Articles

ETHICAL ISSUES IN EMPLOYMENT LAW

presented at:

PENNSYLVANIA BAR INSTITUTE
NORTHEAST EMPLOYMENT LAW INSTITUTE

APRIL 16, 2002

Thomas D. Rees, Esquire

I. INTRODUCTION

Ethical issues in employment law are capable of analysis in the following two subtopics:

(1) Ethical issues that govern the handling of employment law matters for clients.

(2) Ethical questions that arise in the context of employment matters in the lawyers' own offices.

Both areas of law are evolving in Pennsylvania and elsewhere.

II. ETHICAL ISSUES IN EMPLOYMENT LAW PRACTICE

A. Overview

1. Ethical issues in employment law practice can also be analyzed in two subcategories:

a. Ethical issues that affect a lawyer's decision to undertake or continue a representation.

b. Ethical issues that arise in the litigation or resolution of disputes.

2. The Pennsylvania Rules of Professional Conduct govern lawyers' activities in both the state and federal courts situated in Pennsylvania (e.g., F.R.Civ.P. E.D. Pa. 83.6(IV)(B)).

3. The Pennsylvania Rules of Professional Conduct prohibit lawyers from acting in a manner contrary to the Rules. Therefore, a lawyer may not represent a client, and must withdraw from the representation of a client or face disqualification, if the representation will result in violation of the Rules of Professional Conduct or other law. Rule 1.16(a); Bayges v. Southeastern Pennsylvania Transportation Authority, 887 F. Supp. 108 (E.D. Pa. 1995).

a. The burden is on the party seeking disqualification under Rule 1.7 and 1.9 to show that a conflicting representation would be impermissible. James v. Teleflex, Inc., 1999 WL 98559 (E.D. Pa. 1999).

b. Any doubts regarding the existence of a violation of the ethical rules are to be resolved in favor of disqualification. Id.

B. Undertaking or Continuing Representation

a. Rule 1.6(a) provides:

A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation . . . .

b. Rule 1.6(d) provides:

The duty not to reveal information relating to representation of a client continues after the client-lawyer relationship has terminated.

c. Rule 1.6, in conjunction with Rule 1.9, requires disqualification of an attorney in employment matters in which the attorney might impart confidential information about another present or former client. The overwhelming majority of cases on this subject cite Rule 1.9, and will be discussed under Rule 1.9.

d. Because an attorney has the obligation not to disclose confidential information, a state employee was not subject to discipline for disclosing confidential information about violations of the law to his attorney, who in turn disclosed the information to the Departmental Chief Counsel. Department of Military and Veteran Affairs v. Civil Service Commission (Korenyi-Both), 719 A.2d 1134 (Pa. Cmwlth. 1998).

2. Rule 1.7(a) - Direct conflict of interest

a. Rule 1.7(a) provides:

A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:

(1) the lawyer reasonably believes that the representation will not adversely affect the relationship with the other client; and

(2) each client consents after consultation.

b. Rule 1.7(a) articulates the general rule that loyalty to a client prohibits a lawyer from undertaking a representation directly adverse to that client without that client's consent. It should be self-evident that a lawyer may not represent two opposing parties in the same litigation. But Rule 1.7 also covers many less obvious conflicts. Thus, a lawyer ordinarily may not act as an advocate against an entity represented by the lawyer in another matter, even if the two matters are wholly unrelated. On the other hand, simultaneous representations in unrelated matters for clients whose interests are only generally adverse, such as competing economic enterprises, does not necessarily require consent of the respective clients. But see Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 529 Pa. 241, 602 A.2d 1277 (1992). See generally, Comment to Rule 1.7.

c. A client may consent to a representation not withstanding a conflict. However, under both Rule 1.7(a) and Rule 1.7(b), when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for the client's agreement to the conflicting representation and cannot provide representation on the basis of the client's consent. (The lawyer considering the conflicting representation only has to analyze the conflict as would a disinterested lawyer; the lawyer need not seek an opinion from a disinterested lawyer.)

d. When more than one client is involved, the lawyer has to resolve conflict issues as to each client.

e. The client's consent must be an informed consent, after disclosure and consultation. At times, it may be impossible to make the disclosure necessary to obtain consent, because full disclosure would lead to a violation of Rule 1.6. See Comment to Rule 1.7(a); in these circumstances, a lawyer must refuse the conflicting representation. For this reason, among others, consents under Rule 1.7(a) are difficult to obtain.

