Case Title: Crandon v. State

Citation: 257 Kan. 727

Docket Number: 71,138

State: kansas

Court: Kansas Supreme Court

Date: 1995-06-02T00:00:00Z

Document:
257 Kan. 727 (1995)
JOYCE H. CRANDON, Appellant,
v.
STATE OF KANSAS, KANSAS BANKING COMMISSION, and FRANKIE D. DUNNICK, Appellees.
No. 71,138

Supreme Court of Kansas.
Opinion filed June 2, 1995.
Alan L. Rupe, of Rupe & Girard Law Offices. P.A., of Wichita, argued the cause, and Thomas L. Steele, of the same firm, was with him on the briefs for the appellant.
Carl A. Gallagher, of McAnany, Van Cleave & Phillips, P.A., of Kansas City, argued the cause, and Nancy L. Ulrich, assistant attorney general, and Robert T. Stephan, attorney general, were with him on the brief for the appellee.
*728 Mark F. Anderson, of Topeka, was on the brief for amicus curiae The Disciplinary Administrator of Kansas.
Jim Lawing, of Wichita, was on the brief for amicus curiae American Civil Liberties Union of Kansas.
The opinion of the court was delivered by
ABBOTT, J.:
Plaintiff Joyce Crandon brought this action after she was discharged from her position as general counsel for the Office of the State Banking Commissioner (OSBC). Plaintiff had reported to the FDIC alleged violations of federal and state law committed by the Deputy Commissioner, Judi Stork. Plaintiff alleged a common-law whistle-blowing retaliatory discharge claim, a claim for violation of K.S.A. 1994 Supp. 75-2973, and a 42 U.S.C. § 1983 (1988) claim for violation of her First Amendment right to free speech. Plaintiff later sought to amend her complaint to include a free speech retaliatory discharge claim. The trial court granted the defendants' motion for summary judgment. Plaintiff appealed, and the case was transferred to this court from the Court of Appeals.
The trial court found the following undisputed facts:
"In this regard, K.S.A. 9-1701(a) provides:
*730 "Also noted is 18 U.S.C. 213 which provides:
`(a) Prohibition
(1) In general
...
...'
Defendants moved for summary judgment on all of plaintiff's claims. The trial court granted the defendants' motion. Resolving disputed facts in plaintiff's favor, as the court was required to do, the court found that but for plaintiff's acts of communication to the FDIC, she would not have been terminated. The court also assumed that Commissioner Dunnick was aware of the communication. Central to plaintiff's claims, the court found, was the issue whether the communications were legally protected under the circumstances so as to insulate plaintiff from termination, an issue of law.
In evaluating the issue, the trial court found that the plaintiff had spoken on a matter of public concern. However, the court found that the flaw in plaintiff's claim was based on uncontroverted facts. First, she was the attorney for the agency whose employee was "reported" upon. The knowledge plaintiff had was derived from her position as the OSBC's attorney. She took no steps to present her concerns to the OSBC's head, Commissioner Dunnick, who had the authority to act against the employee alleged to be violating the law. The court found that plaintiff's reporting was contrary to the Model Rules of Professional Conduct (MRPC), adopted by this court in Supreme Court Rule 226 (1994 Kan. Ct. R. Annot. 286), and that there was no justification for plaintiff's failure, as the OSBC attorney, to approach, counsel, and advise Dunnick on the issue. Moreover, the court found that plaintiff proceeded on her course of conduct without more than a second-hand *734 knowledge of the facts rather than relying on her own independent investigation. She did not report the full facts to her FDIC contact, Mr. Lamberti, because she did not know the full facts, including whether Stork had ever examined the Southwest Bank and Trust or personally participated in the examination of the State Bank of Baileyville.
The trial court further found that the statutes thought to have been violated by Stork, 18 U.S.C. § 213 (1988) and K.S.A. 9-1701(a), were not applicable unless Stork had in fact examined either of the banks in question or had interfered in or passed upon a matter in the examination of the banks. The court also found that whether Stork had violated 12 U.S.C. § 1829 (1988), which prohibits a person who has entered into a diversion agreement from being involved in a financial institution without prior approval by the FDIC, was irrelevant because the prior diversion was not reported to the FDIC by plaintiff; the court further found that even if the claim was relevant, plaintiff never determined whether Stork had obtained written permission from the FDIC and there was a question whether the statute applied to Stork's minimal ownership interest (a 4.9% share of stock in a bank holding company that owned the State Bank of Baileyville).
