I was in-house counsel for over 20 years and served as Chief Compliance Officer for a good part of that time. One of the challenges I recall for me and my legal team was finding practical advice for in-house counsel around ethics issues. We held a number of CLE presentations on ethics every year — helpful in terms of yearly mandatory ethics-related CLE hours. While welcomed, the presentations generally left me less than satisfied because most of them were heavily focused on parsing out the text of the relevant Rules of Professional Responsibility (in our case, Texas), with a lot of focus on words like “shall” and “may.” I am not saying this is not important, but what I came to realize is that many of the ethics issues I dealt with as in-house counsel were broader than what a specific section of the rules did or did not mandate me to do. Instead, what I really needed was a general awareness of my different ethical obligations (including those under the rules) and whether I knew or could easily find the answer to my problem, or if I needed to ask someone for help to figure out the next move.
This edition of Ten Things will take on that challenge and discuss some of the basic ethics issues faced by in-house counsel and how to deal with them or what to keep in mind as you analyze the situation. There are definitely some traps out there for the unwary. Hopefully, after reading this you’ll have a better understanding of some of the key things around ethics you need to keep in mind as in-house counsel and when you may need to ask for help. Apologies to my international readers as this is a pretty U.S.-centric discussion though I think the themes apply globally.
- In-House is different. If you read through the ABA Model Rules of Professional Conduct or your applicable state rules you will see that most of the rules seem to be written for lawyers in private practice. The rules specifically addressing in-house counsel appear as a small fraction of the rules (but in-house counsel must comply with all of the rules nonetheless). There are several reasons for this disparity: there are no fee disputes for in-house lawyers, no client trust account issues, no advertising issues, and the in-house lawyer is an employee of the client. Moreover, the in-house lawyer’s deep involvement in the day-to-day business can lead to a higher level of accountability in ways not affecting lawyers in private practice. For example, in-house lawyers are now more frequently in the cross-hairs of regulators and are expected to be “gatekeepers” whose job is, in part, to keep the company honest is ways that do not fall clearly within the rules of professional responsibility. This requires a very delicate balancing act that outside counsel is often immune from. Understanding that things “are different” in-house will give you a lens to consider the different ethics issues that pass your way.
- Resources. There are a number of resources available to you regarding ethics issues. Start with the rules of professional responsibility for wherever you practice law. A complete set should be available for free on-line via your state bar association. Next are the ABA Model Rules of Professional Conduct. Since most state rules are based in large part on the ABA Rules, I will refer to various sections of the ABA Rules below (but understand that not all of the ABA Rules are adopted by every state). Likewise, you can find court and disciplinary panel decisions online. The ABA Center for Professional Responsibility website is very helpful and blogs are an excellent way to gain insight into key issues, including legalethicsforum.com, www.thelawforlawyerstoday.com, and www.complianceandethics.org. Regardless, when faced with an ethics question (under the ABA Rules or otherwise) think about the following when deciding what to do: (a) the rules of professional responsibility, (b) common sense, (c) your conscious, (d) how will your actions (or inaction) appear to your peers and colleagues (or your mom), and (e) how will your actions (or inaction) affect the company’s reputation and shareholder value. Running through this list can help get you to the right decision.
- Who is the Client? For in-house counsel the client is the organization and not any individual member of management or employee. (ABA Rules §1.13). This can be difficult to remember at times because your business colleagues often think of you as “their lawyer.” That is okay at times, i.e., to the extent the employee is an extension of the company, but it must always be clear between you and the business client that you represent the interests of the company and not them individually. This means you have to watch out for things like the senior management “squeeze” – “what I’m about to tell you is only between you and me as my lawyer.” You must be able to recognize situations where separate counsel may be needed and to advise your business colleague to get their own lawyer if needed. This occurs most often in the context of internal investigations. Under such circumstances it’s important that you give your business colleague what is known as an “Upjohn” warning. You must make it clear to the employee you are interviewing (including senior management) that you represent the company and not them and they have the right to obtain their own counsel. (ABA Rules §1.13(f)). The best practice here is to have a standard written warning that the employee signs. For a sample warning, click here. Failure to give this warning can waive the attorney-client privilege and lead to other problems.