f. Although Rule 1.7(a) does not require written consent, it is vitally important to document consent by obtaining the client's consent in writing after the lawyer makes a full written disclosure of the adverse representation and the basis for the reasonable belief that the adverse representation will not affect the relationship with the other client.

a. Rule 1.7(b) provides:

A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:

(1) the lawyer reasonably believes that the representation will not be adversely affected; and

(2) the client consents after full disclosure and consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.

b. Rule 1.7(b) applies where a lawyer is constrained not to consider, recommend, or carry out an appropriate course of action because of the lawyer's other responsibilities or interests. As with Rule 1.7(a), the lawyer has to evaluate conflicting obligations from the viewpoint of a disinterested lawyer. See Comment, Rule 1.7 and the above discussion of Rule 1.7(a).

4. COMMENT:

Rule 1.7's prohibitions against present conflicts of interest are explicit; possibly because of such explicit nature, few reported employment law cases deal with these rules. Rule 1.7(a) applies when two clients of a lawyer are on opposite sides in the matter in which the attorney advised them. See, e.g., Ragan Henry Broadcast Group, Inc. v. Hughes, 1992 WL 151308 (E.D. Pa. 1992). Rule 1.7(b) applies when one lawyer may represent multiple parties in a litigation (e.g., where an employment lawyer represents an employer and key employees who are sued in an employment claim). In this situation, the lawyer should explain the implications of the common representation, the advantages and the risks involved, and should obtain written consent from each client.

If a lawyer cannot predict the outcome of a common representation, the lawyer may recommend that each party aligned on the same side retain separate counsel. In this situation, a Joint Defense Agreement can allow the parties to share defense materials without waiving the privilege attaching to use and disclosure of these materials. A sample Joint Defense Agreement for non-compete litigation is attached as Appendix A. The parties never used this Joint Defense Agreement, since counsel for the corporate defendant agreed to take over the defense of all parties.

b. Indemnification

Where a lawyer represents an individual employee who is named in an employment claim, the lawyer should request indemnification from the corporate defendant. Indemnification of legal expenses for an employee named in an action (usually along with the employer) raises issues under both the Rules of Professional Conduct and Pennsylvania corporate law.(1) Rule 1.8(f) provides:

A lawyer shall not accept compensation for representing a client from one other than the client unless

(a) the client consents after full disclosure of the circumstances and consultation;

(b) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and

(c) information relating to representation of a client is protected as required by Rule 1.6.

See also Rule 5.4(c) (lawyer shall not permit person who pays for lawyer to render legal service to regulate lawyer's professional judgment in providing services).

(2) Pennsylvania corporate law generally provides for indemnification of employees named in lawsuits if allowed by the corporate by-laws, if an individual is sued by reason of the fact that the individual was a representative of the corporation. 15 Pa. C.S. § 1741. The indemnification covers both liabilities to opposing parties and legal fees. There is an absolute right to indemnity if the defense of the litigation is successful.

(3) The rules governing indemnity are subject to a number of limitations, including the following:

(a) To qualify for indemnity, the individual must have acted in good faith and in a manner that the individual reasonably believed to be in, or not opposed to, the best interests of the corporation;

(b) Indemnity may not be provided if the individual has violated a law, committed a crime, or acted in a manner opposed to the best interests of the corporation;

(c) The corporation may advance defense expenses on receipt of an undertaking by the individual to repay the corporation if it is determined that the individual is not qualified to be indemnified.

(4) It has been the author's experience that corporate employers are not necessarily willing to commit to indemnify employees in either employment discrimination cases or in cases involving alleged taking of trade secrets or violation of restrictive covenants. An indemnification application places the lawyer representing an individual defendant in some difficulty, because the interests of the individual and corporate defendants become adverse, and the individual client may begin to rely on indemnification as a means of payment for the lawyer, even when indemnification is by no means certain.

c. Joint representation in settlement

In agreeing to a settlement on behalf of two or more clients, a lawyer shall ensure that each client has consented to the settlement after being advised of the existence and nature of all claims and other matters involved in the settlement; see Rule 1.8(g); Continental Coiffures, Ltd. v. Kimble, 270 Pa. Super. 509, 411 A.2d 834 (1979) (upholding settlement on behalf of jointly represented defendants in restrictive covenant case).

