IN-HOUSE COUNSEL
LAST CHANCE ETHICS
SEMINAR AND WEBINAR
Thursday, December 27, 2012
IOWA CLE
ACTIVITY INFORMATION
Program Name: IN-HOUSE COUNSEL LAST CHANCE ETHICS
SEMINAR AND WEBINAR
Sponsor: BROWN WINICK LAW FIRM
Start Date: 12/27/2012 End Date: 12/27/2012
City: DES MOINES
Class Type: Live Webcast
Total CLE Hours Approved: 2.0 (includes ethics hours)
Ethics Hours Approved: 2.0
Activity Number: 100425
Learning from Other’s Mistakes:
Recent Ethics Opinions
Rebecca A. Brommel
BrownWinick
666 Grand Avenue, Suite 2000
Des Moines, IA 50309-2510
Telephone: 515-242-2452
Facsimile: 515-323-8552
E-mail: brommel@brownwinick.com
Attorney Discipline Procedures
• Attorney Disciplinary Board
– Investigates all complaints with help of its staff
– Investigations are confidential
– Board can dismiss, admonish/reprimand
attorney or file and prosecute complaint
before Commission
– Reprimand becomes public if attorney does
not file an exception to it
Attorney Discipline Procedures
• Grievance Commission
–
–
–
–
–
Hears complaints prosecuted by Board
Attorney has right to file answer
Matters are confidential
Hearing
Commission can dismiss, issue a private admonition
or recommend reprimand, suspension or revocation to
Supreme Court
– Report/recommendation to Supreme Court is public
record
– Attorney may then file an appeal
Attorney Discipline Procedures
• Iowa Supreme Court
– May grant appeal by attorney – follow
interlocutory appeal rules
– May impose sanction different from the
Commission’s recommendation
Sanctions
• Revocation
• Suspension
– Specific amount of time (ie: 30 days, 1 year)
– Indefinite with time period before reinstatement can be
requested
• Public Reprimand
• Additional or alternative sanctions:
–
–
–
–
–
–
Restitution
Costs
Practice Limitations
Appointment of trustee/receiver
Passage of bar or MPRE
CLE requirements
Reasons for Discipline
•
•
•
•
•
•
•
Violation of Iowa Rules of Professional Conduct
Conviction of a Crime
Disability Suspension
Reciprocal Discipline
Failure to comply with support order
Failure to comply with student loan obligation
Interim suspension (pending final disposition;
violation poses substantial threat of serious
harm to public)
• Temporary suspension for failure to respond to
Board inquiries
2011 Statistics
• 542 complaint files (526 in 2010; 517 in
2009)
• 70.5% of complaints filed were dismissed
by Board
• 15.1% private admonition
• 6.1% public reprimand
• 8.3% referred to Grievance Commission
Who would complain about
lawyers?
•
•
•
•
•
•
•
Prisoners & Criminal Defendants - 28.4% of
complaints
Clients (other than criminal defendants,
prisoners and family law clients) – 21.6%
Family law clients – 10.3%
Judges & attorneys – 7.9%
Beneficiaries/Involved in Probate – 7.0%
Adverse parties (family law matters) – 6.3%
Adverse parties (other than family law matters)
– 5.4%
What do they complain about?
•
•
•
•
•
•
Neglect or incompetence (over half)
Trial-related misconduct
Dishonesty/Misrepresentation
Conflict of Interest
Mishandling of money/property
Excessive or illegal fees
What did the Supreme Court see
in 2012?
•
Engaging in Dishonesty, Fraud, Deceit or Misrepresentation – Iowa R. Prof’l
Conduct 32:8.4(c)
– False statements on mortgage applications
– Aided and abetted client’s conversion of bank funds
– Assisted client in concealing actual sales price from lender
– Misrepresentation of facts to Board of Immigration Appeals and on Appeal
– False statements to client security commission re: status of trust accounting
procedures
– False statement to court regarding status of suspension
– False statement to client and client’s divorce attorney re: status of filing
bankruptcy
– Misrepresentation to client re: filing of certain documents
– Leading client to believe appeal was pending when it had been dismissed
– Taking funds from client’s trust account without colorable claim to funds and used
money for his own purposes
– Forged client’s signature
– Forged witness signature on will
– Filed forged guilty plea
– Failure to file income tax returns for 3 years
– Failing to comply with order re: suspension (obtained fees and stated he was
working on file)
What did the Supreme Court see
in 2012? (con’t)
•
Commission of Criminal Act that Reflects Adversely on Lawyer’s
Honesty, Trustworthiness, or Fitness as a Lawyer in other Respects –
Iowa R. Prof’l Conduct 32:8.4(b)
– False statements on mortgage applications
– Assisted client in concealing actual sales price from lender
– Extortion – emailed officer of corporation involved in litigation with his
wife and demanded $100k charitable donation in wife’s name in
exchange for dismissal of lawsuit
– 3rd Offense OWI and 3rd degree harassment
– Pattern of misconduct (operating boat while intoxicated, OWI,
possession of cocaine, substance abuse and mental health issues)
What did the Supreme Court see
in 2012? (con’t)
•
•
Engaging in Conduct Prejudicial to the Administration of Justice –
Iowa R. Prof’l Conduct 32:8.4(d)
Cases:
– Emails requesting documents subject to a protective order by attorney
to adverse party in wife’s litigation (triggered a series of legal
proceedings)
– Failure to cooperate with disciplinary Board and respond to demands for
information
– Failure to respond to client complaint and inquires from Board
– Filing of forged guilty plea
– Submission of will containing forged witness signature
– Failure to close estate
– Failure to prosecute client’s appeal
– Withdrawal of probate fees based upon partially prepared return and
without confirming payment of court costs
– Dilatory conduct in failing to file bankruptcy petition for client who was
planning divorce
What did the Supreme Court see
in 2012? (con’t)
