In-House Counsel’s Upjohn Obligations

Monday, November 17, 2014 - 14:43

I recently attended a conference seminar involving a look at ethical issues for legal officers of a company. Leading the session was both an in-house general counsel of a large U.S. investment company and a member of a law firm representing the view of outside counsel. Part of the discussion was the application of Upjohn warnings: when to use them; how to phrase them; and what procedure to use, among other things. Nearly all of the cases discussed by the panel involved facts surrounding the conduct of the outside law firm. But at the very end, the discussion turned briefly to the moment when an in-house counsel first perceives there may be an adverse interest between the company and the constituent in his office and must decide whether the Upjohn warnings are then necessary. The outside counsel suggested that to err on the side of giving the warnings was always favorable, while the in-house counsel said he never gives any warnings unless absolutely necessary. And that last comment begged to me the question: why should in-house counsel not always give the warnings if interests may be adverse?

The warnings at issue arise from the seminal United States Supreme Court case, Upjohn Co. v. United States, 449 U.S. 383 (1981). As a result of that decision, when undertaking an investigation for the company, the counsel interviewing a company’s constituent, be it a board member, an officer or an employee, must take care to advise that person of the following: that the attorney-client relationship, and any attorney-client privilege, is actually between the lawyer and the company and does not include the individual; that it is the company that has the right to decide whether it will waive the privilege and disclose anything said by the individual during that interview to a third party; and that the individual is required to keep anything said in that interview confidential.

While the role of an in-house or general counsel is to render legal advice to the company, not every communication among company personnel in a general counsel’s office is privileged. Sometimes the conversations involve business decisions and not issues of law. Sometimes the conversations involve both business decisions and issues of law. And of course sometimes the conversations are not about either. With this in mind, it did not at first surprise me when I heard the general counsel explain his qualms that unnecessary Upjohn warnings might introduce a chilling effect into counsel’s relationship with his company co-workers. Moreover, there is a common concern among in-house counsel that too much of an emphasis upon a company’s interests conflicting with that of an individual’s may discourage the full cooperation of the constituent when it is needed most.  Such may result in a reluctance to cooperate or, worse, to lie about the facts, which would hinder an in-house counsel from doing the job of protecting the company.

This is especially of concern to in-house counsel of investment firms regulated by the securities industry – like the general counsel at the above seminar. As a member of a self-regulatory organization, it is important for securities firms to be able to quickly identify conduct by its registered representatives that may violate a myriad of industry rules. It is better for the company, the theory goes, to have an unapprised employee initially reveal wrongful conduct to in-house counsel, who then reports the violation to the regulators in compliance with the company’s obligations – or better yet, who after hearing the statements from the employee will see the need for the company to hire an outside counsel to later explain the Upjohn warnings to the employee. Such an informed employee will then be hard-pressed to deny the facts revealed earlier to the in-house counsel. But while these scenarios may help the company comply with its regulatory responsibilities, it may not immunize the in-house counsel, who later becomes the subject of a claim by that same former employee who was barred from the industry because of that conduct, alleging that he reasonably believed the in-house counsel represented him too, but breached the duty of loyalty by revealing attorney-client privileged communications. Indeed, the Model Rules of Professional Conduct make it unmistakably clear that it is the obligation of a company’s in-house counsel to advise the constituent who the client really is 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.” ABA Model Rules of Professional Conduct R. 1.13(f). Model Rule 4.3 buttresses this obligation, stating “When the lawyer knows or reasonably should know that an unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.” Both of these rules were adopted after the Upjohn decision, a clear indication that in-house counsel are subject to the same ethical obligations as outside counsel retained to represent the company. Additionally, the Model Rules have been adopted in nearly every jurisdiction. As such, in-house counsel must be aware of the ramifications for failing to comply with this responsibility because it may bear upon one’s career.

A much-discussed case involving Broadcom Corporation demonstrates the risk attorneys will run by such a failure. In that case, a district court in California analyzed the circumstances surrounding statements made by Broadcom’s CFO to Broadcom’s outside counsel, who later disclosed the statements to the U.S. attorney investigating Broadcom’s stock option-granting practices. U.S. v. Nicholas, 606 F. Supp. 2d 1109 (C.D. Cal. 2009). The district court concluded that the statements, which were being sought by the government to use against the CFO in his criminal trial, were protected by the attorney-client privilege and should be suppressed. Id. at 1112. Furthermore, and salient to the instant analysis, the court referred the outside counsel who disclosed the protected statements to the State Bar “for appropriate discipline.” Id. While the decision concerning suppression of the evidence was eventually reversed by the Ninth Circuit Court of Appeals upon the government’s expedited interlocutory appeal (see U.S. v. Ruehle, 583 F.3d 600 (2009)), it is important to note that the referral to the Bar was not.

