Three decisions in December from various federal courts of appeal strongly suggest that it is time for employers to reevaluate their defense strategies against employment discrimination claims. First, the Ninth Circuit determined that an employer cannot completely shield itself from judicial scrutiny by including in an arbitration agreement a clause eliminating all federal court review of arbitration awards. The First Circuit followed by ruling that a significant disparity between a district court’s award of attorneys’ fees and costs and the damages obtained from a jury award did not constitute an abuse of discretion. Finally, the Seventh Circuit created a split with its sister circuits by concluding that the EEOC’s failure to conciliate was not an affirmative defense to the merits of a discrimination suit.
Judicial review of arbitration awards. Addressing a question of first impression in In Re: Wal-Mart Wage and Hour Employment Practices Litigation, an appeal arising out of a protracted dispute over attorneys’ fees awarded in multidistrict litigation against Wal-Mart over alleged wage and hour violations, the Ninth Circuit ruled that a non-appealability clause in an arbitration agreement that eliminated all federal court review of arbitration awards, including review under Sec. 10 of the Federal Arbitration Act (FAA), was not enforceable. In so ruling, the appeals court affirmed the district court’s confirmation of an arbitration award allocating $28 million in attorneys’ fees among plaintiffs’ counsel.
Proportional attorney fee award. Next, in Diaz v Jiten Hotel Management, Inc, the First Circuit rejected an employer’s contention that an award of attorney fees “needs to be” proportional to the relief obtained. The appeals court concluded that an award of attorney’s fees and costs of nearly $105,000 for a suit obtaining a damages award of only $7,650 was not so disproportionate as to constitute an abuse of discretion by a district court. Because it found no basis in Massachusetts law for concluding that disproportionality alone supported vacating the district court’s conscientious exercise of its discretion, the appeals court declined to disturb its award of fees and costs.
Failure to conciliate defense. Finally, in EEOC v Mach Mining, LLC, the Seventh Circuit concluded the EEOC’s alleged failure to engage in good-faith conciliation before filing suit did not warrant dismissal of a discrimination case against an employer. The appeals court concluded that the language of Title VII, the lack of a meaningful standard for courts to apply, and the overall statutory scheme convinced it that an alleged failure to conciliate is not an affirmative defense to the merits of a discrimination suit. Further, the court explained that finding in Title VII an implied failure-to-conciliate defense would add to that statute an unwarranted mechanism by which employers could avoid liability for unlawful discrimination.
Develop a plan. Dealing with an employment discrimination complaint is an event for which most employers should be prepared. It requires a systematic approach and entails development of a strategy. Employers should know what to expect and how to respond. The following considerations should be part of the employer’s plan:
• Know what laws are involved, the basic facts, and what the organization is accused of.
• If dealing with the EEOC, it may be wise to bring in counsel if the charge is a pattern or practice charge or a high level executive is accused. Legal counsel can also play a valuable role as a resource to be consulted as needed throughout your investigation and in reviewing your position statement.
• Charges should be thoroughly investigated immediately; be aware of possible defenses and make sure you preserve them.
• Evaluate your position and decide on a course of action. Consider settlement if your investigation reveals the possibility of a violation.
Employers should continually monitor all of their policies, procedures, and personnel with the goal of providing equal opportunity to all. That starts with making certain the organization has adequate complaint procedures at all levels and educating employees, supervisors, and managers about what steps to take if faced with alleged discrimination.
Finally, as part of a litigation strategy, remember that not all defense tactics are going to be successful. Each of the cases cited above conceivably could be read as the court reinforcing its focus on the merits of a dispute in the face of a defensive posture designed to avoid addressing the merits. This suggests that employers’ best strategy may be to proactively enforce their own antidiscrimination policies and practices — before the courts get their chance to weigh in.
The U.S. Supreme Court heard oral argument Monday in the eagerly anticipated NLRB v. Noel Canning (Dkt No 12-1281) case, a labor law dispute at its core, but one with much broader ramifications for the scope of presidential authority under the Constitution. At issue is whether President Barack Obama’s three polarizing recess appointments to the NLRB in January 2012 passed muster under the Recess Appointments Clause. Parsing the questions presented by the Justices in today’s deliberations, most High Court observers were poised to predict the ultimate answer would be a resounding “no.”
