Guarding the Gatekeepers

The 9th Circuit recently handed down an important decision in Van Asdale v. International Game Technology (see "In-House Attorneys Get SOX Whistleblower Protection"). Without even acknowledging the long-standing controversy that has brewed in state courts for years, the Van Asdale court adopted an enabling and pragmatic process for managing the use of confidential or privileged information in pursuit of SOX whistleblower claims.

In Van Asdale, defendant IGT claimed the plaintiffs should not be permitted to maintain the SOX claim because doing so would

require the disclosure of privileged information. State judgments under which the inevitable disclosure of confidential or privileged information has thwarted retaliation lawsuits undoubtedly inspired IGT's position. One such case is General Dynamics v. Superior Court, wherein the California Supreme Court held that in-house counsel may pursue claims for retaliatory discharge but also imposed a hurdle to succeeding with such claims: "Where the elements of a wrongful discharge in violation of fundamental public policy claim by terminated corporate counsel cannot ... be fully established without breaching the attorney-client privilege, the suit must be dismissed in the interest of preserving the privilege."

Without genuflecting to the concerns animating General Dynamics and its ilk, the 9th Circuit in Van Asdale adopted the flexible approaches that the 3rd and 5th circuits have deployed. In those cases, the courts concluded that confidentiality concerns alone did not warrant dismissal of federal retaliation claims. The Van Asdale court cited the 3rd Circuit decision Kachmar v. SunGard Data Systems, wherein the court observed that confidentiality concerns alone should not bar a Title VII claim. Instead, the 3rd Circuit instructed courts to "balance the needed protection of sensitive information with the in-house counsel's right to maintain the suit" while considering the protective measures (i.e., use of sealing, protective orders, in camera proceedings) that might be taken at trial to safeguard confidential information. The 9th Circuit in Van Asdale agreed that a draconian ban on retaliation suits built upon privileged information was unfair in light of the availability of familiar trial court procedures that would preserve judicial redress for in-house counsel and the core values underlying the attorney-client relationship.

Still, I advise in-house counsel to take great care in limiting disclosure of privileged information when considering or pursuing SOX whistleblower claims. Model Rule of Professional Conduct 1.6 is instructive; it counsels that even when an attorney may disclose confidential information to assert a claim against a client, the attorney must do so only "to the extent that the lawyer reasonably believes necessary." As the Utah Supreme Court warned in a slightly different context in the 2003 case Spratley v. State Farm Mutual Automobile Insurance Co.: "While trial courts possess broad protective powers, any disclosures made by the attorney that are not reasonably necessary to the claim may still subject that attorney to professional discipline or litigation sanctions; a trial court's failure to prevent improper disclosure will not be a safe harbor for former in-house counsel who carelessly disclose more than is reasonably necessary to the claim."

The Van Asdale court concluded its privilege analysis by observing that Congress fully understood that in-house counsel are often steeped in privileged information but did not exclude them from protection under the SOX whistleblower provisions. In other words, by not excluding lawyers from the SOX protections, Congress valued safeguarding the role and rights of in-house gatekeepers over the need to look after the attorney-client privilege. Score one for the gatekeepers!

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