Various Ethical Scenarios For
Inhouse Counsel –
From The Mundane To The Critical
By: Jesse Linebaugh, Jeff Hicks, and Stacie Gonsalves
Ethical Scenario #1
► You
are inhouse counsel lawyer for Company A and you are
licensed in Iowa. Company A has a small facility in Ohio. You
are negotiating a contract on behalf of that facility in Ohio with an
Ohio supplier and the contract is governed by the law of the
state of Ohio. You do not hire local counsel and instead
negotiate the contract yourself. The
negotiations turn ugly and at some point
the lawyer on the other side says to you
nastily: “Are you even licensed to practice
law in Ohio? You need local counsel or
I am filing a claim against you for practicing
law here without a license.”
2
Advice/Best Practice
Probably Not, American Bar Association Rule 5.5(d)(1) provides “[a]
lawyer admitted in another United States jurisdiction, and not
disbarred or suspended from practice in any jurisdiction, may provide
legal services in this jurisdiction that: are provided to the lawyer’s
employer or its organizational affiliates and are not services for which
the forum requires pro hac vice admission.”
► In Comment 16 to Iowa Rule of Professional Conduct 32:5.5, it states
that paragraph 5.5(d)(1) “applies to in-house corporate lawyers,
government lawyers, and others who are employed to render legal
services to the employer. The lawyer’s ability to represent the
employer outside the jurisdiction in which the lawyer is licenses
generally serves the interests of the employer and does not create an
unreasonable risk to the client and others because the employers is
well situated to assess the lawyer’s qualifications and the quality of
the lawyer’s work.”
►
3
Ethical Scenario #2
► You
have a very large internal document review that you need to
complete that involves hundreds of thousands of documents and
a privilege review. Top management is on you to do this as
financially responsible as possible. You decide to hire four
paralegals to do the project over four months and
they will work under your direction.
► Can
you do this? Is this
unauthorized practice of law?
4
Advice/Best Practices
►
Iowa Rule of Professional Conduct (IRPC) 32:5.5(a) – Prohibits a
lawyer from aiding another person in the unauthorized practice of law.
►
►
No universal definition and each state has their own definition
Iowa Supreme Court Com'n on Unauthorized Practice of Law v.
Sturgeon, 635 N.W.2d 679 (Iowa 2001) (quoting Iowa Code of Prof'l
Responsibility EC 3-5)
The key determining factor is whether the privilege review requires
“the professional judgment of a lawyer.”
► Document reviews can run the spectrum of tasks that might require
the application of legal knowledge, training and judgment (such as
making final privilege determinations) to items that appear to require
little or none (such as flagging documents for discrete factual issues
for later review by attorneys). The question is, where do we draw the
line?
►
5
Advice/Best Practices
1. Consider running a conflicts check on these paralegals as part
of the hiring process
2. Establish clear parameters for the privilege review
3. Provide robust project-specific training to the paralegals
4. Require paralegals to flag all questionable documents for your
review
5. Conduct ongoing sample checks of paralegal work product
6. Document your supervisory activities
6
Ethical Scenario #3
► A friend
of yours approaches you and asks for some
“advice.” She has had a personal relationship with a
coworker. She admits that they
exchanged sexual texts with someone
on her team. He decided to end the
relationship and told her she needed
to stop texting him or he would go
to “HR.” She wants to stop
immediately and is now worried
for her job. She wants your advice.
7
Advice/Best Practices
►Employee
►Must
is NOT your client
meet reporting obligations
►These
situations
happen all the time
8
Ethical Scenario #4
►
You are in-house counsel for Company A. A demand letter arrives on
the Friday afternoon right before you are taking the family on a weeklong vacation. It threatens a large lawsuit and makes harsh
allegations against some of your executives. Since you don’t have to
answer for 30 days you decide to deal with it upon your return. At
that time you will pick outside counsel and do whatever you need to
prepare for the litigation. Unfortunately while you are gone, the
executives and others delete and destroy key documents. They do
this prior to you issuing any legal hold
or even orally telling anybody to not
destroy documents. Do you have
anything to worry about?
9
Questions & Considerations
►Malpractice
►Getting
fired
►Spoliation
claim in
the lawsuit
10
Ethical Scenario #5
► Your
company and one of its employees have been sued. Your
employee has E&O coverage and has hired a lawyer.
► In
preparing for depositions and in preparing for mediation, your
employee’s lawyer and his E&O insurer want to discuss
deposition and resolution strategy.
► What
are your concerns?
