Ethics and Privilege Issues Specific to In-House Counselweb1.amchouston.com/flexshare/003/ACCH/WebsiteInfo/... · • General Counsel Mr. Cooper was accused of unauthorized practice

Ethics and Privilege Issues Specific to In-House Counsel

Heather KhassianCynthia DeGabrielle

LICENSUREIssues specific to in-house counsel

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(d) A lawyer admitted in another United States jurisdiction or in a foreign jurisdiction, and not disbarred or suspended from practice in any jurisdiction or the equivalent thereof, may provide legal services through an office or other systematic and continuous presence in this jurisdiction that:

(1) are provided to the lawyer's employer or its organizational affiliates; are not services for which the forum requires pro hac vice admission; and, when performed by a foreign lawyer and requires advice on the law of this or another U.S. jurisdiction or of the United States, such advice shall be based upon the advice of a lawyer who is duly licensed and authorized by the jurisdiction to provide such advice; or

(2) are services that the lawyer is authorized by federal or other law or rule to provide in this jurisdiction.

(e) For purposes of paragraph (d), the foreign lawyer must be a member in good standing of a recognized legal profession in a foreign jurisdiction, the members of which are admitted to practice as lawyers or counselors at law or the equivalent, and are subject to effective regulation and discipline by a duly constituted professional body or a public authority.

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ABA Model Rule 5.5(d)-(e)

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.

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Texas Rule 5.5

"A lawyer who is admitted to the practice of law in another United States jurisdiction or is a foreign lawyer, who is employed as a lawyer by an organization, the business of which is lawful and consists of activities other than the practice of law or the provision of legal services, and who has a systematic and continuous presence in this jurisdiction as permitted pursuant to Rule 5.5(d)(1) of the Model Rules of Professional Conduct, shall register as in-house counsel within [180 days] of the commencement of employment as a lawyer or if currently so employed then within [180 days] of the effective date of this Rule…"

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ABA Model Rule for Registration of In-House Counsel

• No Model Rule 5.5 and no registration rule• Alaska, Hawaii, Maryland, Mississippi, Texas

• Model Rule 5.5 but no registration rule• Arkansas, Georgia, Maine, Montana, New Hampshire, New Mexico, New

Hampshire, South Dakota, Vermont, West Virginia, Wyoming

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Notable Exceptions to Registration Rule

• In-house counsel are not immune to allegations of "unauthorized practice"

• Can present costly scenarios for your employer• Can put you at risk of job loss and penalties from the bar (including

suspension)

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In-House Counsel and Unauthorized Practice

• Mr. M, an Ohio attorney, got a job offer at the DOJ in the Virgin Islands. He ditched Ohio and flew south as quickly as he could.• Mr. M had left at least one Ohio client hanging when he went to the Virgin

Islands • Mr. M changed his Ohio bar registration status to inactive• After many months in the Virgin Islands, Mr. M started working on the case

in Ohio again, even though he had changed to inactive status • The Court in Ohio eventually dismissed the case due to the fact that Mr. M

was prohibited from practicing law• Despite the Court order, Mr. M did not advise his client that the case had been dismissed and

continued working on the matter• The client subsequently discovered the truth and fired Mr. M and brought a complaint against

Mr. M with the state bar in Ohio

• Was there an ethical violation?

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The "Vacationing" Attorney

• When Mr. M moved to the Virgin Islands he applied for special admission to the Bar of the Virgin Islands only for his limited work at the DOJ• In his petition he provided a certificate of good standing from the State of

Ohio, stated that he was the managing partner of M & associates located in Broadview Heights, Ohio, and signed a notarized statement that he would update the application during the pendency of the application

• Mr. M was granted special admission• Mr. M subsequently resigned his job at the DOJ and accepted employment

as in-house counsel at GH; the DOJ notified the VI Bar of Mr. M's departure, and the Bar rescinded his special admission

• At his new job, Mr. M referred to himself as "corporate counsel" and "staff attorney" and as "a member of the Legal Department"

