Who's Your Client?

Lawyers who represent corporations face a special difficulty in defining their “client.” Most often, the “client” is an incorporeal
entity that cannot speak or make decisions itself, but acts only through individuals ' people who might think themselves to be the lawyers' clients.

In some situations, lawyers are not careful enough when defining the “client” within a corporate family. For instance, law firms that jointly represent a corporate parent and its subsidiary which is being sold or “spun off” may have to deal with the implications of joint representation if the newly independent subsidiary becomes the parent's adversary. Teleglobe Commc'ns Corp. v. BCE Inc. (In re Teleglobe Commc'ns Corp.), 493 F.3d 345 (3d Cir. 2007).

In another troubling context, it may be difficult to tell whether a lawyer represents the corporation or a separate corporate constituent. For instance, one court held that Howrey LLP represented just the Special Committee of a corporate board. SEC v. Roberts, 254 F.R.D. 371, 378 n.4, 383 (N.D. Cal. 2008). Another court held that Skadden Arps represented just the company's outside directors, not the company. Ex parte Smith, 942 So. 2d 356 (Ala. 2006).

Properly Dealing with Executives and Employees

Lawyers must be especially vigilant in properly identifying the client when they deal both with the corporation and some of its executives or employees. This is where lawyers in criminal matters are most likely to run into trouble.

In the typical scenario, a lawyer hired to represent the corporation also deals with one or more corporate executives who might have engaged in criminal wrongdoing. If the corporation later turns on the executives, they will have every incentive to claim that the lawyer also represented them, either jointly or separately. Such an attorney-client relationship would give the by-now former executives joint control of the lawyer's duty of loyalty (possibly disqualifying the lawyer from representing the company) and the attorney-client privilege (letting the executives “veto” the lawyer's disclosure of the executives' confidences to the government or some other third party).

ABA Model Rule 1.13(f) requires lawyers to “explain the identity of the client” when the lawyer represents an organization and is communicating with someone whose interests are adverse to the organization. To comply with this ethics duty (which parallels best practices and common sense), lawyers normally give the employees or executives what is called an “Upjohn warning,” explaining that the lawyers represent the corporation and not the individuals, whom they are interviewing on the company's behalf.

Accidentally creating a possible attorney-client relationship can have disastrous results. In one recent widely discussed case, a court criticized ' but ultimately found effective ' what it called a “watered-down” Upjohn warning given by a company's in-house lawyers and outside lawyers to executives they were interviewing. Under Seal v. United States (In re Grand Jury Subpoena: Under Seal), 415 F.3d 333, 336, 340 (4th Cir. 2005). For example, the lawyers told one executive that they represented AOL but “could” represent him as well, “as long as no conflict appeared.'” The executives tried to block AOL's disclosure of the interview notes to the government, but AOL ultimately won sole ownership of the privilege.

Dodging Problems, and Risks of Doing So

Lawyers recognizing the disaster that can result from imprecisely defining the “client” sometimes take preventive steps that carry risks themselves.

First, some lawyers who decide to represent both the corporation and its executives have the executives sign a prospective consent allowing the lawyers to drop them as clients and continue representing the corporation. Sometimes this strategy works. See, e.g., In re Rite-Aid Corp. Sec. Litig., 139 F. Supp. 2d 649, 660 (E.D. Pa. 2001).

While all bars recognize the efficacy of prospective consents in some circumstances, lawyers jointly representing a corporation and one or more of its employees cannot assume that a prospective consent will allow them to continue representing the company if adversity develops between the clients. Most courts would not enforce a prospective consent allowing a lawyer who obtained confidential information from a jointly represented company executive to turn on the executive and use that confidential information against her on behalf of the continuing corporate client.

Second, some lawyers deliberately choose not to jointly represent corporations and executives. Instead, these lawyers represent one or the other, and then enter into a “joint defense” or “common interest” arrangement so that separately represented parties can share privileged communications without waiving the privilege.

There is always a risk that common-interest participants will become adversaries. If so, a law firm representing one participant in a common interest arrangement may be prohibited by conflict-of-interest rules from later taking positions adverse to any other participant absent a prospective or contemporaneous consent after full disclosure. For example, a court disqualified Kaye Scholer from representing its client Pfizer because the firm hired a lawyer who had previously worked for a common-interest participant in a matter adverse to Pfizer. Kaye Scholer had obtained that lawyer's former client's consent, but had not obtained consent from the other common-interest participants. In re Gabapentin Patent Litig., 407 F. Supp. 2d 607, 615 (D.N.J. 2005). Recently, another court disqualified Crowell & Moring in essentially the same setting. All Am. Semiconductor, Inc. v. Hynix Semiconductor, Inc., 2008 U.S. Dist. LEXIS 106619, at *34 (N.D. Cal. Dec. 18, 2008).

Irell & Manella Incident

In the Nicolas case, Irell & Manella undertook what the court called “three separate, but inextricably related, representations” of Broadcom and its CFO. It represented Broadcom in connection with the company's internal investigation into backdating stock options while simultaneously representing Broadcom's CFO in two lawsuits brought by shareholders in connection with stock options. These separate but related representations had essentially the same effect as a joint representation: the law firm had obtained confidential information from each client and had a duty of loyalty to both.

