This article examines recent cases that have significantly expanded the ability of law firms to claim attorney-client privilege for communications with their designated in-firm general counsel. These cases have relevance even to lawyers practicing in firms too small to warrant the appointment of an in-firm general counsel. This is because many of the earlier cases denied the privilege for communications within law firms based on adoption of a “current client” or “fiduciary” exception, and, based on the same theory, some of those earlier cases cast doubt on the availability of the privilege even with respect to communications with outside counsel. The two recent cases dealing with the in-firm privilege are RFF Family Partnership v. Burns & Levinson, 465 Mass. 702 (July 10, 2013), and St. Simons Waterfront v. Hunter, Maclean, Exley & Dunn, — S.E.2d —, 2013 WL 3475328 (Ga. July 11, 2013).
RFF Family Partnership Case
The facts underlying the RFF Family Partnership case were that in April 2007 plaintiff client hired defendant law firm in connection with a commercial foreclosure matter. Nearly a year into the foreclosure, the client sent notice of claim to the law firm alleging legal malpractice. The participating attorneys consulted the law firm’s in-house counsel, a partner designated to respond to ethical questions and risk management issues. Following the consultation, the firm sought to withdraw from the representation. Meanwhile, the client requested that the firm continue with the post-foreclosure sale of the property, and it did so.
In June 2012, upon completion of the sale, the client sued the firm, alleging legal malpractice and other claims. The client sought to depose the firm’s attorneys and in that context sought access to the intra-firm consultations with in-house counsel. The client claimed that the communications were not protected from disclosure unless either the firm withdrew from representation as counsel before seeking the advice, or the firm fully disclosed to the client there was a conflict of interest and obtained the client’s informed consent to seek legal advice during the representation. The firm moved for a protective order on the grounds that the communications were privileged.
The trial court granted the motion for a protective order. On interlocutory appeal, the Supreme Judicial Court of Massachusetts affirmed, holding that confidential communications between law firm attorneys and the firm’s in-house counsel can be protected by the attorney-client privilege from disclosure to a client who has asserted malpractice claims. The court held that four criteria must be met for the defendant law firm to be entitled to invoke the privilege: (1) the firm has designated in-house counsel; (2) the in-house counsel has not performed work on the matter that the suit is based upon or on a substantially related matter; (3) the client is not billed for the communications; (4) the consultations are kept confidential.
Here, the court found that the firm had met all four conditions. It noted that the attorney-client privilege exists both to enable the attorney to give sound professional advice, and also for the client to provide information to the firm that will form the basis for that advice. The court acknowledged that it is not always clear when the interests of the client and the firm have become adverse and at what point withdrawal is required.
The court stated that a broad protection pursuant to the privilege encourages firm members to seek risk management help promptly, and allows for the correction of mistakes, emphasizing that is in the best interests of both clients and law firms to have ethical issues examined by competent ethics advisors. However, the court also noted that even though it was preserving the privileged nature of the communications, the client must still receive full and fair disclosure regarding the facts of the representation from the attorneys.
The case is significant because the court considered and rejected the “current client” exception to the application of the attorney-client privilege that some earlier decisions from other courts had developed. The “current client” exception is based on the rule of imputation (Rule 1.10), and states that lawyers in a law firm cannot represent both a client and the firm when conflict of interest arises between them. The theory is that otherwise confidential intra-firm communications lose their privilege because the firm’s fiduciary duty to its current client outweighs the right to claim the privilege. The court firmly rejected that proposition, holding that to apply it would lead to a great deal of dysfunction and would preclude or chill efforts by lawyers to seek help when ethical conundrums arise.
St. Simons Waterfront Case
The St. Simons Waterfront case arose from a similar situation. In 2006, plaintiff client hired defendant law firm in connection with a condominium development project. The firm was retained to draft purchase form contracts which would be utilized during the pre-selling of condominiums in a development project planned for construction. Citing defects in the purchase contracts, numerous purchasers rescinded their purchase contracts in late 2007 and early 2008. After a client conference call in February 2008 regarding the problems with the purchase contracts, the law firm’s participating attorneys contacted the firm’s in-house counsel seeking advice. Shortly thereafter, additional advice from outside counsel was sought.
