James Cagney never said: "You dirty rat." What he did say was: "Come out and take it, you dirty, yellowbellied rat, or I'll give it to you through the door."1 Of course, regardless of whatever adjectives are used, a "rat" is still a "rat." And that applies to lawyers who rat-out their clients; or does it?
In recent years, there has been a fair amount of public commentary about what rights lawyers have to be a rat.2 So now would seem to be a good time to revisit this subject and take stock of the historical and current landscapes.
The Good, the Bad, and the Ugly (the Early Years)
The starting point is (or should be) Balla v. Gambro.3
In that case, the general counsel (Roger Balla) of Gambro, Inc., an Illinois-based company that was the subsidiary of a Swedish company, Gambro AB, learned that a German affiliate was about to ship dialyzers into the United States that did not comply with Food and Drug Administration (FDA) regulations. Believing that the machines posed possibly life threatening injuries (or worse), Balla went to Gambro's U.S. president and persuaded him to block the shipment. Subsequently, the president changed his mind and green-lighted the dangerous dialyzers. When Balla learned of that latter action he confronted the president, telling him Balla would do whatever was necessary to stop the shipment (as well as any sales) of the dialyzers. The president thereupon fired Balla; the next day, Balla ratted on his former company to the FDA.
A year later, Balla filed a retaliatory discharge claim against Gambro in Illinois state court, seeking $22 million. Both the trial court and the intermediate appellate court ruled that he had no valid cause of action. Before the Illinois Supreme Court, Balla argued that the court should sanction a cause of action because he had faced a "Hobson's Choice"--either report his client's wrongdoing (thereby saving lives, but being fired) or keep quiet (thereby letting people be maimed or killed, but keeping his job).
In 1991, the Illinois Supreme Court not only refused to sanction a cause of action, it rejected the "Hobson's Choice" argument. Rather than facing two unpalatable choices, the court observed that Balla, in fact, had no choice: under Rule l.6(b) of the Illinois Rules of Professional Conduct, attorneys were required to reveal confidential client information when aclient is about to commit an act that would result in death or serious bodily injury. The court further opined that Illinois public policy (i.e., keeping the public safe from deadly products) would be protected without creating a retaliatory discharge cause of action for lawyers, reasoning that when lawyers took and passed the Illinois bar exam they had willingly agreed to the requirement of ratting out clients in such circumstances.4
Many legal academics criticized the Balla decision, and shortly thereafter the California Supreme Court decided to take another approach in General Dynamics v. Superior Court.5 There, the court determined that a whistleblowing in-house lawyer could assert two different causes of action. The first was a contract action, assuming that a contract could be proven; the court reasoned that demonstrating a breach thereof would not lead to breaching professional obligations of client confidences (or, correspondingly, breaching the attorney-client privilege).
The court also qualifiedly endorsed a tort claim under two alternative scenarios: (i) where an attorney was fired for refusing to violate a mandatory ethical requirement; or (ii) when a non-attorney could also bring such a claim and the claim could be proven without violating the attorneyclient privilege. While initially this seemed like a bold step, it was not. First, because California's ethic rules were diametrically opposed to Illinois's (in California, attorneys were ethically barred from disclosing client confidences). And second, because the attorney in General Dynamics could not prove a retaliatory discharge claim without violating the attorney-client privilege.6
A number of jurisdictions followed California's somewhat tepid toe-in-the-water approach,7 but others wanted to go further. Perhaps emboldened by the 2003 changes to ABA Model Rule 1.6,8 some courts allowed lawyers to bring these claims, while "making every effort practicable to avoid unnecessary disclosure" of client confidences, and imploring the trial courts to be imaginative in utilizing orders to minimize against "unnecessary disclosures."9
In Willy v. Administrative Review Board,10 the U.S. Court of Appeals for the Fifth Circuit in 2005 went farther--a lot farther; not only did it recognize the validity of a retaliatory discharge claim, it also ruled that the in-house lawyer could affirmatively use--without limitation--attorney-client privileged materials/communications to prove his claim. The key to the court's ruling was a specific change by the American Bar Association to part of Model Rule 1.6. Previously, Rule 1.6(b)(5) had allowed for the revealing of client confidences only "to establish a defense on behalf of the lawyer." The Rule was subsequently changed to add the words "claim or" before "defense"--and that change, reasoned the Fifth Circuit, thereby allowed the lawyer in Willy to affirmatively breach the attorney-client privilege.11
The Good, the Bad, and the Ugly (the Later Years)
More recent decisions have continued to reflect different policy choices. Thus, for example, the state courts of Kentucky, Utah, New York, and Minnesota have all said "no" to retaliatory discharge claims by lawyers.12 And it should be noted that these states, while following the outcome of Balla, do not have Illinois' idiosyncratic Rule 1.6; rather, they all have professional responsibility codes somewhat more in line with ABA Model Rule 1.6.13
On Oct. 25, 2013, the U.S. Court of Appeals for the Second Circuit affirmed the district court's 2011 dismissal of a False Claims Act qui tam action by Mark Bibi, a former general counsel of Unilab. Bibi, together with two other former Unilab executives, sued Unilab's new owner, Quest Diagnostics, on the ground that the company had engaged in a pervasive kickback scheme.14 At the district court level, legal academic ethics experts proffered dramatically opposing opinions: Professor Andrew Perlman of Suffolk University Law School supported Bibi, testifying that Bibi was entitled to "spill his guts" because he believed Unilab's actions were criminal; Professor Stephen Gillers of New York University Law School opined that Bibi's disclosure violated his professional obligations to his former client. The district court sided with Gillers, and dismissed the case.
