With Plaintiffs and the G Gunning for Them,
In-Housers Feel the Heat

By Sheri Qualters
The National Law Journal
New York Lawyer
October 23, 2009

In-house lawyers at the Association of Corporate Counsel (ACC)'s annual meeting in Boston this week conferred on ways to combat the rising number of lawsuits and government investigations faced by their ranks.

Several panels addressed lawsuit topics, including "Traditional and Not-So-Traditional Malpractice Risks of In-house Counsel" on Oct. 21 and "In-house Counsel as Witnesses" on Oct. 19. Another Oct. 21 panel, "In-house Ethical Dilemmas Revisited: What Would You Do Now?," discussed how to handle potential ethical quagmires that could generate lawsuits.

In-house counsel are facing suits from many directions, said Kirk Raslowsky, associate general counsel of the Chubb & Son division of Federal Insurance Co. and a panelist in the malpractice risks seminar.

Raslowsky said in-house lawyers are being named as parties in employment suits, corporate waste suits against companies in bankruptcy and trademark cases against the company. Electronic discovery issues are frequently involved.

More often, an in-house lawyers' failure to act will spur a claim more than making errors, he said. "This failure to act may be viewed as a green light by others [to sue]," Raslowsky said.

Raslowsky said the Delaware's bankruptcy court's decision to allow claims against Brian Licastro, World Health Alternatives Inc.'s former general counsel, to move forward in an adversary case, Miller v. McDonald, is a prime example.

The claims against Licastro included breach of fiduciary duty, waste of corporate assets, negligent misrepresentation, professional negligence and related aiding and abetting claims.

"The general counsel was alleged to have been aware of the corporate waste but took no action," Raslowsky said. "The interesting and scary thing about the case is that the general counsel didn't benefit personally from the company's expenditures."

Licastro, World Health's Chapter 7 trustee and American International Specialty Line Insurance Co. settled the case in February.

Even when they're not the target of a lawsuit, in-house lawyers are more frequently deposed as witnesses, according to panelists in a seminar about why lawyers are increasingly in the hot seat.

Lawyers are being called as fact witnesses in cases about corporate deals or transactions that have gone sour, said panelist Jeffrey Brenner, a litigation partner in the Providence, R.I., office of Nixon Peabody.

"In most jurisdictions, counsel have a duty to confer on discovery disputes," Brenner said. "To the extent that a factual issue arises, in-house counsel may be the best and only witnesses."

Disputes about alleged electronic discovery spoliation, or evidence destruction, are especially likely to result in lawyers being called as a witness, said Steven Richard, litigation counsel to Nixon Peabody's Providence office.

"If your company doesn't have an information technology department, the attorney may be the best and most trusted person to be called as a fact witness," Richard said.

The ethical dilemmas panel used films of professionally acted hypothetical situations, mostly involving a company faced with theft of its trade secrets, to kick-start a lively discussion about how general counsel could prevent executives from using unsavory investigation tactics.

Educating a company's chief executive officer and its board's audit committee about rules of professional conduct that lawyers live by sets the rules of the road before the company needs to undertake an investigation, said panelist Brian Martin, general counsel at semiconductor equipment maker KLA-Tencor Corp.

"Raising this issue for the first time in the context of this [type of] scenario creates a really awkward situation," Martin said.

Another panelist, Nan Stout, Staples Inc.'s vice president of business ethics, discussed how formal crisis plans can help companies avoid putting their reputations at risk and engaging in illegal behavior during all types of crises.

"It enables you to educate senior management and the audit committee how these things should be handled so they don't spin out of control," Stout said. "Having a framework is a way to protect them from unintended consequences down the road."

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