IN-HOUSE COUNSEL LAST CHANCE ETHICS SEMINAR AND WEBINAR Thursday, December 27, 2012

IN-HOUSE COUNSEL

LAST CHANCE ETHICS

SEMINAR AND WEBINAR

Thursday, December 27, 2012

IOWA CLE ACTIVITY INFORMATION

Program Name: IN-HOUSE COUNSEL LAST CHANCE ETHICS SEMINAR AND WEBINAR

Sponsor: BROWN WINICK LAW FIRM Start Date: 12/27/2012 End Date: 12/27/2012City: DES MOINESClass Type: Live WebcastTotal CLE Hours Approved: 2.0 (includes ethics hours)Ethics Hours Approved: 2.0Activity Number: 100425

Learning from Other’s Mistakes: Recent Ethics Opinions

Rebecca A. BrommelBrownWinick

666 Grand Avenue, Suite 2000Des Moines, IA 50309-2510

Telephone: 515-242-2452Facsimile: 515-323-8552

E-mail: [email protected]

Attorney Discipline Procedures

• Attorney Disciplinary Board– Investigates all complaints with help of its staff– Investigations are confidential– Board can dismiss, admonish/reprimand

attorney or file and prosecute complaint before Commission

– Reprimand becomes public if attorney does not file an exception to it


• Grievance Commission– Hears complaints prosecuted by Board– Attorney has right to file answer– Matters are confidential– Hearing– Commission can dismiss, issue a private admonition

or recommend reprimand, suspension or revocation to Supreme Court

– Report/recommendation to Supreme Court is public record

– Attorney may then file an appeal


• Iowa Supreme Court– May grant appeal by attorney – follow

interlocutory appeal rules– May impose sanction different from the

Commission’s recommendation

Sanctions

• Revocation• Suspension

– Specific amount of time (ie: 30 days, 1 year)– Indefinite with time period before reinstatement can be

requested• Public Reprimand• Additional or alternative sanctions:

– Restitution– Costs– Practice Limitations– Appointment of trustee/receiver– Passage of bar or MPRE– CLE requirements

Reasons for Discipline• Violation of Iowa Rules of Professional Conduct• Conviction of a Crime• Disability Suspension• Reciprocal Discipline• Failure to comply with support order• Failure to comply with student loan obligation• Interim suspension (pending final disposition;

violation poses substantial threat of serious harm to public)

• Temporary suspension for failure to respond to Board inquiries

2011 Statistics

• 542 complaint files (526 in 2010; 517 in 2009)

• 70.5% of complaints filed were dismissed by Board

• 15.1% private admonition• 6.1% public reprimand• 8.3% referred to Grievance Commission

Who would complain about lawyers?

• Prisoners & Criminal Defendants - 28.4% of complaints

• Clients (other than criminal defendants, prisoners and family law clients) – 21.6%

• Family law clients – 10.3%• Judges & attorneys – 7.9%• Beneficiaries/Involved in Probate – 7.0%• Adverse parties (family law matters) – 6.3%• Adverse parties (other than family law matters)

– 5.4%

What do they complain about?

• Neglect or incompetence (over half)

• Trial-related misconduct

• Dishonesty/Misrepresentation

• Conflict of Interest

• Mishandling of money/property

• Excessive or illegal fees

What did the Supreme Court see in 2012?

• Engaging in Dishonesty, Fraud, Deceit or Misrepresentation – Iowa R. Prof’l Conduct 32:8.4(c)

– False statements on mortgage applications– Aided and abetted client’s conversion of bank funds– Assisted client in concealing actual sales price from lender– Misrepresentation of facts to Board of Immigration Appeals and on Appeal– False statements to client security commission re: status of trust accounting

procedures– False statement to court regarding status of suspension– False statement to client and client’s divorce attorney re: status of filing bankruptcy– Misrepresentation to client re: filing of certain documents– Leading client to believe appeal was pending when it had been dismissed– Taking funds from client’s trust account without colorable claim to funds and used

money for his own purposes– Forged client’s signature– Forged witness signature on will– Filed forged guilty plea– Failure to file income tax returns for 3 years– Failing to comply with order re: suspension (obtained fees and stated he was

working on file)

What did the Supreme Court see in 2012? (con’t)

• Commission of Criminal Act that Reflects Adversely on Lawyer’s Honesty, Trustworthiness, or Fitness as a Lawyer in other Respects – Iowa R. Prof’l Conduct 32:8.4(b)

– False statements on mortgage applications

– Assisted client in concealing actual sales price from lender

– Extortion – emailed officer of corporation involved in litigation with his wife and demanded $100k charitable donation in wife’s name in exchange for dismissal of lawsuit

– 3rd Offense OWI and 3rd degree harassment

– Pattern of misconduct (operating boat while intoxicated, OWI, possession of cocaine, substance abuse and mental health issues)


• Engaging in Conduct Prejudicial to the Administration of Justice – Iowa R. Prof’l Conduct 32:8.4(d)

