Pang v. International Document Services
356 P.3d 1190, 2015 UT 63, 792 Utah Adv. Rep. 86 (2015)
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Rule of Law:
An in-house attorney's ethical duty under Utah Rule of Professional Conduct 1.13(b) to report suspected illegal activity internally to the organization's highest authority does not constitute a clear and substantial public policy sufficient to create an exception to the at-will employment doctrine.
Facts:
- David K. Pang worked as in-house counsel for a group of financial companies (the Company), responsible for ensuring compliance with state regulations.
- Beginning in September 2011, Pang became concerned the Company was violating usury laws in numerous states by charging excessive interest rates and failing to register as a loan institution.
- Pang repeatedly warned the Company's owners that their out-of-state practices were illegal.
- In May 2012, to create a report demonstrating the violations, Pang printed and took home loan contracts from different states.
- Two weeks later, the Company terminated Pang, officially citing his removal of company documents as a violation of the employee handbook.
- At the time of his termination, Pang was told for the first time that the owners were aware of the problems, did not plan to correct them, and that he should ignore the non-compliance.
Procedural Posture:
- David K. Pang filed a complaint against his former employers (the Company) in a Utah district court (a court of first instance), alleging wrongful termination.
- The Company filed a motion to dismiss the complaint for failure to state a claim under Utah Rule of Civil Procedure 12(b)(6).
- Pang requested an oral hearing on the motion to dismiss.
- The district court denied the request for a hearing and granted the Company's motion, dismissing Pang's complaint.
- Pang (as appellant) appealed the district court's dismissal to the Utah Supreme Court (the state's highest court).
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Issue:
Does terminating an in-house attorney for internally reporting suspected illegal activity to company management, in compliance with Utah Rule of Professional Conduct 1.13(b), violate a clear and substantial public policy sufficient to create an exception to the at-will employment doctrine?
Opinions:
Majority - Chief Justice Durrant
No, terminating an in-house attorney for such internal reporting does not violate a clear and substantial public policy. The public policy exception to at-will employment is narrow and applies only when a termination contravenes a policy that is clear, substantial, affects the public generally, and is not outweighed by countervailing policies. Pang's claim fails because the ethical duty to 'report up' under Rule 1.13(b) primarily serves the private interests of the organizational client by protecting it from harm, rather than a broad public interest. The court distinguished this internal reporting from reporting criminal activity to external public authorities, which does constitute a clear public policy. Furthermore, any public policy in protecting the attorney is outweighed by the strong countervailing policy, embedded throughout the Rules of Professional Conduct, that a client has a paramount right to discharge their lawyer at any time, with or without cause.
Analysis:
This decision significantly narrows the wrongful termination protections for in-house counsel in Utah, establishing that their ethical duty to report misconduct internally is not a shield against at-will termination. The court prioritizes the client's absolute right to choose and discharge its counsel over the public interest in encouraging internal corporate compliance. This ruling creates a distinction between internal reporting (serving private interests) and external whistleblowing (serving public interests), potentially chilling in-house attorneys from reporting 'up the ladder' for fear of losing their jobs. The opinion leaves open the possibility that an attorney fired for complying with a different ethical rule, such as reporting to prevent a future crime under Rule 1.6, might state a valid claim.
