X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
U.S. Supreme Court Justice Benjamin N. Cardozo once observed that “[m]embership in the bar is a privilege burdened with conditions.” [FOOTNOTE 1]One of those conditions is that an attorney’s license to practice law is state based, and does not extend beyond the geographic boundaries of that state. That reality, however, is in stark and immediate conflict with another reality: the interstate and international nature of law practice. The 1998 decision by the California Supreme Court in Birbrower v. Superior Court of Santa Clara [FOOTNOTE 2]brought this conflict front and center. In Birbrower, the court ruled that a California client was justified in not paying New York lawyers for their work at a San Francisco based arbitration; the court’s reasoning was grounded on the fact that the New York lawyers were not licensed to practice law in California. Birbrowercaused an uproar, mainly among transactional lawyers, whose clients and practice are not limited by geographic boundaries. And while that is an important concern, no less important is the issue of unauthorized practice of law by in-house corporate lawyers. This latter issue is important for at least three reasons: (1) the seamless, non-geographical nature of in-house lawyers’ clients’ businesses; (2) the fact that few in-house lawyers (and their employers) have focused on this as an issue; and (3) the fact that current and recently proposed remedies have not and may not really “help” the situation. Corporate lawyers for complex entities perform a myriad of functions: they practice law, they manage risk, they deal with regulators, they give advice on financial, moral and public relations issues, they manage work performed by outside counsel, they manage their companies’ legal costs, etc. And they have traditionally performed all these roles wherever their companies do business — without regard to their state based licenses. In-house lawyers thus have not been telling business colleagues that they would like to help out on a transaction taking place on “the coast,” but cannot because they are not licensed in California. Put another way, imagine the reaction of a corporate CEO if she was advised that her high-priced in-house staff could only give legal advice on transactions, etc. in the states in which they were licensed? So what should in-house lawyers do? Should they just accept the risk(s) of (sometimes/often) engaging in the unauthorized practice of law and hope that no one notices? Should they hope that they live/work in one of the jurisdictions that currently allow certain “relief” to in-house lawyers? [FOOTNOTE 3]Or should they hope that one of the recently floated proposals to address this matter is adopted? THE THREE OPTIONS The first option obviously does not constitute “best practices.” On the other hand, it has, as a practical matter, been working so far; to date, no in-house lawyer has been publicly sanctioned for the unauthorized practice of law. And consider the alternatives. With respect to the second option, there are currently two basic models in the states for “corporate counsel” rules. The first is to allow relocating in-house lawyers to procure some form of temporary license in the new state in which their corporate employer is located; after a brief period, they are required to become fully licensed. The other approach is a kind of “safe harbor,” whereby an in-house lawyer is not required to be licensed where she and her company are headquartered so long as: (i) she is not litigating matters in that state; and (ii) she is limiting her legal duties to those only on behalf of her corporate client. The first approach is, of course, merely a short-term band aid. The second provides a fix on the licensing issue, but it also has significant defects. First off, it does not address the broader problem of in-house lawyers representing their companies in interstate and international matters. Second, it sets up an odd enforcement mechanism with respect to policing attorney misconduct; unless specified to the contrary, only the state in which the lawyer is licensed (but not practicing) would have authority over her. Third, the usual argument for this type of safe harbor is that, unlike outside lawyers, in-house lawyers are accountable to their employers who can address the quality of their professional services. But that accountability is also true for outside lawyers; moreover, the underlying thesis does not meet one of the principal reasons for standards and licensing — to ensure professionalism on behalf of clients in dealing with adversaries, tribunals, regulatory bodies, third parties, etc. — which has no relation to whether a lawyer is outside or inside. Most importantly, the safe harbor approach creates a special status for in-house lawyers, separate from that of their outside brethren. And while some might revel in being “special,” in my view that type of status carries with it at least two very significant downsides. The first is that inside counsel might come to be treated as they are in the European Community — i.e., as less independent and thus not as professionally worthy of many of the privileges and responsibilities of the legal profession (e.g., the attorney-client privilege). [FOOTNOTE 4] The second downside is that, in an era where in-house lawyers are increasingly being targeted by plaintiffs’ lawyers for depositions in litigation (and judges are permitting them), the criteria for allowing such discovery to go forward