A Quagmire Of Uncertainty

For many years, corporations and other clients have employed in-house counsel to provide legal services, either in conjunction with outside counsel or not. A more recent trend is for law firms to designate a partner or group of attorneys to serve as in-house legal counsel to the firm. One of the thornier issues for in-house counsel in both contexts centers upon the unique ethics issues that must be considered and addressed.

In that regard, most lawyers considering their ethical obligations under applicable rules of professional conduct typically aren't employees or partners of the client itself. Likewise, ethics rules and authorities, virtually invariably, address the traditional attorney-client relationship. The role of in-house corporate and law firm counsel, from an ethical perspective, has received very little reported attention.

But that doesn't mean that these issues aren't there, or that a law firm or corporation does not need to pay attention to these issues. Failure to plan ahead on ethics strategies, with the help of experienced ethics practitioners, could subject the entity to increased risk of liability. The lawyers involved likewise could be exposed both to liability risks and to potential bar counsel grievances or unauthorized practice of law (ULP) complaints. The three most troubling aspects of these issues are discussed below.

Who Is The Client?

Determining the identity of the client seems simple, but often isn't. Sometimes in-house counsel only wants to represent the entity ' by design or good fortune. But that is not always the case.

At times, only the entity can ethically be the client. For example, many states permit corporate counsel to advise the entity even when counsel is not a member of the bar of the state concerning which the advice is being provided. Other jurisdictions, such as New Jersey, require full-time in-house corporate counsel to obtain a special limited license. Either way, an in-house attorney who purports to give legal advice to constituents of the corporation ' such as employees, directors, or officers ' could be found to be in violation of ULP laws. This is usually not an issue for in-house law firm counsel, who would ordinarily be admitted to practice law where his or her office is located. Unless he or she is admitted in the jurisdiction, though, corporate in-house counsel must be careful about advising constituents.

As a practical matter, it can be difficult for the corporate in-house counsel to refrain from advising constituents. Most in-house attorneys regularly receive inquires from constituents of the entity client. Often (assuming that there is no conflict between the constituent and the entity), answering such inquiries is fine. But, for example, if the constituent is asking the in-house attorney to appear before an agency in a jurisdiction where he or she is not admitted to practice ' even if the entity is also a party to the proceeding ' that can be a problem. Corporate in-house attorneys need to be sensitive to this type of issue.

Even when in-house counsel is admitted to practice in the jurisdiction where the constituent seeks advice, conflicts with the entity may still arise. A cautious attorney will confirm in writing with both the entity and the constituents that, if a conflict arises, the parties agree and consent to the attorney continuing to represent the entity going forward, and ceasing representation of the constituents. In the absence of such a written consent, the attorney might have to stop representing both the entity and the constituents. Since the entity employs and pays a salary to the attorney, withdrawal can be an awkward result at best. Indeed, because one in-house attorney's conflict of interest would typically be imputed to the entire legal department or (for law firm counsel) the firm itself, such a withdrawal could force the entity to hire independent outside counsel and to firewall in-house counsel from the matter at issue.

A related concern arises when the in-house attorney knows at the outset of the representation that the entity's interests are adverse to the interest of constituents. In such cases, many jurisdictions require that the attorney expressly advise the constituents that he or she cannot represent them and that they may want to obtain independent representation. Prudent in-house counsel should also explain to constituents that, because of the conflict of interest, discussions between counsel and the constituents may not be privileged. Once the constituents have separate and independent counsel, a joint defense agreement might insulate discussions between the attorneys from being discoverable. But an interesting question that typically needs to be resolved is who is responsible for paying the independent lawyers who are representing the constituents.

Reporting Misconduct Of Constituents

All attorneys face difficult choices when, during the course of representing an entity, constituents engage in misconduct. When the entity employs and pays the attorney for a living, though, the complexity of those difficulties is compounded.

When a constituent is engaging in misconduct, many jurisdictions require that the attorney refer the matter to a higher authority within the organization. In some circumstances, the attorney even needs to bring the issue before the organization's highest authority. For in-house corporate counsel, that would typically be the board of directors. For a law firm partnership, that could be the partners ' or (in the case of an LLC) the board.

What should in-house counsel do when superiors in his or her chain of command, which may even include the chief executive officer or the managing partner, refuse to intercede? The attorney's ethical obligation could dictate that he go over the CEO's head to the board, but that can be a difficult thing to do.

Correspondingly, if the in-house attorney brings the matter before the organization's highest authority, what should the attorney do when that authority refuses to intercede? For outside counsel, withdrawal is one possibility. Does that mean that inside counsel must resign? Under some circumstances, maybe so. Another interesting question beyond the scope of this article is whether an in-house counsel who is terminated or forced to resign can sue for wrongful discharge under a whistle-blower or other similar theory. That question must be considered on a state-by-state basis, and raises additional questions ' such as whether the discharged attorney can divulge attorney-client communications to establish his or her case.

