Tuesday, February 23, 2010

An Interesting Attorney Disqualification Issue

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Employers frequently provide separate representation to employees in legal proceedings, especially when the proceedings are criminal in nature. But "provide" typically means "pay for." A firm in NJ went a step further and, in the context of a NJ Attorney General criminal fraud investigation, actually identified the attorneys that its employees could use at company expense and entered into retainer agreements with them. It then notified the employees that they could consult these attorneys without charge. -- or retain counsel of their own choosing if they were willing to pay themselves. Plus, the employer reserved the right to cease paying the attorneys at any time.


As might be expected, the AG objected to the whole arrangement and moved to disqualify the counsel. She lost -- sort of. That is, the attorneys were not disqualified, but the New Jersey Supreme Court conditioned such arrangements on six principles which should minimize the potential for abuse.


The case was In re State Grand Jury, in which the court looked to RPC 1.8(f) (governing when a non-client can pay at attorney to represent the client), 1.7(a) (conflicts of interest), and 5.4 (not allowing anyone but the client to direct an attorney's professional judgment) to fashion its rule.


While the opinion is interesting in a number of respects, it's likely to be most important in two regards. First, it disapproved of the "take it or leave it" nature of the company's actions. In the future, employees will have to have the right to select their own counsel, which the company will then pay for,  Second, the court disapproved of the employer's reserving the right to prospectively stop paying the attorney's lawyers at its discretion. Rather, such action would be subject to court approval -- and the opinion is clear that the mere fact that the employer does not like the turn an employee's representation has taken will not be sufficient grounds for terminating payments. Similarly, the counsel could not withdraw from the representation without court approval.


The court was clearly trying to lift any employer thumb on the scale of the employee representation in these scenarios.  It will be interesting to see if the result is less willingness of employers to provide legal counsel or whether the incentives in the system are strong enough to push them to continue. And, of course, this case does not address the broader question of indemnification of employees who find themselves defending actions taken on behalf of their employer. 




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