American Bar Association
Forum on the Construction Industry
______________________________________________
UNDERSTANDING AND PROTECTING THE ATTORNEY-CLIENT PRIVILEGE
Gregory H. Koger
Holland & Knight LLP
Washington, D.C.
and
Patrick J. Whelan
Counsel
Skanska USA Civil Northeast
16-16 Whitestone Expressway
Whitestone, New York 11357
Presented at the 2009 Fall Meeting
“The Two-Way Street of Construction Counseling:
Learning From the Ins and Outs”
October 15-16, 2009
Philadelphia, Pennsylvania
______________________________________________
I. Overview
The legal profession is evolving against a backdrop of economic uncertainty. Even the most established companies are placing a greater emphasis on clearly defining the roles of both “inside” and “outside” counsel, and how legal services are being performed on a daily basis. This holds true whether that business is manufacturing, retail, or construction-related. Understanding the boundaries of the attorney-client relationship will help foster a clear understanding of the responsibilities of the lawyers, which will assist in driving towards the best model for rendering effective and efficient legal services.
The open exchange of information is one of the key components in this effort towards an efficient and effective collaboration between inside and outside counsel. It goes without saying that any lawyer, whether in-house or outside counsel, must have access to all pertinent information when fashioning legal advice for a client. Perhaps the best protection for this free exchange arises from the attorney-client privilege which permits a client to disclose information to the attorney and, in return, allows the attorney to provide responsive legal advice to the client. If the privilege were not to exist, it is safe to assume that open communication would be constricted, if not completely eliminated, in many circumstances.
With that said, it can be challenging to determine whether communications by and between in-house counsel, or documents and materials generated by the in-house attorney, fall within the scope of the privilege. The unique position in which in-house attorneys find themselves in the course of day-to-day business gives rise to an interesting dynamic in the context of maintaining confidential communications. When attempting to establish whether the privilege should encompass the activities of an in-house counsel, the obvious first step is gaining a clear understanding of the elements of the privilege, generally.
II. Elements of Attorney-Client Privilege – Generally
The specific elements comprising the attorney-client privilege may vary from jurisdiction to jurisdiction, but the core requirements are likely to remain uniform. In order for information to be protected from disclosure within the scope of the privilege, the information must constitute: (1) a communication, (2) made between privileged persons, (3) in confidence, and (4) for the purpose of obtaining or providing legal assistance for the client.[1]
The privilege is to be narrowly construed, since its invocation can result in an obstruction to the fact-finding process.[2] The burden is placed on the party seeking to invoke the privilege to demonstrate that each of the elements is present. Although the failure to maintain all of the prerequisites and elements constituting the privilege may open the door to the possibility of waiving the privilege, strong policy implications lean towards the protection of attorney-client communications.
The importance of the privilege has obviously not been lost on the American Bar Association. The ABA’s Task Force on Attorney-Client Privilege has long been an advocate for the protection of the privilege, and has stated that the intent behind the privilege is to,
[e]ncourage persons to seek legal advice freely and to communicate candidly during consultations with their attorneys without fear that the information will be revealed to others. This enables clients to receive the most competent legal advice from fully informed counsel so that the client can fulfill his or her responsibilities under the law and benefit from the law’s protection…. [T]he client’s better understanding of his or her obligations enhances the law’s efficacy.[3]
While the presumption may lean towards protection, it is imperative that the party seeking to invoke the privilege recognize the basic elements behind this protection.
A. Communication
A “communication” has been defined as any expression through which a privileged person “… undertakes to convey information to another privileged person and any document or other record revealing such an expression.”[4] A communication between parties can take the form of written or spoken words. It can include words conveyed electronically and also non-verbal expressions that are used to communicate.[5]
Interestingly, the privilege only extends to the actual communication, and not to the facts included in the communication. Therefore, while the actual communication may be protected, the facts comprising the communication may be subject to discovery through different avenues.
B. Privileged Persons
The client holds the privilege.[6] Therefore, the client must participate in the acts constituting the communication. Under certain limited circumstances, the privilege can be extended to communications between the attorney and the client’s associates, consultants, and representatives, when those communications are made with the purpose of obtaining information necessary to provide legal advice to the client.[7] As far as the attorney, the privilege may only apply if the communication is to or from a licensed practitioner.[8] Simply possessing a law degree is not sufficient to invoke the protections of the privilege.
C. Confidentiality
A communication is deemed to be “in confidence” if (1) the client has expressed the intent that it was to be confidential, or (2) the lawyer reasonably assumed that the client intended the communication to be confidential.[9] The facts and circumstances surrounding the communication will determine whether the communication was intended to be confidential.[10]
D. Legal Purpose
The final element of the attorney-client privilege requires that the exchange of information be for a legal intent or purpose. If and when the attorney is simply acting as an acquaintance or a business advisor, the privilege will not attach to the advice or services.[11]
This element plays a particularly important role when determining whether the attorney-client privilege should be applied in situations involving in-house counsel. As will be discussed, there are varying analyses to assess whether in-house counsel is acting in a legal capacity, or as a business advisor, in order to invoke the protections of the privilege.
III. Rule 1.6 of the ABA’s Model Rules of Professional Conduct
The ABA’s efforts to recognize and protect the attorney-client privilege are also evident in the language of the ABA’s Model Rules. The ABA’s Model Rules of Professional Conduct were formally adopted in 1983, thereby supplanting the Model Code of Professional Responsibility as the standard-bearer for outlining attorneys’ professional code of conduct. Subsequent to the issuance by the ABA, almost every state has adopted the Model Rules, and specifically Model Rule 1.6 which outlines the parameters of the confidentiality of information. Specifically, ABA Model Rule 1.6 states,
(a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation, or the disclosure is permitted by paragraph (b).
(b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary:
(1) to prevent reasonably certain death or substantial bodily harm;
(2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer’s services;
(3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client’s commission of a crime or fraud in furtherance of which the client has used the lawyer’s services;
(4) to secure legal advice about the lawyer’s compliance with the Rules;
(5) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer’s representation of the client; or
(6) to comply with other law or a court order.
While Model Rule 1.6 does provide certain exceptions, it is clear that the intent is to ensure that a lawyer upholds his or her duty to keep information relating to the representation of a client as confidential. Quite simply, ABA Model Rule 1.6 reflects the ABA’s unwavering recognition of the importance of the attorney-client privilege.
IV. The Federal Corporate Privilege
The concept of attorney-client privilege is routinely thought of as protecting information exchanged between individuals, but corporate clients are also afforded similar protections. In fashioning an applicable standard for a corporate privilege in the federal arena, the Supreme Court’s decision in Upjohn v. U.S., rejected a “blanket” rule for the application of attorney-client privilege in a corporate setting.[12] Instead, in Upjohn the Supreme Court adopted a “subject-matter” test that seeks to determine the existence of the privilege on a case-by-case basis in the federal arena. Specifically, under the test outlined in Upjohn, the privilege shall exist when:
(1) the communication was made for the purpose of securing legal advice; (2) the employee making the communication did so at the direction of his corporate superior; (3) the superior made the request so that the corporation could secure legal advice; (4) the subject matter of the communication is within the scope of the employee’s corporate duties; and (5) the communication is not disseminated beyond those persons who, because of the corporate structure, need to know its contents.[13]
While applicable to federal matters, many states have since adopted some form of the “subject-matter” test. Under this “subject-matter” test, protection can be afforded to communications between non-lawyer employees who pass along legal advice from the corporate in-house attorney.[14] Those states that have not adopted some form of the “subject-matter” test have maintained the “control group” test, through which only communications between counsel and members of the “control group” are privileged.
It is important to remember that the Upjohn decision did not create or reinforce any distinctive demarcation between in-house counsel and their outside counterparts. Instead, Upjohn merely provides the test in federal matters for determining whether the subject and scope of a particular communication between a corporate client and its attorney (in-house or outside), renders that communication as privileged. While there have been subsequent challenges, Upjohn remains the standard for determining the existence of the attorney-client privilege in the context of communications between a corporation and its counsel at the federal level.
V. Determining the Existence of Privilege - “Legal” v. “Non-Legal” Activities
The wide array of duties and responsibilities undertaken by today’s in-house counsel requires that those attorneys wear a number of hats on a daily basis. The issue of the applicability of the attorney-client privilege in connection with an in-house counsel can demand a fact-intensive examination into that attorney’s daily activities. As part of that analysis, the identification and classification of “legal” and “non-legal” services performed by the in-house attorney will likely be the most important factor in determining whether the attorney-client privilege can and should be applied. Despite some common misperceptions, simply including an attorney as part of the communication string does not give rise to an automatic application of the attorney-client privilege. In Boca Investerings Partnership v. U.S., the court reaffirmed the principle that,
[t]he possession of a law degree and admission to the bar is [sic] not enough to establish a person as an attorney for purposes of determining whether the attorney-client privilege applies…. The lawyer must not only be functioning as an advisor, but the advice given must be predominantly legal, as opposed to business, in nature.[15]
The nature of the services will provide the most compelling argument for whether the in-house counsel is acting as a legal advisor, or as a business advisor.
At the outset, an examination of a company’s organizational chart may be relevant in determining whether the in-house attorney is tasked with providing “legal” and/or “non-legal” services. Specifically, how does the company view the in-house attorney? While examining where the attorney fits into the corporate structure may provide some insight, titles alone will not paint a conclusive picture. An examination of the type of work being performed is far more informative and useful.
If an attorney is performing work that can be performed by a non-lawyer, then those activities, generally, will be considered “non-legal” in nature. Therefore, if the purpose of a particular communication is to address a matter or issue that falls within the realm of a routine business function, that communication is likely not privileged.
Conversely, if the purpose of the in-house counsel’s communication is intended to provide confidential opinions, that communication is likely to be “legal” in nature. When the intent and subject of the communication seeks to provide confidential insight or opinions concerning actual or potential disputes, that communication will almost certainly be considered “legal” in nature, and therefore subject to attorney-client privilege.
The determination of “legal” or “non-legal” may be somewhat difficult if the communication contains both “legal” and “non-legal” aspects. When a communication or document contains information concerning routine business practices, coupled with the attorney’s thoughts or advice, a high level of scrutiny will be needed to determine whether the privilege should apply.
Various analyses have been utilized to determine whether a communication or document was designed for general business purposes, or with the intent to furnish legal advice. Some jurisdictions require that the attorney “clearly demonstrate” that the subject communication was made for the express purpose of furnishing legal advice.[16] Other jurisdictions have stated that the privilege is applied when the “primary purpose” of the communication is to seek or render legal advice or assistance.[17] Still, other jurisdictions have required that the communication be for the “predominant” purpose of providing legal advice, such that the communication would not have been made otherwise.[18] Regardless of the analysis or standard applied, the primary focus in determining whether the privilege should be applied is placed on the intent and content of the communication at issue.
VI. Application of Attorney-Client Privilege in the In-House Counsel Setting
A. Legal Activities
In order to curtail discovery of potentially privileged information, corporate clients relying on in-house counsel must ensure that safeguards go beyond simply including an attorney on correspondence or asking an attorney to attend a meeting.[19] Given the generally subjective analyses used to review the in-house counsel’s daily activities, coupled with the many roles today’s played by in-house counsel, determining just where the privilege may begin or end can be a challenge.
In U.S. Postal Service v. Phelps Dodge Refining Corp., the Court was tasked with determining whether communications to and from in-house counsel concerning the remediation of a polluted property fell within the protection of the privilege.[20] In Phelps Dodge Refining, the court determined that “[m]any of the tasks performed by counsel could have been undertaken by non-attorneys and the advice given made by an employee without a legal background.”[21] Still, the court went on to rule that the privilege should apply for many of the subject communications stating that, “[t]he transaction was not a routine business matter and required considerable involvement with a state regulatory agency. It is clear that the subject matter was one of particular concern to the client and an area where the expectation of confidentiality arguably is greater.”[22] In this instance, the involvement of the state regulatory agency increased the likelihood of the expectation of privacy by the in-house counsel, and thus supported the invocation of the privilege.
