The Business Counselor Blog™

Attorney-Client Relationships: Attorney Duties and Liabilities

I recently had the need to revisit in detail the various professional duties that lawyers have to their clients and the liabilities associated with failing to live up to those duties.  The attached report provides an overview of things that lawyers need to keep in mind as they begin and continue engagements with their clients. 

Creating and Preserving Confidentiality and Privilege in Internal Investigations

Before any internal investigation begins, counsel must consider how information uncovered during the investigation is to be preserved in confidence. Of course, some of the information collected during the investigation may already be eligible for protection under some form of confidentiality or nondisclosure agreement. The confidentiality of internal investigation materials may be eligible for protection under the attorney-client, work-product or self-evaluation privileges, provided that such privileges are not waived during or after the investigation by inadvertent or intentional disclosure of the information.

In order to maximize the chances that the results of any investigation, or legal review for that matter, will be eligible for protection from unwanted disclosure, counsel should take the following steps:

• Generate a record that supports an expectation of privacy and intent to prevent and cure violations of law.
• Obtain formal authorization of the investigation from management that makes it clear that the purpose of the investigation is to render sound legal advice to the company. Counsel should make a written request for authorization that sets out the potential forms of litigation which may arise from any violations in the legal area under review. A formal authorization and retention letter also should be used for work to be done by outside counsel, and the letter should describe the procedures for the investigation and set out the details of the privilege.
• Coordinate and control the investigation, including, without limitation, ensuring that all investigation participants are instructed to report directly to counsel.
• Persuade management to formally direct employees to cooperate in the investigation and make sure employees are aware that counsel represents the corporation.
• Employees should be admonished to avoid hyperbole, legal conclusions, speculation or offensive language in their internal communications.
• Educate managers in the laws and practices relating to protection of internal communications, including the operation of the legal system and the role of counsel. Memorialize interviews in a way that integrates factual information with counsel's thought processes and opinions.
• Counsel should avoid verbatim transcripts and tape recordings in favor of memoranda that include evaluations of the statements made by the interviewee and relate the interviewee's statements to other evidence that the interview either supports or refutes. Mark documents "privileged and confidential attorney work-product"; maintain separate files and limit access to the files only to persons in the legal department; retain custody and control of materials, and dispose of unnecessary materials. Distributions of copies of materials for which protection is sought, particularly e-mail communications, should be strictly limited.
• Hire and control investigation experts and consultants and instruct experts and consultants to report directly to counsel and to submit reports that set forth the elements necessary for a privilege to be recognized.
• Draft reports and summaries in a fashion that reflects the elements of the privileges. For example, counsel should include affirmative statements on documents (such as witness interview summaries) to the effect that information included therein was solicited and obtained for purposes of rendering legal advice.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Deposing In-House Counsel

One of the most important, and increasingly difficult, issues that must be confronted when in-house counsel is involved in any sort of internal investigation is how the information that counsel collects and reviews during the course of the investigation will be treated during discovery in the event that the matter under investigation ultimately becomes the subject of litigation.  It is now common practice for companies to use in-house counsel, either alone or in collaboration with outside counsel, to take on many aspect of managing litigation including preliminary fact finding before a lawsuit is filed to determine the strength of the arguments on both sides and the evidence that may be available to support or refute various claims.  For example, in-house counsel may take the lead in collecting documents and summarizing the contents for outside counsel in order to reduce the costs of preparing for litigation.  Similarly, in-house lawyers often collect records from, and conduct interviews with, non-legal personnel in other departments as a pre-condition to determining how the company should address a business dispute such as defective goods received from a vendor or a customer’s failure to pay for products manufactured and delivered by the company. 

