a special 2-hour ethics cle program for the acc georgia chapter presented by: march 10, 2015 rogers...

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A Special 2-hour Ethics CLE Program For The ACC Georgia Chapter

Presented by:

March 10, 2015 Rogers & Hardin LLP

Ethics for In-House Counsel

LORI A. GELCHION

Ethical Challenges in Managing the Roles of In-House Counsel

and Business Advisor

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In-House Counsel: Many Hats3

Lawyer

Business Advisor

Corporate Officer

Dealmaker

Advocate

Gatekeeper

Negotiator

Scrivener

Southern Guaranty Ins. Co. of Ga. v. Ash4

Applicability of the attorney-client privilege to a communication between an attorney and a corporate client.

Once an attorney-client relationship has been established between an attorney and a corporate client, all legal advice confidentially communicated to the authorized agents of the corporation is protected. Legal advice given to a client is privileged regardless of whether the

advice is related to pending litigation or to a client's day to day legal affairs.

The privilege covers all legal advice given, not just advice expressly requested by the client.

However, if the attorney acts merely as a business adviser, then the privilege is inapplicable.

Southern Guaranty Ins. Co. of Ga. v. Ash 5

Burden of proving the attorney-client privilege lies with the corporation.

In determining if the privilege applies: An attorney-client relationship must exist. Must consider the totality of the circumstances. Relevant factors to consider include the nature and

purpose of the communication and how and to whom the communication was made.

Marriott Corp. v. American Academy of Psychotherapists, Inc. 6

The attorney-client privilege is applicable to an employee’s communications if it can be shown that: The communication was made for the purpose of securing legal advice; The employee making the communication did so at the direction of his

corporate superior; The superior made the request so that the corporation could secure legal

advice; The subject matter of the communication is within the scope of the

employee’s corporate duties; and The communication is not disseminated beyond those persons who,

because of the corporate structure, need to know its contents.

The privilege does not apply to evidence which is otherwise admissible simply because the evidence is made available to the corporate attorney.

Hypothetical: Memorandum to CEO7

ABC Corp. is an on-line retailer. The Board is unhappy with ABC’s financial results and seeks to

improve operations, reduce expenses and increase shareholder value.

The Board has determined that the COO needs to be replaced. The Board would like the COO to resign but is prepared to terminate the

COO’s employment if the COO refuses to resign. The COO has an employment agreement with ABC.

The Board has asked ABC’s CEO/Chairman of the Board to speak with the COO on this matter.

ABC’s GC (who is also SVP and Corporate Secretary) prepares a Memorandum to the CEO with “talking points” for his discussion with the COO. Memorandum is stamped “CONFIDENTIAL AND SUBJECT TO ATTORNEY

CLIENT PRIVILEGE”


Memorandum includes: Suggested statements the CEO may make to the COO

regarding his continuing confidentiality obligations under the employment agreement.

Suggestions for how the CEO should start the discussion.

The reasons and justification under the employment agreement for the COO’s termination.

Suggestions for how the CEO should respond if the COO storms out before the discussion is finished or ultimately refuses to resign and must be terminated.

Suggested next steps if the COO agrees to resign.


The GC wants to be certain that the CEO is aware of the termination provisions under the employment agreement.

The GC is concerned the COO may bring legal action against ABC if he is terminated.

Memorandum also includes an analysis of: Whether ABC has a reasonable basis to terminate the

COO for “cause” under the employment agreement. ABC’s obligations under the employment agreement if

the COO is terminated without “cause.”


Panel Discussion: Is the Memorandum protected by the attorney-

client privilege? Are communications by in-house counsel

subject to a higher level of scrutiny then communications from outside counsel?

What might the GC do in this case, and in general, to increase the chances of maintaining the privilege for the GC’s communications?

Hypothetical: Responding to Request for Comments

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ABC’s new COO sends an email to the GC and an employee in ABC’s Operations Department which attaches a contract with a new supplier. Asks “for any comments” and the email is marked “Confidential.” Expresses concern as to whether entering into the new supply contract

would conflict with certain other agreements with exclusivity provisions that ABC currently has in place.

Also questions whether the financial terms of the new supply contract are more advantageous overall then terms of ABC’s existing supply agreements for similar merchandise.

The GC responds to the email (using “reply to all”). Asks for additional information regarding the status of the agreements

with the exclusivity provisions. The COO provides a status update by return email, along

with a copy of those agreements.