are similar to the “safe harbor” criteria. [FOOTNOTE 5]And if discovery of in-house lawyers thus does become even more prevalent as a result (with attorney-client privilege objections less sustainable), [FOOTNOTE 6]query how effective those lawyers will be in getting their business colleagues to be fully forthcoming with them so that those lawyers can provide the advice and counsel their clients expect from them. In short, this remedy may well have some unfortunate side effects. Spurred in large measure by the brouhaha generated by Birbrower, [FOOTNOTE 7]the ABA in 2000 appointed a Commission on Multijurisdictional Practice. The Commission, which expects to issue a report and recommendations in May of 2002, has been holding hearings around the country and has been receiving various proposals to address multijurisdictional practice issues. Given the scope of this article, only those proposals directly dealing with in-house lawyers will be analyzed herein. The most sweeping proposal has been made by the American Corporate Counsel Association (ACCA), the leading national bar association for in-house counsel. ACCA’s proposal has three prongs: � Calling its first prong “Home State Admission,” ACCA would permit a lawyer licensed and in good standing in one jurisdiction to relocate to another state without passing the second state’s bar examination (but having to register with that state’s bar, etc.). � Calling its second prong the “drivers’ license” model, with respect to temporary/occasional practice in a second state, ACCA would allow for an inferred license to practice in that second state (with the second state having jurisdictional authority over the lawyer’s actions in that state). Recognizing that prongs one and two might be considered “controversial,” “unrealistic or too drastic,” ACCA would — as an alternative — limit the two prongs’ coverage to that of only in-house lawyers. In other words, in-house lawyers would be allowed to relocate without having to take a second bar examination; and in-house lawyers would be allowed a “driver’s license” to practice throughout the country. [FOOTNOTE 8] The other major proposal dealing with the status of in-house lawyers has come from recommendations made by the ABA’s Ethics 2000 Commission. That Commission proposed a revision to Model Rule 5.5(b)(2) (i) that reads as follows: “(b)A lawyer admitted to practice in the jurisdiction, but not in this jurisdiction, does not engage in the unauthorized practice of law when: . . . (2) other than making appearances before a tribunal with authority to admit the lawyer to practice pro hoc vice: (i) a lawyer who is an employee of a client acts on the client’s behalf or, in connection with the client’s matters, on behalf of the client’s other employees or its commonly owned organizational affiliates;” In the Reporter’s Explanation of Changes, the ABA Commission’s rationale(s) are set forth as follows: “A number of states already have exceptions in their unauthorized practice of law statutes for in-house counsel. These exceptions recognize that some clients (typically organizations) hire a lawyer as an employee in circumstances that may make it impractical for the lawyer to become admitted to practice in the adopting jurisdiction. These circumstances include frequent relocation with only temporary residence in a particular jurisdiction, as well as the need for in-house counsel to render legal services to the client in various out-of-state offices and facilities of the client. Given that the employer is unlikely to be deceived about the training and expertise of these lawyers, the Commission believes that this is an appropriate category of cases to recognize as a safe harbor for the multijurisdictional practice of law �. The safe harbor for in-house counsel is extended to legal services rendered on behalf of the employing client’s other employees or commonly owned organizational affiliates but only when acting ‘on the client’s behalf or, in connection with the client’s matters.’” [FOOTNOTE 9] Well, will the foregoing proposals work and/or are they likely to become applicable to practicing in-house lawyers? Let us examine each in turn. ACCA PROPOSAL The ACCA proposal would certainly address the broad issues of state licensing and multijurisdictional practice; it also would address the enforcement issue. As to the likely nature of its enactment, ACCA’s explicit recognition of the controversial nature of the first two prongs is an understatement – concerns over state sovereignty, lawyers seeking out the “weakest link” state, the undermining of accreditation and licensing standards, the inaptness of the “drivers’ license” model, etc. have already been articulated. [FOOTNOTE 10] And with respect to the enforcement issue, fears have been raised about lawyers being subject to “two bites at the apple” (i.e., two or more jurisdictions opting to sanction conduct); [FOOTNOTE 11]conversely, query whether most or all of the states would want to commit the resources necessary to ensure that out-of-state lawyers take their compliance obligations seriously. ACCA’s more “modest” approach — to have the first two prongs apply only to in-house lawyers — may seem to be less controversial, although it is unclear why that would necessarily be so. The same articulated concerns and enforcement issues would be still present (albeit to a smaller set of the universe of licensed lawyers). Moreover, the “special” status discussed above would become the national norm, with the problematic baggage that