11
Questions & Considerations
►Always Tricky
►Joint
Defense/Common Interest Needed
►Insurers
Demand Participation Often
12
Ethical Scenario #6
►
Your outside counsel informs you that
you need to provide a 30(b)(6)
witness for the key topic in a big piece
of litigation. The Vice President that
has the most knowledge on this topic
has an axe to grind with the company
and would be a terrible witness. You
decide that you would much rather
appoint a different 30(b)(6) witness.
►
Can you do that?
13
Advice/Best Practice
►Fact
specific scenario
►Depends
on what the other employee knows and
the basis for the request
14
Ethical Scenario #7
►
It’s Friday afternoon at 5pm when your assistant says there is a mid-level manager at his desk that “needs to
speak to the general counsel immediately.” You are busy finalizing an IPO, but the manager is a college
friend who grew up in the company with you, so you agree to see him right away.
►
The manager comes into your office and says that he just experienced one of the strangest feedback
sessions of his entire career.
►
The feedback session was for a struggling direct report who has been underperforming and has been told
that he needs to improve his performance or he’ll be let go.
►
During the feedback session, the direct report questioned why the manager wasn’t coming down harder on
another employee in their accounting department. The direct report alleged this employee had been
manipulating sales data for the last year in order to inflate the quarterly earnings.
►
The manager dismissed the allegations as sour grapes and told the direct report that he needed to worry
about his own performance, and to be careful about spreading unfounded rumors. Besides, as the manager,
he personally has to review and approve the sales figures. The manager can’t recall if he told the direct
report that he would look into it though.
►
The manager is concerned, however, because after looking at the data again the sales numbers do appear
to have spiked during that same time frame. At the time, the company had chalked it up to the improving
economy.
15
Questions & Considerations
► Should
► What
► If
I treat this as a potential whistleblower situation?
should I say to the manager?
I start an investigation, should I reach out to the employee?
► Any
other issues I need to consider?
16
Ethical Scenario #8
►
You haven’t had your first cup of coffee yet when you have a knock on your
door.
►
The employee at your door tells you that she works in IT. She tells you that
her department (12 individuals) learned of a hack to the company’s network
two weeks ago. Based on her analysis, she believes a large amount of
sensitive customer information was accessed. However, she tells you that
her boss, the CISO, disagrees, and believes the breach was caught
early on and that only minimal information, if
anything, was accessed. She tells you that the
CISO has instructed the department to not discuss
this hack outside of the department.
►
The employee states that she believes the majority
of the department believes the hack should be
reported up the chain, but are leery of running
afoul of their boss.
17
Questions & Considerations
► You
decide to inform the CEO. She is concerned someone else
in the Department may report externally and stir up a PR
nightmare. She suggests you send a memo to the Department
letting them know that a potential breach has been reported by
an employee and that the company will be conducting an
investigation. Any concerns?
► You
think you may need to hire an outside IT firm to assist in the
investigation. How can I try to maintain privilege?
18
Ethical Scenario #9
►
Your company has a dedicated whistleblowing hotline. Last night, the
following message was received:
►
“Somebody has to stop our a-hole
of a CEO. My best friend is in tears
because of him. He can’t keep
treating women like this and
expect to get away with it.
He may have intimidated others
into keeping their mouth shut,
but I won’t be. I’ve told my friend
to get an attorney, but she’s
worried that she’ll get blacklisted
from the city and will never be able
to find another job. You all need to do something, or I will.”
19
Questions & Considerations
► Who
should I notify?
► Do
I need to start an investigation,
and if so, where do I start?
► Should
I try to identify the caller?
20
Can An Inhouse Counsel Be A Whistleblower?
21
Ethical Scenario #10
► Prior
to being in-house counsel you were in private practice and
handled civil litigation. One of your coworkers and friends is
having a tough dispute with a contractor on his home. The
contractor has sued him for $50,000 for failing to pay the amount
due and he wants to countersue for failed performance. You
have time and want to help him. Can you help?
22
Questions & Considerations
► Can
you represent an
employee of the company?
► Is
there a conflict of
interest?
► Could
this create the risk of
a future conflict of interest?
23
Ethical Scenario #11
Your company recently attended a seminar where it learned of government
contracting opportunities. Shortly thereafter, your company learns that the
government has submitted request for proposals (RFP) for products your
company sells. Your company is uncertain how it will respond to a
particular section of the RFP. The company first considers contacting the
agency’s contracting officer, but quickly
recalls that it hired a former government
employee, Kirk. The company uses Kirk
to prepare its proposal. You learn your
company won the contract, but the
contract is being challenged by a
competitor through a process known
as a bid protest. You consult a government
contracts attorney for guidance.