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The GC reviews the new supply contract. Makes revisions to, and comments on, the termination, governing

law and venue sections. Makes some “clean-up” type edits.

The GC emails a redline of the new supply contract, “replying to all” on the COO’s first email. Explains why the new supply contract may conflict with the

agreements with exclusivity provisions. Provides a comparison of the financial terms of the new supply

contract with the financial terms of ABC’s other supply agreements for similar merchandise.

The GC’s contact information on the bottom of her emails reads “Jane Smith, Senior Vice President, General Counsel and Corporate Secretary.”


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Panel Discussion: Is the GC’s email protected by the attorney-

client privilege? Is the attachment? What might the GC do in this case, and in

general, to increase the chances of maintaining the privilege for the GC’s communications?

JOSHUA P. GUNNEMANN

Internal Investigations and the In-House Lawyer

Attorney-Client Privilege, Conflicting Duties & Ethical Obligations

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Introduction and Overview15

The Role of In-House Counsel in Internal Investigations Identification of the client Interacting with and advising corporate constituents Determining the scope of the investigation Selecting and overseeing outside counsel Preserving the attorney-client privilege

Applying the Georgia Rules of Professional Conduct

Identifying the Client16

Identifying the Client:

Ga. Bar Rule 1.13(a) (Organization as Client): “A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.”

Corporations, however, act through their officers, directors and employees.

Advice related to corporate liability inevitably overlaps with advice related to personal liability.

Interacting with Constituents17

In an internal investigation, it is imperative that the corporation's constituents understand the role of in-house counsel as the attorney for the corporation only.

Ga. Bar Rule 1.13(f): “In dealing with an organization's directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization's interests are adverse to those of the constituents with whom the lawyer is dealing.”

Most investigations that involve the potential for serious misconduct also have the potential for adversity with company constituents.

Best practice: Clearly articulate the role of in-house counsel in every interaction with company constituents during an investigation.

Interacting with Constituents

Ga. Bar Rule 1.13, Comment 10:

There are times when the organization's interest may be or become adverse to those of one or more of its constituents.

In such circumstances the lawyer should advise any constituent, whose interest the lawyer finds adverse to that of the organization of the conflict or potential conflict of interest, that the lawyer cannot represent such constituent, and that such person may wish to obtain independent representation.

Care must be taken to assure that the individual understands that, when there is such adversity of interest, the lawyer for the organization cannot provide legal representation for that constituent individual, and that discussions between the lawyer for the organization and the individual may not be privileged.

Ga. Bar Rule 4.3 (Dealing with an unrepresented person):

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not:

(a) state or imply that the lawyer is disinterested; when the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding; and

(b) give advice other than the advice to secure counsel, if a lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of a client.

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Interacting with Constituents: Hypothetical

ACME Telecom, Inc. is a publicly traded, global telecommunications company with Atlanta headquarters.

It operates through subsidiaries in a number of countries.

Ethics hotline receives an anonymous email:

Dear Sirs: I work for your ACME Mexico. I have to pay false invoices. The invoices are for work that we did not do. I am worried for my job and for the money.

You call the CFO, a close personal friend, to see what she knows.

She comes to your office because she “doesn't want to talk by phone.”

She sits down, closes the door, and tells you she has some facts to confess.

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Interacting with Constituents20

Panel Discussion:

What obligation do you have to clarify your role at the outset of this discussion?

What advice may (or should) you give the CFO?

If the CFO asks if she needs her own lawyer, what should you say?

After an appropriate warning, should you encourage the CFO to discuss the issues with you?

What other steps should you take to protect yourself and your client (including the privilege)?

Scope of the Investigation21

Considerations regarding scope and the decision to retain outside counsel:

Seriousness of the issue

Including potential involvement of auditors, regulators, or law enforcement and the need for independent counsel

Familiarity with the organization and events

Costs

Conflicts of interest for in-house and regular outside counsel

Resources and ability of in-house and regular outside counsel

Conflicts of Interest22

Ga. Bar Rule 1.7 - Conflicts of Interest:

(a) A lawyer shall not represent or continue to represent a client if there is a significant risk that the lawyer's own interests or the lawyer's duties to another client, a former client, or a third person will materially and adversely affect the representation of the client, except as permitted in (b).

Ga. Bar. Rule 1.7, Cmt. 6:

The lawyer's personal or economic interests should not be permitted to have an adverse effect on representation of a client. See Rules 1.1 and 1.5

If the propriety of a lawyer's own conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client objective advice.

