When the General Counsel Isn’t Your Counsel

In a series of recent Pennsylvania cases, the state appellate courts have squarely addressed the oft-asked question of who, or what, is the general counsel’s client, particularly in the scenario of legal proceedings wherein the general counsel has interacted closely with corporate executives.  As the U.S. Department of Justice (“DOJ”) has ramped up its enforcement of individuals for corporate wrongdoing, these decisions provide a reminder to general counsel to advise agents of institutions that counsel represents the institutions, rather than the agents in their individual capacities.

The factual background of the cases[1] revolve around criminal investigations of executives of a higher educational institution in the aftermath of sexual abuse scandals regarding coaches of a certain university football team.  In each of the cases, the general counsel appeared on behalf of the university and the executives in a grand jury proceeding.  Subsequently, the executives were charged with perjury in connection with their grand jury testimony. The charges, in turn, were significantly based on the grand jury testimony of the general counsel.  Each of the executives thereafter brought actions to quash the grand jury presentment, claiming they had been denied effective counsel, as they each alleged they believed the general counsel had represented them individually.

After the Pennsylvania trial court rejected their requests for relief, the state appellate courts reversed and dismissed the criminal charges against the executives, finding that the general counsel had an attorney-client relationship with the executives and that such a privilege was violated through her testimony against the executives in the grand jury proceeding.  The appellate courts found that the general counsel communicated with the executives regarding the grand jury proceedings and appeared at the proceedings on their behalves, while failing to explain to the executives, or to the grand jury, any limitations on the scope of her representation, and that as such, the executives could reasonably believe that the general counsel was their personal attorney.

While the prosecutor argued that the general counsel only represented the university, and the executives solely as agents of the university, the appellate court determined that the general counsel did not appropriately explain to the executives the difference between representing the executives as corporate agents versus representing the executives in their individual capacities.

The appellate courts stated that the right to counsel is personal and designed to ensure that the party offering testimony does not provide incriminating testimony and, thus, counsel must properly explain the limitations of any representation.  Since said limitations were not adequately communicated to the executives, the courts found that the executives were deprived of their personal counsel during their grand jury testimony.

Importantly, although the executives were aware that the general counsel represented the university, the court found that such knowledge does not automatically establish the conclusion that the general counsel is only representing the executives in their capacities as agents for the university.

The courts also noted that since certain communications between a corporate attorney and a corporate employee may be personally privileged, the prosecutor’s argument, that none of the communications between general counsel and an executive are privileged, did not logically follow.  Rather, the courts distinguished discussions between general counsel and executives for the purposes of 1) business operations and internal investigations and 2) the executive’s personal legal issues, in these cases, the individual subpoenas to the executives.

The instant cases confirm the importance of the “Upjohn”[2] warnings, or the obligation to advise members of an institution that corporate/general counsel represents the institution and is not the personal attorney of the members/executives/directors of the institution.  Such an obligation arose from the United States Supreme Court opinion in Upjohn Co. v. United States, 449 U.S. 383 (1981), wherein the Supreme Court held that communications between corporate counsel and certain lower-level employees are privileged and, that in order to avoid such a misunderstanding, warnings should be given to advise the corporate employee that the attorney-client privilege belongs to the corporation, that said privilege cannot be invoked by the employee, and that the corporation may disclose such communications in its discretion.

Although the instant cases do not raise many new issues of law, they reflect the uptick in cases wherein liability of individuals has been sought, in both criminal and civil investigations, for what was arguably corporate wrongdoing, as well as the pressure on corporations to cooperate in governmental investigations.  On September 9, 2015, the DOJ issued guidelines, the so-called Yates Memo[3], on corporate conduct which allow corporations to receive credit for cooperating with DOJ investigations, including the requirement that the corporation “completely disclose” all facts regarding “individual misconduct” and identify all individuals involved with or responsible for the misconduct under investigation.  Moreover, the Yates Memo instructs prosecutors to concentrate on the wrongdoing of individuals from the beginning of the investigation through its resolution.

Given the increased focus on individual culpability by the DOJ, general counsel must be vigilant to provide an accurate and timely Upjohn warning and ensure that any dual representation issues are resolved.  Moreover, general counsel must be aware that participating in legal proceedings or investigations raises ethical hazards when the general counsel knows, or has reason to know, that an agent of the corporation may face individual legal liability.

Conversely, while many healthcare executives have been made aware of the Yates Memo, particularly given the breadth of health care laws and regulations which provide for individual penalties, executives down to lower-level employees must be aware of the limitations on the representation of the general counsel, whether an Upjohn warning is issued or not and, that most importantly, the general counsel is not personal counsel, from the early stages of an investigation, during grand jury proceedings, or through trial.

[1] Commonwealth v. Curley, 2016 PA Super 13 (Pa. Super. Ct. 2016); Commonwealth v. Schultz, 2016 PA Super 12 (Pa. Super. Ct. 2016); Commonwealth v. Spanier, 2016 PA Super 14 (Pa. Super. Ct. 2016)

[2] Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981)

[3] https://www.justice.gov/dag/file/769036/download

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