Complicating The Duties Of In-House Counsel

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Originally Published in Daily Journal - December 13, 2013.

A recent case seems to complicate the duties of counsel representing an employer where an employee is a witness in the case.

A blue collar employee was seriously injured at work. Another blue collar employee was the only person who witnessed the accident. That second employee gave a statement to management at its request indicating that he had seen the accident and describing it to some extent.

Later, the injured employee brought a Federal Employers Liability Act action for damages for his injury, suing only the employer. In-house counsel defended the action and prepared the other employee for his deposition. During the preparation, the employee asked the attorney "who would protect [the employee] at the deposition?" The attorney said that as long as the employee told the truth, his job would not be affected. "Plummer [in-house counsel] never told Yanez [employee] about any conflict of interest involving Plummer representing [employer Union Pacific] and Yanez at the deposition."

At the deposition, Yanez testified that he had not witnessed the accident, which testimony defense counsel developed to some degree. Yanez's earlier statement that he had seen the accident, given nine months before the deposition, was marked as an exhibit and, "in passing and without any follow-up" from Plummer, Yanez mentioned that he "had worded his second statement wrong."

A senior manager of the company attended the deposition, confirmed that Yanez had given inconsistent testimony, and caused Yanez's termination "for violating company policy against dishonesty" due to the inconsistent statements. Yanez then sued Plummer for malpractice, breach of fiduciary duty, and fraud, alleging that Plummer's representation of Yanez at his deposition constituted a conflict of interest which had not been waived, and that he was not sufficiently protected at the deposition, causing the loss of his job on account of his inconsistent testimony. The trial court granted Plummer summary judgment for lack of causation of any damages, but was reversed on appeal. Yanez v. Plummer, 2013 DJDAR 14767 (Cal. App. 3rd Dist. Nov. 5, 2013).

The court held that the evidence showed "a conflict between the employer and the employee, and the employer's lawyer representing both the employer and the employee (to the employee's detriment) without obtaining the employee's informed written consent." That, the court held, was "evidence of malpractice liability and breach of fiduciary duty." The court also held that "if Yanez had not been deposed in the lawsuit, he probably would not have been charged with dishonesty; that without the deposition, Union Pacific would not have known about the alleged dishonesty; and that this deposition triggered the dishonesty charges brought against Yanez." Union Pacific had had the conflicting statements in its possession for a long time before it learned of the inconsistencies at the deposition. The court held that the employee had stated a viable malpractice claim against the inhouse attorney.

It is hard to quarrel with the court's interpretation of the black letter law about conflicts, but the fact pattern tells us that a common practice of the profession amounts to evidence of malpractice liability and breach of fiduciary duty. Before this decision, it would have been a very unusual lawyer who would think of conflicts issues if in the course of defending an entity, an ordinary employee of the entity - not a managerial employee with power to bind the company - was deposed. Such depositions of percipient witness employees are routine, and most defense lawyers would think that their function as defense counsel routinely includes the defense of the employee being deposed, unless some red flag was known before and suggested a conflict of interest between the company and the employee witness. A defense lawyer would routinely, in a commonplace defense, "protect" an employee witness, without cavil or warning, unless something was known to raise an alert.

But under the Yanez decision, there is a potential conflict at any time when a company employee is deposed or may testify at trial in a suit against the company, although the employee is not named (and probably unlikely ever to be named) as a defendant, given the employer's liability for most employee misconduct under the rule of respondeat superior.

The court criticized Plummer for not appreciating that Yanez's position could be in jeopardy because of his inconsistent statements, for not warning him about that possibility, and apparently for emphasizing Yanez's sworn testimony at deposition that he had not witnessed the accident. Since a witness is sworn to tell the truth and since silence in the face of false testimony would be a fraud on the court, Pumphrey v. K.W. Thompson Tool Co., 62 F.3d 1128 (9th Cir. 1995), it is hard to understand how the attorney's conduct - from the opinion, he did nothing more than to develop the true facts favorable to his client, the employer - could have been different, even if the employee had been warned about the conflict and had been separately represented.

And does an employer now have a duty to provide any employee with separate, independent counsel? Does that duty apply only if the employee claims a potential conflict, or does it apply in all cases because a lawyer cannot know what an interested party knows - and under Yanez any employee witness may be at risk and thus an interested party - until lawyer and employee have spoken? That is another interesting question to be developed.

In any event, since most employers are inanimate bodies acting only through individual agents, if this decision stands, it seems certain to make relatively routine litigation more expensive and more complicated. To what end?

Topics:  Conflicts of Interest, Corporate Counsel, Internal Investigations, Investigations

Published In: Civil Procedure Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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