Conflicts of Interest23

Ga. Bar Rule 3.7 (Lawyer as Witness) (a) A lawyer shall not act as advocate at a trial in which

the lawyer is likely to be a necessary witness except where: (1) the testimony relates to an uncontested issue;

(2) the testimony relates to the nature and value of legal services rendered in the case; or

(3) disqualification of the lawyer would work substantial hardship on the client.

(b) A lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9.

Competence24

Ga. Bar Rule 1.1 (Competence):

A lawyer shall provide competent representation to a client. . . . Competence requires the legal knowledge, skill, thoroughness and

preparation reasonably necessary for the representation.

Ga. Bar Rule 1.1 , Cmt. 1B

In determining whether a lawyer employs the requisite knowledge and skill in a particular matter, relevant factors include the relative complexity and specialized nature of the matter, the lawyer's general experience, the lawyer's training and experience in the field in question, [and] the preparation and study the lawyer is able to give the matter . . . .

Conflicts & Competence: Hypothetical

After a proper warning, the CFO elects to continue speaking with you.

She learned of a potential billing issue in the Mexican affiliate over a year ago.

The affiliate had been paying falsified invoices to a private contractor that was building cellular towers for ACME.

Contractor is owned by the nephew of the Mexican finance minister.

Following the payments, ACME received relief on certain tax and permit issues related to the construction project.

CFO sought the advice of the assistant general counsel, who told her there was no FCPA problem if the practice ended immediately. That counsel is no longer with the company.

CFO immediately instructed subsidiary to stop the practice; she assumed it had stopped.

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Conflicts & Competence26

Panel Discussion: Is the close personal friendship with the CFO a conflict?

At what point does in-house counsel’s (or regular outside counsel’s) involvement in the events being investigated create a conflict?

Does it matter that the advice was performed by a subordinate?

At what point does in-house counsel (or regular outside counsel) need to consider their competence for handling an internal investigation?

What obligation does in-house counsel have to supervise the conclusions of outside counsel?

The Investigative Interview27

Covered in last years' ACC Presentation

Traps for the unwary: Protection of privilege Avoidance of conflicts & Upjohn warnings Consideration of third-party disclosures Balancing fact finding with obligations

to the witness

Implicates multiple professional rules: Rule 1.4 (Communication) Rule 1.6 (Confidentiality of Information) Rule 1.13 (Organization as Client) Rule 1.7 (Conflicts of Interest) Rule 4.3 (Dealing with Unrepresented Person)

Case Law Developments:In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir.

2014)

District Court: Investigation was undertaken

pursuant to regulatory law and corporate policy

Investigation material held not privileged

D.C. Circuit: Took on writ of mandamus Investigation conducted under

direction of in-house legal department, acting in its legal capacity

Employees knew legal department was conducting an investigation

A “substantial purpose”of the investigation was to obtain legal advice

Takeaways: Relied on the extraordinary relief

of mandamus: KBR came extremely close to losing the privilege over the investigative work

Court emphasized the importance that interviewees know the respective roles of the interviewers and interviewees: give the Upjohn warning

Investigations must be done at direction of legal counsel

Memorialize at each step that interviews are confidential and protected by the privilege and are being done at the direction of counsel and for the purpose of obtaining legal advice

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Appendix: Model Upjohn Warning29

Model Upjohn warning, proposed by the ABA's White Collar Crime Committee Working Group:

I am a lawyer for Corporation A. I represent only Corporation A, and I do not represent you personally.I am conducting this interview to gather facts in order to provide legal advice for Corporation A. This interview is part of an investigation to determine the facts and circumstances of X in order to advise Corporation A how best to proceed.Your communications with me are protected by the attorney-client privilege. But the attorney-client privilege belongs solely to Corporation A, not you. That means Corporation A alone may elect to waive the attorney-client privilege and reveal our discussion to third parties. Corporation A alone may decide to waive the privilege and disclose this discussion to such third parties as federal or state agencies, at its sole discretion, and without notifying you.In order for this discussion to be subject to the privilege, it must be kept in confidence. In other words, with the exception of your own attorney, you may not disclose the substance of this interview to any third party, including other employees or anyone outside of the company. You may discuss the facts of what happened but you may not discuss this discussion.Do you have any questions?Are you willing to proceed?

.

Reminder: Carefully document that the warning was given and understood.

