Download A Special 2-hour Ethics CLE Program

Ethics for In-House Counsel
1
A Special 2-hour Ethics CLE Program
For The ACC Georgia Chapter
Presented by:
March 10, 2015
Rogers & Hardin LLP
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Ethical Challenges in Managing the
Roles of In-House Counsel and
Business Advisor
LORI A. GELCHION
In-House Counsel: Many Hats
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 Lawyer
 Advocate
 Business Advisor
 Gatekeeper
 Corporate Officer
 Negotiator
 Dealmaker
 Scrivener
Southern Guaranty Ins. Co. of Ga. v. Ash
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 Applicability of the attorney-client privilege to a
communication between an attorney and a corporate
client.
 Once an attorney-client relationship has been established
between an attorney and a corporate client, all legal
advice confidentially communicated to the authorized
agents of the corporation is protected.



Legal advice given to a client is privileged regardless of whether the
advice is related to pending litigation or to a client's day to day legal
affairs.
The privilege covers all legal advice given, not just advice expressly
requested by the client.
However, if the attorney acts merely as a business adviser, then the
privilege is inapplicable.
Southern Guaranty Ins. Co. of Ga. v. Ash
5
 Burden of proving the attorney-client privilege lies
with the corporation.
 In determining if the privilege applies:



An attorney-client relationship must exist.
Must consider the totality of the circumstances.
Relevant factors to consider include the nature and purpose of
the communication and how and to whom the communication
was made.
Marriott Corp. v. American Academy of
Psychotherapists, Inc.
6
 The attorney-client privilege is applicable to an employee’s
communications if it can be shown that:

The communication was made for the purpose of securing legal advice;

The employee making the communication did so at the direction of his corporate
superior;

The superior made the request so that the corporation could secure legal advice;

The subject matter of the communication is within the scope of the employee’s
corporate duties; and

The communication is not disseminated beyond those persons who, because of
the corporate structure, need to know its contents.
 The privilege does not apply to evidence which is otherwise
admissible simply because the evidence is made available to the
corporate attorney.
Hypothetical: Memorandum to CEO
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 ABC Corp. is an on-line retailer.
 The Board is unhappy with ABC’s financial results and seeks to
improve operations, reduce expenses and increase shareholder
value.
 The Board has determined that the COO needs to be replaced.


The Board would like the COO to resign but is prepared to terminate the COO’s
employment if the COO refuses to resign.
The COO has an employment agreement with ABC.
 The Board has asked ABC’s CEO/Chairman of the Board to speak
with the COO on this matter.
 ABC’s GC (who is also SVP and Corporate Secretary) prepares a
Memorandum to the CEO with “talking points” for his discussion
with the COO.

Memorandum is stamped “CONFIDENTIAL AND SUBJECT TO ATTORNEY
CLIENT PRIVILEGE”
Hypothetical: Memorandum to CEO
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 Memorandum includes:
 Suggested statements the CEO may make to the COO regarding
his continuing confidentiality obligations under the
employment agreement.
 Suggestions for how the CEO should start the discussion.
 The reasons and justification under the employment agreement
for the COO’s termination.
 Suggestions for how the CEO should respond if the COO storms
out before the discussion is finished or ultimately refuses to
resign and must be terminated.
 Suggested next steps if the COO agrees to resign.
Hypothetical: Memorandum to CEO
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 The GC wants to be certain that the CEO is aware of
the termination provisions under the employment
agreement.
 The GC is concerned the COO may bring legal action
against ABC if he is terminated.
 Memorandum also includes an analysis of:

Whether ABC has a reasonable basis to terminate the COO for
“cause” under the employment agreement.

ABC’s obligations under the employment agreement if the COO
is terminated without “cause.”
Hypothetical: Memorandum to CEO
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 Panel Discussion:
 Is the Memorandum protected by the attorney-client
privilege?
 Are communications by in-house counsel subject to a
higher level of scrutiny then communications from
outside counsel?
 What might the GC do in this case, and in general, to
increase the chances of maintaining the privilege for
the GC’s communications?
Hypothetical: Responding to
Request for Comments
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 ABC’s new COO sends an email to the GC and an employee in
ABC’s Operations Department which attaches a contract with
a new supplier.



