ETHICAL DILEMMAS FACING IN-HOUSE COUNSEL 2017 Transportation Law - - PDF document

10/6/2017 1

ETHICAL DILEMMAS FACING IN-HOUSE COUNSEL

2017 Transportation Law Institute – Norfolk, Virginia

Outline

• Key ABA Rules for in-house counsel:
• 1.1 Competence
• 1.6 Confidentiality of Information
• 1.7 Conflict of Interest
• 1.13 Organization as Client
• 4.1 Truthfulness in Statements to Others
• 4.2 Communication with Person Represented by Counsel
• 4.3 Dealing with Unrepresented Person

1.1 Competence

• Maintain competence of developments in the law. For in-house counsel with a

general practice, this can be a daunting requirement.

• Use CLE to your advantage. Take specific courses that will align your knowledge with the

business needs of your company.

• Understanding e-Discovery and litigation holds, given how quickly business relationships can

deteriorate.

• Focusing on business ethics and compliance. When was your company’s code of conduct last

updated/reviewed/acknowledged by employees?

• Adopting legal technology and tools to aid in legal research/legal department management.
• Examples: matter management, document management, litigation hold, e-billing, e-discovery,

compliance and ethics, contract lifecycle management.

• Business leadership expects in-house lawyers to know how to do everything.

10/6/2017 2 1.6 Confidentiality of Information

• Confidentiality is broader than attorney-client privilege. Encompasses virtually everything you learn during

representation of the client.

• Attorney-client privilege may apply outside of the United States, so become familiar with the rules of each

international jurisdiction where your company operates.

• Be mindful of telephone calls or conversations in public where others might be within earshot.
• Duty to preserve client files and documents. One method is email and hard drive backup. Check with your IT

department to determine the best strategy.

• Password protect laptops, phones, tablets, etc. with a strong password containing letters, numbers, and symbols.

12 Most Common Passwords in 2016

• 1. 123456
• 2. 123456789
• 3. qwerty
• 4. 12345678
• 5. 111111
• 6. 1234567890
• 7. 1234567
• 8. password
• 9. 123123
• 10. 987654321
• 11. qwertyuiop
• 12. mynoob

Confidentiality

• Confidentiality applies to social media use. General considerations:
• Don’t post something embarrassing to yourself or the company.
• Don’t comment on pending litigation or other legal matters involving the company.
• Don’t disparage opposing counsel or the judge in any legal matter.
• Don’t share confidential or privileged information.
• Lawyers have been sanctioned and even terminated for misuse of social media. While the majority of

examples involves outside counsel, the principles apply to in-house counsel as well.

• In-house counsel should also be aware of social media use by employees or executives that could place the

company in hot water.

• Get involved in developing corporate social media policies and crisis response plans, to ensure alignment with other

company policies.

• Build confidence in the company’s plan by participating in crisis simulation trainings.
• Work collaboratively with existing crisis teams to update protocols, review response plans and remain vigilant.

10/6/2017 3 Scenario 1

• Adam is the lead M&A attorney at Widgets “R” Us. Widgets is in the due diligence phase of its acquisition of a

competitor, Doohickeys, Etc. Nothing has been publicly announced regarding this proposed transaction.

• Adam travels to Doohickeys’ headquarters to continue the M&A discussions. He can’t believe the incredible size of

the saltwater shark tank in Doohickeys’ lobby area, so he snaps a picture and posts it on Facebook. The Doohickeys logo on the wall adjacent to the tank is visible in his picture.

• Has Adam breached his duty of confidentiality?
• What if Adam’s post is seen by an investor who promptly purchases $10,000 in Widgets stock?
• What if the stock skyrockets upon announcement of the acquisition and is now worth $100,000?
• Does it make a difference if the acquisition had already been announced before the post?
• Would it make a difference if his Facebook profile is private?
• Would it make a difference if he tweeted the photo or posted it on Instagram?
• What if he deletes the post?

Scenario 2

Your IT department is currently developing an IT solution. Vendor 1 has a longstanding relationship with your company and the IT department uses its technology extensively. The company maintains a valid Non- Disclosure Agreement (“NDA”) with Vendor 1. However, Vendor 1 is not involved in this project. The company also has a valid NDA with Vendor 2, the company engaged in developing the IT solution. Michael, a low level IT employee, calls Vendor 1 to ask for certain technical documents. When asked why he needs them, Michael says “to provide to Vendor 2.” Vendor 1 refuses. In an effort to be helpful, Michael downloads the technical documents from Vendor 1’s customer portal and emails them to Vendor 2. As a result, Vendor 2 will be able to reverse engineer the code belonging to Vendor 1, which it would otherwise have to develop on its own. Vendor 1 sends a letter to the CIO to inquire as to why Michael asked to send documents to Vendor 2. The CIO forwards the letter to you, which is (of course) the first you’ve heard of this situation. How do you reply? Does it make a difference if one or more of the documents is marked as “Confidential?” Does it change your analysis if a valid NDA exists between Vendors 1 and 2?

Rule 1.6

Confidentiality Of Information (a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation, or the disclosure is permitted by paragraph (b). (b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary: (1) to prevent reasonably certain death or substantial bodily harm; (2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services; (3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services;

10/6/2017 4 1.7 Conflicts of Interest

• Client conflicts
• Hiring outside counsel
• Any preexisting relationship with a Director, executive, or other employee?
• Is waiver possible or necessary?
• Hiring in-house counsel: find out if a potential candidate has relationships with any current defendants in

litigation and screen them from the discussions or actions related to the case. Failure to do so could result in the entire in-house department being disqualified.