6. Rule 1.9(a) - Conflicts of interest: former clients

a. Rule 1.9(a) provides:

A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after a full disclosure of the circumstances and after consultation.

(1) An analysis of a potential violation of Rule 1.9(a) focuses on whether the prior and present matters are substantially related, whether the clients have materially adverse interests, and whether the clients consent after consultation. Henry v. Delaware River Joint Toll Bridge Commission, 2001 WL 1003224, *1 (E.D. Pa. 2001); James v. Teleflex, Inc., 1999 WL 98559, *3 (E.D. Pa. 1999). The critical test in reported cases is almost always whether the prior and present matters are "substantially related" - there would be little ground for dispute if the clients consented after consultation or if the parties' interests were not adverse.

(2) In determining the presence of a "substantial relationship", a court will consider the following three factors: (1) the nature of the present lawsuit against the former client; (2) the nature and scope of the prior representation at issue; and

(3) whether in the course of the prior representation, the client might have disclosed to the attorney confidences which could be relevant or possibly detrimental to the former client in the present action. See Henry v. Delaware River Joint Toll Bridge Commission, supra.

(1) Henry v. Delaware River Joint Toll Bridge Commission, 2001 WL 1003224 (E.D. Pa. 2001) - Law firm was disqualified from representing plaintiff in civil rights litigation over cancellation of retiree health benefits, where the individual lawyer for the plaintiff had previously worked for a firm that was general labor counsel to the defendant. In this previous firm, the individual attorney had represented the agency in employment litigation, including litigation similar to the case before the court. The attorney had also handled a number of other key employment law matters, including the preparation of a revised employee manual with provisions that affected the result in this case; provision of general employment law advice, including advice on civil rights issues; and participation in confidential meetings, which included employment and personnel matters. Further, since the litigation raised issues of political discrimination, the lawyer's knowledge of the agency board members' confidential views was relevant. Under all the circumstances, the prior and present representations were "substantially related." Therefore, the court disqualified counsel. Henry v. Delaware River Joint Toll Bridge Commission, supra, at 5.

(2) James v. Teleflex, Inc., 1999 WL 98559 (E.D. Pa. 1999) - Law firm was disqualified from representing employee in litigation after law firm acquired another law firm whose clients included corporate defendant; the fact that the law firm terminated the attorney-client relationship with the corporate defendant was immaterial. The Court held that the firm had not been able to screen the attorneys representing the different clients, under Rule 1.10(b).

(3) Compare Wise v. U.S. Healthcare, 30 Pa. D. & C.4^th 162 (Bucks Co. 1996), affirmed, 454 Pa. Super. 717, 685 A.2d 1053 (1996), appeal denied, 548 Pa. 638, 694 A.2d 623 (Pa. 1997), in which the Court denied disqualification where the acquiring law firm represented an executive in a complex employment case, and the lawyers joining the firm had previously worked with a firm that represented the employer in unrelated matters; the firm lawyers involved in the separate representations did not discuss or handle the adverse representation.

(4) Ragan Henry Broadcast Group, Inc. v. Hughes, 1992 WL 151308 (E.D. Pa. 1992) - Where law firm had given advice to corporate CEO in business and personal decision-making, law firm could not represent corporation in litigation seeking declaratory judgment that CEO's termination was for cause.

(5) Guzewicz v. Eberle, 953 F. Supp. 108 (E.D. Pa. 1997) - The Court refused to disqualify a former corporate counsel from representing dissident stockholders. The Court held that, in order to disqualify the stockholder's attorney, the corporate defendant had to show that the attorney knew information that was (a) confidential; (b) substantial; (c) unavailable to the client; (d) usable by the client to the defendant's disadvantage. The corporate defendant also had to show that the action was (a) substantially related to matters concerning the matters in which the former counsel represented the corporation; and (b) against or adverse to the corporate defendants. A derivative action is not technically adverse to corporate defendants. Compare Imbesi v. Imbesi, 2001 WL 1346316 (E.D. Pa. 2001), in which the Court disqualified defense counsel in litigation over corporate wrongdoing because defense counsel had previously advised plaintiff family members; and Universal Athletic Sales Co. v. American Gym, Recreational & Athletic Equipment Corporation, Inc., 357 F. Supp. 905 (W.D. Pa. 1973), in which the Court denied the discharged corporate president's motion to disqualify the corporation's defense counsel, although ex-president and corporation were at odds; there was no apparent breach of confidence or trust, and no crossclaims existed between corporation and ex-president.

