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Ethical Concerns Preclude In-House Counselís Reinstatement

By Brian A. Zemil, Litigation News Associate Editor – September 15, 2010

In a decision [PDF] the dissent described as touching on a “question of first impression,” the Wisconsin Supreme Court examined the interrelationship between an attorney’s ethical obligations and the potential avenues for relief that attorneys may have for violation of federal and state employment laws. Sands v. Menard, Inc., No. 2008AP1703, 2010 Wisc. LEXIS 174 (Wisc. July 21, 2010).

In Sands, the court vacated an arbitration panel’s “reinstatement award” that would have required Menard to rehire its former in-house counsel due to the panel’s findings of pay discrimination and retaliatory discharge under federal law.

Split 4–3, the court concluded that the arbitration panel had exceeded its authority in ordering reinstatement because the hostility between the in-house counsel and her former employer resulted in an irretrievably damaged relationship, and that reinstatement would force her “to violate her ethical obligations as an attorney.”

Discrimination Claims by In-House Counsel
After the former vice-president and executive general counsel for Menard repeatedly complained that Menard paid her less than the male employee whose responsibilities she assumed, Menard terminated her employment. The parties agreed to arbitrate the in-house counsel’s claims that her termination violated the Equal Pay Act, Title VII, and the Wisconsin Fair Employment Act.

The arbitration panel sided with the in-house counsel. The panel ordered Menard to, among other things, reinstate the in-house counsel, and found that the alternative relief of a front pay award would reward Menard for its misconduct. Menard moved to vacate the reinstatement award. The trial court denied Menard’s request, and the Wisconsin Court of Appeals affirmed [PDF].

The Majority Opinion
Wisconsin’s highest court reversed. The court focused on the ethical implications of the panel’s reinstatement order, concluding that “an attorney’s ethical obligations, particularly an attorney’s duty of loyalty to her clients under our cases and the Rules of Professional Conduct, embody the strong public policy of the State of Wisconsin.” Given the acrimony between the parties and the high profile nature of the former in-house counsel’s position with the company, the court reasoned that she could not ethically represent Menard’s interests and that the arbitration panel had exceeded its authority by ordering reinstatement. The court remanded the case for a determination of front pay.

“The law favors reinstatement and the opinion recognized that it was inappropriate here because the nature of the relationship between the parties satisfied two exceptions to the rule—where there exists hostility and a high position of trust and confidentiality was involved,” says William C. Martucci, Kansas City, cochair of the Newsletter Subcommittee of the ABA Section of Litigation’s Employment and Labor Relations Law Committee. “The court did not conclude its analysis here and chose to analyze the case with regard to attorney-client issues,” Martucci says.

“The majority is saying lawyers are different, must be treated accordingly, and identifies the controlling considerations relating to a client’s right to terminate counsel,” says John W. Joyce, New Orleans, cochair of the Newsletter Subcommittee of the Section’s Ethics and Professionalism Committee and a contributor to Litigation News.

The Dissent
In dissent, the court’s Chief Justice focused on the limited authority that courts wield in reviewing arbitration awards and viewed the majority’s decision as encroaching on that deference.

“There is a strong public policy to follow the ethical canons but that does not necessarily provide a basis to review and modify an arbitration decision,” says Malcolm S. Brisker, Baltimore, member of the Section’s Ethics and Professionalism Committee. “The decision undermines the arbitration process that seeks to reduce legal expenses and offer finality to litigants because the Wisconsin courts may be forced to review future arbitration awards where a party raises a public policy consideration,” he notes.

How Sands Could Affect Future Challenges
The majority opinion could create a small window of application for other upper management employees in future challenges. “The result in this case should apply equally to other high level employees similarly situated, like a CFO, because the driving force of the opinion rests on the hostility and position level of the parties,” Martucci says. However, he notes that “the decision should not be interpreted to mean that the Code of Professional Conduct prevents an attorney’s eligibility for reinstatement because the ruling will likely be limited to the exceptional facts of the case.”

“The court’s professional conduct analysis will not affect the certainty of future arbitration awards that do not involve ethical issues because an arbitration panel sits in a different posture than the court that is required to regulate the profession,” Joyce says.

Keywords: Litigation, ethics, employment law, arbitration,Wisconsin Supreme Court


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