Conflicts and the Duty to Supervise for In-House

CounselBrian McCormac

BrownWinick666 Grand Avenue, Suite 2000

Des Moines, IA 50309-2510Telephone: 515-242-2431Facsimile: 515-323-8531

E-mail: mccormac@brownwinick.com

Agenda

• Conflicts Issues in Corporate Law Departments

• Overseeing the Work of Others

Conflicts in Corporate Law Departments

• Iowa’s Rules of Professional Conduct expressly include corporate law departments in the definition of “firm”

• “For purposes of the Iowa Rules of Professional Conduct, the term ‘firm’ denotes lawyers in a law partnership, professional corporation, sole proprietorship . . . or lawyers employed in the legal department of a corporation or other organization.” Iowa R. Prof. Conduct 32:1.0(c).

Conflicts in Corporate Law Departments

• How do the conflicts rules apply to in-house attorneys?– Joint representation of corporation and its officers,

directors, shareholders, or employees– Representation of subsidiaries– When lawyers move to/from corporate law

departments• From private practice• From other corporate law departments• From government

– Interactions with former clients

Conflicts in Corporate Law Departments—Who is the Client?

• Who is the client?– Most issues arise in two contexts

• Joint representation of corporation and its employees, directors, or shareholders

• Representation of a subsidiary

Conflicts in Corporate Law Departments—Who is the Client?

• Rule 32:1.13– makes clear that the client is the organization– Does not prohibit joint (or separate) representation of

organization and its constituents, provided that there is no conflict under Rule 32:1.7

– Requires lawyer to deliver “Miranda warning” to constituent explaining that the organization is the client when the lawyer knows/should know the constituent’s interests are adverse to those of the organization

– Be careful to protect attorney-client privilege in joint representations

• Joint representation privilege• Best practice to retain separate counsel for employees when

interests could be potentially adverse to organization

Conflicts in Corporate Law Departments—Who is the Client?

• Representation of Subsidiaries– Generally no problems when representation of the subsidiary

aligns with the interest of the parent company or if the subsidiary:

• Is wholly-owned by the parent,• Has common directors with the parent, or• A single legal department administers legal services for both entities

– If the interests of the parent and subsidiary are not aligned, separate counsel should be retained for the subsidiary

• Contract negotiations between parent/subsidiary• Insolvency of subsidiary (may require management for benefit of

creditors)• Insured claims

Conflicts of Interest-Generally

• Conflict rules apply to lawyers within a “firm”, defined to include “lawyers employed in the legal department of a corporation or other organization.” Iowa R. Prof. Conduct 32:1.0(c).

• Conflict rules apply to both former and current clients. Iowa R. Prof. Conduct 32:1.7-32:1.9.

• Conflicts of interest can be imputed to lawyers practicing together in a law firm or corporate law department. Iowa R. Prof. Conduct 32:1.10.

Conflicts of InterestCurrent Clients

• Governed by Rules 32:1.7, 32:1.8• Prohibits dual representation if a

“concurrent conflict” exists– Two situations:

• “direct adversity”: representation of one client will be directly adverse to another client

• “material limitation”: significant risk that the representation of a client will be materially limited by a lawyer’s responsibilities to another client, former client, or a third party, or by a personal interest of the lawyer

Conflicts of InterestCurrent Clients

• Conflict can be waived by client”– If consent is written– If representation is not contrary to law– If representation does not involve two clients

adverse in litigation

• In no event can a lawyer represent both parties in dissolution of marriage proceedings.

Conflicts of InterestFormer Clients

• Governed by Iowa R. Prof. Conduct 32:1.9• Prohibits:

– lawyer from representing a former client with interests materially adverse to a former client if the lawyer represented the former client in the same or a substantially related matter

– Lawyer from knowingly representing a former client of a firm with which the lawyer was formerly associated, if the firm represented the former client in the same or a substantially related matter and the lawyer acquired material, confidential information about the former client

– Lawyer may not (a) reveal confidential information about the representation of the former client or (b) use such information to the disadvantage of the former client

Conflicts of InterestFormer Clients

• Common Issues:– Can former client consent to the representation or use

of confidential information? Yes, if in writing.– What is a “substantially related” matter?

• Comments to Rule provide guidance:– Involves the same transaction or legal dispute– Substantial risk that confidential factual information normally

obtained in former representation would materially advance the other client’s interest in the subsequent matter

– Passage of time can eliminate conflict, for example, confidential information may have become obsolete or generally known

• Points 2 and 3 are highly fact-specific; advisable to avoid close calls.

Conflicts of InterestImputation of Conflicts

• Rule 32:1.10 governs imputed conflicts of interest– A firm may not knowingly represent a client if any individual

attorney in the firm would be barred from doing so, unless:• The conflict is based on the attorney’s personal interest and does

not present a significant risk of materially limiting the representation of the client by other lawyers in the firm (example, political beliefs)

– Firm may represent a person with interests materially adverse to those of a client represented by a departed lawyer, if:

• Such client is not currently represented by the firm• The matter is not the same or substantially related to matters in

which the departed lawyer represented the client• No lawyer remaining in the firm has confidential information of the

former client that is material to the matter

Conflicts of InterestImputation of Conflicts

• Issues:– What does the knowledge requirement in 32:1.9(b) and 32:1.10

mean?• Defined in Rule 32:1.1 as “actual knowledge.”• However, Comment 3 to Rule 32:1.7 provides that “[t]o determine

whether a conflict of interest exists, a lawyer should adopt reasonable procedures, appropriate for the size and type of firm and practice, to determine in both litigation and non-litigation matters the persons and issues involved.”

