ACC Austin 2014 CLE/Golf/Spa Event

1. ACC Austin 2014 CLE/Golf/Spa Event May 9, 2014

2. Who is the Client? Ethical Guidelines for In-House Lawyers Michael DePonte, Shareholder and Litigation Manager – Austin,Jackson Lewis P.C.

3. Key Considerations for In-House Counsel • Attorney’s work is advisory and ongoing – sometimes difficult to pinpoint when need for Company representation and protection begins • Relationship with officers and employees begins, and advice is given, before act of wrong-doing occurs • Attorney can influence future Company behavior • Lines may be blurred between business actor and legal advisor when events occur • Obligation to explain that Company holds the attorney-client privilege, controls decision to retain or waive

4. What Do You Mean Who is the Client? • Corporation is entitled to same protection of confidentiality as an individual client under the attorney-client privilege • Difficulty in applying privilege in corporate context stems from inanimate nature of corporation: • corporation can “speak” to attorney only via its agents • lawyer represents corporation not individual agents • Application of attorney-client privilege often turns on which corporate officials and employees act on behalf of the corporate entity as a client

5. Warning: So Many Issues, So Little Time!

6. Attorney-Client Privilege • Protects disclosure of contents of communications between an attorney and an attorney’s client • Applies only to private client communications • Communications must be for purposes of securing legal advice • Privilege has been claimed and not waived by client • Determining when an attorney-client relationship is created informs the analysis of privilege in the corporate context

7. Duty of Confidentiality Confidential information includes both privileged and unprivileged client information • Unprivileged client information is: • all information relating to a client or furnished by the client • other than privileged information • acquired by the lawyer during the course of or by reason of the representation of the client

8. Duty of Confidentiality Tex. Disciplinary R. of Professional Conduct 1.05 – Confidentiality of Information • A lawyer shall not knowingly: • Reveal confidential information of a client or a former client to: • A person that the client has instructed is not to receive the information; or • Anyone else, other than the client, the client’s representatives, or the members, associates, or employees of the lawyer’s firm • Use [such information] to the disadvantage of the client unless the client consents after consultations. • Use [such information] to the disadvantage of the former client after the representation is concluded unless the former client consents after consultation or the confidential information has become generally known. • Use of privileged information of a client for the advantage of the lawyer or of a third person, unless the client consents after consultation.

9. Duty of Confidentiality A lawyer may reveal confidential information: • When expressly authorized in order to carry out the representation. • When client consents after consultation. • To the client, the client’s representatives, or the members, associates, and employees of the lawyer’s firm, except when otherwise instructed by the client. • When the lawyer has reason to believe it is necessary to comply with a court order, a Texas Disciplinary Rule of Professional Conduct, or other law. • To the extent reasonably necessary to enforce a claim or establish a defense on behalf of the lawyer in a controversy between the lawyer and the client. • To establish a defense to a criminal charge, civil claim or disciplinary complaint against the lawyer or his associates based on conduct involving client or representation of client. • When the lawyer has reason to believe it is necessary to prevent the client from committing a criminal or fraudulent act. • To the extent revelation reasonably appears necessary to rectify the consequences of a client’s criminal or fraudulent act committed where the lawyer’s services had been used. • See, Tex. Disciplinary R. of Prof’l Conduct 1.05 – Confidentiality of Information

10. Meet Jack Lewis - The Ethical In-House Lawyer • Keeps a copy of the Texas Disciplinary Rules of Professional Conduct on his desk • Presents regularly on ethics at SBOT seminars • Sends monthly emails to his colleagues of the latest ethics updates from the Texas Center for Ethics

11. Which Ethical Rules Apply to Jack Lewis in Representing ABC, Inc.? • Texas Disciplinary Rules of Professional Conduct • ABA Model Rules of Professional Conduct • Where Can Jack Obtain More Information? • Texas Center for Legal Ethics: a 501(c)(3) public foundation organized for the purposes of promoting and enhancing ethics, professionalism and civility among the state’s lawyers” www.legalethicstexas.com • The American Bar Association: www.abanet.org • State Bar of Texas ethics helpline: 1-800-532-3947

12. WWJD (What Would Jack Do?) Jack Lewis is hired as in-house counsel for Company A. Company A and Company B are considering merging to form ABC, Inc. Company A’s CEO tells Jack Lewis that he will become the CEO of ABC, Inc., and that upon completion of the merger, Jack Lewis will be employed as in-house counsel for ABC, Inc. Attorney for Company B tells Jack Lewis that the Company B’s CEO has secret plans to fire Company A’s CEO and his entire senior management – they will have no place at ABC, Inc. But the attorney tells Jack Lewis not to worry – he will still have his job as in-house counsel. Who is Jack Lewis’ Client? Any concerns here?