The trial court held that to establish a whistle-blowing claim, plaintiff must establish that a reasonable person in her shoes, an attorney, would believe that a violation of law or matter of public concern existed and that the whistle-blowing was made in good faith and not for a corrupt or otherwise specious motive. The court found both a lack of good faith and a lack of good motive based on plaintiff's avoidance of a professional duty to her clients and her rush to judgment on supposition and surmise. Moreover, if the information was confidential when communicated because of the omission of a duty to a client or the lack of consultation with the client, the communication would grossly undermine the working relationship between the client and attorney and the balance of free speech and whistle-blower protection should not attach. The court pointed out that here the attorney-client relationship was not only neglected, but wholly abandoned.
*735 The court pointed out that plaintiff's actions, taking the matter out of the hands of the OSBC, embarrassed Dunnick; how, after that, could the attorney-client or boss-employee relationship continue? Moreover, no exigency required plaintiff to avoid the procedures set forth in MRPC 1.13(b) (1994 Kan. Ct. R. Annot. 328) to counsel her clients. The court pointed out that plaintiff's actions were not the reasonable acts of an attorney toward her clients. Plaintiff's actions were those of an attorney representing herself rather than her clients.
The trial court did acknowledge that plaintiff's violations of the Model Rules of Professional Conduct did not present an absolute bar to her claims. However, where plaintiff's claims are based on public policy and the right to speak on matters of public concern, those rights must be balanced with responsibility. Because of plaintiff's noncompliance with the ethical rules of her profession, her claims were found to be significantly diminished. Citing various authority, the court found that where the asserted rights did not interfere with the employment position, termination was not permitted, but where the right asserted impaired or impeached the working relationship, termination was permitted. The court, in essence, found that plaintiff's exercise of her rights substantially interfered with her working relationship with her clients.
The court concluded:
Addressing plaintiff's claim under K.S.A. 1994 Supp. 75-2973, the court found that plaintiff disclosed information which was confidential pursuant to MRPC 1.6(a) (1994 Kan. Ct. R. Annot. 310) and MRPC 1.13(b) and until she satisfied those rules, plaintiff had *736 no duty or privilege to disclose the information. Some of the information (that obtained from the bank examination documents) was also confidential under K.S.A. 9-1712 without the Commissioner's approval. Moreover, the court found that no reasonable attorney would have perceived the conduct of the defendants as the basis for an out-of-agency report at the time it was made. The court specifically found that information which is confidential under the Model Rules of Professional Conduct is confidential "under any other provision of law" as that phrase is used in K.S.A. 1994 Supp. 75-2973(c)(4)(C), which permits discipline of an employee who releases confidential information. Additionally, the court found that plaintiff's knowledge that Stork had overdraft loans was confidential information.
Plaintiff appeals the trial court's ruling. This court permitted the ACLU and the Kansas Disciplinary Administrator to file briefs as amici curiae.
I. SUMMARY JUDGMENT
The plaintiff contends that the trial court erred in making certain findings of fact. She points out, correctly, that the trial court and this court must resolve all facts and inferences which may be drawn from the evidence in her favor as the party opposing summary judgment. See Kerns v. G.A.C., Inc., 255 Kan. 264, 268, 875 P.2d 949 (1994).
First, the plaintiff argues that the trial court erred in concluding that she had reported on the OSBC and Dunnick. She claims that she reported only on the actions of Stork in her individual capacity. However, nowhere does the trial court find that plaintiff reported on the OSBC and Dunnick. Plaintiff is correct in suggesting that she reported on the actions of Stork. It does not appear that the trial court found otherwise.