A labor dispute; a constitutional quandary. The road to the Supreme Court began when Noel Canning, a small beverage company, petitioned for review of an NLRB decision holding that the employer acted unlawfully when it refused to execute a collective bargaining agreement with the Teamsters union. Noel Canning challenged the Board’s order on constitutional grounds, contending the agency had no authority to issue the ruling because it lacked a valid quorum.
On the day the NLRB issued its holding, it purportedly had five members. But Noel Canning contended that three of those members, who were appointed by the President as ostensible recess appointments on January 4, 2012, were not validly appointed because the Senate was not actually in recess. The Senate was operating at that time pursuant to a unanimous consent agreement which provided that it would meet in pro forma sessions every three business days from December 20, 2011, through January 23, 2012, but that “no business would be conducted” during those sessions.
Siding with the employer, the D.C. Circuit held that the Board did not have a quorum when it issued its order because the recess appointments were unlawful. (The Third and Fourth Circuits have since reached similar conclusions.) The appeals court found the “recess” in the Recess Appointments Clause referred to the period between sessions when the Senate is, by definition, not in session and thus is unavailable to receive and act upon nominations from the President. Finding the “intrasession” interpretation of “recess” unpersuasive, the court disagreed with an Eleventh Circuit ruling to the contrary and rejected the Board’s contention that “recess” means breaks in the Senate’s business when it is otherwise in a continuing session. History supported the employer’s interpretation that “recess” is limited to intersession recesses, the D.C. Circuit determined—notwithstanding the centuries-long history of “intrasession” appointments by presidents of both parties.
The federal government filed a petition asking the Supreme Court to overturn the decision; 45 Republican senators also urged the Court to take the case and affirm. Noel Canning did not oppose a grant of certiorari.
Questions presented. At issue before the High Court were three questions:
(1) Whether the President may use the recess-appointment power during intrasession Senate recesses or whether the power is limited to intersession recesses;
(2) Whether the President’s recess-appointment power is exercisable for vacancies that exist during a recess or whether the power is limited to vacancies that first arose during that recess (Noel Canning had also urged that the NLRB vacancies purportedly filled by the President did not “happen during the Recess of the Senate,” as required for recess appointments under the Constitution)
(3) Whether the President’s recess-appointment power may be exercised when the Senate is convening every three days in pro forma session.
The last question had not been addressed by the D.C. Circuit; however, this point of law could appeal to the High Court if it seeks to affirm the holding on narrower grounds and eschew the broader constitutional quandary. Notably, while both Democratic and Republican presidents have made “intrasession” recess appointments, only President Obama has appointed nominees during pro forma sessions.
A big case, even by Supreme Court standards. Reflecting the significance of the issues before the Court, Senate Republican Leader Mitch McConnell and 44 of his Senate Republican colleagues requested and were granted permission to participate in oral argument as amici curiae in the case. Miguel Estrada, a partner in the Washington, D.C., office of Gibson, Dunn & Crutcher (and former assistant to the solicitor general) argued on behalf of the Senators. Moreover, the U.S. Chamber of Commerce’s National Chamber Litigation Center (NCLC) filed a brief on behalf of Noel Canning, a member of the trade group, marking the first time that NCLC attorneys directly represented a Chamber member company before the High Court. Many other organizations weighed in with amici briefs as well, including unions, scholars, legal foundations, justice groups, and employers.
The case the parties grappled with was much bigger than the little labor dispute that spawned it. While the Supreme Court’s decision in Noel Canning could mean that all of the rulings handed down by the NLRB since those ill-fated January 2012 recess appointments are invalid — a significant development for the parties in those cases and for labor practitioners — Monday’s argument focused more broadly on the constitutional questions at stake.
