Developments in Ethics for In-House Counsel
January 2012
By: John M. Tanner
I. CBA Formal Opinion 123 (Candor to the Tribunal) (copy attached)
a. Introduction/Scope—only civil cases
b. Under Rule 3.3(a)(3), a lawyer may not offer evidence known to be false to a tribunal. If client or witness intends to do so, try to talk him/her out of it.
c. If a client or witness offers such evidence, the lawyer must take “reasonable remedial measures.” This may override Rule 1.6.
d. Increasing levels of remedial measures:
1. Withdraw evidence with consent of client.
2. Withdraw or correct evidence without consent of client— limit to the absolute minimum required to remediate the false evidence.
3. Notify tribunal—this may create a conflict of interest and require withdrawal from representation. Do not have to give “true facts,” just withdraw false ones.
4. If already on appeal, withdrawal of evidence probably insufficient.
e. If lawyer believes, but does not know (Rule 1.0(f)), evidence if false, s/he can refuse to offer it at trial.
f. If lawyer mistakenly makes false statement, correct it.
II. CBA Formal Opinion 122 (Internet Advertising) (copy attached)
a. Introduction/Scope
1. This opinion deals with some aspects in the proliferating area of attorney advertising on the internet.
2. As written, Opinion 122 (and Rules 7.1 and 7.2, on which it is based) apparently apply to any services provided by a lawyer, not just legal services.
3. Unlikely this is correct—most likely in-house counsel needs to know this just to know if you are dealing with ethical outside counsel.
b. Generally, a lawyer may advertise its services, and may pay for the cost of advertising, including paying for an on-line directory listing.
c. Lawyer may not pay a for-profit referral service.
d. Factors to consider in determining whether something is an “on-line directory” or a “referral service” include:
1. How does service hold itself out?
2. Is it understood to provide unbiased referrals to lawyers with appropriate experience?
3. Is it understood to provide consumer protections, such as complaint procedures or malpractice requirements?
4. Is it searchable by the client, or is an actual recommendation provided?
5. How does it charge the client or the lawyer?
III. CBA Formal Opinion 121 (Outsourcing) (copy attached)
a. Introduction
1. This opinion deals with outsourcing of legal work to attorneys not licensed to practice law in Colorado by those in private practice. The analysis is often the same whether the project is outsourced to Indiana (“Domestic lawyer”) or India (“Foreign lawyer”), although it is different in some material respects.
2. Former Opinion 105 dealt with “temporary lawyers” licensed in Colorado, and much of it is reiterated here.
3. Working with attorneys not licensed in Colorado raises extra issues regarding assisting in the unauthorized practice of law.
4. Much of the Opinion dances around the issue that is really driving this: how much does the outside counsel have to disclose to the client? And if it does not disclose, how much can it profit by the outsourcing?
5. The bottom line is this: you will ultimately be responsible for the work of the outsourcee (unless there is no such word) unless the client hires it directly, and even then you may still be responsible.
b. Identifying an outsourcee.
1. Domestic lawyers are readily identified, but Foreign lawyers are harder to determine. Many countries use the term “lawyer” for something we would not recognize as such. Before hiring a Foreign professional, you need to determine if it is really a lawyer or something more akin to a clerk.
A. Note that the attorney-client privilege might not attach to a clerk.
B. Note that in some jurisdictions the attorney-client privilege does not exist or is not taken as seriously as it is in the U.S.
2. Be careful in communicating with the Foreign lawyer. There are stories on the web, for example, of a foreign medical transcriber who threatened to post patient information on the web unless she was paid more. Whether real or apocryphal, the story underscores the risk run by sharing client information with others.
A. If you have client consent, then this is a risk the client is willing to take.
B. If you are doing this without client consent, however, the risk is yours and it could well be you are not acting reasonably under Rule 1.6 by hiring a Foreign professional in the first place.
