF] in ABA v. FTC, holding that the Federal Trade Commission (FTC) exceeded its statutory authority when it asserted that the privacy provisions of the Gramm Leach Bliley Act (GLBA) extend to lawyers and law firms.

Introduction. The opinion is both broad and blunt. It is broad both because it entirely rejects the FTC's application of the GLBA privacy provisions to lawyers, and because it concludes that FTC's interpretation amounts to an impermissible attempt to regulate lawyers.

The opinion is blunt in its criticism of the FTC's actions and reasoning. It describes the FTC's actions as an "attempted turf expansion" to "regulate the practice of law".

It states that the FTC "apparently assumed -- without reasoning -- that it could extend its regulatory authority over attorneys engaged in the practice of law with no other basis than the observation that the Act did not provide for an exemption."

The opinion is 34 pages. However, almost half of this is merely a recitation of the relevant portion of the statute. The Court of Appeals wrote that it recited the statutory language, "not because it is all in itself relevant, but in order to demonstrate the depths plumbed by the Commission in order to find authority to undertake the regulation of the practice of law".

The opinion also admonishes the FTC that the Congress does not "hide elephants in mouseholes".

Statute. The Congress passed the Financial Modernization Act of 1999, Pub. L. No. 106-102, 113 Stat. 1338 (1999), which is better known as the Gramm Leach Bliley Act or GLB, to enable financial institutions, such as banks and insurance companies, to associate. Since this process provides financial institutions with increased access to the personal financial information of customers, the Congress included provisions intended to protect financial privacy.

The GLB Act's privacy provisions apply only to "financial institutions". The definition does not reference law firms or lawyers. The entire legislative history is almost devoid of reference to lawyers. Moreover, lawyers are already subject to client confidentiality rules, and state regulation. Nevertheless, the FTC asserts that the statute and its implementing rules extend the GLB privacy provisions to lawyers.

District Court. The New York State Bar Association (NYSBA) and the ABA both filed complaints against the FTC in the District Court, and many state bar associations have filed amicus curiae briefs in support. The bar associations sought declaratory relief that the FTC exceeded its statutory authority in promulgating and interpreting rules that extend the GLB privacy provisions to lawyers.

See also, story titled "Court Hears Arguments on Bar Associations' Challenges to FTC's Financial Privacy Rules" in TLJ Daily E-Mail Alert No. 673, June 4, 2003, and story titled "FTC Will Not Enforce GLB Rule Against Attorneys Pending Resolution of Court Challenge" in TLJ Daily E-Mail Alert No. 732, September 4, 2003.

The District Court granted summary judgment to the bar associations. The FTC brought this appeal.

Court of Appeals Analysis. The Court of Appeals affirmed.

The Court of Appeals wrote that "The statute certainly does not so plainly grant the Commission the authority to regulate attorneys engaged in the practice of law as to entitle the Commission to what is called a ``Chevron One´´ disposition. That is, rather simply we cannot hold that Congress has directly and plainly granted the Commission the authority to regulate practicing attorneys as the Commission attempts."

See, Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984).

"That is, to uphold the Commission's regulatory decision, we must conclude first that the words of the statute are ambiguous in such a way as to make the Commission's decision worthy of deference under the second step of Chevron. Id. at 843. If we so hold, we will then uphold the agency's interpretation of the ambiguous statute if that interpretation is ``permissible,´´ that is, if it is ``reasonable.´´"

Then, after a long analysis of the statute, and the FTC's arguments, the Court of Appeals concluded that there is no ambiguity.

It wrote that there is an "exceptionally poor fit with the FTC's apparent decision that Congress, after centuries of not doing so, has suddenly decided to regulate the practice of law. This fit is helped but little, if at all, by the congressional definition of ``financial institution´´ as ``an institution the business of which is engaging in financial activity.´´"

It added that "An attorney, or even a law firm, does not fit very neatly into the niche of a ``financial institution.´´ Even if one concedes -- and it is quite a concession -- that Congress would have intended the word ``institution´´ to include an attorney, or even a law firm, it still requires quite a stretch to conclude that such an institution is a ``financial institution.´´"

But, the Court of Appeals continued that even if it were to find ambiguity in the statute for the purposes of extending Chevron deference, the FTC fails the second part of the Chevron test -- reasonableness of the agency's interpretation.

The Court of Appeals wrote that "It is undisputed that the regulation of the practice of law is traditionally the province of the states. Federal law ``may not be interpreted to reach into areas of State sovereignty unless the language of the federal law compels the intrusion.´´ City of Abilene v. FCC, 164 F.3d 49, 52 (D.C. Cir. 1999). Otherwise put, ``if Congress intends to alter the `usual constitutional balance between the States and the Federal Government,´ it must make its intention to do so `unmistakably clear in the language of the statute.´ ´´"

See, opinion of the D.C. Circuit in City of Abilene v. FCC., a case regarding 47 U.S.C. § 253(a), which provides that "No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service."

Vincent Buzard, President of the New York State Bar Association, stated in a release that "We are gratified by the decision. Our rules of ethics already provide more protection for our clients than the GLBA would by imposing additional regulations on attorneys. Requiring lawyers to send notices to clients outlining their privacy or information policies was unnecessary and illogical -- and burdensome and confusing to clients. The FTC overstepped its authority in a way that has no rational purpose and the appellate court was correct in rejecting and overturning this policy."

This case is American Bar Association v. FTC, and consolidated case, U.S. Court of Appeals for the District of Columbia, App. Ct. Nos. 04-5257 and 04-5258, appeals from the U.S. District Court for the District of Columbia, D.C. Nos. 02cv00810 and 02cv01883, Judge Reggie Walton presiding. Judge Sentelle wrote the opinion of the Court of Appeals, in which Judge Ginsburg joined. The third member of the panel was John Roberts, who recused himself, and is now Chief Justice of the United States.