FREE ESSAY ON IN-HOUSE COUNSEL

IN-HOUSE COUNSEL

IN-HOUSE COUNSEL
When a company's interest are the same as those of an individual employee, in-house
lawyers generally can avoid multiple-representation problems. But once there is a
conflict of interest -- or a perception of a conflict -- the picture changes
dramatically. It is important for in-house counsel to know how to spot such conflicts and
what steps to take in response. Corporate counsel clients normally include the company,
its board of directors, its most senior management, the heads of the company's various
business divisions, its employees and even its former employees. All of these clients
deserve quality representation in every matter, from the most fundamental to the most
vexing.
With this broad range of clients, ethical questions can arise. Specifically, can
corporate counsel serve more that one client and, if so, what constraints exist upon such
multiple representation? In most instances, a corporate lawyer should attempt to
represent both the corporation and its employees, consistent with his or her ethical
obligations. It is obviously in any company's interest to present a consistent and
unified version of events that give rise to potential liability. Under governing ethics
rules, corporate counsel has one client -- the corporation. Whenever conflicting
loyalties arise, that relationship is paramount and requires the lawyer to cast aside any
other clients. This bright-line test is muted in actual practice, however, and can put
in-house lawyers into some uncomfortable situations, For example, they may have to
explain to members of senior management that because the managers' interest are
sufficiently different from the company's the managers need separate legal advice.
Just as the importance of corporate law departments has increased, so too have the
problems for corporate attorneys. Corporate employees seem ever more aware of their
rights as opposed to the company's interests, and corporate counsel must be sensitive to
these potentially conflicting interests. Although predicting the future always is
difficult, one thing is certain: There will be more confusion and difficulty, not less,
in the area of multiple representation. And for that reason the lawyer should evaluate
whether there is a conflict or a potential conflict in representing someone in addition
to representing the company. Several factors should be considered during this evaluation:
the nature of the matter, whether it is a criminal or civil matter, whether it involves
litigation or a regulatory investigation; the individual's role in the matter, whether
the person is a target of an investigation, a key witness or a custodial of records; and
the individual's status, whether he or she is a senior officer or director, a temporary
employee or and ex-employee. Also lawyers need to ensure that individuals involved in the
matter understand the role of corporate counsel, understand multiple representation and
consent to that representation.
Counsel should take the following steps in order to provide himself with an ethical
shield while allowing for productive fact-gathering:
Tell the employee the reason for the meeting.
Explain that, as the corporate attorney, he or she is representing the company.
Explain that he or she may also represent the employee in the matter if the employee
consents and if there is no conflict.
Explain that the employee always has the right to his or her own counsel.
Explain the details of the attorney-client privilege -- that the privilege belongs to the
company, and the company and subsequently waive it.
Dictate and file a memo memorializing the conversation.
At some point, it would be prudent for counsel to revisit the issue of joint
representation. This may be appropriate when the investigation becomes more formal --
upon the arrival of a grand jury subpoena, for instance, or if there is a suit filed with
the company and an employee is named as a defendant. If an employee clearly is or is
likely to be, the target of a grand jury investigation, the employee promptly should
retain separate counsel. The employee also should retain separate counsel if he or she
wants to chart a substantively different course than the company or other employees. But
the fact that a matter becomes more formal does not signal that anything is wrong with
the multiple representation. 
There are times when a company's general counsel, at the outset, will want to have
outside lawyers represent the company and its employees. This may be necessary, for
instance, when the in-house lawyer has been directly involved in the matter at issue, and
he or she is likely to be called as a witness. When the in-house lawyer is a target of an
investigation or a potential defendant, the lawyer will be in need of his or her own
counsel. And the lawyer may not choose not to represent the company and an employee
simultaneously when that representation could prevent the lawyer from representing the
company in future actions against the employee. There could be some benefit to the
company's counsel not representing employees in high-stakes regulatory matters. It seems
that regulators, regardless of lawyers' conflict rules, will go more easily on
organization that definitively and publicly separate their destinies from those of their
employees. 
