2007 Issue 1 - New York City Bar Association

L A W Y E R ’ S R O L E I N C O R P O R A T E G O V E R N A N C E
the public company, not any conflicting interest of individual officers or
directors. 190
From these principles come certain practical considerations that should
guide counsel conducting an investigation. Counsel must always consider
the legal obligations that an officer or director owes to the corporation
before providing the client advice. These obligations include duties
imposed by federal and state law. For example, federal securities laws impose
liability for misleading disclosures made by public companies, and
such liability can extend to directors and officers who may be controlling
persons of the corporation or be responsible for the statements under the
group-published doctrine. 191
Under state law, officers and directors have the familiar duties of due
care, loyalty, and good faith. These duties encompass the obligations to
consider and react with requisite process to reasonably available material
information, to act in the best interests of the corporation and to prioritize
the interests of the corporation, to act when there is a known duty to
act, and not to act with intent to violate applicable positive law. 192 As a
always remember that the decision whether to forego legally available objectives or methods
because of non-legal factors is ultimately for the client and not for the lawyer.” Id.
190. While “the decisions of constituents of the organization ordinarily must be accepted by
the lawyer even if their utility or prudence is doubtful” and “[d]ecisions concerning policy
and operations, including ones entailing serious risk, are not as such in the lawyer’s province,”
the lawyer has no duty to obey an instruction of an officer or director that is in violation
of that person’s legal obligation to the organization and that would substantially injure it. Model
Rule 1.13, cmt. [3]; see Sarah Helene Duggin, Internal Corporate Investigations: Legal Ethics,
Professionalism and the Employee Interview, 2003 Colum. Bus. L. Rev. 859, 936 (2003):
The client to whom [investigative counsel] owes undivided loyalty, fealty, and allegiance
cannot speak to him except through voices that may have interests adverse to
his client. He is hired and fired by people who may or may not have interests
diametrically opposed to those of his client.
191. As articulated by the Ninth Circuit:
In cases of corporate fraud where the false or misleading information is conveyed in
. . . annual reports . . . or other ‘group published information,’ it is reasonable to
presume that there are the collective actions of the officers . . . Under such circumstances,
a plaintiff fulfills the particularity requirement of Rule 9(b) by pleading
misrepresentations with particularity and where possible the role of individual defendants
in the misrepresentations.
Wool v. Tandem Computers Inc., 818 F.2d 1433, 1440 (9th Cir. 1987) (citations omitted).
192. See In re Walt Disney Co. Derivative Litig., No. Civ. A. 15452, 2005 WL 1875804, at
*35 (Del. Ch. Aug. 9, 2005) (describing fiduciary duties under Delaware law), aff’d, No.
411,2005, 2006 WL 1562466 (Del. June 8, 2006); see, e.g., Enron, 284 F. Supp. 2d at 657-
T H E R E C O R D
186