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Technology and Legal Ethics: Deception in Undercover Investigations

As with so many parts of our society, technology is accelerating the pace at which the legal system evolves, and that rapid evolution creates new ethical challenges for commercial litigators. This article deals with one of those challenges: the use of deception in undercover investigations.

To illustrate, suppose a retail establishment is suspected of selling counterfeit, luxury, consumer goods protected by trademark. The lawyer working for the trademark owner hires an investigator to pose as a customer, enter the retail establishment, purchase counterfeit goods and record the transaction using video, audio or both.

In states like New York, where recordings are permissible when only one participant to the conversation consents, this is legal, even if the retailer is unaware and has not approved the recording. However, the investigator has posed as a legitimate customer, hiding the fact that he is an investigator acting for a lawyer.

There is an ongoing debate about whether this violates ethical rules prohibiting lawyers from engaging in “dishonesty, fraud, deceit or misrepresentation” (Rule 8.4(c)), making a “false statement of fact or law to a third person” (Rule 4.1), communicating with a represented person (Rule 4.2) and doing so through agents such as investigators (Rule 5.3(b)). There is also the related question of whether evidence obtained in this way is admissible.

Courts have sometimes found this type of deception to be unethical, but in situations where the level of deception was much more severe. For example, in a case that went to the Colorado Supreme Court, a prosecutor was faced with a life threatening dilemma when a kidnapper held a hostage at gunpoint. The kidnapper said he would release the hostage only if he could speak to a defense lawyer. The prosecutor posed as a defense lawyer, obtained the hostage’s release and a confession from the kidnapper. The Colorado Supreme Court suspended the lawyer for engaging in deception in violation of Rule 8.4. People v. Palter, 35 P.3d 571 (Colo. 2001).

In the trademark context, where an investigator poses as a customer, the conduct is not as deceptive as in the example from Colorado. In a case in New York considering the trademark fact pattern, the court ruled that the evidence is admissible, but that ruling did not address the question of whether the lawyer violated the rules of ethics. See, e.g., Gidatex, S.r.L. v. Campaniello Imports, Ltd., 82 F. Supp. 2d 119 (S.D.N.Y. 1999). That leaves lawyers in a conundrum. If they use the evidence, their liability for violations of the ethics rules is unclear. But if they don’t use the evidence, they may be prejudicing their clients’ rights. A lawyer in this situation may be able to avoid discipline because the deception was minimal and the duty to the client took precedence. See Apple Corps. Ltd. v. Int’l Collectors Society, 15 F. Supp. 2d 456, 475-76 (D.N.J. 1998) (rules against deception only apply to material deception, not to misrepresentation as to identity or motive solely for the purpose of gathering evidence).

Another complication is the no contact rule prohibiting a lawyer from communicating with or causing someone to communicate with a person represented by counsel (Rule 4.2). Suppose there is already a lawsuit pending in which the trademark owner has obtained an injunction barring the retailer from selling counterfeit goods. Both parties are represented by counsel. If the investigator, acting under the lawyer’s direction, enters the store to make a purchase to test whether the retailer is violating the injunction, does that violate the no contact rule? The Apple Corps. case held that it is only a prohibited contact if the person whom the investigator contacted was a member of the litigation control group of the company that sold the products.

The bar associations have tried to bring some clarity to this area. The New York City Bar has proposed an amendment to the Rules of Professional Conduct that would allow deception in investigations, provided that it did not violate other laws and did not violate the no contact rule. The Commercial and Federal Litigation Section endorsed this proposal in its own report in 2015. The New York County Lawyers Association adopted opinion 737 allowing, in very limited circumstances, “dissemblance” as distinct from “dishonesty, fraud and deceit.”

While the bar associations seem to favor some limited use of deception, the circumstances in which they would permit it are not clear, the bar association opinions and reports are not binding on the Courts, and there is no indication that the Courts are likely to adopt a rule change anytime soon. This leaves the lawyer considering the use of deception in an undercover investigation in an uncertain position.

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