ETHICAL HAZARDS THAT CONFRONT CORPORATE COUNSEL

Transcription

1 ETHICAL HAZARDS THAT CONFRONT CORPORATE COUNSEL

2 GUEST SPEAKERS SARAH MENENDEZ Senior Litigation Counsel T sarah_menendez@bmc.com SEAN GORMAN Trial Partner T sean.gorman@bracewell.com 2TEXAS NEW YORK WASHINGTON, DC CONNECTICUT SEATTLE DUBAI LONDON bracewell.com

3 3 The Economic Goal of Business

4 Trust In place of a community of taboos and titles, a successful society has law law with its individual equality and regular processes. You do not have to know someone to trust that person. The rules apply no matter who your family might be or what the other guy s politics might be. The substance of laws is a starting point, but only that. Regulations define your responsibility but your duty is more profound, complex, and subtle. 4

5 5 The Role of Corporate Counsel

6 What are lawyers, really? To me a lawyer is basically the person that knows the rules of the country. We're all throwing the dice, playing the game, moving our pieces around the board, but if there's a problem, the lawyer is the only person that has read the inside of the top of the box. I think one of the fun things for them is to say, objection. Objection! Objection, Your Honor. Objection, of course, is the adult version of, fraid not. To which the judge can say two things, he can say, overruled which is the adult version of fraid so, or he could say, sustained, which is the adult version of Duh. Jerry Seinfeld 6

7 Processes for Evaluating Our Obligations Rules of Professional Conduct Consistent Framework of Analysis 7

8 Framework for Evaluating Our Duties Will the conduct at issue impose un-bargained-for negative consequences on my client? 8

9 A Selection of Ethical Hazards 1) Who is the Client? 2) Negotiations and the Concept of Honest Dealing 3) Dealing with Unrepresented Parties 4) Maintaining Attorney-Client Privilege 5) Documents and Data 9

10 Who is the Client? A. Corporate counsel are the primary counsel for the organization Texas Rule of Professional Conduct 1.12(a): A lawyer employed or retained by an organization represents the entity. While the lawyer in the ordinary course of working relationships may report to, and accept direction from, an entity's duly authorized constituents, in the situations described in paragraph (b) the lawyer shall proceed as reasonably necessary in the best interest of the organization without involving unreasonable risks of disrupting the organization and of revealing information relating to the representation to persons outside the organization. 10

11 Who is the Client? B. Constituent misconduct and the duty to report up Texas Rule of Professional Conduct 1.12(b) A lawyer representing an organization must take reasonable remedial actions whenever the lawyer learns or knows that: (1) a person associated with the organization has committed or intends to commit a violation of a legal obligation to or that may be imputed to the organization; (2) substantial injury to the organization is likely; and (3) the violation relates to a matter within the scope of the lawyer s representation to the organization. Texas Rule of Professional Conduct 1.12(c) A lawyer must first attempt to resolve a violation by taking measures within the organization. The lawyer should consider the seriousness of the violation and its consequences, the scope and nature of the lawyer's representation, the responsibility in the organization and the apparent motivation of the person involved, and the policies of the organization concerning such matters. Texas Rule of Professional Conduct 1.12(d) Upon a lawyer s resignation or termination, a lawyer is excused from further proceeding as required by TRPC 1.12(a)-(d). 11

12 Who is the Client? B. Constituent misconduct and the duty to report up Texas Rule of Professional Conduct 1.12(e) In dealing with an organization s directors, officers, employees, members, shareholders, or other constituents, a lawyer must explain the identity of the client when it is apparent that the organization's interests are adverse to those of the constituents. Texas Rule of Professional Conduct 1.15(b)(2)-(4), (7) A lawyer shall not withdraw from representing a client unless: (2) the client persists in a course of action involving the lawyer's services that the lawyer reasonably believes may be criminal or fraudulent; (3) the client has used the lawyer's services to perpetrate a crime or fraud; (4) a client insists upon pursuing an objective that the lawyer considers repugnant or imprudent or with which the lawyer has fundamental disagreement; (7) other good cause for withdrawal exists. 12