24
Questions & Considerations
► Did
the company do anything wrong by using the former
government employee to draft the proposal?
► Should
the company have contacted the contracting officer
instead?
► Are
there restrictions to recruiting and/or hiring government
employees?
25
Ethical Scenario #12
A government employee, Karen, is retiring after 30 years of
service. Government employees want to organize a dinner in
honor of her retirement and give her a group gift. Your
company’s employees have worked substantially with Karen on
the government contract. A government employee, Brittney,
volunteers to collect donations from people on the project to
purchase the group gift.
26
Questions & Considerations
►
Can the government
employee accept donations
from your company?
►
Should your company’s
employees contribute to the
group gift?
►
What are the risks?
27
Ethical Scenario #13
While working on a government contract, Angela attempts to
send her friend a picture from her weekend trip. Unbeknownst
to Angela, she inadvertently attached a non-public government
document. The friend calls Angela
and informs her of the “mix-up.”
The company has a code of
ethical and professional
responsibility policy, but no
other guidance on this issue.
Angela contacts the legal
department for help. The legal
department cannot find any provisions
in its polices that address this issue.
28
Questions & Considerations
► Are
any government contracting laws applicable?
► What
should the company do next?
► What
are some best practices regarding the protection of nonpublic information?
29
Ethical Scenario #14
► You
are General Counsel for
Company A and you need to hire an
additional lawyer for your staff. Your
ideal candidate works for a law firm
that is currently adverse to you on a
major piece of litigation. In fact, the
candidate is a young associate who is
currently working on that piece of
litigation.
► Can
you hire her?
30
Advice/Best Practice
► Likely
not without her current client’s informed, written consent.
► While
ethical rules may not apply to corporations, it does apply
to legal departments within corporations. See Iowa Rules of
Professional Conduct 32:1.10, Comment 1
► The
legal department should also put in place appropriate
screening measures. See Iowa Supreme Ct. Atty. Disciplinary
Bd. v. Johnson, 728 N.W.2d 199, 201 n.1 (Iowa 2007)
31
Ethical Scenario #15
► You
are inhouse counsel for Company A and it is involved in
litigation. The President of the company tells the employees to
always copy you if they are going to discuss the litigation. Is that
enough to keep everything privileged?
► What
else should we tell them?
32
Advice/Best Practice
►
As a general rule, courts may distinguish between business communications versus
legal communications, only the latter of which is protected by attorney-client
privilege. See Simon v. G.D. Searle & Co., 816 F.2d 397, 403 (8th Cir. 1987)
►
Simply including the attorney on the communication itself will not, ipso facto, result
in its privileged status. See Smithkline Beecham Corp. v. Apotex Corp., 232 F.R.D.
467, 478 (E.D. Pa. 2005)
► Best
practice is to:
Mark confidential
► Make clear communication has a legal purpose
► Involve outside counsel
► Strictly maintain confidence
►
33
Advice/Best Practice
►
“As a general rule, the attorney-client privilege is waived by voluntary disclosure of
private communications by an individual or corporation to third parties.” Tenn.
Laborers Health & Welfare Fund v. Columbia/HCA Healthcare Corp., 293 F.3d 289
(6th Cir. 2002)
►
Courts have held that, in certain circumstances, both the insurer and insured are
clients of the attorney, and thus communications with both are subject to the
attorney-client privilege. Vicor Corp. v. Vigilant Ins. Co., 674 F.3d 1, 18 (1st Cir.
2012)
►
Even when the attorney does not function as representative for both, the attorneyclient privilege may extend where the dispute is covered by the “common interest”
doctrine. See; Lectrolarm Custom Sys. v. Pelco Sales,
Inc., 212 F.R.D. 567, 571 (E.D. Cal. 2002)
34
Ethical Scenario #16
► President
walks into your office and tells you that he believes
your Vice President of accounting may be absconding with
money. He wants you to immediately this afternoon conduct an
internal investigation with full interviews of all employees.
► What
are your
immediate ethical concerns?
35
Advice/Best Practice
► Upjohn
warning
► Inhouse
► Must
counsel vs. outside counsel
maintain privilege
► How
to handle the inevitable
questions from employees?
36
Ethical Scenario #17
► You
hire a law firm to represent the company in a newly-filed
breach of contract case. After the firm files an appearance in the
action, the Plaintiff files a motion to disqualify your attorneys.
According to the motion, another attorney from the same firm
had a preliminary interview with the Plaintiff months before you
hired the firm to represent you. Although the Plaintiff ultimately
did not hire that attorney or any other attorney from the firm to
represent him in the lawsuit, Plaintiff contends that he discussed
confidential information during the meeting. Are your attorneys
and their law firm disqualified from representing you in the suit?