13. WWJD (What Would Jack Do?) The merger is complete and ABC, Inc. is up and running. One day Jack Lewis receives notice that a claim has been filed against ABC, Inc. The claim is insured. One of the officers of ABC, Inc., strongly advises Jack that he wants to defend the claim all the way to trial. He specifically tells Jack, “Do NOT settle, it’s a matter of principle!” Jack speaks to ABC, Inc.’s insurer and learns that the insurer wants to settle and settle quickly. Who is Jack Lewis’ Client? Any concerns here?

14. WWJD (What Would Jack Do?) ABC, Inc. is now the parent company of subsidiary XYZ, Inc. For as long as Jack Lewis has been employed as in-house counsel at ABC, Inc., subsidiary XYZ, Inc. has shared in ABC Inc.’s goal of becoming the world’s leading eco-friendly company. Three years after the formation of XYZ, Inc., Jack learns that the subsidiary has plans to launch a new product that directly contravenes ABC Inc.’s mission. Who is Jack Lewis’ Client? Any concerns here?

15. To Whom Does He Owe Allegiance? ABC, Inc. Constituents “Officers, directors, employees, and shareholders are the constituents of the corporate organizational client.” See Model Rules of Professional Conduct R. 1.13(a) cmt. 1

16. What Do You Mean “Who is the Client?” • It Depends… ….Unlike individual clients who can speak and decide finally and authoritatively for themselves, an organization can speak and decide only through its agents or constituents such as its officers or employees … who act[] as an intermediary between the organizational client and the lawyer. This fact requires the lawyer under certain conditions to be concerned whether the intermediary legitimately represents the organizational client. Tex. Disciplinary R. of Prof’l Conduct, R. 1.12 cmt. 1

17. WWJD (What Would Jack Do?) One day ABC’s Compliance Officer, ImaDuwrong, comes to Jack Lewis’s office, closes the door, and says, “I want to confide in you. You’ve been such a great advisor to me in the past…. “I’ve been taking money from ABC, Inc. for years and no one knows. Obviously, I couldn’t afford that Bentley on my meager salary! But I’m getting ready to secretly repay the money because I’ve recently come into an inheritance!” What is Jack Lewis’ course of action?

18. WWJD (What Would Jack Do?) • Place Ima under citizen’s arrest and hold her until the police arrive. • Softly tell Ima to “never speak of this again.” • Ask Ima for a piece of the pie. • Inform Ima that he does not represent her and explain that he is going to report the matter. POSSIBLE ANSWERS:

19. WWJD (What Would Jack Do?) • Place Ima under citizen’s arrest and hold her until the police arrive. • Softly tell Ima to “never speak of this again.” • Ask Ima for a piece of the pie. • Inform Ima that he does not represent her and explain that he is going to report the matter. POSSIBLE ANSWERS:

20. Rule 1.12: ORGANIZATION AS A CLIENTTexas Disciplinary Rules of Professional Conduct • A lawyeremployed or retained by an organization represents the entity. While the lawyer in the ordinary course of working relationships may report to, and accept direction from, an entity’s duly authorized constituents, [in the situations described in paragraph (b)] the lawyer shall proceed as reasonably necessary in the best interest of the organization without involving unreasonable risks-- of disrupting the organization and-- of revealing information relating to the representation to persons outside the organization.

21. Rule 1.12: ORGANIZATION AS A CLIENTTexas Disciplinary Rules of Professional Conduct (b) A lawyer representing an organization must take reasonable remedial actions whenever the lawyer learns or knows that: • an officer, employee, or other person associated with the organization has committed or intends to commit a violation of a legal obligation to the organization or a violation of law which reasonably might be imputed to the organization; and • the violation is likely to result in substantial injury to the organization; and • the violation is related to a matter within the scope of the lawyer’s representation of the organization.

22. WWJD (What Would Jack Do?) ImaDuwrong insists that Jack keep her misdeeds quiet and allow her to “secretly” repay because she was the one who stuck her neck out to get Jack hired, and she sees Jack as “[her] lawyer” – Jack has advised Ima through numerous sticky situations, and Ima has confided in him before about personal issues, such as a recent divorce, usually during many long visits to the printers while awaiting materials for filing. Ima insists she obviously came Jack for his legal advice on how to best secretly repay the funds based on her past experience with and trust in him. What should Jack Lewis do now?

23. WWJD (What Would Jack Do?) POSSIBLE ANSWERS: • Now Jack can place Ima under citizen’s arrest, call the police. • Give Imaa 48-hour head start to leave the country before Jack does anything. • Remind Ima that when they discussed her divorce, he was speaking with her as a concerned friend. Remind Ima that she was represented by an attorney in the divorce and that he told Ima he knew nothing about family law. Restate that Ima was/is not his client, and he will report the matter to his client, ABC Inc. • Call his old law firm and ask if they are hiring.

