Corporate counsel dealing with government investigations often must decide whether the company’s counsel should also represent the company’s employees, whether those employees should have separate counsel, or whether the company’s counsel should represent employees jointly with separate individual counsel. Codes of professional conduct generally allow an attorney to represent a corporation and its employees simultaneously, but require the attorney to weigh existing or potential conflicts of interests before embarking on such a joint representation.1 But beyond the ethical issues involved in joint representations, there also are practical issues that a corporate counsel must consider in determining the optimal representation arrangement.
This article discusses the considerations—ethical and strategic—that corporate counsel should consider before undertaking sole or joint representation of individual employees, and provides some recommendations for joint representation of a company and employees in those circumstances in which such an arrangement is advisable.
The Ethical Rules
In New York, the Rules of Professional Conduct make it clear that the corporate attorney’s paramount duty is to the corporation itself.2 But those rules also recognize that an attorney may represent the corporation’s officers and employees subject to the rules’ general conflict of interest provision relating to current clients.3 Notwithstanding a determination that the representation involves divergent interests among clients, an attorney may nevertheless proceed with simultaneous representations when the attorney reasonably believes that he or she will be able to provide competent and diligent representation to each client, the representation is not otherwise prohibited by law, the representation does not involve claims by one client against the other in the same proceeding, and each affected client provides informed, written consent to the representation.4 Ethical rules under the American Bar Association’s Model Rules of Professional Conduct, and those of other states, are similar.5 Thus, as long as an attorney concludes that joint representation of the company and individual will allow for provision of competent and diligent representation to both parties, and both parties consent, joint representation is permissible.
Risks and Rewards
The question then is what benefits and drawbacks joint representations present. Corporate counsel may find several advantages in joint representation of a corporate client and the corporation’s individual employees. Chief among these is the strategic advantage that comes from complete access to the relevant players involved in an investigation and to the relevant interviews and testimony provided in the course of that investigation. A joint representation allows corporate counsel ready access to employees and permits counsel to develop a defense based on a full picture of the corporation’s actions and the potential vulnerabilities in an adversary’s case.
Joint representations allow company counsel to be present at government interviews of the employees, whereas in many cases, company counsel will be excluded from interviews of employees they do not also represent individually. For example, the Securities and Exchange Commission Enforcement Manual provides that “[c]ounsel is not precluded from representing more than one witness in the same investigation absent a showing that such representation will obstruct or impede the investigation,” and courts have imposed limitations on the SEC’s ability to exclude counsel from proceedings absent concrete evidence that such presence will obstruct the investigation.6
Presence at such interviews and testimony gives corporate counsel the chance to help determine what information is provided to the government, and to know exactly what the government is being told. It also provides counsel with a clear perspective on the government’s theories and focus that comes from attending such interviews, and allows corporate counsel to argue to the government from first-hand knowledge of what the witnesses have said. It also simplifies coordination of defense strategy. An added benefit is that corporate counsel’s presence during interviews and testimony allows the company counsel to assert privilege objections in a consistent fashion. Thus, the ability to serve as counsel for both the corporation and individual employees provides counsel with access to, and influence over, critical moments in the course of a representation.
Aside from the benefits from counsel’s perspective, joint representation also provides the corporation with a financial benefit because the corporation can avoid a separate bill for the indemnified employees and the time it would take to get personal counsel prepared to represent the employee. Joint representations also have benefits from the employee’s perspective. The corporation’s counsel is likely to be most familiar with the facts and to have the broadest perspective on the matter. Bringing such knowledge to bear in representing employees can better prepare the employees for interviews or testimony. Corporate counsel also typically develops a relationship with government investigators or prosecutors, given their frequent interaction, and the company counsel can use that relationship on behalf of the employee. Finally, employees will often feel that representation by corporate counsel means that the company is standing behind them and their conduct.
At the same time, there are several potential pitfalls in joint representation of a corporation and its employees. Primary among these is the difficulty in determining, at the outset of a representation, whether the interests of the corporation and its individual employees may eventually diverge. At the outset of an investigation, for example, corporate counsel will have little more than allegations on which to base determinations, and the possibility of potential conflicts of interest exists. Similar problems exist when corporate counsel represents multiple employees. There will often be divergent recollections or attempts to shift blame among those employees. As the number of employees represented by company counsel increases, such potential conflicts become increasingly difficult to manage.
Privilege determinations can be fraught with risk. In cases of joint representation, it is often difficult, if not impossible, to draw lines about the source of information and whether a privilege would apply to information received from the represented employee. In the course of an internal investigation, corporate counsel typically make it clear that the information that the employee provides is not covered by a personal privilege and that any privilege belongs to the company.7 When representing an employee in the course of a government investigation, as discussed below, engagement letters in joint representations will often deal with this situation by making clear that such privilege determinations are difficult and putting employees on notice that information they may provide may not be protected. But whatever precautions are taken, this sort of joint representation can create difficulties and may cloud future privilege determinations.
