King & Spalding Case Spotlights Response to Ethics Report


King & Spalding fired associate who raised ethics concerns about partners

Firms need procedures and accepting culture to address internal ethics concerns, professional responsibility attorney says


A ruling that an ex-King & Spalding associate can go to trial on a claim he was fired for raising ethics concerns highlights a critical question for law firms—how to respond to an internal ethics complaint without appearing to retaliate?
On June 8 the U.S. District Court for the Southern District of New York rejected King & Spalding’s argument that associate David Joffe clearly was terminated for bad performance and “administrative shortcomings,” and not in retaliation for reporting ethical concerns stemming from two partners’ representation of Chinese telecommunications company ZTE Corp. Joffee thought the partners showed “poor judgment” in ignoring red flags, “even after it became clear that ZTE had repeatedly provided false information” to the court.While most associates are at-will employees, New York associates are protected from retaliation after the associate reports or threatens to report ethical concerns about others in the firm. A line of cases creates a breach of contract action based on lawyers’ obligations to comply with the ethics rules and an implied agreement that they won’t prevent one another from doing so.

Firms Need ‘Culture of Respect’

Arthur D. Burger, Chair of Jackson & Campbell’s Professional Responsibility Practice Group in Washington, told Bloomberg Law that firms should have procedures in place to deal with lawyers’ ethical concerns. There should be a “risk-free” place for lawyers to air ethical concerns to people not involved in the underlying matter at issue and who can “make an independent assessment,” Burger told Bloomberg Law. That may be to an internal ethics committee or a specific ethics partner, Burger said. But he also said firms need to have a culture that accepts the practice of lawyers using such an avenue to address ethical concerns.

Either a firm has built up a “culture of respect” for lawyers raising ethical concerns or it hasn’t, Burger said. “Having the best procedures in the world will not make a difference” if the firm leadership basically disregards such concerns, Burger said.

That Wasn’t True

King & Spalding partners Robert Perry and Paul Straus and Joffe defended ZTE against allegations it violated a non-disclosure agreement by sharing Vringo, Inc.’s confidential information. At a hearing, “Straus categorically denied the allegations against ZTE” and said “ZTE had shared the confidential information at issue with a Chinese court and no one else,” the court said.

The firm then claimed, citing a ZTE employee’s declaration, that Vringo improperly shared information without ZTE’s permission. Two weeks later the firm acknowledged that claim had “no factual basis,” the court said.

Vringo then alleged ZTE shared the confidential information with a Chinese regulator that was investigating Vringo, and not just the Chinese court, as ZTE and Straus had claimed. During discovery, ZTE contradicted its declaration by admitting it shared Vringo’s information with the regulator and with Google, the court said.

A junior employee in ZTE’s legal department initially was slated to sign the declaration, but the court said Joffe was concerned that person “lacked personal knowledge” about whether ZTE gave information to the regulator. The court said Joffe threatened to report Straus to bar counsel if the junior employee’s declaration was finalized. The firm ultimately submitted a declaration signed by a more senior ZTE employee.

In an order directing ZTE, Straus, and Perry to show cause why they shouldn’t be sanctioned, the court said it “preliminarily” appeared ZTE’s defense was “entirely frivolous.” New counsel entered an appearance for ZTE, and King & Spalding retained outside counsel to respond to the court’s order. The parties settled in December 2015 before the court ruled on the sanctions issue.

Ethics Violations?

The court said Joffe questioned whether the partners violated New York Rule of Professional Conduct 8.4(c), which prohibits lawyers from engaging in conduct involving “dishonesty, fraud, deceit or misrepresentation,” and whether the “cumulative effect” of the firm’s statements were “prejudicial to the administration of justice” in violation of Rule 8.4(d). Joffe thought Straus and Perry’s “reliance on ZTE, without sufficient verification” was “poor judgment,” the court said.