Asks “for any comments” and the email is marked “Confidential.”
Expresses concern as to whether entering into the new supply contract
would conflict with certain other agreements with exclusivity provisions
that ABC currently has in place.
Also questions whether the financial terms of the new supply contract are
more advantageous overall then terms of ABC’s existing supply
agreements for similar merchandise.
 The GC responds to the email (using “reply to all”).
 Asks for additional information regarding the status of the agreements
with the exclusivity provisions.
 The COO provides a status update by return email, along with
a copy of those agreements.
Hypothetical: Responding to
Request for Comments
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 The GC reviews the new supply contract.
 Makes revisions to, and comments on, the termination, governing
law and venue sections.
 Makes some “clean-up” type edits.
 The GC emails a redline of the new supply contract,
“replying to all” on the COO’s first email.


Explains why the new supply contract may conflict with the
agreements with exclusivity provisions.
Provides a comparison of the financial terms of the new supply
contract with the financial terms of ABC’s other supply
agreements for similar merchandise.
 The GC’s contact information on the bottom of her
emails reads “Jane Smith, Senior Vice President, General
Counsel and Corporate Secretary.”
Hypothetical: Responding to
Request for Comments
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 Panel Discussion:
 Is the GC’s email protected by the attorney-client
privilege?
 Is the attachment?
 What might the GC do in this case, and in general, to
increase the chances of maintaining the privilege for
the GC’s communications?
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Internal Investigations and the
In-House Lawyer
Attorney-Client Privilege, Conflicting Duties &
Ethical Obligations
J O S H U A P. G U N N E M A N N
Introduction and Overview
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 The Role of In-House Counsel in Internal
Investigations





Identification of the client
Interacting with and advising corporate constituents
Determining the scope of the investigation
Selecting and overseeing outside counsel
Preserving the attorney-client privilege
 Applying the Georgia Rules of Professional Conduct
Identifying the Client
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 Identifying the Client:

Ga. Bar Rule 1.13(a) (Organization as Client): “A
lawyer employed or retained by an organization
represents the organization acting through its
duly authorized constituents.”
 Corporations, however, act through their officers,
directors and employees.
 Advice related to corporate liability inevitably overlaps
with advice related to personal liability.
Interacting with Constituents
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 In an internal investigation, it is imperative that the corporation's
constituents understand the role of in-house counsel as the attorney
for the corporation only.

Ga. Bar Rule 1.13(f): “In dealing with an organization's directors, officers,
employees, members, shareholders or other constituents, a lawyer shall
explain the identity of the client when the lawyer knows or
reasonably should know that the organization's interests are
adverse to those of the constituents with whom the lawyer is
dealing.”
 Most investigations that involve the potential for serious misconduct
also have the potential for adversity with company constituents.
 Best practice: Clearly articulate the role of in-house counsel in every
interaction with company constituents during an investigation.
Interacting with Constituents
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 Ga. Bar Rule 1.13, Comment 10:



There are times when the organization's
interest may be or become adverse to
those of one or more of its constituents.
In such circumstances the lawyer should
advise any constituent, whose interest
the lawyer finds adverse to that of the
organization of the conflict or potential
conflict of interest, that the lawyer
cannot represent such constituent,
and that such person may wish to
obtain independent
representation.
Care must be taken to assure that the
individual understands that, when there
is such adversity of interest, the lawyer
for the organization cannot provide
legal representation for that
constituent individual, and that
discussions between the lawyer for
the organization and the individual
may not be privileged.
 Ga. Bar Rule 4.3 (Dealing with an
unrepresented person):

In dealing on behalf of a client with a
person who is not represented by
counsel, a lawyer shall not:

(a) state or imply that the lawyer
is disinterested; when the lawyer
knows or reasonably should know that
the unrepresented person
misunderstands the lawyer's role in the
matter, the lawyer shall make
reasonable efforts to correct the
misunderstanding; and

