3rd Circuit Clarifies Rules for Retaining Counsel for Targeted Employees

When Laidlaw International Inc. learned in 2007 that the company and three employees were the target of a New Jersey grand jury investigation, directors responded by initiating a legal version of circle the wagons. The company entered into retainer agreements with four lawyers, three of them representing the three targeted employees and the fourth for all current and former employees who were not targeted.

White-collar criminal defense lawyers say that this practice--companies picking up the legal tab for individual employees who could become witnesses against the company--is not unusual. But in this case, the New Jersey Department of Criminal Justice objected and filed a motion in the trial court to disqualify the company-paid lawyers for the individuals. The trial court rejected the state's motion on the grounds that the practice is acceptable as long as the agreements satisfy several Rules of Professional Conduct (RPCs), and on Nov. 23, 2009, the Supreme Court of New Jersey affirmed the lower court.

"The question defense counsel have to ask themselves now is whether they can pick up the phone and talk with corporate counsel about issues like joint defense," Sarubbi says. "This could have a chilling effect on the issue of joint defenses."

But according to Michael Himmel, a member at Lowenstein Sandler, this is the point of the ruling. "The RPCs say you can have one master and one master only," he says. "When you start doing things to the benefit of another master, you're breaching your responsibilities under the rules."

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