Continuing in the tradition of Bill Freivogel’s columns (see the Business Law Section’s “eSource”: Oct. 2007, Volume 6, No. 2 to Nov. 2009, Volume 7, No. 12), “Ethics Corner” will appear every other month in Business Law Today. The goal of this column will be to present topics that occasionally confront lawyers, principally business lawyers, involving the ethics rules. Not all of the columns will be specifically limited to ethics; we hope to touch on professionalism and civility as well from time to time. One issue that may become apparent is that the ethics rules are written with litigation in mind and may not always fit smoothly with a typical corporate, securities, or transactional practice. In that light, this column will attempt to emphasize the everyday over the esoteric and to alert business lawyers to topics they should be sensitive to without providing an in-depth academic analysis or answering all of the questions raised.
Ethics issues arise in specific fact patterns, so we’ll start with a hypothetical:
Andy, a New York corporate and securities lawyer, had just finished one meeting and was preparing for the next when one of his banker clients, Gus, called. Gus explained that he and his team were meeting with the CEO and CFO of a mid-market company later that day to talk about going public. Gus told Andy that the management team is very detail oriented, and would Andy be available to get looped into the meeting if they got past the high-level discussion and into the weeds? Andy asked what kinds of things Gus thought he might need to address. Gus said he’d want Andy to cover any SEC rules that came up and that the CEO and CFO were likely to be focused on disclosure about management compensation, limits on insider sales in the offering and after, publicity restrictions, timing, and expected costs.
The first question is whether any ethics rules are implicated by this fact pattern. What should Andy be alert to?
Questioning Participation in the Meeting
The title of this column has probably flagged one potential issue: can Andy participate in the meeting if the company’s lawyer is not present?
Business lawyers are used to sophisticated businessperson clients, some of whom may know more law relevant to their business than the lawyer does and may readily agree to meet with lawyers for the other side of a transaction without their lawyer present. They will have time to check with their lawyer before any binding commitments are made.
Back to our hypothetical:
Andy asks Gus if the company’s lawyer will be at the meeting. Gus says, no, just the CEO and the CFO. Gus does not know whether the company has engaged lawyers for an IPO and is not entirely sure whether the company has a general counsel. Andy explains that, for him to participate, the company’s lawyer should be on the phone as well. Gus checks with the CEO, who says that their general counsel is not available and that it would be great if Andy can participate because he has lots of detailed questions about the process.
The New York ethics rules, similar to the ABA Model Rules, govern communications with persons represented by counsel (Rule 4.2 – often referred to as the No Contact Rule). (See sidebar below for language of Rule and Comments.)
The ethics rules regarding communicating with other parties have a fair amount of nuance to them. There are over 50 pages in Simon’s New York Rule of Professional Conduct Annotated on Rule 4.2 alone.
In our hypothetical, some of the trickier issues – like whether a litigator can talk to employees of a defendant corporation – fall away. Andy would be talking directly to senior management.
Some issues remain:
- Can we read the term “party” narrowly to apply only to litigation?
- If the company is represented by outside counsel, can Andy talk to the general counsel instead?
- Can the client waive the No Contact Rule?
The term “party” gets read more like “person” in the context of transactions by the New York State Bar Committee.
Whether a company having a general counsel means that it is always a person represented by counsel raises some interesting questions. The New York City Bar Association Formal Opinion 2007-01 discusses some of the contours of situations involving general counsel and makes it clear that if the general counsel is acting as a lawyer for the organization (and not merely as outside counsel’s client) then the communication is permitted.
Because the CEO is prepared to waive the need for his lawyer to be in the meeting, it is tempting to think that Andy can participate. However, Rule 4.2 requires “prior consent of the other lawyer” unless the communication is otherwise authorized by law.
Andy may speculate about whether he is really “representing a client” and communicating “about the subject of the representation.” He might argue that, until the bankers win a mandate, all they are doing is talking about how the law works and how IPOs are done and he is marketing his services as a potential underwriters’ counsel. Andy should consider though, how his participation in the meeting might appear, assuming Gus and his team get hired to do the deal and they hire Andy. Only after the deal moves forward and a problem develops with a topic that Andy discussed at the meeting will the ethics question present itself. In that situation, it may be difficult to defend Andy’s reasons for participating.
Andy still has a chance to escape any ethics issue. If he can get in contact with the general counsel and get permission to meet with the CEO and CFO without counsel present, then he will have met his ethics obligations under Rule 4.2. That may be easier said than done. Andy’s client is unlikely to want Andy to reach out directly, and the CEO seems to have dismissed the issue.
A business lawyer invited to help out at a meeting between bankers and a company they are working with (or are pitching) can be in a tough spot ethically. Rule 4.2 – the No Contact Rule – may prohibit the lawyer from participating in the meeting without prior consent of the company’s counsel unless company’s counsel participates as well.