(b) give advice other than the
advice to secure counsel, if a
lawyer knows or reasonably should
know that the interests of such a
person are or have a reasonable
possibility of being in conflict with the
interests of a client.
Interacting with Constituents: Hypothetical
 ACME Telecom, Inc. is a publicly
traded, global
telecommunications company
with Atlanta headquarters.
 It operates through subsidiaries
in a number of countries.
 Ethics hotline receives an
anonymous email:
Dear Sirs: I work for your ACME
Mexico. I have to pay false invoices.
The invoices are for work that we
did not do. I am worried for my job
and for the money.
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 You call the CFO, a close
personal friend, to see what she
knows.
 She comes to your office because
she “doesn't want to talk by
phone.”
 She sits down, closes the door,
and tells you she has some facts
to confess.
Interacting with Constituents
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 Panel Discussion:

What obligation do you have to clarify your role at the outset of
this discussion?

What advice may (or should) you give the CFO?

If the CFO asks if she needs her own lawyer, what should you
say?

After an appropriate warning, should you encourage the CFO
to discuss the issues with you?

What other steps should you take to protect yourself and your
client (including the privilege)?
Scope of the Investigation
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 Considerations regarding scope and the decision to retain
outside counsel:

Seriousness of the issue

Including potential involvement of auditors, regulators, or law
enforcement and the need for independent counsel

Familiarity with the organization and events

Costs

Conflicts of interest for in-house and regular outside counsel

Resources and ability of in-house and regular outside counsel
Conflicts of Interest
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 Ga. Bar Rule 1.7 - Conflicts of Interest:

(a) A lawyer shall not represent or continue to represent a client if there is a
significant risk that the lawyer's own interests or the lawyer's
duties to another client, a former client, or a third person will materially
and adversely affect the representation of the client, except as
permitted in (b).
 Ga. Bar. Rule 1.7, Cmt. 6:

The lawyer's personal or economic interests should not be permitted
to have an adverse effect on representation of a client. See Rules 1.1 and 1.5

If the propriety of a lawyer's own conduct in a transaction is in
serious question, it may be difficult or impossible for the lawyer to give a
client objective advice.
Conflicts of Interest
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 Ga. Bar Rule 3.7 (Lawyer as Witness)


(a) A lawyer shall not act as advocate at a trial in which the
lawyer is likely to be a necessary witness except where:

(1) the testimony relates to an uncontested issue;

(2) the testimony relates to the nature and value of legal services
rendered in the case; or

(3) disqualification of the lawyer would work substantial hardship
on the client.
(b) A lawyer may act as advocate in a trial in which another
lawyer in the lawyer's firm is likely to be called as a witness
unless precluded from doing so by Rule 1.7 or Rule 1.9.
Competence
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 Ga. Bar Rule 1.1 (Competence):

A lawyer shall provide competent representation to a client. . . .

Competence requires the legal knowledge, skill, thoroughness and
preparation reasonably necessary for the representation.
 Ga. Bar Rule 1.1 , Cmt. 1B

In determining whether a lawyer employs the requisite knowledge and skill
in a particular matter, relevant factors include the relative complexity
and specialized nature of the matter, the lawyer's general experience,
the lawyer's training and experience in the field in question, [and] the
preparation and study the lawyer is able to give the matter . . . .
Conflicts & Competence: Hypothetical
 After a proper warning, the CFO
elects to continue speaking with
you.
 She learned of a potential billing
issue in the Mexican affiliate over
a year ago.
 The affiliate had been paying
falsified invoices to a private
contractor that was building
cellular towers for ACME.
 Contractor is owned by the
nephew of the Mexican finance
minister.
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 Following the payments, ACME
received relief on certain tax and
permit issues related to the
construction project.
 CFO sought the advice of the
assistant general counsel, who
told her there was no FCPA
problem if the practice ended
immediately. That counsel is no
longer with the company.
 CFO immediately instructed
subsidiary to stop the practice;
she assumed it had stopped.
Conflicts & Competence
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 Panel Discussion:

Is the close personal friendship with the CFO a conflict?

At what point does in-house counsel’s (or regular outside
counsel’s) involvement in the events being investigated create a
conflict?