• Cases:– Emails requesting documents subject to a protective order by attorney

to adverse party in wife’s litigation (triggered a series of legal proceedings)

– Failure to cooperate with disciplinary Board and respond to demands for information

– Failure to respond to client complaint and inquires from Board– Filing of forged guilty plea– Submission of will containing forged witness signature– Failure to close estate– Failure to prosecute client’s appeal– Withdrawal of probate fees based upon partially prepared return and

without confirming payment of court costs– Dilatory conduct in failing to file bankruptcy petition for client who was

planning divorce


• Communication with person represented by counsel – Iowa R. Prof’l Conduct 32:4.2– Attorney sent emails asking for documents to officer of non-profit

when he represented his wife in her litigation with the non-profit– Court distinguished between contact with officer (not allowed)

and member of Board of Directors (allowed) – Board member was not a constituent because he did not have individual authority to bind the non-profit

– In another case, no violation was found because the represented party initiated the communication and the Court was unable to determine whether the contact was authorized by the corporation’s attorney


• Conflict of Interest – Iowa R. Prof’l Conduct 1.7– Attorney continued to represent client without disclosing to him that client could

have a ground to overturn an order based upon an ineffective assistance of counsel claim – conflict between client interest and attorney’s personal interest

– Attorney had a conflict when he represented his wife in drafting a contract where former client was the purchaser and the purchase was substantially related to the foreclosure action he handled for the client (same property) – needed to obtain informed consent

• Failures re: to Withdrawal of Representation – Iowa R. Prof’l Conduct 32:1.16

– Attorney failed to withdraw for 5 months after client discharged his services– Attorney ceased representing client on appeal without asking for permission to

withdraw– Attorney failed to take steps to safeguard client interests or return files after

withdrawing without notice


• Failing to Explain Matter to Allow Client to Make an Informed Decision re: Representation – Iowa R. Prof’l Conduct 32:1.4(b)

– Attorney failed to tell client about potential ineffective assistance of counsel motion as an option for overturning the over entered by immigration court – attorney owed client an explanation of the alternative course of action in order to permit client to make informed decision

– Attorney failed to comply with his suspension from practice by informing clients of his suspension and his inability to represent them

• Failing to Keep Client Reasonably Informed about Status of Matters and to Respond to Requests for Information – Iowa R. Prof’l Conduct 32:1.4(a)(3, 4)

– Attorney failed to answer phone, return message, attend appointments with clients and to appear for hearing

– Attorney failed to inform clients of dismissal of their appeal for 2 months and did not respond to 3 letters from the clients requesting information

– Attorney only contacted client 3 times in a 17 month period, and client had made numerous requests; Attorney did not tell client about 2 letters he did send on client’s behalf

– Attorney failed to keep client informed of status of her divorce matter or respond to client's requests for information


• Failure to Act with Reasonable Diligence & Promptness – Iowa R. Prof’l Conduct 32:1.3

– In numerous matters, attorney failed to take timely action for clients, failed to file client interrogatory answers, failed to comply with orders and notices re: deficient filings

– In a 20 month period, only action attorney took was to send out two delayed letters to claims adjuster

– Attorney neglected estate for over 3 ½ years

– Attorney failed to meet deadline on 7 occasions in an estate proceeding

– Attorney failed to ensure that client completed discovery requests, failed to attend sanction hearing or inform client of sanctions and failed to file bankruptcy petition

– Attorney took 14 months to re-file a post-conviction relief matter, failed to respond to client inquiries and sought 3 continuances of the trial date

• Failure to Make Reasonable Efforts to Expedite Litigation Consistent with Client’s Interests – Iowa R. Prof’l Conduct 32:3.2

– Attorney failed to appear in court and remedy deficient filings

– Attorney used delay tactics in order to mask dilatory estate filings

– Attorney failed to appear at hearings, participate in discovery or file bankruptcy petition


• Failure to follow client instructions – Iowa R. Prof’l Conduct 32:1.2(a)– Attorney filed forged guilty plea– Attorney altered written arraignment and not guilty plea to waive speedy trial and

falsely said that client signed it in front of him

• False Statement to Tribunal – Iowa R. Prof’l Conduct 32:3.3– Attorney falsely state that he was unaware that his license has been suspended

(after he had signed a certified mail receipt for the order)– Attorney falsely stated that he was waiting on income tax remittance, even

though he hadn’t even filed the return

• Disobedience of Court Orders – Iowa R. Prof’l Conduct 32:3.4– Attorney failed to comply with discovery orders, appear at hearing or respond to

discovery requests


• Trust Account Issues – Iowa R. Prof’l Conduct 32:1.15; 45– Attorney failed to deposit retainer fees, failed to maintain a current list of clients on a

regular basis that listed their trust account balances– Attorney co-mingled trust account funds with his personal checking account and failed to

provide contemporaneous notice to clients of the time, amount and purpose of his fee and the withdrawals from the trust account; Attorney also took several months to return unearned fees in one matter and failed to send bill or return retainer for nearly a year in another matter