United States v. Ruehle illustrates the hazards. In Ruehle, the district court determined that counsel for Broadcom Corporation had undertaken a joint representation of both the corporation and its CFO, William Ruehle, during the initial stages of counsel’s fact investigation begun in response to a government investigation into Broadcom’s financial disclosures. Broadcom’s counsel shared statements made by Ruehle with outside auditors, the SEC, and the U.S. Attorney’s Office. Partly on the basis of these statements, Ruehle was indicted on charges of securities and wire fraud.
Upon a motion to suppress those statements filed by Ruehle, the district court found that Ruehle had reasonably believed that Broadcom’s attorneys were acting as his attorneys at the time of their investigation and suppressed Ruehle’s statements. In addition to undermining Broadcom’s attempts to cooperate, the suppression hearing led to a strong condemnation by the court of the behavior of Broadcom’s attorneys, who were referred to the California State Bar for disciplinary proceedings.8 Although this decision was eventually reversed on the ground that Ruehle understood that his statements were likely to be shared with outside auditors at the time he made them, the case demonstrates the perils of multiple representations undertaken at the outset of an investigation. Counsel must consider that a court necessarily will be evaluating facts in retrospect, after an employee is harmed by disclosure of statements later alleged to have been privileged.
On the other hand, as facts are uncovered through interviews and investigation, counsel may feel more comfortable concluding that particular employees are unlikely to be implicated in wrongdoing and that their interests and the corporation’s are likely to cohere.
There are also certain circumstances that make joint representation problematic and inadvisable. If an employee has engaged in wrongdoing, it generally is not advisable for corporate counsel to represent that employee. As a culpable person, the employee’s interests diverge from the company’s, and that employee needs separate counsel who can better safeguard his interests and advise on self-incrimination and related issues. Similarly, there will be situations where the employee needs advice on whether to appear before government investigators or to assert Fifth Amendment rights. For example, employees resident outside the United States who are asked to appear for an interview in the United States need to consider whether to appear at all; corporate counsel is handicapped in providing this advice, because they have an interest in encouraging full cooperation by any employee. Only separate counsel can adequately counsel such employees.
One option to consider in situations where the employee needs independent advice on a particular issue, as well as in situations where multiple employees may have conflicting recollections and potentially conflicting interests, is for the employee to obtain individual counsel, but for corporate counsel to represent the employee jointly with personal counsel. This arrangement allows for many of the benefits of joint representation, including corporate counsel’s presence at interviews and testimony, while ensuring that the employee has separate counsel with whom he or she can consult on any issues on which corporate counsel is conflicted.
An additional important concern that must be evaluated in determining whether joint representation is advisable is the reaction of regulators to joint representation arrangements. Such arrangements have the potential to undermine the regulators’ view of the cooperativeness of corporate counsel and call into question corporate counsel’s objectivity in finding and providing the government with relevant facts. Indeed, recent statements by the director of the SEC’s Division of Enforcement have specifically called out multiple representations as one source of “questionable” defense practice, and the director has promised increased scrutiny of joint representation arrangements.9
Similar objections have been raised in criminal investigations, where prosecutors can be very sensitive to conflicting representations. In certain circumstances, such as where it is clear that there has been wrongdoing and a charging decision is at the discretion of the government, it is important to avoid any sort of negative reaction from regulators to joint representations, and so joint representations must be approached carefully. As a general matter, though, when the corporation’s posture is that there has been no wrongdoing justifying an action against the corporation or its employees, the upsides of joint representation—including the greater control it provides company counsel in coordinating a defense—may well outweigh the downsides. However, careful consideration must be given to the regulator reaction to joint representations.
Assuming that counsel for a corporation has decided to undertake a joint representation, certain measures should be adopted to guard against future complications. Care in determining which employees might practically be jointly represented by a company’s counsel during the early stages of representation will help avoid the need to withdraw from a representation if conflicts of interest later come to light.
A robust engagement letter is critical to dealing with any issues that may subsequently arise in the course of an investigation or litigation. It should plainly identify the attorneys’ clients. Engagement letters provided to individual employees should explain that counsel is not aware of any current or impending actual conflict of interest between the corporation and the individual employee that would disqualify counsel from representing both parties, but should explicitly warn of the potential for such conflicts to arise. The letter should go through the potential bases for such conflicts, as such particularity is necessary under ethical rules governing waivers.10 For example, when representing codefendants in a regulatory investigation, counsel should explain the possibility that conflicts may arise between employees of the corporation as to who bore supervisory or other responsibility for actions that are the subject of the investigation.
