General Dynamics Corp. v. Superior Court

• Decision Date: 18 July 1994
• Docket Number: No. S033640,S033640
• Citation: 7 Cal.4th 1164,32 Cal.Rptr.2d 1,876 P.2d 487
• Court: California Supreme Court
• Parties: , 876 P.2d 487, 63 USLW 2065, 128 Lab.Cas. P 57,741, 9 IER Cases 1089 GENERAL DYNAMICS CORPORATION, Petitioner, v. The SUPERIOR COURT of San Bernardino County, Respondent; Andrew D. ROSE, Real Party in Interest

Page 1

32 Cal.Rptr.2d 1

7 Cal.4th 1164, 876 P.2d 487, 63 USLW 2065,

128 Lab.Cas. P 57,741, 9 IER Cases 1089

GENERAL DYNAMICS CORPORATION, Petitioner, v. The SUPERIOR COURT of San Bernardino County, Respondent Andrew D. ROSE, Real Party in Interest.

No. S033640.

Supreme Court of California

July 18, 1994.

Gibson, Dunn & Crutcher, Jack H. Halgren, Nancy P. McClelland and Steve M. Schultz, Los Angeles, for petitioner.

No appearance for respondent.

S. Myron Klarfeld, Rancho Bernardo, for Real Party in Interest.

ARABIAN, Justice.

We granted review to consider an attorney's status as "in-house" counsel as it affects the right to pursue claims for damages following an allegedly wrongful termination of employment. Specifically, we are asked to decide whether an attorney's status as an employee bars the pursuit of implied-in-fact contract and retaliatory discharge tort causes of action against the employer that are commonly the subject of suits by non-attorney employees who assert the same claims.

We conclude that, because so-called "just cause" contractual claims are unlikely to implicate values central to the attorney-client relationship, there is no valid reason why an in-house attorney should not be permitted to pursue such a contract claim in the same way as the nonattorney employee. Our conclusion with respect to the tort cause of action is qualified; our holding seeks to accommodate two conflicting values, both of which arise from the nature of an attorney's professional role: the fiducial nature of the relationship with the client, on the one hand, and the duty to adhere to a handful of defining ethical norms, on the other. As will appear, we conclude that there is no reason inherent in the nature of an attorney's role as in-house counsel to a corporation that in itself precludes the maintenance of a retaliatory discharge claim, provided it can be established without breaching the attorney-client privilege or unduly endangering the values lying at the heart of the professional relationship.

Although the effect of the attorney-client relationship is to produce a remedy more limited than that available to the nonattorney employee, the similarities between the position of in-house attorneys and their non-attorney colleagues nevertheless justify an analogous cause of action. The complete economic dependence of in-house attorneys on their employers is indistinguishable from that of nonattorney employees who are entitled to pursue a retaliatory discharge remedy. Moreover, as we explain, the position of in-house counsel is especially sensitive to those fundamental ethical imperatives derived from an attorney's professional duties, as well as organizational pressures to ignore or subvert them. On balance, these considerations favor allowing a tort claim for discharges for reasons that contravene an attorney's mandatory ethical obligations or for which a non-attorney employee could maintain such a claim and a statute or ethical code provision permits the attorney to depart from the usual rule that client matters remain confidential.

The trial courts have at their disposal several measures to minimize or eliminate the potential untoward effects on both the attorney-client privilege and the interests of the client-employer resulting from the litigation of such wrongful termination claims by in-house counsel. Thus, we also hold that, in those instances where the attorney-employee's retaliatory discharge claim is incapable of complete resolution without breaching the attorney-client privilege, the suit may not proceed. That result, however, is rarely, if ever, appropriate where, as in this case, the litigation is still at the pleadings stage.

I

Andrew Rose, an attorney, began working for General Dynamics Corporation (hereafter General Dynamics) as a 27-year-old contract administrator at its Pomona plant in 1978. He progressed steadily within the organization, earning repeated commendations and, after 14 years with the company, was in line to become a division vice-president and general counsel. On June 24, 1991, he was fired, abruptly and wrongfully.