– Attorney failed to deposit a special retainer (a flat fee) into the trust account and withdraw amounts only once earned and without providing an accounting to the client

– Attorney accepted funds, provided no accounting and did not timely refund his unearned fees (fees relating to activities that were done after date of suspension)

– Attorney entered a minimum fee contract that has been deemed prohibited, failed to properly treat the retainer as an advance fee

– Attorney failed to return $500, which was an undisputed overpayment, even after the matter was brought to his attention

– Attorney delayed 17 months in one case and 4 months in another to return fees in 2 criminal cases

– Attorney withdrew unearned fees and failed to keep disputed fees (they were the subject of a divorce proceeding) separate


• Charging an Unreasonable Fee or a Fee in Violation of Restrictions of Law – Iowa R. Prof’l Conduct 32:1.5(a)

– Attorney received 1st and 2nd half probate fees before allowed– Attorney entered unethical minimum fee contract and contracted for, charged and

collected an unreasonable fee for the work performed– Attorney collected $500 fee to perform work in Georgia – a state where he was

not licensed – and also did no work on the matter

• Failure to Communicate Fee – Iowa R. Prof’l Conduct 32:1.5(b)– Attorney’s preparation of final bill was insufficient, because it failed to disclose

fee/expense rate within a reasonable time of the commencement of representation

– Attorney’s oral agreement for $500 followed by bill of over $1300 just weeks later


• Unauthorized Practice of Law – Iowa R. Prof’l Conduct 32:5.5– Attorney failed to comply with suspension order – took fees, advised client and

corresponded with others on behalf of client– Attorney appeared in juvenile court 6 days after accepting service of the order

suspending his license

• Failure to Participate, Respond or Cooperate with Disciplinary Authorities – Iowa R. Prof’l Conduct 32:8.1

– Attorney failed to respond to the investigation committee inquiries– Attorney disregarded 2 letters from Board that requested copies of

communications and an accounting of settlement checks– Attorney failed to respond to information demands of Board

What sanctions did the Supreme Court give in 2012? (con’t)

• Public Reprimand

• Indefinite suspension with no reinstatement for 60 days, 3 months, 6 months, 1 year, 2 years

• Suspension for 30 days, 60 days, 6 months, 1 year, 18 months, 2 years

• Revocation

Advertising Rules

• Iowa R. Prof’l Conduct 32:7

• Relaxation of rules

• Less specific on what can be on/in ads – still cannot be misleading

• Recognition that lawyers should be able to make their services known through organized advertising and not just through reputation

QUESTION & ANSWER SESSION

Conflicts and the Duty to Supervise for In-House

CounselBrian McCormac

BrownWinick666 Grand Avenue, Suite 2000

Des Moines, IA 50309-2510Telephone: 515-242-2431Facsimile: 515-323-8531


Agenda

• Conflicts Issues in Corporate Law Departments

• Overseeing the Work of Others

Conflicts in Corporate Law Departments

• Iowa’s Rules of Professional Conduct expressly include corporate law departments in the definition of “firm”

• “For purposes of the Iowa Rules of Professional Conduct, the term ‘firm’ denotes lawyers in a law partnership, professional corporation, sole proprietorship . . . or lawyers employed in the legal department of a corporation or other organization.” Iowa R. Prof. Conduct 32:1.0(c).

Conflicts in Corporate Law Departments

• How do the conflicts rules apply to in-house attorneys?– Joint representation of corporation and its officers,

directors, shareholders, or employees– Representation of subsidiaries– When lawyers move to/from corporate law

departments• From private practice• From other corporate law departments• From government

– Interactions with former clients

Conflicts in Corporate Law Departments—Who is the Client?

• Who is the client?– Most issues arise in two contexts

• Joint representation of corporation and its employees, directors, or shareholders

• Representation of a subsidiary


• Rule 32:1.13– makes clear that the client is the organization– Does not prohibit joint (or separate) representation of

organization and its constituents, provided that there is no conflict under Rule 32:1.7

– Requires lawyer to deliver “Miranda warning” to constituent explaining that the organization is the client when the lawyer knows/should know the constituent’s interests are adverse to those of the organization

– Be careful to protect attorney-client privilege in joint representations

• Joint representation privilege• Best practice to retain separate counsel for employees when

interests could be potentially adverse to organization


• Representation of Subsidiaries– Generally no problems when representation of the subsidiary

aligns with the interest of the parent company or if the subsidiary:

• Is wholly-owned by the parent,• Has common directors with the parent, or• A single legal department administers legal services for both entities

– If the interests of the parent and subsidiary are not aligned, separate counsel should be retained for the subsidiary

• Contract negotiations between parent/subsidiary• Insolvency of subsidiary (may require management for benefit of

creditors)• Insured claims

Conflicts of Interest-Generally

• Conflict rules apply to lawyers within a “firm”, defined to include “lawyers employed in the legal department of a corporation or other organization.” Iowa R. Prof. Conduct 32:1.0(c).