(6) Wilson v. Civitella, 1996 WL 479663 (E.D. Pa. 1996) - Solo practitioner who served as counsel for the plaintiff in divorce proceed-ing ending in 1992 could not defend against employment action brought by the same individual in 1995; divorce proceeding dealt with support, visitation, custody and other issues; and the plaintiff claimed that some confidential information had been disclosed.

(7) Willig, Williams & Davidson v. Walters, 1993 WL 224723 (E.D. Pa. 1993) - Lawyer would not be disqualified from representing another law firm in an action against an ex-partner for interference with contractual relations and breach of contract, involving the ex-partner's solicitation of firm clients for a new practice. The ex-partner claimed that the litigation was "substantially related" to the lawyer's earlier litigation against another partner departing from the law firm, which involved valuation of the departing partner's interest in the firm and in referral fees from asbestos cases. In refusing to disqualify counsel, the Court held that the two matters were not substantially related, even though both matters dealt with valuation issues; that the earlier representation had been of the law firm, not the individual lawyer; and that the parties understood that no communications from individual partners could be deemed confidential. The ex-partner also claimed that a conflict arose because of the lawyer's review of the firm's partnership agreement for the partners jointly. The Court held that this prior representation was limited to questions of legal form, and had no relationship to the present dispute.

(8) Unisys Corporation v. Amperif Corporation, 1992 WL 210243 (E.D. Pa. 1992) - Law firm would not be disqualified from pursuing patent infringement action against former client, when there was no similarity between the patent infringement and the law firm's former representation of the client on labor law matters; the attorney responsible for the former client had left the law firm.

(9) Alexander v. City of Philadelphia, 1990 WL 35681 (E.D. Pa. 1990) - Court refused to disqualify an attorney from representing two plaintiffs who challenged psychiatric examinations for police candidates on constitutional grounds, two years after the attorney had represented the Philadelphia Personnel Department on several personnel matters. The District Court analyzed the nature of these matters and concluded that, although the earlier matters dealt with employment discrimination, the earlier matters did not deal with psychiatric examinations. The Court therefore concluded that the second action, although of a similar type, was not "substantially related" to the attorney's prior representation of the Philadelphia Personnel Department. 1990 WL 35681,*3.

c. Cases: Former client and present client are competitors

(1) In Maritrans GP Inc, v. Pepper, Hamilton & Scheetz, 529 Pa. 241, 602 A.2d 1277 (1992), the Pennsylvania Supreme Court established guidelines for legal representation of economic competitors:

"Whether a fiduciary can later represent competitors or whether a law firm can later represent competitors of its former client is a matter that must be decided from case to case and depends on a number of factors. One factor is the extent to which the fiduciary was involved in its former client's affairs. The greater the involvement, the greater the danger that confidences (where such exist) will be revealed." [1286]

In Maritrans, the Pennsylvania Supreme Court enjoined a law firm from representing a former client's competitors because of the law firm's extensive involvement in the former client's affairs as both labor and corporate counsel and the firm's extensive knowledge of sensitive client information. The Supreme Court analyzed the law firm's fiduciary duty to the client and held that a law firm's conduct could be actionable even without violating a Rule of Professional Conduct.

(2) The Hyman Companies, Inc. v. Brozost, 964 F. Supp. 168 (E.D. Pa. 1997) - The District Court enjoined a lawyer from using confidential information acquired during the lawyer's prior service as in-house counsel for a competitor. The Court refused to enjoin the attorney from working for the competitor, but enjoined the attorney from representing the competitor in negotiating for the rental of stores in shopping centers. The Court preliminarily enjoined the lawyer from handling any lease negotiations on which the lawyer worked for his previous employer; from handling any negotiation for any retail space that the past and present employers were competing for; and from disclosing any information regarding his former employer's retail leases. 964 F. Supp. at 175. In granting a permanent injunction, the Court expanded the relief to prohibit the lawyer from handling lease negotiations for retail space within a mall or other area where the former employer occupied space and wanted to continue occupying the space. The Hyman Companies, Inc. v. Brozost, 119 F. Supp.2d 499 (E.D. Pa. 2000).

