In a major speech at New York City University this past September, Deputy Attorney General Sally Quillian Yates announced that the U.S. Justice Department had issued new policy guideline that would re-focus federal corporate criminal investigations towards holding individuals responsible for their corporate criminal actions. This shift is intended to bring about, through possible personal criminal exposure, corporate reform and soothe public anger at the “too big to fail” fiasco that allowed individuals responsible for the economic meltdown escape criminal prosecution.


Over the past decade, the headlines have been filled with reports of multi-billion dollar fines the DOJ has secured from major corporations for criminal wrongdoing in this country: J.P. Morgan Chase ($13 billion), BP ($4 billion), GlaxoSmithKline ($3 billion), and a host of other corporate criminal dignitaries. Public anger and mistrust has continued because only a few, mostly mid to low level employees, were ever held to account for their wrongdoing, despite these massive criminal fines, the government bailout, and the economic destruction felt by those whose life savings and economic well being was attached to the stock market.  Despite what the nations politicians tell us, the common man still struggles to to regain his footing after the meltdown.


Challenges for In-House, Corporate Counsel


Yates’ announcement seems to be a significant departure from criminal corporate fines to prosecuting the individual wrongdoers.  The new policy, while appearing to encourage criminal prosecution of “white collar” bad guys, will inevitably create a host of ethical challenges for in-house and corporate attorneys representing businesses, who now have increased obligations to investigate criminal activity and make disclosures to government regulators.


Conflicts of Interest in Corporate Investigations


The American Bar Association has pointed out that there is little ethical guidance for in-house corporate counsel. The Model Rules of Professional Conduct (Rules) provide little guidance because, as the ABA has noted, they “were not designed” to steer in-house counsel through the maze of conflicts he or she inevitably encounter on a daily basis.


Rule 1.3(a) provides that a lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.


“Constituents” has been uniformly defined as the corporation’s officers, directors, employees and shareholders. When there is a potential conflict of interest between a corporation and one of its CEOs, Rule 1.3(d) instructs the “lawyer shall explain the identity of the client when it is apparent that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.”


Upjohn Warnings


The Supreme Court has recognized this practice as something akin to a “corporate Miranda” warning, known in legal circles as Upjohn warnings. The warning is given, the court said, to inform “a constituent member or an organization that the attorney represents the organization and not the constituent member.”


According to Avoiding The Perils and Pitfalls of Internal Corporate Investigations: A “proper Upjohn warning informs the interviewee that: (1) the attorney is there to conduct a privileged and confidential interview of the employee; (2) the attorney represents the company, not the individual; (3) the company, not the individual, enjoys an attorney-client privilege with the attorney; and (4) the company may, as it sees fit, disclose the employee’s information and statements to third parties, including the government.”


Corporation Controls the Privilege


This warning was put in place to advise an employee or an officer of the corporation that the corporation, being the actual client, controls “the privilege and confidentiality” of any communication and can disclose its contents as it deems to be in the best interest of the corporate entity.


Duty of Corporate, In-House Counsel


The primary duty of in-house counsel, in a conflict situation, is to make it abundantly clear to “non-client” employees and officers that there is no attorney-client privilege between them; that any information these non-clients may disclose to in-house counsel can be disclosed to third parties if the disclosures serve the best interests of the corporation.


For example, if an employee or officer discloses to in-house counsel information about wrongdoing they have engaged in or are aware of, counsel may have a duty to disclose this information to law enforcement investigating the corporation because the individual’s criminal liability may either exonerate or mitigate the corporation’s role in the wrongdoing.


After all, the very purpose of Rule 1.3(a) is to protect a corporation or organization from the actions of its officers, employees, or other persons associated with the corporation or organization who engages in, or attempts to engage in, conduct that violates a “legal obligation” to the corporation or organization.


Duty Is to the Organization


In effect, in-house counsel has no choice. The duty is to the organization, not the individual.  He or she must take the necessary steps believed to be in the best interest of the corporation or organization.


Extent of Disclosure


However, there is this caveat: in-house counsel should only reveal the information he reasonably believes is necessary to protect the best interests of the corporation or organization.


Rule 1.12(b) of the Texas Disciplinary Rules provides that an attorney representing an organization “must take remedial action” when he learns:


  1. An officer, employee, or other person associated with the organization has committed or intends to commit a violation of a legal obligation to the organization or a violation of law which reasonably might be imputed to the organization;
  2. The violation is likely to result in substantial injury to the organization; and
  3. The violation is related to a matter within the scope of the lawyer’s representation of the organization.


Joint Representation


But the issue is not as clear when the attorney undertakes to represent both the organization and the employee. ABA Model Rule 1.7(a) prohibits an attorney from engaging in such a representation if it involves a “concurrent conflict of interest.”


A concurrent conflict of interest is defined as a situation where “the representation of one client will be directly adverse to another client” or “there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client.”


Does this mean an attorney can never represent both an organization and its employees?


No.  But it is not advisable and should be discouraged, lest counsel be conflicted out of representing both in future litigation or face disciplinary action.


Rule 1.7(b) states that such a representation may be undertaken when there are “concurrent conflicts” if the attorney satisfies the following four conditions:


  • The attorney reasonably believes that he or she will be able to provide competent and diligent representation to each affected client;
  • The representation is not prohibited by law;
  • The representation does not involve the assertion of a claim by one client against another client represented by the attorney in the same litigation or other proceeding before a tribunal; and
  • Each affected client gives informed consent, confirmed in writing.


We suspect the courts will receive an up-tick in litigation surrounding “conflicts of interests” in white collar criminal cases as the Justice Department puts its written policy into courtroom action. More often than not, outside defense attorneys will find themselves trying to sort through the maze of conflicts as they represent corporate officers and employees who were exposed by the corporation whose in-house counsel was trying to protect the business entity from criminal and financial exposure.


Best Practice is to Give Warnings and Obtain Outside Counsel


In situations where apparent criminal liability exists as to either the business or its employees, it is the best practice for in-house or corporate counsel to immediately give proper Upjohn warnings and to obtain outside counsel to represent individuals with potential criminal exposure before conducted further interviews.  This prevents later allegations of conflict of interests, potential disciplinary action against in-house counsel, and litigation as to assertion or breach of attorney client privilege.  Given new DOJ policies regarding more individual accountability and corporate cooperation, corporate counsel would be well advised to establish policies and procedures to detect and respond to these potentially problematic issues.