In-House Lawyer’s Professional Duties vs. Rights as an Employee

Joseph J. Ortego

New York, NY / Long Island, NY

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Tough Times for In-House Lawyers

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Failure to Speak Up and Report

Mintz, Accounting and Auditing Enforcement Act Release No. 2925, 2009 WL 167022 (January 26, 2009).

- Jordan Mintz – Former VP/General Counsel, Enron

- Rex Ryan, Former VP/Associate General Counsel, Enron

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Backdating Options

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Failure to Report Leads to Punishment

Lubben, Exchange Act Release No. 2939, 2009 WL 413558 (February 19, 2009).

- David Lubben – General Counsel, United Healthcare Group

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Lawyer – Gate Keeper Must Speak Up

Stephen M. Cutler, Former Director of SECDivision of Enforcement [2001-2005]

“[T]oo many examples of lawyers who twisted themselves into pretzels to accommodate the

wishes of company management . . .”

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Lawyers Owe a Duty to Speak Up for Others

Former SEC Chairman Christopher Cox March 8, 2007 [2005-2009]

“. . . [I]n the securities realm, lawyers are what today we call crucial gatekeepers responsible for safeguarding

shareholders’ interests…”

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Lawyers Owe a Duty to Speak Up for Others, cont’d

Former SEC Chairman Christopher Cox March 8, 2007 [2005-2009]

“…The misconduct in these cases, which requires certain access to records, as well as authority to

grant options, raises the question – where were the lawyers?...”

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Tell All, or Put Up and Shut Up?A Lawyer’s Code

• Former Code of Professional Responsibility Rules:

› DR 4-101: Preservation of Confidences and Secrets of a Client.

› DR 5-108: Conflict of Interest - Former Client.

› DR 5-109: Organization as a Client

• New Rules of Professional Conduct:

› Rule 1.6: Confidentiality of Information

› Rule 1.9: Duties to Former Clients

› Rule 1.13: Organization as a Client

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The Client’s Confidentiality

Old DR 4-101Preservation of Confidences

and Secrets of a Client

New RULE 1.6Confidentiality of Information

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Duties to Former Clients

Old DR 5-108

Conflict of Interest - Former Client

New RULE 1.9

Duties to Former Clients

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Who is the Client?

Old DR. 5- 109Organization as a Client

New RULE 1.13 Organization as a Client

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Cashing In….

US ex rel. FLPA v. Quest Diagnostics, 2011 U.S. Dist. LEXIS 37014 (S.D.N.Y. Mar. 24, 2011) (Robert P. Patterson, U.S.D.J.)

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The Facts

• The Court first stated that the FCA does not preempt state ethical rules and held that DR 5-108(A) precluded Bibi’s participation as a relator.

• After analyzing Bibi’s conduct under DR 4-101 (“future crime” exception), the Court concluded that while Bibi may have reasonably believed in 2005 that Defendants had this intention, his disclosure went beyond the scope of the exception.

• Accordingly, the district court held that: – dismissing against Bibi alone was insufficient; and

– dismissing Unilab as a defendant was insufficient.

US ex rel. FLPA v. Quest Diagnostics, cont’d

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Where is the Line?

• NY Rules of Professional Conduct permit in-house counsel to disclose client confidences in very few circumstances.

• Given Rule 1.6’s stringent restriction on disclosure of client confidences, think long and very hard before attempting to cash in on client misconduct.

• If an attorney strays too far, his/her conduct could be punishable.

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Can Ms. GC Reveal Confidences When She Personally Benefits?

Hypothetical

• Former General Counsel (Ms. GC) commences an action against her former employer (ABC), asserting three causes of action:

1. violation of an internal whistleblower policy;

2. claim of sex discrimination; and

3. claim for an ERISA violation based upon ABC’s alleged imprudent treatment of investments.

• All of these claims were only asserted well after Ms. GC’s termination.

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Conclusion

Stay Ethical!

Follow your Heart and Conscious – Never Your

Pockets