On March 14, 2017, the D.C. Circuit dismissed a law firm’s challenge to the State Department’s application of the International Traffic in Arms Regulations (“ITAR”) Part 129 brokering provisions against practicing attorneys. In its lawsuit, law firm Matthew A. Goldstein, PLLC (“Goldstein”) alleged that the State Department lacked constitutional and statutory authority to apply Part 129 to legal services provided to its clients and sought declaratory and injunctive relief to prevent the State Department from applying the brokering provisions to the firm.
Regulation of Brokering Activities
The State Department regulates international arms brokering under the Arms Export Control Act (“AECA”) and the ITAR. The AECA mandates that “every person . . . who engages in the business of brokering activities with respect to the manufacture, export, import, or transfer of any defense article or defense service” shall register with the State Department and obtain a license before engaging in “the business of brokering activities.” The AECA further provides that “brokering activities shall include the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import of a defense article or defense service.” These requirements are implemented and further defined at Part 129 of the ITAR.
In 2013, the State Department amended the ITAR’s definition of “brokering activities” to exclude “activities by an attorney that do not extend beyond the provision of legal advice to clients.” Shortly after the amendment, Goldstein sought an advisory opinion from the State Department, asking whether certain categories of legal services would constitute “brokering activities”—i.e., advising clients on how to structure sales of defense articles, preparing sales contracts for these items, drafting technical assistance agreements, advising on the availability of financing, advising on and preparing sales proposals, and corresponding and meeting with U.S. government officials.
Finding the advisory guidance insufficient, Goldstein filed suit alleging, in part, that the State Department lacked constitutional and statutory authority to apply Part 129 to bona fide legal advice and seeking declaratory and injunctive relief to prevent the State Department from requiring the firm to register as a broker. Goldstein claimed that compliance with Part 129 regulations would require its attorneys to disclose confidential client information to the State Department. As a result, attorneys would be forced to choose between not providing legal services and violating professional rules of responsibility or violating federal law.
The district court, however, disagreed and dismissed the case for lack of standing and ripeness. The court held that Goldstein failed to allege with specificity that the law firm engaged in “brokering activities” and failed to specify the type of information that the law firm would have to disclose to the State Department that would conflict with its ethical obligations. The court found that the threat of enforcement against Goldstein was speculative at best.
On appeal, the D.C. Circuit affirmed the district court’s dismissal of the case, stating:
“[B]ecause the firm alleges that it intends only to provide legal advice and denies that it will act as a finder (or collect a contingency fee) in the process, it has not shown that it faces a meaningful risk that the State Department will seek to enforce Part 129 against it, either by forcing it to register or by penalizing it for failure to register. Without any credible threat of enforcement, the firm has no injury to speak of that would afford it standing to seek to enjoin enforcement of that regulation in court.”
The D.C. Circuit found that without a credible threat of enforcement there was “no injury to speak of that would afford standing to seek to enjoin enforcement of that regulation in court.”
But, what about the potential conflict between Part 129’s disclosure requirements and an attorney’s duty of confidentiality?
The D.C. Circuit did not speak on this issue. The D.C. Circuit merely said: “[Goldstein] . . . need not fear that it will have to disclose confidential client information or otherwise take steps to register.” In a footnote, however, the district court reminded attorneys that, despite their duty of confidentiality, Rule 1.6(e) of the D.C. Rules of Professional Conduct permits attorneys to disclose “client confidences or secrets” “with the informed consent of the client” or “when . . . required by law or court order.” Thus, it appears that if attorneys engage in “brokering activities” by providing services that go “beyond the provision of legal advice to clients”—e.g., acting as a finder for clients—then they may be required to disclose otherwise confidential client information to the State Department under Part 129 of the ITAR.