• Conflict rules apply to both former and current clients. Iowa R. Prof. Conduct 32:1.7-32:1.9.

• Conflicts of interest can be imputed to lawyers practicing together in a law firm or corporate law department. Iowa R. Prof. Conduct 32:1.10.

Conflicts of InterestCurrent Clients

• Governed by Rules 32:1.7, 32:1.8• Prohibits dual representation if a

“concurrent conflict” exists– Two situations:

• “direct adversity”: representation of one client will be directly adverse to another client

• “material limitation”: significant risk that the representation of a client will be materially limited by a lawyer’s responsibilities to another client, former client, or a third party, or by a personal interest of the lawyer

Conflicts of InterestCurrent Clients

• Conflict can be waived by client”– If consent is written– If representation is not contrary to law– If representation does not involve two clients

adverse in litigation

• In no event can a lawyer represent both parties in dissolution of marriage proceedings.

Conflicts of InterestFormer Clients

• Governed by Iowa R. Prof. Conduct 32:1.9• Prohibits:

– lawyer from representing a former client with interests materially adverse to a former client if the lawyer represented the former client in the same or a substantially related matter

– Lawyer from knowingly representing a former client of a firm with which the lawyer was formerly associated, if the firm represented the former client in the same or a substantially related matter and the lawyer acquired material, confidential information about the former client

– Lawyer may not (a) reveal confidential information about the representation of the former client or (b) use such information to the disadvantage of the former client

Conflicts of InterestFormer Clients

• Common Issues:– Can former client consent to the representation or use

of confidential information? Yes, if in writing.– What is a “substantially related” matter?

• Comments to Rule provide guidance:– Involves the same transaction or legal dispute– Substantial risk that confidential factual information normally

obtained in former representation would materially advance the other client’s interest in the subsequent matter

– Passage of time can eliminate conflict, for example, confidential information may have become obsolete or generally known

• Points 2 and 3 are highly fact-specific; advisable to avoid close calls.

Conflicts of InterestImputation of Conflicts

• Rule 32:1.10 governs imputed conflicts of interest– A firm may not knowingly represent a client if any individual

attorney in the firm would be barred from doing so, unless:• The conflict is based on the attorney’s personal interest and does

not present a significant risk of materially limiting the representation of the client by other lawyers in the firm (example, political beliefs)

– Firm may represent a person with interests materially adverse to those of a client represented by a departed lawyer, if:

• Such client is not currently represented by the firm• The matter is not the same or substantially related to matters in

which the departed lawyer represented the client• No lawyer remaining in the firm has confidential information of the

former client that is material to the matter


• Issues:– What does the knowledge requirement in 32:1.9(b) and 32:1.10

mean?• Defined in Rule 32:1.1 as “actual knowledge.”• However, Comment 3 to Rule 32:1.7 provides that “[t]o determine

whether a conflict of interest exists, a lawyer should adopt reasonable procedures, appropriate for the size and type of firm and practice, to determine in both litigation and non-litigation matters the persons and issues involved.”

• “Ignorance caused by a failure to institute such procedures will not excuse a lawyer’s violation of this rule.”

• ABA Formal Opinion 09-455 (“When a lawyer moves between law firms, both the moving lawyer and the prospective new firm have a duty to detect and resolve conflicts of interest”)


• Issues:– Conflict can be waived by obtaining consent

in writing• If representation is not contrary to law• If representation does not involve two clients

adverse in litigation or dissolution proceedings

– Nonlawyer conflicts are not imputed. However, majority rule requires screening nonlawyers from participating in matters that would be a conflict for an attorney

Conflicts of InterestGovernment Attorneys, Judges

• Rules 32:1.11 and 32:1.12 govern conflicts relating to former government attorneys and judges

• Such attorneys cannot represent a client in connection with a matter in which the attorney personally and substantially participated in as a government employee or judge, without written consent

• Members of a firm associated with a lawyer disqualified under the above provision may not knowingly represent a client in the matter unless:– Disqualified lawyer is screened and receives no portion of fee– Notice is given to the government agency or, in the case of a former

judge, the parties to a litigation matter• Lawyers having confidential government information about a person

acquired during government service may not represent clients in a matter in which such information could be used to the material disadvantage of such person

Conflicts of InterestExamples

• Traditional firm context:– Lawyer moving from one firm to another

• Typical practice:– List of clients the lawyer believes may follow– Lawyer discloses clients of previous firm on whose

matters she worked or has material information– Firm determines whether lawyer has material information

about the other side of a firm matter – Conflicts analysis and screening

– In the event of a conflict, comply with 32:1.10 relating to imputed conflicts.