In Note Funding Corp. v. Bobian Investment Co., the court reviewed several documents and communications to determine whether the privilege existed for communications regarding business negotiations and analyses.[23] In its review, the court noted that an attorney’s duties may encompass both “legal” and “non-legal” activities, and that these circumstances place increased pressure on courts when called upon to determine matters concerning privilege. Given the facts and circumstances at issue in Note Funding, the court determined that the attorney’s inclusion of business-related advice as part of certain documents and/or communications did not completely undermine the privilege.[24] Thus, there is no per se waiver of the privilege if “non-legal” information is included.
The argument regarding whether a document or communication has “legal” or “non-legal” information will require a fact-specific analysis to reach a final determination as to whether the privilege exists. While the inclusion of both “legal and “non-legal” information in a single document or communication may not result in a total waiver of the attorney-client privilege, it could result in the partial production of that document or communication. Whether a partial production is satisfactory to the parties will surely be in the eye of the beholder.
B. Business-Related Activities
It is incumbent upon the in-house counsel to attempt to create a line of demarcation, as best as possible, between “legal work” and “business work.” Attempting to set clear boundaries between providing legal advice and performing “routine” business functions will help to ensure that the privilege is maintained in those circumstances where it is warranted.
The court in Georgia-Pacific Corp. v. GAF Roofing Mfg. Corp., examined whether an in-house attorney’s communications regarding contract negotiations should be considered legal work that would fall within the protection of the attorney-client privilege.[25] Specifically at issue was the advice and recommendations that in-house counsel made to management concerning the negotiations. In Georgia-Pacific, the court determined that the in-house counsel was not providing legal advice, but was acting “[a]s a negotiator on behalf of management,” and thus was acting in a business capacity.”[26] As such, the court determined that the communications addressing the contract negotiations were not privileged, and should be produced to opposing counsel.
Likewise, in Boca Investerings, a federal magistrate was called upon to determine whether a memorandum providing tax advice should have been considered privileged. The federal magistrate determined, and the district court concurred, that those portions of the memorandum that went beyond the actual transactions and discussed the lawyer’s opinions as to the “technical soundness of the contemplated transactions,” were to be considered privileged.[27] Therefore, information identified by the federal magistrate as merely relating to the transactional aspects was not privileged, and was required to be produced. Information pertaining to the in-house attorney’s opinions was withheld as privileged.[28]
An in-house counsel’s transactional duties likely result in the most delicate balancing act in a court’s determination as to what is, or is not, subject to attorney-client privilege. Every aspect of the in-house attorney’s involvement in the subject transaction will need to be reviewed because there are likely to be sound arguments, both in favor and against, the application of the privilege.
VII. Measures to Safeguard Attorney-Client Privilege Between In-house Counsel and Outside Counsel
Given the various standards and tests used to ascertain the existence and applicability of the attorney-client privilege, it may be useful for attorneys, whether in-house or outside counsel, to create or adopt certain practices in an effort to ensure confidentiality. Regardless of the standard used to test the applicability of the privilege, there are certain basic steps that an in-house counsel, particularly, can utilize in an attempt to create and maintain privileged communications.
At the outset, it is important for the in-house attorney to understand the intended audience for any communication. Identifying the recipient of the communication, and understanding the purpose of the communication within the context of that recipient, will assist in determining if the privilege applies. Simply sending a communication to an individual without recognizing or understanding that individual’s role or responsibilities could ultimately lead to a waiver of any associated privilege.
As far as the actual communication, it may be a good practice for the in-house attorney to identify the intended legal purpose at the time of the communication (either orally or in writing). Taking this step ensures that the recipient understands the nature of the communication. While merely marking a document as “privileged” may not satisfy every level of scrutiny, the identification of a document in this manner leaves little doubt of its intended purpose and can support any subsequent claim of privilege.
Another method by which an in-house attorney may attempt to safeguard privileged materials involves retaining communications in separate capacities. The in-house attorney could maintain “non-legal” business communications in one location, while maintaining the “legal” or privileged communications in another. Maintaining legal and non-legal materials in separate physical locations, such as separate drawers or file cabinets, may be advisable. This course of conduct could be used later to substantiate the invocation of privilege should an outside party raise questions.
Similar to maintaining communications in separate physical locations, the in-house counsel could also separate e-mails or other electronic communications between “legal” and “non-legal” matters. This could be achieved by simply maintaining separate e-mail folders for the legal and non-legal materials. If legal and non-legal information must be included within the same document or communication, then formatting the document or communication in such a way so as to allow for the possible redaction of the “legal” material may be advisable.
Taking a few affirmative steps to demonstrate the intent to maintain the privilege will likely assist in persuading a court during any subjective analysis into the application of the privilege. While the potential steps seeking to ensure confidentiality may seem rather basic, even the simplest measures can assist in ensuring that a court upholds an invocation of the privilege.
VIII. Waiver of Attorney-Client Privilege
As discussed, the protection of the attorney-client privilege extends to communications, and not to the facts.[29] While the factual information constituting the communication may be discoverable outside of the context of the communication at issue, the communication itself is not. However, if and when a communication has been disclosed, then the privilege protection afforded to the communication has likely been waived.
A waiver may be inadvertent or may be intentional. As for the inadvertent waiver, three tests have been developed to assist in determining the circumstances through which the inadvertent disclosure constitutes a waiver. The first test, identified as the “strict accountability” test, maintains that an inadvertent disclosure always waives the privilege without regard to the intent or precautions against disclosure.[30] The second test is identified as the “never waived” approach, and holds that a truly inadvertent disclosure never results in the loss of protection since the holder of the protection never intended to create a waiver.[31] The third test, and the majority approach, takes into consideration “all circumstances” regarding the inadvertent waiver. Under this approach, the privilege is maintained so long as the preserving party took all reasonable steps to avoid the disclosure.[32]
As for “intentional” waiver, this description is not meant to imply that a party necessarily sought to affirmatively waive the attorney-client privilege protections, although that can certainly occur. Instead, an “intentional” waiver may arise through the intentional release of the subject communications or documents into the public domain, such as the posting of the information on a website. The intentional waiver need not be specifically directed to the disclosure of the information to an opposing party.
In the corporate setting, the corporation is the client and, as such, has the right to assert or waive the privilege. Since a corporation can only act through its authorized agents, typically the privilege can only be asserted or waived by top management or those expressly or implicitly authorized by management.[33] The Supreme Court has recognized the waiver of the privilege by “managers” of the corporation, and has noted that the waiver must be done in a “manner consistent with [the managers’] fiduciary duty to act in the best interest of the corporation and not of themselves as individuals.”[34]
Management may grant the authority to waive the privilege to lower level corporate personnel.[35] However, no individual manager or designee has the authority to waive the privilege against the wishes of the corporation.[36] Likewise, a corporate manager or designee cannot prevent a waiver of the privilege by the corporation.[37]
IX. Conclusion
The protection afforded by the attorney-client privilege constitutes one of the most fundamental tenets associated with an attorney’s ability to furnish competent and thorough legal advice to a client. The subjective analyses that are used to determine whether the attorney-client privilege is applicable to an in-house counsel’s activities and communications attempt to strike a fair balance between the need to protect the in-house counsel’s legal advice and opinions, and the duty to disclose information that was generated pursuant to the general business practices of the underlying corporate entity. Regardless how the current times may impact the manner in which legal services are furnished, it is important that the legal opinions and analysis furnished by an in-house counsel to his or her corporate client, and the legal advice furnished by outside counsel to his or her in-house counterpart, be afforded the protections of the attorney-client privilege.
American Bar Association
Forum on the
Construction Industry
______________________________________________
MULTIJURISDICTIONAL
PRACTICE AND ABA MODEL RULE 5.5
By Anthony C. Kaye
Ballard Spahr Andrews & Ingersoll, LLP
Suite 800
One Utah Center
201 South Main Street
Salt Lake City, UT 84111-2221
and
Timothy W. Triplett
Curtis Martin
Black & Veatch
11401 Lamar Avenue
Overland Park, KS 66211
Presented at the 2009 Fall Meeting
“The Two-Way Street of Construction Counseling:
Learning From the Ins and Outs”
October 15-16, 2009
Philadelphia, Pennsylvania
You are an attorney licensed only in State A, and one of your specialties is construction disputes. Your firm represents a Fortune 500 company with offices and operations throughout the nation. The client is the owner of a project under construction in State B, and a dispute has arisen between your client and the general contractor concerning delays and change orders. The construction contract calls for arbitration of any disputes in State B, but your firm’s client would like a construction lawyer to try to resolve the dispute without going to arbitration, if possible. Your law firm has an office in State B, and although several lawyers in your firm’s State B office specialize in real estate transactions and commercial litigation, none of them has handled a construction dispute. Can you handle the matter?
Under traditional state “unauthorized to practice” (“UPL”) provisions, scenarios like this have become an increasing problem for attorneys and law firms whose clients transact business nationally. The days in which a client’s legal matters were confined to a single state are long gone. Moreover, even for large law firms, it is usually impractical to have lawyers with construction law expertise in more than a few offices. Although client needs and legal practices have evolved dramatically as the law and nature of transactions have become more complex, lawyer regulation has been relatively slow to respond. Nevertheless, following the amendment of ABA Model Rule of Professional Conduct 5.5 (“Model Rule 5.5”) in 2002, most states have implemented rules that bring the restrictions on multijurisdictional practice more in line with the practical realities of the legal marketplace.
I. Background
Restrictions on multijurisdictional practice, modeled on pre-amended Model Rule 5.5,[38] were long a staple of lawyer regulation. These restrictions typically prohibited lawyers from practicing law in states other than those in which they were licensed.[39] Historically, restrictions on multistate practice did not pose problems for the construction lawyer, as most engagements were within the lawyer’s own jurisdiction. However, as clients’ businesses have become increasingly national and international in scope, so to has the practice of law. Consequently, lawyers have become increasingly fearful of violating state UPL provisions as they seek to fulfill their professional obligations in an efficient and effective manner. And with good reason. Lawyers who engage in the unauthorized practice of law may be subject to a host of sanctions,[40] including denial of fees,[41] disciplinary charges in their home state,[42] contempt of court,[43] and, in extreme cases, criminal charges.[44]
In an attempt to modernize outmoded UPL restrictions, in 2000 the ABA formed a Commission on Multijurisdictional Practice.[45] The Commission was to “make policy recommendations to govern the multijurisdictional practice of law that serve the public interest and take any other actions as may be necessary to carry out its jurisdictional mandate.”[46] Pursuant to this mandate, the Commission issued a report titled Client Representation in the 21st Century.[47] In its report, the Commission recommended, among other things, that the ABA amend Model Rule 5.5 “to identify circumstances in which a lawyer who is admitted in a United States jurisdiction, and not disbarred or suspended from practice in any jurisdiction, may practice law on a temporary basis in another jurisdiction.”[48]
The Commission’s recommendations concerning Model Rule 5.5 were officially adopted by the ABA House of Delegates on August 2, 2002.[49]
II. Amended Model Rule 5.5
Amended Model Rule 5.5 is a product of much study and deliberation.[50] Its provisions reflect the comments and testimony from various stakeholders.[51] Model Rule 5.5 now provides limited protection for attorneys who engage in services ancillary to prospective or pending litigation or arbitration in another state, who engage in transactional work that arises out of or is reasonably related to the lawyer’s home-state practice, and who are employees of their clients:
Rule 5.5 Unauthorized Practice
Of Law; Multijurisdictional Practice Of Law
(a) A lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so.
(b) A lawyer who is not admitted to practice in this jurisdiction shall not:
(1) except as authorized by these Rules or other law, establish an office or other systematic and continuous presence in this jurisdiction for the practice of law; or
(2) hold out to the public or otherwise represent that the lawyer is admitted to practice law in this jurisdiction.