The NLRB’s case. Opening his argument on behalf of the NLRB, Donald B. Verrilli, Jr., Solicitor General, urged that to invalidate the recess appointments would “repudiate the constitutional legitimacy of thousands of appointments by presidents going back to George Washington.” Further, he warned, “going forward, it would diminish presidential authority in a way that is flatly at odds with the constitutional structure the Framers established.”
Justice Kagan suggested the matter of recess appointments was, in the modern era, a political one rather than a genuine safeguard to ensure the executive branch can function while Congress is away. Presidents of both parties “have used this clause as a way to deal, not with congressional absence, but with congressional intransigence, with a Congress that simply does not want to approve appointments that the President thinks ought to be approved.”
Responding, Verrilli agreed that “it may be true as a matter of raw power that the Senate has the ability to sit on nominations for months and years at a time, but that is 100 miles from what the Framers would have expected.” But that was a different matter, the other Justices noted, than whether the Senate was available to consider appointments, which was the crux of the case. The Justices quickly narrowed the discussion, questioning Verrilli on how the Constitutional terms “recess,” “vacancy,” and “may happen” are defined, in the government’s view, and whether there is a “recess” within that meaning during a pro forma session.
As for his “status quo” argument that the centuries-long practice of presidential recess appointments warranted deference, notwithstanding what the Constitution actually says on the matter, the Justices appeared skeptical.
Of more immediate concern to the labor law community, Verrilli noted “there are many dozens of board decisions and, perhaps, many hundreds of board decisions that are under a cloud as a result of the D.C. Circuit’s ruling in this case. And so, the board will have a considerable amount of work to do … if the D.C. Circuit’s decisions were to be affirmed.”
Justice Scalia, however, suggested the government would likely rely on the “de facto officer” doctrine, with success. “You don’t really think we’re going to go back and rip out every decision made,” Scalia said.
“I would certainly hope not, Your Honor,” Verrilli replied, “but it certainly casts a serious cloud over the legitimacy of all of those actions.”
Noel Canning’s position. Pleading the employer’s case, Noel J. Francisco of Jones Day pointed to the Advice and Consent Clause. He cautioned that the government’s position “would eviscerate” the check on presidential power embodied in that provision — “creating a unilateral appointment power available for every vacancy at virtually any time with advice and consent to be used only when convenient to the President.” Responding to Justice Ginsburg’s contention that his alternate stance would “destroy the recess clause,” Francisco argued that “the recess appointment power is a contingent one. It arises only when the Senate chooses to trigger it by ending its session and beginning its recess. So the Senate always has the power to prevent recess appointments.”
Presented too with the question of what to do with the long historical record of recess appointments, Francisco questioned the premise that such “an unbroken and never contested practice” existed. At any rate, he argued, “The political branches of the government have no authority to give or take away the structural protections of the Constitution. They don’t exist to protect the Senate from the President or the President from the Senate. These are liberty-protecting provisions that protect the people from the government as a whole. So if the Constitution is quite clear as to what those structural protections are, but the political branches, assuming for the sake of argument, have conspired to deplete them, that is illegitimate, and it should be rejected by this Court.”
As a practical matter, Francisco noted that while the recess appointments clause may have been essential in the historical context, lest the Senate be subject to a recall in emergency sessions every time the President needed to confirm a nominee, “today, the Senators can get back to Washington, D.C. very easily …. They’re perfectly willing to be hailed back if necessary.”
As for the potentially dire consequences for the NLRB were the High Court to uphold the D.C. Circuit, Francisco downplayed the impact, noting that “going forward the government can solve the problem through agency ratification of past decisions. Going backward, there are a variety of doctrines that would limit anybody’s ability to actually challenge those past actions, including, for example, the APA’s 6-year statute of limitations on challenging final agency action, various finality rules that would prohibit a party from raising an issue that they could have but failed to raise in an earlier proceeding, and various justiciability doctrines, like mootness, standing, and, Your Honor, the de facto officer doctrine, at least outside of the context of direct appeal.”
The Senate’s stake. From the vantage point of the Republican senators, “this is all about how the Senate chooses to arrange its affairs under the Rules of Proceedings Act,” said Estrada, arguing on their behalf. He reiterated: “the Senate by the design of the Constitution, the Appointment Clause, the primary method of appointment, has an absolute veto over nominations.” As for the practical need for recess appointments, Estrada observed as well that, with the nation having moved into the modern age, “the rules of the Senate tend to provide for the Senate to be available at the drop of a hat.”