d. Confidential information

Rickards v. CertainTeed Corp., 1995 WL 120231 (E.D. Pa. 1995) - Plaintiff's attorney was not disqualified as a result of having deposed a former client (and current employee of defendant) on behalf of an ex-employee in an employment action against CertainTeed. The Court found that the former client had communicated confidential information about substantially related matters to attorney in seeking advice from attorney. Although the Court found that attorney had violated the Rules of Professional Conduct in taking the deposition, the Court did not disqualify the attorney. Instead, the Court prohibited the attorney from cross-examining his former client at trial and required the retention of another attorney from another firm to handle the cross-examination.

a. Rule 1.9(b) provides that a lawyer who formerly represented a client in a matter shall not thereafter use information relating to the representation to the disadvantage of the former client except as Rule 1.6 would permit with respect to a client or where the information has become generally known.

b. Cases:

(1) In The Vanderveer Group, Inc. v. Petruny, 1994 WL 314257 (E.D. Pa. 1994), Judge Troutman disqualified plaintiff's counsel in a trade secret litigation because counsel had previously represented the defendant corporation. The prior representation had no direct relationship to the litigation, but both the litigation and the earlier representation dealt with central aspects of the ex-client's business operations. The decision was a difficult one, made more so by an earlier waiver of a conflict under Rule 1.7 by the defendant's parent. See The Vanderveer Group, Inc. v. Petruny, 1993 WL 308720 (E.D. Pa. 1993).

a. Rule 1.10(a) provides:

"[w]hen lawyers are associated in a law firm, none of them shall knowingly represent a client when any one of them acting alone would be prohibited from doing so by Rules 1.7, 1.8(c), 1.9, or 1.2."

See James v. Teleflex, Inc., 1999 WL 98559 (E.D. Pa. 1999); Imbesi v. Imbesi, 2001 WL 1346316 (E.D. Pa. 2001).

b. Rule 1.10(b) provides that when a lawyer becomes associated with a firm, the firm may not knowingly represent a person in the same or substantially related matter in which that lawyer, or the lawyer's previous firm, had represented a client whose interests were materially adverse to the person, and about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(b) unless (a) the disqualified lawyer is screened from any participation or fee, and (b) written notice is given to the client to enable the client to ascertain compliance.

Factors that may be considered by a court in determining whether a screening mechanism is effective include (1) the substantiality of the relationship between the attorney and the former client, (2) the time lapse between the matters in dispute, (3) the size of the firm and the number of disqualified attorneys, (4) the nature of the disqualified attorney's involvement, (5) the timing of the ethical wall. In addition, a court may consider the features of the screen itself, including: (1) the prohibition of discussion of sensitive matters, (2) restricted circulation of sensitive documents, (3) restricted access to files, (4) strong firm policy against breach, including sanctions, physical and/or geographical separation. James v. Teleflex, Inc., supra at *4-5.

C. Ethical Issues in the Litigation and Resolution of Employment Disputes

1. Liability under discrimination laws for participation in employer's personnel actions

In DeStefano v. Henry Michell Company, 2000 WL 433993 (E. D. Pa. 2000), the Eastern District of Pennsylvania dismissed a complaint against a law firm for aiding and abetting discrimination on the basis of the law firm's transmittal of a letter on behalf of the employer that terminated plaintiff's employment. The Court held that (1) aiding and abetting liability under 43 P.S. § 955(e) did not arise solely from the scope of a law firm's agency relationship; (2) the law firm had not intended to aid the client's discriminatory behavior; (3) the law firm had not shared a common purpose with the client to retaliate against the plaintiff.

A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law.

In Adams v. Department of Public Welfare, 781 A.2d 217 (Pa. Cmwlth. 2001), the Commonwealth Court held that a legal-services corporation had no obligation to provide representation on a non-meritorious employment-related claim. The Court allowed the legal services entity to deny an application for legal aid under a contract with the Pennsylvania Department of Public Welfare. The applicant sought to re-litigate issues resolved in a 1986 claim.

(b) Where an employee persists in litigating a claim that has no merit, the attorney's obligation is to withdraw, rather than face Rule 11 sanctions. Bayges v. Southeastern Pennsylvania Transportation Authority, 887 F. Supp. 108 (E. D. Pa. 1995).