(c) A lawyer admitted in another United States jurisdiction, and not disbarred or suspended from practice in any jurisdiction, may provide legal services on a temporary basis in this jurisdiction that:
(1) are undertaken in association with a lawyer who is admitted to practice in this jurisdiction and who actively participates in the matter;
(2) are in or reasonably related to a pending or potential proceeding before a tribunal in this or another jurisdiction, if the lawyer, or a person the lawyer is assisting, is authorized by law or order to appear in such proceeding or reasonably expects to be so authorized;
(3) are in or reasonably related to a pending or potential arbitration, mediation, or other alternative dispute resolution proceeding in this or another jurisdiction, if the services arise out of or are reasonably related to the lawyer’s practice in a jurisdiction in which the lawyer is admitted to practice and are not services for which the forum requires pro hac vice admission; or
(4) are not within paragraphs (c)(2) or (c)(3) and arise out of or are reasonably related to the lawyer’s practice in a jurisdiction in which the lawyer is admitted to practice.
(d) 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:
(1) are provided to the lawyer’s employer or its organizational affiliates and are not services for which the forum requires pro hac vice admission; or
(2) are services that the lawyer is authorized to provide by federal law or other law of this jurisdiction.[52]
III. Operation of Model Rule 5.5
While subsections (a) and (b) address the unauthorized practice of law generally, subsections (c) and (d) address the boundaries of multijurisdictional practice for in-house and outside counsel.
Subsection (c)(1) permits a lawyer to work on a discrete matter in another jurisdiction if the representation is undertaken in association with a lawyer who is admitted to practice in the jurisdiction who actively participates in the representation.[53] Practitioners must take care, however, to assure that the lawyer admitted to practice in the foreign jurisdiction shares “actual responsibility” for the representation and does not serve “merely as a conduit.”[54] Accordingly, if you are outside counsel working on a construction contract in a foreign jurisdiction, you may do so provided you associate with local counsel who oversees your work to ensure it is performed competently and ethically.[55]
When a construction project in a foreign jurisdiction goes south, it is not uncommon for the contracting parties to retain lawyers in whom they have developed confidence, or with whom they have a prior relationship, to represent them.[56] If the matter involves litigation, it has long been the case that the parties’ lawyers may appear in an out-of-state court on a pro hac vice basis. However, pro hac vice admission is not available prior to the filing of a lawsuit, and lawyers must often perform preliminary work, such as reviewing documents and interviewing witnesses, for which they cannot obtain pro hac vice admission. Under traditional regulations, a lawyer who engaged in these common pretrial activities ran the risk of being disciplined. Together, with very few restrictions, subsections (c)(1) and (c)(2) of the Model Rule authorize these common litigation activities.
Under subsection (c)(2), a lawyer may render services in a state where the lawyer is not presently admitted to practice, but only if, “(a) the lawyer’s services are in anticipation of litigation reasonably expected to be filed in a state where the lawyer is admitted or expects to be admitted pro hac vice, or (b) the lawyer’s services are ancillary to pending litigation in which the lawyer lawfully appears, either because the lawyer is licensed in the jurisdiction where the litigation takes place or because the lawyer has been or reasonably expects to be admitted pro hac vice to participate in the litigation.”[57] A lawyer is still required to comply with existing pro hac vice provisions.[58] As with paragraph (c)(1), the provision also covers supporting work by lawyers who do not appear before the court and are not admitted pro hac vice.[59]
Of particular importance to construction lawyers, Model Rule 5.5 authorizes a variety of multijurisdictional activities undertaken in connection with anticipated or actual ADR proceedings. Today’s construction lawyers are often asked to handle matters involving possible mediation or arbitration in states in which they are not licensed. In fact, it is common for parties to mediate or arbitrate in a state unconnected to the parties or the dispute, simply because the site is neutral.[60] Subsection (c)(3) of the Model Rule acknowledges this reality and authorizes lawyers to render temporary services in a foreign jurisdiction as long as their services “are in or reasonably related to a pending or potential . . . [ADR] . . . proceeding,” “arise out of or are reasonably related to the lawyer’s practice in a jurisdiction in which the lawyer is admitted to practice,” and are “not services for which the forum requires pro hac vice admission.”[61]
Like litigators, transactional lawyers are often asked to leave their home state to gather information, provide advice, engage in negotiations, or perform other tasks related to a representation.[62] Moreover, transactional lawyers whose practices focus on federal law are routinely retained by clients outside their home states.[63] Under the old regime, transactional lawyers who engaged in these routine activities risked sanction. The Model Rule, on the other hand, permits multijurisdictional transactional activities as long as they “arise out of or are reasonably related to the lawyer’s practice in a jurisdiction in which the lawyer is admitted to practice.”[64] An out-of-state negotiation on behalf of an in-state client is but one example of activity permitted by the rule, regardless of whether the matter has any connection to a jurisdiction in which the lawyer is licensed.[65]
Subsection (d)(1) addresses the multijurisdictional practice of in-house counsel. Despite ostensibly strict traditional state UPL provisions, it has become increasingly commonplace for in-house lawyers to provide legal services to their employers in jurisdictions in which the lawyer is not licensed to practice.[66] Subsection (d)(1) legitimizes this long-standing practice. Among other things, it permits in-house lawyers to provide advice to their employer and facilitate transactions on the employer’s behalf in jurisdictions in which the lawyer does not have an office.[67]
Finally, subsection (d)(2) provides that, when authorized by federal or other law, a lawyer may undertake legal work in a state in which the lawyer is not licensed.[68] For example, a jurisdiction may have in effect a rule that authorizes practice by foreign legal consultants.[69]
IV. Pitfalls and Remaining Uncertainty Associated with the Model Rule
Although the Rule itself appears well drafted and is fairly comprehensive, it contains some pitfalls and ambiguity. First, in many jurisdictions, adoption of the Rule itself, without more, may not provide out-of-state lawyers with the necessary authorization.[70] State legislative reform is necessary, as some states have yet to adopt statutes consistent with the Rule.[71] Georgia and New Mexico are examples.[72] Thus, before engaging in multijurisdictional practice within a particular state, one should consult the state’s rules and statutes.
Also, under the main provision of the Rule, an out-of-state lawyer may engage only in services provided on a “temporary basis” within the jurisdiction.[73] Thus, an out-of-state lawyer may not establish an office “or other systematic and continuous presence” in the state without obtaining a state license.[74] The potential pitfall for practitioners is that the line of distinction is unclear: “There is no single test to determine whether a lawyer’s services are provided on a ‘temporary basis’ . . . and may therefore be permissible under paragraph (c).”[75] As the comment to the Rule indicates, “[s]ervices may be ‘temporary’ even though the lawyer provides services in this jurisdiction on a recurring basis, or for an extended period of time, as when the lawyer is representing a client in a single lengthy negotiation or litigation.”[76] This ambiguity requires that practitioners use their discretion in determining whether the multijurisdictional services they provide are sufficiently “temporary.”
Unless they are undertaken in association with local counsel, the Rule also limits multijurisdictional ADR and transactional services to those that “arise out of or are reasonably related to the lawyer’s practice in a jurisdiction in which the lawyer is admitted to practice.”[77] The comment takes an expansive view of this requirement.[78] For example, “[t]he lawyer’s client may have been previously represented by the lawyer, or may be resident in or have substantial contacts with the jurisdiction in which the lawyer is admitted.”[79] More importantly, for lawyers specializing in construction law, the comment recognizes that services are reasonably related to a lawyer’s practice if “the services may draw on the lawyer’s recognized expertise developed through the regular practice of law on behalf of clients in matters involving a particular body of federal, nationally uniform, foreign, or international law.”[80] For instance, construction contracts are often predicated upon forms, such as those promulgated by the American Institute of Architects and ConsensusDocs, and although the body of law affecting construction contracting and disputes is not identical from state to state, many of the laws, such as those relating to construction liens, condominiums, and land sales practices, are based on uniform acts.[81] Moreover, the procedures governing ADR have been promulgated by national organizations such as the American Arbitration Association and JAMS.[82]
In short, some ambiguity remains. As the ABA Report notes, the Model Rule “leaves room for individual opinion and judicial interpretation.”[83] That said, the current (2008) edition of the ABA Annotated Model Rules of Professional Conduct is devoid of any annotations construing or applying the provisions of the new Model Rule 5.5.
Importantly, as of May 15, 2009, only twelve states have adopted a rule identical to the Model Rule.[84] Twenty-eight states, including the District of Columbia, have adopted a rule similar to the Model Rule.[85] Nine states have taken some action toward adoption of some form of the rule.[86] Meanwhile, Kansas has chosen to maintain old Model Rule 5.5 and Montana has yet to take any action.[87]
V. State Variations on Model Rule 5.5
Because only twelve states have adopted a rule identical to Model Rule 5.5, practitioners should carefully review the relevant rules before engaging in multijurisdictional practice. For example, Arizona has adopted a rule nearly identical to the Model Rule but that includes an additional provision requiring lawyers engaged in multijurisdictional practice in the state to (1) advise clients that they are not licensed to practice law in Arizona and (2) acquire the client's informed consent to the representation.[88] California’s rules, although substantively similar to the Model Rule, require an attorney who practices law temporarily in California to indicate to clients or potential clients that the attorney is not a member of the California bar.[89] Connecticut’s rule is similar to the Model Rule but it is predicated upon reciprocity; requires notification to Statewide Bar Counsel, payment of an administrative fee, and registration.[90] Connecticut’s rule further provides that the transactional services permitted under (c)(4) must be “substantially related the services provided to an existing client.”[91] Nevada’s rule includes a provision that requires out of state attorneys to pay a $150 fee, register, and file an annual report that includes, among other information, “the nature of the client(s) (individual or business entity) for whom the lawyer has provided services that are subject to this rule and the number and general nature of the transactions performed for each client during the previous twelve (12)-month period.”[92] New Jersey’s provision authorizing transactional practice is more limited than the Model Rule. It requires that the transactional work “arise[] directly out of the lawyer’s representation on behalf of an existing client in a jurisdiction in which the lawyer is admitted to practice,” and that the New Jersey practice “is occasional and is undertaken only when the lawyer’s disengagement would result in substantial inefficiency, impracticality or detriment to the client.”[93] New Mexico requires out-of-state attorneys who engage in transactions involving issues specific to New Mexico law to associate with counsel admitted to practice in New Mexico.[94]
VI. Conclusion
Traditional UPL regulations, which had failed to keep pace with the evolving practice of law, increasingly forced lawyers to resort to “sneaking around in the legal profession” [95] in order to provide their clients with efficient and effective service. By amending Model Rule 5.5, the ABA sought to better align the regulation of lawyers with the realities of the current legal marketplace. Toward this end, the amended Model Rule provides significant protection to lawyers who engage in multijurisdictional practice, such as the lawyer presented with the predicament set forth at the outset of this section. Under subsection (c)(1), the broadest protection is clearly afforded to lawyers who associate with an actively involved local counsel. But the Rule also offers safety for lawyers who do not work with local counsel, including lawyers handling matters that may result in litigation or arbitration in foreign jurisdictions, provided the work is within their area of expertise. In every case, of course, practitioners should review the state’s rules of professional responsibility and any relevant statutes before handling a multijurisdictional matter.
American Bar Association
Forum on the Construction Industry
______________________________________________
WHO’S YOUR CLIENT – DUAL REPRESENTATION OF AN
ORGANIZATION AND ITS SHAREHOLDERS/DIRECTORS/ OFFICERS/EMPLOYEES
By Anthony C. Kaye
Ballard Spahr Andrews & Ingersoll, LLP
Suite 800
One Utah Center
201 South Main Street
Salt Lake City, UT 84111-2221
and
Timothy W. Triplett
Curtis Martin
Black & Veatch
11401 Lamar Avenue
Overland Park, KS 66211
Presented at the 2009 Fall Meeting
“The Two-Way Street of Construction Counseling:
Learning From the Ins and Outs”
October 15-16, 2009
Philadelphia, Pennsylvania
Any business organization such as a corporation or limited liability company is a unique legal entity. Unlike an individual, a corporation cannot think for itself. Decision making in a corporation is facilitated through its officers and directors. Accordingly, legal representation of these discrete entities can be difficult because an attorney is subject to the decisions and direction of people who may have separate and distinct interests from those of the represented organization.
I. Who Speaks for the Corporation?
The American Bar Association’s (“ABA”) Model Rules of Professional Conduct provide guidance for lawyers who represent corporations. For example, Rule 1.13(a) states, “[a] lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.”[96] The question becomes, who are the organization’s duly authorized constituents? In other words, who gets to tell you what to do?