• Communication with person represented by counsel
– Iowa R. Prof’l Conduct 32:4.2
– Attorney sent emails asking for documents to officer of non-profit
when he represented his wife in her litigation with the non-profit
– Court distinguished between contact with officer (not allowed)
and member of Board of Directors (allowed) – Board member
was not a constituent because he did not have individual
authority to bind the non-profit
– In another case, no violation was found because the represented
party initiated the communication and the Court was unable to
determine whether the contact was authorized by the
corporation’s attorney
What did the Supreme Court see
in 2012? (con’t)
•
Conflict of Interest – Iowa R. Prof’l Conduct 1.7
– Attorney continued to represent client without disclosing to him that client could
have a ground to overturn an order based upon an ineffective assistance of
counsel claim – conflict between client interest and attorney’s personal interest
– Attorney had a conflict when he represented his wife in drafting a contract where
former client was the purchaser and the purchase was substantially related to the
foreclosure action he handled for the client (same property) – needed to obtain
informed consent
•
Failures re: to Withdrawal of Representation – Iowa R. Prof’l Conduct
32:1.16
– Attorney failed to withdraw for 5 months after client discharged his services
– Attorney ceased representing client on appeal without asking for permission to
withdraw
– Attorney failed to take steps to safeguard client interests or return files after
withdrawing without notice
What did the Supreme Court see
in 2012? (con’t)
•
Failing to Explain Matter to Allow Client to Make an Informed Decision re:
Representation – Iowa R. Prof’l Conduct 32:1.4(b)
–
–
•
Attorney failed to tell client about potential ineffective assistance of counsel motion as an
option for overturning the over entered by immigration court – attorney owed client an
explanation of the alternative course of action in order to permit client to make informed
decision
Attorney failed to comply with his suspension from practice by informing clients of his
suspension and his inability to represent them
Failing to Keep Client Reasonably Informed about Status of Matters and to
Respond to Requests for Information – Iowa R. Prof’l Conduct 32:1.4(a)(3, 4)
–
–
–
–
Attorney failed to answer phone, return message, attend appointments with clients and to
appear for hearing
Attorney failed to inform clients of dismissal of their appeal for 2 months and did not respond
to 3 letters from the clients requesting information
Attorney only contacted client 3 times in a 17 month period, and client had made numerous
requests; Attorney did not tell client about 2 letters he did send on client’s behalf
Attorney failed to keep client informed of status of her divorce matter or respond to client's
requests for information
What did the Supreme Court see
in 2012? (con’t)
•
Failure to Act with Reasonable Diligence & Promptness – Iowa R. Prof’l
Conduct 32:1.3
–
–
–
–
–
–
•
In numerous matters, attorney failed to take timely action for clients, failed to file client
interrogatory answers, failed to comply with orders and notices re: deficient filings
In a 20 month period, only action attorney took was to send out two delayed letters to claims
adjuster
Attorney neglected estate for over 3 ½ years
Attorney failed to meet deadline on 7 occasions in an estate proceeding
Attorney failed to ensure that client completed discovery requests, failed to attend sanction
hearing or inform client of sanctions and failed to file bankruptcy petition
Attorney took 14 months to re-file a post-conviction relief matter, failed to respond to client
inquiries and sought 3 continuances of the trial date
Failure to Make Reasonable Efforts to Expedite Litigation Consistent with
Client’s Interests – Iowa R. Prof’l Conduct 32:3.2
–
–
–
Attorney failed to appear in court and remedy deficient filings
Attorney used delay tactics in order to mask dilatory estate filings
Attorney failed to appear at hearings, participate in discovery or file bankruptcy petition
What did the Supreme Court see
in 2012? (con’t)
•
Failure to follow client instructions – Iowa R. Prof’l Conduct 32:1.2(a)
– Attorney filed forged guilty plea
– Attorney altered written arraignment and not guilty plea to waive speedy trial and
falsely said that client signed it in front of him
•
False Statement to Tribunal – Iowa R. Prof’l Conduct 32:3.3
– Attorney falsely state that he was unaware that his license has been suspended
(after he had signed a certified mail receipt for the order)
– Attorney falsely stated that he was waiting on income tax remittance, even
though he hadn’t even filed the return
•
Disobedience of Court Orders – Iowa R. Prof’l Conduct 32:3.4
– Attorney failed to comply with discovery orders, appear at hearing or respond to
discovery requests
What did the Supreme Court see
in 2012? (con’t)
•
Trust Account Issues – Iowa R. Prof’l Conduct 32:1.15; 45
–
–
–
–
–
–
–
–
Attorney failed to deposit retainer fees, failed to maintain a current list of clients on a
regular basis that listed their trust account balances
Attorney co-mingled trust account funds with his personal checking account and failed to
provide contemporaneous notice to clients of the time, amount and purpose of his fee and
the withdrawals from the trust account; Attorney also took several months to return
unearned fees in one matter and failed to send bill or return retainer for nearly a year in
another matter
Attorney failed to deposit a special retainer (a flat fee) into the trust account and withdraw
