Indiana Law Review In-house Corporate Counsel and Retained Attorneys: Should the Courts and Administrative Agencies Distinguish Them? I. Introduction An ever-growing trend finds corporations, both large and small, bringing the job of legal representation in house.' Several factors account for the growing number of corporate legal staffs. One of the primary reasons is the soaring cost of legal fees. Litigation involving the business sector is ballooning at an enormous rate. Many companies find themselves paying hundreds of thousands of dollars annually in legal fees.^ In an effort to reduce expenses, corporate legal advice has been brought under internal service departments, and the annual savings have been significant for many larger companies. Another impetus to internalize legal counsel is the beneficial specialization of attorneys both in the broad scope of the particular industry and, more specifically, in the individual company. Specialization is particularly attractive to corporations in high technology fields like electronics and computers, as well as to other highly specialized companies which deal in pharmaceuticals, biological research, aerospace, automobiles, and other unique products. Internal legal departments also enable the different groups of attorneys, such as patent and business lawyers, to commingle for a combined and improved sensitivity to the unique needs of the individual company. The changing character of the legal community that was once dom- inated by the law firm has produced many previously unanswered ques- tions. These issues range from the professional responsibility questions surrounding the '*one-client" attorney to the practical aspects of a more competitive market. One of the most important questions to be resolved involves differential treatment by the courts of two classes of attorneys, namely in-house and retained counsel. A recent case focused on an important question of first impression that courts and administrative agencies will likely face with increasing regularity in the future. This case. United States Steel Corp. v. United States,^ highlights the current need to establish sound precedents to ease the metamorphosis of the legal community. 'Allaux, A New Corporate Powerhouse; The Legal Department, Bus. Wk., April 9, 1984, at 66-71; Popper, Xerox's Legal "Revolutionary" Tightens His Grip, Bus. Wk., April 9, 1984, at 67; Allaux, Can An In-House Lawyer Say "No" To His Boss?, Bus. Wk., April 9, 1984, at 70. ^Legal Times, July 21, 1983, at 2, col. 1. '730 F.2d 1465 (D.C. Cir. 1984). 685 686 INDIANA LAW REVIEW [Vol. 18:685 In U.S. Steel,"" the Court of International Trade (C.I.T.) established a polarized situation when it distinguished between '*in-house" corporate counsel and "retained" attorneys. Discovery of confidential information under a protective order was sought by both classes of attorneys but was granted only to the outside lawyers. The C.I.T. acknowledged the need for discovery, but found in-house corporate attorneys more likely to disclose "inadvertently" secret information to their client because of their general status as employees. Three principal solutions to this dilemma are available. This Note examines the distinctions U.S. Steel draws between in-house and retained counsel and addresses the three primary solutions to the dilemma. First, the courts could establish a per se rule denying corporate counsel access to sensitive information. Second, they could embark on a time-consuming case-by-case analysis each time the conflict arises. Lastly, the courts could reject any distinction among practicing attorneys and continue to treat all lawyers equally before the bench. An analysis of existing case law and statutes, along with a concern for judicial efficiency in light of increasing dockets, points toward the latter approach—maintaining equality in the treatment of all attorneys. II. Status of the Lav^ Prior to U.S. Steel The Federal Rules of Civil Procedure govern civil cases in federal courts. Administrative agencies, however, apply their own rules which sometimes conflict with the rules of civil procedure. U.S. Steel is a prime example of what happens when two opposing rules are used at different stages of the proceeding. Careful reasoning will show that the particular administrative discovery rules applied in U.S. Steel are inapplicable and should capitulate to the Federal Rules of Civil Procedure on discovery. A. Federal Rules of Civil Procedure A party's right to discovery in civil proceedings has long been a basic tenet of the law, upheld by the Federal Rules of Civil Procedure.^ Since the inception of the Federal Rules, discovery of information has been permitted to provide a party with a more thorough base of factual information upon which to base his case. Historically, interpretation of the rules has been rather liberal, allowing a party to prepare more effectively by drawing upon the information possessed by his adversary. In Hickman v. Taylor,^ the Supreme Court stated, "Mutual knowledge of all the relevant facts gathered by both parties is essential to proper litigation."^ Only in cases where one party could claim privilege or show ^United States Steel Corp. v. United States, 569 F. Supp. 870 (Ct. Int'l. Trade 1983). ^Fed. R. Civ. P. 26(c). "329 U.S. 495 (1947). 'Id. at 507. 1985] IN-HOUSE COUNSEL 687 potential harm to his dient would discovery be refused. Even when damaging information was involved, a weighing of interests was per- formed by the courts to make sure that denial of discovery would not prevent the party seeking discovery from preparing an adequate claim or defense.