Estrada also downplayed the drastic consequences envisioned by the government. “For all that we hear about today, which has to do with how the heaven will fall, and the parade of horribles—there is no parade, and there is no horrible. The only thing that will happen is that the President, heaven help us, will be forced to comply with the advice and consent that the Appointments Clause actually calls for.”
The NLRB announced on January 6 that it will not seek Supreme Court review of two Circuit Court of Appeals decisions invalidating the agency’s Notice Posting Rule (29 CFR Part 104, previously effective April 30, 2012), which would have required most private sector employers to post a notice of employee rights under the NLRA.
On May 7, the D.C. Circuit vacated the controversial rule, upholding a challenge brought by several employer groups. Instead of hanging its decision on the NLRB’s authority under NLRA Sec. 6 to promulgate the posting rule, as argued by the parties, the circuit court concluded that the rule violated employers’ free speech rights as protected by Sec. 8(c) of the Act. The agency’s bids for panel and en banc rehearing were rejected.
In a June 14 ruling, the Fourth Circuit took up the agency authority issue and determined that the rulemaking function provided for in the NLRA only empowers the NLRB to carry out its statutorily defined reactive roles in addressing unfair labor practice charges and conducting representation elections upon request. Thus, the Fourth Circuit held that the Board exceeded its authority in promulgating the challenged rule. The Fourth Circuit similarly rejected the NLRB’s request for rehearing and rehearing en banc.
While it has tossed in the towel as far as judicial review goes, the NLRB said that it nonetheless “remains committed to ensuring that workers, businesses and labor organizations are informed of their rights and obligations under the National Labor Relations Act.” To that end, the agency will continue is its national outreach program to educate the American public about NLRA. The disputed poster also remains available on the agency website. The NLRB noted that it may be viewed, displayed and disseminated voluntarily. In addition the Board pointed to its free NLRB mobile app for iPhone and Android users, which provides the public with information about the NLRA.
By Pamela Wolf, J.D.
The EEOC’s release late last year of a pair of informal discussion letters identifying what the agency sees as every employer’s legal obligations when using criminal history information to make employment decisions — particularly at the hiring stage — reminds us of the difficulty faced by employers that want to stay out of the agency’s crosshairs, but yet also want to avoid potential liability for failing to discover an applicant’s predisposition to harmful conduct, such as violence, fraud or theft. The letters also underscore some of the confusion surrounding the “individualized assessment” urged by the EEOC’s updated guidance. If the agency comes knocking , employers should keep in mind that in any particular case the EEOC must have a sound basis for imposing those purported employer obligations.
The letters, one dated November 20 and the other October 24, set out the agency’s position that excluding individuals from employment due to criminal records can raise issues under Title VII, especially when the exclusion disproportionately harms people of a particular race or national origin. Should that be the case, the employer is required, according to the EEOC, to show that its policy is necessary in light of:
• the nature and gravity of the offense or offenses for which the applicant was convicted;
• the time that has passed since the conviction and/or completion of the sentence; and
• the nature of the job held or sought.
The test is drawn from EEOC Enforcement Guidance No: N-915.002, the comprehensive, updated agency guidance on the use of criminal history in employment decisionmaking that was issued on April 25, 2012. The test, however, is nothing new — it’s based on the 1977 decision by 8th Circuit in Green v Missouri Pacific Railroad.
Individualized assessment confusion. Both of the recently released letters state that if an employer excludes an applicant from hire due to the applicant’s criminal record, “the EEOC’s position is that you should have an opportunity to provide more facts before the employer makes a final decision.”
Yet there appears to be considerable confusion surrounding this purported position of the agency. According to the updated guidance, an individualized assessment “generally means that an employer informs the individual that he may be excluded because of past criminal conduct; provides an opportunity to the individual to demonstrate that the exclusion does not properly apply to him; and considers whether the individual’s additional information shows that the policy as applied is not job related and consistent with business necessity.”