amounts only once earned and without providing an accounting to the client
Attorney accepted funds, provided no accounting and did not timely refund his unearned
fees (fees relating to activities that were done after date of suspension)
Attorney entered a minimum fee contract that has been deemed prohibited, failed to
properly treat the retainer as an advance fee
Attorney failed to return $500, which was an undisputed overpayment, even after the
matter was brought to his attention
Attorney delayed 17 months in one case and 4 months in another to return fees in 2
criminal cases
Attorney withdrew unearned fees and failed to keep disputed fees (they were the subject
of a divorce proceeding) separate
What did the Supreme Court see
in 2012? (con’t)
•
Charging an Unreasonable Fee or a Fee in Violation of Restrictions of
Law – Iowa R. Prof’l Conduct 32:1.5(a)
– Attorney received 1st and 2nd half probate fees before allowed
– Attorney entered unethical minimum fee contract and contracted for, charged and
collected an unreasonable fee for the work performed
– Attorney collected $500 fee to perform work in Georgia – a state where he was
not licensed – and also did no work on the matter
•
Failure to Communicate Fee – Iowa R. Prof’l Conduct 32:1.5(b)
– Attorney’s preparation of final bill was insufficient, because it failed to disclose
fee/expense rate within a reasonable time of the commencement of
representation
– Attorney’s oral agreement for $500 followed by bill of over $1300 just weeks later
What did the Supreme Court see
in 2012? (con’t)
•
Unauthorized Practice of Law – Iowa R. Prof’l Conduct 32:5.5
– Attorney failed to comply with suspension order – took fees, advised client and
corresponded with others on behalf of client
– Attorney appeared in juvenile court 6 days after accepting service of the order
suspending his license
•
Failure to Participate, Respond or Cooperate with Disciplinary
Authorities – Iowa R. Prof’l Conduct 32:8.1
– Attorney failed to respond to the investigation committee inquiries
– Attorney disregarded 2 letters from Board that requested copies of
communications and an accounting of settlement checks
– Attorney failed to respond to information demands of Board
What sanctions did the Supreme
Court give in 2012? (con’t)
• Public Reprimand
• Indefinite suspension with no
reinstatement for 60 days, 3 months, 6
months, 1 year, 2 years
• Suspension for 30 days, 60 days, 6
months, 1 year, 18 months, 2 years
• Revocation
Advertising Rules
• Iowa R. Prof’l Conduct 32:7
• Relaxation of rules
• Less specific on what can be on/in ads –
still cannot be misleading
• Recognition that lawyers should be able to
make their services known through
organized advertising and not just through
reputation
QUESTION &
ANSWER SESSION
Conflicts and the Duty to
Supervise for In-House
Counsel
Brian McCormac
BrownWinick
666 Grand Avenue, Suite 2000
Des Moines, IA 50309-2510
Telephone: 515-242-2431
Facsimile: 515-323-8531
E-mail: mccormac@brownwinick.com
Agenda
• Conflicts Issues in Corporate Law
Departments
• Overseeing the Work of Others
Conflicts in Corporate Law
Departments
• Iowa’s Rules of Professional Conduct expressly
include corporate law departments in the
definition of “firm”
• “For purposes of the Iowa Rules of Professional
Conduct, the term ‘firm’ denotes lawyers in a law
partnership, professional corporation, sole
proprietorship . . . or lawyers employed in the
legal department of a corporation or other
organization.” Iowa R. Prof. Conduct 32:1.0(c).
Conflicts in Corporate Law
Departments
• How do the conflicts rules apply to in-house
attorneys?
– Joint representation of corporation and its officers,
directors, shareholders, or employees
– Representation of subsidiaries
– When lawyers move to/from corporate law
departments
• From private practice
• From other corporate law departments
• From government
– Interactions with former clients
Conflicts in Corporate Law
Departments—Who is the Client?
• Who is the client?
– Most issues arise in two contexts
• Joint representation of corporation and its
employees, directors, or shareholders
• Representation of a subsidiary
Conflicts in Corporate Law
Departments—Who is the Client?
• Rule 32:1.13
– makes clear that the client is the organization
– Does not prohibit joint (or separate) representation of
organization and its constituents, provided that there is no
conflict under Rule 32:1.7
– Requires lawyer to deliver “Miranda warning” to constituent
explaining that the organization is the client when the lawyer
knows/should know the constituent’s interests are adverse to
those of the organization
– Be careful to protect attorney-client privilege in joint
representations
• Joint representation privilege
• Best practice to retain separate counsel for employees when
interests could be potentially adverse to organization
Conflicts in Corporate Law
Departments—Who is the Client?
• Representation of Subsidiaries
– Generally no problems when representation of the subsidiary
aligns with the interest of the parent company or if the subsidiary:
• Is wholly-owned by the parent,
• Has common directors with the parent, or
• A single legal department administers legal services for both entities
– If the interests of the parent and subsidiary are not aligned,
separate counsel should be retained for the subsidiary
• Contract negotiations between parent/subsidiary
• Insolvency of subsidiary (may require management for benefit of
creditors)
• Insured claims
Conflicts of Interest-Generally
• Conflict rules apply to lawyers within a “firm”,
defined to include “lawyers employed in the
legal department of a corporation or other
organization.” Iowa R. Prof. Conduct 32:1.0(c).