Second, plaintiff argues that the trial court erred by resolving state of mind and motivation against her. She contends the trial court wrongfully accuses her of "assumption of agency power and authority to herself" and "her rush to judgment on supposition and surmise." Plaintiff cites Hein v. Lacy, 228 Kan. 249, 616 P.2d 277 (1980). In Hein, this court cautioned against granting summary *737 judgment when resolution of the dispositive issue necessitates a determination of the state of mind of one or both of the parties. 228 Kan. at 256. The plaintiff is correct that there is no evidence she had a corrupt motive or was being vindictive. However, the quotes she points to from the trial court's journal entry concerning her actions do not show that the trial court determined her state of mind and motivation.
Third, the plaintiff argues that the trial court erred in concluding that she reported confidential information to the FDIC. Plaintiff suggests that the information concerning Stork's mortgages, car loans, and her diversion for theft of services were matters of public record. She also suggests that the trial court erred in relying on K.S.A. 9-1712, which provides that "[a]ll information the state bank commissioner generates in making an investigation or examination of a state bank or trust company shall be confidential information," because that statute must be strictly construed to mean documents generated only by the Commissioner. Plaintiff's construction, though not clearly argued, seems to be that documents prepared by other sources, including by OSBC employees other than the Commissioner, are not covered by that statute. That construction is incorrect because the term "generates" encompasses documents prepared at the Commissioner's direction, including documents prepared during the course of an OSBC investigation or examination of a bank or trust company. Plaintiff also argues that K.S.A. 9-1712(b) provides that confidential information may be disclosed upon written approval of the Commissioner. She reasons that the OSBC office policy of communicating information to the FDIC on a regular basis satisfies the approval necessary under subsection (b). It does appear that the OSBC had a policy of communicating information generated during bank examinations to the FDIC. However, the real issue concerning confidentiality relates to the fact she was attorney for OSBC. Simply stated, attorneys have a different relationship than other employees, and their conduct is measured by a different standard.
Finally, plaintiff argues that the trial court erred in determining that she did not make an adequate investigation of the facts. She suggests that this issue was not raised by the defendants and that *738 the trial court should not have resolved it without giving the parties the opportunity to supplement the record. Nothing in the record, however, shows that the plaintiff attempted to supplement the record concerning this issue after the trial court's entry of judgment. Without our determining whether the plaintiff's investigation was "adequate," the record reflects the trial court found that plaintiff did "confirm by inspection at the Record of Deeds' office that the ownership of the property and the mortgage on it to the State Bank of Baileyville was in both Mr. and Mrs. Stork's name and ... confirm title to the motor vehicle subject of the loan and lien of Southwest Bank and Trust was likewise in their names." The plaintiff also tells this court she reviewed federal and state statutes, case law regulations, and internal ethics memoranda. The trial court did not ignore other aspects of investigation plaintiff claims to have done. The court merely found that plaintiff should have investigated whether Stork had actually examined or participated in examining the Southwest Bank and Trust and the State Bank of Baileyville. The plaintiff does not suggest she engaged in such investigation.
II. MODEL RULES OF PROFESSIONAL CONDUCT
The court held that plaintiff's actions were contrary to the Model Rules of Professional Conduct, citing MRPC 1.2 Scope of Representation (1994 Kan. Ct. R. Annot. 295), 1.4 Communication (1994 Kan. Ct. R. Annot. 302), 1.6 Confidentiality of Information (1994 Kan. Ct. R. Annot. 310), 1.13 Organization as a Client (1994 Kan. Ct. R. Annot. 328), and 1.16 Declining or Terminating Representation (1994 Kan. Ct. R. Annot. 338).
The plaintiff argues that her conduct did not violate the Model Rules. She focuses on MRPC 1.6 and MRPC 1.13 and argues that she did not violate the rule of confidentiality. She points out that she had no attorney-client relationship with Stork or her husband, the persons she reported on. Stork was merely a constituent of her organization client, the OSBC. See MRPC 1.13. Moreover, the plaintiff argues, Stork never asked for plaintiff's legal advice. The plaintiff also reiterates that the facts she conveyed were in the public domain, and she did not convey the information to entities *739 other than the FDIC, such as the press. The plaintiff insists that she did not breach the attorney-client relationship she had with the OSBC. She maintains that the information was conveyed in a manner consistent with the established policy of the OSBC to convey information to the FDIC; she contends this policy permitted her to convey information to the OSBC without obtaining prior approval from Commissioner Dunnick. Finally, the plaintiff contends that K.S.A. 1994 Supp. 75-2973(b)(2) exempts her from obtaining prior approval.