In the Broadcom cases, the in-house counsel played a role, but he was not identified as being present when the CFO of the company was first interviewed. Nor was he identified as the attorney who disclosed the protected statements. Accordingly, the referral for discipline was solely for outside counsel. But this should not be taken as a pass for in-house counsel. Indeed, a cautionary tale may be found in a different case involving AOL.

In that AOL case, the Fourth Circuit analyzed statements made by three AOL employees to both AOL’s in-house counsel and outside counsel during an internal investigation by AOL. In Re Grand Jury Subpoena, 415 F.3d 333, 337 (4th Cir. 2005). These statements later became the subject of a grand jury subpoena seeking documents “reflecting interviews conducted by attorneys for [AOL].” Id. While the court ultimately upheld the district court’s ruling against the three employees who moved to quash the subpoena, it is important to note that the court did not distinguish between the conduct carried out by AOL’s general counsel or its outside counsel. Rather, the lawyers were collectively referred to as the “investigating attorneys” who interviewed the employees together. Id. at 336. Indeed, much of the controversy concerning the effectiveness of the purported Upjohn warnings at issue were uttered by AOL’s general counsel. Id. The implication, of course, is that had the court found that an attorney-client privilege was in effect, then the subsequent waiver of that privileged by AOL may have been a breach by the attorneys disclosing the statements. Had that included the general counsel, logic dictates he too may have been subject to the same type of referral to the Bar for discipline as in the Broadcom case.

While no one expects a general counsel to blurt out Upjohn warnings every time a colleague enters his office, an in-house counsel is nonetheless subject to the same ethical rules as an outside law firm concerning the attorney-client privilege. Accordingly, best practice dictates that in-house counsel needs to make it unmistakably clear to the constituent of the facts about the attorney-client relationship, the privilege and any waiver at the earliest possible moment.

Since becoming familiar with the Upjohn warnings, and the ramifications of not administering them when appropriate, I long ago set down on paper a template setting forth appropriate warnings. I take these with me whenever I am involved as outside counsel for a company in an internal investigation or when responding to governmental or regulatory inquiries. But over time, as I used them more, what became clear was not only the importance of them, but also that the employees readily accept them.  This acceptance might be due to the fact that I have them typed on a sheet of paper that I pull out at the outset of the interview, announcing that it was something I always read to every employee of the company in these types of investigations, which is true. Now I also use the template as a matter of routine when working on litigation for companies that are not involved in internal investigations or responding to governmental or regulatory inquiries, and I find these employees equally as accepting of them. Indeed, as an outside counsel engaged to prepare for the interview with an employee, I find it comes as no surprise to the employee who it is that I represent, so acceptance by the employee is routine.

In-house counsel and the company itself should likewise try to make it no surprise that the company is the client. Why not disseminate a company policy notice apprising the entire company of the synopsis of the Upjohn warnings, the same as a “political contribution policy” or a “policy on making public statements” is periodically disseminated to the entire firm? Perhaps provide written Upjohn warnings to all constituents at the onset of a formal relationship with the corporation, such as when the constituent is hired. By doing so, any given employee would be hard-pressed to later claim she thought the in-house counsel was her lawyer. Certainly, it would be wise for the in-house counsel to have prepared Upjohn warnings within arm’s reach for use in the event of a drop-in constituent making statements from which a conflict may arise. Why not display the warnings in a frame on a desk or a shelf, or perhaps laminated and hanging on the wall?

While the cases demonstrating the pitfalls of a failure to provide appropriate Upjohn warnings have focused on outside counsel, none of those cases nor the Model Rules provide any exception to in-house counsel. Accordingly, steps should be taken to ensure that when the magnifying glass is focused on the in-house counsel, no violation of a client’s relationship, confidentiality and/or privilege with the lawyer will be found.

William M. Moran is a Director in the Gibbons P.C. Business & Commercial Litigation Department. 

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