^ One provision of rule 26 allows the court to *'[m]ake any order which justice requires"^ to protect a party from the harmful results of the dissemination of confidential information through discovery. The rule, however, requires that the party seeking the protective order show good cause for the ruling, '° thus placing the burden on the moving party." These protective orders were governed by rule 30(b) prior to ^See generally Centurion Industries, Inc. v. Warren Steurer, 665 F.2d 323 (10th Cir. 1981); Covey Oil Co. v. Continental Oil Co., 340 F.2d 993 (10th Cir. 1965); Julius M. Ames Co. v. Bostich, Inc., 235 F. Supp. 856 (S.D.N.Y. 1964). Johnson Foils, Inc. v. Huyck Corp., 61 F.R.D. 405 (D.C.N. Y. 1973). Ted. R. Civ. P. 26(c). Rule 26(c) states: TITLE V—DEPOSITIONS AND DISCOVERY Rule 26. General Provisions Governing Discovery * * * (c) Protective Orders. Upon its own initiative, or upon motion by a party or by the person from whom discovery is sought, and for good cause shown, the court may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden, delay or expense, including one or more of the following: (1) that the discovery not be had; (2) that the discovery may be had only on specified terms and conditions, including a designation of the time or place; (3) that the discovery may be had only by a method of discovery other than that selected by the party seeking discovery; (4) that certain matters not be inquired into, or that the scope of the discovery be limited to certain matters; (5) that discovery be conducted with no one present except persons designated by the court; (6) that a deposition after being sealed be opened only by order of the court; (7) that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way; (8) that the parties simultaneously file specified documents or information enclosed in sealed envelopes to be opened as directed by the court. If the motion for a protective order is denied in whole or in part, the court may on such terms and conditions as are just, order that any party or person provide or permit discovery, (emphasis added). '"United States v. Purdome, 30 F.R.D. 338, 341 (W.D. Mo. 1962). See also Velasquez V. South Atl. S.S. Line, Inc., 11 F.R.D. 196 (S.D.N.Y. 1951); Click v. McKesson & Robbins, Inc., 10 F.R.D. 477 (W.D.N.Y. 1943). "F.C.C. V. Schrieber, 329 F.2d 517, 537 (9th Cir. 1964) (Browning, J. dissenting), modified, 381 U.S. 279 (1965); see also Pennwalt Corp. v. Plough, Inc., 85 F.R.D. 257, 259 (D.C. Del. 1979) (In regard to the party moving for discovery, the court stated, "If a movant can demonstrate that an inspection of such information is relevant and necessary to prepare his case for trial, or that denial of inspection would prejudice the movant, result in hardship or work an injustice, disclosure with proper safeguards is appropriate."); Reliance Ins. Co. v. Barron's, 428 F. Supp. 200, 202 (S.D.N.Y. 1977) (citing Davis v. Romney, 55 F.R.D. 337 (E.D. Pa. 1972)); United States v. International Business Mach. Corp., 67 F.R.D. 40, 46 (S.D.N.Y. 1975) (The court held that parties before that court which move to deny discovery of confidential information must show a ''clearly defined and very serious injury to [their] business.") (emphasis added); Hunter v. International Sys. and Controls Corp., 51 F.R.D. 251 (W.D. Mo. 1970); Essex Wire Corp. v. Eastern Sales Co., Inc., 48 F.R.D. 308 (E.D. Pa. 1969); Apco-Oil Corp. v. Certified Transp. Inc., 46 F.R.D. 428 (W.D. Mo. 1969). 688 INDIANA LAW REVIEW [Vol. 18:685 1970. In addition to orders which justice requires, the existing rule encompassing protective orders lists eight types of protective orders that may be implemented. Part (5) of rule 26(c) provides the alternative '*that discovery be conducted with no one present except persons designated by the court." '^ The corresponding portion of former rule 30(b) stated "that the examination shall be held with no one present except the parties to the action and their officers or counsel.'"^ When interpreting former rule 30(b), the "or" in the statement above must be taken to mean "and." The court in Dunlap v. Reading Company^'^ concluded that " *or,' of course, must here be read as 'and.'"'^ It would not make sense to allow the party to discover information and yet exclude his attorney who must argue the case. Thus, the statute was read as preventing the exclusion of the party's counsel.'^ Nothing indicates that the Advisory Committee intended to change the meaning of this section when this rule was incorporated under rule 26(c) in the 1970 Amendments and reorganization of the rules. '^ Nor was there any attempt by the legislature to distinguish between "in-house" and "retained" counsel. The primary reason for recodifying this provision in rule 26(c) was to allow rule 26 to apply to discovery in general rather than to depositions only. Part (7) of rule 26(c) states that "a trade secret or other confidential research, development, or commercial information [shall] not be disclosed '^Fed. R. Civ. P. 26(c)(5). 'Ted. R. Civ. P. 30(b) (1969 (superseded)). Rule 30. Depositions Upon Oral Examination ** * (b) Orders for the Protection of Parties and Deponents. After notice is served for taking a deposition by oral examination, upon motion seasonably made by any party or by the person to be examined and upon notice and for good cause shown, the court in which the action is pending may make an order that the deposition shall not be taken, or that it may be taken only at some designated place other than that stated in the notice, or that it may be taken only on written interrogatories, or that certain matters shall not be inquired into, or that the scope of the examination shall be held with no one present except the parties to the action and their officers or counsel, or that after being sealed the deposition shall be opened only by order of the court, or that secret processes, developments, or research need not be disclosed, or that the parties shall simultaneously file specified documents or information enclosed in sealed envelopes to be opened as directed by the court; or the court may make any other order which justice requires to protect the party or witness from annoyance, embarrassment, or oppression. '^Dunlap v. Reading Co., 30 F.R.D. 129 (E.D. Pa. 1962). ''Id. at 131 n.6. See also United States v. Fisk, 70 U.S. 445, 447 (1866). The court stated, "In the construction of statutes, it is the duty of the court to ascertain the clear intention of the legislature. In order to do this, courts are often compelled to construe 'or' as meaning 'and,' and again 'and' as meaning 'or.' " See also Peacock v. Lubbock Compress Co., 252 F.2d 892 (5th Cir. 1958); Perfect Photo, Inc. v. Grabb, 205 F. Supp. 569, 571 (E.D. Pa. 1962); Pennsylvania Labor Relations Bd. v. Martha Co., 359 Pa. 347, 59 A.2d 166 (1948); Burgis v. County of Philadelphia, 169 Pa. Super. 23, 25, 82 A.2d 561, 563 (1952). '^8 C. Wright & A. Miller, Federal Practice and Procedure § 2041 (1970) (hereinafter cited as Wright & Miller). See also Queen City Brewing Co. v. Duncan, 42 F.R.D. 32 (D.C. Md. 1966). "8 Wright & Miller, supra note 16, at § 2041. 