A Privilege to Serve? Attorney-Client Privilege, In-House Counsel & Whistleblowing
An interesting conflict is brewing in some state and federal courts involving whistleblowers and the attorney-client privilege–specifically the use of privileged information by in-house counsel whistleblowers.
In-house counsel as a whistleblower is a thorny issue because to prove the whistleblower’s case, information might have to be used that the attorney learned in the capacity as company lawyer. Under legal ethics rules and some state laws, much of the information an attorney learns relating to the representation of a client must be kept confidential and may be divulged only in very limited circumstances.
As discussed below, state courts may be less likely than federal courts to permit the lawyer whistleblowers to use privileged information.
Some State Courts Prohibit Retaliatory Discharge Claims by Lawyers
Based on the sanctity of the attorney-client relationship, some states forbid attorneys from pursing retaliatory discharge claims against former employers because to prove the claim, the lawyer might have to use privileged information. For instance the Illinois Supreme Court in Balla v. Gambro, Inc., 145 Ill.2d 492 (1991), held that an attorney whistleblower could not sue his employer for wrongful termination after he was fired for threatening to and ultimately reporting his employer to the Federal Drug Administration for violation of agency rules.
The Illinois court believed that permitting in-house lawyers to sue for retaliatory discharge would adversely affect the attorney-client relationship because employers may be less candid with in-house counsel and hesitant to turn to them for legal advice. However, the court also noted that despite the fact the attorneys may not sue former employers for wrongful termination, it did not effect a lawyer’s obligation under rules of professional conduct to withdraw from representation if continued representation caused a violation of the rules.
Whistleblower Claims by Lawyers OK Under Federal Law?
The federal court for the Northern District of California is the most recent court to weigh in on this issue and concluded that under federal law, in-house lawyers could sue for retaliatory discharge and when doing so, could rely on privileged communications.
In Wadler v. Bio-Rad Laboratories, Inc., Case No. 15-cv-02356 (N.D. Cal. Dec 20, 2016), a former in-house lawyer sued Bio-Rad alleging he was fired after investigating potential violations of the Federal Corrupt Practices Act (FCPA) and reporting his findings to the company audit committee.
Shortly before trial, Bio-Rad asked the court to exclude nearly all of the testimony and evidence the company attorney would rely upon to prove his case. Bio-Rad argued the information was protected from disclosure by the attorney-client privilege.
The court noted the position of the Illinois Supreme Court in Balla and also noted that although the California state law on the issue was not as restrictive as Balla, even still, in-house counsel could pursue retaliatory discharge claims in California only if they could establish the claim without privileged information. (General Dynamics Corp. v. Superior Ct., 7 Cal. 4th 1164 (1994).
However, relying on a Ninth Circuit case, Van Asdale v. International Game Tech., 577 F3d 989 (9th Cir. 2009), and other federal case law, the court concluded that state law limitations on retaliatory discharge claims by in-house attorneys do not apply under federal common law.
The Wadler court rejected Bio-Rad’s request to exclude attorney-client privileged information concluding the attorney’s claim could proceed because “federal cases . . . seem to support the conclusion that privileged communications and confidential information may be used, with appropriate protections, to establish whistleblower retaliation claims under the federal common law.”
Despite Wadler’s holding, not all federal judges may agree with their California colleagues. For instance, in Fair Laboratory Practices Assoc. v. Quest Diagnostics, LLC., 734 F.3d 154 (2d Cir. 2013) the Second Circuit Court of Appeals agreed with the dismissal of a whistleblower case filed by a former in-house counsel because disclosure of certain information to support the case violated the attorney’s ethical duty to preserve client confidences.
Wadler Court: OK to Use Privileged Information If Privilege Waived & Because of Sarbanes-Oxley Preemption
Even after deciding federal law permitted the use of privileged information by in-house counsel whistleblowers, the Wadler court also found other reasons to support its position including its belief that Bio-Rad waived the attorney-client privilege by using privileged documents to respond to government investigators and also to support various pleadings in the Wadler case.
The court also concluded the preemptive effect of the Sarbanes-Oxley Act permitted the use of confidential in privileged information, stating “that to the extent California’s ethical rules allow for more limited disclosures of privileged and confidential communications in connection with Sarbanes-Oxley whistleblower retaliation claims than is permitted under the regulations promulgated by the SEC, there is a direct conflict that gives rise to preemption of California’s ethical rules.”
Takeaway?
It will be interesting to see how this plays out among courts. Also interesting is how decisions like Wadler will impact whistleblowing under state laws that may not qualify for federal jurisdiction.
