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Aug. 4 — Uber Technologies Inc. shouldn't have used a private investigator to conduct deceitful background checks in a fruitless effort to dig up dirt on a putative antitrust class action plaintiff suing Uber and on the plaintiff's attorney, the U.S. District Court for the Southern District of New York said July 25 ( Meyer v. Kalanik, 2016 BL 237508, S.D.N.Y., No. 15 Civ. 9796, 7/25/16 ).
“The court cannot help but be troubled by this whole dismal incident,” Judge Jed S. Rakoff wrote. “Potential plaintiffs and their counsel need to know that they can sue companies they perceive to be violating the law without having lies told to their friends and colleagues,” the judge said.
The case spotlights the riskiness of using undercover investigators to snoop around for information in hopes of gaining some edge in a civil litigation matter. Lawyers who use nonlawyers to do work for them are ethically responsible for making sure they don't lie or act dishonestly, Rakoff said.
This isn't the first time that lawyers have gotten in hot water over an investigator's use of “pretexting”—pretending to be someone else—to gather information in a legal matter. See Martin Whittaker, Potential Ethical Pitfalls Abound When Lawyers Hire Private Investigators, 26 Law. Man. Prof. Conduct 352 (2010); Joan C. Rogers, When Using Investigators, Lawyers Must Set Boundaries of Permissible Conduct, 22 Law. Man. Prof. Conduct 507 (2006).
“You have to anticipate the possibility of a judge having a visceral reaction if your investigator chooses to collect information by subterfuge,” BakerHostetler partner Dennis P. Duffy said in an interview with Bloomberg BNA about the case involving Uber.
He's the author of an ethics handbook for labor and employment lawyers in which he addresses lawyers' participation in deception by undercover investigators.
Duffy said that in some situations it may be permissible to do investigations that involve misrepresentation of identity and purpose, solely for gathering admissible evidence. He mentioned New York County Ethics Op. 737 (2007), which advised that—under strictly limited circumstances—private practitioners may supervise nonlawyer investigators who use “dissemblance” in their work. See 23 Law. Man. Prof. Conduct 289.
However, the judge in this case found that Uber's investigation was aimed at getting dirt rather than evidence relevant to the plaintiff's antitrust claim, and doing it in a way that wouldn't leave any fingerprints, Duffy said.
Lawyers should ask themselves whether the investigative activity could be explained easily and understandably in a short, succinct sentence, he said.
“You have to look at the optics of your activity,” Duffy said. “If it smacks of dirty pool, judges will be concerned.”
In an interview with Bloomberg BNA, McGuireWoods LLP partner Thomas E. Spahn said that changes to Model Rule 5.3 in 2012 heightened lawyers' responsibilities to make sure their assistants comply with lawyers' ethics rules.
At that time, the ABA modified the title of Rule 5.3 from “Responsibilities Regarding Nonlawyer Assistants” to “Responsibilities Regarding Nonlawyer Assistance” (emphasis added).
Also, the ABA revised the comments to Rule 5.3 to clarify lawyers' obligations when using nonlawyers outside their firm—including outside investigators—to assist them in providing legal services to the client, Spahn said.
The final sentence of Comment  states: “When retaining or directing a nonlawyer outside the firm, a lawyer should communicate directions appropriate under the circumstances to give reasonable assurance that the nonlawyer's conduct is compatible with the professional obligations of the lawyer.”
Spahn said that in light of these changes, lawyers are obligated to supervise nonlawyer assistants and make sure they don't violate specific rules such as Rule 4.4(a), which forbids evidence-gathering methods that violate a third person's legal rights, or Rule 4.2(a), which prohibits ex parte communications with third persons they know are represented by another lawyer in the matter.
Recent ethics opinions and cases have tended to move in the same direction, demanding more oversight from lawyers and prohibiting lawyers from using the fruits of improper investigations, Spahn said.
Spahn noted that ethics rules themselves don't explicitly allow lawyers to authorize or supervise deception in investigations, except in several states that have adopted a specific provision on point.
However, some ethics opinions and cases have allowed lawyers to direct nonlawyers in knowingly deceptive conduct for causes that are viewed as socially worthwhile, such as housing discrimination tests and law enforcement investigations, he said.
Spahn noted that two federal district courts in the late 1990s approved lawyers' use of deceptive investigations in commercial disputes. However, there have been surprisingly few cases since those decisions, and Rakoff distinguished those two cases, he noted.
Like Duffy, Spahn mentioned New York County Ethics Op. 737 as a key opinion on lawyers' use of investigators who engage in “dissemblance”—that is, limited deception as to identity and purpose—to gather evidence. That bar is the only one to have taken up the question, he said.
In the case involving Uber, Rakoff held that the investigator's fraudulent misrepresentations about his identity and purpose triggered the crime-fraud exception, spoiling work product protection for the materials submitted to Uber.
Spahn said courts usually won't protect fact work product that's created through wrongful means, such as secret telephone recordings in states requiring all participants' consent. This makes sense because the purpose of the work product doctrine is to further the adversary system, he said.
Courts following the majority view generally don't go through an elaborate analysis of the crime-fraud exception, but rather simply disallow work product protection, Spahn said in his treatise on the privilege and work product. See Thomas E. Spahn, The Attorney-Client Privilege and the Work Product Doctrine: A Practitioner's Guide §44.9 (3d ed. 2013).
Duffy said Rakoff seemed to go out of his way to address the crime-fraud exception, rather than simply finding that Uber's opponent had a substantial need for the materials. The judge's crime-fraud discussion could be a “shot across the bow” indicating that the attorney-client privilege wouldn't apply either in these circumstances, he said.