37
Questions & Considerations
► Is
Plaintiff a “client” of the firm based on the preliminary
interview?
► Is
there a duty of confidentiality?
► Does
► Can
a duty of loyalty to the Plaintiff disqualify the firm?
the firm use an ethical screen?
38
Case Studies
► Laryngeal
Mask Co. v. Ambu A/S, Ambu, Inc., No. 07-CV-1988,
2008 U.S. Dist. Lexis 15320 (S.D. Cal. Feb. 25, 2008)—Firm is
disqualified
► Vaccine
Center, LLC v. GlaxoSmithKline LLC, No. 2:12-CV01849, 2013 U.S. Dist. Lexis 60046 (D. Nev. Apr. 25, 2013)—
Firm is not disqualified
39
Ethical Scenario #18:
Subsidiary Representation & Conflicts
► You
are employed as inhouse
counsel for Company A.
Company A has two wholly
owned subsidiaries named Sub A
and Sub B. President of Sub A
calls and needs you to review a
revenue sharing agreement
between Sub A and Company A.
► Can
you do it?
40
Key Facts
► Both
entities are solvent
► Interests
are aligned
► Therefore,
a conflict is unlikely
41
Questions & Considerations
►
Is Subsidiary A automatically your client?
►
Do you have an explicit written agreement defining your relationship to
Subsidiary A?
►
Even if you do not consider Subsidiary A to be your client, they might still be:
►
►
►
Because of the nature of your earlier dealings with the subsidiary, or merely by
responding to this particular request.
Because your relationship with the subsidiary caused it to reasonably believe it
was your client.
Where the overlapping relationship between Company A and Subsidiary A is
such that you are required to regard the subsidiary as your client.
►
Have you taken active steps to dispel the subsidiary President’s belief that
you represent him?
►
Best Practice: Even if conflict chances are very low, consider seeking a
written conflict waiver or joint representation agreement to protect yourself.
42
Subsidiary Representation & Conflicts – SCENARIO #2
► Same
question, but this time Subsidiary A has become
insolvent. You are asked to review and determine whether
certain debts can be assigned to either Subsidiary A or
Company A?
► Who
do you represent?
► What
are the consequences?
43
Key Facts
► Insolvency
of Subsidiary A creates risk
► Interests
of the two entities with respect to debts are no longer
clearly aligned
► Therefore,
a potential conflict is foreseeable
44
Questions & Considerations
► You
represent and owe a duty of loyalty to Company A
► If
you advise Subsidiary A it could become a “de facto” client just
by this action alone, and would then owe an equal duty to the
subsidiary
► Without
a written waiver or joint representation agreement, you
would be in significant danger of an ethical violation of IRPC
32:1.7 against entering into conflicts of interest between current
clients. Even a waiver would not be effective if the interests can
be considered “fundamentally antagonistic.” Cmt. 28.
45
Potential Consequences
► Disqualification
to represent either client, which may also be
imputed to outside counsel
► Subject
matter waiver of the attorney-client privilege
► Violation
of Iowa bar rules, with potential for attorney discipline
46
Questions
47
Jesse Linebaugh
+1 515 447-4706
Jesse.Linebaugh@FaegreBD.com
Jeff Hicks
+1 515 447-4721
Jeff.Hicks@FaegreBD.com
Stacie L. Gonsalves
+1 515 477-4727
Stacie.Gonsalves@FaegreBD.com
48
Extra Ethical Consideration #1
Two years after working on government contracts, the profits at your
company are substantially high. Therefore, your company decides to
provide raises to individuals who worked on the government
project. During a quarterly review, supervisors give each employee a
memo. The memo states the employee’s compensation and includes
a disclaimer that reads:
“You are prohibited from discussing
the extent of your pay increase.
Disclosure will lead to termination of
your employment.” Lewis subsequently
sends a tweet stating, “Company X
knows how to reward their hard-working
employees. I’m making $100,000 now!”
The company discovers Lewis’ tweet and immediately fires him.
49
Questions & Considerations
► Can
your company
fire Lewis?
► Are
there any exceptions
to the rule?
50
Extra Ethical Consideration #2
Your company drafts a proposal and details how it will use a
small disadvantaged business as a subcontractor. Soon
thereafter, your relationship with the subcontractor severs after
it fails to meet its deadline for another project, which will cost
your company $50,000. A month later, the government
announces your company won
the contract. To get back at the
subcontractor, you enter into a
teaming agreement with the
subcontractor’s competitor to
perform the contract.
51
Questions & Considerations
►What
should you do?
52