- Confidentiality. As a lawyer you are required to keep confidential information confidential – this is broader than the attorney-client privilege. (ABA Rules §1.6). Moreover, you must always take steps to preserve the attorney-client privilege (and whether the privilege applies outside the U.S. depends on the country involved and you should familiarize yourself with the rules of that jurisdiction – click here to see a summary of how the privilege applies outside the U.S.). You also have a duty to preserve client files and documents, and not just for purposes of a litigation hold. (ABA Rules §1.6(c)). You should regularly back up your email and hard drive (talk with your IT department about the best way to do this). The old saying “Lose lips sink ships” is 100% relevant in the in-house world. Be careful of your discussions in restaurants, elevators, and especially when you are on the phone in a public place – since most people seem to feel they must speak louder when talking on a phone. Similarly, create strong passwords, i.e., numbers, letters, and symbols, to use for your company accounts. Secure your laptop and smart phone, and if you use your own personal devices to conduct company business or store company documents, you need to secure those as well and use strong passwords at home. (See Comment 18 to ABA Rules §1.6).
Confidentiality applies to your use of social media: (a) don’t embarrass yourself or the company, e.g., complaining about your bad personal experience with the services of a customer of the company – that can come back to bite you, (b) don’t comment on legal matters involving the company, (c) don’t “torch” the judiciary, no matter frustrated you may be, (d) don’t give out confidential information or destroy privilege, and (e) be constantly alert for social engineering “Phishing” scams – and not just the ones where the “King of Nigeria” needs your help with a money transfer.
- Up-The-Ladder reporting. When companies run afoul of securities laws or criminal laws, you will often see someone ask “Where were the lawyers?” Unfortunately, this means that, more and more, in-house counsel are under the microscope and regulators are expecting you to act as “gatekeepers” to prevent fraud and bad acts by the company. The bottom-line is that you cannot assist in a crime or fraud and you must act to take steps to prevent bodily harm. (ABA Rules 1.2, §1.6 and §1.13). Furthermore, if you work for a publicly traded company you may have obligations under Sarbanes-Oxley §307 to report material violations of the law “up the ladder”. Know who to go to if this happens (and consider having trusted outside counsel lined-up with whom you can discuss concerns and the proper path forward). Likewise, under the Dodd-Frank and SEC “Whistleblower” rules, keep in mind that the company may not engage in any retaliation against a whistleblower. All in-house legal departments should have guidelines in place (and training) on what to do if an in-house lawyer suspects that a crime has been or will be committed by the company. Depending on the circumstances, consider documenting any actions taken by you or the department to comply with your obligations (or expectations) as this may be useful in the event there is some reason outsiders are asking “Where were the lawyers?” at your company.
- Lawyer vs. Business Partner. There is a “Jekyll and Hyde” component to being in-house counsel that revolves around the fact that the business often wants you to act as both a lawyer and as a business partner. Acting as a business partner however runs the risk of hurting claims to attorney-client privilege, which applies only when you act as a lawyer providing legal advice. Since being part of business decisions is a reason many of us went in-house in the first place, you must ensure that you participate properly in either role. This is made more complicated when the business wants you to act as a business partner on occasion, but communicates with you as though everything is “legally privileged.” Courts generally are becoming more hostile to claims of attorney-client privilege involving only in-house lawyers and their business clients, often presuming (unfairly) that your communications are more business than legal and therefore not deserving of protection. It is critical to always take steps to (a) properly mark privileged communications, (b) set out the legal purpose of your communication at the beginning of the email or in the body of the document/attachment, (c) separate business advice from legal advice, ideally through separate documents but if not possible at least by separate and clearly marked sections of the document, and (d) train the business on the difference between legal and business advice and when the privilege properly applies and how to request legal services vs. business advice (and be sure all of the lawyers in your department understand the process as well).
- Competence. As a lawyer you have an obligation to maintain competence regarding developments in the law that are important to your client. (ABA Rules §1.1). For in-house generalists, this is a broad mandate. You should focus on learning skills that the company needs both in the near term and as you look out five years into the future (which is a good exercise for legal departments to undertake every year). Build around the following: (a) take continuing education requirements seriously. CLE doesn’t not have to be pure drudgery and a “let’s get this over with” moment. Instead, it can truly help you develop or refine skills that are important to you and your company, (b) your obligation of competence may include understanding the basics of e-discovery and litigation holds given how quickly things can go wrong for the company if there is a failure here, (c) spend time on business ethics and compliance training, (d) improve your legal research skills generally (and cast a wider net in terms of the tools you use), and (e) become savvy with technology, including social media and digital security (See Comment 8 to ABA Rules 1.1).