Does it matter that the advice was performed by a subordinate?

At what point does in-house counsel (or regular outside
counsel) need to consider their competence for handling an
internal investigation?

What obligation does in-house counsel have to supervise the
conclusions of outside counsel?
The Investigative Interview
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 Covered in last years' ACC Presentation
 Traps for the unwary:




Protection of privilege
Avoidance of conflicts & Upjohn warnings
Consideration of third-party disclosures
Balancing fact finding with obligations
to the witness
 Implicates multiple professional rules:





Rule 1.4 (Communication)
Rule 1.6 (Confidentiality of Information)
Rule 1.13 (Organization as Client)
Rule 1.7 (Conflicts of Interest)
Rule 4.3 (Dealing with Unrepresented Person)
Case Law Developments:
In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014)
 District Court:

Investigation was undertaken
pursuant to regulatory law and
corporate policy

Investigation material held not
privileged
 D.C. Circuit:

Took on writ of mandamus

Investigation conducted under
direction of in-house legal
department, acting in its legal
capacity

Employees knew legal department
was conducting an investigation

A “substantial purpose”
of the investigation was to obtain
legal advice
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 Takeaways:

Relied on the extraordinary relief
of mandamus: KBR came
extremely close to losing the
privilege over the investigative
work

Court emphasized the importance
that interviewees know the
respective roles of the
interviewers and interviewees:
give the Upjohn warning

Investigations must be done at
direction of legal counsel

Memorialize at each step that
interviews are confidential and
protected by the privilege and are
being done at the direction of
counsel and for the purpose of
obtaining legal advice
Appendix: Model Upjohn Warning
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 Model Upjohn warning, proposed by the ABA's White Collar Crime
Committee Working Group:
I am a lawyer for Corporation A. I represent only Corporation A, and I do not represent you
personally.
I am conducting this interview to gather facts in order to provide legal advice for Corporation A.
This interview is part of an investigation to determine the facts and circumstances of X in order
to advise Corporation A how best to proceed.
Your communications with me are protected by the attorney-client privilege. But the attorneyclient privilege belongs solely to Corporation A, not you. That means Corporation A alone may
elect to waive the attorney-client privilege and reveal our discussion to third parties. Corporation
A alone may decide to waive the privilege and disclose this discussion to such third parties as
federal or state agencies, at its sole discretion, and without notifying you.
In order for this discussion to be subject to the privilege, it must be kept in confidence. In other
words, with the exception of your own attorney, you may not disclose the substance of this
interview to any third party, including other employees or anyone outside of the company. You
may discuss the facts of what happened but you may not discuss this discussion.
Do you have any questions?
Are you willing to proceed?
.
 Reminder: Carefully document that the warning was given and
understood.
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Protecting Attorney-Client
Privilege When Investigating
Whistleblower Allegations
MICHAEL L. EBER
Overview
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 Problem: How does a lawyer's obligation to protect
confidential client information potentially conflict
with the lawyer's obligation to report misconduct?
 Focus on three issues
 What are the general rules for Georgia lawyers regarding
disclosure of client communications?
 In the special context of organizational clients, when may (or
must) the lawyer “report up the ladder” or “report out”?
 How do these requirements intersect with the reporting
requirements of Sarbanes Oxley?
Rule 1.6(a): Confidentiality of Information
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 Default rule: Confidentiality is required for “all
information gained in the professional relationship
with a client” unless the client gives informed consent
 Exceptions apply if disclosure is:

impliedly authorized in order to carry out the
representation;

authorized by Rule 1.6(b) or another Georgia Rule; or

“required by . . . other law, or by order of the Court”
Disclosure Under Rule 1.6(b)(1)
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 A lawyer may reveal client information that the lawyer
reasonably believes necessary—
 to prevent harm or substantial financial loss to another
as a result of criminal conduct that is clearly in
violation of the law
 to prevent serious injury or death
 to litigate certain charges/claims where the lawyer's
representation is at issue (e.g., legal malpractice)
 to secure legal advice about compliance with the rules
Key Concepts Under Rule 1.6(b)(1)
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 Disclosure is permissive rather than mandatory
 “may reveal”
 Limited to prevention of future harm
 Very high bar
 “criminal conduct”
 “clearly in violation of the law”
 Disclosure is a last resort
 Scope of disclosure must be reasonably necessary
Rule 3.3: Candor Toward the Tribunal
35
 A lawyer shall not knowingly:

make a false statement of material fact or law to a
tribunal; or

fail to disclose a material fact to a tribunal when disclosure
is necessary to avoid assisting a criminal or fraudulent act by
the client.
 This duty applies even if compliance requires disclosure
of information protected by Rule 1.6.