• Conflict rules apply to both former and current
clients. Iowa R. Prof. Conduct 32:1.7-32:1.9.
• Conflicts of interest can be imputed to lawyers
practicing together in a law firm or corporate law
department. Iowa R. Prof. Conduct 32:1.10.
Conflicts of Interest
Current Clients
• Governed by Rules 32:1.7, 32:1.8
• Prohibits dual representation if a
“concurrent conflict” exists
– Two situations:
• “direct adversity”: representation of one client will
be directly adverse to another client
• “material limitation”: significant risk that the
representation of a client will be materially limited
by a lawyer’s responsibilities to another client,
former client, or a third party, or by a personal
interest of the lawyer
Conflicts of Interest
Current Clients
• Conflict can be waived by client”
– If consent is written
– If representation is not contrary to law
– If representation does not involve two clients
adverse in litigation
• In no event can a lawyer represent both
parties in dissolution of marriage
proceedings.
Conflicts of Interest
Former Clients
• Governed by Iowa R. Prof. Conduct 32:1.9
• Prohibits:
– lawyer from representing a former client with interests materially
adverse to a former client if the lawyer represented the former
client in the same or a substantially related matter
– Lawyer from knowingly representing a former client of a firm with
which the lawyer was formerly associated, if the firm represented
the former client in the same or a substantially related matter and
the lawyer acquired material, confidential information about the
former client
– Lawyer may not (a) reveal confidential information about the
representation of the former client or (b) use such information to
the disadvantage of the former client
Conflicts of Interest
Former Clients
• Common Issues:
– Can former client consent to the representation or use
of confidential information? Yes, if in writing.
– What is a “substantially related” matter?
• Comments to Rule provide guidance:
– Involves the same transaction or legal dispute
– Substantial risk that confidential factual information normally
obtained in former representation would materially advance the
other client’s interest in the subsequent matter
– Passage of time can eliminate conflict, for example, confidential
information may have become obsolete or generally known
• Points 2 and 3 are highly fact-specific; advisable to avoid
close calls.
Conflicts of Interest
Imputation of Conflicts
• Rule 32:1.10 governs imputed conflicts of interest
– A firm may not knowingly represent a client if any individual
attorney in the firm would be barred from doing so, unless:
• The conflict is based on the attorney’s personal interest and does
not present a significant risk of materially limiting the representation
of the client by other lawyers in the firm (example, political beliefs)
– Firm may represent a person with interests materially adverse to
those of a client represented by a departed lawyer, if:
• Such client is not currently represented by the firm
• The matter is not the same or substantially related to matters in
which the departed lawyer represented the client
• No lawyer remaining in the firm has confidential information of the
former client that is material to the matter
Conflicts of Interest
Imputation of Conflicts
• Issues:
– What does the knowledge requirement in 32:1.9(b) and 32:1.10
mean?
• Defined in Rule 32:1.1 as “actual knowledge.”
• However, Comment 3 to Rule 32:1.7 provides that “[t]o determine
whether a conflict of interest exists, a lawyer should adopt
reasonable procedures, appropriate for the size and type of firm and
practice, to determine in both litigation and non-litigation matters the
persons and issues involved.”
• “Ignorance caused by a failure to institute such procedures will
not excuse a lawyer’s violation of this rule.”
• ABA Formal Opinion 09-455 (“When a lawyer moves between law
firms, both the moving lawyer and the prospective new firm have a
duty to detect and resolve conflicts of interest”)
Conflicts of Interest
Imputation of Conflicts
• Issues:
– Conflict can be waived by obtaining consent
in writing
• If representation is not contrary to law
• If representation does not involve two clients
adverse in litigation or dissolution proceedings
– Nonlawyer conflicts are not imputed.
However, majority rule requires screening
nonlawyers from participating in matters that
would be a conflict for an attorney
Conflicts of Interest
Government Attorneys, Judges
• Rules 32:1.11 and 32:1.12 govern conflicts relating to former
government attorneys and judges
• Such attorneys cannot represent a client in connection with a matter
in which the attorney personally and substantially participated in as a
government employee or judge, without written consent
• Members of a firm associated with a lawyer disqualified under the
above provision may not knowingly represent a client in the matter
unless:
– Disqualified lawyer is screened and receives no portion of fee
– Notice is given to the government agency or, in the case of a former
judge, the parties to a litigation matter
• Lawyers having confidential government information about a person
acquired during government service may not represent clients in a
matter in which such information could be used to the material
disadvantage of such person
Conflicts of Interest
Examples
• Traditional firm context:
– Lawyer moving from one firm to another
• Typical practice:
– List of clients the lawyer believes may follow
– Lawyer discloses clients of previous firm on whose
matters she worked or has material information
– Firm determines whether lawyer has material information
about the other side of a firm matter
– Conflicts analysis and screening
– In the event of a conflict, comply with 32:1.10
relating to imputed conflicts.