(2) 28 U.S.C. § 1927 - Disqualification and imposition of attorney's fees and costs under § 1927 is reserved for behavior of an egregious nature that is stamped by bad faith, and is violative of recognized standards in the conduct of litigation. See Comuso v. National Railroad Passenger Corp., 2000 WL 502707 (E.D. Pa. 2000), appeal dismissed, mandamus denied, 267 F.3d 331 (3d Cir. 2001). (Court has inherent power to sanction attorney who engaged in profane outbursts, verbal assaults, and threats to kill opposing counsel. The Court also referred counsel's conduct to the Disciplinary Board and awarded the fees for preparation of the motion for sanctions against plaintiff's counsel (2000 WL 1793400)). See also, e.g., Loftus v. Southeastern Pennsylvania Transportation Authority, 8 F. Supp.2d 458 (E.D. Pa. 1998), affirmed, 187 F.3d 626 (3d Cir. 1999), certiorari denied, 120 S. Ct. 581 (2000); Johnson v. Resources for Human Development, 888 F. Supp. 689 (E. D. Pa. 1995) (court may assess counsel fees against the attorney under 28 U.S.C. § 1927 for continuing to assert meritless claims).

a. Rule 3.7 provides as follows:

(1) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness except where: (a) the testimony relates to an uncontested issue; (b) the testimony relates to the nature and value of legal services rendered in the case; or (c) disqualification of the lawyer would work substantial hardship on the client.

(2) A lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness, unless precluded from doing so by Rule 1.7 or Rule 1.9.

(1) In Caplan v. Braverman, 876 F. Supp. 710 (E.D. Pa. 1995), the Eastern District refused to disqualify a law firm from representing a plaintiff in a Title VII discharge action against another law firm, although a partner in the law firm representing the plaintiff was a possible witness about conversations with one of the partners in the defendant law firm. The Court held that it was not certain that the attorney would be a witness, and that, if the attorney were a witness, another attorney in the law firm could represent the plaintiff. The Court refused to hold that the existence of a contingent fee agreement based on the outcome of the litigation created a conflict of interest between the individual attorney and his law firm.

(2) Morgan v. Rossi, 1998 WL 175604 (E.D. Pa. 1998) - Court disqualified sheriff's solicitor from representing sheriff in defense against an employment discharge case, in which solicitor was likely to be a necessary witness on the process of deciding to dismiss the plaintiff.

(3) Stolp v. Sollas Corporation, 1997 WL 83750 (E.D. Pa. 1997) - Court disqualified individual attorney from representing corporate defendant in wrongful discharge action, when attorney had drafted documents for corporate transactions, and was aware of decision to terminate plaintiff; others in attorney's firm could handle the defense, however.

(4) Willig, Williams & Davidson v. Walters, 1993 WL 224723 (E.D. Pa. 1993) - Attorney who reviewed a law firm's partnership agreement for legality was not disqualified from representing the law firm; Rule 3.7(a)(1) specifically allows testimony in this area. The Court allowed the motion to disqualify to be renewed if the attorney's testimony became necessary on the existence or adequacy of consideration in the agreement.

(5) Before calling an attorney as a witness, risking possible disqualification under Rule 3.7, party should exhaust other avenues of discovery. See Anderson v. Reliance Standard Life Insurance Co., 1988 WL 80036 (E.D. Pa. 1998).

(6) In Lennen v. John Eppler Machine Works, Inc., 1997 WL 566078 (E.D. Pa. 1997), the court prohibited a lawyer from taking the stand on rebuttal, thereby forestalling issue over violation of Rule 3.7; the lawyer's conduct had also violated Rule 4.2.

4. Rule 4.2. Communication with person represented by counsel

a. Rule 4.2 provides as follows:

In representing a client, a lawyer shall not communicate about the subjects of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so.

The Comment to Rule 4.2 states that Rule 4.2 prohibits communications by a lawyer for one party concerning the matter in controversy with persons having managerial responsibility on behalf of the organization; any other person whose act or omission in connection with that matter may be imputed to the organization for purposes of civil or criminal liability; or any individual whose statement constitutes an admission on the part of an organization.

(1) McCarthy v. SEPTA, 772 A.2d 987 (Pa. Super. 2001), reversing 44 Pa. D. & C.4^th 358 (Phila. Co. 2000) - In this FELA case, the Pennsylvania Superior Court ordered a new trial and effectively reversed the trial court's disqualification of plaintiff's trial counsel in the middle of a jury trial for ex parte contacts with SEPTA employees. The Superior Court held that the trial court had failed to adduce evidence that the employees whom counsel contacted fit within the definition of Rule 4.2. Under the circumstances, the Superior Court held that the plaintiff had been denied her freely chosen counsel.