MICHAEL L. EBER

Protecting Attorney-Client Privilege When Investigating

Whistleblower Allegations

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Overview31

Problem: How does a lawyer's obligation to protect confidential client information potentially conflict with the lawyer's obligation to report misconduct?

Focus on three issues What are the general rules for Georgia lawyers regarding

disclosure of client communications? In the special context of organizational clients, when may

(or must) the lawyer “report up the ladder” or “report out”? How do these requirements intersect with the reporting

requirements of Sarbanes Oxley?

Rule 1.6(a): Confidentiality of Information

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Default rule: Confidentiality is required for “all information gained in the professional relationship with a client” unless the client gives informed consent

Exceptions apply if disclosure is: impliedly authorized in order to carry out the

representation; authorized by Rule 1.6(b) or another Georgia Rule; or “required by . . . other law, or by order of the Court”

Disclosure Under Rule 1.6(b)(1)33

A lawyer may reveal client information that the lawyer reasonably believes necessary— to prevent harm or substantial financial loss to

another as a result of criminal conduct that is clearly in violation of the law

to prevent serious injury or death to litigate certain charges/claims where the

lawyer's representation is at issue (e.g., legal malpractice)

to secure legal advice about compliance with the rules

Key Concepts Under Rule 1.6(b)(1)34

Disclosure is permissive rather than mandatory “may reveal”

Limited to prevention of future harmVery high bar

“criminal conduct” “clearly in violation of the law”

Disclosure is a last resortScope of disclosure must be reasonably

necessary

Rule 3.3: Candor Toward the Tribunal35

A lawyer shall not knowingly:

make a false statement of material fact or law to a tribunal; or

fail to disclose a material fact to a tribunal when disclosure is necessary to avoid assisting a criminal or fraudulent act by the client.

This duty applies even if compliance requires disclosure of information protected by Rule 1.6. See Rule 3.3(b) & cmts. 10–11.

Rule 4.1: Statements to Others36

A lawyer shall not knowingly:

make a false statement of material fact or law to a third person; or

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 1.6.

Rule 1.13: Organization as Client37

Rule 1.13(a): A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.

Rule 1.13(b): “Reporting Up” When is it required?

Rule 1.13(c)–(d): “Reporting Out” When is it permissible?

Rule 1.13(b): “Reporting Up”38

What triggers the “reporting up” obligation?

Lawyer knows of an ongoing or threatened legal violation;

Matter related to the lawyer's representation of the organization;

Violation is of a constituent's legal obligation to the organization or may be imputed to the organization; and

Violation “likely to result in substantial injury to the organization.”


What is required when the rule is triggered?

The lawyer “shall proceed as is reasonably necessary in the best interest of the organization”

“Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization . . . .” Presumption in favor of reporting to higher authority Reporting to the “highest authority” may be reasonably

necessary under the circumstances


Questions to ask yourself when deciding whether reporting to a higher authority is “reasonably necessary” How serious is the violation? What are the consequences? Who is responsible? What is their apparent motivation? Will the constituent accept your legal advice? Do the organization's policies provide guidance? Any other relevant considerations?

Rule 1.13 cmt. 4: “Ordinarily, referral to a higher authority would be necessary.”

“Reporting Up” Under Sarbanes-Oxley

Who is covered by the mandatory reporting requirements under SOX? Attorneys “appearing and practicing” before the SEC in

any way in the representation of “issuers” of securities

The phrase “appearing and practicing” before the SEC is defined very broadly. It includes: transacting business with the SEC (including

correspondence) representing issuers in SEC proceedings preparing, incorporating, or submitting information to

the SEC in any type of document

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What Triggers the SOX Reporting Rule?

Objective standard “credible evidence” that it's “reasonably likely” that a “material violation” has occurred, is ongoing, or is

about to occur

Violations covered material violations of federal or state securities law breaches of fiduciary duty arising under fed/state law similar violations of any fed/state law

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What is the SOX Reporting Rule?

When the requirement is triggered, the lawyer must: report evidence of the material violation to chief legal

officer and/or the CEO (or to a qualified legal compliance committee). A “subordinate attorney” can fulfill her obligation by reporting

to a “supervisory attorney.”

What if an “appropriate response” is not forthcoming? Then the lawyer must report further up the ladder to the

audit committee, another committee of independent directors, or to the full board of directors.

