by Randy Johnston
For years I have wondered whether a corporation could sue its own general counsel for legal malpractice. The lawyer clearly represents the client. Unquestionably, the General Counsel owes the client/employer a duty to act within the standard of care. If the lawyer violates that standard of care, is there a remedy for the client?
And what about other lawyers working in-house for the client? It is no secret that many large corporations have large, specialized legal departments some of which even handle litigation for the corporation. If an in-house lawyer handling litigation for the employer/client misses pleading deadlines or causes an expert witness to be stricken, thereby causing the client to lose a lawsuit, does the client have a remedy against its own in-house lawyer for this malpractice? To my knowledge, no employer has yet filed a malpractice lawsuit against its own in-house counsel. The absence of such a case may be a product of the collectibility prospects on such a claim, since in-house lawyers typically do not carry malpractice insurance. Whatever the reason, the employer remedy for malpractice by an in-house lawyer so far has been limited to the termination of the lawyer’s employment.
There is, however, a recent case that indicates in-house counsel may have more to fear than termination alone. In Yanez v. Plummer, 2013 Cal. App. LEXIS 891 (Cal. App. 3d Dist. Nov. 5, 2013), the California Third District Court of Appeals overruled summary judgment in favor of an in-house lawyer sued by an employee of the corporation. The in-house lawyer provided representation to the employee during a deposition involving a workplace accident. The employee had previously provided 2 written statements describing the workplace accident and was concerned that his testimony in the deposition would be harmful to the position of his employer (also the employer of his lawyer, in-house counsel). During the course of the deposition, in-house counsel representing the employee highlighted inconsistencies between 1 of the 2 prior written statements and his testimony in the deposition. After the deposition, the employee was terminated for dishonesty, ostensibly predicated upon the difference between his written statements and his deposition testimony. In addition to suing his employer for wrongful termination, the employee also sued the in-house lawyer for malpractice.
The California Court of Appeals reversed the summary judgment, finding that the in-house lawyer had failed to inform the employee of the lawyer’s potential conflicts and failed to obtain the employee’s written consent to his representation after disclosure of the conflicts. This was sufficient to constitute some evidence of malpractice and a breach of fiduciary duty. The Court permitted the malpractice claim of the employee against the in-house lawyer to proceed to trial.
Of course, the first lesson from this case is a lesson all lawyers — in-house and outside counsel — need to keep in mind at all times: if you have more than one client make certain you adequately disclose all conflicts and secure written consent to the representation. For me, however, the more interesting aspect of this case is that we have an employee of a corporation suing the corporation’s in-house lawyer for malpractice. While this particular case involves a low-level employee who relied on the in-house lawyer, one wonders what would have happened if the malpractice lawsuit had been brought by the CEO based upon damage he or she personally incurred as a result of advice of the General Counsel. In that circumstance, you actually have the lawyer’s boss, the one who gives directions to the lawyer on behalf of the corporation, suing an employee (the General Counsel) who reports to him (the CEO).
It may be, that because of corporate politics, the bigger questions will never be answered. Lawsuits against the General Counsel may never be filed by the company or the CEO. One should keep in mind, however, the General Counsels of major corporations usually have sufficient wealth, salary, and stock options to make pursuit of a claim against them worthwhile even in the absence of malpractice insurance.