The Application of the Rules of Professional Conduct to In-house Lawyers

• Citation: Vol. 2024 No. 2
• Publication year: 2024
• Author: Written by Neil J Wertlieb

THE APPLICATION OF THE RULES OF PROFESSIONAL CONDUCT TO IN-HOUSE LAWYERS

Written by Neil J Wertlieb^*

Since you took an in-house attorney position and no longer work for a law firm, you don't have to worry about the nuances and application of all of California's ethical rules, right? Ok, fine, there's still the general duty of loyalty to consider, and, of course, confidentiality, but most of the other ethical rules—just like time sheets and billings—no longer apply, right?

Sorry, but that's just not the case. In fact, you might be surprised to learn which ethical rules apply to you in your in-house position, and how such rules apply.

THE BROAD REACH OF THE CALIFORNIA RULES

The ethical rules that govern lawyers in the State of California are the California Rules of Professional Conduct (the "Rules"). The Rules do not just apply to lawyers in private practice, but they also apply to in-house lawyers. Further, the application of such Rules to how lawyers in private practice behave while at a law firm also applies to in-house lawyers, as paragraph (c) of Rule 1.0.1 [Terminology] defines "law firm" (or "firm") to include "the legal department, division or office of a corporation, of a government organization, or of another organization." The State Bar of California has disciplinary authority over all State Bar licensees, and yet in-house attorneys are often surprised at how several of the Rules are applicable to their duties when their client is also their employer.

Even in-house attorneys who are not licensees of the California State Bar but who practice in California may be subject to the Rules. The California State Bar permits non-California admitted lawyers to practice as in-house counsel in the state under certain circumstances. An attorney who resides in California and who is licensed to practice law in another U.S. jurisdiction may register to provide legal services as in-house counsel for a single "qualifying institution" in California without becoming a licensee of the State Bar of California.⁰¹ To be eligible to do so, an in-house attorney who is not a licensee of the State Bar of California must meet the eligibility requirements of California Rules of Court rule 9.46,⁰² which includes the requirement to abide by all laws and rules governing California State Bar licensees, including the Rules. In-house attorneys residing in California, including those who are not admitted to practice in California, must therefore abide by the ethical rules applicable to all licensees of the State Bar of California.

While it is clear that the Rules apply to all in-house attorneys in California, how those Rules actually apply is not always clear. Attorneys are generally familiar with the application of the ethical rules to their practices when they work in private practice. In fact, many of the Rules contemplate the attorney as an outside legal advisor with multiple clients—not an employee of a single client. Some of the Rules are obvious in their application to in-house attorneys (such as the duty of confidentiality contained in

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rule 1.6). Other Rules don't really apply to the in-house attorney as a practical matter (such as the obligation to maintain trust accounts pursuant to rule 1.15 [Safekeeping Funds and Property of Clients and Other Persons], and the limitations on advertising and solicitation contained in rules 7.1 [Communications Concerning a Lawyer's Services], 7.2 [Advertising], and 7.3 [Solicitation of Clients]).

But the application of some of the Rules may have a different or surprising application to many in-house attorneys, due in part to the nature of the employer-employee relationship where the employer is the client (and perhaps the only client) of the in-house attorney, and also due to the mixed role of some in-house attorneys who serve as both a lawyer for the organization and also as a businessperson or principal of the organization. This article focuses on several familiar topics of legal ethics and how they apply to the in-house lawyer.

CONFLICTS OF INTEREST⁰³

CURRENT CLIENTS

Although the Rules makes clear that an attorney employed or retained by an organization represents the organization acting through its duly authorized constituents (e.g., officers, directors, etc.), the Rules also makes clear that the attorney may represent any such constituent in addition to the organization. Paragraph (g) of rule 1.13 [Organization as Client] provides that a "lawyer representing an organization may also represent any of its constituents." However, such dual representation may present a conflict of interest between current clients. The Rules preclude an attorney from representing two or more clients if the representation of one client is directly adverse to another client, or if there is a significant risk that the representation of a client will be materially limited by the attorney's responsibilities to or relationships with another client (unless, among other requirements, the attorney secures informed written consent from each affected client).⁰⁴ If the organization's consent to the dual representation is required by rule 1.7, the consent is required to be provided by an appropriate official of the organization other than the individual constituent who is also being represented.⁰⁵

This type of situation often applies to outside attorneys, and may apply to in-house attorneys as well, for example, in connection with litigation defense and corporate investigations, where the attorney may be called upon to represent both the organization and certain named individuals. Such dual representations may require the informed written consent of each client to the extent the interests of the clients are in conflict. As a result, the in-house attorney may be required to secure such consents from both their employer and a colleague at the company.

Conflicts of interest may also exist among entities within the corporate family. Parent and subsidiary business entities are generally considered separate legal entities. Thus, representing a parent entity does not necessarily lead to an attorney-client relationship with a subsidiary for the purposes of the conflict of interest analysis, or vice versa. However, where an in-house attorney does legal work for multiple entities within the corporate family, the conflict of interest rules may be implicated when the entities have differing ownership or after a subsidiary is sold. If the in-house attorney did substantive legal work for that subsidiary in addition to the corporate parent, the in-house attorney may have a conflict of interest being adverse to that former subsidiary (such as in connection with a subsequent dispute between the corporate parent and such former subsidiary).

FORMER CLIENTS

The Rules generally preclude an attorney from working on a matter on behalf of a client if that client's interests are materially adverse to the interests of a former client of the attorney and the attorney represented that former client in the same or a substantially related matter (unless the attorney secures the informed written consent of the former client). This preclusion is contained in paragraph (a) of rule 1.9 [Duties to Former Clients]. The Rules also generally preclude an attorney from using confidential information...