On March 3, 2015, a small DC law firm filed a complaint against the Directorate of Defense Trade Controls (“DDTC”) seeking, inter alia, injunctive relief prohibiting DDTC from applying its brokering rules to the provision of specified types of legal advice. This blog previously has discussed the potential application of part 129 brokering rules to the activities of lawyers on behalf of their clients. As we stated, the broad language of part 129 always arguably covered legal work on behalf of clients, but no lawyers ever registered as brokers and DDTC never complained. When DDTC amended the brokering rules, it arguably then explicitly decided to start covering legal services. The interim rule does exempt legal advice, specifically noting, in the Federal Register notice at least, that legal advice about export compliance was within the exemption. The situation was then muddied when DDTC published FAQs on the brokering rules which said that common legal services, namely, “structuring a transaction” involving defense articles or negotiating contract terms involving defense articles was outside the scope of the exemption.
The plaintiff in the recently filed lawsuit optimistically (and some might say foolhardily) requested from DDTC an advisory opinion stating that certain legal services, such as advising on the structure of transactions involving defense articles and drafting contracts for the sale of defense articles, were outside the scope of Part 129. Not surprisingly, the request for an advisory opinion languished at DDTC for months, despite the plaintiff’s repeated communications with DDTC asking them to act on the advisory opinion request. Finally, according to the complaint, and eleven months after the request was made, a DDTC official called plaintiff and said the rules did not cover the activities specified in the request, and plaintiff, based on those representations, agreed to withdraw the request.
Seven months later, on February 24, 2015, in a plot twist worthy of Franz Kafka, the same DDTC official sent a letter to plaintiff and, incredibly, retracted the previously provided advice:
Please be advised that your letter of August 29, 2013 and our conversation which took place on July 3, 2014, lacked sufficient detail for the Department to make an official determination as to whether the activities discussed constituted brokering activities.
The official asked the plaintiff to submit another advisory opinion request. The understandably frustrated plaintiff filed a lawsuit instead.
There are, of course, a number of problems with applying Part 129 to legal services beyond the provision of legal advice on export compliance. To begin with, lawyers will need prior permission from the State Department under section 129.4 before becoming involved in transactions involving specified defense articles such as night vision equipment. Worse, section 122.5 would require lawyers to make all records relating to these transactions available to DDTC and law enforcement in violation of attorney-client privilege.
The good news, of course, is that DDTC’s bizarre volte-face on the applicability of Part 129 to legal services is unlikely to be favorably viewed by the court and means, I think, that the initial advantage in this lawsuit is with the plaintiff.