C. One way around this problem may be to outsource relatively academic tasks that do not involve client information.
3. You still have a duty under Rules 1.1, 5.3, and 5.5, to review and supervise the work of the outsourcee. A leading opinion in this area sanctioned lawyers who win a case based on an analysis by outsourcee lawyers, where the hiring lawyers were not competent to review the work of the Foreign lawyer.
4. You still have a duty to avoid assisting in the unauthorized practice of law.
5. As with temporary (Colorado) lawyers under Opinion 105, there is an issue regarding conflict checks.
A. If the lawyer can be viewed as “associated with the firm” under Rule 1.10 (which turns on a practical test as to such things as access to other files, having at the firm, and having access to the firm’s computer network), then you have to consider every matter the lawyer (or his firm) has worked on for conflicts purposes.
B. In most outsourcing situations, the lawyer is not “associated with the firm” and thus conflicts analysis is much simpler, but payment issues (discussed below) are more complicated.
c. Disclosure to the client
1. This is the hottest issue. Most lawyers want to outsource to keep the bill down yet make a profit on work done. They are reluctant to say to the client “I am hiring a lawyer in India to do this work for $15 and hour, but charging you $150 an hour for his work.”
2. It is always better from an ethical point of view to disclose. The client will probably appreciate you finding creative ways to save it money.
3. If you don’t do this, you risk running afoul of Rule 1.4(a)(2) (keeping client apprized of developments) and, in extreme cases, 8.4(c) (dishonest conduct).
d. Supervision
1. The duties of supervision under Rules 5.3 and 5.5 are largely the same for outsourced legal work as for in-firm work.
2. Rule 5.5 governs supervision of lawyers. Any outsourcee that is a Domestic or Foreign lawyer must be supervised just the same as any other lawyer, and the hiring lawyer is ultimately responsible for the work product as presented to the client or the court.
3. Rule 5.3 regards supervision of non-lawyers “in a firm.” Thus if the outsourcee is not a lawyer and not in the outsourcer’s firm, then the argument could be made that there are no supervisory duties owed. Opinion 121 sensibly overcomes this metaphysical gap by requiring the same sorts of supervision as “in firm” paralegals—most notably that the conduct of the outsourcee must be consistent with the Rules of Professional Conduct. From other opinions, the emphasis in this area is on avoiding conflicts and maintaining client confidentiality.
e. Fees
1. This is a really tricky area, even with disclosure to the client.
2. If the outsourcee is not “in the firm” then under Rule 1.15 you can only share fees if the outsourcee agrees to be equally responsible to the client in the matter. Not likely under outsourcing circumstances.
3. If you agree with the outsourcee to pay it regardless of whether the client pays you or the outcome of the case, then the payment is not a “shared fee.” It can be marked up by you, but there are limits to the “reasonableness” of this mark up. For example, the mark up from $15 to $150 referenced above is likely not reasonable.
4. Note both Opinions 105 and 121 come to the conclusion that therefore this fee can be marked up (at least a reasonable amount), but that is not clear under the Rules. If it is a cost, it cannot be marked up.
f. Unauthorized practice of law issues.
1. Under Rule 5.3(a)(2), every Colorado lawyer has an obligation not to assist in the unauthorized practice of law (“UPL”).
2. The Colorado Supreme Court’s jurisdiction only extends to those who either live or regularly office in Colorado, thus it is unlikely that a true outsourcee (who does not come to Colorado) is engaged in UPL.
3. If the situation does arise, however, the hiring lawyer can get into ethical trouble for assisting in UPL.
g. Conclusion
1. The safest course of action if a private practice lawyer is considering outsourcing is to fully apprize the client.
2. The safest course of action for the in-house counsel using outside counsel is to regularly ask questions that would lead to information about the use of outsourcing.
3. This Opinion is generally consistent with ABA Formal Opinion 2008-451, but the Colorado opinion is much more detailed.