Conflicts of InterestExamples

• Same issues exist in moves to and from a corporate law department:– Lawyer moving from one law department to

another– Lawyer moving from private practice to law

department– Lawyer moving from a law department to

private practice

Conflicts of InterestBest Practices

• Keep a list of matters and adverse parties in transactional and litigation matters involving the company

• Keep a similar list for affiliates• Good idea to keep this information for a few years, to

help identify risks relating to confidential information• Request information from lateral candidates and conduct

ethical screening• Be particularly careful when hiring lateral candidates

from competitors or their outside counsel– Consent less likely than with conflicts arising from an isolated

transaction or litigation matter

Overseeing the Work of Other Lawyers

• Rule 32:5.1 sets forth the responsibilities of supervising lawyers

• partners in a law firm and lawyers with comparable managerial authority in a law department “shall make reasonable efforts to ensure that the firm has in effect reasonable measures giving reasonable assurance that all lawyers in the firm conform to the Iowa Rules of Professional Conduct.” Iowa R. Prof. Conduct 32:5.1(a).


• Comment 1 makes clear that this rule applies to lawyers having partner-like authority in a law department or government agency

• Comment 2 explains that “measures giving reasonable assurance that all lawyers in the firm” comply with IRPC includes establishing procedures to:– Detect and resolve conflicts of interest– Identify deadlines in pending matters– Ensure that inexperienced lawyers are adequately supervised

• Other measures may be required depending on the structure and nature of the law department, examples:– Confidential referral system for ethical issues– Ethics training


• A lawyer with direct supervisory authority over another lawyer must make reasonable efforts to ensure that the other lawyer conforms with the IRPC

• Iowa R. Prof. Conduct 32:5.1(b)


• Under Rule 32:5.1(c), a lawyer is responsible for another lawyer’s violation of the IRPC if:– The lawyer orders or knowingly ratifies the

conduct– The lawyer has managerial authority or direct

supervisory authority, knows of the conduct at a time when consequences can be avoided or mitigated but fails to act

Overseeing the Work of Non-Lawyers

• Rule 32:5.3 governs attorney supervision of nonlawyers

• Requirements for the supervision of non-lawyers are parallel to the requirements for the supervision of subordinate attorneys


• partners in a law firm and lawyers with comparable managerial authority in a law department “shall make reasonable efforts to ensure that the firm has in effect reasonable measures giving reasonable assurance that [the non-lawyer’s] conduct is compatible with the professional obligations of the lawyer.” Iowa R. Prof. Conduct 32:5.3(a).


• A lawyer with direct supervisory authority over the nonlawyer must make reasonable efforts to ensure that the nonlawyer’s conduct is compatible with the professional obligations of the lawyer

• Iowa R. Prof. Conduct 32:5.3(b)


• Under Rule 32:5.3(c), a lawyer is responsible for conduct of a nonlawyer that would be a violation of the IRPC if done by an attorney, if:– The lawyer orders or knowingly ratifies the

conduct– The lawyer has managerial authority or direct

supervisory authority, knows of the conduct at a time when consequences can be avoided or mitigated but fails to act


CORPORATE COUNSEL INTRA-COMPANY DISPUTES

& LITIGATION ISSUESMatthew H. McKinney

BrownWinick666 Grand Avenue, Suite 2000

Des Moines, IA 50309-2510Telephone: 515-242-2468Facsimile: 515-323-8568


mailto:[email protected]

Who do you take direction from?

IN-HOUSE / CORPORATE COUNSEL


Shareholders?Officers?Directors?

Who do you represent?

• Restatement (Third) of Law Governing Lawyers:• When a lawyer is employed or retained to represent

an organization the lawyer: “represents the interests of the organization as defined by its responsible agents acting pursuant to the organization’s decision-making procedures.”

•“...the lawyer must follow instructions in the representation ... given by persons authorized so to act on behalf of the organization.”


• Restatement, Section 96, cmt. “d”• “Who within an organization or among related

organizations is authorized to direct the activities of a lawyer representing an organization is a question of organization law...”•Bylaws;

•Shareholder Agreement;•Operating Agreement;•Partnership Agreement.

Intra-Corporate Disputes

• Derivative Disputes•Shareholder demands the corporation take action against directors, officers, or others for wrongdoing that is harmful to the corporation.

•When corporation refuses, the shareholder, When corporation refuses, the shareholder, as a representative, brings a derivative as a representative, brings a derivative action against alleged wrongdoers on behalf action against alleged wrongdoers on behalf of and for the benefit of the corporation.of and for the benefit of the corporation.

Who do you represent?

• EXAMPLE:• You are corporate counsel for ABC Corp. and

frequently advise the board on various legal matters.

• A shareholder and director of ABC Corp. files a derivative lawsuit against another director for corporate waste and mismanagement.

WHO CAN YOU REPRESENT?

Can you represent the director being sued?

Can you represent the corporation?

CASE STUDY

FACTS

Shareholder Plaintiff files a breach of fiduciary duty lawsuit against several Oracle Directors;

After litigating for 2 years, the parties negotiate and ask the Court to approve a settlement;

Upon assessing whether to approve the settlement, the Court notes that Oracle’s counsel not only represents Oracle, but also represents the individual Defendant, Directors.