Last July, the attorneys general of nine states sent a letter to the EEOC challenging the new guidance, particularly in light of the agency’s lawsuits questioning the “use of bright-line criminal background checks in the hiring process” at Dollar General and BMW Manufacturing. “We believe that these lawsuits and your application of the law, as articulated through your enforcement guidance, are misguided and a quintessential example of gross federal overreach. Our states urge you to reconsider your position and these lawsuits.”
The AGs specifically challenged the updated guidance, which they said asserts that the use of generally applicable criminal background checks as a bright-line screening tool in the hiring process will rarely be “job related” and “consistent with business necessity” and thus, will often violate Title VII — a proposition, according to the AGs, that “defies common sense.”
The “EEOC two-step.” EEOC Chair Jacqueline Berrien responded to the AGs’ primary objection to the guidance — its discussion of individualized assessments. The objection, she said, “appears to be premised on a misunderstanding: that the Guidance urges employers ‘to use individualized assessments rather than bright-line screens.’” However, the guidance “does not urge or require individualized assessments of all applicants and employees,” she wrote. According to Berrien, the guidance “encourages a two-step process, with individualized assessment as the second step.”
1. In the first step, the guidance calls for employers to use a “targeted” screen of criminal records, which considers “at least the nature of the crime, the time elapsed, and the nature of the job — the three factors identified in Green v. Missouri Pacific Railroad, 549 F.2d 1158 (8th Cir. 1977)).”
2. In the next step, the guidance “encourages employers to provide opportunities for individualized assessment for those people who are screened out,” Berrien stressed. “Using individualized assessment in this manner provides a way for employers to ensure that they are not mistakenly screening out qualified applicants or employees based on incorrect, incomplete, or irrelevant information, and for individuals to correct errors in their records.” The support in the guidance for an individualized assessment only for those identified via the targeted screen “also means that individualized assessments should not result in “significant costs” for businesses,” she explained.
Berrien also underscored that as explained in the guidance, employers may decide never to conduct an individualized assessment if they are able to demonstrate that their targeted screen is always job related and consistent with business necessity. Thus, the individualized assessment “is a safeguard that can help an employer to avoid liability when it cannot demonstrate that using only its targeted screen would always be job related and consistent with business necessity,” she wrote.
Targeted screen may be enough. Although the two recently released informal discussion letters may at first blush appear at odds with the Chair’s discussion about individualized assessments and the updated guidance, the discussion letters state that the applicant “should have an opportunity to provide more facts before the employer makes a final decision.” (Emphasis ours.) Although not expressed as a requirement, it is understandable that employers reading the two letters (which are not considered formal agency opinions) might mistakenly believe that any applicant screened out due to his or her criminal history must be given a chance to provide additional information.
However, as the guidance states, “depending on the facts and circumstances, an employer may be able to justify a targeted criminal records screen solely under the Green factors. Such a screen would need to be narrowly tailored to identify criminal conduct with a demonstrably tight nexus to the position in question. Title VII thus does not necessarily require individualized assessment in all circumstances.”
When might an employer forgo the individualized assessment? EEOC Commissioner Victoria A. Lipnic, in a public comment addressed to a U.S. Commission on Civil Rights briefing on the EEOC’s criminal history guidance, wrote that although a wise and prudent business practice in many instances, “Title VII does not require an employer to provide such an individualized assessment in any instance.” This fact is “explicitly recognized” in the updated guidance, and is a point about which Lipnic said she feels very strongly.
“This means that there can, and will, be times when particular criminal history will be so manifestly relevant to the position in question that an employer can lawfully screen out an applicant without further inquiry,” Lipnic said. Emphasizing the point, she said that “a day care center need not ask an applicant to ‘explain’ a conviction of violence against a child, nor does a drug store have to bend over backward to justify why it excludes convicted drug dealers from working in its pharmaceutical lab.”
Presumably, the two examples provided by Lipnic are instances in which the targeted screen is “narrowly tailored to identify criminal conduct with a demonstrably tight nexus to the position in question.”