• While at GH, Mr. M provided legal advice regarding GH's entities in 15 different states, but did not provide legal advice regarding Virgin Islands

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• Several months into his in-house counsel employment at GH, a pro hac vice motion was filed to admit Mr. M in a pending litigation for GH in the Virgin Islands. • In that application Mr. M affirmatively stated that he had never been disbarred

or suspended from practicing law in any jurisdiction and represented that he was a member in good standing with the Supreme Court of Ohio; his petition was granted, contingent upon administration of the Oath of Office, which Mr. M never executed

• The Court subsequently learned of Mr. M's problems in Ohio, and issued an order vacating the previously granted pro hac vice motion

• A Disciplinary Investigation followed.• Was there an ethical violation?

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• Maintain good standing and active status in at least one state bar if you are in-house counsel

• If you are residing in a jurisdiction where you are not admitted, then make sure you comply with the rules of that jurisdiction, as well as the rules of any other jurisdictions to which you are admitted

• If you ever have a "status" issue, then report, report, report!

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Lessons learned

• Ms. Crews was employed as an assistant general counsel for Buckman Laboratories in Tennessee; Ms. Katherine Buckman Davis was the General Counsel

• Ms. Crews learned that Ms. Davis was not licensed in Tennessee, but held herself out as an attorney in the state• Ms. Crews reported Ms. Davis to the company's Board• Ms. Davis subsequently took and passed the bar exam, but did not complete the

requirements for licensure because she did not take the MPRE• Ms. Crews again reported Ms. Davis to the Board; Ms. Davis subsequently told

Ms. Crews "maybe [Ms. Crews] should leave"

• Ms. Crews sought legal advice based on her ethical obligations and was advised to report her boss to the State Bar

• Ms. Davis received a show cause order from the State Bar; Ms. Davis fired Ms. Crews after asking Ms. Crews what she told the State Bar

• Was there an ethical violation? Was Ms. Crews allowed to bring a claim for retaliatory discharge?

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The Rule Follower

• You have a professional obligation to report unauthorized practice of the law (even if it is your boss)• You may be protected for doing so

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Lessons learned

• In litigation, a number of documents are withheld from production based on attorney-client privilege• Opposing counsel argues that there can be no privilege because the alleged

"attorney" was engaged in the unauthorized practice of law• In which of the following scenarios does such an argument work?

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The Overzealous Opposing Counsel

• General Counsel Mr. Cooper was accused of unauthorized practice of law, and opposing counsel sought to have withheld privilege documents produced• Accused of violating PA Rule 302• PA Bar Rule 302 requires non-admitted in-house attorneys providing legal

services within PA to obtain a limited in-house corporate counsel license• Mr. Cooper initially officed in Scranton, PA for 8 months, then moved to an

office in Skokie, IL, but maintained an office in Scranton that he visited periodically

• Mr. Cooper was an active member of the California Bar, but never obtained a 302 license

• Did the Court order the documents produced?

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The Overzealous Opposing Counsel: Scenario 1

• Moss graduated from law school in 1993 and passed the California State Bar

• In 1994, Moss was admitted to the bars of the US District Courts for the Southern and Central Districts of California

• On September 1, 1996, Moss changed his bar status to inactive, but continued paying the required "inactive status" fee annually

• In 2002, Gucci hired Moss to work in New Jersey; in 2003, Moss was promoted to legal counsel; in 2005, director of legal services; and in 2008 to VP, Director of Legal and Real Estate• During this time, Moss appeared before courts and administrative bodies, filing

trademark applications, negotiated leases and handled employment matters

• Gucci never investigated or confirmed Moss's legal status• In litigation, opposing counsel sought production of communications with

Moss• How did the Court rule?