A related consideration arises in those jurisdictions that specify that the departing lawyer can or must make a “noisy withdrawal” under some circumstances. For example, Maryland Rule of Professional Responsibility 1.13(c) provides that, under some circumstances the lawyer may reveal even confidential information if “(i) the highest authority in the organization has acted to further the personal or financial interests of members of the authority which are in conflict with the interests of the organization; and (2) revealing the information is necessary in the best interest of the organization.” As another example, when a lawyer's services are used to perpetuate a client's fraud, many jurisdictions require a “noisy withdrawal” under some circumstances. For outside counsel, revealing confidential information based upon these principles (or others, such as the Sarbanes-Oxley federal statute) is fraught with ethical and liability risks. For in-house counsel considering this option, those risks ' and job security considerations ' also must be weighed.

Who Controls The In-House Attorney's Activities?

The ethics rules in many jurisdictions provide that an attorney “shall not permit a person who … employs … the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.” For example, Rule 5.4(c) of the Maryland, District of Columbia, and Virginia ethics rules all have this provision. Does that mean that a non-lawyer to who in-house counsel reports cannot tell the in-house counsel what to do? Yes, and no.

On the one hand, in-house counsel, like outside counsel, can't permit any non-client, lawyer or otherwise, to direct or regulate counsel's professional judgment in rendering legal services. This can be a difficult line for in-house counsel to draw, especially within a corporate hierarchy. On the other hand, in-house counsel often wear multiple hats on behalf of the entity. To the extent that some of these hats (such as corporate secretary or treasurer) do not involve legal positions, Rule 5.4(c) does not apply. Correspondingly, it may be that the attorney-client privilege will not attach to communications in which the in-house attorney participates in a non-legal capacity. As long as corporate counsel recognizes this circumstance, however, he or she can plan accordingly.

Conclusion

In a perfect world, the drafters of ethics rules would explain the nuances of how these rules apply to in-house counsel. In a slightly less than perfect world, a well-developed body of law would be available to guide in-house counsel's actions. Given that we're a long way from even this slightly less than perfect world, in-house counsel will have to do the best they can. Hopefully, my article will help people to avoid being trapped in this quagmire of uncertainty.

For many years, corporations and other clients have employed in-house counsel to provide legal services, either in conjunction with outside counsel or not. A more recent trend is for law firms to designate a partner or group of attorneys to serve as in-house legal counsel to the firm. One of the thornier issues for in-house counsel in both contexts centers upon the unique ethics issues that must be considered and addressed.

In that regard, most lawyers considering their ethical obligations under applicable rules of professional conduct typically aren't employees or partners of the client itself. Likewise, ethics rules and authorities, virtually invariably, address the traditional attorney-client relationship. The role of in-house corporate and law firm counsel, from an ethical perspective, has received very little reported attention.

But that doesn't mean that these issues aren't there, or that a law firm or corporation does not need to pay attention to these issues. Failure to plan ahead on ethics strategies, with the help of experienced ethics practitioners, could subject the entity to increased risk of liability. The lawyers involved likewise could be exposed both to liability risks and to potential bar counsel grievances or unauthorized practice of law (ULP) complaints. The three most troubling aspects of these issues are discussed below.

Who Is The Client?

Determining the identity of the client seems simple, but often isn't. Sometimes in-house counsel only wants to represent the entity ' by design or good fortune. But that is not always the case.

At times, only the entity can ethically be the client. For example, many states permit corporate counsel to advise the entity even when counsel is not a member of the bar of the state concerning which the advice is being provided. Other jurisdictions, such as New Jersey, require full-time in-house corporate counsel to obtain a special limited license. Either way, an in-house attorney who purports to give legal advice to constituents of the corporation ' such as employees, directors, or officers ' could be found to be in violation of ULP laws. This is usually not an issue for in-house law firm counsel, who would ordinarily be admitted to practice law where his or her office is located. Unless he or she is admitted in the jurisdiction, though, corporate in-house counsel must be careful about advising constituents.

As a practical matter, it can be difficult for the corporate in-house counsel to refrain from advising constituents. Most in-house attorneys regularly receive inquires from constituents of the entity client. Often (assuming that there is no conflict between the constituent and the entity), answering such inquiries is fine. But, for example, if the constituent is asking the in-house attorney to appear before an agency in a jurisdiction where he or she is not admitted to practice ' even if the entity is also a party to the proceeding ' that can be a problem. Corporate in-house attorneys need to be sensitive to this type of issue.