In a 2003 California case, the Review Department of the State Bar was faced with this very issue.[97] James Davis, a corporate attorney, was approached by an individual seeking legal advice regarding the impending dissolution of a corporation. The individual, who, by the way, opposed the dissolution, was the president, board member, and 50% shareholder of the corporation.[98] Davis advised the President that the best course of action would be for the corporation to file for Chapter 11 bankruptcy.[99] The president subsequently retained Davis to do just that.[100] Unfortunately for Davis, the president was not authorized to unilaterally hire counsel for the corporation. Nor was he authorized to unilaterally authorize the filing of a bankruptcy petition on the corporation’s behalf.[101]
Davis reviewed the corporation’s Articles of Incorporation, Bylaws, Shareholder Agreements, and Minutes of directors’ meetings and knew of the limitations that were placed upon the president to take such an arbitrary action.[102] Davis, however, determined that the other three directors were “hopelessly conflicted” and, therefore, the president, as the least conflicted director, had the authority to speak on the corporation’s behalf.[103]
The court determined that Davis had breached his duty of loyalty to his client, the corporation. The court stated:
As corporate counsel to [the Corporation], respondent’s professional obligations were to the entity and not to its officers, directors, or shareholders in their representative or individual capacities . . . a corporation is a statutory person that can speak only through its constituent officers, directors, shareholders and agents. Faced with a dispute over who was authorized to speak for [the Corporation], respondent should have first looked to the corporation’s organizational documents and other pertinent agreements.[104]
Attorneys who are engaged to represent a corporation or other business entity should read and understand the entity’s organizational documents in order to understand the decision making authority of its officers, owners and other management bodies, such as a board or directors. Attorneys representing business entities should strictly follow whatever is outlined and avoid involvement in disputes between the entity and its management or owners.
II. What if the Decisions are Legally Wrong?
Despite the requirement that an attorney yield to the individual(s) who are given authority under corporate documents, there are, according to the ABA Model Rules, times where such direction is to be questioned and even ignored. Rule 1.13(b) states:
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.
Rule 1.13(c) even allows (but does not require) an attorney to reveal unlawful behavior as necessary to prevent substantial injury to the organization, regardless of the duty of confidentiality placed upon an attorney through Rule 1.6,[105] if the highest corporate authority fails or refuses to remedy the unlawful behavior and the lawyer is reasonably certain that substantial injury to the organization is bound to occur.[106]
The distinction in these rules is between decisions that a lawyer merely finds imprudent versus those decisions that the lawyer finds unlawful. According to the ABA commentary to Rule 1.13(b), decisions made by corporate officers or directors within the limits of their granted authority must be adhered to by the lawyer, “even if their utility or prudence is doubtful.”
Once a lawyer determines “that an officer, employee or other person associated with the organization”[107] is acting or intends to act unlawfully instead of just imprudently, the commentary suggests that the lawyer consider “the seriousness of the violation and its consequences, the responsibility in the organization and the apparent motivation of the person involved, the policies of the organization concerning such matters, and any other relevant considerations.”[108] The purpose of such consideration is to determine whether a mere request that the person reconsider their anticipated course will suffice or whether such conduct must be reported to higher authorities within the organization.[109]
Naturally, attorneys often are hesitant to report unlawful conduct of an officer or employee to such individual’s supervisors for fear of retaliation in employment. For example, general counsel for a corporation may be forced to report a CEO or president’s planned course of action or prior conduct to the board of directors. Such a report could, ultimately, lead to the general counsel being disciplined or his or her employment terminated. However, according to Rule 1.13(e), such is not to be considered when determining the proper course of action and the lawyer “must proceed as the lawyer reasonably believes necessary to assure that the organization’s highest authority is informed of the lawyer’s discharge or withdrawal.”[110]
Given this rule, it is plain to see how a genuine conflict of interest can arise almost instantaneously for an attorney who represents a corporation and one or more of its officers. For example, if an attorney who represents ABC Corporation and also represents ABC President in his or her individual capacity discovers through a communication with ABC President that ABC President intends to misappropriate ABC Corporation’s information and form a competing corporation or engage in some other unlawful activity or activity adverse to the corporation’s interests, what is the attorney to do? Disclosure would violate Rule 1.6 as to the attorney’s representation of ABC President but failure to disclose would violate Rule 1.13 as to ABC Corporation.
Another conflict of interest can arise when a corporation’s attorney is asked to represent an employee in litigation arising from the employee’s employment. For example, if suit is brought against a corporation and also against an officer/employee of that organization for an alleged tort of that officer/employee and the corporation’s attorney is engaged in the joint representation of the corporation and the officer/employee, the parties’ interests could quickly become adverse. An attorney may be faced with showing the officer/employee acted beyond the scope of his or her employment to further the corporation’s interests. Such a strategy could, however, be against the officer’s/employee’s interests. A conflict might also arise if one client has a strong desire to settle but it is in the best interests of the other client to litigate.
Shareholder derivative suits create a third area where conflicts often arise. A shareholder derivative suit involves a situation where the corporation is both a plaintiff and a defendant. Attorneys may be forced to defend the board of directors’ decisions. However, a conflict can arise when the derivative litigation involves a claim of wrongdoing by those in control of the corporation.[111]
III. When and How Can a Lawyer Enter Into a Dual Representation Relationship?
According to Rule 1.13(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.” Rule 1.7 governs concurrent conflicts of interest, including when one client’s interests are directly adverse to another client as well as situations where there is a “significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client . . . .”[112] Most dual representations of a corporation or organization and its officer(s), director(s), or shareholder(s) pose a “significant risk” of conflict and should be considered as a concurrent conflict of interest requiring compliance with part (b) of the rule.
Rule 1.7(b) allows for the existence of concurrent conflicts of interest if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.[113]
Regarding the requirement of informed consent, Rule 1.13(g) requires that an organization’s informed consent come from the “appropriate officials,” excepting the person to be represented in his or her individual capacity.[114] This hearkens back to the discussion above, concerning who has authority to speak for an organization.
Given these requirements, there may be situations where dual representation is forbidden. For example, as previously noted, unlawful conduct by an officer of a corporation would be an absolute bar to dual representation, even assuming proper informed consent was obtained from both the officer and the corporation, because such representation would “involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding . . . .”[115]
The District of Columbia has modified ABA Model Rule 1.7 to further elaborate as to the categories into which dual representation might fit.[116] The District of Columbia rule divides potential conflicts into three kinds: “(1) cases in which representation is absolutely forbidden, (2) cases in which dual representation is permissible after informed consent of all affected clients is obtained, and (3) cases in which dual representation is permitted without client consent.”[117] This elaboration is not intended to change the ABA Model Rule but merely to further explain the Rule.[118]
According to the comment on Rule 1.7 of the District of Columbia Rules of Professional Conduct, the first situation, absolute prohibition on representation, involves representation of adverse positions for different clients in the same matter.[119] The second situation, dual representation with informed client consent, encompasses representation that could reasonably have the appearance of an adverse affect.[120] It also applies “if there is any reason to doubt the lawyer’s ability to provide wholehearted and zealous representation of a client . . . .”[121] All other dual representation situations do not require informed consent and are considered proper both under the District of Columbia Rules of Professional Conduct as well as under the ABA Model Rules.[122] However, as has previously been noted and as referenced in the comment on Rule 1.7 of the District of Columbia Rules of Professional Conduct, the safest approach to dual representation is informed consent in all situations.[123]
In Griva v. Davison, Griva, a minority partner in a family partnership sought disqualification of the attorneys for Defendants, Griva’s other two partners, as a result of the attorneys’ dual representation of the partners and the partnership.[124] Additionally, Griva sought the production of files related to the attorneys’ representation of the partnership.[125] In applying Rule 1.7 of District of Columbia Rules of Professional Conduct discussed above, the court found that the conflict was not the first type, an outright prohibition on representation, simply based on the fact that Griva had never argued as such.[126]
However, the court did find that this dual representation was the type requiring informed consent of the parties and concluded that the attorneys had not obtained Griva’s informed consent to engage in the dual representation.[127] The court found that the attorneys had not met their burden of “approach[ing] both clients with an affirmative disclosure so that each [could] evaluate the potential conflict and decide whether or not to consent to continued dual employment.”[128]
Additionally, the court, in dicta, stated that even if informed consent had been obtained by the attorneys, Griva was free to revoke such consent at any time, including when an actual conflict between the partnership and the individual partners arose.[129] Without the informed consent of both parties, dual representation would be impermissible under the Rules of Professional Conduct.
IV. What is the Proper Way to Conduct an Internal Investigation so as to Avoid a Potential Conflict of Interest?
Rule 1.13(f) of the ABA’s Model Rules states, “[i]n 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.”[130] Officers and employees of a corporation who have worked closely with outside counsel or general counsel of a corporation may have a mistaken belief that conversations with the corporation’s attorney are subject to confidentiality. Essentially, these officers and employees may erroneously believe that the corporation’s attorney is also their attorney. In order to avoid inadvertent conflicts of interest, attorneys for a corporation should be extra vigilant in disclaiming representation of any individual. This so-called “corporate miranda” warning is intended to prevent inadvertent conflicts of interest.
As counsel for a corporation, you are under a duty of confidentiality,[131] and the corporation, as a client, can claim attorney client privilege for communications between shareholders/directors/officers/employees of the corporation and its attorney. However, because this privilege belongs to the corporation, it can be waived at the corporation’s discretion and information revealed to an attorney can be disclosed.
Accordingly, lawyers should advise corporate constituents that they represent the corporation and not any individual constituent. This warning should inform the constituent that any attorney client privilege is between the attorney and the corporation and that the corporation can authorize the disclosure of any information revealed to the attorney by the constituent at that time. In other words, any damaging information revealed by the constituent to the attorney may be used against them.
If adequate warnings are not given, attorneys run the risk of having an attorney client relationship between the constituent and the attorney imputed. If such is imputed, an attorney is exposed to disqualification from representing the corporation, malpractice actions by the constituent, and discipline from the attorney’s state bar.
V. Conclusion
Because business entities cannot think for themselves, representation of them is a path riddled with ethical traps. Attorneys representing business entities must ensure that they are following the directions of those with the proper authority to give directions while continually being mindful of their right to disclose unlawful conduct that can cause substantial harm. Attorneys should always gain informed consent of the parties before entering into dual representation, and, when interacting with constituents of a business entity, should overtly disclose their representation of the entity and the entity’s ability to waive privilege as to the constituents’ communications.
Forum on the
Construction Industry
______________________________________________
CAN'T WE ALL JUST GET ALONG?”:
HOW IN-HOUSE AND OUTSIDE COUNSEL RELATIONS IN THE NEW AGE OF REGULATION
CAN BE MORE THAN MERELY "STRAINED RELATIONS"
Daniel E. Toomey
Duane Morris LLP
Suite 1000
505 9th Street, N.W.
Washington, DC 20004-2166
and
Julia M. Tedjeske
Duane Morris LLP
600 Grant Street, Suite 5010
Pittsburgh, Pa. 15367
Presented at the 2009 Fall Meeting
“The Two-Way Street of Construction Counseling:
Learning From the Ins and Outs”
October 15-16, 2009
Philadelphia, Pennsylvania
Increased regulation of corporate activities in the aftermath of Enron and other corporate scandals[132], along with the Nation’s current weak economy, have greatly strained the once relatively cordial relations enjoyed by in-house and outside counsel. In addition, with substantial changes in the legal industry, longstanding relationships between in-house and outside counsel have become a rarity, with the emphasis now on cost savings as opposed to counseling. Increasingly, economic factors require in-house counsel to select their outside counsel on the basis of who is the least expensive and not on who will provide the intangible of wise counsel. This has created a tendency on the part of in-house counsel to view attorneys as commodities to be procured in the same way that other items are purchased. Correspondingly, law firms increasingly view themselves as interchangeable, diluting their most important (or what should be their most important) attribute, good judgment, with the highest goal being the well-being of their clients. These trends which have been with us for decades now have also been exacerbated by the technical revolution of the “Internet Age.”
