Courts - Minnesota In-house lawyer loses whistle-blower case

By Barbara L. Jones

The Daily Record Newswire

MINNEAPOLIS, MN -- An in-house lawyer who e-mailed corporate officers to express concerns about the legality of the company's conduct in the discovery phase of a lawsuit was not engaging in whistle-blowing activity and therefore not entitled to statutory protection, the Minnesota Supreme Court has ruled.

The Court of Appeals had overturned a $197,000 jury award in favor of the lawyer after finding the whistle-blowing statute contains a job-duties exception that bars employees who report an illegality as part of their job duties from bringing a claim.

In a 4-3 decision, the high court affirmed the result, but declined to adopt a categorical job-duties exception. An employee's job duties are relevant in determining whether the employee made a report in good faith for the purposes of exposing an illegality, but are not the only things to be considered, wrote Justice Lorie Gildea.

The employee in the case, attorney Brian Kidwell, did not offer evidence from which a reasonable jury could conclude that he engaged in protected conduct for purposes of the whistle-blower statute when he reported to his client the legal opinion that his client was illegally withholding discovery, Gildea said.

The decision: Kidwell v. Sybaritic, Inc.

Justices Christopher Dietzen and G. Barry Anderson joined in Gildea's opinion. Chief Justice Eric Magnuson concurred. Justice Paul Anderson dissented, joined by Justices Alan Page and Helen Meyer.

The decision is good for businesses and good for the legal profession, said Minneapolis attorney Katherine A. McBride, who represented the defendant company.

"We want to encourage businesses to seek advice and we want in-house counsel to give advice freely," she said. "We want in-house attorneys to be indispensable, but not indisposable."

Lawyers should know they won't be protected under the law, Kidwell said, adding that the jury heard five days of evidence and was properly instructed, but the Supreme Court set aside the jury's findings.

"If this evidence was inadequate, then anyone who blows the whistle should be concerned," Kidwell said. However, he doesn't expect employees to stop blowing the whistle.

"Most whistle-blowers follow their conscience. I knew there was a strong likelihood I would be fired. I wouldn't change my decision [to blow the whistle]," he said.

Bloomington attorney Philip Villaume, whose practice includes employment cases, said that lawyers should have at least as much protection as other employees, and should have more when they are following their ethical duties to report violations of law.

"This is a classic whistle-blower case, but lawyers are being treated differently," Villaume said.

As in-house general counsel for Sybaritic Inc., Kidwell was charged with overseeing the handling of a lawsuit alleging breach of contract and theft of trade secrets against an Estonia-based competitor, NeoQi. During the course of this work, Kidwell became aware of the existence of certain e-mails potentially damaging to his employer's case. These documents had not been requested by the defendants, but Kidwell was concerned that they would be, and that Sybaritic would fail to disclose them.

The e-mails were put on a disk and provided to outside counsel. An apparent problem arose with the data, and company officials retrieved the disk from outside counsel, telling outside counsel the disk had a virus. Kidwell, who was in Estonia when these events transpired, let company executives know he was concerned that evidence might be being tampered with.

When he returned from his trip, Kidwell sent an e-mail to four members of senior management at Sybaritic. Entitled "A Difficult Duty," the e-mail said that the company was pervaded with a culture of dishonesty. He went on to say that he intended to advise authorities about his concerns over the potential obstruction of justice in the litigation, as well as other concerns arising from the company's alleged culture of dishonesty.

Three weeks after sending the e-mail, Kidwell was fired. The company said the termination was for performance-related reasons that developed after his report and because Kidwell breached his fiduciary duty by forwarding the "difficult duty" e-mail to his father.

Kidwell sued under the whistle-blower act, and was awarded damages of $197,000. He also was granted attorney fees of $138,000.

Gildea first observed that the whistle-blower statute requires only that the employee report in good faith a suspected violation of the law, and contemplates that the report can be made to an employer. It does not contain a blanket job-duties exception, the court said.

The central question in the case is whether the report was made for the purpose of blowing the whistle, and an examination of the employee's job duties could be helpful in answering that question, the court said.

The issue presents a fact question that should be examined on a case-by-case basis, the court said. The court then turned to the question of whether Kidwell engaged in protected conduct, and concluded that that the evidence is "practically conclusive against the jury finding that Kidwell engaged in protected conduct."

The "difficult duty" e-mail was for the purpose of providing legal advice, not blowing the whistle, and there was no evidence that his purpose was anything more than the performance of his assigned duties as general counsel, Gildea wrote. Kidwell did not send the e-mail to law enforcement, to the government or to anyone outside his chain of command, other than his father. He also did not testify that the e-mail was not sent in performance of his job duties, Gildea noted.

In his concurrence, Magnuson said that when Kidwell copied the difficult duty e-mail to his father, he breached his fiduciary duty to his client and that breach bars his claim.

"Sound public policy principles underlie the whistle-blower statute, but those public policy principles do not trump the public policy behind the fiduciary obligations that lawyers owe to clients," the chief justice wrote. Furthermore, the court's exclusive duty to regulate the practice of law requires it to look beyond the language of the statute, Magnuson continued.

"I would therefore hold that when a lawyer breaches his or her fiduciary duty to the client, the client has an absolute right to terminate the attorney-client relationship. And that right cannot be burdened by any claim from the lawyer for compensation or other damages," Magnuson wrote.

Kidwell's sending the e-mail to his father was problematic, although whistle-blowers frequently want to let someone else know what they are doing, Villaume said. "I would have advised him to hire an ethics lawyer and, if he sent the e-mail, copy the lawyer. Then the privilege attaches."

In the dissent, Justice Paul Anderson wrote that the plurality imposed an artificial evidentiary hurdle on proving the employee's mental state in making the report. Under the plurality's view, only in a very rare case would an employee who is responsible for reporting illegal conduct and who reports such conduct through normal channels be able to recover. In such cases it would be very difficult to prove that the report was made for the purpose of exposing an illegality.

The dissent also said that the plurality failed to give proper deference to the jury's determination of subjective intent. There was more than sufficient evidence to conclude that the difficult duty e-mail was made with the intention of blowing the whistle, Anderson wrote.

Anderson also wrote that the concurrence employs a narrow reading of Rule 1.6 of the Minnesota Rules of Professional Conduct to support its bright-line rule that lawyers who breach a fiduciary duty are barred from bringing a whistle-blower claim. Moreover, the breach of fiduciary duty was an issue considered by the jury, he said.

Published: Tue, Jul 6, 2010