Taking an entity to trial entails special considerations over and above litigation involving individuals alone. Among the matters to consider are the process of preparing 30(b)(6) witnesses, employee representation, insurance considerations, document retention, and funding litigation. Each of these matters might require a litigator to modify their approach to trial. In this Protecting an Entity in Litigation series, I explore the critical issues an attorney should consider when protecting an entity in litigation.
Employees, officers, shareholders, independent contractors, and others might have a role in entity defense. In entity litigation, an attorney must clarify their relationship to each and properly set expectations, boundaries, and responsibilities before discussing information, and steer clear of conflicts of interest.
One of the first distinctions an attorney representing an entity will need to make is determining which witnesses might need to assist in the claims and defenses of the entity and what relationship you, as counsel, might have to each of them. The entity’s story will not only be presented through designated Rule 30(b)(6) witnesses (see Preparing 30(b)(6) witnesses) but there may also be relevant employees, past and present, officers, shareholders, independent contractors engaged with the entity, and others who might have a role in the entity’s defense. Counsel must clarify their relationship to each and then properly set expectations, boundaries, and responsibilities before discussing information with them.
Oftentimes, managers themselves will be covered by Director and Officer insurance policies and thus they will be properly represented by panel counsel relieving the entity’s counsel in preparing these witnesses or worrying about potential conflicts of interest with the company at trial. Current and former employees, however, may not have separate coverage or counsel creating a level of risk to the entity if it chooses to support these individuals with outside counsel.
Ethical constraints, which are not always clear, will inform the entity’s counsel’s decision on whether he may represent current or former employees. That decision will also be impacted by the claims made in the entity’s case, the jurisdiction, and potentially the trial court’s rules.
Certain red flags raise the risk and should be clear signs to steer clear of a conflict of interest in employee representation. Top level management typically make decisions on behalf of the company and thus usually poses less of a risk for a disqualifying conflict of interest with the entity. Top level management often act in lockstep with the entity (or as the entity) and their acts and omissions can be binding on the corporation so their representation by the entity’s counsel is common. But some courts have disqualified counsel from representing lower-level employees if the effect prevents informal interviews by opposing counsel. Case law shows that courts will not tolerate a ploy to represent the entity which merely serves to lock a witness up from discussing the case with the other side.
When to Avoid Individual Witness Representation
In a situation where there is a fraud allegation against a particular person the entity’s counsel will typically be disqualified from the representation. Take, for example, a situation in which an employee at a car dealership was allegedly giving incentives away contrary to law and that individual is now under federal investigation for fraud. The car dealership entity is now being sued in a civil case for anti-trust violations because the dealership is competing unfairly. The entity will take the position that the bad actor in this matter was the individual employee and that he certainly was not acting with the entity’s authority or knowledge. By pointing the finger at that employee for the bad acts and attempting thereby to excuse itself from liability, there is a clear conflict of interest and the entity’s counsel must decline representation of the employee.
But decisions to represent the employee or not are rarely so easy to discern. Sometimes entities can obtain a waiver of the conflict, depending upon the seriousness of the issue and liability under investigation, or the entity-client’s preference.
Another difficult factor in counsel’s decision is that the representation may also depend on what an entity really wants to do and the associated risk they are willing to accept. Counsel for the entity should always talk with their corporate client first about what they want to do and who they want to represent. Your entity knows its business best and it knows who is likely to stay in the fold in support of the entity and who might go rogue.
An attorney should be talking closely to her entity-client to assist in the decision making on representation with clear legal and ethical considerations in mind. Then, the corporate client itself (through management or the person responsible for the matter on the inside) should go to the employee, former employee, contractor, or other person himself. That client representative should provide the entity’s legal counsel’s contact information should the employee wish to speak with her. This step removes certain ethical considerations for counsel in allowing the witness to choose whether or not they wish to even speak to the entity’s counsel in the first place.
If the employee reaches out to counsel, the entity’s attorney initially confirms that she represents the entity and what the general subject matter of the issues or claims are. Next, counsel should gather the relevant facts, starting with a date range for incidents named in the lawsuit. Counsel should get basic details on what happened and whether what happened is typical for the entity or the employee’s practices. Be wary of ethical rules to understand what and how much of the entity’s case can be disclosed – your role is to ask questions instead of informing the witness. Be on the lookout for just those facts you need to know to determine if and where conflicts exist in order to make an initial determination of whether representation is possible or problematic. Pay heed to the steps – oversharing or failing to stop an interview when a clear conflict of interest is discerned could find the entity’s counsel disqualified from representing either the entity or the individual.
To limit the threat that a conflict of interest may arise, be clear to limit the scope of any representation of the employee or past employee. For example, an attorney should clearly and in writing disclose to his client any potential conflicts of interest that could arise from representing a certain employee, potentially gaining waivers, and also make clear to the employee that his representation of her is limited, for example, only representing her for the deposition and its prep session. The individual should be apprised that the attorney has the entity’s permission to represent the individual on this limited basis.
Only once the lines of representation are drawn should an attorney conduct a deposition preparation session. This includes going through the timeline of events as this witness will present them, assisting the witness to understand the claims made against the entity, helping the witness use appropriate language and understand key definitions, and ensuring the witness is prepared to answer questions. Like a Rule 30(b)(6) witness itself, the employee needs to understand the elements of the claims and defenses, the entity’s goals in the case, the witness’s goals in the deposition, the themes of the case, and potential liabilities for the entity.
When defining your role, be sure to confirm to the individual witness that, because you represent the entity, your first duty of loyalty is to the entity. Be clear that anything the employee says to you will be shared with the corporation as a matter of your ethical responsibility. Be cautious about engaging the witness in any conversation that would solicit negative information about the employee’s entity-boss or that otherwise discloses corporate secrets. These dynamics could expose counsel to difficult situations and potentially new legal or ethical obligations. Ethics opinions abound on the scope of employee representation, including joint defense agreements and the handling of confidential information.
Understand that certain employees could be fearful of retaliation by the entity or could even be unduly influenced by the corporation. These employees might know information about the company and find themselves in a bind because the company does not want the employee to talk to the other side. The company may even go so far as to try to block the testimony entirely or provide incentives for certain testimony, like a raise. When shenanigans like this are happening, the employee may be worried about the ramifications of complying with a deposition request, especially if the suit goes badly. Should you receive indications of these types of issues, you are encouraged to avoid the representation and counsel the entity that if even a hint of coercion or deceit comes out a trial, the entity loses its footing.
This information is not intended as legal advice. Readers should seek specific legal advice before acting with regard to the matters addressed above.