Whistleblowing In-House Lawyer Can't Sue Employer

The ABA/BNA Lawyers’ Manual on Professional Conduct™ is a trusted resource that helps attorneys understand cases and decisions that directly impacts their work, practice ethically, and...

By Samson Habte

Aug. 7 — An in-house lawyer who claims he was fired for reporting illegal activity to superiors can't use the ethics rule that requires attorneys to “report up” illegal activity to their organization's highest authority as support for his suit for wrongful discharge, the Utah Supreme Court declared Aug. 5.

Utah Rule of Professional Conduct 1.13 addresses primarily private interests and doesn't clearly express a public policy that could defeat the at-will employment doctrine, Chief Justice Matthew B. Durrant said.

Durrant made clear the court was not holding “that in-house attorneys may never raise a wrongful termination claim, nor do we foreclose the possibility that an attorney fired for complying with an ethical rule, such as reporting criminal activity to public authorities under [Rule] 1.6, could ever make out such a claim.”

“We hold only that an attorney's duty [under Rule 1.13] to ‘report up' illegal activity to an organizational client's highest authority is not founded in the type of clear and substantial public policy that qualifies as an exception to the at-will employment doctrine,” he stated.

The court also said that even if Rule 1.13 did reflect a policy “sufficient to prevent companies from terminating in-house legal counsel for reporting illegal activity to management,” that policy would be outweighed by the “strong, countervailing policy of allowing organizational clients to obtain the representation of their choice.”

Essential Factors

The ruling affirms the dismissal of a lawsuit filed by David K. Pang, who claimed he was fired as in-house counsel for a mortgage finance company after raising concerns about alleged “illegal lending practices” and refusing to comply with orders to “ignore [those] illegalities.”

Pang said he was fired for complying with Utah Rule 1.13, which requires in-house counsel who discover illegal activity to “refer the matter to higher authority in the organization.” He further contended that Rule 1.13 reflects a public policy that justifies an exception to the at-will employment doctrine.

But the court said Pang failed to make three essential showings that

• the policy at issue is reflected in authoritative sources of state public policy;

• it affects the public generally as opposed to private interests of the employee and employer; and

• it is not outweighed by countervailing policies.

 

Not All Rules Reflect Public Policy

Pang argued ethics rules are both a “judicial decision” and a “constitutional standard” because they are enacted by the Utah Supreme Court under its constitutional authority to regulate the practice of law.

But the court said it didn't have to decide “whether the rules of professional conduct qualify as ‘judicial decisions' that could independently establish” an exception. “This is because even if some of the rules may reflect a public policy of sufficient magnitude to override at-will employment, rule 1.13, upon which Mr. Pang exclusively relies, clearly does not,” Durrant said.

“First, the rule regulates private conduct between attorneys and their clients, not matters of broad public importance,” the court said. “And second, the rules of professional conduct articulate a strong, countervailing policy of allowing organizational clients to obtain the representation of their choice, and this policy outweighs any Mr. Pang has raised in this case.”

1.13 Regulates ‘Private Conduct.'

The court said Pang failed to show the policy he identified in Rule 1.13 “affects the public generally as opposed to the private interests of the employee and employer.”

“It is true that when in-house attorneys report illegal conduct to their superiors, the public reaps incidental benefits from corrective action the company might undertake to comply with the law,” Durrant acknowledged. “But rule 1.13 regulates conduct that is, at its core, a private matter between attorneys and their clients, not one of broad public concern.”

“It would be one thing if Mr. Pang's complaint invoked other rules of professional conduct—like rule 1.6 —that are designed to protect others from death, substantial bodily injury, and serious financial harm,” the court said. “That might be a different case.”

“But here, the policy Mr. Pang asks us to recognize is a distinctly private matter of attorney-client relations, an issue that is qualitatively different than other public policies we have recognized previously,” Durrant said.

‘Countervailing Interests.'

“[E]ven if an in-house counsel's duty to ‘report up' was clear and substantial,” Durrant said, the “strong, countervailing policy of allowing organizational clients to obtain the representation of their choice … outweighs any Mr. Pang has raised in this case.”

The court said Rules 1.2(a) and 1.16 “strike a delicate balance between allowing clients to secure the representation of their choice and guarding against a client's use of an attorney's services to engage in criminal activity,” and that Pang's argument “would upset this careful weighing of two important public policies.”

“If organizational clients faced a potential wrongful termination suit every time they terminate an in-house lawyer with whom they disagreed, it would be more difficult for such clients to secure the representation of their choice—and there is no doubt that a client's right to choose a lawyer occupies a position of paramount importance throughout the rules of professional conduct,” Durrant wrote.

Pang, of Salt Lake City, appeared pro se. Ballard Spahr represented the defendants.

Full text at http://www.bloomberglaw.com/public/document/Pang_v_Intl_Document_Servs_2015_UT_63_Court_Opinion.

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

Copyright 2015, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.