Litigation by In-House Counsel, Quirky Question # 50

Quirky Question # 50:

We are a small to mid-size company, with a relatively small legal department.  We have a General Counsel.  He, in turn, supervises two other attorneys.  The General Counsel joined our company about two years ago, and frankly, his relationship with C-level executives has not been ideal.  His relationship with the CEO has been particularly strained.  The CEO has advised me (Head of HR) on several occasions that she just does not trust the General Counsel.  She has expressed doubts about his judgment, his advice, and, critically, his loyalty to the Company.

The CEO recently asked me to initiate the process to remove the General Counsel from our firm.  I don’t know whether this leaked out, but soon thereafter, the General Counsel began sharing with me his concerns about whether our company is complying with the law in a number of areas squarely within his area of expertise.  He advised me that he informed the CEO and CFO of his evaluation but they appear to be ignoring his advice.  I feel as though I’m caught in the middle.

Assuming that we follow through with our plans to terminate the General Counsel, do we have any risks?  My assumption is that everything he has been told in the course of his job is protected by the attorney-client privilege and could not be revealed in any lawsuit against the company.  Similarly, I assume that he could not contend that he was fired in retaliation for bringing the supposedly illegal activities to our executives’ attention, inasmuch the concerns he articulated are squarely within his job responsibilities as our chief legal officer.  Am I missing anything?

Dorsey’s Analysis:

The issues presented in this Quirky Question recently have received attention from the courts in Minnesota. In the case of Kidwell v. Sybaritic, Inc., No. A07-0584 (Minn. Ct. App. June 3, 2008), the intermediate appellate court in Minnesota addressed several issues paralleling those presented in this inquiry.

Kidwell was the General Counsel of the corporate defendant for a relatively abbreviated time period (about 10 months). Sybaritic terminated Kidwell’s employment a few weeks after he sent an email to the company’s top management expressing his concern that the company was engaging in various types of unlawful conduct. Following his termination, Kidwell sued his former employer under Minnesota’s Whistleblower statute. Following the jury trial, which Kidwell won, the case went up to the Court of Appeals.

The appellate court explored two related issues. First, the court examined the question of whether an in-house attorney may ever sue his or her employer under the state’s Whistleblower statute. Second, the court explored the question of whether communications made by in-house counsel relating directly to his or her job responsibilities fall within the scope of the Whistleblower statute. Kidwell persuaded the court as to the former issue but not the latter.

With respect to the first question examined by the court, the Court of Appeals noted that some jurisdictions had adopted the “attorney-client defense,” i.e., the notion that because in-house counsel would have to reveal information encompassed by the attorney-client privilege to pursue a whistleblower or retaliation claim against the company, such claims are absolutely barred. The court observed, however, that “the majority view . . . appears to reject the attorney-client defense and to permit such claims, though sometimes with the proviso that in-house attorneys may pursue such claims so long as they do not run afoul of the duty of confidentiality . . ..” The Minnesota Court of Appeals elected to follow that “majority” view, holding that a claim under the Whistleblower statute is not “per se barred by the so-called attorney-client defense.”

Having concluded that even in-house counsel may avail themselves of the Whistleblower statute’s protections, the court then evaluated whether Kidwell had presented evidence sufficient to prove that he made a good faith report of a violation (or suspected violation) of law. Although the appellate court considered several alternative arguments on this issue, the argument that carried the day for the corporate employer was well-established precedent standing for the proposition that “a former employee may not maintain an action under the Whistleblower Act if the alleged report is a communication that was made to fulfill the employee’s job responsibilities.” The court observed that if an employee makes a report as part of his or her job duties, rather than to “expose an illegality,” the requirements of the Whistleblower statute have not been satisfied. As the court stressed, “an employee does not engage in protected conduct under the Whistleblower Act if the employee makes a report in fulfillment of the duties of his or her job.”

Applying the Sybaritic holding to the‘Quirky Question’ presented below, it is clear that, in Minnesota at least, your General Counsel would be allowed to pursue a claim under the Whistleblower statute. Your “assumption that everything he has been told in the course of his job is protected by the attorney-client privilege and could not be revealed in any lawsuit against the company” is erroneous. It is possible that your about-to-be former General Counsel could file a retaliation claim based on the statute. In advance of such litigation, you may want to remind your in-house attorney of his duty of confidentiality. Of course, if such a lawsuit were initiated, you may want to consider immediately requesting the court to impose a Protective Order to preserve the confidentiality of your otherwise privileged information.