On appeal, the Second Circuit upheld the important ethical obligation that lawyers have in protecting client confidences (under New York's Rule 1.6), and the court refused to sanction the breaching of said confidences (especially to profit thereby).15
But before folks start thinking there is a recent trend in one direction, we have to factor in a decision rendered in December 2016 by a federal magistrate judge in California: Wadler v. Bio-Rad Laboratories. 16 In that case, Sanford Wadler, the former general counsel of Bio-Rad, sued his former employer after he was fired. Wadler claimed that the termination was in retaliation for his informing the board of directors of purported Foreign Corrupt Practices Act violations. On the eve of trial, Bio-Rad filed a motion in limine to exclude virtually all of Wadler's evidence on the ground that it was covered by the company's attorney-client privilege. Magistrate Judge Joseph Spero ruled against the motion, opining not only that Bio-Rad was untimely in seeking the requested relief, but also that (1) federal common law applied to privilege issues and, as such, Wadler was permitted under ABA Model Rule 1.6 to use privileged communications to establish his claim; and (2) the state of California's restrictive confidentiality obligations were preempted by the SEC's Sarbanes-Oxley rules and regulations governing attorney conduct.17
As for federal common law and its interaction with ABA Model Rule 1.6., the magistrate judge followed the lead of the Fifth Circuit in Willy.18 And that ruling led to the admission at trial of a vast array of privileged communications before the jury. The result? An $11 million verdict in favor of the fired general counsel. The verdict is now on appeal.19
Unfortunately, there are more than a few problems with what the magistrate judge (and the Fifth Circuit in Willy) did: (1) the ABA Model Rules are merely aspirational rules and are not in effect anywhere--and, more important, they certainly do not constitute federal common law; (2) the change to Model Rule 1.6(b)(5) to add "claim or" has not been adopted by a great number of states (e.g., California -- the state which licensed Wadler; New York; etc.)20; and (3) both the Bio-Rad and Willy decisions equate the attorney-client privilege--an evidentiary concept rooted in law and a privilege owned by the client-- with a lawyer's ethical obligation to maintain client confidences; the latter has no bearing on whether a lawyer can unilaterally breach the attorney-client privilege--and it is extremely unlikely that a former employer would waive the privilege to allow a former attorney to prosecute a lawsuit against her company.21
Where Do We Go Now?
Obviously, in light of the foregoing, if a lawyer is thinking about whistleblowing (for potential, personal profit), there are a number of possible options and outcomes--depending upon where a lawsuit could be brought and the state in which the lawyer is licensed. That said, for readers of this distinguished journal, most if not all of whom are New Yorklicensed lawyers, those options and outcomes are not viable ones. For not only is the relevant case law for New Yorkers anti-whistleblower,22 New York (as noted above) has not adopted the "offensive" concept set forth in ABA Model Rule 1.6(b)(5).23 Furthermore, New York's highest court three decades ago expressly held that a wrongful discharge tort claim did not exist in New York State for a lawyer; the court also ruled that, for one to be created, it would have to come from the state legislature.24 Since that time (1992), our elected officials have not said "boo" on this subject.