Disparate impact question. Of course, the issues of whether an employer policy on criminal background checks is job related and based on business necessity, as well as whether excluded individuals should be given an individualized assessment, only come into play when the policy has resulted in a discriminatory disparate impact based upon a protected category — usually race or national origin (African-American, Hispanic).
In its updated guidance, the EEOC lays out statistics showing that nationally, African-Americans and Hispanics are arrested and incarcerated at disproportionately high rates compared to their percentage of the overall population and when compared to Whites. The agency’s updated guidance either implies, or comes very close to doing so, from those statistics a rebuttable presumption operating at least during the investigatory stage, that the use of criminal history information in employment screening necessarily results in a disparate impact on African-Americans and/or Hispanics: “National data, such as that cited above, supports a finding that criminal record exclusions have a disparate impact based on race and national origin. The national data provides a basis for the Commission to further investigate such Title VII disparate impact charges. During an EEOC investigation, the employer also has an opportunity to show, with relevant evidence, that its employment policy or practice does not cause a disparate impact on the protected group(s).”
National data. The real question, however, is whether courts are willing to base a finding of disparate impact based fully or in part on national data at the litigation stage. Here the burden is on the EEOC to establish the threshold requirement that a particular policy has resulted in an unlawful disparate impact. In at least one case, a federal district court was far from convinced that the national statistics cited by the agency were enough to support such a finding. In EEOC v Freeman (D. Md. 2013), the court refused to even consider the EEOC’s national statistics as evidence in its lawsuit against a family-owned company because there was no indication that the general populace was representative of the relevant applicant pool. As a result of the agency’s lack of statistical evidence to support its claims and its failure to identify a specific policy that allegedly caused the disparate impact, the court granted the employer’s motion for summary judgment.
With regard to the agency’s contention that the national statistics cited in two expert reports (which the court found unreliable and inadequate in other respects) were sufficient evidence of disparate impact, the court said there was no indication that the general population was representative of the relevant applicant pool. The general population “cannot be used as a surrogate for the class of qualified job applicants” because it includes those who would not apply for a job with the company. Moreover, the general statistics on which the EEOC’s experts had relied included things that were not even considered under the company’s hiring criteria, such as arrest and incarceration rates. Without national statistics or other expert analysis to support its allegations of disparate impact, the EEOC’s case could not survive summary judgment.
Best practices. Based on the issues discussed above, employers should consider implementing a few best practices with regard to the use of criminal background checks in making hiring decisions:
• If possible, screen job applicants for other required qualifications before inquiring about criminal history information;
• Once a candidate is determined to be otherwise qualified, inquire only as to criminal history information that is relevant to the particular job applied for and document the reasons why that information (the offenses and period during which they occurred) is relevant;
• Permit applicants who are otherwise qualified but have been screened out due to criminal history information a reasonable opportunity to provide additional relevant information, and if they are still rejected for hire, document the reasons why (though this step may be eliminated when the targeted screen used by the employer is “narrowly tailored to identify criminal conduct with a demonstrably tight nexus to the position in question,” it may be more prudent to include it anyway);
• During any EEOC investigation (or litigation) of purported disparate impact discrimination based on a criminal background policy, employers should consider providing the agency with the following:
o Regional or local data showing that African-American and/or Hispanic men are not arrested or convicted at disproportionately higher rates in the employer’s particular geographic area;
o The employer’s own applicant data demonstrating that its policy or practice did not cause a disparate impact;
• When sued by the EEOC for disparate impact discrimination based on criminal background checks, make sure that the EEOC has identified the particular policy that purportedly resulted in the alleged unlawful discrimination, and if it has not done so, move for dismissal or summary judgment;
• When litigating an agency claim of disparate impact discrimination based on the use of criminal background information, employers should aggressively challenge the agency’s expert analysis of relevant applicant data to make sure it is comprehensive, reliable, and not skewed, as well as its reliance on any national, as opposed to local, data.