- Conflicts. Conflicts matter to in-house counsel. For instance, in-house attorneys frequently deal with client conflicts (joint ventures, subsidiaries, outside counsel) and with conflicts of interest (usually internal to the company). Regarding the latter, always be mindful of your own “conflicts” including prior advice and actions and how your current actions – or ability to be impartial – may be impacted by what you said or did previously. Be sure that the advice you give and the work you are doing now reflect your best efforts and thinking, even if it means you may have to backtrack from what you said or did in the past. Keep your eyes open for conflicts of interest among the executives, board of directors, and employees (and understand the company’s policies on such conflicts). If you spot a conflict, follow your process and find a way to help resolve it in the best interests of the company. Client conflicts can take the form of who you wish to hire as outside counsel (and your process to deal with their conflicts) or who you bring on as a new attorney to the department. For example, in Dynamic 3D Geosolutions vs. Schlumberger, an entire in-house legal department was disqualified from working on a company matter because the new lawyer had previously worked for the defendant in litigation and the company (plaintiff) failed to properly screen them from meetings and actions related to the litigation. (ABA Rules §1.9). Plaintiff’s outside counsel was also disqualified as the conflict was imputed to them as well. This became a huge, expensive mess and the general counsel had the unpleasant duty of explaining to senior management and the board how all of this happened. The simple message: conflicts matter, even to in-house attorneys and in ways you might not expect, so keep alert.
- Communications outside the company. A common request to in-house counsel by a client is for you to sit in on a call “with the other side” during a contract or other type of discussion. Be careful here because if you know the other side is represented by counsel (and most companies of any size have dedicated in-house lawyers) you need permission from the lawyer (not the client) to be part of that call – if counsel for the other side is not otherwise present. (ABA Rules §4.2). The same is true if for some reason a business person on the other side of a deal or dispute calls you directly in hopes of potentially speeding things up. While it’s a positive sign, you still need to explain that you cannot talk with them unless their lawyer grants you permission to do so. If you are speaking with someone unrepresented by counsel you have an obligation under the rules not to mislead them about your role as a lawyer and do not provide them with legal advice (other than advice to secure counsel of their own). (ABA Rules §4.3). One of the most difficult areas to deal with is your obligation of candor when dealing with the other side or with the court. (ABA Rules 3.3, §4.1, and §4.2). As to the former, there are exceptions made for negotiating (and the puffery that naturally comes with that process) but there is no bright line as to when puffery crosses over into deceit or dishonesty. (ABA Rules §8.4(c)). For that you need to rely to some extent on paragraph 2(a)-(e) above.
- Supervisors/Outsourcing. As in-house counsel you are responsible for those you supervise and for taking reasonable steps to ensure they comply with their ethical obligations. (ABA Rules §5.1). Likewise, you are ultimately responsible for third-party vendors acting on your behalf. (ABA Rules 5.1 and §5.3). This is particularly true given the rise of outsourcing of certain legal services (document processing, simple contract preparation, cloud storage, etc.). In addition to ethical behavior, you need to ensure that neither you, nor your employees or vendors engage in the unauthorized practice of law. (ABA Rules §5.5). For you and your team, it’s about keeping your license current (including obtaining the appropriate amount of continuing legal education). In some places in-house counsel must be licensed in the state where they perform legal work for the company. In other places, they do not. The ABA has a helpful chart of the licensing requirements for in-house counsel in all 50 states. To read it, click here. In a similar vein, you need to ensure that your vendors are either properly licensed or are properly supervised by licensed lawyers (you, your team, or outside counsel). This is an area where due-diligence about your vendor is a smart idea. Bad things can happen if you engage (or allow) the unauthorized practice of law, with the mostly likely problem being no attorney-client privilege where you thought one existed.
It is certainly important to be familiar with the specifics of the applicable code of professional responsibility. You should have a copy of the rules (or a “link” to an online version) handy. That said, the following points will probably solve 90% of the day-to-day ethics issues faced by in-house counsel:
- Remember who your client is
- Protect the attorney-client privilege
- Know when to go “Up the Ladder”
- Use strong passwords and keep company records safe
- Keep your license current and stay up-to-date on legal developments and technology
- Be smart with social media and on guard for “phishing” scams
- Identify “go-to” counsel for ethics questions – don’t fly solo
There is a target on the backs of in-house counsel these days. A bit of diligence and common sense is your best defense.
August 18, 2015
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