1985] IN-HOUSE COUNSEL 689 or be disclosed only in a designated way." Although this might apply when confidential information is desired for discovery, it cannot supersede the intent of part (5), which mandates the presence of the party's attorney if any discovery is to be had. In Textured Yarn Co. v. Burkart-Schier Chemical Co.,^^ the court, following former rule 30(b), granted a protective order allowing the parties and their attorneys access to the information in question.'^ Guided by current rule 26(c)(5), the court in United States v. International Business Machines Corp?^ allowed discovery of confidential documents to the ''attorneys" for I.B.M. without distinguishing between "in-house" and "retained" attorneys. With a corporate legal staff of approximately 146 lawyers, ^* it is a fair assumption that some members of the corporate staff were involved with this case. I.B.M.'s motion to restrict discovery by Xerox Corporation to their "outside counsel" only was denied in Xerox Corp. v. International Business Machines Corp.^^ Consequently, Xerox's in-house attorneys were permitted to discover documents held by I.B.M. for purposes of this case. It can be seen then, that historically, attorneys have been included in the discovery process. B. Customs Duties—Administrative Rules In sharp contrast to the long established interpretation of the rules of civil procedure are the administrative rules found under Customs Duties, 19 U.S.C. section 1516a. ^^ The language of the customs statute 'Ml F.R.D. 158 (D.C. Tenn. 1966). "/of. See also Turmenne v. White Consol. Indus., Inc., 266 F. Supp. 35 (D.C. Mass. 1967) (only defendant's counsel, active in the case, and those appointed by him, entitled to discovery of plaintiff's information); United States v. Lever Bros. Co., 193 F. Supp. 254 (S.D.N.Y. 1961), cert, denied, 371 U.S. 932 (1962) (information held by third party given to attorneys for Lever Brothers through discovery); American Oil Co. V. Pennsylvania Petroleum Prod. Co., 23 F.R.D. 680 (D.R.I. 1959) (court allowed discovery by plaintiff 's attorney but not their employees). These cases are typical of pre- 1970 cases governed by superseded Fed. R. Civ. P. 30(b). "461 F. Supp. 732 (S.D.N.Y. 1978). ^'Law and Business Directory of Corporate Counsel 621 (M. Flores ed. 1983). "75 F.R.D. 668, 672 (S.D.N.Y. 1977). See also Centurion Indus., Inc. v. Warren Steurer and Assoc, 665 F.2d 323 (10th Cir. 1981), where only the attorneys involved in the litigation were allowed discovery of certain information. "19 U.S.C. § 1516a(b)(2)(B) (1982), which provides: §15 16a. Judicial review in countervailing duty and antidumping duty pro- ceedings. *** b. Standards of review. - *** (2) Record for review. - *** (B) Confidential or privileged material. — The confidential or privileged status accorded to any documents, comments, or information shall be preserved in any action under this section. Notwithstanding the preceding sentence, the court may examine, in camera, the confidential or privileged material, and may disclose such material under such terms and conditions as it may order. 690 INDIANA LAW REVIEW [Vol. 18:685 is very broad, leaving a great deal of discretion to the court. This statute is used in international trade cases involving countervailing duty or anti- dumping duty proceedings. The "discovery" of confidential documents in administrative hearings by the International Trade Commission is governed by this statute. The Court of International Trade (C.I.T.)^'* also relies on 19 U.S.C. section 1516a(b)(2)(B) for guidance in ruHngs on discovery of confidential data. International trade litigation involves much more discovery of confidential data than do most areas of the law. Divulgence of trade secrets, customer lists, and financial data to a competitor can have a great impact on a company. Therefore, protective orders based on these statutes are commonplace. A court's discretionary powers, inherent in 19 U.S.C. section 1516a(b)(2)(B), were taken to a new zenith in 1980 when the C.I.T., in Atlantic Sugar Ltd. v. United States,^^ held that "[i]n no event shall disclosure of confidential information be made to in-house counsel or other representatives, or employees of plaintiffs or the interested par- ties. "^^ The court, however, allowed the plaintiff 's outside lawyers access to the confidential information. Nothing in the language of Public Law 96-39 (Trade Agreements Act of 1979P nor in the legislative history of that act^^ indicates that the legislature intended to distinguish between in-house attorneys and any other class of lawyers. Indeed, Congress' silence on the matter indicates that it never anticipated a distinction between classes of attorneys. Nevertheless, in 1983 the C.I.T. and the same presiding justice again distinguished between in-house and retained counsel in United States Steel v. United States.^'^ C. Title 19 C.F.R. Section 207.7—Direct Conflict With F.R.C.P. 26(c) With this express distinction between in-house and other attorneys, the stage was set for far-reaching, discretionary decisions in discovery of confidential information. The most significant erosion of historically liberal discovery, however, came in 1979 when the Code of Federal Regulations explicitly denied access of confidential information to cor- porate counsel under the administrative regulations for the United States International Trade Commission. ^° The trade regulation states, "[T]he Secretary may make such confidential information available to an attorney ^The Court of International Trade is a federal court with all the power of a United States district court. It has jurisdiction over trade-related cases. Appeals from the C.I.T. go to the United States Court of Appeals for the Federal Circuit, and then to the United States Supreme Court. ^'85 Cust. Ct. 114 (1980). '''Id. at 116. (^ "Trade Agreements Act of 1979, Pub. L. 96-39, § 1582, 93 Stat. 144 (1979). ^**1979 U.S. Code Cong. & Ad. News 381. ''730 F.2d 1465 (D.C. Cir. 1984). ^"Customs Duties, 19 C.F.R. § 207.7(a) & (b) (1983). 1985] IN-HOUSE COUNSEL 691 of such an interested party, excepting corporate counsel, under a protec- tive order. . . ."'' In yet another part of the same section, the regula- tions state that an attorney will: "(1) Not divulge any of the information ... to any person other than . . . (iii) An attorney, excepting in-house counsel. . . ."'