Communications between a law firm's attorneys and its in-house counsel regarding a client's potential malpractice claims against the firm may be protected by the attorney-client privilege, the Georgia Supreme Court ruled on Thursday.

The unanimous decision, which sets several criteria for when the privilege shields talks with a firm's general counsel, is a win for law firms in that it rejected a position taken by several courts around the country—that a law firm doesn't enjoy attorney-client privilege with its own general counsel when a client wants to view internal communications about the client's malpractice threat.

The opinion by Chief Justice Carol Hunstein cautioned that the court was analyzing the privilege question independent of the state's lawyer ethics rules. Lawyers who want to know whether their conversations about potential malpractice suits by current clients violate ethics rules will need to address those questions with the State Bar of Georgia, Hunstein wrote.

Some had thought the Georgia high court's decision would be the first time an appellate court of last resort would decide the scope of the attorney-client privilege for firm in-house counsel, but Massachusetts' high court beat the Georgia court by one day. On Wednesday, justices there set similar, although not identical, criteria for when intrafirm communications are protected by the attorney-client privilege.

At issue in the Georgia case was whether Savannah firm Hunter, Maclean, Exley & Dunn had to divulge its internal communications to a former client that sued it for malpractice. A lower court judge ordered the law firm to turn over the materials to the former client, developer St. Simons Waterfront, but the state Court of Appeals last year said the trial court had to reconsider the matter under a new set of rules that appeared to put the law firm in a safer position.

The high court on Thursday restructured the framework by which the trial judge must take another look at the matter, holding that whether the law firm broke lawyer ethics rules is not part of the equation.

Both sides of the case put a positive spin on the court's ruling.

John Nelson of Weissman, Nowack, Curry & Wilco in Atlanta, who represents the developer suing Hunter Maclean, said he couldn't tell whether the new ruling helps on the discovery issue. "I've always thought under any test we are going to get the majority of the material we are seeking," said Nelson.

But Nelson was gleeful over the Supreme Court's decision to take lawyer ethics out of the privilege issue, saying that will make it easier for his client to win its breach of fiduciary duty claim against the firm. In arguing it has met the Supreme Court's criteria for establishing the attorney-client privilege, Hunter Maclean will have to acknowledge that its lawyers consulted with the firm's GC in order to help the firm, not the client, said Nelson.

"We have strong evidence that the law firm mishandled this conflict situation under our existing ethical rules by engaging in undisclosed defense efforts against the client without disclosing the conflict that this created, much less obtaining the client's informed consent to continue with the representation," said Nelson. "The Court of Appeals opinion could be read as altering those ethical rules."

The Supreme Court justices "made clear that they're not going to change or weaken the ethical rules to give firms the ability to invoke the privilege," Nelson said, adding that the Massachusetts high court took a different approach, resolving the privilege question by weakening the state's lawyer ethics rules.

The lawyer defending Hunter Maclean in the malpractice action, Susan Cox of Edenfield, Cox, Bruce & Classens in Statesboro, also said she was happy with the decision. She said she was confident her client could meet the attorney-client privilege test established by the court.

"I think it does vindicate the actions of the law firm," said Cox. "I think it's good for law practice and lawyers and the attorney-client privilege."

Cox said she had no discomfort with Hunstein's comments about lawyer ethics rules, saying that setting aside those rules from the privilege question was in line with the law firm's position in the case. "I just disagree with John over whether the firm's ability to protect itself gives rise to an ethical violation," she said.

Hunter Maclean represented St. Simons Waterfront (SSW) on the development of high-end condominiums on St. Simons Island beginning in 2006. The relationship soured after buyers began trying to get out of their purchase contracts.

Although accounts vary, lawyers for the firm have testified that SSW's president indicated in a February 2008 conference call that he intended to hold the firm responsible for the buyers' rescissions. The lawyers said they thought that SSW probably would file a malpractice claim against them. After the call, Hunter Maclean continued to represent the developer—while exploring its own exposure to a potential malpractice claim in consultation with the firm's in-house general counsel.

SSW eventually hired other counsel to take on the buyers' claims, and then in 2009 it sued Hunter Maclean, alleging malpractice, breach of fiduciary duty and fraud. The developer said that the firm hadn't properly drafted the purchase contracts and didn't give good advice on the buyers' rescissions. SSW also claimed the firm breached its duty to the developer by withholding information from it and by continuing to represent SSW without fully disclosing the conflict of interest the firm had.

Hunter Maclean's lawyer in the malpractice action has argued that the developer ran into trouble with the buyers not because of flaws in the firm's work but because of the drop in the real estate market.

Eastern Circuit Superior Court Judge Perry Brannen Jr. granted SSW's motion to compel the production of internal firm documents, including communications with firm GC Arnold Young, who was ordered to give a deposition. The judge said a conflict of interest nullified the firm's privilege with its GC.

An appeals panel of Judges John Ellington, Herbert Phipps and Stephen Dillard vacated that decision, Dillard writing that if a firm's in-house counsel serves in that role exclusively and doesn't represent outside clients, there's no conflict in his representing the firm on a prospective malpractice claim by a current client.

Hunstein's opinion for the high court held that the attorney-client privilege applies to communications between a law firm's attorneys and the firm's in-house GC as long as certain criteria are met. They are: 1) there's a genuine attorney-client relationship between the firm's lawyers and in-house counsel, 2) the communications are intended to advance the firm's interests in limiting exposure to liability rather than to advance the client's interests in obtaining sound legal representation, 3) the communications are conducted and maintained in confidence, and 4) no exception to the privilege applies.

She said the court rejected the idea that an attorney's duty of loyalty to the client creates an exception to the attorney-client privilege. She added that the existence of an attorney-client relationship between a firm's lawyers and its GC could turn on facts such as billing procedures, the maintenance of separate files and whether the GC position is a full-time job.

The high court did not adopt Dillard's analysis, which discussed the importance under lawyer ethics rules of a law firm obtaining a client's consent to the firm taking defensive measures while continuing to represent the client. Hunstein said her court thought it best to analyze the law firm privilege issue like any other attorney-client privilege issue, regardless of legal ethics rules.

She wrote that an attorney's representation of his law firm against a current firm client "appears inconsistent with the Georgia Rules of Professional Conduct to the extent the Rules prohibit conflicts of interest and impute individual attorney conflicts to all attorneys within a law firm." But she said the court did not purport in its decision to give any opinion on whether any law firm had complied with the rules of ethics.

"However," she added, "we also do not intend to minimize the importance of the ethical quandary. As evidenced by the briefs of the parties and several amici, attorneys practicing in this State are eager for guidance in navigating the ethical pitfalls presented when a firm suspects its client is contemplating claims against it. We thus encourage those interested in the resolution of these ethical issues to appeal to the State Bar for guidance on, clarification of, and possible amendments to our Rules of Professional Conduct, to enable law firms and their attorneys to effectively defend themselves against potential malpractice claims while remaining compliant with their ethical obligations."

The case is St. Simon's Waterfront v. Hunter, Maclean, Exley & Dunn, No. S12G1924.

This article originally appeared in the Daily Report.