24. WWJD (What Would Jack Do?) POSSIBLE ANSWERS: • Now Jack can place Ima under citizen’s arrest, call the police. • Give Imaa 48-hour head start to leave the country before Jack does anything. • Remind Ima that when they discussed her divorce, he was speaking with her as a concerned friend. Remind Ima that she was represented by an attorney in the divorce and that he told Ima he knew nothing about family law. Restate that Ima was/is not his client, and he will report the matter to his client, ABC Inc. • Call his old law firm and ask if they are hiring.

25. What If the CEO Does Nothing? Follow Up: The CEO says to Jack, “Thanks, I will talk to ImaDuwrong, but we don’t need any more bad press – if you know what is good for you, you will forget you ever heard about this.” What should Jack Lewis do now?

26. Rule 1.12: ORGANIZATION AS A CLIENTTexas Disciplinary Rules of Professional Conduct (c) Except where prior disclosure to persons outside the organization is required by law or other Rules, a lawyer shall first attempt to resolve a violation by taking measures within the organization. In determining the internal procedures, actions or measures that are reasonably necessary in order to comply with paragraphs (a) and (b), a lawyer shall give due consideration to: • the seriousness of the violation and its consequences, • the scope and nature of the lawyer’s representation, • the responsibility in the organization and apparent motivation of the person involved, • The policies of the organization concerning such matters, and • Any other relevant considerations.

27. Rule 1.12: ORGANIZATION AS A CLIENTTexas Disciplinary Rules of Professional Conduct (c) ….Such procedures, actions and measures may include, but are not limited to, the following: • Asking reconsideration of the matter; • Advising that a separate legal opinion on the matter be sought for presentation to appropriate authority in the organization; and • Referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act on behalf of the organization as determined by applicable law.

28. Should Jack Lewis Report Up the Ladder or Beyond? • Refer matter to board of directors (or similar governing body) • If unsuccessful, assess difficult issue of revealing confidential information to persons outside the organization • Provisions of Rule 1.02 (Scope and Objectives of Representation) and Rule 1.05 (Confidentiality of Information) must be met in order to reveal confidential information to 3d party Tex. Disciplinary R. of Prof’l Conduct 1.05, 1.02, 1.12 cmt. 7

29. Should Jack Lewis Withdraw? • Optional Withdrawal • Lawyer may withdraw if no material adverse effects on client’s interests • Lawyer may withdraw if client persists in course of action lawyer reasonably believes is criminal or fraudulent Tex. Disciplinary R. of Prof’l Conduct 1.15 cmt. 7 • Mandatory Withdrawal • Lawyer must resign when lawyer knows the employment will result in violation of rule of professional conduct or other law • Withdrawal not permitted simply because client suggests such course of conduct (client may make suggestion with hope lawyer will not be constrained by a professional obligation) Tex. Disciplinary R. of Prof’l Conduct 1.15 cmt. 2

30. Don’t Forget SOX! • Sarbanes-Oxley Act: subjects attorneys to ethical standard in the representation of certain public companies: • Counsel who “appear and practice“ before SEC must report material violation of securities law or breach of fiduciary duty by company to chief legal counsel or chief executive officer; • If chief counsel or executive officer fails to appropriately respond, attorney must report to Board of Directors; and • If no appropriate action is taken, Counsel “may” report to the SEC: -- information which counsel “believes necessary” to prevent company from committing a violation likely to cause substantial financial harm to issuer or investors, or -- to preventissuer from committing criminal act, or-- to rectify material violationthat caused substantial financial harm to the issuer or investors. Sarbanes-Oxley Act § 307; 17 CFR Part 205 (“up the ladder rule”)

31. WWJD (What Would Jack Do?) Follow Up: The Board of Directors says to Jack, “Thanks for letting us know; please investigate ImaDuwrong and make recommendations to the Special Audit Committee of the Board as to our next steps.” What should Jack Lewis do now?

32. WWJD (What Would Jack Do?) Follow Up: In connection with his investigation, Jack Lewis sets up an interview of ImaDuwrong to get the details. As the interview begins, Ima immediately asks Jack: “Am I in trouble, Jack? Do I need a lawyer?” What should Jack Lewis do now?

33. Which Hat Are You Wearing? Friend Lawyer Boss Compliance Officer Investigator

34. Providing Business Advice • In-house counsel often blend role of business advisor, corporate employee, and lawyer (legal and non-legal roles) • Risk that communications with in-house lawyer may not be protected under attorney-client privilege • To be privileged – must be shown that communication was for the purpose of providing legal services rather than general business advice • Courts have difficulty distinguishing legal and business advice, no bright-line test but case-by-case scenario • Courts may protect only those parts of communication that are identifiable as legal; may not protect communications in which in-house counsel is not acting primarily in his or her position as legal advisor

35. Providing Business Advice • In re Sealed Case, 737 F.2d 94,99 (D.C. Cir. 1984), the court set the issue as follows: The lawyer whose testimony the government seeks in this case served as in-house counsel. That status alone does not dilute the privilege. We are mindful, however, the attorney was a company vice-president, and that certain responsibilities were outside the lawyer’s sphere. The company can shelter the attorney’s advice only upon a clear showing that the lawyer gave it in a professional, legal capacity.