• Joint ventures: working with multiple parties, how should information be shared? Could one party to the

venture profit from information belonging to another party to the venture?

Conflicts of Interest

• Conflicts of Interest (usually internal)
• Board of Directors
• Executives
• Employees
• Considerations:
• What if a Director or the CEO is the controlling shareholder of your company? How can in-house counsel ensure that

the Director or CEO acts in the best interests of the company and not just in his or her personal interests?

• What if an employee wants to start a consulting business (while remaining employed) utilizing the skills, experiences,

and methods developed while at the company?

• Does your company have a policy regarding conflicts? Become familiar with the policy and follow its terms if you spot

a conflict.

Scenario 3

• Corinne, the Director of Marketing at your company, has been using numerous freelancers to complete

certain graphics and advertising projects. She assigned these projects without conducting a request for proposal, which means you don’t know if your company is receiving the best quality work at a competitive

• price. Other stakeholders complain that Corinne is not following the procurement process.
• The quality of submitted freelance projects is mediocre. When stakeholders complain about the quality of

the work product, Corinne hires a big gun advertising firm to redo the project with superior quality, but at a higher price.

• When you dig deeper into these freelancers, you discover that they are Corinne’s friends and family members.

Moreover, Corinne has provided a testimonial on one freelancer website and the freelancer has provided a recommendation of Corinne on LinkedIn.

• Is this a conflict of interest? As counsel for the company, how do you address the situation?

10/6/2017 5 1.13 Organization as Client

• For in-house counsel, the company is the client and not any employee or member of management.
• Business colleagues often think of you as “their lawyer.”
• This is okay, to the extent the employee is an extension of the business. But you must clarify that you represent the

interests of the company and not them individually.

• If conducting an internal investigation (such as in Scenario 3 with Corinne), you may need to instruct the

employee to obtain her own counsel.

• You should provide an Upjohn warning.
• Best practice is a written warning signed by the employee.

Upjohn Warning

• Sample from American Bar Association’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?

4.1 Truthfulness in Statements to Others

• In the course of representing a client a lawyer shall not knowingly:
• (a) make a false statement of material fact or law to a third person; or
• (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal
• r fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.
• SCENARIO 4
• Outside counsel defending Swift in a class action informed us that class counsel requested a

random sampling of documents be provided for their review. Class counsel did not provide a detailed description of what documents they seek.

• This random sampling could prove determinative in the case, as the documents provided would be

applied to each member of the class.

• Swift’s counsel suggested that, since the request is vague, Swift allow our counsel to review and

cull any documents from the sampling not specifically requested. Is this a violation of Rule 4.1?

10/6/2017 6

4.2 Communication with Person Represented by Counsel; 4.3 Dealing with Unrepresented Person

• In-house counsel are often asked to sit in on calls “with the other side.”
• Who is participating on the other side and are they represented by counsel?
• If represented and opposing counsel will not be participating on the call, you need permission from opposing counsel,

NOT their client, to speak to the other side’s business representatives.

• What if the business representative on the other side reaches out to you directly?
• You still need permission from opposing counsel.
• What if the party is unrepresented?
• You may participate in the call, but you have a duty to inform the party that you are not their attorney.
• Do not provide them with legal advice, except to encourage them to secure counsel of their own.
• Can I have my paralegal participate in the call if I sit it out? Or am I prohibited from allowing someone

under my supervision from doing something I am prohibited from doing?

Equifax Breach: A Case Study

• John “J” Kelley is CLO of Equifax. He is responsible for the legal and security functions of the company. The

Chief Security Officer reports to him. Kelley also had ultimate approval of stock sales by company executives.

• March 8, 2017 Cisco Systems reported an online security flaw that allowed hackers to break into servers around the
• internet. Cisco urged users to upgrade their systems immediately with a newly issued fix. Equifax claims their IT

personnel patched the vulnerability at that time.

• Equifax released its Q2 earnings on Wednesday, July 26, 2017. Executives were eligible to transact in Equifax stock

beginning Monday, July 31.

• The security staff discovered the data breach on Saturday, July 29, and they allegedly patched the vulnerability that

led to the breach. It is unclear when Kelley learned of the breach.

• Three executives sold stock worth $1.8M during August 1 and August 2. A deputy of Kelley filed the Forms 4 with

the SEC.

• At some point on August 2, Equifax hired a company to probe the breach. The company was hired by Equifax’s
• utside counsel, which Kelley would have approved, according to someone familiar with the company.
• The company publicly announced the breach in early September, more than one full month after it happened. In

the meantime, your personal information was potentially being used by hackers.

Equifax

• What are the ethical considerations if Kelley was not aware of the breach until August 2 after the stock sales?
• What are the ethical considerations if Kelley became aware before August 1 when the first stock sale occurred?
• What are the responsibilities of an in-house lawyer to report up the ladder?

10/6/2017 7 Equifax Update

To be completed between now and the date of the presentation.

Resources

• Ten Things: Common Ethics Issues for In-House Counsel by Sterling Miller
• https://sterlingmiller2014.wordpress.com/2015/08/18/ten-things-common-ethics-issues-for-in-house-counsel/
• ABA Model Rules
• https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct.

html

• Upjohn Article
• http://www.gibsondunn.com/publications/Documents/Dunst-Chirlin-RenewedEmphasisOnUpjohnWarnings.pdf
• Social Media
• http://webershandwickseattle.com/2017/01/house-counsel-can-prepare-social-media-crisis/

Contact Information

Coby Page Assistant General Counsel Knight-Swift Transportation Holdings Inc. coby_page@swifttrans.com 623.907.7842 Office