We will review a number of issues that have contributed to the increasingly strained relationship between inside and outside counsel as they relate to the pressures of costs and the erosion of trust. We will also suggest ways that inside and outside counsel can ameliorate these pressures in order to work harmoniously together to the benefit of their “mutual” client.
In recognition of the central importance of e-discovery to litigation, we will begin with this issue in the context of U.S. District Court for the Southern District of California’s decisions in the recent Qualcomm v. Broadcom litigation.
Next, we will provide an overview of two specific changes in the regulatory environment which are of paramount importance to the construction industry and which have exacerbated inside and outside counsel relations: (1) the recent Federal Acquisition Rule (FAR) requirement to "self report" discovered frauds and; (2) recent changes in the law relating to Department of Justice (“DOJ”) corporate investigations.
Because inside and outside counsels’ roles in gatekeeping and investigative tasks are often different, circumstances often arise pitting inside and outside counsel against one another. As such, this has led to a dangerous erosion of the critically important attorney-client/attorney work product and the Constitutional Fifth Amendment Privileges. We will attempt to provide guidance with regard to how inside and outside counsel may steer a course together in these stormy seas.
All who have been involved in Construction disputes know that e-discovery is an ever increasingly complex and expensive component of litigation. Moreover, the costs and time consumed in controlling e-discovery often dwarfs the potential rewards or exposure in litigation. The old maxim that “it takes 20% of the time to find 80% of the facts and 80% of time to find the remaining 20%” has been turned on its head. Now, it is more like “5% to find 95% of the facts and 95% to find the remaining 5%.” Additionally, both the volume of information and their duplication have grown exponentially. Furthermore, Construction litigators are painfully aware that the most damaging documents are electronic. The ease with which such communications can be accomplished is often not aligned with the requisite judgment of whether to communicate at all. Moreover, we all know that e-documents are more permanent than the engraving on tombstones. The most misleading button on the computer is “delete.”
Even though we are becoming more schooled in e-discovery, costs are not really coming down. This has largely to do with the collateral litigation surrounding e-discovery. At a recent District of Columbia Judicial Conference, Magistrate Judge John Facciola, a recognized expert in this field, told of a case in which the parties had “narrowed” contested documents to a “mere” 8,000!” Moderately-sized construction cases may not even contain that many documents.
The Construction Industry is certainly not going to abandon electronic communication. Like virtually every other area of commerce, Construction is and continues to be more and more dependent upon these tools. In fact, the Construction Industry has to utilize electronic communication in order to comply with legislation such as the recent Stimulus Package.[133]
In the midst of all of this appears the recent case of Qualcomm v. Broadcom, one of the most important and well-publicized cases regarding the respective roles and responsibilities of inside and outside counsel in relation to e-discovery. In addition to being a cautionary tale, the facts of the case are enormously instructive as well as reflective of the current state of tension existing among in-house and outside counsel.
Qualcomm, a leading internet company, had sued its rival, Broadcom, alleging patent infringement. Broadcom repeatedly sought discovery as to whether or not Qualcomm had participated in the “JVT.” This central issue related to whether Qualcomm had participated with others in their industry to develop certain standards applicable to all. If Qualcomm had done so, it would have no infringement claim.[134]
The collateral litigation over this E-discovery dispute was protracted and extremely expensive. In addition to the standard forms of discovery, including repeated requests for documents, interrogatories and depositions, Qualcomm, in an effort to throw Broadcom off the scent, submitted an expert declaration confirming the absence of any corporate records indicating its participation in the JVT.[135] Outside counsel prepared the declaration and in-house counsel reviewed and approved it.[136]
After discovery had closed and during the actual trial, a young associate from Qualcomm’s outside firm, while preparing a Qualcomm employee’s trial testimony, became aware of 21 relevant emails that had not been produced during discovery.[137] This associate, who was not involved in the initial discovery, found them on the employee’s computer which, Qualcomm contended, had not been examined during discovery. As a result, according to Qualcomm these e-mails had never been produced in discovery.[138] The e-mails showed unquestionably that Qualcomm had participated in the JVT and their revelation would undoubtedly doom Qualcomm’s infringement claim.
The associate brought these e-mails to the attention of senior trial counsel, who after conferring with in-house counsel, determined to conduct no further investigation relating to these e-mails. Despite their obvious import, trial counsel, remarkably, took the position that their existence need not be disclosed because Broadcom’s attorneys had not asked for them in discovery.[139]
Only through Broadcom’s cross-examination of the Qualcomm employee did the Court and Broadcom learn of the incendiary e-mails.[140] Qualcomm’s counsel denied any knowledge of their existence, and in addition, initially refused to turn them over to Broadcom. After the Court applied some pressure, Qualcomm’s counsel finally relented, producing the 21 emails during a lunch recess.[141]
When Broadcom’s counsel resumed his cross-examination of the Qualcomm employee, he was able via the use of the e-mails to demonstrate, indisputably that Qualcomm had participated in the JVT. This ultimately resulted in a swift jury verdict in favor of the defense. Nevertheless, the dispute over the adequacy of Qualcomm’s discovery responses continued even after the trial was completed.[142] As a result of the Court’s mandating that Qualcomm’s attorneys investigate to determine whether any additional documents relevant to JVT, Qualcomm ultimately produced more than 46,000 documents totaling more than 300,000 pages from the computer archives of 21 employees all of which Broadcom had requested but not produced in discovery.[143]
Invoking both Federal Rule of Civil Procedure 26(g) and its inherent powers,[144] the Court awarded Broadcom’s request for attorneys’ fees and related costs in the amount of almost $8.5 million.[145]
In sanctioning Qualcomm’s in-house counsel and its outside counsel, the court found that not only did the company fail to perform basic searches before trial, it also failed to produce the 21 documents discovered during trial and waited until after trial to conduct an internal investigation.[146] The Federal Court also rejected Qualcomm’s claim that it had merely inadvertently failed to produce the documents in light of their direct relevance, massive volume, and the numbers of employees and consultants who had received the documents or otherwise knew about the information set forth therein.[147]
With respect to the role of outside counsel, after considering a number of alternatives, the court stated that the most plausible scenario was that outside counsel chose not look in the correct location for the correct documents, accepted unsubstantiated assurances from its client, and ignored obvious warning signs.[148] These findings spawned the filing of numerous self-serving declarations from counsel, pointing fingers at one another for this debacle. Originally, the Magistrate-Judge referred six outside counsel to the state bar, while naming and discussing the role of all counsel. The Federal District Court judge, however, later vacated the Magistrate-Judge’s recommendation, based upon Qualcomm’s filing of materials that were exonerative of Qualcomm and critical of its outside counsel, thereby permitting Qualcomm to invoke the self-defense exception to the attorney-client privilege.[149] Specifically, the court found that outside counsel had a due process right to defend themselves where their alleged conduct regarding discovery was in conflict with Qualcomm’s allegations concerning the performance of discovery responsibilities.[150] Therefore, communications and conduct relevant to the JVT were determined to be not privileged information.[151]
The relevance of Qualcomm to potential tensions in the relationship between inside and outside counsel is obvious. Under the comments to ABA Model Rule 1.2, assignments given to outside counsel may exclude actions that the client deems too costly.[152] Understandably, some clients may well decide to handle certain aspects of e-discovery internally based upon anticipated cost savings.[153] Completely separating outside counsel from this process, however, has the potential for creating conflict between in-house counsel and outside counsel because outside counsel responsible for the litigation have direct duties to the court as well as to their client[154] and—as the Qualcomm decision makes clear—outside counsel can be sanctioned for failing to adequately monitor the client’s discovery effort.[155]
Clearly, outside counsel needs to recognize that its clients and in-house counsel have a legitimate concern at trying to place reasonable limits on the costs of e-discovery. To the extent that in-house counsel believes that they avoid costs by doing the e-discovery internally, outside counsel should cooperate in this endeavor. Nevertheless, it is critically important that both in-house and outside counsel reach a clear understanding regarding the protocol to be established in determining what the scope of discovery will be with an assurance that all of the appropriate places are searched to ensure that important documents are not overlooked. In addition, both in-house counsel and outside counsel need to work collaboratively in developing a workable document retention policy to ensure that all relevant documentation is retained once the likelihood of litigation becomes clear. Additionally, both in-house and outside counsel should work together to develop a reasonable amount of time for outside counsel’s auditing of the in-house e-discovery effort in order to ensure that both the protocol agreed on in advance as well as the mutually developed document retention policies are maintained. The lesson of Qualcomm is clear that not only will outside counsel suffer the consequences of the court’s wrath, but in-house counsel will as well if the e-discovery process is botched. If these early understandings regarding protocols and document retention are achieved, other issues should take care of themselves.
As mentioned above, another notable aspect of Qualcomm is that, though the accusations of litigation misconduct originated with Broadcom’s counsel, this soon turned into a tawdry and unseemly battle between Qualcomm and its outside counsel. When Qualcomm initially attempted to defend itself by asserting attorney-client privilege regarding its communications with outside counsel,[156] Qualcomm’s outside counsel was placed in a position of being unable to explain its actions. This resulted in the generation of conflicting declarations from Qualcomm’s inside counsel and successor outside counsel and the attorneys who had represented Qualcomm in the trial.
Based upon Qualcomm’s critical accusations of its outside counsel’s actions, the court determined that Qualcomm had waived its attorney-client privilege thereby allowing outside counsel to present evidence regarding their discovery conduct.
While not something that is geared to insuring good or continued relations between in-house and outside counsel, some have suggested that outside firms should demand an advance waiver of privilege for communications relevant to discovery disputes.[157] This is a tactic fraught with peril that should be used only in the most extreme cases. A far better approach would be to obtain fundamental agreement from the outset regarding protocols for conducting e-discovery, whether conducted in-house or by outside counsel, as well as a mutually agreeable document retention policy and a common-sense policy of allowing outside counsel to test the adequacy of both. In this way, in-house counsel has the ability to control the costs of e-discovery and outside counsel has the confidence that discovery requirements are being met.
The proliferation of legislation and regulation impacting all of Corporate America, particularly Sarbanes Oxley as well as recent Federal Acquisition Rules (FAR) changes, have had a devastating impact on the roles of and relationship between inside and outside counsel. The current economic climate means that most construction contractors will have to give serious consideration to seeking Federal projects, particularly those funded by the Stimulus Package. While contractors who have regularly operated in this arena are aware of the recent FAR changes, those contractors, and their in-house counsel, who are not familiar with them will have a rude awakening when they learn of the mandatory disclosures of wrongdoing. In addition, looking more broadly at the entire federal regulatory system, in-house counsel will have to become familiar with the so-called “Filip Memorandum,” which claims to be a shift in the Department of Justice’s (DOJ’s) official policy concerning its investigation of corporate entities.
Clearly, outside counsel has a fundamental responsibility to educate in-house counsel regarding these changes so that construction contractors are not blindsided by these requirements.
A Final Rule amending the FAR Rule on Contractor Business Ethics Compliance Program and Disclosure Requirements Case (FAR Case 2007-006) published in 73 Fed. Reg. 67064 on November 12, 2008, became effective on December 12, 2008. The Rule requires federal contractors to establish internal control systems and mandates timely disclosures of certain criminal[159] and civil False Claims Act[160] violations. This represents a major departure from long-standing policies encouraging voluntary disclosure.[161] The new Rule makes the following changes to prior law:
The FAR changes provide no definition of what “credible evidence” means. Moreover, the three-year “reach back” has the potential of creating extraordinary stresses on the relationship of in-house counsel with that of newly retained outside counsel unfamiliar with what has gone on during that period and who may be simply unfamiliar with the practices of the contractor.
It is, therefore, imperative for both in-house counsel and outside counsel—from the outset of their engagement—to discuss at length the impact of these FAR changes and develop a sense of trust and openness. Moreover, it will be important for outside counsel to become as familiar as possible with the operational procedures of the construction contractor and not jump to conclusions. In this way, both parties will avoid viewing one another as adversaries.
In-house and outside counsel each participate in a variety of different roles, such as advisors, investigators, providers of transactional and litigation-related services and, in extreme cases, as potential whistleblowers. A role both inside and outside counsel share is gatekeeping.