In 2009, the client sued the firm for malpractice. During discovery, the client sought to depose and obtain communications and documents from the firm’s in-house counsel, as well as from outside counsel. The law firm objected, and sought protective orders based upon attorney-client privilege and the work product doctrine. The trial court granted the motion to compel except as to the firm’s communications with outside counsel. The appellate court vacated the trial court’s ruling and created a new framework to address the issue in conformity with the Rules of Professional Conduct.
Thereafter, the Supreme Court of Georgia vacated the appellate court’s decision. In reaching its decision, the Supreme Court held that intra-firm communications should be treated like any other potentially privileged communications without resort to the Rules of Professional Conduct, which it determined were not relevant to the analysis. The court then remanded the case to the trial court for a determination of whether the law firm could carry the burden of establishing the elements needed to establish the privilege.
In this case, too, the court examined what circumstances might determine whether an attorney-client relationship exists between the in-house counsel and the attorney at the firm handling the underlying case for purposes of establishing the privilege. The court noted that such things as the formality associated with the position of “firm in-house counsel,” the maintenance of a separate file for the intra-firm communications, and the existence of billing procedures for matters addressed to the firm’s in-house counsel, would figure into the calculus of whether the privilege could be invoked.
The court specifically found that even when a conflict of interest arises between a firm and its client, neither the existence of that conflict, nor the so-called “fiduciary exception” abrogate either the attorney-client privilege or work product protection for documents prepared by the firm’s general counsel in responding to enquiries from firm lawyers in connection with matters involving current clients.
These two cases represent the second and third cases upholding the attorney-client privilege for communications with law firm general counsel, or in-house counsel, and explicitly rejecting the assertion that principles of conflicts of interest, or fiduciary duties to current clients, are reasons to avoid application of the privilege. The only court to reach this conclusion previously was the U.S. District Court for the Southern District of Ohio, interpreting Ohio law, in Tattletale Alarm Systems v. Calfee, Halter & Griswold, 2011 WL 382627. While a series of earlier cases (all of which were considered at great length in Tattletale) paid deference to the current client and fiduciary exceptions to the availability of the privilege, these two recent cases, together with Tattletale, hopefully establish substantial precedents for other courts facing these issues, and put to rest the exceptions with respect to communications with in-firm or outside counsel, even where the communications relate to matters involving current clients of the lawyer or law firm.
It is important to understand that these cases establish explicit conditions for extending the protections of the privilege to intra-firm communications. Both courts identified the prerequisites for the protection of such communications, and their decisions should instruct firms regarding the policies and procedures that need to be adopted in order to protect their intra-firm risk management or ethical communications. The elements are:
1. The establishment of a formal position of “in-house” general (or ethics) counsel;
2. For that lawyer’s position as “in house” counsel to be credited in connection with the application of the privilege in any given case, he or she cannot have worked on the underlying matter (or a related matter) for which risk management advice is sought;
3. Time spent by the in-house counsel on the matter at issue should not be billed to any external source. This will commonly be accomplished by the use of “risk management” or equivalent “firm matter” billing codes for matters addressed by in- house counsel; and,
4. The use of segregated filing for “in house” communications. These should be kept apart from the underlying matter from which the risk management issue has arisen. Those files should, of course, be kept confidential, especially from the client, so as to avoid a waiver.
In addition, the RFF Family Partnership case serves as a reminder that invoking the privilege in no way reduces or abrogates the law firm’s duty to notify clients of all pertinent facts relating to the representation of the client by the law firm.
It seems apparent that the engagement of outside counsel, in the normal way, should likewise accomplish the objective of maintaining the privilege, so that the exceptions established by the earlier cases will not arise.
In the increasingly complex realm of the law governing lawyers, it is essential that lawyers do have unfettered access to the advice of counsel as to how they should deal with engagements that have become problematic. Put differently, when lawyers themselves become “clients” for purposes of obtaining advice as to how to act ethically, they should be in no different position when it comes to being able to avail themselves of the attorney-client privilege than any other category of client. Hopefully, by structuring the work of law firm general counsel, or outside counsel engaged to advise a lawyer or law firm in conformity with these principles, lawyers will be empowered to gain the full benefits of having access to legal and ethical advice on a confidential and privileged basis, whenever professional responsibility or other issues arise that require guidance, even in connection with current client matters.
Anthony E. Davis, a partner at Hinshaw & Culbertson, is a past president of the Association of Professional Responsibility Lawyers.