Counsel should also explain the related potential conflict involving differing positions with respect to levels of cooperation to be extended to the investigator: A corporation seeking to minimize its exposure may be more willing to undertake affirmative efforts at cooperation than an employee facing potential personal liability.
The engagement letter should plainly describe the consequences of any potential future conflicts. In the event that such a conflict should lead the attorney to withdraw from one of the representations, the engagement letter should explain that the attorney would continue to represent the company, not the individual employee, and that the individual must waive any objection to that continued representation. Moreover, the engagement letter should seek agreement from the individual client that, in the event the attorney must withdraw from representation of that individual, he agrees that the attorney may use any information that may have been shared by the individual client prior to the conflict having arose. This agreement should explicitly allow the corporation to use statements or information obtained from the individual in its efforts to cooperate with regulators or investigators, including through the waiver of any attorney-client or work product privilege related to such statements orinformation.
On occasion, employees will request additional protection for privileged information that they have provided in the course of the representation. In such circumstances, the letter should explain that the attorney will undertake best efforts to determine the source of documents and information provided prior to any conflict arising in order to assess whether such documents or information were provided in a privileged capacity, but that such determinations are often difficult and that, ultimately, the judgment is for the attorney, in his capacity as a representative of the corporation, to make.
Finally, attorneys should take into account the practical management of documents and information. It is typically advisable for individual counsel for any employees jointly represented to be provided with all of those employee’s statements and documents early in the representation so that individual counsel is able to advise their client appropriately. Whether to share interview memoranda and other work product prepared by corporate counsel is a more complicated question. Often, corporate counsel will make such materials available to individual counsel but not provide copies, particularly if it remains unclear whether there will ever develop a conflict that would require withdrawal of corporate counsel from the representation. Privileged documents should also be treated carefully, as it is in the interest of the corporation to control distribution of such documents in the event that individual employees should determine that disclosure is in their interest in the course of their defense.
There are many benefits that come from joint representations of corporations and employees by corporate counsel. But counsel for a corporation must carefully weigh those benefits against the potential for conflicts inherent in many such representations, as well as some of the negative perceptions that regulators may have of such arrangements. With planning and a frank assessment of facts, counsel can avoid those problems, and best serve the client.
Michael B. Mukasey, the former U.S. Attorney General and former chief judge of the Southern District of New York, is a partner in the litigation department at Debevoise & Plimpton. Andrew J. Ceresney is a partner in the firm’s litigation department and was an assistant U.S. attorney in the Southern District. Andrew C. Adams and Nicholas Duston, associates in the firm’s litigation department, assisted in the preparation of the article.
1. See ABA MODEL RULES OF PROF’L CONDUCT R. 1.13(a) (2010) (“A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents”); see also id. R. 1.13(g) (“A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7″).
2. See N.Y. RULES OF PROF’L CONDUCT R. 1.13(a) (2012) (“When a lawyer employed or retained by an organization is dealing with the organization’s directors, officers, employees…or other constituents, and it appears that the organization’s interests may differ from those of the constituents with whom the lawyer is dealing, the lawyer shall explain that the lawyer is the lawyer for the organization and not for any of the constituents”).
3. N.Y. RULES OF PROF’L CONDUCT R. 1.13(d) (“A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7″).
4. N.Y. RULES OF PROF’L CONDUCT R. 1.7(b).
5. See ABA MODEL RULES OF PROF’L CONDUCT R. 1.13 (2010); see also, e.g., CAL. RULES OF PROF’L CONDUCT R. 3-600.
6. SEC Enforcement Manual at 91 n.6; see also SEC v. Csapo, 533 F.2d 7, 11–12 (D.C. Cir. 1976).
7. See, e.g., United States v. Stein, 463 F.Supp.2d 459, 464-65 (S.D.N.Y. 2006) (“This problem could be avoided if counsel in these situations routinely made clear to employees that they represent the employer alone and that the employee has no attorney-client privilege with respect to his or her communications with employer-retained counsel”).
8. See United States v. Ruehle, 583 F.3d 600, 601-06 (9th Cir. 2009).
9. Robert S. Khuzami, Dir., Div. of Enforcement, Sec. Exch. Comm’n., Remarks to Criminal Law Group of the UJA-Federal of New York (June 1, 2011).
10. See N.Y. RULES OF PROF’L CONDUCT R. 1.7, cmt. 18 (“Informed consent requires that each affected client be aware of the relevant circumstances, including the material and reasonably foreseeable ways that the conflict could adversely affect the interests of that client”).