The term “gatekeeper” refers to someone who (1) offers a service that a wrongdoer would need to accomplish his goal; (2) can and will prevent misconduct; and (3) takes action aimed at rooting out wrong doing when detected.[165] Thus, to be an effective gatekeeper, an attorney, whether in-house or outside, must be willing and able to disrupt misconduct.[166] In-house and outside counsel, however, have different gatekeeping roles.
In-house counsel, of course, has the advantage in monitoring a contractor’s conduct since they are more likely than outside counsel to have access to back-channeled information through informal contacts within the corporation.[167] This, however, is a two-edged sword, since their personal relationships with contractor management and employees, and their close day-to-day contact within the construction company, will create significant pressures to be perceived as team players. This may make it extremely difficult to disrupt potential or actual misconduct. Moreover, in-house counsel’s natural inclination will be to avoid doing harm to their company and potentially imperil their livelihood.[168]
Outside law firms, on the other hand, have traditionally been viewed as providing professional gatekeeping services, similar to those provided by accounting firms when acting as outside auditors.[169] As noted, outside counsel’s ability to effectively monitor behavior in a corporation will never match that of in-house counsel. Rarely does outside counsel obtain first-hand information from participants in questionable or illegal activities.[170] Though in-house counsel has access to informal and backchannel communications, outside counsel must often rely upon information that is formal and intended for a limited purpose.[171]
Traditionally, outside counsel is perceived as being more effective gatekeepers because they have more independence—i.e., they are not financially dependent upon any one client. Unfortunately, this may not be true in practice. The failure of independent auditors in detecting and revealing illegalities in the most recent Wall Street sub-Prime mortgage crisis is witness to this. Moreover, though a law firm as a whole may not be heavily dependent upon any one client, lawyers working within a large firm operating as a Construction Group may be dependent on relatively few clients and may wish to avoid “making waves.”[172]
In such an environment, it is
critically important, therefore, for in-house and outside counsel to view
themselves not as adversaries, but allies in their common goal to discover and
disclose wrong doing. Both parties must understand that non-disclosure is the enemy which imperils not only the contractor,
but the continued livelihood of in-house counsel and the ability of outside
counsel to retain their clients. In-house counsel and outside counsel need to
see their different roles as complimentary, not conflicting, allowing them to
marshal their resources and rely on one another, developing trusting,
long-lasting and supportive relationships. This can only occur when these
attorneys perceive themselves as wedded to the same end—the protection of their
client company.
DOJ prosecutors and U.S. Attorneys have the greatest power in the Justice System- the power to charge. They have extraordinarily broad discretion when conducting investigations of construction contractors as to: (a) whether to bring charges; (b) what charges to bring; and (c) in negotiating plea and other agreements.[173] A contractor’s timely and voluntary (now mandatory) disclosure of wrongdoing and its cooperation with the government’s investigations are important factors which prosecutors will consider in determining the proper treatment of a construction company target.[174] They are so important that decisions in this area are considered “bet the company” actions.
DOJ’s corporate investigation policy statements[175] are a quilt work of memoranda commonly referred to as the “Holder Memorandum,” the “Thompson Memorandum,” the “McNulty Memorandum” and the most recent version, the “Filip Memorandum.” This latest Memorandum (formally entitled “Principals of Federal Prosecution of Business Organizations”) released on August 28, 2008, claims to provide supposedly ameliorating shifts in official DOJ policy.
The most controversial aspect of DOJ investigations is the its coercion of the waiver of attorney-client privilege and work product protection. Traditionally, although the rule was that DOJ could merely request that a corporation waive its attorney-client privilege, such waivers were more or less expected.
The Filip Memorandum purports to move away from the tradition of expecting corporations to waive attorney-client privilege.[176] The Memorandum literally provides—with limited exceptions such as advice of counsel or the crime-fraud exception—that corporations need not disclose, and prosecutors may not request, the disclosure of (1) non-factual or (2) core attorney work product as a condition for the corporation’s eligibility to receive DOJ “cooperation credit.”[177] Despite these seemingly benign changes to official DOJ policy, a company’s decision of whether to waive its attorney-client/work product privilege remains “fraught with difficulty.”[178]
An almost equally controversial DOJ investigative tactic relates to that agency’s disdain towards a contractor’s advancing or reimbursing attorneys’ fees for employees or other individuals targeted by these investigations. Indeed, corporate law often requires that companies provide officers and employees this indemnification. Here again, the Filip Memorandum represents a purported change from prior practice[179] It now provides that in evaluating a company’s cooperation, prosecutors cannot take into account whether a corporation is advancing or reimbursing attorneys’ fees or providing counsel to employees, officers, or directors under investigation or indictment, nor are prosecutors to request that a corporation refrain from taking such actions.[180]
Again, it is exceedingly important for in-house counsel and outside counsel to see themselves as allies in connection with DOJ investigations (a) keeping open lines of communication; (b) developing appropriate strategies regarding the preservation of the privilege; as well as (c) determining whether and to what extent these communications should be written or oral. Many outside counsel simply refuse either to write down their communications or keep notes of their interviews for fear of the requirement of disclosure.
As with outside investigations of contractors, in-house and outside counsel, for many of the same reasons mentioned above, are differently situated in to internal corporate investigations.[181] In-house counsel are almost always involved in early stages of investigations and usually make the threshold determination as to whether and when there is a need to bring in outside counsel to do a full investigation.[182]
In-house counsel have the advantage of beginning an investigation immediately and can work more efficiently because of their knowledge of their corporation’s internal organizational structure, policies, and procedures. Such in-depth knowledge of how company functions enable in-house counsel to understand the significance (or insignificance) of certain facts and issues that might not be obvious to outside counsel.[183]
In addition to the obvious distaste of investigating the actions of people with whom they work day-to-day, in-house counsel’s working relationships with the organization’s key players may impede their ability to act as attorneys for the corporation as opposed to the individuals to whom they report and on whom they depend for their employment and compensation.[184]
Internal corporate investigations conducted parallel to or which are anticipated to be followed by an external investigation by one or more enforcement or regulatory authorities, represent a particularly sensitive area.[185] Even an indictment can have a devastating impact on a corporation, threatening its survival.[186] Often the mere accusation can lead to a corporation’s suspension from ongoing government contracts as happened last year to IBM.[187]
Given the sensitive nature of such work, outside counsel are often used to conduct internal investigations. The common use of outside counsel as investigators is also due, in part, to the fact that regulators and enforcement officials often consider a fact-gathering process carried out by independent lawyers under independent supervision to be more credible than the alternatives.[188]
Outside counsel can be particularly effective in conducting internal corporate investigations which are related to governmental investigations if they have expertise gained through extensive experience dealing with a certain government agency for a variety of clients.[189] Bringing in outside counsel to do an internal investigation also provides the opportunity to introduce a new face, which may make it easier when dealing with employees for the attorney to establish that he or she represents the corporation, not the individual.[190]
When outside counsel is brought in to do an internal corporate investigation, the role of in-house counsel in the investigation must be carefully considered. For example, some of the risks associated with having in-house counsel present during outside counsel-conducted employee interviews are that it may have an inadvertently chilling effect on the willingness of employees to disclose illegal conduct, or may inadvertently trigger concerns by outside auditors or regulators that in-house counsel is a potential wrongdoer.[191] More generally, where a firm’s regular outside counsel conducts the investigation, it is placed in the awkward position of being unable to disclose the results to the in-house counsel which has “hired” outside counsel and with whom it has had a long relationship. This is particularly so when the independent investigation is being supervised by the board or a board committee.[192]
Such circumstances undoubtedly try the resilience of even the most trusting relationships. Moreover, there are no easy solutions. One important factor that should be in the forefront of outside counsel’s mind is ensuring that the relationship with in-house counsel is such that the latter will instinctually call outside counsel for advice as investigations begin. Outside counsel must resist the almost irresistible temptation to “take over.” Rather, as a trusted “counselor,” outside counsel must listen to in-house counsel and provide advice which is best for both the company and inside counsel. Outside counsel must not jump to conclusions, but provide unbiased, independent and wise counsel—often acting as a “Dutch uncle.” Importantly, outside counsel must determine whether it makes sense for his/her firm to be involved in the investigation or whether other counsel should be engaged, despite the evident loss of fees. Moreover, outside counsel should know when they are out of their depth and when referral to other counsel makes the most sense.
Correspondingly, inside counsel should understand that there are enormous dangers in these investigations and should be clear that its outside counsel has both the wisdom and expertise to provide proper advice. Moreover, in-house counsel should not be reluctant to seek this advice early in the process, recognizing that “an ounce of prevention is worth a pound of cure.” Furthermore, in-house counsel should realize, despite the cost pressures attendant to such investigations, that this is not the time to “economize” by selecting the low bidder. This is not to say that legal expense will not be a factor. Rather, the relationship between in-house and outside counsel should be such that in-house counsel knows that its outside counsel will not take advantage of the company in dire emergency. Moreover, outside counsel should recognize the strains caused by these investigations, making appropriate accommodations to insure its client’s survival.
This topic is as enormous and complicated as the very relationship between in-house and outside counsel. We have briefly sought to bring some information and common sense as to how in-house and outside counsel can cooperatively and, in an atmosphere of mutual trust tackle the difficulties created by e-discovery, federal contracting regulation, DOJ and internal investigations. Each of these alone or together have the potential, if not handled adroitly and professionally, to destroy not only the relationship between in-house and outside counsel, but the company as well. The recent perilous economic environment has only exacerbated roles of in-house and outside counsel, creating pressures heretofore not experienced.
It is beyond dispute that a primary role of in-house counsel is to manage outside counsel. As such, current economic conditions necessitate strict (but not slavish) adherence to budgets. Moreover, outside counsel need to be sensitive to the budgetary pressures on in-house counsel creating unavoidable friction between in-house and outside counsel regarding fees and expenses. As such, outside counsel should not only respond to, but initiate measures internally to minimize these fees and expenses consistent with their professional responsibilities.
While larger construction contractors are attempting to keep more of the legal work in-house, this means that outside counsel are often not in a position to be day-to-day counselors to their construction clients.[193] This should not deter outside counsel, however, from “checking in” with contractors, without fear that counsel will charge for merely being kept up to date.
If outside counsel remember that their fundamental calling as attorneys is to provide wise counsel and if in-house counsel understand that the value of outside counsel can never truly be commoditized, trusting and lasting relationships will be maintained.
[1] Restatement (Third) of the Law Governing Lawyers ch. 5, tit. A, introductory note (2000).
[2] U.S. v. Doe, 429 F.3d 450, 453, 68 Fed. R. Evid. Serv. 1070 (3rd Cir. 2005).
[3] ABA Task Force on the Attorney-Client Privilege, Report of the American Bar Association’s Task Force on the Attorney-Client Privilege , 60 Bus. Law. 1029, 1032 (May 2005).
[4] Farahmand v. Jamshidi, 66 Fed. R. Evid. Serv. 556 (D.D.C. 2005) (quoting Restatement (Third) of the Law Governing Lawyers § 69 (2000)).
[5] Restatement (Third) of the Law Governing Lawyers § 69 cmts. b and e (2000).
[6] In re Seagate Technology, LLC, 497 F.3d 1360, 1372 (Fed. Cir. 2007).
[7] In re Copper Market Antitrust Litigation, 200 F.R.D. 213, 217 (S.D. N.Y. 2001).
[8] In re Lindsey, 158 F.3d 1263, 50 Fed. R. Evid. Serv. 13, 42 Fed. R. Serv. 3d 27 (D.C. Cir. 1998).
[9] In re Grand Jury Proceedings, 727 F.2d 1352, 1355 (4th Cir. 1984).
[10] Upjohn Co. v. U.S., 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981).
[11] PepsiCo., Inc. v. Baird, Kurtz & Dobson LLP, 305 F.3d 813, 816, 59 Fed. R. Evid. Serv. 523 (8th Cir. 2002).
[12] Upjohn Co. v. U.S., 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981).
[13] Upjohn, 449 U.S. at 394-95; Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 609 (8th Cir. 1977).
