Establishing and Protecting the In-House Counsel Attorney-Client Privilege

Lawyers have a fiduciary duty of loyalty to their clients as well as ethical obligations under Rule 1.4 to keep the clients reasonably informed about their representation. The extent of the lawyer’s fiduciary and ethical obligations is tested when a lawyer needs legal advice about an existing client from the firm’s in-house general counsel.

The attorney-client privilege exists, in part, because we want people, including lawyers, to consult with counsel so that they may comply with their legal, ethical and fiduciary duties. When a sole practitioner needs advice about his obligations to an existing client, he typically calls up another lawyer. In that instance, the privilege is established by contact with outside counsel and is more easily protected.

The issue becomes more complex, however, when lawyers wish to contact their inside general counsel. Law firms that are big enough to maintain an inside general counsel consult with that internal resource when faced with an ethical conundrum. Thus, the first call at larger firms is not to an outside counsel but to the internal general counsel. Obviously that counsel is a member of the firm that has fiduciary and ethical obligations to the client.

Increasingly, clients/plaintiffs assert that all communications with the general counsel are discoverable based upon the law firm’s fiduciary duty of loyalty. Some argue that the problem is easily avoided because the law firm can simply withdraw from representing the client.

That is not the case, however, in many litigation engagements when court approval is required. Motions to withdraw may linger for months. Likewise, in complex transactional engagements immediate withdrawal might make the problem worse for the client rather than better. Finally, sometimes clients object to an attempt to withdraw, perhaps in an effort to maintain better leverage on the law firm defendant.

Over the years, several federal magistrates have ruled that communications with inside general counsels were discoverable when the attorney-client relationship existed at the time of the communication. However, these rulings must turn on the state’s laws of ethics and privilege.

A plenary panel at the Spring 2014 ABA National Legal Malpractice Conference focused May 1 on three recent state court decisions which seem to constitute a trend providing guidance for lawyers across the country.

The conference, presented by the ABA Standing Committee on Lawyers’ Professional Liability, was held April 30-May 2 in Boston.

Illinois Protects the Privilege

In 2012, an Illinois appellate court provided guidance in Garvy v. Seyfarth Shaw, 966 N.E.2d 523, 28 Law. Man. Prof. Conduct 140 (Ill. App. Ct. 2012). Garvy asked the firm to represent him and it responded by sending a conflict disclosure letter and advising him to seek outside counsel. Outside counsel confirmed the waiver and also asserted malpractice claims against the firm while Garvy still insisted that the firm continue to represent him in his litigation. Garvy sought production not only of the lawyers’ communication with Seyfarth Shaw’s in-house counsel but also communications with outside counsel.

Panelist Lori Roeser, associate general counsel for Seyfarth Shaw, recounted the trial court decision ordering production of communications during the period Seyfarth Shaw was still counsel. The order did not distinguish between communications with inside general counsel and outside counsel and cited the firm’s fiduciary duty of loyalty.

The Illinois appellate court reversed, noting that the fiduciary exception to attorney-client privilege is not recognized in Illinois and that, even if it were, it doesn’t apply to legal advice concerning the personal liability of the fiduciary. The court noted the firm’s conflict disclosure was adequate and complete.

Roeser noted that if the law firm had tried to charge Garvy for the general counsel’s time the result might well have been different. She also highlighted the importance of threatened or pending proceedings prior to the communications.

Massachusetts Affirms the Privilege

Boston lawyer Thomas Peisch, partner at Conn Kavanaugh, noted that Massachusetts beat Georgia by a day to become the first state to have its highest court address the in-house privilege issue directly.

Much as in the Garvy case, the plaintiff in RFF Family P’ship, LP v. Burns & Levinson, LLP, 2013 BL 366306, 29 Law. Man. Prof. Conduct 422 (Mass. 2013), argued that an attorney must actually withdraw and disclose the potential issue to the client before communications with in-house counsel could be privileged.

RFF argued, as others have and will, that the privilege is trumped by the fiduciary duty that is owed to an existing client, and that in-house consultation creates a conflict of interest.

However, the RFF court noted that “law firms, like corporations, face a vast and complicated array of regulatory legislation and the line between permissible and prohibited conduct is not always an instinctive matter.”

Further, the court held that by encouraging questions, providing resources and monitoring internal policies and procedures, firm counsel may dramatically improve the quality of law firm self-regulation. The court found nothing in the language of Massachusetts rules of professional conduct or the ABA Model Rules that required a contrary result.

Finally, the court set forth guidelines which would help determine whether communications between lawyers in a firm would be privileged in-house counsel communications or discoverable work done in connection with a file. Peisch noted that it would be a strange result when terrorists can consult with their counsel and have the privilege applied but that Massachusetts lawyers could not. He also observed that the Oregon Supreme Court currently has a similar case pending before it.

Georgia Continues the Trend

In St. Simons Waterfront, LLC v. Hunter, Maclean, Exley & Dunn, P.C., 746 S.E.2d 98, 29 Law. Man. Prof. Conduct 424 (Ga. 2013), the Georgia Supreme Court also upheld the protection of communications between lawyers and in-house counsel even though the client relationship was still ongoing.

The Georgia court noted that its holding was simply an application of privilege and work product rules that apply to every attorney-client relationship and held that conflict of interest principles don’t affect the protections afforded to privileged communications. The preamble to the Georgia Rules of Professional Conduct specifically states that the rules weren’t intended to govern or affect judicial application of attorney/client or work product privileges.

Patrick Sharkey, partner at Mintz Levin in Boston, participated in the briefing of the Georgia case and noted that it was the law firm’s burden to show the privilege was maintained and not waived.

How to Protect Your Firm’s In-House Privilege

The panelists all agreed that, while the results in these cases were driven by state law and ethics rules, a pattern for creating and maintaining the privilege was beginning to emerge. Those who would like to protect in-house attorney-client communications should consider the following steps:

• Make a clear designation of in-house counsel.
• Set up a separate billing file for in-house matters and segregate the files.
• Mark internal in-house communications as privileged.
• Limit in-house communications to those who absolutely need to know.

As Peisch noted, “Loose lips sink ships.”

Most of us in private practice hope the trend that started in Illinois, Massachusetts and Georgia continues on to Oregon and other states as well. The protections provided by the attorney-client privilege don’t, however, limit the lawyer’s obligations to notify clients of conflicts and other matters impacting their file. Privilege is easily waived, and its maintenance requires law firm discipline and attorney rigor.

Almost all lawyers want to follow the law and uphold their jurisdiction’s ethics rules. Application of the law and the rules is sometimes difficult, however, and gray areas abound.

Lawyers who want to do the right thing must be encouraged to consult with the resources available to them, and often inside general counsel is the best resource readily available. Requiring lawyers to retain outside general counsel will certainly slow the process and create more chance for error and mistake. The guidance provided by Garvy, RFF and St. Simon’s Waterfront helps show the way toward a hopefully safe harbor.