In re Oracle Sec. Litig., 829 F. Supp. 1176, 1189 (N.D. Cal. 1993)

Conflict of Interest

ANALYSIS

• “The conflict of interest could not be stronger.”• “If the same counsel represents both the corporation and the director and officer defendants, the interests of the corporation are likely to receive insufficient protection. An increased recovery for the corporation is wholly incompatible with the goal of limiting the defendants' liability. Defendants' counsel is thus placed in an untenable position, and more often than not he will succumb to the pressure to approve any settlement between the shareholder and his individual clients.”

• “Contrary to the assertions of defense counsel, representation of the corporation's interests by in-house counsel does not ameliorate this conflict, for in-house attorneys are inevitably subservient to the interests of the defendant directors and officers whom they serve. The corporation's house counsel or regular outside counsel ... are too financially dependent on the board to be disinterested.” “...While the in-house attorney is nominally the representative of the corporation, his personal loyalties will inevitably be to the individual executives who hired him.”

• “The general counsel would be reluctant to recommend that the corporation take any position adverse to the defendant directors for whom he works on a day-to-day basis and who control his future with the corporation.”

• The organization is entitled to an evaluation and representation of its institutional interests by independent counsel, unencumbered by potentially conflicting obligations to any defendant officer.

CASE STUDYIn re Oracle Sec. Litig., 829 F. Supp. 1176, 1189 (N.D. Cal. 1993)

CASE STUDY

CONCLUSION

“[T]he corporation must, before proceeding further with the derivative action, retain independent counsel having no prior relationship with the corporation or the individual defendants. Although some courts have gone so far as to appoint corporate counsel in derivative actions ... it seems more appropriate here to defer to the independent directors on the selection of corporate counsel ... And should difficulties arise, the parties or counsel may apply to the court for additional relief.”

See also Rowen v. LeMars Mut. Ins. Co. of Iowa, 230 N.W.2d 905, 915 (Iowa 1975); Bell Atlantic Corp. v. Bolger, 2 F.3d 1304 (3d Cir. 1993); Musheno v. Gensemer, 897 F. Supp. 833 (M.D. Pa. 1995); Cannon v. U.S. Acoustics Corp., 398 F. Supp. 209 (N.D. Ill. 1975); Forrest v. Baeza, 67 Cal. Rptr. 2d 857 (Cal. App. 1997); Campellone v. Cragan, 910 So. 2d 363 (Fla. App. 2005); Lower v. Lanark Mut. Fire Ins. Co., 448 N.E.2d 940 (Ill. App. 1983); Tydings v. Berk Enterprises, 565 A.2d 390 (Md. App. 1989); Horowitz v. Horowitz, 542 N.Y.S.2d 708 (N.Y. App. 1989).

In re Oracle Sec. Litig., 829 F. Supp. 1176, 1189 (N.D. Cal. 1993)

• EXAMPLE:• You are corporate counsel for ABC Corp. and

frequently advise the board on various legal matters.

• A shareholder and director of ABC Corp. files a derivative lawsuit against another ABC Corp. director for corporate waste and mismanagement.

WHO CAN YOU REPRESENT?

Can you represent the director being sued?

Can you represent the corporation?

Pursuant to In re Oracle, no.

Pursuant to In re Oracle, no.

CASE STUDYRowen v. LeMars Mut. Ins. Co. of Iowa, 230 N.W.2d 905, 914 (Iowa 1975)

FACTS

Policyholders in LeMars Mutual Insurance Company filed a derivative claim on behalf of the insurance company and against past and present directors and officers to recover for various alleged wrongs;

Law firm appeared and represented the Mutual as well as individual defendants;

Plaintiffs sought to have the law firm that represented the Mutual as well as individual defendants disqualified.

IOWA SUPREME COURT ANALYSIS

• It is “well established that a potential conflict of interest exists when the same law firm attempts to represent the nominal corporate defendant in a derivative action while at the same time representing the corporate insiders accused of wrongdoing.”

CASE STUDYRowen v. LeMars Mut. Ins. Co. of Iowa, 230 N.W.2d 905, 914 (Iowa 1975)

•“[W]e are persuaded the interests of the policyholders will be better served by requiring LeMars to be represented by independent counsel. This should assure the policyholders that the merits of the derivative action will not be obscured by a conflict of interest of corporate counsel. This benefit justifies its cost.”•Case remanded to trial court with instruction that the trial court “appoint independent counsel,” because otherwise, “[c]ounsel for the corporation would be subject to the control of those accused of wrongdoing.”

Recap• Analyze who you must to take direction from.

• In derivative actions, in-house / corporate counsel may not be allowed to represent the company.

• In derivative actions, in-house / corporate counsel may not be allowed to represent officers and/or directors despite challenged conduct arising from action taken in an official capacity.

Subpoenas / Discovery

As They Relate to Employee Email Communications

•Scenario: Employee uses “work / company email” to communicate with personal counsel.

•Scenario: Employee uses “work / company email” to communicate with spouse.

Does the attorney-client privilege apply?

Does the marital privilege apply?