IV. CBA Formal Opinion 69 (Revised) (Communicating with Employee or Ex-Employee of Adverse Organization) (copy attached)
a. Introduction
1. Change in Rules in 2008 had this opinion re-visited, but bottom line is essentially the same.
b. You cannot directly contact:
1. A current employee of an adverse organization where the employee supervises, directs, or regularly consults with the organization’s lawyer regarding a matter; or
2. A current employee has the authority to bind the organization regarding that matter (not specific facts involved in the matter, but resolve the matter itself).
c. You can always directly contact a former employee unless you know s/he is represented by counsel.
d. The question of representation always regards “the matter.”
1. In a transactional setting: “Before we finalize, I’ll have to run this past legal” means continued contact okay because adverse organization is not yet represented on this matter.
2. In a transactional setting: “I have been talking with Ms. Smith in legal, and she says . . . .” means continued contact not okay without Ms. Smith’s consent.
e. Other exception: where communication is “authorized by law or court order.”
1. “Law” means statute, rule, ordinance, and (probably) administrative rule.
2. “Court order” likely includes administrative orders.
f. If you are not sure about the scope of representation, you should ask.
V Recent ABA Formal Opinions
a. 11-461 Advising Clients on Contacts with Represented Persons (copy attached)
1. The prohibition on contacted one who is represented is a limitation on lawyers, and does not apply to non-lawyers.
2. It is ethically proper to advise your client that the client can directly contact an opposing, represented party.
3. One must be careful not to “direct” such contact, as that is prohibited by Rules 4.2 and 8.4(a).
4. In ABA 6-443, the ABA opined that it was ethical to “go around” outside counsel and directly contact in-house counsel of a represented company.
b. 11-460 Lawyer who receives communications between third-party and their lawyer from client’s computer
1. When employee uses company computer to contact counsel, and per firm policy all emails belong to company, no duty to notify employee.
2. Opinion leaves open the issue of whether substantive law requires a different result.
c. 09-455 Disclosure of Conflicts When Lawyers Move Between Firms
1. Pre-screening and use of a confidentiality wall (under new ABA Rule 1.10) when lawyers move between firms is proper. Comment [5A] to Colorado Rule 1.6 is cited in this opinion.
2. This is based on “implicit” consent of client—client can over-ride this by express direction.
3. Disclosure should never be broader than needed to resolve the conflict.
4. Confidentiality wall does not work when lawyer was “personally and substantially” involved.
d. 08-453 In-House Ethical Analyses
1. Good news is that this is one of the very few ethical opinions directed to “in-house” counsel.
2. Bad news is the authors mean “in-house” at a law firm.
3. Conclusion: when one lawyer in a law firm goes to talk to that firm’s in-house ethics lawyer:
A. This is implied authorized by the firm’s client (client can overrule this by express direction).
B. An attorney-client relationship is created between the two attorneys at the same firm;
C. It is understood that the in-house ethics lawyer may need to disclose ethical violations of the “client-lawyer” to the firm.
4. The actual client need not be told of the issue unless required by Rule 1.4. For a good discussion of how rare this is, see Colorado Formal Ethics Opinion 113 (“Mea Culpa” opinion).
e. 08-450 Confidentiality of Information When Lawyer Represents Multiple Clients
1. Where lawyer learns of information from Client A that could be hurtful to Client B, or helpful to client B at the expense of Client A, he has to not tell Client B
2. Most common situation involves insurance defense counsel, but under Colorado Ethics Opinions 91 and 107, client is insured, not insurer.
3. Issues could arise in other context where there is multiple representation in the same matter by the same lawyer. If Client B must be told pursuant to Rule 1.4, then lawyer needs to withdraw.
