General counsel often face ethical concerns that are unique to their roles as in-house attorneys. In some instances, the best course of action is not readily apparent, and they must assess their ethical obligations as well as the duties they owe their clients, the employees of the companies they work for, and other parties to figure out how to proceed. On Tuesday, February 23, 2021, the MSBA Business Law Section hosted a live webinar: Ethics Issues for In-House Counsel – Considerations for Negotiation and Drafting. The webinar featured I. DeAndrei (“Dee”) Drummond, Esq., General Counsel with MarketSource, Inc., and Andrew Lapayowker, Esq., General Counsel with Rosemore, Inc.
The speakers began by discussing the duties in-house counsel owe to both their clients and to other parties. They presented a scenario in which parties are engaged in negotiations, and the attorney for one party returns a contract to the other attorney, who states that it is acceptable and returns it without advising that he changed the draft. This brought about a conversation on the issue of whether an attorney has a duty to read every draft of a contract, whether the omission was a misstatement, and whether the second attorney had a duty to disclose the changes.
The panelists discussed three different cases dealing with similar issues, in which the courts have ruled that the failure to disclose changes constitutes fraud if committed with the intent to deceive, and declined to impose a duty to read every page of the contract. They then discussed the Maryland Rules for Professional Conduct (the Rules) that prohibit attorneys from helping clients engage in conduct that is fraudulent or criminal, making false statements of material fact, or failing to disclose material facts when it is necessary to prevent fraud or a crime. The faculty advised that it is good practice to err on the side of caution and advise opposing counsel of any revisions to a contract.
The discussion then turned to the issue of identifying the actual client of in-house counsel, especially in situations dealing with parent and subsidiary companies. For example, according to the Rules an attorney representing a parent company in drafting an intercompany service/license agreement with a subsidiary that is less than 100% owned must analyze whether there is a conflict of interest, or whether the subsidiary’s interests are materially adverse to those of the parent company. The panelists stressed that it is key for general counsel to understand who they represent.
While in many instances this is obvious, it may be less clear in situations involving subsidiaries or corporate officers that have interests that differ from those of the company. In some cases, general counsel may have to assess the legalities of an officer’s proposed course of action and advise if what they want to do is not legal. General counsel can obtain waivers in certain circumstances so that they can represent both the parent company and subsidiary or attempt to resolve an apparent conflict, but it is not always prudent to do so. Notably, conflicts can arise even if a subsidiary is 100% owned. The panelists noted that the Rules provide a clear guideline for identifying and handling such conflicts.
The speakers ended with an assessment of what duties, if any, in-house counsel owes to a company’s key employees. General counsel represents the company, and as with subsidiaries, there could be material conflicts when offering legal advice to corporate officers as well. For example, if general counsel represents a seller in an acquisition and the buyer requires employment agreements from key employees, in most cases general counsel should refrain from representing the employees with regard to the agreements and should advise them to retain separate counsel. This can lead to uncomfortable conversations but it is better for the employees and the attorney in the long run.
You can access the presentation here.