As a result of the types of activities referred to above in-house lawyers naturally become the repositories of substantial amounts of information regarding the subject matter of subsequent litigation and thus become natural targets in opposing counsel’s efforts to obtain information and, in fact, courts have noted that the practice of taking the deposition of opposing counsel has become an increasingly popular vehicle of discovery. Obviously the possibility of being required to sit through a deposition to go over things done in the course of a legitimate internal investigation is a troubling matter for in-house counsel for a number of reasons.  First of all, counsel is subject to the restrictions of Section 1.6 of the Model Rules of Professional Conduct which provides, subject to specified exceptions, that lawyers cannot reveal information relating to the representation of a client unless the client gives informed consent.  This rule is a codification of the attorney-client privilege and in the case of in-house counsel the privilege is held by the corporation and the power to waive it rests with the corporation’s management and is normally exercised by its officers and directors and not its in-house attorney.  Another concern is the possibility that acting as a witness in the case by having his or her deposition taken will prevent in-house counsel from actively participating as counsel in the case if and when it goes to trail because of Section 3.7 of the Model Rules of Conduct, which provides that, subject to limited exceptions, "[a] lawyer shall not act as advocate at trial in which the lawyer is likely to be a necessary witness."  Finally, since a demand for a deposition is generally accompanied by a request for related documents in-house counsel must consider whether any of those documents can and should be withheld on the basis that they are part of counsel’s work-product for the particular case.

Depositions on an in-house attorney may be requested either through serving a Notice of Deposition under Rule 30(b)(6) of the Federal Rules of Civil Procedure on the attorney’s client (i.e., the corporation) that intentionally designates topics that are likely to fall within the exclusive knowledge of the attorney or by serving a subpoena duces tecum on the attorney under Rule 45 of the Federal Rules of Civil Procedure.  In addition to defending against the demand for deposition the attorney and its corporate client would also have to fund off production of documents that might include the attorney’s notes and witness interview summaries.  Two strategies for responding to a notice or subpoena are generally available—attending the deposition and raising particular objections in response to specific questions or filing a motion to quash the subpoena and/or a motion to obtain a Rule 26(c), Fed. R. Civ. P., protective order which should be granted unless the party seeking the deposition can show both the propriety and need for the deposition.  The courts have made it clear that they view the increasing practice of taking opposing counsel’s deposition as a negative development in the area of litigation, and one that should be employed only in limited circumstances, and have generally limited depositions on in-house lawyers to situations where the party seeking to take the deposition has shown that no other means exist to obtain the information than to depose opposing counsel; the information sought is relevant and non-privileged; and the information is crucial to preparation of the case.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

KPI for Legal Departments

Legal organizations of all types—corporate law departments, law firms, and government law departments (i.e., federal, state, county and local)—are implementing procedures designed to measure and improve their performance and ensure that their activities are aligned with the overall performance and strategic objectives of their larger organizations or, in the case of law firms, clients.  Simply put, the legal profession is now attempting to measure law department and law firm performance in the same way that businesses have been measuring performance in other important functional areas such as sales, accounting, human resources and information technology.

One example of how this trend is emerging is the creation of the Open Legal Standards Initiative (OLSI), which has partnered with the Association of Corporate Counsel and The Corporate Legal Standard, Inc. to develop standardized business process and metrics classification systems for the legal profession that will allow for more effective benchmarking of important pre-selected performance metrics, generally referred to as “key performance indicators” or “KPI”.  In order to understand how KPI can be developed and used in the legal area it is important to briefly discuss a few key definitions.  First, there must be agreement on the meaning of the term “metrics”.  A “metric” is generally understood to be a standard of measurement and that can be used as a way for quantitatively assessing the efficiency of performance with respect to a particular process.  In order for a metric to be useful, however, there must be full agreement in advance as to how the relevant data will be collected, organized and displayed.  Second, metrics cannot be used in isolation and results must be evaluated against pre-agreed standards.  This exercise is referred to as “benchmarking” and in the legal area requires comparison of the KPI of one legal organization to comparable organizations (e.g., data from one law department is compared to data of other law departments of similar size).  The information necessary for benchmarking is usually collected from larger surveys conducted by consultants and/or trade organizations.  Finally, it is likely that a large number of “performance indicators” can be identified; however, the focus must be on those that are truly “key” and worthy of significant management attention.  Two points need to be made on this issue—KPI must be easily understood by interested stakeholders, such as other departments within a corporation, and recognized as being compatible with the overall strategy of the organization; and KPI must be limited to those areas that can create the most value for the organization.  If doing a particular thing very well does not create significant value it is a nice thing; however, it is not something that should be considered part of the KPI.

