Ethics Considerations for In-House Counsel Hypotheticals and Analyses
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Virginia State Bar McGuireWoods LLP 75th Annual Meeting - Corporate Counsel Section T. Spahn (6/14/13) Ethics Considerations for In-House Counsel Hypotheticals and Analyses Virginia State Bar 75th Annual Meeting Corporate Counsel Section Virginia Beach, VA June 14, 2013 ETHICS CONSIDERATIONS FOR IN-HOUSE COUNSEL Hypotheticals and Analyses* Thomas E. Spahn McGuireWoods LLP Copyright 2013 These analyses primarily rely on the ABA Model Rules, which represent a voluntary organization's suggested guidelines. Every state has adopted its own unique set of mandatory ethics rules, and you should check those when seeking ethics guidance. For ease of use, these analyses and citations use the generic term "legal ethics opinion" rather than the formal categories of the ABA's and state authorities' opinions -- including advisory, formal and informal. 47245260-1 Virginia State Bar McGuireWoods LLP 75th Annual Meeting - Corporate Counsel Section T. Spahn (6/14/13) Ethics Considerations for In-House Counsel Hypotheticals and Analyses TABLE OF CONTENTS Hypo No. Subject Page Identity of the Client -- Corporations and Affiliates 1 Identifying the Client Within a Corporate Entity ........................................ 1 2 Resolving Intra-Corporate Disputes ........................................................... 14 3 Ownership of the Attorney-Client Relationship after Corporate Transactions ................................................................................................. 17 4 Effect of a Joint Representation in Corporate Transactions .................... 32 5 Representation Adverse to a Corporate Client's Affiliate ......................... 47 Identity of the Client -- Corporations, Employees and Shareholders 6 Intentional Representation of Corporate Employees ................................ 62 7 Accidental Creation of a Joint Representation of a Corporation and an Employee .......................................................................................... 76 8 Fiduciary Exception: The Garner Rule ...................................................... 83 9 Fiduciary Exception: Other Applications .................................................. 89 Duty to Preserve the Corporation Client's Confidences 10 Duties to Clients -- Dealing with Adversaries ............................................ 99 11 Adverse Employees' Use of Company Property for Communications with Their Private Lawyers ............................................ 102 12 Metadata ........................................................................................................ 113 13 Discovery of Wrongdoing by an Organization's Constituent ................... 143 47245260-1 i Virginia State Bar McGuireWoods LLP 75th Annual Meeting - Corporate Counsel Section T. Spahn (6/14/13) Ethics Considerations for In-House Counsel Hypotheticals and Analyses Hypo No. Subject Page Conflicts of Interest 14 Limiting Liability ........................................................................................... 145 15 Noncompetition Clauses ............................................................................. 148 16 Lawyers Serving on Client Boards of Directors ........................................ 152 17 Adversity to Former Clients ....................................................................... 156 Preserving Confidences 18 Availability of Privilege for Intracorporate Communications ................... 158 19 Pattern of Intracorporate Communications: Legal Versus Business Advice .......................................................................................... 171 20 Substance of Communications Between Corporate Clients and Lawyers ......................................................................................................... 197 21 Communications with Former Corporate Employees ............................... 204 Communications with the "Functional Equivalent" of Company 22 Employees (the "Bieter" Doctrine) ............................................................. 209 23 Risks of Communications with, in the Presence of, or Disclosed to, Client Agents ........................................................................................... 219 24 Risk of Disclosure during Corporate Transactions .................................. 254 25 Lawyer Agents .............................................................................................. 