could well accompany being “special.” ABA PROPOSAL The ABA proposal would also address the broad issues of state licensing and multijurisdictional practice; and although it does not explicitly address the enforcement issues, another proposed amendment to Model Rule 8.5 does. Notwithstanding its different articulation, at bottom the ABA’s approach is really the functional equivalent of ACCA’s third prong, and as such the attendant concerns and possible consequences already articulated would apply equally to its proposal. Moreover, even if the ABA were to adopt its proposal sometime after May of next year, it is important to remember that the Model Rules are just that — aspirational norms which the individual states are free to adopt (or not), in whole or with amendment. Thus, we could end up with a number of states adopting some form of the proposal (as is now the case with the Model Rules), issuing various and conflicting interpretations thereof, with other states sticking with their current system(s). [FOOTNOTE 12]Would that constitute progress? CONCLUSION The state licensing system is obviously an anachronism as applied to our modern economic/legal/corporate structures. The common-denominator proposal of simply exempting in-house lawyers from this mess, however, should not be too quickly or eagerly embraced — at least not before all the consequences (intended and unintended) are fully vetted. Hopefully, between now and May 2002 the ABA Commission can pull a rabbit out of the hat and suggest something that will work well. Until then, caveat corporate counsel. C. Evan Stewart is a partner with Winston & Strawnin New York. ::::FOOTNOTES:::: FN1 Matter of Rouss, 221 N.Y. 81, 84 (1917). FN2949 P.2d 1 (1998). FN3Currently, eight jurisdictions (Alabama, Idaho, Maryland, New Jersey, North Carolina, Texas, Virginia, and the District of Columbia) generally provide that an attorney working inside a company does not have to be licensed within the state where she is working so long as (i) she is not appearing in court, and (ii) she is giving legal advice only to her corporate client. Nine other jurisdictions (Kansas, Kentucky, Michigan, Minnesota, Missouri, Ohio, Oklahoma, South Carolina, and Washington) generally provide that a relocating in-house attorney must obtain some form of temporary license to practice, after which she must become fully licensed therein. Florida allows in-house attorneys relocating to Florida to register with the Florida Bar (obviating the need to become licensed). The other thirty-eight jurisdictions do not address this matter (although there are pending proposals in Connecticut and Oregon). FN4 See AM&S v. EC Commission, Case 155179 [1982] 2 CMLR 264 (Court of Justice of the European Communities limited the attorney-client privilege to cover only “independent” lawyers “who are not bound to the client by a relationship of employment.”). See alsoJ. Case, “Are Your Internal Communications Protected?” ACCA Docket 32, 36-37 (November/December 1996) (survey of the practices of various European countries vis-�-vis the privilege). FN5Although traditionally the law in this area is that “as a general matter attorney depositions are disfavored” ( Shelton v. American Motors Corp., 805 F.2d 1323 (8th Cir. 1986)), increasingly courts have allowed depositions of in-house corporate lawyers on the grounds that they were not litigation counsel of record and/or they were in possession of pre-litigation factual knowledge relevant to the dispute. See, e.g., Evans v. Atwood, 1999 U.S. Dist. LEXIS 17545 (D.D.C. 1999); The Davis Co. Inc. v. Emerald Casino Inc., 2000 U.S. Dist. LEXIS 7867 (N.D. Ill. 2000). FN6This trend in permitting discovery of in-house lawyers recently reached a new nadir in Boone v. Vanliner Insurance Co., 744 N.E.2d 154 (Ohio 2001). In Boone, the Ohio Supreme Court ruled that the mere allegation of bad faith in the denial of insurance coverage meant that the insured plaintiff could discover internal company communications covered by the attorney-client privilege. I acknowledge my debt to Jane K. Rushton, Vice President & Associate General Counsel of Prudential Insurance Co., for bringing this extraordinary (and wrongly-decided) decision to my attention. FN7California has since reversed Birbrower, but only through Dec. 31, 2005. In the intervening period, out-of-state attorneys may handle California based arbitrations, with the approval of the arbitrators. FN8S eeAntitrust & Trade Reg. Report (BNA) 186 (March 2, 2001). FN9The American Law Institute’s Restatement of the Law (Third) Governing Lawyers Section 3, Comment F (1999) is in accord with this recommendation. FN10 SeeAntitrust & Trade Reg. Report (BNA) 186-191 (March 2, 2001) (comments of S. Gillers, B. Green, L. Fox, C. Landy, G. Vandewalle). FN11 Id. FN12The wide variation among the states in how they address client confidences is one good example of this point. SeeT. Morgan & Rotunda, 2001 Selected Standards on Professional Responsibility 134-51 2001). The differing standards adopted by federal judges in New Jersey with respect to Model Rule 4.2 constitute another. See Public Service Electric & Gas Co. v. Associated Electric & Gas Insurance Services Ltd., 745 F. Supp. 1037 (D.N.J. 1990); Curley v. Cumberland Farms Inc., 134 F.R.D. 77 (D.N.J. 1990); In re Prudential Insurance Co. of America Sales Practices Litigation, 911 F. Supp. 148 (D.N.J. 1995); Andrews v. Goodyear Tire & Rubber Co. Inc., 2000 WL 175098 (D.N.J. 2000).

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.