Undoubtedly questions will arise as to how these issues play out for corporate counsel in
practice. Two scenarios taken from a recent issue of The National Law Journal are
described, along with suggestions as to how they might be addressed. 
One scenario involves an in-house counsel for a retail brokerage firm who learned that an
arbitration claim had been filed by a customer against the firm and one of its account
executives. The claim was based on allegations of churning and unauthorized trades. The
claimant sought $250,000 in damages, plus punitive damages. A financial analysis of the
account, however, showed an actual net loss to the customer of $25,000. The firm's
attorney concluded, moreover, that the allegations were weak. At the outset, the in-house
attorney can represent both clients in this matter; and, as indicated previously, the
attorney initially should make the appropriate disclosures to the clients. As the case
comes close to arbitration or settlement, however, there may be a conflict of interests.
The firm, for example may want to resolve the case by settling at or around the amount of
the customer's net loss, reasoning that the company's potential exposure is not worth the
risk of litigation. The broker, on the other hand, may resist settling, giver that
settlement at that amount would cause the case to be listed as part of his permanent
regulatory record. In this type of conflict, the firm's attorney needs to pay close
attention to these potentially conflicting interest.
Another scenario, an in-house attorney for a high-tech company Company A, received a
letter from a competing company, Company B, threatening a lawsuit. The letter stated that
one of company B's ex-employees had just bee stolen away by company A and that company B
had good reasons to believe that the former employee had taken several items with her to
Company A, items to which company B claimed a proprietary legal right. The letter also
stated that one of the items in question related to a top-secret project that Company B
was doing for the government and that, besides contemplating litigation, Company B had
informed the local U.S. attorney's office of the likely theft.
In the first interview Company A's counsel had with the newly hired employee -- after the
appropriate disclosures -- the employee stated that she had done nothing wrong and that
she did not take any documents or materials from company B. She also stated that what
Company B was really taking about was her knowledge of the various technological
processes and systems at the company -- knowledge that she could not simply erase from
her mind. In addition, she stated that although she would be working on similar types of
matters at Company A, there was no real likelihood of an infringement of Company B's
legal rights.
This scenario calls for separate counsel for the new employee, and promptly. Intellectual
property is an especially tricky area, particularly when well-placed employees jump
between competitors. In this situation, moreover, it is not a battle to which Company A
wants to be a party. Company A should separate itself from its new employee as much as
possible until she can clear herself. Given the possible criminal implications of this
matter, it is possible that the new employee might invoke the Fifth Amendment at some
point in the U.S. attorney's probe. If she does, Company A would be well-served to
consider terminating her employment. The right to counsel and the right of protection
from self-incrimination are constitutional rights; employment is not. Company A could
suffer damage to its reputation for protecting her if she refuses to candidly tell the
truth.
The Corporate Counsel Committee of the American Bar Association's Young Lawyers Division
recently solicited written responses from attorneys on the ethical concerns on in-house
counsel. They were asked their advice for an attorney confronted with an ethical dilemma?
Their response were: in-house counsel should contact the general counsel first; an
attorney must be particularly sensitive to potential disputes and must make every effort
to avoid being placed in a compromising position; identifying the true client is
essential; do not avoid confronting the issue, ethical dilemmas, unlike business issues,
rarely fade away, they tend to fester; ethical dilemmas are best resolved by avoiding
them from the beginning, the best way to do the is to engage the participants in a
discussion of the potential problems and pitfalls; 
Finally, we may well expect the use of inside counsel to increase because of the rising
legal fees charged by outside corporate counsel. Many corporations, in an effort to cut
costs, push for settlements, try to use arbitrators, and expand their inside corporate
legal staff. Whatever the reasons, the number of inside counsel is large and growing. Do
we ask too much of inside counsel? Should the Code of Professional Responsibility draw
distinctions between the independence of judgment expected of outside counsel and the
independence of judgment expected of inside counsel? In-house counsel should be required
particularly in close cases to inform outside counsel who is subject to different
pressures, and then rely on the latter's advice.
IN-HOUSE COUNSEL
BY
DONICE MARIE REISS