So Rose alleged in the complaint for damages that began this litigation. The complaint also alleged that although the stated reason for his discharge was a loss of the company's confidence in Rose's ability to represent vigorously its interests, the "real" reasons motivating his firing had more to do with an attempt by company officials to cover up widespread drug use among the General Dynamics work force, a refusal to investigate the mysterious "bugging" of the office of the company's chief of security, and the displeasure of company officials over certain legal advice Rose had given them, rather than any loss of confidence in his legal ability or commitment to the company's interests.

The complaint relied on two main theories of relief. First, it alleged that General Dynamics had, by its conduct and other assurances, impliedly represented to Rose over the years that he was subject to discharge only for "good cause," a condition that the complaint alleged was not present in the circumstances under which he was fired. Second, the complaint alleged that Rose was actually fired for cumulative reasons, all of which violated fundamental public policies: in part because he spearheaded an investigation into employee drug use at the Pomona plant (an investigation, the complaint alleged, that led to the termination of more than 60 General Dynamics filed a general demurrer to the complaint, asserting that Rose had failed to state a claim for relief. Because he had been employed as an in-house attorney, the company contended, Rose was subject to discharge at any time, "for any reason or for no reason." The trial court overruled the demurrer and the Court of Appeal denied General Dynamics's ensuing petition for a writ of mandate, ruling that, at least at the pleading stage, the complaint was sufficient to survive a general demurrer as to both theories of relief. ¹

General [876 P.2d 491] Dynamics employees), in part because he protested the company's failure to investigate the bugging of the office of the chief of security (allegedly a criminal offense and, since it involved a major defense contractor, a serious breach of national security), and in part as a result of advising General Dynamics officials that the company's salary policy with respect to the compensation paid a certain class of employees might be in violation of the federal Fair Labor Standards Act, possibly exposing the firm to several hundred million dollars in backpay claims.

II

The last two decades have seen a marked rise in the number and professional stature of so-called in-house or corporate counsel. Increasingly, large corporations have turned inward for the acquisition of legal services, for a host of reasons ranging from cost incentives, to the increasing complexity of the regulatory environment, to the programmatic style characteristic of such organizations. According to a study conducted in the early 1980's, 50,000 lawyers were on corporate payrolls, a figure double that of 15 years earlier; a more recent survey indicates that more than 10 percent of all lawyers in the United States are employed in-house by corporations. ²

The growth in the number and role of in-house counsel has brought with it a widening recognition of the descriptive inadequacy of the nineteenth century model of the lawyer's place and role in society--one based predominantly on the small- to middle-sized firm of like-minded attorneys whose economic fortunes were not tethered to the good will of a single client--and of the social and legal consequences that have accompanied that transformation. Unlike the law firm partner, who typically possesses a significant measure of economic independence and professional distance derived from a multiple client base, the economic fate of in-house attorneys is tied directly to a single employer, at whose sufferance they serve. Thus, from an economic standpoint, the dependence of in-house counsel is indistinguishable from that of other corporate managers or senior executives who also owe their livelihoods, career goals and satisfaction to a single organizational employer.

Moreover, the professional relationship between the in-house attorney and the client is not the "one shot" undertaking--drafting a will, say, or handling a piece of litigation--characteristic of the outside law firm. Instead, the corporate attorney-employee, operating in a heavily regulated medium, often takes on a larger advisory and compliance role, anticipating potential legal problems, advising on possible solutions, and generally assisting the corporation in achieving its business aims while minimizing entanglement in the increasingly complex legal web that regulates organizational conduct in our society. This expansion in the scope and stature Indeed, the analogy of in-house counsel's position to that of his or her lay colleagues in the executive suite is inexact only because, as a licensed professional, an attorney labors under unique ethical imperatives that exceed those of the corporate executive who seeks, say, a tort remedy after being terminated for refusing to join a conspiracy to violate the antitrust laws. (See, e.g., Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330 [Tameny ].) We turn, then, to a consideration of the effects of in-house counsel's professional role and ethical duties on access to judicial remedies for alleged wrongful termination that are available to the nonattorney colleague.

[876 P.2d 492] of in-house counsel's work, together with an inevitably close professional identification with the fortunes and objectives of the corporate employer, can easily subject the in-house attorney to unusual pressures to conform to organizational goals, pressures that are qualitatively different from those imposed on the outside lawyer. Even the most...