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• In a MDL relating to the Madoff Investment Scandal, during a deposition of Mr. Boonstra, a senior in-house lawyer at Citco Bank Nederland, Mr. Boonstra was instructed not to answer questions based on attorney-client privilege

• Mr. Boonstra was a lawyer by education, but was not a licensed attorney• Licensure is not a requirement for serving as in-house counsel in the

Netherlands, and Dutch law does not recognize an attorney-client privilege for communications with unlicensed in-house lawyers

• Opposing counsel moved to compel the testimony• What did the Court do?

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Moments of Crisis -Internal Investigations and Employee Discipline

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Examples:• Employee misconduct

• Insider trading• Theft• Embezzlement• Harassment / Assault

• Company is Victim of Crime• Cyber Intrusion• Arson• Confidential Data Leak

• Enforcement Agency Inquiry• Subpoena• Investigative Demand• Search Warrant / "Dawn Raid"• Informal Request for Information• Employee "knock and talks"

• Government Action• Complaint• Indictment

• Catastrophic Event• Workplace Fatality• Explosion• Environmental Event (chemical leak,

nuclear meltdown)

WHICH ETHICS RULES ARE RELEVANT TO INTERNAL INVESTIGATIONS?

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A Crisis May Require an Internal Investigation to Identify and Mitigate Risk

Texas Disciplinary Rules of Professional ConductTexas Rule 4.01 - Truthfulness in Statements to Others(Similar to Model ABA Rules of Professional Responsibility)

In the course of representing a client a lawyer shall not knowingly:

a) make a false statement of material fact or law to a third person; or

b) fail to disclose a material fact to a third person when disclosure is necessary to avoid making the lawyer a party to a criminal act or knowingly assisting a fraudulent act perpetrated by a client.

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Ethics and Internal Investigations -Dealings with Third Parties and Employees

• You must advise the interviewee that you are examining possible unlawful conduct.

• If you learn that your client has committed or may commit a crime or fraud, you must urge your client to take appropriate action• only if unsuccessful may you disclose (e.g., to the authorities).

(See Comment 4 to Texas Rule 4.01 and Texas Rules 1.02, 1.05, and 3.03.)

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Truthfulness in Statements to Others

What It Means

Texas Rule 4.03 - Dealing with Unrepresented PersonIn dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not 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.

Comment: An unrepresented person, particularly one not experienced in dealing with legal matters, might assume that a lawyer is disinterested in loyalties or is a disinterested authority on the law even when the lawyer represents a client. During the course of a lawyer's representation of a client, the lawyer should not give advice to an unrepresented person other than the advice to obtain counsel.

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Ethics and Internal InvestigationDealings with Employees and Other Witnesses

• You must advise the interviewee that you represent the company, not him/her, known as an Upjohn Warning. • Upjohn Co. v. U.S., 449 U.S. 383 (1981). • An Upjohn Warning ensures that employees who may incriminate

themselves understand that, while their statements to corporate counsel are privileged, the corporation maintains the power to waive the privilege.

• If you realize the interviewee's interests are adverse to your client, you must advise him/her of their right to obtain separate counsel. You cannot give any other legal advice.

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Dealing with Unrepresented Person(s)

What It Means

• We are conducting an investigation for the Company into certain events related to [INSERT RELEVANT ISSUE IN GENERAL TERMS]. We believe that you may have facts and/or documents that may be relevant to our investigation and we appreciate you meeting with us.

• To be clear, we serve as counsel to the Company. We are not your personal counsel and cannot give you legal advice.

• In addition, your communications with us, as part of this investigation, are confidential and protected by, among other things, the attorney-client privilege. As the Company is our client, the attorney-client privilege belongs solely to the Company. Accordingly, the Company, in its sole discretion, may elect to waive the privilege and reveal your communications with us to third parties, including the government.

• As part of this investigation, we are interviewing a number of employees to gain a better understanding of the relevant issues. The fact that we are conducting this investigation does not mean the Company believes that any current or former employee has engaged in improper or illegal conduct. It simply is the process through which the Company ensures that it maintains the highest standards of corporate integrity. Your candor and honesty are critical to our ability to conduct effectively our investigation. To maintain the integrity of this investigation, we request that you keep our conversation today confidential. We appreciate your cooperation.

