Various Ethical Scenarios For Inhouse Counsel –

From The Mundane To The Critical

By:  Jesse Linebaugh, Jeff Hicks, and Stacie Gonsalves

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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.”

OHIO

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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.”

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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?

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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?

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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

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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.

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Advice/Best Practices

►Employee is NOT your client

►Must meet reporting obligations

►These situations happen all the time

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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 week-long 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?

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Questions & Considerations

►Malpractice

►Getting fired

►Spoliation claim in the lawsuit

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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?

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Questions & Considerations

►Always Tricky

►Joint Defense/Common Interest Needed

►Insurers Demand Participation Often

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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? 

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Advice/Best Practice

►Fact specific scenario►Depends on what the other employee knows and

the basis for the request

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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.

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Questions & Considerations

► Should I treat this as a potential whistleblower situation?► What should I say to the manager?► If I start an investigation, should I reach out to the employee?► Any other issues I need to consider?

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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.

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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?

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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.”

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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?

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Can An Inhouse Counsel Be A Whistleblower?

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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?

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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?

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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.

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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?

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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.

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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?

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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.

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Questions & Considerations

► Are any government contracting laws applicable? ► What should the company do next?► What are some best practices regarding the protection of non-

public information?

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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?

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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)

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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?

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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

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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 attorney-client 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)

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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?

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Advice/Best Practice

► Upjohn warning

► Inhouse counsel vs. outside counsel

► Must maintain privilege► How to handle the inevitable

questions from employees?

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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?

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Questions & Considerations

► Is Plaintiff a “client” of the firm based on the preliminary interview?

► Is there a duty of confidentiality?► Does a duty of loyalty to the Plaintiff disqualify the firm?► Can the firm use an ethical screen?

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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-CV-01849, 2013 U.S. Dist. Lexis 60046 (D. Nev. Apr. 25, 2013)—Firm is not disqualified

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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?

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Key Facts

► Both entities are solvent► Interests are aligned► Therefore, a conflict is unlikely

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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.

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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?

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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

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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.

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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

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Questions

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Stacie L. Gonsalves+1 515 477-4727Stacie.Gonsalves@FaegreBD.com

Jesse Linebaugh

+1 515 447-4706Jesse.Linebaugh@FaegreBD.com

Jeff Hicks+1 515 447-4721Jeff.Hicks@FaegreBD.com

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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.

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Questions & Considerations

► Can your company fire Lewis?

► Are there any exceptions to the rule?

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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.

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Questions & Considerations

►What should you do?