A law firm is still on the hook for legal malpractice stemming from a memo it drafted and provided to a former employee of a client after the memo was later used against the client in litigation by that employee. In D’Andrea v Epstein, Becker, Green, Wickliff & Hall, PC, a Texas Court of Appeals found that preparation of the memo implicated the law firm’s fiduciary duty to the client and also determined that fact issues remained as to whether a reasonably prudent attorney would have foreseen that the memo would likely harm the client and whether it was foreseeable that the discharged employee would have used the memo against the client.
In 2009, an attorney for Epstein Becker spearheaded the drafting of a memo at the request of the general counsel for one of his clients. The attorney was representing the client in another, unrelated matter. A month prior to requesting the memo, the general counsel had allegedly secretly deposited over $400,000 belonging to client in an account under his sole control. The stated purpose of the memo was to apprise client’s president and board as to the company’s potential exposure arising from the alleged misconduct of the client’s owner.
While working on the memo, the firm contacted no officers or directors of client other than the general counsel and the factual basis of the opinions in the memo were based on the general counsel’s declarations. The firm did not perform an independent investigation. As work on the memo continued, the law firm received information that indicated that the general counsel would soon be fired or had been fired by the client. Nevertheless, upon completion of the memo, it was sent to the now former general counsel by way of his personal e-mail address and to the president of the client.
The client alleged that the memo “all but destroyed” the medical practice operated by the client. It sued the law firm alleging negligence, breach of fiduciary duty, intentional tort, and common law fraud. However, a trial court granted the law firm’s motion for summary judgment on all claims.
Fiduciary duty. Although the subject matter of the memo was not substantially related to the law firm’s representation of the client, preparation of that memo implicated its fiduciary duty to the medical practice, ruled the appeals court. The fact that the bankruptcy litigation for which the attorney was retained and the memo were unrelated did not establish that the firm’s work on the memo did not breach its duties arising from the bankruptcy matter. Moreover, whether a conflict of interest existed could not be decided as a matter of law. A violation of state disciplinary rules of professional conduct was not necessary to show that the firm could be held liable for breach of fiduciary duty. At any rate, official comments found in the disciplinary rules indicated that the propriety of representation could depend on the nature of the litigation and, the appeals court determined, preparation of this memo fell into the “high-conflict part of this spectrum.”
Foreseeability. The appeals court next determined that the trial court erred in concluding, as a matter of law, that the law firm’s malpractice and fiduciary duty did not proximately cause the client’s harm and that the evidence conclusively established that such use of the memo was not a foreseeable result. First, the client had presented evidence that preparing a written investigation report could breach the standard of care because it was foreseeable that such a document would become public. It also presented evidence indicating that such reports carry a high risk of creating confusion and credibility issues and also run risks of potential unfairness. Lawyers should consider carefully whether to what opinions to reduce to writing during internal investigations because written opinions could be harmful. This was supported by an email from one of the law firm’s associates who suggested that the firm conduct a more formal inquiry. The appeals court therefore determined that summary judgment was inappropriate because there were fact issues regarding whether a reasonably prudent attorney would have foreseen that harm to the client that likely would result from a written memo, whether that attorney would have produced the memo and what steps he would have taken before doing so.
Employee’s use of the memo. Second, there was evidence of indications to the law firm the general counsel was considering litigation, which raised a fact issue regarding whether the general counsel’s actions were foreseeable. Here, the client presented evidence that the general counsel’s use of the memo was foreseeable by the law firm, where the attorney working on the memo had previously looked into getting him a job at the firm and that he had referred the general counsel to a plaintiff’s attorney certified in labor and employment law.
There was also evidence to suggest that the law firm’s attorney may have known that the employee would soon be fired. The general counsel’s imminent departure became apparent as the memo progressed and the firm’s attorney solicited advice from the other members of the firm, noting that the general counsel thought he would be fired the next day or in the days following. He also emailed a copy of the finished memo to the general counsel’s personal account. Thus, the evidence suggested that the law firm’s attorney knew the general counsel was about to be fired, that litigation over that termination was possible, and that the general counsel wanted the client to be on notice regarding certain whistleblower claims. As a consequence, the appeals court reversed the trial court’s grant of summary judgment against the client’s claims.