VI. Highlights of Recent Rule Changes
a. Preamble: The return of “zealousness” to the practice of law. Zealousness was in the old Code, but not in the 1993 Rules. It is now in the Preamble to the Rules, but does not justify “unprofessional, discourteous, or uncivil conduct.”
b. Scope, Comment [20]: biggest change in 2008 rule changes may be that in proper circumstances ethical rules may be admissible in non-disciplinary case (i.e., malpractice or shareholders’ derivative suit).
c. Rule 1.0 Terminology:
1. (b) “Confirmed in writing” means signed (or emailed) by client or be sent by the lawyer confirming oral conversation already had. Unilaterally written and sent communication by the lawyer does not satisfy this rule.
2. (e) “Informed consent” denotes giving client all information relevant to make an informed decision, not a certain, minimum amount.
d. Rule 1.5 Fees.
1. In addition to barring “unreasonable fees,” New Rule 1.5 also bars “unreasonable expenses.” “Unreasonable expenses” is not defined, but likely precludes making a profit on marking up expenses, just as prior ethical opinions have stated.
2. Language has been changed from “a lawyer’s fee shall be reasonable” to “lawyers shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.” (Emphasis added.)
3. The new reference to “collect” could add additional weight to the argument that the reasonableness of the fee is determined at the time it is collected. This has implications for both contingent fee cases and for stock and stock options for in-house counsel. It could well be that stock options that were worthless when issued become quite valuable by the time they vest, and this could be attacked as an unreasonable fee (especially in a suit brought by a disgruntled shareholder after the lawyer cashes them in just before the company tanks).
e. Rule 1.6 Confidentiality of Information
1. Rule 1.6 has been changed to be closer to Sarbanes Oxley-type language. Previously, attorney could only reveal information that the client intended to commit a crime and the information necessary to prevent the crime. Under the new Rule 1.6, the lawyer can reveal the same information as before, and also reveal information:
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 (emphasis added).
2. Rule 1.6(b)(4) Confidentiality of Information allows a lawyer to disclose client confidences when seeking his or her own counsel.
3. Rule 1.6(b)(5) Confidentiality of Information has been changed to allow conflicts check at a firm to which a lawyer may be moving unless the client expressly directs otherwise.
f. Rule 1.7 Conflict of Interest: General Rule.
1. Although it appears structurally different, the changes are not substantive (except for how a consent or waiver is obtained). New Rule 1.7 is organized to require lawyers to analyze conflicts of interest in a two-step process (“directly adverse to clients” and “material limitation” conflicts).
2. One new comment makes clear that representing one of multiple related companies, without more, does not prevent being adverse to the other companies.
3. Another new comment impresses the seriousness of being a lawyer for a company and being on the Board of Directors. Although not a conflict per se, the lawyer must be vigilant regarding whether a conflict of either sort has arisen, especially when the lawyer will be called upon to give advice to the Board. The notes suggest the following factors should be considered in determining whether you can both be the lawyer for, and on the board of directors of, a company:
A. How often the lawyer will be called upon to give advice to the Board
B. The potential intensity of the conflict
C. The potential effect of resignation from the Board. If there is a material risk the conflict will affect your role as lawyer, the lawyer should not serve on the Board. As a member of the Board, in-house counsel should advise other Board members that a lawyer’s mere presence at meetings does not mean the attorney-client privilege applies.
g. Rule 1.8(j) Prohibit Transactions. No sex with clients unless you have a prior sexual relationship with the client (before this was prohibited under Rule 8.4(c) (“deceitful conduct”).
h. Rule 1.9 Conflict of Interest: Former Client. Client’s consent to waive conflicts now must be confirmed in writing.
i. Rule 1.10 Imputed Disqualification: General Rule. Timely screening of lateral entering “firm” (which includes a law department of a company) to avoid conflicting out entire department is now allowed. This requires several steps, including:
1. Matter is not one the lawyer worked on “personally and substantially”;
2. Disqualified lawyer is timely screened from the matter (before being hired is best);
3. Disqualified lawyer gives prompt notice to former clients and former clients’ current attorney; and
4. Disqualified lawyer and the “partners at the firm” reasonably believe screening will be effective.
j. Rule 1.10 Imputed Disqualification: General Rule. This Rule has been relaxed to make clear that a conflict of interest is not imputed to the entire firm when the basis of the conflict is personal, such as in a personal relationship.
k. Rule 1.13 Organization as Client.