Irell interviewed the CFO and later disclosed information it learned during the interview to the U.S. Attorney's Office and to the SEC. When the government pursued criminal charges against the CFO, he sought to suppress the statements he had made to Irell during the interview, and the court granted his motion. Among other things, the court noted that Irell had not advised the CFO before the interview that the firm was wearing only its “Broadcom” hat during the interview, and that it might disclose to third parties what it learned from the CFO.

The lawyers defending Irell & Manella relied on their use of an Upjohn warning which, as indicated above, can be effective in avoiding the accidental creation of an attorney-client relationship between the corporation's lawyer and its executives. Here, however, Irell & Manella was intentionally representing both Broadcom and its CFO. Accordingly, “whether an Upjohn warning was or was not given is irrelevant,” the court held, because the firm clearly represented the CFO. “An oral warning to a current client that no attorney-client relationship exists is nonsensical at best ' and unethical at worst.”

Although the court limited its ruling to the attorney-client issues, it's easy to envision constitutional dimensions. Among other things, courts might find violations of a criminal defendant's right to effective counsel, to confront accusers, and against self-incrimination.

Conclusion

The Nicolas case should prompt every lawyer who practices in this arena to take great care in identifying the client or clients in any matter the lawyer is handling. It's always best to memorialize the clients' identity in writing. That writing should describe the information flow among jointly represented clients ' or even separately represented clients ' in matters that are “inextricably related.” The ABA recently reiterated the importance of defining the information flow in Formal Op. 08-450 (Comm. on Ethics and Prof'l Responsibility, April 9, 2008). The main lesson here is for the clients to be identified
and to agree on the information flow from the very outset of the representation.

Thomas E. Spahn ([email protected]) is a partner in the McLean, VA, office of McGuireWoods LLP. He has served on the ABA Standing Committee on Ethics and Professional Responsibility and written several books and articles on ethics and privilege issues, including a 750-page book published by Virginia CLE entitled 'The Attorney-Client Privilege and the Work Product Doctrine: A Practitioner's Guide.'

A federal judge recently concluded in a widely reported option backdating case that the California law firm Irell & Manella had “compromised ' important principles” involving the “fair administration of justice.” United States v. Nicholas , 606 F. Supp. 2d 1109, 1112 (C.D. Cal. 2009). After finding that the firm had improperly disclosed one client's confidences to benefit another firm client, the court said it could not “overlook Irell's ethical misconduct in this regard and must refer Irell to the State Bar for appropriate discipline.”

This case highlights the risks that all lawyers run when they do not properly identify their client. An attorney-client relationship triggers all the lawyer's ethical duties and defines who owns the attorney-client privilege itself. As with many other ethical pitfalls for attorneys, the risks are much higher in the murky world where clients face criminal jeopardy. The criminal process not only threatens a client's liberty but also adds a constitutional dimension to the protections afforded clients by state law and professional ethics.

Properly Identifying The Client in Corporate Settings

Lawyers who represent corporations face a special difficulty in defining their “client.” Most often, the “client” is an incorporeal
entity that cannot speak or make decisions itself, but acts only through individuals ' people who might think themselves to be the lawyers' clients.

In some situations, lawyers are not careful enough when defining the “client” within a corporate family. For instance, law firms that jointly represent a corporate parent and its subsidiary which is being sold or “spun off” may have to deal with the implications of joint representation if the newly independent subsidiary becomes the parent's adversary. Teleglobe Commc'ns Corp. v. BCE Inc. (In re Teleglobe Commc'ns Corp.), 493 F.3d 345 (3d Cir. 2007).

In another troubling context, it may be difficult to tell whether a lawyer represents the corporation or a separate corporate constituent. For instance, one court held that Howrey LLP represented just the Special Committee of a corporate board. SEC v. Roberts , 254 F.R.D. 371, 378 n.4, 383 (N.D. Cal. 2008). Another court held that Skadden Arps represented just the company's outside directors, not the company. Ex parte Smith, 942 So. 2d 356 (Ala. 2006).

Properly Dealing with Executives and Employees

Lawyers must be especially vigilant in properly identifying the client when they deal both with the corporation and some of its executives or employees. This is where lawyers in criminal matters are most likely to run into trouble.

In the typical scenario, a lawyer hired to represent the corporation also deals with one or more corporate executives who might have engaged in criminal wrongdoing. If the corporation later turns on the executives, they will have every incentive to claim that the lawyer also represented them, either jointly or separately. Such an attorney-client relationship would give the by-now former executives joint control of the lawyer's duty of loyalty (possibly disqualifying the lawyer from representing the company) and the attorney-client privilege (letting the executives “veto” the lawyer's disclosure of the executives' confidences to the government or some other third party).

ABA Model Rule 1.13(f) requires lawyers to “explain the identity of the client” when the lawyer represents an organization and is communicating with someone whose interests are adverse to the organization. To comply with this ethics duty (which parallels best practices and common sense), lawyers normally give the employees or executives what is called an “Upjohn warning,” explaining that the lawyers represent the corporation and not the individuals, whom they are interviewing on the company's behalf.

