A Company Insider May Serve as its Trial Counsel

Recently, a Tennessee federal magistrate judge held that a company would be able to use its inside counsel as its trial counsel, even though he had strong ties to the case.

In America’s Collectibles Network. Inc. v. Sterling Commerce (Am.) Inc., Judge Guyton urged that the company’s opponent did not argue the “lawyer as witness” rule correctly. Tennessee Rule of Professional Conduct 3.7 (mirroring ABA Model Rule 3.7) allows for the disqualification of a trial counsel if that person is a necessary witness. Judge Guyton explained that this rule would only preclude the inside counsel here from serving as trial counsel if his testimony was relevant, material, and unobtainable elsewhere—making him a necessary witness in the case.

The opponent’s arguments for the insider’s disqualification included that: 1) he was designated as the company’s corporate representative for depositions, 2) he had been intimately involved with the company since its inception, and 3) he played a key role in implementing the contract underlying the parties’ dispute.

Despite these strong ties, Judge Guyton pointed out that the opposing party did not indicate that it intended to rely on the insider’s testimony, nor did it pinpoint any specific testimony the insider would be the necessary witness for on either side.

While the judge mentioned that he personally thought using the insider as the trial counsel was “ill-advised,” he stated that unless the insider’s questioning during trial devolved into testimony, the insider was eligible to serve as trial counsel under rule 3.7.

To read the opinion in full, click here.

California: Class Litigants Must Disclose Outside Funding

In January, the Northern District of California issued a standing order that took a small step towards addressing concerns about third-party litigation financing. The litigation finance industry has been increasingly growing as outside investors provide funding to plaintiffs bringing lawsuits. The U.S. Chamber of Commerce has called third-party litigation financing a “major threat” to the integrity of the civil justice system, especially because investors have been masked since the concept’s inception.

The Federal Rules of Civil Procedure is silent on whether litigants must disclose funding agreements made with third parties. As a result, defendants who suspect that outside investors are funding opposing plaintiffs’ lawsuits have been unsuccessful in unmasking investor identities through discovery rules or other avenues. Many argue that the practice brings forth blatant ethics concerns.

The Chamber of Commerce urged the Northern District of California to adopt a broad disclosure rule that would require all civil parties to reveal any funding arrangements with outside investors, but the court didn’t go quite as far.

In its standing order, the court’s rules committee proposed a change to its Local Rule 3-15. Local Rule 3-15 provides specific examples of “interested” non-parties that litigants must disclose. The rules committee proposed an addition to the rule that would include the broad category of “litigation funders” in the list of examples.

Subsequently, the court adopted a narrower disclosure requirement. In its standing order, the court wrote that third-party litigation funders and investors would need to be disclosed, but only in class action cases.

Opponents of litigation funding call the standing order just a small victory because there is not a great deal of litigation funding of class actions. But it’s a start.

The standing order can be found here.

California Ethics Opinion Says ‘Keep Quiet’: Lawyers Cannot Reveal Client Secrets, Even if Publically Available

Does a secret stay a secret when it is posted on the Internet for anyone to find out about? According to common sense about confidentiality, it might seem obvious that sharing something online would utterly break any secrecy.

However, the State Bar of California disagrees and says such client secrets should still be protected. According to a recently finalized opinion, “[a] lawyer may not disclose his client’s secrets, which include not only confidential information communicated between the client and the lawyer, but also publicly available information that the lawyer obtained during the professional relationship which the client has requested to be kept secret or the disclosure of which is likely to be embarrassing or detrimental to the client.”

Even after the attorney-client relationship ends, a lawyer still cannot disclose potentially embarrassing or detrimental information—despite the fact that the information could be easily discovered on the Internet or in court files, the opinion said.

The new guideline may seem confusing in light of ABA Model Rule 1.9, which provides that information ceases to be a client secret when it is “generally known.” But a footnote in the opinion explains that “generally known” and “publicly available” are different ideas: generally known information is that which most people already know, whereas publicly available information is accessible by the public through searching different online or court sources.

The California state bar explains its guidelines through several hypotheticals about a lawyer who defended a hedge fund manager against fraud claims. For example, in one hypothetical the hedge fund manager blogged about confidential information, and the opinion states that the lawyer had a duty to protect that information as a client secret; therefore forwarding the blog to friends would violate that duty. These hypotheticals illustrate that client information does not lose its confidential nature merely because it is publicly available.

The opinion emphasizes a lawyer’s core duty to keep quiet about clients’ sensitive information, even if some members of the public could share and discuss the same information freely.

To read the full opinion, click here.