See Rule 3.3(b) & cmts. 10–11.
Rule 4.1: Statements to Others
36
 A lawyer shall not knowingly:

make a false statement of material fact or law to a
third person; or

fail to disclose a material fact to a third person when
disclosure is necessary to avoid assisting a criminal or
fraudulent act by a client, unless disclosure is prohibited
by Rule 1.6.
Rule 1.13: Organization as Client
37
 Rule 1.13(a): A lawyer employed or retained by an
organization represents the organization
acting through its duly authorized constituents.
 Rule 1.13(b): “Reporting Up”
 When is it required?
 Rule 1.13(c)–(d): “Reporting Out”
 When is it permissible?
Rule 1.13(b): “Reporting Up”
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 What triggers the “reporting up” obligation?




Lawyer knows of an ongoing or threatened legal violation;
Matter related to the lawyer's representation of the
organization;
Violation is of a constituent's legal obligation to the
organization or may be imputed to the organization; and
Violation “likely to result in substantial injury to the
organization.”
Rule 1.13(b): “Reporting Up”
39
 What is required when the rule is triggered?

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 . . . .”
Presumption in favor of reporting to higher authority
 Reporting to the “highest authority” may be reasonably necessary
under the circumstances

Rule 1.13(b): “Reporting Up”
40
 Questions to ask yourself when deciding whether
reporting to a higher authority is “reasonably necessary”







How serious is the violation?
What are the consequences?
Who is responsible?
What is their apparent motivation?
Will the constituent accept your legal advice?
Do the organization's policies provide guidance?
Any other relevant considerations?
 Rule 1.13 cmt. 4: “Ordinarily, referral to a higher
authority would be necessary.”
“Reporting Up” Under Sarbanes-Oxley
41
 Who is covered by the mandatory reporting
requirements under SOX?

Attorneys “appearing and practicing” before the SEC in any
way in the representation of “issuers” of securities
 The phrase “appearing and practicing” before the
SEC is defined very broadly. It includes:



transacting business with the SEC (including correspondence)
representing issuers in SEC proceedings
preparing, incorporating, or submitting information to the SEC
in any type of document
What Triggers the SOX Reporting Rule?
42
 Objective standard
 “credible evidence” that
 it's “reasonably likely” that
 a “material violation” has occurred, is ongoing, or is about to
occur
 Violations covered
 material violations of federal or state securities law
 breaches of fiduciary duty arising under fed/state law
 similar violations of any fed/state law
What is the SOX Reporting Rule?
43
 When the requirement is triggered, the lawyer must:
 report evidence of the material violation to chief legal officer
and/or the CEO (or to a qualified legal compliance committee).

A “subordinate attorney” can fulfill her obligation by reporting to a
“supervisory attorney.”
 What if an “appropriate response” is not
forthcoming?

Then the lawyer must report further up the ladder to the audit
committee, another committee of independent directors, or to
the full board of directors.
Rule 1.13(c): “Reporting Out”
44
 A lawyer “may” reveal client information if:
she reports up the ladder a clear violation of law;
 the highest authority of the organization fails to respond
in a “timely and appropriate manner”; and
 the lawyer “reasonably believes that the violation is
reasonably certain to result in substantial injury to
the organization.”