(2) Inorganic Coatings, Inc. v. Falberg, 926 F. Supp. 517 (E.D. Pa. 1995) - In this trade secret/trademark case, the Court disqualified plaintiff's counsel who engaged an individual defendant in a 90-minute telephone conference initiated by the defendant about settlement but ranging through central issues in the litigation. At the time, an attorney had already contacted plaintiff's counsel on defendant's behalf. The Court also ordered production of all notes and memoranda from the conference and ordered new counsel to be screened from all information obtained in the telephone conference.

(3) University Patents Inc. v. Kligman, 737 F. Supp. 325 (E.D. Pa. 1990) - In this case, dealing with a right to a patent, the court refused to disqualify counsel although counsel had engaged in ex parte contacts with present and former employees of the University of Pennsylvania. The court held that Rule 4.2 prohibited ex parte communications with deans, trustees, department chairmen, and provost, but not former employees. See also, Action Air Freight, Inc. v. Pilot Air Freight Corp., 769 F. Supp. 899 (E.D. Pa. 1991), appeal dismissed, 961 F.2d 207 (3d Cir. 1992). But see Carter-Herman v. City of Philadelphia, 897 F. Supp. 899 (E.D. Pa. 1995), allowing counsel to interview non-managerial employees, but allowing such employees to refuse to be interviewed and to have own counsel present.

(4) Applying the test in the Comment to Rule 4.2, the Eastern District of Pennsylvania held that plaintiff's counsel should not have contacted a captain of a barge in a personal injury action. See Belote v. Maritrans Operating Partners, L.P., 1998 WL 136523 (E.D. Pa. 1998). The Court refused to disqualify counsel, but held that further actions might lead to mere severe sanctions.

(5) Aside from disqualification, other sanctions under Rule 4.2 include prohibition against the use of evidence obtained through improper ex parte contact. See, e.g., Lennen v. Eppler Machine Works, Inc., 1997 WL 566078 (E.D. Pa. 1997); Marinnie v. Nabisco Brands, Inc., 1993 WL 267453 (E.D. Pa. 1993).

(6) In PPG Industries, Inc. v. BASF Corporation, 134 FRD 118 (W.D. Pa. 1990), a trade secret case, the Court held that defense counsel could meet with a former employee of the plaintiff regarding trade secrets, provided that defense counsel advised the former employee not to disclose any confidential information.

III. ETHICAL ISSUES IN LAW OFFICE EMPLOYMENT

Lawyers have an ethical responsibility to ensure that all lawyers in the firm conform to the Rules of Professional Conduct. Rule 5.1(a). Supervisory lawyers are responsible both for the conduct and work product of subordinate lawyers and non-lawyer assistants. (See Rule 5.1(b) and Rule 5.3). Lawyers also have specific responsibilities when moving from firm to firm; when discharging personnel; and when litigating their own separation. These course materials will strive to cover these issues, in a necessarily brief and summary fashion.

B. Moving From Firm to Firm / Business to Business

1. Rule 5.6 prohibits post-employment restrictions on a lawyer's right to practice, except in the case of an agreement concerning benefits on the lawyer's retirement. Among the divergent decisions on Rule 5.6 in recent years are the following:

a. Miller v. McNees, Wallace and Nurick, 118 Dauphin Co. L.R. 1 (1997), in which the Court of Common Pleas of Dauphin County invalidated a restrictive covenant which had no geographic limit, and which forfeited pension rights of lawyers who competed after forced retirement at age 70. The Court equated forced retirement to termination, and held that the covenant effectively prohibited the lawyer from practicing law and was unreasonable and against public policy, although the covenant complied with Rule 5.6.

b. Capozzi v. Latsha & Capozzi, P.C., 50 Pa. D. & C.4^th 489 (Cumb. Co. 2001), in which the Court of Common Pleas of Cumberland County invalidated an oral agreement that limited the buyback price of the shares of a withdrawing shareholder to $5,000 if the shareholder competed with the firm. The Court held the ex-shareholder could not use Rule 5.6 to obtain affirmative relief in litigation against the firm. The Court held that as a matter of public policy, law firms that are professional corporations could enter into enforceable agreements that reasonably prevalued the shares of a departing shareholder who competes with the law firm. The Court held that the firm's agreement was not enforceable because it contained no limitations on time and territory.

