Thursday, July 18, 2019

Washington State: In House Counsel May Sue Former Employer

The Washington State Supreme Court has held that in-house counsel are entitled to special protection in bringing claims against a former employer

Far from the lawyers of old, who tolled "alone In a solitary office . . . unhallowed by humanizing domestic associations,"  today's attorneys often work together with lawyers and nonlawyers alike, for clients ranging from nonprofits and government agencies to massive, multijurisdictional corporations. See Hugh D. Spitzer, Model Rule 5.7 and Lawyers in Government Jobs—How Can They Ever Be "Non-Lawyers'"?, 30 Geo. J. Legal Ethics 45, 47 (2017) ("An increasing number of law graduates with licenses to practice are not engaged in traditional legal jobs."); Orly Lobel, Lawyering Loyalties: Speech Rights and Duties within Twenty-First-Century New Governance, 77 Fordham L. Rev. 1245, 1262 (2009) (in-house attorneys have "administrative, managerial, and compliance responsibilities that are outside the direct scope of their legal roles"); Grace M. Giesel, The Ethics or Employment Dilemma of in House Counsel, 5 Geo. J. Legal Ethics 535, 544 (1992) (explaining that in-house counsel are considered "an essential component of the management team" by corporations and that these "attorneys affect the full range of corporate decisions").

The evolution in legal practice has uniquely affected the in-house attorney employee and generated unique legal and ethical questions unlike anything contemplated by our Rules of Professional Conduct (RPCs).

The case before us today presents just such a question: we must decide whether modern in-house employee attorneys should be treated differently from traditional private practice lawyers under our RPCs. We conclude that they should.

Solely in the narrow context of in-house employee attorneys, contract and wrongful discharge suits are available, provided these suits can be brought without violence to the integrity of the attorney-client relationship. Accordingly, we hold that Jared Karstetter alleged legally cognizable claims and pleaded sufficient facts to overcome a OR 12(b)(6) motion of dismissal. We reverse the Court of Appeals' ruling dismissing Karstetter's claims and remand the case to the trial court for further proceedings consistent with this opinion.

The attorney worked  for the King County Corrections Officers Guild (Guild) under a series of contracts

In 2016, the King County ombudsman's office contacted Karstetter regarding a whistleblower complaint concerning parking reimbursements to Guild members. The Guild's vice-president directed Karstetter to cooperate with the investigation. The Guild sought advice from an outside law firm, which advised the Guild to immediately terminate Karstetter. In April 2016, the Guild took this advice and, without providing the remedial options listed in his contract, fired Karstetter.

In response, Karstetter and his wife filed suit against the Guild, alleging, among other things, breach of contract and wrongful discharge in violation of public policy. The Guild moved to dismiss the suit for failure to state a claim. The trial court partially granted the motion but allowed Karstetter's claims for breach of contract and wrongful termination to proceed. On interlocutory review, the Court of Appeals reversed and remanded the case, directing the trial court to dismiss Karstetter's remaining breach of contract and wrongful termination claims. Karstetter v. King County Corr. Guild, 1 Wn. App. 2d 822, 407 P.3d 384 (2017). Karstetter sought review here, which we granted.

The Guild contended that Rule 1.16 precluded the suit

The Guild asserts that to protect individual clients and the public generally, RPC 1.16 applies to all attorneys without exception. But in and of itself, RPC 1.16 does not stand for this proposition. The rule simply states that clients may discharge their attorneys.

Significant language

The unique employment status of and demands on in-house attorneys counsel against a rigid interpretation of RPC 1.16. Today's legal employees operate differently from private sector attorneys. See Gen. Dynamics Corp. v. Superior Court, 7 Cal. 4th 1164, 1171-73, 876 P.2d 487, 32 Cal. Rptr. 2d 1 (1994). Economic success for inhouse attorneys, unlike a law firm partner, "is tied directly to a single employer, at whose sufferance they serve." Id. at 1172; Crews v. Buckman Labs. Int'l, Inc., 78 S.W.3d 852, 860-61 (Tenn. 2002). The professional relationship between corporate counsel and a client employer is similarly distinct. The duties of today's corporate attorneys have grown increasingly complex, often including advisory and compliance roles as well as the more general aim of ensuring a successful business. See Gen. Dynamics, 7 Cai. 4th at 1172; Lobei, supra, at 1262.