Although your in-house lawyer may not be barred from suing, the other facts you reveal should provide you greater solace. As you noted, the concerns being raised by your in-house attorney fall “squarely within” his areas of expertise and job responsibilities. Given that fact, it would not appear that he would be able to persuade a court that the purpose of his (supposedly good faith) report to you was to “expose an illegality,” rather than simply fulfilling the duties of his job. If your in-house counsel later elected to institute a lawsuit, I would quickly highlight the Sybaritic holding and inquire how he could file a lawsuit on these issues consistent with his Rule 11 obligations.

Finally, the holding of Sybaritic (assuming that, if appealed further, is not reversed) should increase companies’ general comfort level regarding essential (but potentially damaging) information entrusted to other types of employees. For example, a Human Resources Director provided with statistical data about the composition of a company’s workforce should be precluded from bringing a Whistleblower claim based on recommendations regarding hiring or firing decisions. Likewise, a member of the Audit Committee who is informed about areas of concern and who conveys those facts to management should be precluded from basing a Whistleblower claim on the information revealed in the course of his/her job duties. There undoubtedly are numerous situations where key employees are provided damaging information about a company, but as these examples illustrate, the Sybaritic holding should provide companies some protection against Whistleblower claims by individuals who are merely fulfilling their job responsibilities when reporting on wrongful or illegal conduct.

Supplement to Quirky Question # 50, Litigation Initiated by In-House Counsel:

In QQ # 50, I addressed the situation of whether an in-house attorney who claimed that he was fired for whistle-blowing activities could bring a claim against his employer, even if by doing so he would need to reveal information encompassed by the attorney-client privilege. Since posting that analysis, I came across an analogous case, Nesselrotte v. Allegheny Energy, Inc., No. 06-01390 (W.D. Pa. July 22, 2008).

In Nesselrotte, an in-house counsel, fired by her employer, sued for sex discrimination, age discrimination and retaliation. In the twenty-day period between the notice of her termination and her last day of employment, Nesselrotte copied and removed numerous documents from her employer, including many which were designated as “confidential” or “privileged.” Nesselrotte attempted to justify her removal of these privileged materials on the basis of Rule 1.6(c)(4) of the Pennsylvania Rules of Professional Conduct. Among other grounds for disclosing privileged communications, that rule provides a lawyer the right to reveal information relating to the representation of a client if necessary “to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client . . . or to respond to allegations in any proceeding concerning the lawyer’s representation of the client.”

The court didn’t buy Nesselrotte’s argument. The court rejected the notion that a lawyer may rely on Rule 1.6 to justify the removal and/or copying privileged or confidential documents. As the court emphasized, “[T]he proper avenue for a former employee (even an attorney) to obtain privileged and/or confidential documents in support of his or her claims is through the discovery process, . . . not by self-help.” The Judge observed, “the Court declines to hold that Rule 1.6(c)(4) of the Pennsylvania Rules of Professional Conduct trumps the attorney client privilege in the context of this case, where an attorney employed self-help by removing without authorization privileged and confidential documents seemingly in breach of her former employer’s Ethics Code and Confidentiality Agreement.”

The Nesselrotte case is interesting but seemingly turned largely on the imprudent decision of the in-house attorney to steal the documents that she felt would be beneficial to her case. Had she instead elected to obtain access to the privileged documents she felt were pertinent to her claims through appropriate discovery mechanisms, the court would have had to resolve the more challenging issue of whether an attorney suing for sex and age discrimination could obtain access to materials that were otherwise covered by the attorney-client privilege and/or work product doctrine. Assuming that the court permitted access to these materials through discovery, the court then would have to make the more difficult determination regarding how these materials could be used in hearings or at trial.

The judiciary in different states have reached different conclusions on the rights of in-house counsel to sue their employers and their ability to support their litigation with otherwise privileged and confidential information. To the extent that you confront a claim of this kind, it is critical for you to understand the position of your state courts on these issues.

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