• “Ignorance caused by a failure to institute such procedures will not excuse a lawyer’s violation of this rule.”

• ABA Formal Opinion 09-455 (“When a lawyer moves between law firms, both the moving lawyer and the prospective new firm have a duty to detect and resolve conflicts of interest”)

Conflicts of InterestImputation of Conflicts

• Issues:– Conflict can be waived by obtaining consent

in writing• If representation is not contrary to law• If representation does not involve two clients

adverse in litigation or dissolution proceedings

– Nonlawyer conflicts are not imputed. However, majority rule requires screening nonlawyers from participating in matters that would be a conflict for an attorney

Conflicts of InterestGovernment Attorneys, Judges

• Rules 32:1.11 and 32:1.12 govern conflicts relating to former government attorneys and judges

• Such attorneys cannot represent a client in connection with a matter in which the attorney personally and substantially participated in as a government employee or judge, without written consent

• Members of a firm associated with a lawyer disqualified under the above provision may not knowingly represent a client in the matter unless:– Disqualified lawyer is screened and receives no portion of fee– Notice is given to the government agency or, in the case of a former

judge, the parties to a litigation matter• Lawyers having confidential government information about a person

acquired during government service may not represent clients in a matter in which such information could be used to the material disadvantage of such person

Conflicts of InterestExamples

• Traditional firm context:– Lawyer moving from one firm to another

• Typical practice:– List of clients the lawyer believes may follow– Lawyer discloses clients of previous firm on whose

matters she worked or has material information– Firm determines whether lawyer has material information

about the other side of a firm matter – Conflicts analysis and screening

– In the event of a conflict, comply with 32:1.10 relating to imputed conflicts.

Conflicts of InterestExamples

• Same issues exist in moves to and from a corporate law department:– Lawyer moving from one law department to

another– Lawyer moving from private practice to law

department– Lawyer moving from a law department to

private practice

Conflicts of InterestBest Practices

• Keep a list of matters and adverse parties in transactional and litigation matters involving the company

• Keep a similar list for affiliates• Good idea to keep this information for a few years, to

help identify risks relating to confidential information• Request information from lateral candidates and conduct

ethical screening• Be particularly careful when hiring lateral candidates

from competitors or their outside counsel– Consent less likely than with conflicts arising from an isolated

transaction or litigation matter

Overseeing the Work of Other Lawyers

• Rule 32:5.1 sets forth the responsibilities of supervising lawyers

• partners in a law firm and lawyers with comparable managerial authority in a law department “shall make reasonable efforts to ensure that the firm has in effect reasonable measures giving reasonable assurance that all lawyers in the firm conform to the Iowa Rules of Professional Conduct.” Iowa R. Prof. Conduct 32:5.1(a).

Overseeing the Work of Other Lawyers

• Comment 1 makes clear that this rule applies to lawyers having partner-like authority in a law department or government agency

• Comment 2 explains that “measures giving reasonable assurance that all lawyers in the firm” comply with IRPC includes establishing procedures to:– Detect and resolve conflicts of interest– Identify deadlines in pending matters– Ensure that inexperienced lawyers are adequately supervised

• Other measures may be required depending on the structure and nature of the law department, examples:– Confidential referral system for ethical issues– Ethics training

Overseeing the Work of Other Lawyers

• A lawyer with direct supervisory authority over another lawyer must make reasonable efforts to ensure that the other lawyer conforms with the IRPC

• Iowa R. Prof. Conduct 32:5.1(b)

Overseeing the Work of Other Lawyers

• Under Rule 32:5.1(c), a lawyer is responsible for another lawyer’s violation of the IRPC if:– The lawyer orders or knowingly ratifies the

conduct– The lawyer has managerial authority or direct

supervisory authority, knows of the conduct at a time when consequences can be avoided or mitigated but fails to act

Overseeing the Work of Non-Lawyers

• Rule 32:5.3 governs attorney supervision of nonlawyers

• Requirements for the supervision of non-lawyers are parallel to the requirements for the supervision of subordinate attorneys

Overseeing the Work of Non-Lawyers

• partners in a law firm and lawyers with comparable managerial authority in a law department “shall make reasonable efforts to ensure that the firm has in effect reasonable measures giving reasonable assurance that [the non-lawyer’s] conduct is compatible with the professional obligations of the lawyer.” Iowa R. Prof. Conduct 32:5.3(a).

Overseeing the Work of Non-Lawyers

• A lawyer with direct supervisory authority over the nonlawyer must make reasonable efforts to ensure that the nonlawyer’s conduct is compatible with the professional obligations of the lawyer

• Iowa R. Prof. Conduct 32:5.3(b)

Overseeing the Work of Non-Lawyers

• Under Rule 32:5.3(c), a lawyer is responsible for conduct of a nonlawyer that would be a violation of the IRPC if done by an attorney, if:– The lawyer orders or knowingly ratifies the

conduct– The lawyer has managerial authority or direct

supervisory authority, knows of the conduct at a time when consequences can be avoided or mitigated but fails to act

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