36. Internal Workplace Investigations • Which hat are you wearing and who is the client? • What is the objective of the investigation? • Is it anticipated that the investigation results may become public? • May be necessary to a defense in court? • What best practices apply to interviews of corporate employees while conducting internal investigations on behalf of the Company? • Are investigations driven by objective principles? • Is attorney-client privilege protected? • Still bound by confidentiality rules.

37. When Does Privilege Attach? Upjohn Factors • The Upjohn Factors: “[C]ommunications…to counsel for corporation acting as such, at direction of corporate superiors…to secure legal advice…,[with awareness by employees] that they were being questioned so that corporation could obtain advice, …were protected.” • Was the information: • necessary for the attorney to impart legal advice? • available from someone in the “control group”? • within the employees’ scope of corporate duties? • made with knowledge by employees that purposeof counsel is to provide legal advice to the Company? • communicated as confidential and thereafter kept confidential?

38. Recommended Steps for Interviewing Constituents • Warnings should inform constituent that the investigating attorney is representing Company and not the constituent. • Warnings should be explicit and unambiguous to ensure constituent does not believe that an attorney-client relationship has been formed with the investigating attorney. • Purpose of interview should be made clear so it is apparent that counsel is acting on behalf of Company and gathering information to provide legal advice to the corporation.

39. Recommended Steps for Interviewing Constituents • Give constituent opportunity to ask questions about the Upjohn warning and counsel’s role • Inform constituent that: • interview is subject to the attorney-client privilege and regarded as confidential • the privilege belongs to the Company, not the constituent • the Company alone may decide if or when the interview content should be disclosed to third parties

40. Who’s There? Agency Investigations: The “BIG KNOCK” at Your Door

41. KEY QUESTIONS: • What should the scope of the investigation be? • Who in the enterprise controls the investigation? • Who should conduct the investigation? • How should the investigation be conducted? • What will be done with the results?

42. Ethical Duties During Agency Investigations • Identify “agents” who have capacity to speak for the corporate client—and communicate this to the Agency representative; • Disclose your role as in-house counsel to agents and any employee witnesses and clarify your role; • Determine the Company position on the parameters of privilege with respect to any prior in-house investigation(s); and • Advise client as to strategies for response to Agency action/subpoenas/ reports, etc.

43. Waiver of Privilege • Attorney-client privilege may be expressly waived, or found not to exist, by: • Voluntary disclosure of the information or documents to a person other than the client who has no interest in maintaining the confidentiality • Disclosure by revealing privileged information (during trial or deposition testimony, in court or administrative filings) • Disclosure to 3rd parties or others not essential to the representation (insurance brokers, public relations specialists) • Failing to timely assert privilege when confidential information is sought through the discovery process or otherwise

44. Protecting Privilege and Avoiding Pitfalls • Designate Legal Advice • Clarify legal versus business communications • Phrases: “from a legal perspective” or “the legal conclusion is” • Sensitive communications should be restricted to senior management • Separate Legal Role from Business Role • Cleary communicate role • If Company places in-house counsel in role of officer or director, Company should retain independent attorney in the event sensitive issues arise • When occupying dual roles, document nature of in-house counsel’s communications with corporate officers, employees, directors or agents

45. Protecting Privilege and Avoiding Pitfalls • Avoid accidental or shared privilege • Keep all legal files separate from general corporate files, to avoid accidental disclosure • Establish policies to protect the confidentiality of legal documents and clearly mark such documents as “legal” • Limit the distribution of certain communications to a need-to-know basis

46. Points to Remember • Define what activities are “lawyering” versus “business” activities • Key: done in preparation to defend client(s) in anticipated litigation? • Segregate attorney/client communication documents and attorney work product and clearly mark same (maintain documentation of elements of “work product”)

47. Points to Remember • Identify reporting “ladder” channels BEFORE there is an incident—i.e., agree on who receives “bad news” for the Company and who will act at the behest of counsel • Avoid conducting internal investigations, unless litigation or Agency Investigation arising from incident has already commenced or been threatened, or attorney believes there is substantial likelihood litigation will commence • Necessary for work-product doctrine to apply

48. And Finally…. Who are you? Who? Who? We really want to know! Think before you speak and act.

49. THANK YOU!

50. Handicapping the Appellate Season Joe Knight, PartnerBaker Botts LLP