Even when in-house counsel is admitted to practice in the jurisdiction where the constituent seeks advice, conflicts with the entity may still arise. A cautious attorney will confirm in writing with both the entity and the constituents that, if a conflict arises, the parties agree and consent to the attorney continuing to represent the entity going forward, and ceasing representation of the constituents. In the absence of such a written consent, the attorney might have to stop representing both the entity and the constituents. Since the entity employs and pays a salary to the attorney, withdrawal can be an awkward result at best. Indeed, because one in-house attorney's conflict of interest would typically be imputed to the entire legal department or (for law firm counsel) the firm itself, such a withdrawal could force the entity to hire independent outside counsel and to firewall in-house counsel from the matter at issue.

A related concern arises when the in-house attorney knows at the outset of the representation that the entity's interests are adverse to the interest of constituents. In such cases, many jurisdictions require that the attorney expressly advise the constituents that he or she cannot represent them and that they may want to obtain independent representation. Prudent in-house counsel should also explain to constituents that, because of the conflict of interest, discussions between counsel and the constituents may not be privileged. Once the constituents have separate and independent counsel, a joint defense agreement might insulate discussions between the attorneys from being discoverable. But an interesting question that typically needs to be resolved is who is responsible for paying the independent lawyers who are representing the constituents.

Reporting Misconduct Of Constituents

All attorneys face difficult choices when, during the course of representing an entity, constituents engage in misconduct. When the entity employs and pays the attorney for a living, though, the complexity of those difficulties is compounded.

When a constituent is engaging in misconduct, many jurisdictions require that the attorney refer the matter to a higher authority within the organization. In some circumstances, the attorney even needs to bring the issue before the organization's highest authority. For in-house corporate counsel, that would typically be the board of directors. For a law firm partnership, that could be the partners ' or (in the case of an LLC) the board.

What should in-house counsel do when superiors in his or her chain of command, which may even include the chief executive officer or the managing partner, refuse to intercede? The attorney's ethical obligation could dictate that he go over the CEO's head to the board, but that can be a difficult thing to do.

Correspondingly, if the in-house attorney brings the matter before the organization's highest authority, what should the attorney do when that authority refuses to intercede? For outside counsel, withdrawal is one possibility. Does that mean that inside counsel must resign? Under some circumstances, maybe so. Another interesting question beyond the scope of this article is whether an in-house counsel who is terminated or forced to resign can sue for wrongful discharge under a whistle-blower or other similar theory. That question must be considered on a state-by-state basis, and raises additional questions ' such as whether the discharged attorney can divulge attorney-client communications to establish his or her case.

A related consideration arises in those jurisdictions that specify that the departing lawyer can or must make a “noisy withdrawal” under some circumstances. For example, Maryland Rule of Professional Responsibility 1.13(c) provides that, under some circumstances the lawyer may reveal even confidential information if “(i) the highest authority in the organization has acted to further the personal or financial interests of members of the authority which are in conflict with the interests of the organization; and (2) revealing the information is necessary in the best interest of the organization.” As another example, when a lawyer's services are used to perpetuate a client's fraud, many jurisdictions require a “noisy withdrawal” under some circumstances. For outside counsel, revealing confidential information based upon these principles (or others, such as the Sarbanes-Oxley federal statute) is fraught with ethical and liability risks. For in-house counsel considering this option, those risks ' and job security considerations ' also must be weighed.

Who Controls The In-House Attorney's Activities?

The ethics rules in many jurisdictions provide that an attorney “shall not permit a person who … employs … the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.” For example, Rule 5.4(c) of the Maryland, District of Columbia, and Virginia ethics rules all have this provision. Does that mean that a non-lawyer to who in-house counsel reports cannot tell the in-house counsel what to do? Yes, and no.

On the one hand, in-house counsel, like outside counsel, can't permit any non-client, lawyer or otherwise, to direct or regulate counsel's professional judgment in rendering legal services. This can be a difficult line for in-house counsel to draw, especially within a corporate hierarchy. On the other hand, in-house counsel often wear multiple hats on behalf of the entity. To the extent that some of these hats (such as corporate secretary or treasurer) do not involve legal positions, Rule 5.4(c) does not apply. Correspondingly, it may be that the attorney-client privilege will not attach to communications in which the in-house attorney participates in a non-legal capacity. As long as corporate counsel recognizes this circumstance, however, he or she can plan accordingly.

Conclusion

In a perfect world, the drafters of ethics rules would explain the nuances of how these rules apply to in-house counsel. In a slightly less than perfect world, a well-developed body of law would be available to guide in-house counsel's actions. Given that we're a long way from even this slightly less than perfect world, in-house counsel will have to do the best they can. Hopefully, my article will help people to avoid being trapped in this quagmire of uncertainty.