^ "Customs Duties, 19 C.F.R. § 207.7(a) (1983), which provides: § 207.7 Limited disclosure of certain confidential information under a protective order. (a) upon request of an attorney for an interested party to the investigation, excepting corporate counsel which (1) describes with particularity the information requested, (2) sets forth the reasons for the request, (3) demonstrates a substantial need for the information in the preparation of his case, and (4) demonstrates that he is unable without undue hardship to obtain the substantial equivalent of the information by other means, the Secretary will make available confidential information concerning the domestic price and cost of production of the like product submitted by the petitioner or by an interested party in support of the petitioner to such attorney under a protective order described in paragraph (b) of this section. Upon filing with the Secretary of an agreement among all interested parties who are parties to the order of confidential information sub- mitted by such interested parties, other than domestic price cost of production data, the Secretary may make such confidential information available to an attorney of such an interested party, excepting corporate counsel, under a protective order described in paragraph (b) of this section. The Secretary may adopt, from time to time, forms for submitting requests for disclosure pursuant to a protective order incorporating the terms of this rule. The Secretary shall determine whether the requirements for release of information under this rule have been satisfied. The Secretary's determination shall be final for purposes of review by the Customs Court under section 777(c)(2) of the Act. (emphasis added). ^^Customs Duties, 19 C.F.R. § 207.7(b) (1983), which provides: * * * (b) Protective Order. The protective order under which information is made available to the attorney of an interested party shall require him to submit to the Secretary in a form prescribed by the Secretary a personal sworn statement that, in addition to such other conditions as the Secretary may require, he will: (1) Not divulge any of the information so obtained and not otherwise available to him, to any person other than, (i) Personnel of the Commission concerned with the proceeding, (ii) The person or agency from whom the information was obtained, (iii) An attorney, excepting in-house counsel employed on behalf of the party requesting the disclosure, and who has furnished a similar statement, or, (iv) Those persons independently contracted with, or employed or supervised by, the attorney having a need thereof in connection with the proceeding and who have furnished a similar statement; (2) Use such information solely for the purposes of the Commission proceeding then in progress or for judicial or Commission review thereof; (3) Not consult with any person not described in paragraph (b)(l)(iii) or (iv) concerning such confidential information without first having received the written consent of the Secretary and the attorney of the party from whom such con- fidential information was obtained; (4) Not copy or otherwise reproduce any confidential material obtained under protective order except in accordance with procedures to be established by the Secretary; and, (5) Report promptly to the Secretary any breach of the protective order, (emphasis added). 692 INDIANA LAW REVIEW [Vol. 18:685 These trade regulations guide the conduct of the United States International Trade Commission and, although administrative in nature, are in direct conflict with the Federal Rules of Civil Procedure. The effect of this regulation can be seen in the C.I.T.'s ruling in Atlantic Sugar^^ discussed above. ^"^ The direct conflict between the federal rules and the administrative rules is embodied in U.S. Steel and is examined in more detail below. III. U.S. Steel Corp. v. United States A. Facts The dilemma in the important U.S. SteeP^ decision comes into focus when reviewing the statutory evolution involved. When U.S. Steel reached the United States Court of Appeals, the Federal Rules of Civil Procedure finally clashed with the statutory regulations used in administrative hear- ings by the International Trade Commission and in cases heard by the C.I.T. Analysis of the factual backgroud and procedural history of the case is beneficial to an understanding of the issues. U.S. Steel first filed its case with five co-plaintiffs,^^ domestic steel producers, against foreign competitors for trade violations. The defend- ants were steel companies from Brazil, Korea, and Spain. The plaintiffs sought discovery of confidential business information from the admin- istrative records of the International Trade Commission. The European Community settled with the plaintiffs, and the discovery issue arose again in the suit with the remaining defendants. ^"^ After an in camera exam- ination of the information sought by the plaintiffs, the court determined that the documents contained important financial, production, and sales data. On a motion by the defendants and the Commission, the court granted a protective order. Access to some of the documents was denied to all parties because of privilege considerations. Nevertheless, some of the information termed by the court as "ineradicabl[y] important"^* and "extremely potent"^^ was opened for discovery under the protective order to all involved counsel except the in-house attorneys who had represented U.S. Steel from the outset. In other words, once the court determined that some information was important enough to merit discovery despite its confidential nature, discovery was granted only to those plaintiffs ^'Atlantic Sugar, Ltd., 85 Cust. Ct. at 114, 133. ^'^See supra text accompanying note 25. ''730 F.2d 1465. ^*Co-plaintiffs in the suit were Republic Steel Corporation, Inland Steel Corporation, and Cyclops Corporation. "U.S. Steel Corp. v. United States, 569 F. Supp. 870 (Ct. Int'l. Trade 1983). ''Id. at 871. '"Id. 1985] IN-HOUSE COUNSEL 693 represented by ''retained" lawyers, which included all parties except U.S. Steel. ^0 The only non-C.I.T. case cited by the C.I.T. in U.S. Steel was F.T.C. V. Exxon Corp."