Joffe discussed the ZTE case with the firm’s general counsel, R. Robert Thornton, and its outside counsel, the court said. The parties agreed they discussed professional liability issues and Joffe testified they discussed the “substance” of Rule 8.4, the court said.

Joffe claimed the firm retaliated against him almost immediately after the case settled. The firm demoted him from senior associate to associate, froze his pay, and gave him no bonus for 2015, the court said.

Joffe sent a July 25, 2016 email to David Tetrick, who led the firm’s business litigation associates committee, and said the “Sanctions Order was an entirely understandable, and entirely foreseeable, result of several instances of poor judgment by the partners, in the face of ever more glaring red flags, that occurred over the prior year.”

The court said whether that email “was an attempt to report ethical violations or simply to complain about perceived unfair treatment, it was poorly received.” Tetrick decided to fire Joffe two months later, the court said, but held off on actually doing so after a partner said Joffe was working on an important matter. Joffe said Tetrick told him not to share the “red flags” from his July email with others, the court said.

The firm said it demoted Joffe because of “administrative shortcomings,” such as failing to submit a practice plan and failing to timely enter time sheets, the court said, and terminated him for failing to prepare practice plans and because people didn’t want to work with him. The human resources leader testified he didn’t know of any other lawyers being disciplined for failure to submit a practice plan. And Joffe was promoted to senior associate despite not having submitted a practice plan that year, the court said.

Joffe was escorted from the building in December 2016, the court said, which deviated from the firm’s usual practice of providing three months’ notice.

Tell the Jury

The court found that Joffee adequately stated a claim under the Wieder doctrine, which allows lawyers to pursue claims for retaliation by their employers after they report ethics concerns.

In Wieder, the New York appellate court said an associate could sue a firm for breach of contract for firing him after he insisted the firm report alleged misconduct by another associate, as required by the ethics rules. The court in Wieder said there is an implied undertaking in a contract that each party won’t prevent the other from performing his part of the agreement. In this context, the agreement is that lawyers will comply with the ethics rules.

King & Spalding argued that a Wieder claim can be brought only if Joffe had “actual knowledge” or a “clear belief” of the ethical misconduct. The court rejected that argument as “extremely narrow” and requiring a “mini-trial” about whether there were actual ethics violations. Under Rule 8.3(a), a lawyer must report another lawyer whom he knows committed an ethical violation that raises a “substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer.”

The court said Joffe can assert a Wieder claim by showing he “reported, attempted to report, or threatened to report suspected unethical behavior and that he suffered an adverse employment action” where retaliation can be inferred. It said Joffe didn’t need to show an actual ethical violation or that he was obligated to report misconduct.

The court said a reasonable jury could find Joffe had a “good faith belief” he had a duty to report his concerns with the firm and he tried to do that. That Joffe didn’t report his concerns to the court or disciplinary counsel was irrelevant, the court said.

Burger told Bloomberg Law he thought the “jury appeal is probably very high” in this case and that King & Spalding is “going to be in a vulnerable position before a jury” given what “most people think about lawyers.”

The court found sufficient, but “not overwhelming,” evidence that Joffe reported unethical conduct so that his claim may proceed to trial. Burger said he thought the court’s decision to allow the case to proceed may have “had a great deal” to do with the ZTE court’s concerns. There was an “unusual degree of corroboration of the employee’s perspective,” Burger said.

Counsel for Joffe said he could not comment on the record. Counsel for King & Spalding didn’t respond to Bloomberg Law’s request for an interview.

Joffe was represented by Javerbaum Wurgaft Hicks Kahn Wilkstrom & Sinins, P.C. King & Spalding was represented by Proskauer Rose LLP.

The case is Joffe v. King & Spalding LLP, 2018 BL 204273, S.D.N.Y., No. 17-CV-3392 (VEC), 6/8/18.

To contact the reporter on this story: Mindy Rattan in Washington at mrattan@bloomberglaw.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bloomberglaw.com