[14] Santrade, Ltd. v. General Elec. Co., 150 F.R.D. 539, 545 (E.D. N.C. 1993).
[15] Boca
Investerings Partnership v. U.S., 31 F.Supp.2d 9, 11-12 (D.D.C. 1998), quoting North Am. Mortgage Investors v.
First Wisconsin Nat’l Bank, 69 F.R.D. 9, 11 (E.D. Wis 1975).
[16] See, e.g., U.S. ex rel. Parikh v. Premera Blue Cross, 2006 WL 3733783 (W.D. Wash. 2006).
[17] See, e.g., In re Grand Jury, 475 F.3d 1299, 1304 (D.C. Cir. 2007).
[18] Harmony Gold U.S.A., Inc. v. FASA Corp., 169 F.R.D. 113, 115 (N.D. Ill. 1996).
[19] Teltron, Inc. v. Alexander, 132 F.R.D. 394, 396 (E.D.Pa. 1990).
[20] U.S. Postal Service v. Phelps Dodge Refining Corp., 852 F.Supp. 156 (E.D. N.Y. 1994).
[21] Phelps Dodge Refining, 852 F.Supp. at 160.
[22] Id.
[23] Note Funding Corp. v. Bobian Investment Co., 1995 WL 662402 (S.D. N.Y. Nov. 9, 1995).
[24] Note Funding Corp., 1995 WL 662402, *3.
[25] Georgia-Pacific Corp. v. GAF Roofing Mfg. Corp., 1996 WL 293 92 (S.D. N.Y. Jan. 25, 1996).
[26] Georgia-Pacific Corp., 1996 WL 293 92, *4.
[27] Boca Investerings, 31 F.Supp.2d at 12-13.
[28] Boca Investerings, 31 F.Supp.2d at 13.
[29] Upjohn, 449 U.S. at 394-95.
[30] In re Grand Jury, 475 F.3d 1299, 1305 (D.C. Cir. 2007).
[31] Jones v. Eagle-North Hills Shopping Centre, L.P., 239 F.R.D. 684, 685 (E.D. Okla. 2007).
[32] In re Natural Gas Commodity Litigation, 229 F.R.D. 82, 86 (S.D. N.Y. 2005).
[33] Restatement (Third) of the Law Governing Lawyers § 123 cmt. j (1996).
[34] Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 348-49, 105 S.Ct. 1986, 85 L.Ed.2d 372 (1985).
[35] Jonathan Corp. v. Prime Computer, Inc., 114 F.R.D. 693 (E.D. Va. 1987).
[36] Milroy v. Hanson, 875 F.Supp. 646 (D. Neb. 1995).
[37] U.S. v. International Bhd. of Teamsters, Chauffeurs, Warehousemen and Helpers of America, AFL-CIO, 119 F.3d 210 (2nd Cir. 1997).
[38] The
pre-amended version of Model Rule 5.5 provided simply that “A lawyer shall not:
(a)
practice law in a jurisdiction where doing so violates the regulation of the
legal profession in that jurisdiction; or
(b)
assist a person who is not a member of the bar in the performance of activity
that constitutes the unauthorized practice of law.”
ABA Model Rules of Prof’l Conduct R. 5.5 (2000), available at
http://www.law. cornell.edu/ethics/aba/2001/ABA_CODE.HTM#Rule_5.5 (last visited
June 26, 2009).
[39] See
ABA Ctr. for Prof’l Responsibility,
Client Representation in the 21st
Century, Report of the Commission on Multijurisdictional Practice 1, 3
(2002), http://www.abanet.org/cpr/mjp/final_mjp_rpt_121702.pdf [hereinafter ABA Report].
[40] See,
e.g., Paul M. Lurie & Carl F. Ingwalson, Arbitration and the Unauthorized Practice of Law, 27 The Construction Lawyer 14, 14 (2007).
[41] See
id. n.2 (citing Birbrower, Montalbano, Condon & Frank, P.C. v. Superior
Court, 949 P.2d 1 (Cal. 1998) (denying fees to New York attorneys who engaged
in unauthorized practice of law in connection with representation of their
clients at an arbitration in California).
See also Teresa Stanton
Collett, Foreward (to Symposium issue
dedicated to Multijurisdictional Practice), 36 S. Tex. L. Rev. 657, 658 (1995) (“the most common sanction is
to deny the lawyer practicing without local authorization any right to recover
fees from a client”).
[42] See
id. n.3 (citing In re Carter, 426 S.E.2d 897, 898–99 (Ga. 1993) (lawyer
disciplined in home state for representing client in Alabama proceeding without
being admitted to practice there).
[43] See
id. n.4 (citing United States v. Kozel, 908 F.2d 205, 208 (7th Cir. 1990)
(affirming sanctions and finding of contempt of court for violation of local
rule prohibiting unauthorized practice of law).
[44] See
id. n.5 (citing Ga. Code Ann. § 15-19-56(a) (2005); Va. Code Ann. § 54.1-3904 (2005).
[45] See
ABA Report, supra note 2, at 1.
[46] Id.
[47] See
id. at 2.
[48] Id.
at 4.
[49] See
ABA Center For Professional Responsibility – Commission on Multijurisdictional
Practice, http://www.abanet.org/cpr/mjp/ (last visited June 25, 2009).
[50] See
ABA Report, supra note 2, at 2.
[51] See
id.
[52] ABA
Model Rules of Prof’l Conduct R. 5.5 (2008) [hereinafter ABA Model Rule].
[53] See
Id. R. 5.5(c)(1).
[54] ABA
Report, supra note 2, at 24.
[55] See
id.
[56] See id. at 10.
[57]Id. at 25.
[58] See
id.
[59] See
ABA Model Rule 5.5(c)(2).
[60] See
ABA Report, supra note 2, at 10.
[61] ABA
Model Rule 5.5(c)(3).
[62] See
ABA Report, supra note 2, at 10.
[63] See
id.
[64] See
ABA Model Rule 5.5(c)(4).
[65] See
ABA Report, supra note 2, at
28.
[66] See
id. at 30.
[67] See
id.
[68] See
id. at 31.
[69] See
id.
[70] See
id. at 23.
[71] See
id.
[72] Both Georgia and New Mexico have
adopted a rule similar to Model Rule 5.5.
See State Bar of Georgia, Model Rules of Prof’l Conduct R. 5.5,
available at
http://www.gabar.org/handbook/part_iv_after_january_1_2001_-_georgia_rules_of_
professional_conduct/rule_55_unauthorized_practice_of_law_multijurisdictional_practice_of_law/
(last visited June 26, 2009); New Mexico
Rules of Prof’l Conduct R. 16-505.E(4), available at
http://www.conwaygreene.com/nmsu/lpext.dll?f=templates&fn=main-h.htm&2.0
(last visited July 8, 2009). The
legislatures of these states, however, have yet to modernize their statutory
UPL provisions. See Ga. Code Ann. §
15-19-51 (2006) (prohibiting broadly defined “unauthorized practice of law”);
N.M. Stat. § 36-2-27 (2008)
(same).
[73] See
ABA Model Rule 5.5(c) (“A lawyer
admitted in another United States jurisdiction, and not disbarred or suspended
from practice in any jurisdiction, may provide legal services on a temporary
basis in this jurisdiction that . . . .”).
[74] See
id. R. 5.5(b)(1).
[75] ABA
Model Rule 5.5 cmt.
[76] Id.
[77] See
ABA Model Rule 5.5(c)(1), (3),
(4).
[78] See
ABA Model Rule 5.5 cmt.
[79] Id.
[80] Id.
[81] The National Conference of
Commissioners on Uniform State Laws “promote[s] the principle of uniformity by
drafting and proposing specific statutes in areas of the law where uniformity
between the states is desirable.” National Conference of Commissioners on
Uniform State Laws, Introduction,
http://www.nccusl.org/Update/DesktopDefault.aspx?tabindex=0&tabid=11 (last
visited July 8, 2009). Many states
choose to adopt these uniform acts. For
example, Alaska, Florida, Hawaii, Montana, Kansas, New Hampshire, Rhode Island,
South Carolina, and New Hampshire have statutes modeled after the Uniform Land
Sales Practices Act. See Jere L. Loyd, Comment, State Securities Regulation of Interstate
Land Sales, 10 Urb. L. Ann.
271, 271 (1975).
[82] See
American Arbitration Association – Resource Center – Construction,
http://www.aaauonline.org/referenceCenter.aspx?cid=3 (last visited July 8,
2009); JAMS Engineering and Construction Arbitration Rules and Procedures,
http://www.jamsadr.com/rules/ construction_arbitration_rules.asp (last visited
July 8, 2009).
[83] ABA
Report, supra note 2, at 23.
[84] These 12 states are: Alaska,
Arkansas, Indiana, Iowa, Maryland, Massachusetts, Nebraska, New Hampshire,
Oregon, Rhode Island, Utah, and Washington.
See ABA, State Implementation of Model Rule 5.5 (Multijurisdictional Practice of
Law) (May 15, 2009), http://www.abanet.org/cpr/mjp/quick-guide_5.5.pdf
(last visited June 25, 2009).
[85] These 28 states are: Alabama,
Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia,
Florida, Georgia, Idaho, Kentucky, Louisiana, Maine, Minnesota, Missouri,
Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma,
Pennsylvania, South Carolina, South Dakota, Virginia, Wisconsin, and
Wyoming. See id.
[86] Illinois, Michigan, and Tennessee
have a recommendation pending before their highest court to adopt a rule
identical to the model rule. Mississippi
and Vermont have multijurisdictional practice committees that have recommended
adoption of a rule identical to the model rule.
Hawaii, New York, Texas, and West Virginia have created committees to
study the ABA multijurisdictional practice recommendations. See id.
[87] See
id.
[88] See
Arizona Ethics Rules R.
5.5(e)–(g), available at http://www.myazbar.org/ethics/rules.cfm.
[89] See
California Rules of Court R.
9.47(b)(3), 9.48(b)(3), available at http://www.courtinfo.ca.gov/
rules/documents/pdfFiles/title_9.pdf (“For an attorney to practice law under
this rule, the attorney must . . . [i]ndicate on any Web site or other
advertisement that is accessible in California either that the attorney is not
a member of the State Bar of California or that the attorney is admitted to
practice law only in the states listed.”).
[90] See
Connecticut Rules of Prof’l Conduct R. 5.5(c),
(f), available at http://www.jud.ct.gov/ Publications/ PracticeBook/ PB1.pdf.
[91] See
id. R. 5.5(c)(4).
[92] See
Nevada Rules of Prof’l Conduct R.
5.5A, available at http://leg.state.nv.us/CourtRules/RPC.html. The requirement does not apply, however, to
“work performed by a lawyer in connection with any action pending before a
court of this state, any action pending before an administrative agency or
governmental body, or any arbitration, mediation, alternative dispute resolution
proceeding, whether authorized by the court, law, rule, or private agreement.” Id. R. 5.5A(a)(2).
[93] See
New Jersey Rules of Prof’l Conduct R.
5.5(b)(3)(iv), available at
http://www.law.cornell.edu/ethics/nj/code/NJ_CODE.HTM#Rule_5.5.
[94] See
New Mexico Rules of Prof’l Conduct
R. 16-505.E(4), available at
http://www.conwaygreene.com/nmsu/lpext.dll?f=templates&fn=main-h.htm&2.0
(“In transactions involving issues specific to New Mexico law, the lawyer
temporarily practicing in New Mexico shall associate with counsel admitted to
practice in New Mexico.”).
[95] Charles W. Wolfram, Sneaking Around in the Legal Profession:
Interjurisdictional Unauthorized Practice by Transactional Lawyers, 36 S.
Tex. L. Rev. 665, 665 (1995).
[96] ABA Model Rule 1.13(a).
[97] In
re Davis, No. 96-O-04662, 2003 WL 21904732 (Cal. Bar Ct., Aug. 6, 2003).
[98] Id.
at *2.
[99] Id.
[100] Id.
at *3.
[101] Id.
[102] Id.
[103] Id.
[104] Id.
at *14.