• Do you have any questions about this? May we continue?

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Example: Upjohn Warning Used in Internal Investigations

• Q1: Can you comply with the rule and still talk to the witness? • What if you and your client disagree about the witness' potential

culpability?

• Q2: What is your obligation to tell the witness that he/she may have liability?• At what point must you tell him/her?

• Q3: What ethical issues are posed by keeping culpable witnesses employed for the purpose of continued cooperation in a government inquiry or litigation, with intent to fire them later?• Compare the benefit of witness control against the implication of

conspiracy or ratification.

• Q4: If the person had separate counsel, what would be their likely posture toward cooperation?

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Dealing with Unrepresented Persons - Questions

Texas Rule 4.04: Respect for Rights of Third Persons• (a) In representing a client, a lawyer shall not use means that have no

substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person.

• (b) A lawyer shall not present, participate in presenting, or threaten to present:• (1) criminal or disciplinary charges solely to gain an advantage in a civil

matter; or• (2) civil, criminal or disciplinary charges against a complainant, a witness, or

a potential witness in a bar disciplinary proceeding solely to prevent participation by the complainant, witness or potential witness therein.

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Ethics and Internal InvestigationsDealings with Third Persons and the Public

• You cannot coerce the interviewee into giving incriminating evidence upon threat of disciplinary action or worse.

• The Yates Memo (Sept. 2015): DOJ policy pronouncement that companies can receive cooperation credit only after disclosing all relevant facts about individuals involved in corporate misconduct.• Reaffirmed by current administration.• Heightens need for early adversity determinations• Discuss allocation of responsibility before a crisis occurs• Lord of the Flies in the C-Suite• Preselect outside counsel with the requisite skills and experience

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Respect for Rights of Third Persons

What It Means

• Q1: How do you interview the employee to obtain incriminating facts?

• Q2: Might the employee's job be at risk if he refuses to provide incriminating information? • Does the employee have a duty to cooperate as a condition of

employment (in an at-will employment state)?• Q3: Might you be asked to give a legal opinion on whether a

culpable employee should be discharged?• What are the implications for bad faith termination and indemnity actions by the

employee?• What are your obligations for disclosure to regulators, auditors and

shareholders?• What are the implications of indemnity for legal fees?

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Respect for Rights of Third Persons - Questions

• If you are conducting the interview for the purpose of disclosure to the government in exchange for corporate cooperation credit, is the employee's Fifth Amendment right implicated?• When do you become a "state actor?"

• The answer turns on whether you have become a state actor, by being essentially deputized to procure a criminal confession. State actors may not compel self-incrimination through threat of termination. The choice between self-incrimination and employment is inherently coercive (Garrity v. New Jersey, 385 U.S. 493 (1967).)

• However, if a company is motivated by good faith efforts to police itself, there is no state action and thus no suppression remedy to the defendant, even if the company shares the evidence with the government. Be wary of the Yates Memo's dictate that criminal prosecutors insert themselves into the company's internal investigation, thus collapsing the divide between criminal and corporate internal investigations.

• The Yates memo ensures that corporate personnel will face a choice between self-incrimination and employment, thus creating an adverse relationship between the company and employee, and implicating in-house counsel's ethical obligations under Rule 4.04.

• But see U.S. v. Stein, 440 F. Supp. 315 (SDNY 2006) (when an employer seeking cooperation credit from DOJ conditions employment on waiver of the Fifth Amendment, such coercion is "fairly attributable" to the government, necessitating the intervention of separate counsel and rendering any uncounseled statements criminally inadmissible).

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Respect for Rights of Third Parties - Questions

• Does your company do business in a foreign country?• Do you interact with foreign persons -- attorneys, staff, third parties?