Conflicts of Interest
Examples
• Same issues exist in moves to and from a
corporate law department:
– Lawyer moving from one law department to
another
– Lawyer moving from private practice to law
department
– Lawyer moving from a law department to
private practice
Conflicts of Interest
Best Practices
• Keep a list of matters and adverse parties in
transactional and litigation matters involving the
company
• Keep a similar list for affiliates
• Good idea to keep this information for a few years, to
help identify risks relating to confidential information
• Request information from lateral candidates and conduct
ethical screening
• Be particularly careful when hiring lateral candidates
from competitors or their outside counsel
– Consent less likely than with conflicts arising from an isolated
transaction or litigation matter
Overseeing the Work of Other
Lawyers
• Rule 32:5.1 sets forth the responsibilities of
supervising lawyers
• partners in a law firm and lawyers with
comparable managerial authority in a law
department “shall make reasonable efforts to
ensure that the firm has in effect reasonable
measures giving reasonable assurance that all
lawyers in the firm conform to the Iowa Rules of
Professional Conduct.” Iowa R. Prof. Conduct
32:5.1(a).
Overseeing the Work of Other
Lawyers
• Comment 1 makes clear that this rule applies to lawyers
having partner-like authority in a law department or
government agency
• Comment 2 explains that “measures giving reasonable
assurance that all lawyers in the firm” comply with IRPC
includes establishing procedures to:
– Detect and resolve conflicts of interest
– Identify deadlines in pending matters
– Ensure that inexperienced lawyers are adequately supervised
• Other measures may be required depending on the
structure and nature of the law department, examples:
– Confidential referral system for ethical issues
– Ethics training
Overseeing the Work of Other
Lawyers
• A lawyer with direct supervisory authority
over another lawyer must make
reasonable efforts to ensure that the other
lawyer conforms with the IRPC
• Iowa R. Prof. Conduct 32:5.1(b)
Overseeing the Work of Other
Lawyers
• Under Rule 32:5.1(c), a lawyer is
responsible for another lawyer’s violation
of the IRPC if:
– The lawyer orders or knowingly ratifies the
conduct
– The lawyer has managerial authority or direct
supervisory authority, knows of the conduct at
a time when consequences can be avoided or
mitigated but fails to act
Overseeing the Work of
Non-Lawyers
• Rule 32:5.3 governs attorney supervision
of nonlawyers
• Requirements for the supervision of nonlawyers are parallel to the requirements for
the supervision of subordinate attorneys
Overseeing the Work of
Non-Lawyers
• partners in a law firm and lawyers with
comparable managerial authority in a law
department “shall make reasonable efforts
to ensure that the firm has in effect
reasonable measures giving reasonable
assurance that [the non-lawyer’s] conduct
is compatible with the professional
obligations of the lawyer.” Iowa R. Prof.
Conduct 32:5.3(a).
Overseeing the Work of
Non-Lawyers
• A lawyer with direct supervisory authority
over the nonlawyer must make reasonable
efforts to ensure that the nonlawyer’s
conduct is compatible with the
professional obligations of the lawyer
• Iowa R. Prof. Conduct 32:5.3(b)
Overseeing the Work of
Non-Lawyers
• Under Rule 32:5.3(c), a lawyer is
responsible for conduct of a nonlawyer
that would be a violation of the IRPC if
done by an attorney, if:
– The lawyer orders or knowingly ratifies the
conduct
– The lawyer has managerial authority or direct
supervisory authority, knows of the conduct at
a time when consequences can be avoided or
mitigated but fails to act
QUESTION &
ANSWER SESSION
CORPORATE COUNSEL
INTRA-COMPANY DISPUTES
& LITIGATION ISSUES
Matthew H. McKinney
BrownWinick
666 Grand Avenue, Suite 2000
Des Moines, IA 50309-2510
Telephone: 515-242-2468
Facsimile: 515-323-8568
E-mail: mckinney@brownwinick.com
IN-HOUSE / CORPORATE COUNSEL
Who do you take direction from?
Who do you take direction from?
Shareholders?
Officers?
Directors?
•
Who do you represent?
Restatement (Third) of Law Governing
Lawyers:
• When a lawyer is employed or retained to
represent an organization the lawyer:
“represents the interests of the organization as
defined by its responsible agents acting
pursuant to the organization’s decision-making
procedures.”
•“...the
lawyer must follow instructions in the representation
... given by persons authorized so to act on behalf of the
organization.”
Who do you take direction from?
• Restatement, Section 96, cmt. “d”
• “Who within an organization or among related
organizations is authorized to direct the
activities of a lawyer representing an
organization is a question of organization
law...”
•Bylaws;
•Shareholder Agreement;
•Operating Agreement;
•Partnership Agreement.
Intra-Corporate Disputes
• Derivative
Disputes
•Shareholder
demands the corporation take action
against directors, officers, or others for wrongdoing
that is harmful to the corporation.
•When corporation refuses, the shareholder, as a
representative, brings a derivative action against
alleged wrongdoers on behalf of and for the benefit
of the corporation.
•
•
Who
doYOU
you represent?
WHO
CAN
REPRESENT?
EXAMPLE:
You are corporate counsel for ABC Corp.
and frequently advise the board on various
legal matters.
•
A shareholder and director of ABC Corp.
files a derivative lawsuit against another
director for corporate waste and
mismanagement.
Can you represent the director being sued?
Can you represent the corporation?
CASE STUDY
In re Oracle Sec. Litig., 829 F. Supp. 1176, 1189 (N.D. Cal. 1993)
FACTS
Shareholder Plaintiff files a breach of fiduciary duty lawsuit
against several Oracle Directors;
Conflict of Interest
After litigating for 2 years, the parties negotiate and ask the
Court to approve a settlement;
Upon assessing whether to approve the settlement, the Court
notes that Oracle’s counsel not only represents Oracle, but also
represents the individual Defendant, Directors.