[105] ABA Model Rule of Prof’l Conduct 1.6
provides that:
(a) A lawyer shall not reveal
information relating to the representation of a client unless the client gives
informed consent, the disclosure is impliedly authorized in order to carry out
the representation or the disclosure is permitted by paragraph (b).
(b) A lawyer may reveal information
relating to the representation of a client to the extent the lawyer reasonably
believes necessary:
(1) to prevent reasonably certain
death or substantial bodily harm;
(2) to prevent the client from
committing a crime or fraud that is reasonably
certain to result in substantial
injury to the financial interests or property of another and in furtherance of
which the client has used or is using the lawyer's services;
(3) to prevent, mitigate or rectify
substantial injury to the financial interests or property of another that is reasonably
certain to result or has resulted from the client's commission of a crime or
fraud in furtherance of which the client has used the lawyer's services;
(4) to secure legal advice about the
lawyer's compliance with these Rules;
(5) to establish a claim or defense
on behalf of the lawyer in a controversy between the lawyer and the client, to
establish a defense to a criminal charge or civil claim against the lawyer
based upon conduct in which the client was involved, or to respond to
allegations in any proceeding concerning the lawyer's representation of the
client; or
(6) to comply with other law or a
court order.
ABA Model
Rule 1.13(a).
[106] There is an exception to this
permission, found in Rule 1.13(d), placed upon lawyers who are hired 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,” in an effort to provide
adequate counsel to corporations. Id.
R. 1.13(d).
[107] ABA Model Rule 1.13(b)
[108] Id. R. 1.13 cmt.
[109] See id.
[110] ABA Model Rule 1.13(e).
[111] See
id. R. 1.13 cmt.
[112] ABA Model Rule 1.7(a).
[113] Id. R. 1.7(b).
[114] Id. R. 1.13(g).
[115] Id. R. 1.7(b)(3).
[116] See
Griva v. Davison, 637 A.2d 830, 842–43 (D.C. 1994).
[117] Id.
at 842.
[118] See
id. at 843.
[119] See D.C. Rules of Prof’l Conduct R. 1.7 cmt. (2006), available at http://www.dcbar.org /new_rules/rules.cfm.
[120] See id.
[121] Id.
[122] See id.; ABA Model Rule 1.7 cmt..
[123] See D.C. Rules of Prof’l Conduct R. 1.7 cmt. (2006).
[124] Griva,
637 A.2d at 832–836.
[125] Id.
at 832.
[126] Id.
at 844.
[127] Id.
at 845.
[128] Id.
[129] Griva was free to revoke the consent
on behalf of the partnership as a result of a unanimous consent provision in
the partnership agreement. See id. at 833. Accordingly, the partnership is not
authorized to consent to dual representation unless Griva consents to the dual
representation.
[130] ABA Model Rule 1.13(f).
[131] See
ABA Model Rule 1.6.
[132] See, e.g., Daniel E. Toomey & Tamara M. McNulty, Contractors and Sureties Beware! Sarbanes-Oxley Will Affect You, Too, Construction L. & Pub. Conts., Feb. 2003.
[133] See FAR § 704.
[134] See Qualcomm Inc. v. Broadcom Corp., 2008 WL 66932, at *1-3. (S.D. Cal. Jan. 7, 2008), vacated in part, 2008 WL 638108 (S.D. Cal. Mar. 5, 2008).
[135] See id. at *3 n.3.
[136] See id.
[137] It is important to note that during the litigation, inside counsel brought new counsel in to “assist” Qualcomm’s longstanding counsel. During the trial, its young associates made the discovery of the withheld e-mails. See id. at *4.
[138] See id.
[139] See id.
[140] See id.
[141] See id. at *5.
[142] See id. at *6.
[143] See id.
[144] See id. at *8.
[145] See id. at *17.
[146] See id. at *10.
[147] See id. at *11.
[148] See id. at *13.
[149] See Qualcomm Inc. v. Broadcom Corp., 2008 WL 638108, at *3 (S.D. Cal. Mar. 5, 2008).
[150] See id.
[151] See id. at *3.
[152] See Tomas Allman, Pandora’s Box: Compliance Quagmires Can Alienate Legal Teams, L. Tech. News, August, 2008, at 26 (citing MODEL RULES OF PROF’L CONDUCT R. 1.2(a) (2003)).
[153] Although companies may seek to keep e-discovery tasks in-house to reduce costs and to take advantage of in-house technological expertise, depending on the knowledge and experience of the parties involved, e-discovery can be better suited to outside counsel if outside counsel has specialized expertise in this area. See Symposium, Corporate Compliance: The Role of Company Counsel, 21 Geo. J. Legal Ethics 491, 542-43 (2008).
[154] See Anthony J. Carriuolo, Managing Case Can Mean Managing the Client: Counsel Does No One a Favor by Catering to Unrealistic Expectations, Nat’l L. J., July 7, 2008, at S3.
[155] See Thomas Allman, Deterring E-discovery Misconduct with Counsel Sanctions: The Unintended Consequences of Qualcomm v. Broadcom, Yale L.J. Pocket Part, 161, 161-62 (2009).
[156] See Qualcomm, 2008 WL 66932, at *13 n.8.
[157] See Tom Allman, supra note 21, at 26.
[158] Several interim FAR rules have been published setting forth the requirements for projects which are funded by the American Recovery and Reinvestment Act of 2009 (which is commonly referred to as the stimulus). Among other things, these interim rules enhance the investigative authority of both the GAO and agency IGs (FAR Case 2009-011). Implementation of the requirements set forth in these new rules would require that contractors enhance both their monitoring and internal investigative capacities.
[159] These would include violations involving fraud, conflict of interest, bribery or gratuity violations in Title 18 of the U.S. Code.
[160] 31 U.S.C. §§ 3729-3733.
[161] See id. at 670.
[162] “Principal” is defined as an officer, director, owner, partner, or a person having primary management or supervisory responsibilities within a business entity.
[163] Timely written disclosure to agency IGs is required where there is credible evidence of a violation committed in connection with the award, performance or closeout of a covered contract or any subcontract there under by a principal, employee, agent, or subcontractor of certain areas of criminal law or the civil FCA. The phrase “credible evidence” is intended to allow the contractor to carry out some level of preliminary examination of the evidence before disclosing that evidence to the government.
[164] “Full cooperation” is defined as “disclosure to the Government of the information sufficient for law enforcement to identify the nature and extent of the offense and the individuals responsible for the conduct. It includes providing timely and complete responses to Government auditors’ and investigators’ request for documents and access to employees with information.” FAR Clause 52.203-13(a). This Rule is intended to be applied in the context of investigations of contract fraud and corruption, not in the context of routine government audits. 73 Fed. Reg. at 67078. The definition of “full cooperation” provided by FAR Clause 52.213-13(a) clarifies that cooperation should not require that a contractor waive its attorney-client privilege or work product protection nor should individuals be required to waive their Fifth Amendment rights.
[165] See Sung Hiu Kim, Gatekeepers Inside Out, 21 Geo. J. Legal Ethics 411, 415 (2008).
[166] See id. at 421.
[167] See Symposium, supra note 22 , at 525-26.
[168] See Sung Hiu Kim, supra note 34, at 439.
[169] See id. at 415.
[170] See id. at 451.
[171] See id.
[172] See id. at 435.
[173] See Principals of Federal Prosecution of Business Organizations § 9-28.300.
[174] See id.
[175] Although the guidelines refer to corporations, they apply to all types of business organizations. See id. § 9-28.000 n.1.
[176] The Filip Memorandum acknowledges that a wide range of commentators and members of the American legal community have asserted that traditional DOJ policy has been used to coerce business entities into waiver attorney-client privilege and work product protection. See id. § 9-28.710.
[177] See id. § 9-28.72. There is some belief that the Filip Memorandum does not represent enough of a change in DOJ policy. Therefore, on February 13, 2009, Senator Specter introduced the Attorney-Client Privilege Protection Act of 2009. The findings of fact associated with this bill state that DOJ policies have tended to undermine the adversarial system by encouraging organizations to waive attorney-client privilege and work product protections. See Attorney-Client Privilege Protection Act of 2009, S. 445, 111th Cong. (2009) § (a)(7). This bill is would provide protection in federal investigations other than DOJ investigations.
[178] See Recommended Practices for Companies and Their Counsel in Conducting Internal Investigations (“Recommended Practices”), Am. Crim. L. Rev., Winter 2009, at 73.
[179] The Filip Memorandum was issued the same day that the United States Court of Appeals for the Second Circuit announced its decision in U.S. v. Stein, 541 F.3d 130 (2d Cir. 2008), upholding the dismissal of an indictment against thirteen former partners and employees of KPMG in relation to the investigation of their roles in allegedly unlawful tax shelters. The trial court in Stein had ruled that the defendants had been deprived of their right to counsel under the Sixth Amendment because the governmental pressure had interfered with KPMG’s advancement of defendants’ legal fees. See id. at 135.
[180] See id. § 9-28.730. The Filip Memorandum further clarifies that mere participation by a corporation in a joint defense agreement does not render the corporation ineligible to receive cooperation credit, and prosecutors cannot request that a corporation refrain from entering into such an agreement. See id. § 9-28.730. However, because the Memorandum suggests that corporations craft joint defense agreements in such a way as to allow the corporation to provide some relevant facts to the government so that the corporation’s ability to seek cooperation credit is not impaired, the practical impact of this guidance may be limited.
[181] The Filip Memorandum asserts that a corporation may chose a method of collecting information about potential misconduct without utilizing attorneys—for example, by having employee or other witness statements collected after interviews by non-attorney personnel. See id. § 9-28.720. However, in practice, internal corporate investigations related to governmental investigations are almost always handled by inside or outside counsel.
[182] See Symposium, supra note 22, at 505.
[183] See George J. Terwilliger III, Internal Investigations, Nat’l L. J., Nov. 26, 2007.
[184] The process of advising an individual that the lawyer represents the corporation, not the individual, is often referred to as a “civil Miranda.” At a minimum, such a conversation should make clear that (1) the attorney represents the company; (2) the attorney does not represent the individual or his or her legal interests; (3) although the conversation is covered by attorney-client privilege, that privilege belongs to the company; and (4) the company can elect to waive the privilege and disclose all or part of the conversation to external auditors, regulators, or others. See Recommended Practices, supra note 47.
[185] See id.
[186] For example, the findings of fact associated with the Attorney-Client Privilege Protection Act of 2009 include an acknowledgement that an indictment can have devastating consequences on an organization, potentially eliminating the ability of the organization to survive post-indictment or to dispute the charges against it at trial. See Attorney-Client Privilege Protection Act of 2009, S. 445 111th Cong. (2009) § (a)(8).
[187] For a Kafkaesque description of the suspension of IBM without notice, see, Todd J. Canni, Shoot First, Ask Questions Later: An Examination and Critique of Suspension and Debarment Practice Under the FAR, Including a Discussion of the Mandatory Disclosure Rule, the IBM Suspension, and Other Noteworthy Developments, 38 Pub. Cont. L.J. 547, 591-99 (2009).
[188] See George J. Terwilliger III, supra note 52, at 1470. Usually in such an investigation, it is important that it is not perceived that management is in charge of the internal investigation—and management is usually understood in such situations as including the general counsel’s office. See Recommended Practices, supra note 47. Attorneys conducting internal corporate investigations in relation to governmental investigations may face tension in their ethical duties to their other hand client, on the one hand, and duties to the larger public, on the other hand.
[189] See Symposium, supra note 22, at 542-43. Often there may be a decision not to use the organization’s usual outside counsel and to instead use outside counsel which is more independent of the corporation; however, there can be circumstances where regular outside counsel’s experience, knowledge, and distance from investigation issues and subjects would make it acceptable for the regular outside counsel to conduct the investigation. See Recommended Practices, supra note 47.
[190] See Symposium, supra note 22, at 507. Even having in-house counsel present during interviews conducted by outside counsel may cause confusion with respect to whether the individual’s interests are being represented. See Recommended Practices, supra note 47.
[191] See Recommended Practices, supra note 47.
[192] See Robert F. Hoyt & Joseph K. Brenner, Investigating the Investigators, Litigation, Summer 2004, at 43.
[193] See Symposium, supra note 22, at 544.