Beyond advising on a wide range of legal issues, in-house counsel are often valuable because of the intimate knowledge they have of the companies for which they work. But does this very same depth of insight create a risk for companies looking to hire in-house counsel from a competitor?
There are certainly potential issues a company may encounter when looking to hire in-house attorneys from a rival, including that an attorney is taking privileged information or that a conflict is imputed to all in-house lawyers in a legal department, according to both in-house and outside counsel, but there are ways to minimize the risk.
"Being in-house, the most important thing that we can do to be useful and to do our job effectively is to know the business. And an attorney who has worked in the industry and worked for a competitor before can be really useful in that respect," said Rebecca Signer Roche, assistant general counsel of labor and employment at DynCorp International. But at the same time, she said, there are "a lot of ethical considerations" around attorney-client privilege and attorney work product.
And if there's a conflict between two competitors, the argument may be made that all in-house attorneys at the new company, not just the one hired from a competitor, are conflicted, said Joseph Ahmad, partner at firm Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, pointing to a lawsuit in which his firm represented a lawyer in such a predicament. The case involved in-house attorney Charlotte Rutherford, who left her role as deputy general counsel for intellectual property at oilfield services company Schlumberger Ltd. to join patent licensing and enforcement company Acacia Research Group. In the weeks and months after her departure, Rutherford allegedly shared confidential and proprietary information with Acacia that was used to acquire a patent. Several months later, this patent was the basis of an infringement claim against Schlumberger.
In response to the patent infringement suit, Schlumberger sought to not only disqualify Rutherford, but also all in-house counsel at Acacia and its subsidiaries "based on the imputation of Rutherford's conflict to her fellow Acacia attorneys." In March 2015, the U.S. District Court for the Western District of Texas in Austin disqualified Rutherford and all in-house counsel for Acacia and its subsidiaries. On appeal, the U.S. Court of Appeals for the Federal Circuit agreed with the disqualifications, noting that while "there are important societal rights implicated by attorney disqualification ... there is an overriding countervailing concern suffusing the ethical rules: a client's entitlement to an attorney's adherence to her duty of loyalty, encompassing a duty of confidentiality."
"You have to be very, very careful if you're talking about an attorney [moving to a competitor]," Ahmad said, "because of the added challenge of privilege and then ethical issues that don't apply to regular employees, even regular executives."
As for how to mitigate the risk, DynCorp's Signer Roche said it's critical to do the due diligence upfront in a job interview to find out what a potential hire has done in their career and who they've represented. While the American Bar Association's Model Rules of Professional Conducttypically prohibit noncompetes for lawyers, Signer Roche said attorneys can't generally represent a client in the same or a substantially related matter when the interests are materially adverse to those of a former client, so "as soon as possible and before the person starts work, you want to identify as many conflicts as possible."
She also recommends that companies resolve any of these conflicts before the new lawyer's first day on the job. This may include getting a waiver from the previous employer or screening the person out of particular matters. "And then obviously, whatever decisions you make about the screen, communicate that clearly, send out a memo and then make sure it's documented ... and monitored," she said.
Signer Roche added, however, that "it can be tough" for companies to wall off lawyers, especially in small legal departments. "When you're coming in-house, you've really got one client and if you're walled off, that might limit your usefulness," she said.
Going one step further would be to consider hiring someone for an entirely different role than they had in the competing business, said Paul Starkman, a member at firm Clark Hill. With in-house counsel, though, he said this is difficult "because basically you're hiring them for their knowledge and expertise in the particular area."
Starkman added he doesn't know of "one silver bullet or shield that will automatically preclude these issues" when an in-house lawyer goes to the same role at a competing company. "The factors of each situation are something you have to look at and [you have to] weigh the risks each time you go into those types of decisions," he said.