^^ This case can be distinguished from U.S. Steel because it was an antitrust case and involved a parent and subsidiary corporation. In an effort to keep the companies separate, at least until adjudication of the case, the district court prohibited both in-house and retained counsel for Exxon from maintaining an attorney/client rela- tionship with its subsidiary. Of the four cases cited in the Exxon decision, one was an unpubhshed district court opinion and none of the other three cases definitively restricted in-house counsels' right to discovery. "^^ U.S. Steel then asked the C.I.T. for certification of the question for immediate appeal. "^^ Upon certification of the question for interlo- cutory review, the case was heard by the United States Court of Appeals for the Federal Circuit.^ One procedural issue in U.S. Steel is of particular importance to future cases in which a court distinguishes between corporate in-house attorneys and retained law firms. The question involves the time at which a litigant may appeal a lower court decision preventing discovery by his in-house counsel or in any other way prohibiting the in-house staff from effectively representing the client. In a recent analogous case, the Seventh Circuit Court of Appeals examined this question. In Freeman v. Chicago Musical Instrument Co.,'^^ the defendant's co-counsel was disqualified because a member of his law firm had previously worked for the firm that represented the plaintiff. "^^ The defendant appealed the district court's decision. Before the court of appeals addressed the case on its merits, it first had to determine whether a court order disqualifying counsel could be appealed prior to a final judgment."*^ "^Id. at 873. *'636 F.2d 1336 (D.C. Cir. 1980). *Ud. at 1350 (citing SCM v. Xerox Corp., Civil No. 15,807 (D. Conn. May 25, 1977) (Pre-Trial Ruling No. 44) (A. 996-1000), aff'd sub nom. In re Xerox Corp., 573 F.2d 1300 (2d Cir. 1977); In re Westinghouse Electric Corp. Uranium Contracts Litigation, 76 F.R.D. 47, 57 n.6 (W.D. Pa. 1977); Chesa Int'I., Ltd. v. Fashion Assoc, Inc., 425 F. Supp. 234 (S.D.N. Y.), aff 'd mem., 573 F.2d 1288 (2d Cir. 1977); FTC v. United States Pipe and Foundry Co., 304 F. Supp. 1254 (D.D.C. 1969). ^'Republic Steel Corp. v. United States, 572 F. Supp. 275, 277 (Ct. Int'I. Trade 1983). '^U.S. Steel Corp. v. United States, 730 F.2d 1465. *'689 F.2d 715 (7th Cir. 1982). ^The firm of Fitch, Evan, Tabin, Flannery & Welsh (hereinafter referred to as Fitch) was hired by C.M.I, to work as co-counsel with Hill, Van Santen, Chiara and Simpson, (hereinafter referred to as Hill). An associate at Fitch had worked for the attorneys representing Freeman when earlier litigation between Freeman and C.M.I, was carried out. Consequently, upon a motion by Freeman's attorneys. Fitch was disqualified. ^^689 F.2d at 717. 694 INDIANA LAW REVIEW [Vol. 18:685 Although the factual circumstances differ between Freeman and U.S. Steel, there are similarities in the consequences of the courts' actions. By a disqualification of counsel, the client is estranged from the rep- resentation of his choice. Likewise, when in-house counsel are denied discovery, adequate representation of the client is precluded. In both situations, the court is essentially informing the litigants that other attorneys may fully protect their clients' rights, but that their present counsel will not be permitted to do so. Because the United States Court of Appeals has jurisdiction over "all final decisions of the district courts of the United States,'"*^ it must be determined what constitutes a final decision. Usually, this language has been interpreted as a decision by the district court that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment. '"^^ The Supreme Court, however, in Cohen v. Beneficial Industrial Loan Corp.,^^ acknowledged that certain collateral orders that do not terminate the litigation on the merits are still considered appealable "final decisions" under section 1291.^' In 1981, the Supreme Court held that the denial of a motion to disqualify a party's attorney was not appealable under the Cohen test." The Seventh Circuit Court of Appeals had not previously distinguished between orders granting and orders denying a motion to disqualify the opposing party's counsel, but had held that both were appealable de- cisions." In Freeman, however, the Seventh Circuit did differentiate between them and held that orders granting disqualification motions are immediately appealable.^"* ''2S U.S.C. § 1291 (1982). "'Catlin V. United States, 324 U.S. 229, 223 (1945), quoted at 689 F.2d at 717. This interpretation of the code was also cited with approval in Randle v. Victor Welding Supply Co., 664 F.2d 1064, 1065 (7th Cir. 1981). 5°In Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949), the Court enunciated a three-part test for an order to fall within the exception to the "final judgment" rule: (1) The order must conclusively determine the disputed question; (2) It must resolve an important issue completely separate from the merits of the action; (3) The order must be effectively unreviewable on appeal from a final judgment. ''28 U.S.C. § 1291 (1982). "Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368 (1981). "Schloetter v. Railoc of Indiana, Inc., 546 F.2d 706, 709 (7th Cir. 1976) (citing Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 496 F.2d 800, 805 (2d Cir. 1974)). '^689 F.2d at 718. The court noted the consistency of this holding with other circuits that had considered the same question since Firestone. See, e.g., Grietzer & Locks v. Johns-Manville Corp., No. 81-1379 (4th Cir. 1982); United States v. Hobson, 672 F.2d 825, 826 (11th Cir. 1982); Ah Ju Steel Co., Ltd. v. Armco, Inc., 680 F.2d 751, 753 (C.C.P.A. 1982); United States v. Caggiano, 660 F.2d 184, 189 (6th Cir. 1981), cert, denied, 455 U.S. 945 (1982); In re Coordinated Pretrial Proceedings, 658 F.2d 1355, 1356- 57 (9th Cir. 1981), cert, denied, 455 U.S. 990 (1982); Glueck v. Jonathan Logan, Inc., 653 F.2d 746, 748 n.2 (2d Cir. 1981); Duncan v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 646 F.2d 1020, 1024-27 (5th Cir.), cert, denied, 454 U.S. 895 (1981). 1985] IN-HOUSE COUNSEL 695 Consequently, any court action that deprives in-house counsel of necessary discovery or hampers their efforts to represent clients strictly because of their status as * 'in-house" essentially disquahfies the attorney for that portion of the proceeding. Therefore, such actions satisfy the Cohen requirements^^ and should therefore be immediately appealable findings. ^^ Although the C.I.T. in U.S. SteeP^ certified the question for interlocutory appeal, the appealable nature of such an order will never- theless be of importance in future cases which differentiate between retained counsel and corporate lawyers. B. Issues and Holding The sole issue in U.S. Steel was whether the C.I.T. erred when it distinguished between in-house and retained counsel and denied discovery of confidential material to in-house counsel strictly on the basis of their employment. ^^ The court of appeals was quick to point out that the authority of the C.I.T. to control access to confidential materials was not in dispute.