Spotting ethical issues in litigation is usually easy. The direct conflict magnifies tactics on the line between zealous practice and violations of the disciplinary rules, with transgressions quickly raised for the court’s consideration. Corporate transactional practice can also challenge a lawyer’s ethics, but the disciplinary landmines may be hidden in behind-the-scenes struggles for advantage.
Popular fiction, with its extremely stressful situations, can illustrate the lawyer’s dilemma. When the pressure is on, it is easy for professionals to sneak over the ethical line. Only a tiny percentage of novels are built on the intricacies of corporate maneuvering that raise such ethical matters. I hereby offer a tonic for this problem.
This autumn I published my second detective novel, Fistful of Truth, featuring a former lawyer leading a multi-city investigation firm. (Find the novel here.) The action in this book centers around the acquisition of a genetics research company by a huge pharmaceutical corporation. This book is in part an exercise in legal ethics for transactional business lawyers, with a side of mayhem, dirty dealing, and tinkering with the code of life.
The protagonist, Matt Bishop, is conducting a factual investigation of the acquisition target on behalf of the public company prospective purchaser. His client has access to detailed financial records, documentation about secret genetic research and genomics projects, and even computing logs and network records. From the beginning, a transactional attorney wonders, “Why didn’t the lawyers for the target company set limits on this ‘due diligence’ investigation?” In real life, a diligence review under the guise of a potential acquisition may expose the target’s vulnerabilities and secrets whether or not the parties complete the purchase transaction. Then the target is left completely exposed to the former prospective purchaser, often its competitor.
Rule 1.3 of the ABA Model Rules of Ethical Conduct, effectively mirrored in state bar ethics rules, requires an attorney to zealously represent her client. Under this ethical requirement for zealous client representation, the target company’s lawyers should propose limits on what kind of diligence investigations the proposed acquirer may be allowed to conduct, what employees of the target are available to interview and what kind of access investigators can have to the servers of the target. The potentially acquiring company should only be able to review the minimum amount of material needed to confirm its understanding of the target company’s business. It is the job of the target company’s lawyers to enact and maintain those restrictions.
In the book, the investigation itself also raised ethical issues for the lawyers of the acquiring company. Bishop claims he was hired by an outside law firm to conduct this review in order to provide privileged status to the resulting report, yet he never seems to contact the supervising law firm. Under the ethical rules, lawyers are required to closely manage their agents (Ethical Rules 5.1 and 5.3). Failure to do so is not only a violation of disciplinary rules, but can cost the attorney’s client the benefit of attorney-client privilege.
In the recent federal case of In Re Marriott International, Inc. Customer Security Breach Litigation, the court wrote, “For attorney-client privilege to apply, the communication must pertain to legal assistance. Furthermore, the need for legal advice must be a but-for cause of the communication. As such, business advice—such as how Marriott may improve its cybersecurity—is not privileged.” (citations omitted) In the book, Bishop was reporting directly to the pharmaceutical company executives, and not to the lawyers who were supposed to have retained his services. The pharma company lawyers were not exhibiting the required level of competence to maintain a desired privilege and were not directly supervising their non-lawyer agents.
Lack of supervision under Rule 5.3 becomes an even bigger problem for the acquiring company’s outside counsel when their investigating agency acts outside the law and performs hacking activity to find information on behalf of the pharma client. Bishop’s in-house computer forensics team, the Wolf Pack, hacks into business and financial records in the course of pursuing information for the client. Section (c) of Rule 5.3 states that a lawyer is responsible for the conduct of a non-lawyer, if the lawyer supervised or ordered the conduct, or “ratifies” the conduct, or could have prevented or mitigated the effects of the conduct. Clearly, in the book, even if the pharma company’s outside counsel did not order a violation of the Computer Fraud and Abuse Act, it set the investigator loose without closely supervising his activities. The state disciplinary committee could easily impute that violation of law to the lawyers themselves.
A more tenuous case could be made under Rule 4.2 concerning Bishop’s contact with opposing parties that he knows to be represented by counsel. According to the court in the 2020 Minnesota Federal District Court case US vs. Cameron-Ehlen Group, the Rule 4.2 restriction on contact “applies to the conduct of not only attorneys, but also an attorney’s nonlawyer agents, including investigative agents.” So Bishop’s contacts with executives of the target company could be imputed back to his supervising lawyers. One questions whether, as a former private firm lawyer himself, Bishop should have recognized the risks and avoided such contact. In an early scene where Bishop visits the home of the leader of an anti-genetic-manipulation advocacy group, his status as investigative agent for the pharma lawyers should have made him think twice. While the group leader does not state that he is represented by counsel, earlier criminal cases against the advocacy group would imply that he had counsel and Bishop should have known about it.
A corporate acquisition provides a variety of opportunities to run afoul of your state’s attorney disciplinary rules. You may not have the kind of practice that exposes you to this spectrum of ethical issues, so you can keep sharp by issue-spotting in the books you read. Even transactional business lawyers can find books that entertain and help you develop your ethical radar at the same time. Organized crime, government conspiracy, and murder may seem like the gravest misbehavior in Fistful of Truth, but the book demonstrates that even subtle moves by business attorneys can lead to serious consequences.