The OLSI has suggested 25 top KPI for law departments broken out into seven main categories—general law department metrics; litigation matters; non-litigation matters; intellectual property matters; external legal spending; knowledge management; and compliance.  The general law department metrics include the total expenses of the law department in an absolute sense and as a percentage of the total revenues of the company.  Litigation, non-litigation and intellectual property matters all track the number of active matters as well as the volume of new and closed matters.  Particular emphasis is placed on “process efficiency,” such as the average cycle time to resolve or close new matters.  External legal spending is related to the general law department metrics described above by its focus on total fees for outside counsel and other legal vendors and is further broken down into litigation, non-litigation and intellectual property matters.  Knowledge management (KM) attempts to track how successful the law department has been in capturing existing knowledge and re-using it as opposed to paying for the creation of the same knowledge all over again.  Specific KPI in this area look at how efficient the department has been in storing and organizing electronic or hard copies of documents and research and how often the department engages in KM-specific reviews of closed matters (i.e., what did we learn so we can do it better and more efficiently the next time).  Compliance-related metrics include the number of ethics line/hotline calls, cycle time to resolve ethics line/hotline reports, and overall employee awareness of compliance program procedures and activities.  With respect to public companies awareness is measured by reference to Sarbanes-Oxley and exchange listing requirements that mandate distribution of a code of conduct or ethics to employees.

The OLSI Top 25 is certainly a useful list and many, if not all, of the items should be included when selecting the KPI for a legal department.  However, consideration should also be given to including additional KPI that focus on the level of service provided by the legal department, the level of teamwork and morale within the legal department, the contribution that the legal department makes in the context of pre-selected strategic projects, and the performance of the legal department in relation to pre-approved budgets.  For example, with respect to service levels the legal department can and should be evaluated on how readily the legal department can be reached by other departments seeking legal services (i.e., “accessibility”) and how often requested legal services are obtained on a timely basis (i.e., “turnaround”).  There is, however, one important caveat in focusing on these measures—are the expectations of the other departments reasonable?  If other departments are treating a relatively minor issue as “urgent” and disrupting the workflow of the legal department on matters that should clearly have a higher priority it is not fair to the legal department to absorb criticism with respect to poor turnaround on minor issues which are of little or no value to the company as a whole.  With respect to pre-selected strategic projects, such as negotiation of an important new contract or management and disposition of major litigation, the legal department should be judged on how well it does in attaining planned results and its overall contribution to the successful completion of the project.  Other departments should be asked how satisfied they are with services provided by inside and outside counsel on these projects.

Legal departments are sometimes asked to suggest KPI without an understanding of how they will impact the day-to-day operations of the department and the lives of the lawyers and other personnel who work within the department.  This mistake should be avoided and management should take the time to fully explain how metrics and benchmarking will be used.  At an operational level, tracking of litigation and non-litigation matters allows the law department to do a better job of staffing and budgeting and thus realize savings and create value based on more efficient processes.  In addition, KPI should be used to establish goals and objectives for further improvement; however, the goal should not simply be to achieve a “better score” but should be supported by specific “next actions” that can be understood, implemented and measured.  Finally, and not unimportantly, KPI should be tied to meaningful incentives in order to motivate the members of the legal department to strive for improvements and avoid acting in a way that will adversely affect the score on a particular KPI.  Since KPI can and should be a means to incentive behavior the infrastructure of the company (i.e., the organizational design) should be set up in a way that allows the legal department to have a reasonable level of control over the activities that are being measured and other departments should not be allowed to create obstacles that will prevent the legal department from pursued its goals and objective with respect to its own unique KPI.  In turn, the KPI of the legal department should be aligned with the actions that other departments are expected to take in order to achieve their KPI.