CASE STUDY
In re Oracle Sec. Litig., 829 F. Supp. 1176, 1189 (N.D. Cal. 1993)
ANALYSIS
• “The conflict of interest could not be stronger.”
• “Contrary
to the
assertions
of
defense
representation
of
“If
the
same
counsel
represents
bothcounsel,
the
corporation
and the
the
The
“The
organization
general
counsel
is entitled
would
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an
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that
the
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in-house
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ameliorate
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the interests
ofdoes
the
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its
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any
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unencumbered
for
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for on
in-house
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areand
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to
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likely
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insufficient
protection.
An
increased
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forwith
the
whom
potentially
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a day-to-day
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his future
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whom
serve.
corporation
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the goal
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the
the corporation.”
The corporation's
house
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regular is
outside
defendants'
liability.
Defendants'
thus counsel
placed ...in are
an
too financially
dependent
on the
board
to be
“...While
untenable
position,
and more
often
than
notdisinterested.”
he will succumb
to the
the in-house
attorney
is nominally
the representative
pressure
to approve
any settlement
between
the shareholder of
andthe
his
corporation,
his personal loyalties will inevitably be to the individual
individual
clients.”
executives who hired him.”
CASE STUDY
In re Oracle Sec. Litig., 829 F. Supp. 1176, 1189 (N.D. Cal. 1993)
CONCLUSION
“[T]he corporation must, before proceeding further with the
derivative action, retain independent counsel having no prior
relationship with the corporation or the individual defendants.
Although some courts have gone so far as to appoint corporate
counsel in derivative actions ... it seems more appropriate here
to defer to the independent directors on the selection of
corporate counsel ... And should difficulties arise, the parties or
counsel may apply to the court for additional relief.”
See also Rowen v. LeMars Mut. Ins. Co. of Iowa, 230 N.W.2d 905, 915 (Iowa 1975); Bell
Atlantic Corp. v. Bolger, 2 F.3d 1304 (3d Cir. 1993); Musheno v. Gensemer, 897 F. Supp.
833 (M.D. Pa. 1995); Cannon v. U.S. Acoustics Corp., 398 F. Supp. 209 (N.D. Ill. 1975);
Forrest v. Baeza, 67 Cal. Rptr. 2d 857 (Cal. App. 1997); Campellone v. Cragan, 910 So.
2d 363 (Fla. App. 2005); Lower v. Lanark Mut. Fire Ins. Co., 448 N.E.2d 940 (Ill. App.
1983); Tydings v. Berk Enterprises, 565 A.2d 390 (Md. App. 1989); Horowitz v. Horowitz,
542 N.Y.S.2d 708 (N.Y. App. 1989).
WHO CAN YOU REPRESENT?
• EXAMPLE:
•
You are corporate counsel for ABC Corp. and
frequently advise the board on various legal matters.
• A shareholder and director of ABC Corp. files a
derivative lawsuit against another ABC Corp.
director for corporate waste and mismanagement.
Can you represent the director being sued?
Pursuant to In re Oracle, no.
Can you represent the corporation?
Pursuant to In re Oracle, no.
CASE STUDY
Rowen v. LeMars Mut. Ins. Co. of Iowa, 230 N.W.2d 905, 914 (Iowa 1975)
FACTS
Policyholders in LeMars Mutual Insurance Company filed a
derivative claim on behalf of the insurance company and
against past and present directors and officers to recover for
various alleged wrongs;
Law firm appeared and represented the Mutual as well as
individual defendants;
Plaintiffs sought to have the law firm that represented the
Mutual as well as individual defendants disqualified.
CASE STUDY
Rowen v. LeMars Mut. Ins. Co. of Iowa, 230 N.W.2d 905, 914 (Iowa 1975)
IOWA SUPREME COURT ANALYSIS
• It is “well established that a potential conflict of interest exists when
the same law firm attempts to represent the nominal corporate
defendant in a derivative action while at the same time representing
the corporate insiders accused of wrongdoing.”
•“[W]e are persuaded the interests of the policyholders will be better
served by requiring LeMars to be represented by independent
counsel. This should assure the policyholders that the merits of the
derivative action will not be obscured by a conflict of interest of
corporate counsel. This benefit justifies its cost.”
•Case remanded to trial court with instruction that the trial court
“appoint independent counsel,” because otherwise, “[c]ounsel for the
corporation would be subject to the control of those accused of
wrongdoing.”
Recap
• Analyze who you must to take direction from.
• In derivative actions, in-house / corporate
counsel may not be allowed to represent the
company.
• In derivative actions, in-house / corporate
counsel may not be allowed to represent
officers and/or directors despite challenged
conduct arising from action taken in an
official capacity.
Subpoenas / Discovery
•Scenario: Employee uses “work / company email” to communicate
with personal counsel.
Does the attorney-client privilege apply?
It Depends
As They Relate to Employee Email Communications
•Scenario: Employee uses “work / company email” to communicate
with spouse.
Does the marital privilege apply?
CASE STUDY
In re Asia Global Crossing, Ltd., 322 B.R. 247, 257 (Bankr. S.D.N.Y. 2005)
•
Asia Global employees (5 principal officers, the “Insiders”) communicated with
outside counsel and sought legal advice.
•
Asia Global files Chapter 11 bankruptcy.