The expectations for in-house attorneys are distinct from outside lawyers. The expansion of an employee attorney's duties coupled with the professional and financial dependence on a single client employer "can easily subject [that] attorney to unusual pressures to conform to organizational goals, pressures that are qualitatively different from those imposed on the outside lawyer." Gen. Dynamics, 7 Cal. 4th at 1172. While an outside lawyer enjoys distance and economic independence from the financial success of his or her client, an in-house attorney is dependent on the "good will and confidence of a single employer to provide livelihood and career success." Id. at 1182. And unlike outside counsel, for in-house attorneys with only one client—an employer— the "withdrawal 'remedy' fails to confront seriously the extraordinarily high cost that
resignation entails." Id. at 1188; see also Peter D. Banick, Case Note, The "In-House" Whistleblower: Walking the Line between "Good Cop, Bad Cop," 37 Wm. Mitchell L. Rev. 1868, 1884 (2011) (noting that in-house attorneys often "cannot simply withdraw from a case or refuse to represent a particular client and forego some attorney's fees"); John Jacob Kabus, Jr., Establishing Corporate Counsel's Right To Sue for Retaliatory Discharge, 29 Val. U. L. Rev. 1343, 1378 (1995). Thus, the relationship between corporate counsel and the employer client "cannot be characterized solely as an attorney-client relationship"; it must be"viewed as an employer-employee relationship as well." Banick, supra, at 1908; Gen. Dynamics, 1 Cal. 4th at 1171-72.

A rigid application of RFC 1.16 to all lawyers, including in-house employee attorneys, not only ignores these abstract and practical distinctions but also overlooks that the RPCs were written when few lawyers worked outside the traditional private law firm practice model.

Note

Despite numerous amendments over the years, our rules have not evolved with the profession. They are still fundamentally Influenced by "traditional" notions of lawyer-client relationships.

...Given the many changes in legal practice since the RPCs were adopted, we decline to elevate RPC 1.16 against all competing interests. Concluding otherwise easily leads to unjust results. For instance, in-house attorneys would lose their jobs without the recourse afforded to their nonlawyer colleagues.

Holding

We therefore hold that in the narrow context of in-house attorneys, contract and wrongful discharge suits are available, provided these suits can be brought "without violence to the integrity of the attorney-client relationship." Nordling v. N. States Power Co., 478 N.W.2d 498, 502 (Minn. 1991). In so doing, we join other states whose rules better fit the modern legal world...

Our rules of professional conduct do not foreclose an in-house attorney employee from bringing breach of contract and wrongful discharge claims against an employer-client. We reverse the Court of Appeals and hold that in the narrow context of in-house attorneys, contract and wrongful discharge suits are available, provided these suits can be brought without vioience to the integrity of the attorney-client relationship. We remand Karstetter's suit to the trial court for further proceedings consistent with this opinion.

Justice Owens dissented and would hold that Rule 1.16 precludes such suits as a matter of public policy

Whatever the nature of the relationship between Tared Karstetter and the King County Corrections Guild (Guild), Karstetter remained nonetheless an attorney subject to the distinct ethical rubric binding on our profession. Insofar as Karstetter's contract with the Guild contravened RPC 1.16,1 would hold it unenforceable as violative of public policy. LK Operating, LLC v. Collection Grp., LLC, 181 Wn.2d 48, 85-89, 331 P.3d 1147 (2014). The remedy of contract damages is plainly anathema to the mandate memorialized in RPC 1.16 safeguarding a client's right to discharge an attorney. Accordingly, I would hold that the Karstetters failed as a matter of law to state a breach of contract claim for which relief can be granted.

...Though I do not extol the Guild for capitalizing on the mandate of RPC 1.16 after 20 years of complicity in contracts establishing mutual expectations of security in Karstetter's position, the onus was nevertheless on Karstetter as a licensed Washington attorney to know and uphold the rules governing attorney conduct. I would not grant him an equitable exemption after the fact, as the majority elects to do. I respectfully dissent.

(Mike Frisch)

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