13 Who is the Client? C. Whistleblowing Willy v. Coastal States Management Co., 939 S.W.2d 193 (Tex. App. Houston [1st Dist.] 1996) In-house counsel sued employer for retaliatory discharge, alleging that he was fired from position as an environmental attorney for refusing to participate in the concealment of environmental violations Texas court held that attorney was permitted to bring retaliatory discharge action so long as the claim could be established without breaching the attorney-client privilege Because attorney could not prove allegations without revealing client confidences, court held that attorney had no remedy See also General Dynamics Corp. v. Superior Court, 7 Cal. 4th 1164 (1994); GTE Prod. Corp. v. Stewart, 421 Mass. 22, 653 N.E.2d 161 (1995) But see Willy v. Admin. Review Bd., 423 F.3d 483 (5th Cir. 2005), Van Asdale v. Int'l Game Tech., 577 F.3d 989 (9th Cir. 2009), and Kachmar v. SunGard Data Systems, Inc., 109 F.3d 173 (3d Cir. 1997): Holding that the attorney-client privilege is not a per se bar to retaliation claims under the whistleblower statutes; attorneys may use otherwise privileged information to the extent necessary to establish a retaliatory discharge claim, while taking steps to avoid unnecessary disclosure and limit the information revealed 13

14 Negotiations and the Concept of Honest Dealing A. Duty to Disclose Texas Rule of Professional Conduct 4.01 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 making the lawyer a party to a criminal act or knowingly assisting a fraudulent act perpetrated by a client. Texas Rule of Professional Conduct 8.04(2)-(4) A lawyer shall not: (2) commit a serious crime or commit any other criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects; (3) engage in conduct involving dishonesty, fraud, deceit or misrepresentation; (4) engage in conduct constituting obstruction of justice. 14

15 Negotiations and the Concept of Honest Dealing B. Puffery ABA Model Rule of Professional Conduct 4.1, Comment 2 Whether a particular statement should be regarded as one of fact can depend on the circumstances. Under generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact. Estimates of price or value placed on the subject of a transaction and a party s intentions as to an acceptable settlement of a claim are ordinarily in this category, and so is the existence of an undisclosed principal except where nondisclosure of the principal would constitute fraud. Lawyers should be mindful of their obligationsunderapplicablelaw to avoid criminal andtortiousmisrepresentation. 15

16 Negotiations and the Concept of Honest Dealing C. Duty to Correct Texas Rule of Professional Conduct 4.01, Comment 3 A lawyer must disclose a material fact to a third party if the lawyer knows that the client is perpetrating a crime or a fraud and the lawyer knows that disclosure is necessary to prevent the lawyer from becoming a party to that crime or fraud. Texas Rule of Professional Conduct 3.03 During litigation, if a lawyer has offered material evidence and comes to know of its falsity, the lawyer shall make a good faith effort to persuade the client to authorize the lawyer to correct or withdraw the false evidence. If such efforts are unsuccessful, the lawyer shall take reasonable remedial measures, including disclosure of the true facts. 16

17 Dealing with Unrepresented Parties A. Outside of the Company Texas Rule of Professional Conduct 4.03 In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. Texas Rule of Professional Conduct 4.02(a) In representing a client, a lawyer shall not communicate or cause or encourage another to communicate about the subject of the representation with a person, organization or entity of government the lawyer knows to be represented by another lawyer regarding that subject, unless the lawyer has the consent of the other lawyer or is authorized by law to do so. 17

18 Dealing with Unrepresented Parties B. Inside of the Company ABA Model Rule of Professional Conduct 1.13(a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents. Texas Model Rule of Professional Conduct 1.12, Comment 1 A lawyer employed or retained to represent an organization represents the organization as distinct from its directors, officers, employees, members, shareholders or other constituents. Unlike individual clients who can speak and decide finally and authoritatively for themselves, an organization can speak and decide only through its agents or constituents such as its officers or employees. In effect, the lawyer-client relationship must be maintained through a constituent who acts as an intermediary between the organizational client and the lawyer. This fact requires the lawyer under certain conditions to be concerned whether the intermediary legitimately represents the organizational client. 18

19 Dealing with Unrepresented Parties B. Inside of the Company Upjohn Co. v. United States, 449 U.S. 383 (1981); elements of warning: Counsel represents the corporation and the interview is part of an internal investigation Purpose of the interview is to gather facts in order to provide legal advice to the corporation Interview is covered by attorney-client privilege, which belongs exclusively to the corporation Corporation may decide to waive the privilege and disclose the contents of the interview, even to the detriment of the employee The employee is not permitted to disclose the substance of the interview to anyone unless authorized by counsel (but may disclose facts) Consequences of Not Warning If an employee reasonably believes that corporate counsel represents him, the court could conclude that the privilege belongs both to the corporation and to the employee By asserting the privilege, the employee could then prevent the corporation from disclosing information learned in the interview 19

20 Maintaining Attorney-Client Privilege Enlarging the invitation list Copying counsel without asking for legal advice 20

21 Documents and Data Retention Policies Litigation Holds Post-Breach Disclosure 21

22 Conclusion In addition to plain truth, honesty includes reliability and frankness rigor and fidelity. Honesty needs reflection and articulation deliberation, not reaction. And honesty requires courage. These are the virtues of trust. 22