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1 This Webcast Will Begin Shortly If you have any technical problems with the Webcast or the streaming audio, please contact us via at: Thank You! Pitfalls and Potholes for In House Counsel: Spotting and Avoiding Ethical Problems May 24, 2006 at 3:00 PM Eastern Presented by ACC s Small Law Departments Committee sponsored by LexisNexis and Meritas 1

2 Page 3 Negotiating with Non-Attorneys I m the sole in-house attorney for my company, Little Guy, Inc. and I do it all, including negotiating all contracts. My client just told me Little Guy is providing goods and services to Big Corp and I m to negotiate the terms of a contract, ASAP of course. I have an from Big Corp s Contract Manager with a template attached, asking for my comments and to set up a negotiating session with her some time today. I know that Big Corp has an extensive legal department I ve worked with their attorneys on other matters but the Contract Manager is my contact and we need to get the deal done today. Can I negotiate the terms of the contract directly with Big Corp s Contract Manager? If not, with whom do I need to speak to get the deal done? Model Rule 4.2 precludes a lawyer from communicating with a person the lawyer knows to be represented by a lawyer in the matter. In-house counsel are treated the same as outside counsel. Page 4 Negotiating with Non-Attorneys What if I am negotiating with a company that does not have in-house counsel but definitely hires law firms to do work for them? Actual knowledge is required to implicate Model Rule 4.2. Do I always need to disclose that I am an attorney and they may wish to have their attorney present? What if I am negotiating with an individual? For claims, I simply advise I am the attorney and negotiate. When contracts are signed multiple times by many people (contractors), they also sign an acknowledgement that they have read the document, understand it, and have been given the opportunity to discuss it with an attorney. Disclose that you are an attorney and whom you represent, and inquire as to whether the individual is represented by counsel. See Model Rule

3 Page 5 Attorney Client Privilege My title is General Counsel and Secretary. At Board of Directors meetings I take extensive notes on all issues discussed, including recommendations for resolving pending litigation and then prepare minutes of the meeting. Are the minutes protected by the attorney-client privilege? Are my notes protected by the attorney client privilege? What if I prepare an analysis of an ongoing government investigation into our company and recommended strategies for resolving it, and provide that to the Board of Directors at a meeting. Is that analysis protected by the privilege? Recommendations to the Board for resolving pending litigation should be protected by the attorney-client privilege. Attorney s notes and analysis are protected by the work product doctrine. Page 6 Attorney Client Privilege As Vice President and General Counsel (and internal auditor, unofficial inspector, unofficial advisor to various department heads, and the regular go-to person), I have many duties, some of which are clearly legal, some of which are clearly not legal but business, and some of which fall in that grey area in between the two. How can I determine what is privileged and what is not? Is there a litmus test? Is there anything I can do, if the issue were ever litigated, to help the court in determining what I worked on was privileged? Label appropriate documents as privileged or as Attorney Work Product. Privilege should be asserted in borderline cases. 3

4 Attorney Client Privilege One of the principals in my office, Little Guy, Inc. (although he is thinking of creating a d/b/a of either Know it All or Large Minded) likes to discuss various personal thoughts he has with me, including business strategy, thoughts behind reasoning for distributing or not distributing dividends, what he does not like about certain employees. Are all or even any of these issues privileged, simply because he is telling me, as the Little Guy s attorney? Client communications that may assist the attorney in formulating legal advice are arguably privileged. Simple, but always a problem the CEO likes to discuss issues that would otherwise be attorney-client privilege, except that he likes to have the discussions with other employees in the room. Sometimes they are officers and sometimes they are not. Is the conversation privileged as long as the individuals are employees, since I represent the corporation? Privilege may be lost if the communication is made in front of non-privileged persons who have no role in the underlying subject matter. Page 7 Who is the Client? My company is doing an internal investigation of potential accounting fraud. The Board has hired its own independent law firm to conduct the investigation. The Board s law firm has scheduled several interviews of current and former employees and, as in-house counsel, they have asked me to sit in on these interviews. Do I need to say anything to these current or former employees at the interview? If so, what should I say. Employees should be advised (1) of the nature of the investigation, (2) that the interview is privileged, (3) that the privilege belongs to the corporation, (4) that the corporation may elect to waive the privilege, and (5) that the outside and inside attorneys represent the corporation. Interviews with former employees may not be privileged. Is the situation different for investigation of a pending or potential EEOC complaint? Can I handle it myself (and keep it privileged) or does it need to be done by an outside attorney? The privilege applies equally to in-house or outside counsel. Page 8 4

5 Who is the Client? Another principal of the company has asked me to assist with a transfer of Little Guy stock he is selling at a discount to another family member and then work on his will once the first task is completed. I know there is a potential conflict in the first issue, but how do I address it and do I need to get permission from the entire board? Can I work on his will or do I need permission for that as well, since he is my boss and it is just a family owned company anyway? If not, how do I tell him I can t do the will and still keep my job? An attorney for the corporation may also represent officers, directors, shareholders, or employees, subject to normal conflict of interest rules. To the extent there is a conflict, the corporation s consent must be secured from a disinterested corporate official. Those questions were simple, but what about this an owner of Little Guy, Inc. has asked me to form his own company, My Own Company, LLC. He then wants me to assist with the purchase of some assets that My Own Company will lease to Little Guy. I think I may represent all three, but that does not seem right who do I represent and how do I handle it? (Just to keep me on my toes, after I draft the lease, he also wants me to sign it on behalf of Little Guy, since I am an officer of the corporation.) Page 9 Page 10 Who is the Client? We just fired an employee and he has now filed a complaint with the EEOC (and will eventually sue us pro se in federal court as well). The charge of harassment and discrimination lists witnesses who still work for the company as well as some who do not. With whom can I speak and keep the conversation privileged? Can I contact the fired employee if he is not represented by an attorney? Discussions with current employees should be protected by the attorney-client privilege. Discussions with former employees may not be privileged. If an individual adversary is not represented by counsel in the matter, in-house counsel may contact him or her subject to Model Rule

