Can a former in-house lawyer who discovered company fraud disclose the company's confidential documents to prosecutors or use them in his own wrongful-termination suit?

Plain-English summary

A lawyer hired to run a corporation's government-contract compliance program discovered the program was being ignored and learned of a scheme to defraud the federal government of $38 million, known to the CFO and CEO. After reporting it to the general counsel, he was fired, refused a severance agreement with a confidentiality clause and a covenant not to sue, and kept documents revealing the fraud. The committee addressed three questions about what confidences he could reveal.

First, he may disclose the documents and information to the U.S. Attorney to the extent they concern the corporation's intention to commit a crime and the information necessary to prevent it, under Rule 1.6(d)(4), which the opinion identified as the only applicable exception; to the extent the information relates to past conduct, it may not be disclosed.

Second, to use the confidences in his own wrongful-termination suit, the answer is no unless a court permits it. Although Rule 1.6(d)(6) lets a lawyer reveal confidences to establish a claim in a controversy with the client, Comments [18] and [19] aim that exception mainly at defending the representation or proving services in a fee dispute, and competing public policies (protecting client confidences and the right to discharge counsel at will versus protecting an employee fired for refusing to participate in wrongdoing) made the committee decline a definitive ruling. The lawyer may reveal no confidences in the complaint except as needed to put the opposing party on notice, and before disclosing more must obtain a court ruling (for example through in camera review) authorizing only what is necessary to establish the claim.

Third, the same approach governs a False Claims Act ("qui tam") claim in his own suit: no, unless a court orders disclosure under Rule 1.6(d)(3). The lawyer may reveal no confidences in the complaint except as necessary to give notice of the claim, and thereafter only as a court order permits.

Currency note

This opinion was issued in 2001, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the confidentiality rule and its exceptions as then numbered (Rule 1.6(d)(3), (4), (6) and Comments [18] and [19]). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific exception mentioned here.

Common questions

Q: Can a former in-house lawyer report the company's fraud to prosecutors?

A: To prevent a future crime, yes. The opinion allowed disclosure to the U.S. Attorney under Rule 1.6(d)(4) of information concerning the company's intention to commit a crime and what is necessary to prevent it, but not information about past conduct.

Q: Can the lawyer use the company's confidences in his own wrongful-termination case?

A: Only with court approval. The opinion held he may reveal confidences in the complaint only to give notice of the claim, and must obtain a court ruling (such as via in camera review) before disclosing more, limited to what is necessary.

Q: What about a False Claims Act (qui tam) suit by the lawyer?

A: The same. The opinion held the lawyer may disclose confidences only as needed to put the company on notice and otherwise only as a court order permits under Rule 1.6(d)(3).

Q: Why didn't the committee give a clear yes or no on the lawyer's own suits?

A: The opinion explained it could not definitively resolve the competing public policies (protecting client confidences and at-will discharge of counsel versus protecting employees fired for refusing wrongdoing), so it deferred to a court of competent jurisdiction.

Background and rules framework

The opinion interpreted North Carolina Rule 1.6 (confidentiality of information), the analogue to Model Rule 1.6, focusing on its exceptions for preventing a crime, for court-ordered disclosure, and for a lawyer's own claim or defense, together with its Comments [18] and [19]. It also drew on Rule 1.16 and Comment [4] for the client's right to discharge counsel.

Citations and references

Rules of Professional Conduct:

• MR 1.6 (confidentiality of information) / NC Rule 1.6(d)(3), (4), (6) and Comments [18], [19]
• MR 1.16 (declining or terminating representation) / NC Rule 1.16, Comment [4]

See also

• ABA Formal Op. 01-424: In-House Lawyer Discharge Suit
• CA COPRAC Op. 2012-183: Wrongful Discharge Confidences
• ABA Formal Op. 99-415: Former In-House Lawyer Conflicts

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2000-formal-ethics-opinion-11/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry #1:

Corporation C employed Attorney A who reported to the General Counsel of the corporation. Before Attorney A was hired, Corporation C entered into a settlement with the United States Government whereby Corporation C agreed to pay the federal government $900,000 for failure to rebate money to the government for service contracts. Corporation C also agreed to establish a compliance program.