Accidentally creating a possible attorney-client relationship can have disastrous results. In one recent widely discussed case, a court criticized ' but ultimately found effective ' what it called a “watered-down” Upjohn warning given by a company's in-house lawyers and outside lawyers to executives they were interviewing. Under Seal v. United States (In re Grand Jury Subpoena: Under Seal), 415 F.3d 333, 336, 340 (4th Cir. 2005). For example, the lawyers told one executive that they represented AOL but “could” represent him as well, “as long as no conflict appeared.'” The executives tried to block AOL's disclosure of the interview notes to the government, but AOL ultimately won sole ownership of the privilege.

Dodging Problems, and Risks of Doing So

Lawyers recognizing the disaster that can result from imprecisely defining the “client” sometimes take preventive steps that carry risks themselves.

First, some lawyers who decide to represent both the corporation and its executives have the executives sign a prospective consent allowing the lawyers to drop them as clients and continue representing the corporation. Sometimes this strategy works. See, e.g., In re Rite-Aid Corp. Sec. Litig., 139 F. Supp. 2d 649, 660 (E.D. Pa. 2001).

While all bars recognize the efficacy of prospective consents in some circumstances, lawyers jointly representing a corporation and one or more of its employees cannot assume that a prospective consent will allow them to continue representing the company if adversity develops between the clients. Most courts would not enforce a prospective consent allowing a lawyer who obtained confidential information from a jointly represented company executive to turn on the executive and use that confidential information against her on behalf of the continuing corporate client.

Second, some lawyers deliberately choose not to jointly represent corporations and executives. Instead, these lawyers represent one or the other, and then enter into a “joint defense” or “common interest” arrangement so that separately represented parties can share privileged communications without waiving the privilege.

There is always a risk that common-interest participants will become adversaries. If so, a law firm representing one participant in a common interest arrangement may be prohibited by conflict-of-interest rules from later taking positions adverse to any other participant absent a prospective or contemporaneous consent after full disclosure. For example, a court disqualified Kaye Scholer from representing its client Pfizer because the firm hired a lawyer who had previously worked for a common-interest participant in a matter adverse to Pfizer. Kaye Scholer had obtained that lawyer's former client's consent, but had not obtained consent from the other common-interest participants. In re Gabapentin Patent Litig., 407 F. Supp. 2d 607, 615 (D.N.J. 2005). Recently, another court disqualified Crowell & Moring in essentially the same setting. All Am. Semiconductor, Inc. v. Hynix Semiconductor, Inc., 2008 U.S. Dist. LEXIS 106619, at *34 (N.D. Cal. Dec. 18, 2008).

Irell & Manella Incident

In the Nicolas case, Irell & Manella undertook what the court called “three separate, but inextricably related, representations” of Broadcom and its CFO. It represented Broadcom in connection with the company's internal investigation into backdating stock options while simultaneously representing Broadcom's CFO in two lawsuits brought by shareholders in connection with stock options. These separate but related representations had essentially the same effect as a joint representation: the law firm had obtained confidential information from each client and had a duty of loyalty to both.

Irell interviewed the CFO and later disclosed information it learned during the interview to the U.S. Attorney's Office and to the SEC. When the government pursued criminal charges against the CFO, he sought to suppress the statements he had made to Irell during the interview, and the court granted his motion. Among other things, the court noted that Irell had not advised the CFO before the interview that the firm was wearing only its “Broadcom” hat during the interview, and that it might disclose to third parties what it learned from the CFO.

The lawyers defending Irell & Manella relied on their use of an Upjohn warning which, as indicated above, can be effective in avoiding the accidental creation of an attorney-client relationship between the corporation's lawyer and its executives. Here, however, Irell & Manella was intentionally representing both Broadcom and its CFO. Accordingly, “whether an Upjohn warning was or was not given is irrelevant,” the court held, because the firm clearly represented the CFO. “An oral warning to a current client that no attorney-client relationship exists is nonsensical at best ' and unethical at worst.”

Although the court limited its ruling to the attorney-client issues, it's easy to envision constitutional dimensions. Among other things, courts might find violations of a criminal defendant's right to effective counsel, to confront accusers, and against self-incrimination.

Conclusion

The Nicolas case should prompt every lawyer who practices in this arena to take great care in identifying the client or clients in any matter the lawyer is handling. It's always best to memorialize the clients' identity in writing. That writing should describe the information flow among jointly represented clients ' or even separately represented clients ' in matters that are “inextricably related.” The ABA recently reiterated the importance of defining the information flow in Formal Op. 08-450 (Comm. on Ethics and Prof'l Responsibility, April 9, 2008). The main lesson here is for the clients to be identified
and to agree on the information flow from the very outset of the representation.

Thomas E. Spahn ([email protected]) is a partner in the McLean, VA, office of McGuireWoods LLP. He has served on the ABA Standing Committee on Ethics and Professional Responsibility and written several books and articles on ethics and privilege issues, including a 750-page book published by Virginia CLE entitled 'The Attorney-Client Privilege and the Work Product Doctrine: A Practitioner's Guide.'