6 Reporting Up the Ladder I m the Assistant GC in a publicly traded company; our legal department consists of me and the General Counsel. I pretty much handle complex licensing agreements, although sometimes I help the GC on overflow work. Yesterday in the mail room, I overheard two people in the accounting department carping about the CFO and the entries he directs them to make at the end of each fiscal year. Also, one of them left a piece of paper in the copier it s a spreadsheet that shows guidance numbers and various ways to hit the numbers. I m no accounting expert but it all looks kind of fishy. What should I do? What should the AGC do; what should the GC do; what happens if nobody does any follow-up; once the AGC reports, does that person need to do anything further? Do the rules change if it s a privately held firm (and everyone wants to keep their jobs)? In a public company, Section 307 of Sarbanes-Oxley requires an attorney to report "evidence of a material violation." The reporting attorney may be required to report misconduct further up the ladder. In a privately-held company, general corporate law and the ethics rules govern and may impose similar up the ladder reporting obligations. See, e.g., Model Rule 1.13(b) Page 11 Page 12 Model Rule 4.2 Communication With Person Represented By Counsel In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order. 6

7 Page 13 Model Rule 4.3 Dealing With Unrepresented Person 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. The lawyer shall not give legal advice to an unrepresented person, other than the advice to secure counsel, if the lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of the client. Page 14 Client-Lawyer Relationship Model Rule 1.13 Organization as Client (a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents. (b) If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances to the highest authority that can act on behalf of the organization as determined by applicable law. 7

8 Page 15 Client-Lawyer Relationship Model Rule 1.13 Organization as Client (contd.) (c) Except as provided in paragraph (d), if (1) despite the lawyer's efforts in accordance with paragraph (b) the highest authority that can act on behalf of the organization insists upon or fails to address in a timely and appropriate manner an action, or a refusal to act, that is clearly a violation of law, and (2) the lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization, then the lawyer may reveal information relating to the representation whether or not Rule 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization. (d) Paragraph (c) shall not apply with respect to information relating to a lawyer's representation of an organization to investigate an alleged violation of law, or to defend the organization or an officer, employee or other constituent associated with the organization against a claim arising out of an alleged violation of law. Page 16 Client-Lawyer Relationship Model Rule 1.13 Organization as Client (contd.) (e) A lawyer who reasonably believes that he or she has been discharged because of the lawyer's actions taken pursuant to paragraphs (b) or (c), or who withdraws under circumstances that require or permit the lawyer to take action under either of those paragraphs, shall proceed as the lawyer reasonably believes necessary to assure that the organization's highest authority is informed of the lawyer's discharge or withdrawal. (f) In dealing with an organization's directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization's interests are adverse to those of the constituents with whom the lawyer is dealing. (g) A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7. If the organization's consent to the dual representation is required by Rule 1.7, the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders. 8

9 SOX Sec. 307: Rules Of Professional Responsibility For Attorneys Page 17 Not later than 180 days after the date of enactment of this Act, the Commission shall issue rules, in the public interest and for the protection of investors, setting forth minimum standards of professional conduct for attorneys appearing and practicing before the Commission in any way in the representation of issuers, including a rule 1) requiring an attorney to report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent thereof, to the chief legal counsel or the chief executive officer of the company (or the equivalent thereof); and 2) if the counsel or officer does not appropriately respond to the evidence (adopting, as necessary, appropriate remedial measures or sanctions with respect to the violation), requiring the attorney to report the evidence to the audit committee of the board of directors of the issuer or to another committee of the board of directors comprised solely of directors not employed directly or indirectly by the issuer, or to the board of directors. Attorney-Client Privilege A. A communication B. In confidence The presence of third parties will generally waive the privilege unless third party is nearly indispensable or serves some specialized purpose. C. For the purpose of seeking or obtaining legal advice or services Business advice is not subject to privilege. D. Between privileged persons Page 18 9

10 Work Product Doctrine Page 19 Federal Rule of Civil Procedure 26(b)(3) Codifies the Work Product Doctrine 1. Elements: a. Documents and tangible things otherwise discoverable b. Prepared in anticipation of litigation or for trial Documents not made in anticipation of litigation will not be protected; e.g., corporate deal documents; documents to prepare patent application c. By or for another party or by or for that other party s representative. Includes materials prepared by client, or paralegals, investigators, accountants, etc. working for attorneys Motivation for preparing document, rather than who prepared it, is most important factor 2. To overcome the qualified protection, the party seeking discovery must make a showing of a. Substantial need for the materials and b. Inability to obtain the substantial equivalent of the information without undue hardship Thank you for attending another presentation from ACC s Desktop Learning Webcasts Please be sure to complete the evaluation form for this program as your comments and ideas are helpful in planning future programs. You may also contact Jacqueline Windley at windley@acca.com This and other ACC webcasts have been recorded and are available, for one year after the presentation date, as archived webcasts at webcasts.acca.com. You can also find transcripts of these programs in ACC s Virtual Library at 10