The defendants' response is that confidences arise even when the person involved does not approach the attorney. The defendants suggest that plaintiff had a duty to keep Dunnick reasonably informed on all matters related to the representation. Because, according to defendants, violations of state and federal banking laws were within the scope of plaintiff's representation, strict confidentiality attached regardless of the source of the information, and plaintiff had a duty to explain the matters to the client. Moreover, defendants argue, trust and confidentiality are at the core of an attorney-client relationship. The attorney's duty is to advise and counsel, not prosecute her client. The defendants also point out that the drafters of the MRPC rejected a rule which would have permitted an organizational attorney to reveal information otherwise protected if the attorney deemed it necessary in the best interest of the organization. The defendants conclude that plaintiff was Commissioner Dunnick's attorney and that she had a duty to advise him on legal matters in the operation and function of the OSBC. They point out that she obtained information during the course of her representation that Deputy Commissioner Stork may have violated state or federal banking laws, but the only comment Dunnick had heard plaintiff make was her argument during the Emery civil service hearing that Stork had not violated any laws. This followed plaintiff's presentation of evidence (largely by leading questions) from Stork that her conduct did not violate any laws, rules, regulations, or guidelines. Therefore, the defendants reason, the plaintiff had a duty to counsel Dunnick as to her belief that Stork may have in fact violated laws. Because plaintiff went to the FDIC rather than to Dunnick, the essence of confidentiality was *740 breached. Finally, the defendants reason that it is irrelevant that Stork did not seek plaintiff's advice because organizational attorneys have a duty to advise constituents of potential conflicts and because that did not excuse plaintiff's duty to inform the Commissioner about any actions he needed to take.
We believe the parties have become overly technical and argumentative about the trial court's language. The trial court in general held that an organization's general counsel has obligations different than those of other employees. In using the balancing test discussed below, an attorney's obligation (as general counsel) is first and foremost to the organization. The balancing test as applied here includes the factors that general counsel reported a suspected violation or violations to an outside agency without first consulting with the head of the organization and that had she done so she would have learned that no violations had occurred. Whether plaintiff violated the Model Rules of Professional Conduct is not the determinative factor, and in fact a finding of no violation can be of no comfort to her.
The balancing test is set forth in Connick v. Myers, 461 U.S. 138, 75 L. Ed. 2d 708, 103 S. Ct. 1684 (1983), and Pickering v. Board of Education, 391 U.S. 563, 20 L. Ed. 2d 811, 88 S. Ct. 1731 (1968), and weighs an employee's First Amendment rights against the interests of the State as an employer in promoting the efficiency of the public services it performs through its employees.
In Connick, an assistant district attorney was involved and the United States Supreme Court said: "When close working relationships are essential to fulfilling public responsibilities, a wide degree of deference to the employer's judgment is appropriate." 461 U.S.  at 151-52. The Supreme Court held the discharge of the assistant district attorney did not offend the First Amendment.
The Connick Court also held that whether an employee's right to speak on a matter of public concern outweighs the government employer's interest in effectively providing services is a question of law and is subject to de novo review. See 461 U.S.  at 150 n. 10.
In Goffer v. Marbury, 956 F.2d 1045 (11th Cir.1992), an attorney claimed wrongful discharge for exercising First Amendment rights. The court used language we deem applicable to our case:
The Alabama Rules of Professional Conduct at issue in Goffer, as do the Kansas Model Rules of Professional Conduct, describe the role of an organization's attorney in the attorney's responsibilities owed to the organization and to the officers and employees of the organization.
As we view the matter, plaintiff was discharged because she was general counsel for the OSBC. The head of the OSBC had been advised of Stork's possible violations, at least as to the bank audit, and had determined there was no violation. He then attended a civil service hearing in which plaintiff put Stork on the witness stand to establish that she had not violated any federal or state laws and that no rules, regulations, or internal policies had been violated. Plaintiff argued to the hearing panel that Stork's testimony was that no violation had occurred.
