Join us for a discussion on troubling ethics questions that affect in-house counsel. This presentation covers timely issues such as the impact of emerging technologies on the ethical duties of in house counsel and the ethical implications that occur when an in house lawyer provides services in a non-legal capacity.

1. © 2015 Armstrong Teasdale LLP

2. © 2015 Armstrong Teasdale LLP
© 2015 Armstrong Teasdale LLP
Larry Tucker
April 8, 2015
How to Avoid Trouble:
Legal Ethics for In-House
Counsel

3. © 2015 Armstrong Teasdale LLP
Topics for Today’s Presentation:
 How do the rules of professional conduct apply to in-
house counsel?
 Who is your client?
 What impact does emerging technology have on the
legal ethics aspects of your job?
 What are the ethical duties of an in-house counsel
when performing non-legal duties?

4. © 2015 Armstrong Teasdale LLP
How do the Rules of Professional
Conduct Apply to In-house Counsel?
 The Rules are made up of a Preamble, nine sets of rules, comments and
in Missouri two appendices having to do with IOLTA (Interest on
Lawyers’ Trust Accounts) and interactions with members of the medical
profession.
 The Preamble in both Missouri and Kansas says that the Rules are
“rules of reason” and that they are intended to be “partly obligatory
and disciplinary and partly constitutive and descriptive in that they
define a lawyer’s professional role.”
 They apply to every lawyer, no matter what professional role that lawyer
may play (e. g., an advisor, an advocate, a negotiator, an evaluator or as
a third-party neutral).
 They also apply to lawyers who are not in the active practice of law, and
to “practicing lawyers even when they are acting in a nonprofessional
capacity.”
 There are some Rules which have particular application for a lawyer
practicing as in-house counsel.

5. © 2015 Armstrong Teasdale LLP
Rules Which all In-house Counsel Need
to Understand and Apply:
 Rule 1.0
 Rule 1.10
 Rule 1.7
 Rule 1.13
 Rule 5.1
 Rule 5.3

6. © 2015 Armstrong Teasdale LLP
Rule 1.0
 Terminology---“Firm” or “law firm” includes “lawyers
practicing in …a legal department of a corporation or
other organization”.
• Comment 3 to that rule says: “With respect to the law
department of an organization, including the
government, there is ordinarily no question that
members of the department constitute a firm within the
meaning of the Rules of Professional Conduct. There
can be uncertainty, however, as to the identity of the
client. For example, it may not be clear whether the
law department of a corporation represents a
subsidiary or an affiliated corporation as well as the
corporation by which the members of the department
are directly employed….”

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Rule 1.10
 Imputation of Conflicts of Interest: General Rule---
This extends to lawyers who are “associated in a
firm”.

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Rule 1.7
 Conflict of Interest: Current Clients---Some conflicts
cannot be waived. What does a corporation do if an in
house counsel has one? (e.g., counsel working for
one subsidiary is directly adverse to the interests of
another subsidiary, owned by a common parent?)

9. © 2015 Armstrong Teasdale LLP
Rule 1.13
 Organization as Client---The entity is the client of the
lawyer. There are times (according to one of the
Comments) “when the organization’s interests may
become adverse to one or more constituents.” A
“constituent” is an officer, director, employee or
shareholder of a corporation.

10. © 2015 Armstrong Teasdale LLP
RULE 5.1
 Responsibilities of Partners, Manager and Supervisory
Lawyers--- Describes the duty of a lawyer with managerial
authority in a “law firm” to make reasonable efforts to
ensure that the “firm” has effective measures to assure all
lawyers conform their conduct to the Rules.
• A Comment to the Rule makes it clear that it applies to
lawyers in a “law department” with comparable managerial
authority to a partner in a private law firm.
• The Comments also say that the effective measures which
need to be put into place should be designed to “detect and
resolve conflicts of interest, identify dates by which actions
must be taken in pending matters, account for client funds
and property and ensure that inexperienced lawyers are
properly supervised.”

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RULE 5.3
 Law Firms and Associations: Responsibilities Regarding Non-
lawyer Assistance---Describes duty of a lawyer with managerial
authority in a “law firm” to make reasonable efforts to assure that a
non-lawyer employed or retained by the “firm” adheres to the
Rules.
 Comments make it clear that this duty extends to non-lawyers within and
outside of the “firm” who work on “firm” matters.
 For non-lawyers within the firm, the duty is to provide the necessary
instruction and supervision concerning the ethical aspects of their
employment, with a particular focus on the confidential nature of the
information they will work with.
 For non-lawyers outside of the firm the duty is extended based on the
circumstances of the use of those non-lawyers.
 In Kansas, there are more detailed comments with regard to non-lawyers
working outside the “firm” than in Missouri, but the principle is the same for
each state. In-house counsel bear some responsibility to assure that non-
employees who provide services to the legal department are aware of the
ethical aspects of any work that might be assigned to those persons.