The Uber case highlights the need for lawyers who use outside investigators to verify that they're properly licensed.
Rakoff found that the investigation Uber commissioned was improper partly because the investigator didn't have a license as required by New York statute.
In discussing this aspect of the case with Bloomberg BNA, Spahn cited another recent federal district court case involving an unlicensed investigator, Halley v. Okla. ex rel. Okla Dep't of Human Servs., 2016 BL 183035, No. 14-CV-562-JHP (E.D. Okla. June 8, 2016) .
The court in Halley found that the plaintiff's investigator was acting illegally in conducting interviews in Oklahoma because he wasn't licensed to act as a private investigator there. The illegally collected information didn't qualify for work product protection, the court concluded.
Rakoff's opinion left no doubt about his distaste for the purpose and tactics of the investigation that Uber commissioned:
It is a sad day when, in response to the filing of a commercial lawsuit, a corporate defendant feels compelled to hire unlicensed private investigators to conduct secret personal background investigations of both the plaintiff and his counsel. It is sadder yet when these investigators flagrantly lie to friends and acquaintances of the plaintiff and his counsel in an (ultimately unsuccessful) attempt to obtain derogatory information about them.
The saga began when Uber's general counsel asked the company's chief security officer to find out about plaintiff Spencer Meyer immediately after he filed the putative antitrust class action.Filings
Uber contacted Global Precision Research LLC, which does business as Ergo. The company told Uber it did “quite a bit of this work for law firms” and offered to do a report that “highlights all derogatories,” Rakoff said.
Ergo's investigator made blatant misrepresentations in seeking to get people to talk, Rakoff said. For example, in contacting Meyer's acquaintances the investigator pretended to be studying “up-and-coming researchers in environmental conservation.” In trying to get information about attorney Andrew Schmidt, the investigator claimed to be seeking information for a profile of “up-and-coming labor lawyers,” the judge said.
Rakoff didn't buy the idea that the investigator's misrepresentations were okay.
He distinguished Gidatex, S.r.L. v. Campaniello Imports, Ltd., 82 F. Supp. 2d 119 (S.D.N.Y. 1999), in which investigators posed as customers of the opposing party in order to investigate compliance with a cease-and-desist letter, and Apple Corps Ltd. v. Int'l Collectors Soc'y, 15 F. Supp. 2d 456 (D.N.J. 1998), in which investigators pretended to be customers to determine whether the opposing party in a trademark case was complying with the terms of a consent order.
Ergo didn't claim it was trying to investigate misconduct that Meyer had perpetrated against Uber, as in Gidatex, or attempting discover whether Meyer and his counsel were disobeying a court order, as in Apple, Rakoff said.
Also, Rakoff spurned the idea that it's proper for an investigator to make misrepresentations in order to advance a litigant's interests over its adversary's interests, even if Gidatex and Apple could be read that way.
Rule 5.3 of the New York Rules of Professional Conduct requires lawyers to adequately supervise nonlawyers retained to do work for them, in order to ensure that the nonlawyers don't engage in actions that would be a rule violation if a lawyer performed those acts, Rakoff said.
Actions that a lawyer can't ethically take include knowingly making a false statement of fact, which is forbidden by Rule 4.1, and engaging in conduct involving dishonesty, fraud, deceit or misrepresentation, which is prohibited by Rule 8.4(c), the judge said.
Moreover, it would contravene the truth-seeking function of litigation if nonlawyers working for counsel could make fraudulent representations in order to surreptitiously gain information about litigation adversaries through intrusive inquiries of their personal acquaintances and business associates, Rakoff said.
After an in-camera look at documents and e-mails relating to the investigation, Rakoff denied all claims of privilege and work product protection for responsive materials that Ergo generated, and he rejected Uber's claims of privilege and work product protection as to some Uber-generated materials.
Rakoff expressed skepticism about Uber's statement that it commissioned the investigation to find out whether Meyer posed a security threat. But having repeatedly made that claim, Uber was estopped from asserting that Ergo's materials were prepared “in anticipation of litigation” for purposes of work product protection, the judge said.
In any event, the plaintiff's need to find out about the background investigation trumped any work product protection, he said.
Rakoff also cited the crime-fraud exception, noting that it applies to work product protection as well as to the attorney-client privilege.
Ergo engaged in “fraudulent and arguably criminal conduct” in investigating Meyer, and many of the documents over which it claimed work product protection were intended to facilitate this activity, the judge said.
The court also said two additional features of Ergo's conduct highlighted its impropriety. For one thing, Ergo did its private investigation without a license, which is a misdemeanor in New York, Rakoff said.
Second, Ergo's investigator recorded his phone calls with sources without their knowledge or consent, and some of those individuals had phone numbers traceable to Connecticut and New Hampshire, where it's illegal to record telephone calls without the consent of both parties to the call, the judge said.
Rakoff barred Uber and Ergo from doing any other personal background investigations in the case “through the use of false pretenses, unlicensed investigators, illegal secret recordings, or other unlawful, fraudulent, or unethical means.”
But because Uber agreed to reimburse Meyer “a reasonable (though publicly undisclosed) sum” for his attorneys' fees in the dispute over the background investigation, Rakoff declined to award sanctions or to determine whether Uber actually failed in its duties under New York's Rules of Professional Conduct.
Harter, Secrest & Emery LLP, Constantine Cannon LLP, Miller Faucher & Cafferty LLP, McKool Smith P.C., Cafferty Faucher LLP and Andrew Schmidt Law PLLC represented Meyer.
Boies Schiller & Flexner LLP represented Travis Kalanick. Gibson, Dunn & Crutcher LLP represented Uber. Wilmer Cutler Pickering Hale & Dorr represented Ergo.
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