In-House Counsel Take Heed: Protect Yourself When Company Does Wrong

In-house legal counsel often face a potentially career-altering decision when they discover that their only client, the corporation, has done something seriously wrong.

Do they ignore the situation or continue to support the company line even though criminal or civil statutes may have been violated? Or do they insist that their employer come clean as a condition of continuing to represent the company?

These questions were dealt with in a recent debate titled Asleep at the (Ignition) Switch? hosted by the Houston chapter of the Texas General Counsel Forum. Presenters were Randy Johnston, partner at JohnstonTobey, PC in Dallas, and David Beck, partner at Beck Redden, LLP in Houston.

The debate used as a jumping-off point the situation at General Motors and whether the GM legal department was fairly criticized for not preventing injuries and death in the massive recall of GM passenger cars.  The faulty ignition switch in these cars could turn the engine off without notice, thereby diminishing control of the vehicle and also preventing automobile’s airbags from deploying. GM recalled more than 2.6 million cars for the switch problem, which the automaker linked to 54 accidents and at least 13 deaths.

GM hired outside counsel to conduct an internal report, and the report faulted the company’s lawyers for failing to see the trend, failing to alert other managers to the issue and failing to press the issue once it was raised. The legal department is one area federal prosecutors are apparently looking into for possible criminal liability connected to the recall.

“The crux of my argument is that in-house legal counsel can be put in a precarious position by the actions of the company,” says Randy Johnston, a noted Dallas professional malpractice and business litigation attorney. “When things go terribly wrong within a company – so wrong that someone could go to jail or suffer civil penalties – the company may turn on the general counsel or other in-house lawyers and they often get the blame.”

Johnston emphasized that even when prosecutors fail to make a case against the company’s lawyer, the predicament can lead to job loss and certainly doesn’t look good on a resume. In the case of GM’s ignition switch debacle, 15 company employees were dismissed, including three attorneys in the general counsel’s office.

“Our presentation to the General Counsel Forum was less a debate than a much-needed information session,” Johnston says. “Every in-house lawyer needs to know that company officials will look out for the company. Even when outside lawyers are brought in, their loyalty is to the company, and you should consider hiring your own lawyer.”

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