12. © 2015 Armstrong Teasdale LLP
Case Studies on the Rules with Particular
Application to In-House Counsel
 First Case: Your legal department hires a new lawyer
from the firm you usually use as outside counsel. You
learn that while at that outside firm, the lawyer
represented a company which your company is
negotiating with to acquire. What steps should you
take?

13. © 2015 Armstrong Teasdale LLP
Case Studies on the Rules with Particular
Application to In-House Counsel
 Second Case: A member of the legal department you
head provides advice to the CEO of a corporate
subsidiary about the legal consequences of the
organization’s plan to spin off the subsidiary. How
should you respond?

14. © 2015 Armstrong Teasdale LLP
Other Supreme Court Rules Which
Apply Only to In-House Counsel
 In both Missouri and Kansas, in-house counsel are subject of special rules
governing their admission to practice.
 Missouri’s rule—4-8.105—and Kansas’ rule—Rule 712—have some things in
common and some things which are different.
 Missouri Rule 4-8.105 permits a lawyer already admitted to practice in another
jurisdiction to apply for admission and the issuance of a “limited” license to
practice which permits the exclusive practice of law for “a corporation, it
subsidiaries or affiliates, an association; a business; or a governmental entity”
where the employer is not in the business of the “practice of law or the
provision of legal services”. The limited license also permits the lawyer to
provide pro bono services with an organization approved to provide those
services by the Missouri Bar.
 Kansas Rule 712 is much like Missouri’s but it also requires that an applicant for
a “restricted” license to have an attorney “actively engaged in the practice of
law in Kansas agree in writing, to supervise and be responsible for the acts” of
the applicant between the time the application is filed and a restricted license is
issued. The restriction on the license is that the lawyer must work full time on
the business of the lawyer’s employer and the lawyer must receive his or her
entire compensation from that employer for the rendering of those services.

15. © 2015 Armstrong Teasdale LLP
Who is Your Client?
 Rule 1.13 as adopted in Missouri and Kansas addresses this question.
 The comments to the rule add to an understanding of how the rule is meant to
apply.
 What does the rule cover?
A. The client is the “organization acting through its duly authorized constituents”.
B. If the lawyer knows that a constituent or “other person associated with the
organization” is or intends to act in a way which violates either a legal obligation
to the organization or violates the law in a way which may be imputed to the
organization, then the lawyer “shall proceed as is reasonably necessary in the
best interest of the organization.”
The measures a lawyer should take under B are set out to “report up” and seek a
resolution.
C. If the “reporting up” does not work, in some instances the lawyer may resign in
accord with Rule 1.16.
D. The “Miranda Warning” for dealings with constituents.
E. When dual representation of the organization and constituents is permissible.

16. © 2015 Armstrong Teasdale LLP
Case Studies on Rule 1.13
 First case: The CEO asks that you advise her about a
request from the Board of Directors that she should
undergo psychological testing. What should you
say?

17. © 2015 Armstrong Teasdale LLP
Case Studies on Rule 1.13
 Second case: You learn that the Vice President of
Sales has been requiring his staff to report sales as
having occurred in a manner which is inconsistent
with the organization’s accounting practices. The VP
of Sales is the son of the CEO. What should you do?

18. © 2015 Armstrong Teasdale LLP
What Impact does Emerging Technology
have on the Legal Ethics Aspects of Your
Job?
 The Rules in Missouri make few references to modern
technology. The Rules in Kansas are more current.
• Rule 1.0 which has definitions of terms for use in the
Rules does include in the definition of the term
“writing” or “written” references to email and the use of
electronic means to sign documents. Both states
have made this change.

19. © 2015 Armstrong Teasdale LLP
What Impact does Emerging Technology
have on the Legal Ethics Aspects of Your
Job?
 In Kansas, the updates from the ABA’s Ethics 20/20 Project have
been adopted. Missouri has not yet done that.
• KRPC 1.1: Competence—includes a comment saying lawyers
must remain competent by keeping abreast of “the benefits and
risks associated with relevant technology….”
• KRPC 1.4: Communications—Comment eliminates the
reference to “telephone calls” and broadens the application of the
rule requiring a lawyer to keep a client well informed.
• KRPC 1.6: Confidentiality of Information—Broadens duty of
lawyer to protect against disclosure of confidential information
stored or communicated through new technology.
• KRPC 4.4: Respect for Rights of Third Person—expands to
electronically stored information the duty to inform of an
inadvertent disclosure of privileged information.