^' In overturning the decision by the C.I.T., however, the court of appeals held that while the lower court could have prevented all parties and counsel from gaining access to the confidential documents, once it decided that discovery was proper, "it was error to deny access solely because of inhouse counsel's 'general position.' "^° The appellate court went on to hold that "status as in-house counsel cannot alone create that probability of serious risk to confidentiality"^' and thus cannot be the only reason for denying access to confidential information. In conclusion, the court of appeals promulgated a new test which based discovery of confidential material on the relationship between the in- dividual attorneys and their clients, regardless of the attorney's status as retained or in-house. ^^ C. Questions Left Unanswered by U.S. Steel The appellate court did not specifically address several questions facing it because it was able to adjudicate the case without treatment ^-See supra note 50. ^^See supra note 50 and accompanying text. Denial of discovery to in-house attorneys because of their position as corporate lawyers (1) conclusively determines the disputed question, (2) resolves an issue separate from the merits of the case, and (3) is effectively unreviewable after a final judgment of the case because of the "[i]mmediate, severe, and often irreparable . . . consequences upon both the individual [client] ... as well as . . . the disqualified counsel." 689 F.2d at 719. "Republic Steel Corp. v. United States, 572 F. Supp. 275, 277 (Ct. Int'l. Trade 1983). 'W.S. Steel Corp., 730 F.2d at 1467. See the text accompanying supra notes 41-42 and infra notes 68-134 for a more detailed discussion of the sub-issues involved in the determination of this case. ''U.S. Steel Corp., 730 F.2d at 1467 (citing 19 U.S.C. § 1516(a)(b)(2)(B) (1982)). '*730 F.2d at 1467. '''Id. at 1469. 696 INDIANA LAW REVIEW [Vol. 18:685 of these questions. Three of the questions, however, could bear signif- icantly on future cases and, because of the possible impact of U.S. Steely should have been examined by the court when it had the op- portunity. The first question was whether the C.I.T. had created a per se rule requiring denial to all in-house attorneys of confidential discovery in all future cases." Because the factual aspects of future cases will differ from those in U.S. Steel, it would be helpful to examine whether the arbitrary per se ban would withstand judicial scrutiny. ^"^ The second question raised constitutional issues relating to U.S. Steel's right to its choice of counsel and the disenfranchisement of counsel without due process. ^^ The third question was whether Rule 26 of the Federal Rules of Civil Procedure or 19 U.S. C. section 1516a(b)(2)(B) should have governed in this trade case.^^ As enunicated by the dissent in the court of appeals, the failure to rule on this question creates an anomaly if the court and the International Trade Commission enforce inconsistent rules regarding the same documents. ^^ The failure to decide this third question may cause the issue to remain in dispute or may result in conflicting orders between administrative agencies and the courts until Congress corrects 19 U.S.C. section 1516a(b)(2)(B) to make it consistent with both historical precedent and the current rules of civil procedure. The failure to act upon these questions may have a deleterious effect on future cases by creating further uncertainties about the broad scope of the main issue at hand. The results of such uncertainties as well as the decision by the C.I.T. in U.S. Steel are investigated below. IV. Ramihcatigns of U.S. Steel The U.S. Steel decision will have far-reaching ramifications because the development of in-house counsel is changing the traditional ways in which the legal community has operated. U.S. Steel offers a prime example of the types of questions with which courts will have to grapple. The court's approach to these novel issues will be crucial to the formation of tomorrow's legal environment. The import of the U.S. Steel decision must, therefore, be closely analyzed. The U.S. Steel decision has an impact on the propriety of establishing arbitrary per se rules, the constitutional right to choose effective counsel, the due process impHcations of divesting a litigant of his representation by counsel, and the professional responsibility of both corporate and outside lawyers. The following sections address each area separately. ''Id. ^See infra text accompanying notes 68-92. "730 F.2d at 1469; see also text accompanying infra notes 93-114. "'730 F.2d at 1469. "'730 F.2d at 1469 (Nichols, J., dissenting). 1985] IN-HOUSE COUNSEL 697 A. Justice Department Opposition to the Per Se Rule Traditionally, discovery has been granted on the basis of need. Judge Watson issued an opinion that found need on the part of U.S. Steel but still denied it access to the record. ^^ Although the court noted that 19 U.S.C. section 1516a(b)(2)(B) requires a balancing of the need for access to information against the need for maintaining confidentiality, the court stated that discovery by in-house counsel complicated the test. The C.I.T., without balancing any factual information, proceeded to analogize U.S. Steel^^ to its earlier decisioin in Atlantic Sugar, ''^ which denied corporate counsel the right to discovery because of their status as in-house counsel. Yet in a case decided the week before Atlantic Sugar, the C.I.T. stated that while discovery might cause incalculable harm to a competitor, the court also recognized "the necessity of allowing a party to fully prepare and present its legally authorized challenge to an administrative determination and to do so based on all available relevant material."