• How do the attorney/client privilege and the work product doctrine apply in an international context?• Many countries do not recognize the attorney/client privilege

• E.g., China• Some countries recognize a more-limited confidentiality obligation

• Many countries do not extend privileges to in-house counsel• E.g., Italy, France, Greece

• Example: the UK's Serious Fraud Office prefers that target companies cooperate in the SFO's investigation, rather than conducting their own internal investigations, in order to avoid "churning up the crime scene."• See Director of the Serious Fraud Office v. Eurasian Natural Resources Corporation Ltd., High Court

of Justice, Queen's Bench Division (February 2017) - "There is a recognised public interest in the SFO being able to go about its business of investigating and prosecuting crime; and the sort of evidence which one would expect to be found in the Disputed Documents [(internal investigation interview memoranda and related documents)] is likely to be of considerable value to its current investigation, particularly as [external law firm] were investigating matters much nearer in time to the events in question…"

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International Investigations

Jones Day and Volkswagen / Audi• Volkswagen hired Jones Day US (and international affiliates) to conduct an

internal investigation into alleged falsified vehicle emissions reports

• Volkswagen announced it would not release the results of its internal investigation. (January 2017)

• German law enforcement executed a search warrant on Jones Day's Munich office, to collect VW /Audi internal investigation documents, asserting that the firm was not functioning as the company's legal representative. (March 2017)

• VW challenged the prosecutors' use of Jones Day seized information, on the basis that it was contrary to the rule of law. The Munich court rejected the challenge. (April 2017).

• Jones Day challenged the search on the theory of professional privilege. The German court dismissed the objections. (May 2017)

• Prospective plaintiffs have issued subpoenas in NY civil litigation requesting Jones Day's report of investigation. The US court denied the request based on overbreadth and privilege.

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International Privilege Considerations - Case Study

• German law on privilege: Legal privilege as it is known in the US and UK does not exist in Germany. Although German lawyers are bound by secrecy, meaning that information shared between lawyer and client cannot be seized (Section 97 German Code of Criminal Procedure), in-house lawyers do not have these protections. By contrast, in civil matters, there is similarly no privilege, but the strict limitations on discovery make privileges moot (Section 142 German Code of Civil Procedure).• The German high court ultimately ruled that prosecutors cannot use ("analyze

the law firm's documents") the seized documents, thus overturning the lower Munich court. (July 2017)

Another Example:• In 2009, the Moscow offices of DLA Piper and White & Case were raided by

Russian Interior Ministry investigating an $87 million embezzlement from a Four Seasons hotel development.

• International law firms operating in Russia do not enjoy the same protection of the attorney/client privilege as the US and Western Europe, and thus face greater threat of removal without warning of client sensitive information by Russian officials.

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International Privilege - Case Studies Continued

• Using an outside law firm, rather than in-house counsel, will more likely cause the attorney client privilege to attach to investigation communications in the US and abroad. • Under US law and DOJ policy, prosecutors cannot search attorney's offices

without specific approval from DOJ and a court order establishing probable cause that the attorney is part of a crime or fraud.

• Where US legal exposure exists, be cautious hiring a non-US law firm because of the almost universally narrow scope of (or in some cases nonexistent) professional privilege outside the US.

• Whether the work is done by in-house or outside lawyers, ensure work is overseen and directed by US lawyers, that accountants and experts are engaged by US lawyers, that all actors report to US lawyers, and that work product is maintained within the US.• Note foreign data privacy laws may complicate information management and

investigations.

• Consider orally reporting the findings of an internal investigation.

• Reduce to writing the specific purposes of external attorneys' engagement to support application of privileges.

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International Privileges Practice Points

• Q1: Does the absence of formal written conclusions leave attorneys at risk of becoming witnesses in depositions, civil trials, or criminal actions?

• Q2: What is the reputational damage to a company when its law firm is searched on the theory of complicity in a crime or fraud?

• Q3: Do your Compliance and Legal Department document retention and transmission protocols consider legal privileges?

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International Investigation Questions

Thank youHeather Khassian

Cynthia DeGabrielle

Dentons US LLPLyondellBasell Tower1221 McKinney Street, Suite 1900Houston, TX 77010United States

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