It Depends

CASE STUDY

• Asia Global employees (5 principal officers, the “Insiders”) communicated with outside counsel and sought legal advice.

• Asia Global files Chapter 11 bankruptcy.

• Bankruptcy Trustee is appointed and begins to conduct an investigation in to the Insiders, including by serving a subpoena upon Asia Global’s HR employee.

• HR employee turns over documents and emails, but withholds certain documents and emails based upon the attorney-client privilege.

• Bankruptcy Trustee files motion to compel seeking to compel HR employee to produce the Insiders’ attorney-client privileged records and emails.

In re Asia Global Crossing, Ltd., 322 B.R. 247, 257 (Bankr. S.D.N.Y. 2005)

• Trustee argues communications are not protected because the Insiders communicated via work / company infrastructure and the privilege does not apply under such circumstances as there is no reasonable expectation of privacy.

• Court adopts what have become known as the 4 Asia Global factors to determine whether the attorney-client privilege applies.

CASE STUDY CONT.

1. Does the corporation maintain a policy banning personal or other objectionable use?

2. Does the company monitor the use of the employee's computer or e-mail?

3. Do third parties have a right of access to the computer or e-mails?

4. Did the corporation notify the employee, or was the employee aware, of the use and monitoring policies?

Balancing Test

• Insiders assert the attorney-client privilege and the Trustee counters that the privilege does not apply.

In re Asia Global Crossing, Ltd., 322 B.R. 247, 257 (Bankr. S.D.N.Y. 2005)

CASE STUDY - PRIVILEGEDStengart v. Loving Care Agency, Inc., 990 A.2d 650, 655 (2010)

• Stengart then files an employment discrimination lawsuit against employer;

• Employer hires a computer forensic expert to recover all files stored on the laptop, including emails, which were automatically saved to the computer hard drive;

• Employer’s attorneys reviewed the emails and used information from the emails during discovery;

• Stengart’s lawyer demands the communications be considered privileged and returned to Stengart.

• Stengart uses her company-issued laptop to exchange e-mails with her personal lawyer through personal, password-protected, web-based e-mail account;

• Employer argues attorney-client privilege does not apply.

Trial court rules that in light of the employer’s written policy on electronic communications, Stengart waived the attorney-client privilege by sending e-mails on a company computer;

Appellate Division reverses and finds employer’s counsel violated RPC 4.4(b) by reading and using privileged communications;

New Jersey Supreme Court holds that under these specific circumstances, Stengart could reasonably expect the e-mail communications through her personal account would remain private and that sending and receiving emails via a company laptop did not eliminate the attorney-client privilege. By reading e-mails that were at least arguably privileged and failing to notify Stengart promptly about them, employer’s counsel breached RPC 4.4(b).

CASE STUDY - PRIVILEGEDStengart v. Loving Care Agency, Inc., 990 A.2d 650, 655 (2010)

CASE STUDY - NOT PRIVILEGEDIn re Reserve Fund Sec. & Derivative Litig., 275 F.R.D. 154, 164 (S.D.N.Y. 2011)

Securities and Exchange Commission action against money market fund’s investment advisors, distributor, and their principals.

SEC sought 60 emails between a Defendant and his wife.

Defendant seeks to protect confidential communications by asserting the marital privilege.

Defendant transmitted emails at issue using employer’s computer.

Employer “Email Policy” was in place and Defendant admitted he was aware of the policy.

Policy States:

Employees may use only the email system provided to communicate with clients and the public;

Employees should limit their use of the email resources to official business;

Employees should remove personal and transitory messages from personal inboxes on a regular basis;

Email communications are automatically saved regardless of content.

IT administrator will not routinely monitor employee’s email and will take reasonable precautions to protect the privacy of email.


“Application of the four Asia Global Crossing factors here indicates that [Defendant] did not have a reasonable expectation of privacy in emails he sent or received over [Employer’s] email system: [Employer] banned personal use of its email system; [Employer] reserved its right to access employee email; [Employer] warned employees that email sent over [Employer’s] system might be subject to disclosure to regulators and the courts; and [Defendant] was aware of [Employer’s] email policy.”

Because Defendant had no reasonable expectation of privacy in emails he sent over [Employer’s] system, they were not sent ‘in confidence’ and are not protected by the marital communications privilege.”

Holding:


Practical Effects• Lack of clear policy = uncertain privilege;• Employees’ communications at risk for unwanted

disclosure;• Employees’ litigation hold obligations may indirectly

effect employer;• Employer thrust into unnecessary and costly

litigation involving employees;• Ethical Considerations (Stengart).


