Lessons Learned from Penn State--Part II: Avoid Potential Conflicts Early, Know Who Your Client Is, and Make Sure Others Know It Too

August 21, 2012

1012552_business_world_4.jpgThe Penn State scandal was, in many ways, the perfect storm that any organization dreads. What could organization counsel have done differently as the scandal unfolded? In this installment we focus on avoiding conflicts early, knowing who your client is, and making sure others in the organization know too.

The Freeh report alleged that the University's general counsel, Cynthia Baldwin, advised the Board of Trustees against conducting an internal investigation and accompanied the two University administrators who were indicted for failing to report what they knew about Jerry Sandusky's conduct, Vice President Gary Schultz and Athletic Director Tim Curley, to the grand jury. The report also alleges that both Schultz and Curley believed that Baldwin represented them personally during their grand jury testimony, and that Baldwin failed to clarify that she represented only the University.

Counsel for any organization has a legal and ethical duty to make clear to "constituents" of the organization--directors, officers, employees, members, shareholders--that he or she represents only the organization, and not the constituent, when the lawyer knows or reasonably should know that the organization's interests are adverse to those of the constituent. In Pennsylvania, this duty is set forth at Rule 1.13 of the Rules of Professional Conduct. Organization counsel needs to make this distinction clear to all constituents early in the investigation.

If you think about it, most people in the situation that Schultz and Curley found themselves in would assume that the organization's counsel represented both the organization and them--unlike lawyers, most are not familiar with how conflicts of interest in such situations may arise, and don't think these things through. It is incumbent upon organization counsel to explain this distinction.

This post continues after the jump.

In conducting an internal investigation (which Penn State clearly should have done at the first sign of trouble), organization counsel should precede all interviews of constituents with the now-familiar "Upjohn warnings," named for the 1981 Supreme Court decision that extended the corporate attorney-client privilege beyond a "control group" within the organization. The Upjohn warnings should contain the following elements: (1) that you are the lawyer for the organization only and do not represent the constituent personally; (2) that the purpose of the interview is to gather facts in order to provide legal advice to the organization relating to the investigation; (3) that the communications in the interview are protected by the attorney-client privilege but the privilege is held by the organization, not the constituent, and therefore the organization may choose to waive the privilege and disclose the communications to third parties; and (4) that in order for the discussion to be subject to the privilege it must be kept confidential, so the constituent may not disclose the substance of the discussion with third parties.

Like police before giving Miranda warnings to a suspect, organization counsel may be concerned that, once warned, the employee will refuse to be interviewed. As a practical matter, in most cases the potential threat of termination if they do not cooperate is enough to persuade most employees to submit to an interview even if they fully understand the Upjohn warnings. Providing Upjohn warnings, and documenting that fact, will allow the organization to later decide whether to waive the privilege and provide the information to the government--and thereby receive cooperation credit for doing so--without the constituent asserting the privilege and preventing its disclosure.
Providing the warnings also prevents constituents, like Schultz and Curley, from believing that their interests are being protected by organization counsel when they may not be.

Where a potential conflict of interest arises, organization counsel should hire separate counsel for the constituent. That way, both the organization's and the constituent's interests are protected, conflicts are avoided, and neither the constituent nor the government will misunderstand the role of organizational counsel in an investigation.