^' Further, the court stated that it considered lawyers to be independent officers of the court, and not alter egos of the plaintiff. ^^ In another more recent case, the C.I.T. stated that it could not envision how the plaintiffs could effectively challenge the findings of the government without the needed discovery. ^^ The inconsistency in the C.I.T. rulings weakens its argument for distinction among attorneys. The court's distinction in U.S. Steel between in-house corporate counsel and retained counsel was based solely on the court's perceptions and not on a factual basis. The court found that the volume of in- formation placed it "beyond the capacity of anyone to retain in a consciously separate category."^'* This was the same information, how- ever, that the court released to the retained counsel of U.S. Steel's co- plaintiffs. The C.I.T. then stated, "Obviously, this judgment can also apply to retained counsel. ... It is impossible, however, to extend this reasoning to its logical conclusion. . . ."^^ Indeed, this is so because the logical conclusion to the court's reasoning results in finding no difference between the likelihood of disclosure by in-house versus retained counsel. This fact substantiates the per se characterization of the rule adopted by the C.I.T. The court attempted further to support the distinction by stating that in-house counsel "Ihave] a closer and more sustained relationship ... as an outgrowth of the employer-employee relationship."^^ The '''U.S. Steel Corp., 572 F. Supp. 275 (Ct. Int'l. Trade 1983). ''Id. '°85 Cust. Ct. at 133. ''Connors Steel Co. v. United States, 85 Cust. Ct. 112, C.R.D. 80-9 (1980). '^Id. "American Spring Wire Corp. v. United States, No. 83-54, slip op. (Ct. Int'l Trade June 10, 1983). ''U.S. Steel Corp., 569 F. Supp. at 872. ''Id. '"•Id. 698 INDIANA LAW REVIEW [Vol. 18:685 C.I.T. also stated that the court's concerns were with the "counsel's general position in the corporate environment. . . ."^^ The court also assumed that in-house counsel will move into other roles within their company, making it even more difficult to keep discovered information confidential.^^ Therefore, the lower court saw greater chances of "in- advertent disclosure" by lawyers employed by a single company. ^^ It is interesting to note, however, with regard to the court's concern for the changing roles assumed by in-house counsel, that the same fungibiUty of retained attorneys is illustrated by the fact that Bethlehem Steel Cor- poration's legal department employs at least three former associates of Cravath, Swaine, and Moore. *° This is the same firm that represented the other plaintiffs in U.S. SteeP^ and gained access to the information denied the in-house staff of U.S. Steel. The per se nature of the C.I.T. 's ruHng is further demonstrated by the court's failure to outline any measures that in-house counsel could take to gain access in the future. The per se categorization of the rule enunciated by the court in U.S. SteeP^ is clear. In a brief submitted on behalf of U.S. Steel by the Justice Department, the Assistant Attorney General stated, "It is our position that any rule which distinguishes between attorneys solely on the basis of whether they are salaried or retained is incorrect as a matter of law."^^ Earlier, the Justice Department issued a statement in regard to the International Trade Commission's promulgation of section 201. T'^ saying, "We believe this rule is inappropriate because it arbitrarily distinguishes between attorneys solely on the basis of whether they are salaried or retained. "^^ The Antitrust Division of the Department of Justice also voiced its disagreement with section 207.7 because of "the anticompetitive and potentially inflationary impact of [C.F.R. section 207.7 which] discriminates against in-house counsel, "^^ noting that "com- petition in the market for legal services is diminished. "^^ Thus, the Justice Department has clearly denounced any per se rule. ''Id. ''Id. ''Id. **"Law and Business Directory of Corporate Counsel 163-64 (M. Flores 1982). ^'730 F.2d 1465. «^569 F. Supp. 870. "Appendix for Appellant at 185, U.S. Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir. 1984). '"See supra notes 30-34 and accompanying text. ^^Brief for Appellant at 10, U.S. Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir. 1984). ''^Comments of Department of Justice addressed to The International Trade Com- mission, p.l (July 17, 1981). The letter stated in part: We note particularly the anticompetitive and potentially inflationary impact of a rule that discriminates against in-house counsel. Many businesses, in an effort to reduce the costs of the legal services they need, choose to rely in whole or part for those services on a salaried legal staff. The availability of that choice provides incentives for outside firms to make their services more attractive in terms of cost, quality, efficiency, and other competitive factors. To the extent that inhouse counsel are arbitrarily handicapped in their ability to perform comparable services, competition in the market for legal services is diminished. "Id. at p. 2. 1985] IN-HOUSE COUNSEL 699 The Supreme Court, in consideration of the vahdity of per se exclusionary rules, has condemned all per se rules with economic con- sequences that were not clearly supported by undisputed facts and the experience of the ruling court. A judicially created rule must be supported by sufficient investigation of the facts so that there will not be room for a difference of opinion. These strict guidelines are needed because a per se rule makes no allowances for rebuttal or evidence regarding extenuating circumstances.^^ The Court in United States v. Topco^'^ stated that per se rules cannot be based simply on the courts' perceptions. ^° From the record,^' it appears the C.I.T. elicited no testimony from in-house attorneys, corporate executives, or behavioral scientists to verify the court's presumption^^ that staff attorneys are subject to different pressures or are more likely to divulge inadvertently confidential data than are their outside lawyer counterparts. Thus, any per se rule es- tablished by the C.I.T. in U.S. Steel should not be allowed to stand under the standards established by the Supreme Court. Although the apellate court found it unnecessary to review this issue, the significant impact of any per se ruling demands close scrutiny. B. A Corporation Has a Right to Choose Its Own Lawyer The right of a corporation or any client to be represented by counsel of its choice has always been a part of the American legal system. Although many of the major cases articulating this precept are criminal, they can all be compared to civil actions in general, and U.S. Steel in particular, given the Supreme Court's interpretation of the constitutional right. In a Supreme Court case, a criminal conviction was overturned because the defendant did not have opportunity to choose counsel and the court failed to appoint an attorney in a timely fashion.