Don’t Call My BluffThe Ethics of Negotiation

James H. GilliamBrownWinick

666 Grand Avenue, Suite 2000Des Moines, IA 50309-2510

Telephone: 515-242-2446Facsimile: 515-323-8546


Disputes (Generally) Settle

• Most prior to commencement of litigation

• Many post-litigation settlements occur through private/court-sponsored mediation

Dispute Settlement

• Requires a frank assessment of parties’ risk

• Risk assessment often requires communication from opposing parties and counsel

Typical Negotiation Topics

• Damage Valuations

• Existence/Strength of Evidence

• Existence/Credibility of Witnesses

• Existence/Strength of Legal Position

• Settlement Position Authority

Iowa Rules of Professional Conduct

Rule 32:1:6 Confidentiality of Information

“Because of confidentiality prohibitions, a lawyer may generally refuse to provide information without breaching any duty. However, once the lawyer undertakes to provide information, that lawyer has a duty to provide the information truthfully.”

Hansen v. Anderson, Wilmarth, 630 N.W.2d 818,

825 (Iowa 2001)

IRPC 32:4:1

Truthfulness in Statements to Others “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 assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 32:1:6.”

IRPC 32:4:1 Does Not Limit

• False statements made unknowingly

• False statements about immaterial matters

• False statements not of law or fact

IRPC 32:4:1

Comment on “Statements of Fact”

Certain expressions are not “statements of fact” for purposes of IRPC 32:4:1

- “estimates of price or value placed on the subject of a transaction” and

- “party’s intentions as to an acceptable settlement of a claim”

IRPC 32:4:1 cmt[2]

“Material” Not Defined in Rule/Comment

Restatement (Second) of Torts

• Reasonable person would “attach importance to the existence or nonexistence in determining a choice of action in the transaction in question; or

• Maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.”

IRPC 32:4:1 and Typical Negotiation Tactics

• A party in a negotiation often understates willingness to make concessions to compromise a dispute

• A party in a negotiation also might exaggerate or understate the strengths and weaknesses of a factual or legal position

ABA Formal Ethics Opinion 06-439

• Such understatements or exaggerations, often called “posturing” or “puffing”, are statements on which the other party to the negotiation ordinarily would not be expected justifiably to rely

• Puffery is distinguishable from false statements of material fact

Permitted Puffing

“If we do not agree on price, we will find an alternate supplier”

Permitted Puffing (cont.)

“My client insists on receiving $100K to settle these claims”

Prohibited Factual Misstatements

“This benefit will cost the company $100/employee” – when lawyer knows cost is $20/employee

Prohibited Factual Misstatements (cont.)

“We have three co-workers of the plaintiff who witnessed her theft of company property” – when no witnesses exist or such existence is unknown

Prohibited Factual Misstatements (cont.)

“My client’s bottom line/my settlement authority is $X”

ABA Formal Ethics Opinion 93-370

A lawyer may downplay a client’s willingness to compromise, or present a client’s bargaining position without disclosing the client’s “bottom line” position, in an effort to reach a more favorable resolution

When the Judge is the Mediator

IRPC 31:3:3

Candor toward the Tribunal

“Tribunal” Defined

• A court, an arbitrator in a binding arbitration proceeding or a legislative body, administrative agency or other body acting in an adjudicative capacity.

• Legislative body in adjudicative capacity as neutral officer rendering judgment.

IRPC 1.0(m) definition

IRPC 32:3:3 “Tribunal” Defined More Broadly

Includes when the “lawyer is representing a client in an ancillary proceeding conducted pursuant to the tribunal’s adjudicative authority, such as a deposition.” IRPC 3.3 cmt[1]

IRPC 32:3:3 Governs Court-Supervised Negotiations

Rule 3.3 governs before Tribunals, including court-supervised settlement negotiations.

See ABA Opinions 06-439 and 93-370 and IRPC 2.4 cmt [5]

Obligation to Tribunal under IRPC 32:3:3 More Extensive than Outside Tribunals Under 32:4:1

Duty to Remedy

• Must correct a false statement

IRPC 32:3:3(a)(1)

• Disclosure of false evidence required IRPC 32:3:3(a)(3)

• Remedial measures required

IRPC 32:3:3(b)

Duty of Candor Overrides ConfidentialityIRPC 32:3:3 (c)

Practice Tips

“In my opinion …”

Practice Tips (cont.)

“We predict …”


“We are confident …”


“Your investigation will reveal …”


Remember: “No” is a complete sentence


Website: www.brownwinick.comToll Free Phone Number: 1-888-282-3515

OFFICE LOCATIONS:

666 Grand Avenue, Suite 2000Des Moines, Iowa 50309-2510

Telephone: (515) 242-2400Facsimile: (515) 283-0231

616 Franklin PlacePella, Iowa 50219

Telephone: (641) 628-4513Facsimile: (641) 628-8494

DISCLAIMER: No oral or written statement made by BrownWinick attorneys should be interpreted by the recipient as suggesting a need to obtain legal counsel from BrownWinick or any other firm, nor as suggesting a need to take legal action. Do not attempt to solve individual problems upon the basis of general information provided by any BrownWinick attorney, as slight changes in fact situations may cause a material change in legal result.

http://www.brownwinick.com/

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IN-HOUSE COUNSEL LAST CHANCE ETHICS SEMINAR AND WEBINAR Thursday, December 27, 2012