1. Under rule 1.13(g), it is clear that the lawyer can represent both the organization and the constituents so long as the usual conflict of interest rules are followed.
2. A lawyer is obligated to engage in “up the ladder” reporting apropos for ongoing actions that violate the law or are violative of the constituents duty to the organization and are likely to result in substantial injury to the organization. The only exception is when the lawyer “reasonably believes that it is not necessary and in the best interests of the organization to do so.”
3. Further the new rule 1.13 provides that if resort to higher authorities within the organization fails, a lawyer is now permitted to reveal information outside the organization as necessary to prevent a “clear violation of law” and the “lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization.”
4. Note this only applies to ongoing or future wrongs—it does not apply in Sarbanes-Oxleyesque fashion to rectifying damages from past acts.
5. CBA Formal Opinion 120 (2008)—Representing Organization as a Party in a Dispute.
A. A lawyer representing an organization does not “automatically” represent any or all of the constituents of that organization, and it is unethical for him to claim he does unless there is a “reasonable basis” for to make the claim.
B. What a “reasonable basis” means is not defined, but it should mean having conversations with the person(s) involved and having them indicate a desire to hire the attorney after disclosure by the attorney of any possible conflicts of interest in representing both the organization and the individual.
C. The lawyer in this circumstance has to be vigilant regarding a possible conflict between the organization and the constituent. If one arises, it must be dealt with under Rule 1.7 like any other conflict.
l. Rule 1.15 and CBA Formal Opinion 118 (2008)—Disputed Trust Fund Withdrawals.
1. If outside counsel properly pays self out of trust and client disputes bill later, lawyer cannot put money back into usual trust account.
2. Lawyer can (but is not required to) put it in separate trust account.
m. Rule 1.16A Retention of client files.
1. Civil Matters
A. Rule expressly references in-house counsel! It says it doesn’t apply to you!
B. For outside counsel, lawyer can destroy files without notice to the client 10 years after termination of representation for that matter, so long as (a) no threatened litigation known to lawyer and (b) is not contrary to agreement with client.
C. Alternatively, lawyer can destroy file with 30 days notice to the client.
2. Criminal matters.
A. Rule applies to all lawyers, including in-house.
B. For death, life, and indeterminate sentences, keep file for life of client.
C. For other sentences, 8 years if appealed and 5 if not.
n. Rule 3.4 Fairness to Opposing Party and Counsel now allows payment of both expert and fact witnesses, including both reimbursement of out-of-pocket costs and payment for time. Contingent payments remain prohibited.
o. Rule 4.2 Communication with a Person Represented by Counsel. The comments to the rule make clear the following:
1. The rule applies even if the represented person initiates the contact;
2. The rule does not apply to a lawyer from whom the client seeks a second opinion;
3. The rule does not stop a lawyer from advising a client that communication with the client is entitled to make, i.e., directly contacting the other party.
p. Rule 4.3 Dealing with Unrepresented Persons.
1. Formerly, the only legal advice an attorney could give an unrepresented person was to seek counsel. Now, this only applies when the attorney reasonably should know that the interests of the client and the unrepresented person are not aligned. If they are aligned, the attorney can give more advice, although the attorney should be clear who is being represented. This is a troubling development, and should be avoided if possible.
2. The rule does not preclude the lawyer from negotiating a transaction or settlement of a dispute so long as the lawyer has disclosed its client and states that its client’s interests are adverse to the unrepresented person’s interests. It is a good idea to do this repeatedly, and in writing.
q. Rule 4.4 Respecting the Rights of Third Persons and interaction with CBA Formal Opinion 108 and 119.
1. Consistent with CBA Formal Opinion 108, Rule 4.4 provides that if an attorney receives privileged documents that the attorney believes to be improperly disclosed, the receiving attorneys’ obligation is limited to notifying the sending party.