•
Bankruptcy Trustee is appointed and begins to conduct an investigation in to
the Insiders, including by serving a subpoena upon Asia Global’s HR
employee.
•
HR employee turns over documents and emails, but withholds certain
documents and emails based upon the attorney-client privilege.
•
Bankruptcy Trustee files motion to compel seeking to compel HR employee to
produce the Insiders’ attorney-client privileged records and emails.
CASE STUDY CONT.
In re Asia Global Crossing, Ltd., 322 B.R. 247, 257 (Bankr. S.D.N.Y. 2005)
•
•
Insiders assert the attorney-client privilege and the Trustee counters that the
privilege does not apply.
Trustee argues communications are not protected because the Insiders
1.communicated
Does the corporation
maintain
a policy
banning personal
or other objectionable
use?
via work
/ company
infrastructure
and the privilege
does not
apply under such circumstances as there is no reasonable expectation of
privacy.
2. Does the company monitor the use of the employee's computer or e-mail?
• Court adopts what have become known as the 4 Asia Global factors to
determine whether the attorney-client privilege applies.
3. Do third parties have a right of access to the computer or e-mails?
4. Did the corporation notify the employee, or was the employee aware, of the
use and monitoring policies?
Balancing Test
CASE STUDY - PRIVILEGED
Stengart v. Loving Care Agency, Inc., 990 A.2d 650, 655 (2010)
• Stengart uses her company-issued laptop to exchange e-mails with her personal lawyer
through personal, password-protected, web-based e-mail account;
• Stengart then files an employment discrimination lawsuit against employer;
• Employer hires a computer forensic expert to recover all files stored on the laptop,
including emails, which were automatically saved to the computer hard drive;
• Employer’s attorneys reviewed the emails and used information from the emails
during discovery;
• Stengart’s lawyer demands the communications be considered privileged and returned to Stengart.
• Employer argues attorney-client privilege does not apply.
CASE STUDY - PRIVILEGED
Stengart v. Loving Care Agency, Inc., 990 A.2d 650, 655 (2010)
Trial court rules that in light of the employer’s written policy on electronic communications, Stengart
waived the attorney-client privilege by sending e-mails on a company computer;
Appellate Division reverses and finds employer’s counsel violated RPC 4.4(b) by reading and using
privileged communications;
New Jersey Supreme Court holds that under these specific circumstances, Stengart could
reasonably expect the e-mail communications through her personal account would remain private
and that sending and receiving emails via a company laptop did not eliminate the attorney-client
privilege. By reading e-mails that were at least arguably privileged and failing to notify Stengart
promptly about them, employer’s counsel breached RPC 4.4(b).
CASE STUDY - NOT PRIVILEGED
In re Reserve Fund Sec. & Derivative Litig., 275 F.R.D. 154, 164 (S.D.N.Y. 2011)
Securities and Exchange Commission action against money market fund’s
investment advisors, distributor, and their principals.
SEC sought 60 emails between a Defendant and his wife.
Defendant transmitted emails at issue using employer’s computer.
Employer “Email Policy” was in place and Defendant admitted he was aware of the policy.
Defendant seeks to protect confidential communications by asserting the marital privilege.
CASE STUDY - NOT PRIVILEGED
In re Reserve Fund Sec. & Derivative Litig., 275 F.R.D. 154, 164 (S.D.N.Y. 2011)
Policy States:
Employees may use only the email system provided to communicate with clients and the
public;
Employees should limit their use of the email resources to official business;
Employees should remove personal and transitory messages from personal inboxes on a
regular basis;
Email communications are automatically saved regardless of content.
IT administrator will not routinely monitor employee’s email and will take reasonable
precautions to protect the privacy of email.
CASE STUDY - NOT PRIVILEGED
In re Reserve Fund Sec. & Derivative Litig., 275 F.R.D. 154, 164 (S.D.N.Y. 2011)
Holding:
“Application of the four Asia Global Crossing factors here indicates that
[Defendant] did not have a reasonable expectation of privacy in emails he sent or
received over [Employer’s] email system: [Employer] banned personal use of its
email system; [Employer] reserved its right to access employee email; [Employer]
warned employees that email sent over [Employer’s] system might be subject to
disclosure to regulators and the courts; and [Defendant] was aware of
[Employer’s] email policy.”
Because Defendant had no reasonable expectation of privacy in emails he sent
over [Employer’s] system, they were not sent ‘in confidence’ and are not
protected by the marital communications privilege.”
Practical Effects
•
•
•
•
•
Lack of clear policy = uncertain privilege;
Employees’ communications at risk for unwanted
disclosure;
Employees’ litigation hold obligations may indirectly
effect employer;
Employer thrust into unnecessary and costly
litigation involving employees;
Ethical Considerations (Stengart).
QUESTION &
ANSWER SESSION
Don’t Call My Bluff
The Ethics of Negotiation
James H. Gilliam
BrownWinick
666 Grand Avenue, Suite 2000
Des Moines, IA 50309-2510
Telephone: 515-242-2446
Facsimile: 515-323-8546
E-mail: gilliam@brownwinick.com
Disputes (Generally) Settle
• Most prior to commencement of litigation
• Many post-litigation settlements occur
through private/court-sponsored mediation
Dispute Settlement
• Requires a frank assessment of parties’
risk
• Risk assessment often requires
communication from opposing parties and
counsel
Typical Negotiation Topics
•
•
•
•
•
Damage Valuations
Existence/Strength of Evidence
Existence/Credibility of Witnesses
Existence/Strength of Legal Position
Settlement Position Authority
Iowa Rules of Professional
Conduct
Rule 32:1:6 Confidentiality of Information
“Because of confidentiality prohibitions, a
lawyer may generally refuse to provide
information without breaching any duty.