20. © 2015 Armstrong Teasdale LLP
What Impact does Emerging Technology
have on the Legal Ethics Aspects of Your
Job?
 In both states, the Supreme Court is likely to expect that the ethical
duties of lawyers must keep up with the changes in technology. The
Rules were first adopted in the 1980’s and while the means of creating,
storing and transmitting information has changed in the intervening
years, the duties have not.
 What do the Rules mean to in-house counsel? They require diligence
in managing information relating to the work of the legal department so
that:
• The client is kept well informed.
• The information stored by the legal department is protected from
unauthorized disclosure.
• The organization understands how new technology may impact its work.
For instance, the fact that nearly every person has the means to capture
information on smart phones; a majority of employees use social media;
there are constant challenges from data thieves, and information while
more easily created and captured, is now much harder to maintain in a
secure environment.

21. © 2015 Armstrong Teasdale LLP
Case Studies in the Application of
Technology to the Legal Ethics Aspect
of In-House Counsel’s Jobs:
 First case: You learn that one of the lawyers in your
legal department has been taking his laptop home
with documents relating to a large transaction being
pursued by your company stored on it. Now, he has
told you that the laptop was stolen from his car
overnight. What should you do?

22. © 2015 Armstrong Teasdale LLP
Case Studies in the Application of
Technology to the Legal Ethics Aspect
of In-House Counsel’s Jobs:
 Second case: You learn that employees of your
company are using social media to discuss the work
they are doing for your company. Much of what is
discussed is just general talk about work but some
relates to information which your company deems to
be confidential business information and a trade
secret. What should you advise your employer to
do?

23. © 2015 Armstrong Teasdale LLP
What are the Ethical Duties of an In-
House Counsel when Performing Non-
legal Duties?
 The same ethical duties as apply when the in-house
counsel is acting as a lawyer.
 The Preamble to the Rules makes it clear that the Rules
are meant to apply to conduct of a lawyer when the lawyer
is not acting in an explicitly legal role.
 Case law also confirms that. In Missouri the case of In re
Hess, 406 S. W. 3d 37 ( Mo banc. 2013) confirms this. In
Kansas, the case of In re Mintz, 317 P. 3d 756 (Kan. 2014)
also confirms this point.
 The facts in Hess and in Mintz demonstrate how the Rules
can be applied to the conduct of a lawyer when not acting
as a lawyer.

24. © 2015 Armstrong Teasdale LLP
What are the Ethical Duties of an In-
House Counsel when Performing Non-
legal Duties?
 When an in-house lawyer acts in a non-legal capacity
there are occasions when the rules of evidence in
litigation can come into conflict with the Rules governing
professional conduct.
 The Attorney-Client Privilege and the duty of
confidentiality under Rule 1.6 are not the same things.
 The rule of evidence deals with what a lawyer may say in a
court proceeding. In Missouri, the statute governing the
privilege characterizes it as a matter of the attorney’s
competence to testify. See §491.060 RSMo. In Kansas,
the statute is more detailed. See KSA 60-426. Both have
been construed by the courts similarly.
 The Rule of Professional Conduct, Rule 1.6 is directed to
prohibiting a lawyer from revealing information relating to
the representation of a client whether in a court
proceeding or not.

25. © 2015 Armstrong Teasdale LLP
Case Studies of the Application of the
Rules to an In-House Lawyer Acting in a
Non-legal Capacity:
 First case study: Your CEO in communicating with others in the
company about a class action filed against the company
claiming that one its products is defective and she copies you
on each of her messages. She asks the product development
people to determine how much it would have cost to have fixed
the alleged defect before the product was sold and how much to
fix the defect after the first claims had been received. The
product development people respond with a calculation of those
costs. You are copied on each communication. Your company
receives a discovery request seeking all communications within
the company which addressed the issue of the cost to repair the
alleged defect. What should your advice to your company be
about the production of the emails between the CEO and the
product development people?

26. © 2015 Armstrong Teasdale LLP
Case Studies of the Application of the
Rules to an In-House Lawyer Acting in a
Non-legal Capacity:
 Second case study: Your CEO tells you that she
knew that your company’s product was defective
when it was sold to the public. She said that she
knew that it could have been made safe by incurring
additional cost, but that she chose to not authorize
that cost in order to increase the profits on the sale of
those products. There is no suit pending when you
are told this. She tells you that she is confiding in you
and that you should tell no one else. You are
concerned by this revelation. You think you should
do something to make this information known. What
should you do?

27. © 2015 Armstrong Teasdale LLP
Questions?

28. © 2015 Armstrong Teasdale LLP
Contact
Larry Tucker
816.472.3123
lrtucker@armstrongteasdale.com

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Save the Date
Luncheon CLE Series
Topic: Intellectual Property
Featuring Eric Poland & Darin McCollum
Wednesday, June 10, 2015
Offices of Armstrong Teasdale, Kansas City, MO
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