c. Lowry v. Vaughan, 34 Pa. D. & C.4^th 164 (Montg. Co. 1997), rev'd w/o reported opinion, 726 A.2d 420 (Pa. Super. 1998), appeal denied, 558 Pa. 620, 737 A.2d 743 (1999), in which the Court of Common Pleas of Montgomery County enforced a 12-month restriction against soliciting or accepting work from specified clients against a departing lawyer. The Court of Common Pleas held that the agreement did not restrict the attorney's right to practice law, and therefore did not violate Rule 5.6. The Pennsylvania Superior Court reversed because of an arbitration/ mediation clause.

d. In In re LaBrum & Doak, 227 B.R. 391, 415 (Bankr. E.D. Pa. 1998), the United States Bankruptcy Court for the Eastern District of Pennsylvania held that recovery of hourly fees generated before a law firm's dissolution did not violate Rule 5.6. The Court decided the case under the Pennsylvania Uniform Partnership Act, since the former firm's partnership agreement did not address the issue.

e. New Jersey appellate courts have generally invalidated forfeiture provisions in attorney shareholder agreements, most recently in Apfel v. Budd Larner Gross Rosenbaum Greenberg & Sade, 324 N.J. Super. 133, 734 A.2d 808 (1999), certification denied, 162 N.J. 485, 744A.2d 1208 (N.J. 1999.) The Apfel case contains a discussion of other key New Jersey appellate decisions.

2. Rule 1.9 - In The Hyman Companies, Inc. v. Brozost, 964 F. Supp. 168 (E.D. Pa. 1997), the District Court enjoined a lawyer from using confidential information acquired while serving a former employer, in the absence of a restrictive covenant. The Court preliminarily enjoined the lawyer from handling any lease negotiations on which the lawyer worked for his previous employer; from handling any negotiation for any retail space that the past and present employers were competing for; and from disclosing any information regarding his former employer's retail leases. 964 F. Supp. at 175. In granting a permanent injunction, the Court expanded the relief to prohibit the lawyer from handling lease negotiations for retail space within a mall or other area where the former employer occupied space and wanted to continue occupying the space. The Hyman Companies, Inc. v. Brozost, 119 F. Supp.2d 499 (E.D. Pa. 2000).

C. Preservation of Confidences

Rule 1.6 does not compel dismissal of employment discrimination action filed by a former corporate counsel against corporate employer. Kachmar v. SunGuard Data Systems, Inc., 109 F.3d 173 (3d Cir. 1997). Rather than seal an entire complaint for wrongful discharge by former in-house counsel, a court may order the filing of a redacted complaint, with only the privileged material being filed under seal. Dombrowski v. Bell Atlantic Corporation, 128 F. Supp.2d 216 (E.D. Pa. 2000).

D. Retaliation Claims by Employees

1. In two cases, federal courts in Pennsylvania have held that a staff employee of a law firm has a right to assert a claim for wrongful discharge if the attorney/employer retaliates against the employee for raising ethical concerns, as follows:

a. Paralegal stated a claim for wrongful discharge in violation of public policy in action for discharge and retaliation for notifying her employer's lawyer in attorney disciplinary matter that the employer had submitted a backdated letter. Paralegal v. Lawyer, 783 F. Supp. 230 (E.D. Pa. 1992). The Court found a public policy against falsifying material facts and evidence in Rules 3.3(a)(1), 3.4(a), and 3.4(b).

b. Paralegal/secretary could state a claim for wrongful discharge for refusing to participate in fraudulent billing scheme; she could not state a claim for wrongful discharge for gratuitously revealing to clients and authorities that the attorney billed paralegal time as attorney time, without notice. Brown v. Hammond, 810 F. Supp. 644 (E.D. Pa. 1993).

2. By contrast, the Pennsylvania Superior Court denied a wrongful discharge claim by a corporate general counsel who alleged that his employer engaged in illegal conduct, but alleged no clear violation of Pennsylvania public policy. The plaintiff did not state any claim of violation of the Code of Professional Conduct. McGonagle v. Union Fidelity Life Insurance Corp., 383 Pa. Super. 223, 556 A.2d 878 (1989), appeal denied, 525 Pa. 584, 575 A.2d 115 (1990).

©2002, High Swartz LLP. All Rights Reserved