However, once the lawyer undertakes to
provide information, that lawyer has a duty
to provide the information truthfully.”
Hansen v. Anderson, Wilmarth, 630 N.W.2d 818,
825 (Iowa 2001)
IRPC 32:4:1
Truthfulness in Statements to Others
“In the course of representing a client a lawyer shall not
knowingly:
(a) Make a false statement of material fact or law to a third
person; or
(b) Fail to disclose a material fact to a third person when
disclosure is necessary to avoid assisting a criminal or
fraudulent act by a client, unless disclosure is
prohibited by Rule 32:1:6.”
IRPC 32:4:1 Does Not Limit
• False statements made unknowingly
• False statements about immaterial matters
• False statements not of law or fact
IRPC 32:4:1
Comment on “Statements of Fact”
Certain expressions are not “statements of fact” for
purposes of IRPC 32:4:1
- “estimates of price or value placed on the subject of a
transaction” and
- “party’s intentions as to an acceptable settlement of a
claim”
IRPC 32:4:1 cmt[2]
“Material” Not Defined in
Rule/Comment
Restatement (Second) of Torts
• Reasonable person would “attach importance to
the existence or nonexistence in determining a
choice of action in the transaction in question; or
• Maker of the representation knows or has
reason to know that its recipient regards or is
likely to regard the matter as important in
determining his choice of action, although a
reasonable man would not so regard it.”
IRPC 32:4:1 and Typical
Negotiation Tactics
• A party in a negotiation often understates
willingness to make concessions to
compromise a dispute
• A party in a negotiation also might
exaggerate or understate the strengths
and weaknesses of a factual or legal
position
ABA Formal Ethics Opinion 06-439
• Such understatements or exaggerations,
often called “posturing” or “puffing”, are
statements on which the other party to the
negotiation ordinarily would not be
expected justifiably to rely
• Puffery is distinguishable from false
statements of material fact
Permitted Puffing
“If we do not agree on price, we will find an
alternate supplier”
Permitted Puffing (cont.)
“My client insists on receiving $100K to
settle these claims”
Prohibited Factual Misstatements
“This benefit will cost the company
$100/employee” – when lawyer knows
cost is $20/employee
Prohibited Factual Misstatements
(cont.)
“We have three co-workers of the plaintiff
who witnessed her theft of company
property” – when no witnesses exist or
such existence is unknown
Prohibited Factual Misstatements
(cont.)
“My client’s bottom line/my settlement
authority is $X”
ABA Formal Ethics Opinion 93-370
A lawyer may downplay a client’s
willingness to compromise, or present a
client’s bargaining position without
disclosing the client’s “bottom line”
position, in an effort to reach a more
favorable resolution
When the Judge is the Mediator
IRPC 31:3:3
Candor toward the Tribunal
“Tribunal” Defined
• A court, an arbitrator in a binding arbitration
proceeding or a legislative body, administrative
agency or other body acting in an adjudicative
capacity.
• Legislative body in adjudicative capacity as
neutral officer rendering judgment.
IRPC 1.0(m) definition
IRPC 32:3:3 “Tribunal” Defined
More Broadly
Includes when the “lawyer is representing
a client in an ancillary proceeding
conducted pursuant to the tribunal’s
adjudicative authority, such as a
deposition.” IRPC 3.3 cmt[1]
IRPC 32:3:3 Governs CourtSupervised Negotiations
Rule 3.3 governs before Tribunals,
including court-supervised settlement
negotiations.
See ABA Opinions 06-439 and 93-370 and
IRPC 2.4 cmt [5]
Obligation to Tribunal under IRPC 32:3:3
More Extensive than Outside Tribunals
Under 32:4:1
Duty to Remedy
• Must correct a false statement
IRPC 32:3:3(a)(1)
• Disclosure of false evidence required
IRPC 32:3:3(a)(3)
• Remedial measures required
IRPC 32:3:3(b)
Duty of Candor Overrides
Confidentiality
IRPC 32:3:3 (c)
Practice Tips
“In my opinion …”
Practice Tips (cont.)
“We predict …”
Practice Tips (cont.)
“We are confident …”
Practice Tips (cont.)
“Your investigation will reveal …”
Practice Tips (cont.)
Remember: “No” is a complete sentence
QUESTION &
ANSWER SESSION
Website: www.brownwinick.com
Toll Free Phone Number: 1-888-282-3515
OFFICE LOCATIONS:
666 Grand Avenue, Suite 2000
Des Moines, Iowa 50309-2510
Telephone: (515) 242-2400
Facsimile: (515) 283-0231
616 Franklin Place
Pella, Iowa 50219
Telephone: (641) 628-4513
Facsimile: (641) 628-8494
DISCLAIMER: No oral or written statement made by BrownWinick attorneys should
be interpreted by the recipient as suggesting a need to obtain legal counsel from
BrownWinick or any other firm, nor as suggesting a need to take legal action. Do not
attempt to solve individual problems upon the basis of general information provided
by any BrownWinick attorney, as slight changes in fact situations may cause a
material change in legal result.