 But disclosure is permitted “only if and to the extent
the lawyer reasonably believes necessary to
prevent substantial injury to the organization.”
Rule 1.13(c): “Reporting Out”
45
 Key Limitation: Rule 1.13(c) does not permit
disclosure of information relating to the lawyer's
representation of an organization
 to investigate an alleged violation of law, or
 to defend the organization (or an officer,
employee, or affiliate) against a claim arising out
of an alleged violation of law. See Rule 1.13(d).
“Reporting Out” Under SEC Rules
46
 SEC permits disclosure where necessary to:

prevent violation that is likely to cause substantial injury to the
financial interest or property of the issuer or investors;

prevent the issuer, in an SEC investigation or proceeding, from
suborning perjury, committing perjury, or knowingly
perpetuating a fraud upon the SEC; or

rectify consequences of a violation of securities laws for which
the attorney’s services were used.
What if the SEC and Georgia Rules Conflict?
47
 Rule 1.6: disclosure allowed if “required by . . . other law”
 SEC regulations purport to preempt all conflicting state
rules and to provide a safe harbor for lawyers who
comply in good faith

See 17 C.F.R. §§ 205.1, 205.6
 But several states question the SEC's authority to
preempt state ethics rules


See, e.g., N.Y. Cnty. Lawyers Assn. Comm. on Professional Ethics,
Formal Op. 746 (Oct. 7, 2013).
Courts have not resolved this issue
Whistleblower Hypothetical
 You are the new general counsel
for a private chain of health care
providers throughout the state.
 A member of the accounting
department tells you that the
billing software appears to apply
improper codes, possibly
resulting in substantial
overbilling.
 The activity has gone on for
years, with approval from top
executives.
 You raise the issue with
executives, who reluctantly agree
to examine the practice.
48
 They disagree that the software
was improper, but decide that it
no longer makes business sense
to continue using the software.
 But the coding programs will not
be updated for 6 months.
 You are convinced that the billing
practice is wrong and that the
company (and you personally)
may face civil and criminal
liability.
 Can you “blow the whistle” by
reporting out? Should you?
Whistleblower Hypothetical
49
 Revision #1

The company is publically
traded.

You are responsible for
incorporating information
into SEC filings.

Does this change what is
required?
 Revision #2

You have already been GC
for a year when you learn
about the issue.

The executives agree to
change billing practices
immediately.

But by this time, you have
already approved of several
SEC filings that are
materially inaccurate.
Steps To Reduce Attorney Whistleblower Risk
50
 Respond promptly and appropriately to reports of




misconduct.
Document the investigation and response.
Inform the reporting lawyer of the company's response
(if appropriate).
Train in-house lawyers regarding state ethics rules.
Interview departing lawyers about whether the
company has properly handled reports of misconduct.
Appendix: Additional Resources
51






David A Delman & Paul A. Bruno, Up the Ladder and Out the Door: Saying “No” to the
CEO, 46 INT'L LAWYER 1007 (2012).
N.Y. Cnty. Lawyers Assn. Comm. on Professional Ethics, Ethical Conflicts Caused by
Lawyers as Whistleblowers under the Dodd-Frank Wall Street Reform Act of 2010,
Formal Op. 746 (Oct. 7, 2013).
Timothy P. O'Toole et al., Why Lawyers and Whistleblowers Don't Mix – Part 1,
WESTLAW J. HEALTH CARE FRAUD, Oct. 2014, at 1.
Timothy P. O'Toole et al., Why Lawyers and Whistleblowers Don't Mix – Part 2,
WESTLAW J. PROFESSIONAL LIABILITY, Nov. 2014, at 1.
Barry R. Temkin & Ben Moskovits, Lawyers as Whistleblowers Under the Dodd-Frank
Wall Street Reform Act, N.Y. STATE BAR J., July-Aug. 2012, at 10.
Lawrence A. West et al., Attorneys as SEC Whistleblowers: Can an Attorney Blow the
Whistle on a Client and Get a Monetary Award? (May 2013),
http://lw.com/thoughtLeadership/SEC-Whistleblowers.
THANK YOU
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Dan Laney
[email protected]
404.420.4624
Ben Rogers
[email protected]
404.420.4612
Lori Gelchion
[email protected]
404.420.4646
Josh Gunnemann
[email protected]
404.420.4653
Mike Eber
[email protected]
404.420.4640