2. The reasoning behind the limited duty of notice is to put the burden on the party who erred, i.e., sent the document improperly, rather than putting the innocent recipient in an ethical bind.
3. One addition is Comment 3, which suggests that a receiver “can” do more than merely return an inadvertently sent document (such as return it and not use it) and that such conduct is “a matter of professional judgment ordinarily reserved to the lawyer. See Rules 1.2 and 1.4.” The suggests it was intended to head off a malpractice case or grievance against a lawyer who “takes the high road” and returns a document that could be used to help the lawyer’s client.
4. CBA Formal Opinion 119 (2008)—Metadata
A. A lawyer sending a document to someone other than the client has a duty to take reasonable efforts to scrub documents of metadata.
B. A receiving lawyer is generally entitled to search a document for metadata. If apparently confidential metadata is found, recipient has duty to notify the sender consistent with Rule 4.4 and Opinion 108.
C. This is not true in all states.
r. Rule 5.1 Responsibilities of a Partner or Supervisory Lawyer.
1. Previously, this rule only applied to “partners” in law firms (which could include in-house lawyers that owned stock, but not others). Now, it applies to any lawyer who has “comparable managerial authority” to a partner. As a result, Rule 5.1 could now apply to in-house counsel, whereas before it did not.
2. The responsibilities of a “partner or attorney having comparable managerial authority” include establishing internal procedures and policies so that all lawyers conform to the Rules. Of particular importance for in-house lawyers are procedures regarding deadline management, supervision of junior lawyers and staff, and procedures for addressing ethical issues in a confidential manner.
s. Rule 5.3 Responsibilities Regarding Nonlawyer Assistants imposes similar duties regarding establishing internal procedures and policies so that all nonlawyer assistants in conform to the Rules. Although it is not clear, it appears that this only applies within the “firm,” which for in-house purposes means the legal department, not the entire company.
t. Rule 5.5 Unauthorized practice of law.
1. A lawyer cannot practice in Colorado (even in-house) if the lawyer: (a) is not authorized to practice in Colorado and (b) either works or resides in Colorado.
2 Not only can lawyer get in trouble for unauthorized practice of law (remember, in addition to being an ethical violation, it is a crime), but the attorney-client privilege may not protect communications by unlicensed lawyer and the purported client. Further, licensed in-house counsel could get in disciplinary trouble for aiding in the unauthorized practice of law under Rule 5.5(a)(3). Rule 222 (single client admission) can fix this. “Single client” covers related groups of companies.
u. Rule 5.7 Responsibilities Regarding Law-Related Services
1. Has no counterpart under the old Rules
2. Applies where lawyers provide law-related services. “Law-related services” are defined as “services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as the unauthorized practice of law when provided by a non-lawyer.”
3. Comment [9] includes a non-exhaustive list of such services, including “providing title insurance, financial planning, accounting trust services, real estate counseling, legislative lobbying, economic analysis, social work, psychological counseling, tax preparation, and patent, medical, or environmental counseling.”
4. A lawyer is governed by the Rules even when not acting as a lawyer. The comments to 5.7 make clear, however, that the recipient of the law-related services is not a “legal client” and legal protections such as the attorney-client privilege do not apply.
5. The lawyer’s job under New Rule 5.7 is to make sure the customer/client knows that the attorney-client privilege does not apply when the lawyer is engaged in a law-related service and not the practice of law.
VII. Coming Attractions— CBA Ethics Committee working on:
a. Medical marijuana
b. Revisions to 96 (ex parte communications with represented persons during criminal or investigatory proceedings)
c. Revisions to 98 (Dual practice)
d. Diminished capacity
This Article is published for general information, not to provide specific legal advice. The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis of the specific facts involved.
Copyright © Fairfield and Woods, P.C., ALL RIGHTS RESERVED.
Comments or inquiries may be directed to:
John M. Tanner