^^ The Court stated that any hearing "[h]istorically and in practice . . . has always included the right to the aid of counsel when desired and provided by the party asserting the right. "^"^ The Court further stated, "If in any case, civil or criminal, a state or federal court . . . refuse [s] to hear a party by counsel . . . such a refusal would be a denial ... of due ««Catalano v. Target Sales, Inc., 446 U.S. 643 (1980). 'M05 U.S. 596 (1972). "^Id. at 607. The Court stated that in regard to trade violations of the Sherman Act, any classification as a per se violation must come "[o]nly after considerable experience with certain business relationship. ..." Id. "'Brief for Appellant at 25, U.S. Steel Corp., 730 F.2d 1465. ^^See Klinkhammer v. Richardson, 359 F. Supp. 67 (D. Minn. 1973). The district court held that lack of empirical evidence for a per se rule may, under a rational basis test, render it unconstitutional. Id. •^^Powell V. State of Alabama, 287 U.S. 45 (1932); see also Smith v. United States, 288 F. 259, 260 (D.C. Cir. 1923). '"287 U.S. at 68-67. 700 INDIANA LAW REVIEW [Vol. 18:685 process in the constitutional sense. "^^ The court in United States v. Bergamo'^^ stated that while the sixth amendment provides that a criminal defendant has a right to counsel, the Supreme Court has furthered that principle by interpreting it as a right to the counsel of defendant's choice. ^^ In Backer v. Commissioner of Internal Revenue,'^^ a case ad- dressing the rights of parties called before administrative bodies, the appellate court held that the guaranteed rights to counsel under the Administrative Procedure Act^^ are even broader than constitutional rights to an attorney."" The Backer court upheld the plaintiff's statutory rights, and noted that the right to counsel has "always been construed to mean counsel of one's choice.'"^' Consequently, hearings by the International Trade Commission would fall within the ambit of the statute. The C.I.T., in deciding U.S Steel,^^^ concluded that requiring U.S. Steel to retain outside counsel to represent its interests in the discovery of critical information remained a viable and reasonable solution. '^^ This decision effectively denied the litigant its choice of effective, know- ledgeable, and economic counsel. The C.I.T. further stated that the court had "difficulty conceiving of the right of a particular lawyer to participate in a case, or the right of a person to choose a particular lawyer. . . .'"^"^ The holdings in Bergamo^^^ and PoweW^^ are in contrast to the U.S. Steel decision. "There is no question but that the right to the assistance of counsel . . . means effective assistance. '"^'^ U.S. Steel had been rep- resented solely by its in-house counsel throughout the entire litigation of its case, which had spanned a number of years. At the time when U.S. Steel was denied discovery, it would have been very difficult to acquaint outside counsel adequately with the case in order to ensure effective representation of U.S. Steel. The appellate court described the case as "extremely complex and at an advanced stage, "'^^ and found the C.I.T. 's decision an "extreme and unnecessary hardship"'^^ on U.S. Steel. The Bergamo court's holding that "[a]ssistance is not effective ''/£/. at 69 (emphasis added). '^'^154 F.2d 31 (3rd Cir. 1946). "'Id. at 34. (citing Glasser v. United States, 315 U.S. 60, 70 (1942)); Powell v. State of Alabama, 287 U.S. 45 (1932). ''215 F.2d 141 (5th Cir. 1960). ''5 U.S.C. §§ 1001-1005 (1982). '"^Backer, 275 F.2d at 143; U.S. Const, amend. V. ""275 F.2d at 144. See, e.g., Powell, 2S1 U.S. 45; Chandler, 348 U.S. 3; Smith v. United States, 288 F. 259 (D.D.C. 1923); Bergamo, 154 F.2d 31. '0^569 F. Supp. 870. '"Vc^. at 871. '"^/fi^. at 873. '"'Bergamo, 154 F.2d 31. ''^Powell, 287 U.S. 45. '"^154 F.2d at 34. (citing Powell, 287 U.S. at 68-71) (emphasis added). '°*730 F.2d at 1468. ''^Id. 1985] IN-HOUSE COUNSEL 701 when counsel has insufficient time to prepare his [case]""" buttresses this conclusion. In United States v. Lever Bros. Co.,'" the court spe- cifically granted discovery of confidential competitive information to in- house counsel for Lever Brothers. The district court found the decision necessary because the nature of the material required review by expert personnel "intimately familiar" with the industry. "^ The Ninth Circuit Court of Appeals stated that "familiarity with a complicated corporate background would appear to be a prerequisite for effective represen- tation.""^ In a more recent decision, the Seventh Circuit Court of Appeals overturned a disqualification motion granted by a lower court and stated that it would be difficult, if not impossible, for a new attorney to master the "nuances" of the litigation in the latter stages of a complex case."^ The same result would occur when in-house counsel are summarily denied access to necessary information, thus requiring a party to retain new counsel. The courts have established that a party's right to counsel is not limited to the elementary constitutional right to choose one's own at- torneys, but also includes the right to effective representation. Therefore, any arbitrary denial to in-house counsel of the opportunity to uphold effectively and efficiently the interests of their corporate clients in matters in which only they may have the breadth of knowledge necessary is unsupportable. In addition to an unconstitutional deprivation of effective counsel, the distinction between classes of attorneys based solely on their status of employment arguably denies those attorneys due process of law as guaranteed by the fifth"^ and fourteenth"^ amendments. Although the court of appeals in U.S. Steel found it unnecessary to address these "<'154 F.2d at 34-35 (citing Walleck v. Hudspeth, 128 F.2d 343 (10th Cir. 1942); Rice V. State, 220 Ind. 523, 44 N.E.2d 829 (1942); People v. McLaughlin, 291 N.Y. 480, 53 N.E.2d 356 (1944); Commonwealth v. O'Keefe, 148 A. 73 (Pa. 1929)). '"United States v. Lever Bros. Co., 193 F. Supp. 254, 257 (S.D.N.Y.), cert, denied, 371 U.S. 932 (1961). "V