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Rule 1.13(c): “Reporting Out”44

A lawyer “may” reveal client information if: she reports up the ladder a clear violation of law; the highest authority of the organization fails to respond

in a “timely and appropriate manner”; and the lawyer “reasonably believes that the violation is

reasonably certain to result in substantial injury to the organization.”

But disclosure is permitted “only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization.”

Rule 1.13(c): “Reporting Out”45

Key Limitation: Rule 1.13(c) does not permit disclosure of information relating to the lawyer's representation of an organization to investigate an alleged violation of law,

or to defend the organization (or an officer,

employee, or affiliate) against a claim arising out of an alleged violation of law. See Rule 1.13(d).

“Reporting Out” Under SEC Rules46

SEC permits disclosure where necessary to:

prevent violation that is likely to cause substantial injury to the financial interest or property of the issuer or investors;

prevent the issuer, in an SEC investigation or proceeding, from suborning perjury, committing perjury, or knowingly perpetuating a fraud upon the SEC; or

rectify consequences of a violation of securities laws for which the attorney’s services were used.

What if the SEC and Georgia Rules Conflict?

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Rule 1.6: disclosure allowed if “required by . . . other law”

SEC regulations purport to preempt all conflicting state rules and to provide a safe harbor for lawyers who comply in good faith See 17 C.F.R. §§ 205.1, 205.6

But several states question the SEC's authority to preempt state ethics rules See, e.g., N.Y. Cnty. Lawyers Assn. Comm. on Professional

Ethics, Formal Op. 746 (Oct. 7, 2013). Courts have not resolved this issue

Whistleblower Hypothetical

You are the new general counsel for a private chain of health care providers throughout the state.

A member of the accounting department tells you that the billing software appears to apply improper codes, possibly resulting in substantial overbilling.

The activity has gone on for years, with approval from top executives.

You raise the issue with executives, who reluctantly agree to examine the practice.

They disagree that the software was improper, but decide that it no longer makes business sense to continue using the software.

But the coding programs will not be updated for 6 months.

You are convinced that the billing practice is wrong and that the company (and you personally) may face civil and criminal liability.

Can you “blow the whistle” by reporting out? Should you?

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Whistleblower Hypothetical

Revision #1

The company is publically traded.

You are responsible for incorporating information into SEC filings.

Does this change what is required?

Revision #2

You have already been GC for a year when you learn about the issue.

The executives agree to change billing practices immediately.

But by this time, you have already approved of several SEC filings that are materially inaccurate.

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Steps To Reduce Attorney Whistleblower Risk

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Respond promptly and appropriately to reports of misconduct.

Document the investigation and response.Inform the reporting lawyer of the company's

response (if appropriate). Train in-house lawyers regarding state ethics rules.Interview departing lawyers about whether the

company has properly handled reports of misconduct.

Appendix: Additional Resources51

David A Delman & Paul A. Bruno, Up the Ladder and Out the Door: Saying “No” to the CEO, 46 INT'L LAWYER 1007 (2012).

N.Y. Cnty. Lawyers Assn. Comm. on Professional Ethics, Ethical Conflicts Caused by Lawyers as Whistleblowers under the Dodd-Frank Wall Street Reform Act of 2010, Formal Op. 746 (Oct. 7, 2013).

Timothy P. O'Toole et al., Why Lawyers and Whistleblowers Don't Mix – Part 1, WESTLAW J. HEALTH CARE FRAUD, Oct. 2014, at 1.

Timothy P. O'Toole et al., Why Lawyers and Whistleblowers Don't Mix – Part 2, WESTLAW J. PROFESSIONAL LIABILITY, Nov. 2014, at 1.

Barry R. Temkin & Ben Moskovits, Lawyers as Whistleblowers Under the Dodd-Frank Wall Street Reform Act, N.Y. STATE BAR J., July-Aug. 2012, at 10.

Lawrence A. West et al., Attorneys as SEC Whistleblowers: Can an Attorney Blow the Whistle on a Client and Get a Monetary Award? (May 2013), http://lw.com/thoughtLeadership/SEC-Whistleblowers.

Dan Laney [email protected] 404.420.4624

Ben Rogers [email protected] 404.420.4612

Lori Gelchion [email protected] 404.420.4646

Josh Gunnemann [email protected] 404.420.4653

Mike Eber [email protected] 404.420.4640

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THANK YOU

a special 2-hour ethics cle program for the acc georgia chapter presented by: march 10, 2015 rogers...

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