262 47245260-1 ii Virginia State Bar McGuireWoods LLP 75th Annual Meeting - Corporate Counsel Section T. Spahn (6/14/13) Ethics Considerations for In-House Counsel Hypotheticals and Analyses Identifying the Client Within a Corporate Entity Hypothetical 1 As the General Counsel of your publicly traded client, you naturally find yourself dealing with complicated situations. You just received a call from one of your client's directors, who serves on the Audit Committee. She has asked you to hire an outside law firm to assist the Audit Committee in conducting an internal corporate investigation into possible accounting irregularities. A prominent local lawyer comes immediately to mind, and within five minutes you have him on the phone. Before you can explain the situation in any detail, he asks you a simple question. Who will be the outside law firm's client in this representation -- The board member who called you? The Audit Committee? The Board of Directors? The corporation? The corporation's shareholders? THE CORPORATION (ACTING THROUGH THE BOARD OF DIRECTORS) Analysis As in so many other contexts involving ethics, the attorney-client privilege and other doctrines, the key to beginning the analysis involves properly defining the client. There are many constituencies inside a corporation that could establish a separate attorney-client relationship with an outside or an in-house lawyer. "Default" Position: Corporation as the Client The "default" position is that a lawyer advising a corporation's constituent represents the corporation as an institution. 47245260-1 1 Virginia State Bar McGuireWoods LLP 75th Annual Meeting - Corporate Counsel Section T. Spahn (6/14/13) Ethics Considerations for In-House Counsel Hypotheticals and Analyses A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents. ABA Model Rule 1.13(a). In several cases, courts applied this "default" position in situations in which the lawyers apparently did not clearly identify their client. For instance, one court held that WilmerHale represented "the entire corporation, and not just the Audit Committee" (meaning that the firm's communications with corporate employees deserved privilege protection).1 An earlier New York state court case held that a lawyer providing advice to a company's Special Litigation Committee represented both the committee "and the corporation as a whole" -- which the court equated as representing "the plaintiff shareholders."2 Representation of Corporate Constituents Rather than the Corporation Although the "default" position normally defines the client as the corporation itself rather than any of its constituents, courts sometimes find that lawyers have or could have established an attorney-client relationship with one of the corporation's constituents. 1 Lawrence E. Jaffee Pension Plan v. Household Int'l, Inc., 244 F.R.D. 412 (N.D. Ill. 2006). 2 Weiser v. Grace, 683 N.Y.S.2d 781, 786 (N.Y. Sup. Ct. 1998) (assessing plaintiff shareholders' efforts to obtain documents from the special litigation committee of defendant company; "The court recognizes that some of the documents sought may contain privileged matter which may be immune from discovery, notwithstanding their relevance to issues of good faith and the reasonableness of the investigation. Thus, an in camera review is the appropriate procedural vehicle to ensure that those privileges are not violated, while permitting plaintiffs to obtain the discovery necessary to challenge the SLC's [Special Litigation Committee] good faith. However, the court notes that the application of the attorney-client privilege is problematic. The SLC's counsel represents both the SLC and the corporation as a whole (e.g., the plaintiff shareholders). Under such circumstances, the attorney-client privilege would not bar discovery of all communications between counsel and the SLC."; noting that the Garner doctrine might entitle plaintiffs to review the documents, and ordering an in camera review to assist in that determination). 47245260-1 2 Virginia State Bar McGuireWoods LLP 75th Annual Meeting - Corporate Counsel Section T. Spahn (6/14/13) Ethics Considerations for In-House Counsel Hypotheticals and Analyses A Delaware court held that a special board committee could have hired its own lawyer to represent just a committee, and withheld privileged communications from other members of the board.3 In 2008, the Northern District of California held that Howrey represented only the Special Committee of a company's Board, and not the Board itself -- concluding that the Special Committee and the Board did not even share a "common interest." The court notes that not only is the Board not Howrey's client such that the attorney-client privilege does not attach, the Board also does not have a common interest with the Special Committee since it was the Special Committee's mandate to ascertain whether members of the Board . may have engaged in wrongdoing. SEC v. Roberts, 254 F.R.D. 371, 378 n.4 (N.D. Cal. 2008).4 3 Moore Bus. Forms, Inc. v. Cordant Holdings Corp., Civ. A. Nos. 13911 & 14595, 1996