The OSBC head then attended a meeting with FDIC officials involving other matters and he learned for the first time that plaintiff had twice reported possible violations (once prior to the civil service hearing and a second time either immediately preceding or immediately after the panel hearing, based on largely different facts) to the FDIC without checking facts that were available to her which would have changed a reasonable attorney's mind. Whether the second reporting by plaintiff to the FDIC occurred before or after the panel hearing is not clear. The panel hearing was held on July 6, and the second telephone call reporting the alleged violations occurred (according to plaintiff's testimony) the first week in July.
Plaintiff's position as chief counsel for the organization required a close working relationship with Dunnick. Dunnick relied on plaintiff for legal advice for his guidance and for the guidance of the organization and its employees. The organization's attorney has *742 a responsibility to give advice when necessary to prevent or rectify unlawful or improper acts of the organization and its employees. This advice must be given by presenting the attorney's opinion to the proper person or persons in the organization who have the authority to correct the problems. A close relationship and need for trust are essential in an attorney's relationship with the organization. Thus, a wide degree of deference to Dunnick's decision to terminate plaintiff is appropriate when something occurs to disrupt that relationship and trust.
We conclude that, although plaintiff may have acted in the utmost good faith, she used poor judgment and did not take steps available to her that a reasonably prudent attorney would have taken prior to reporting what she suspected to be violations to the FDIC, thus destroying her effectiveness as counsel for the OSBC and its employees and especially with the organization's head, Frankie Dunnick. Her acts destroyed any effectiveness she could have with the organization in the future. The governmental interest here must prevail over any First Amendment rights that might be involved. Thus, the trial court did not err in granting summary judgment to the defendants on plaintiff's First Amendment claim.
III. K.S.A. 1994 SUPP. 75-2973
K.S.A. 1994 Supp. 75-2973 provides in pertinent part as follows:
"(c) This section shall not be construed as
....
The trial court found that no reasonable attorney in plaintiff's shoes could perceive the conduct of the defendants as the basis for an out-of-agency report at the time it was made. The court found *743 that plaintiff's report was made with reckless disregard for its truth or falsity and that she released information which was confidential under the Model Rules of Professional Conduct.
The trial court pointed out that plaintiff had only a second-hand knowledge of facts and did not conduct her own independent investigation of the facts and consideration of the law. For example, plaintiff never knew whether Stork had personally participated in the ongoing examination of the State Bank of Baileyville and did not know whether Stork had compromised that examination. She also did not know that Stork had closed her checking account with the State Bank of Baileyville. Moreover, the court stated, even by a cursory review of 18 U.S.C. § 213, the principle statute thought to be violated, there was no violation under U.S. v. Napier, 861 F.2d 547 (9th Cir.1988), nor was the state statute, K.S.A. 9-1701(a), violated because Stork was not personally involved in examining a bank in which she had a financial interest. The trial court stated:
The trial court correctly determined that unless Stork had personally examined or been involved in any way in an examination of the two banks, Stork would not have violated the law. See Napier, 861 F.2d  at 548. Stork's financial interest in the State Bank of Baileyville following her pretrial diversion would likewise not be in violation of law if she received prior approval. Plaintiff could have conducted a further investigation before making her report to the FDIC to determine whether Stork had in fact been involved in the examinations of the State Bank of Baileyville and the Southwest Bank and Trust, and she could have obtained information whether Stork had obtained approval for her financial interest in the State Bank of Baileyville despite her pretrial diversion.
*744 K.S.A. 1994 Supp. 75-2973(c)(4)(A) does not require a person to make sure the conclusions to be drawn from information are true before making a disclosure. However, a person receives no statutory protection when he or she makes a disclosure with a reckless disregard for the truth or falsity of the disclosure made. An attorney and especially the chief counsel is held to a higher standard for the reasons set forth in section II. We affirm the trial court on this issue.
IV. OTHER ISSUES
For the reasons stated in sections II and III plaintiff's commonlaw claims cannot be sustained.
Other issues raised by the parties need not be addressed.
Affirmed.