While employed by Corporation C, Attorney A was assigned to establish and monitor the compliance program. Attorney A discovered that the compliance program was not being honored. The comptroller of the corporation also advised Attorney A that the corporation was involved in another scheme to defraud the government of $38 million through improper billings. Attorney A was informed that the chief financial officer and the chief executive officer of Corporation C were aware of the fraud scheme. Attorney A informed the General Counsel of the fraud scheme and that the compliance program was being violated. Two weeks later, Attorney A was fired. He was offered three months salary as severance pay if he signed a separation agreement containing a confidentiality provision and a covenant not to sue. Attorney A refused to sign the agreement.

Attorney A has documents from Corporation C that reveal the scheme to defraud the federal government. May Attorney A disclose these documents, as well as other information of Corporation C that he gained while he was an employee, to the US Attorney in order that the government might pursue a false claims action against Corporation C?

Opinion #1:

Yes, Attorney A may reveal confidential information of his former employer and client, Corporation C, if such information concerns the intention of Corporation C to commit a crime and the information necessary to prevent the crime. Rule 1.6(d)(4). This is the only exception to the duty of confidentiality that is applicable here. To the extent that the confidential information relates to past conduct, it may not be disclosed to the US Attorney.

Inquiry #2:

May Attorney A reveal information and documents of Corporation C to establish a claim for wrongful termination in his own lawsuit against Corporation C?

Opinion #2:

No, unless an exception to the duty of confidentiality applies and a court permits the disclosure of the confidential information.

Although Rule 1.6(d)(6) permits a lawyer to reveal confidential client information "to the extent the lawyer reasonably believes necessary to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client....," Comments [18] and [19] to Rule 1.6 clarify that this exception is generally intended to enable the lawyer to defend his or her representation of a client or to prove legal services were rendered in an action to collect a fee.

Public policy favors a client's right to terminate the client-lawyer relationship for any reason and at any time without adverse consequence to the client. Rule 1.16, Comment [4]. If confidential information may be revealed whenever an in-house corporate lawyer's employment is terminated, a chilling effect on a corporation's right to terminate its legal counsel at will may ensue. Nevertheless, there is also a public policy, recognized by the courts of North Carolina in a number of recent decisions, against the termination of an employee for refusing to cooperate in the illegal or immoral activity of his or her employer. Because of this public policy, the courts, in a few limited situations, have allowed an employee to go forward with a wrongful termination claim as an exception to the employment-at-will doctrine.

The Ethics Committee cannot make a definitive ruling in the light of the competing public policies illustrated in this inquiry-one favoring the protection of client confidences and the right to counsel of choice and the other condemning the termination of an employee for refusing to participate in wrongful activity. The exception in Rule 1.6(d)(6) is broad enough to include a wrongful termination action. Nevertheless, even when there is an exception permitting disclosure of confidential information,

the lawyer must make every effort practicable to avoid unnecessary disclosure of information relating to a representation, to limit disclosure to those having the need to know it, and to obtain protective orders or make other arrangements minimizing the risk of disclosure.

Rule 1.6, cmt. [19]. Given the competing public policies described above, a lawyer may reveal no client confidences in a complaint for wrongful termination except as necessary to put the opposing party on notice of the claim. Prior to disclosing any other confidential information of the former employer and client, the lawyer must obtain a ruling from a court of competent jurisdiction authorizing the lawyer to reveal confidential information of the former client, and even then may only reveal such confidential information as is necessary to establish the wrongful termination claim. Requesting in camera review of the confidential information the plaintiff intends to proffer to establish the wrongful termination claim would be an appropriate procedure for obtaining the court's ruling. There may be other similarly appropriate procedures.

Inquiry #3:

May Attorney A reveal information and documents of Corporation C to establish a claim under the False Claims Act in his own lawsuit against Corporation C?

Opinion #3:

No, unless a court rules that the information may be revealed to pursue the claim. Rule 1.6(d)(3) permits a lawyer to reveal confidential information when required by a court order. This would appear to be the only exception to the duty of confidentiality that permits a lawyer to disclose confidential information in order to make a third party or "qui tam" claim under the False Claims Act. In this inquiry, there are also competing public policies favoring disclosure on the one hand and confidentiality on the other. The Ethics Committee again defers to the ruling of a court of competent jurisdiction to determine the extent to which Attorney A may reveal confidential client information in order to establish a claim under the False Claims Act. Attorney A may reveal no client confidences in a complaint asserting a claim under the False Claims Act except as necessary to put the opposing party on notice of the claim. Thereafter, Attorney A may only reveal confidential client information as permitted by a court order.