Law firm in-house counsel privilege is once again in the news, with New York joining other states, including Georgia, in upholding the attorney-client privilege for in-house counsel communications.
As background, in 2013 Georgia and Massachusetts concluded that attorneys can share an attorney-client privilege with their firm's in-house counsel. See RFF Family P'ship v. Burns & Levinson, SJC-11371 (Mass. July 10, 2013); and St. Simons Waterfront v. Hunter, Maclean, Exley & Dunn, No. S12G1924 (Ga. July 11, 2013). Shortly thereafter, the ABA House of Delegates passed a resolution to protect the in-house counsel privilege. 2013 ABA House of Delegates Resolution 103. The state of Oregon followed suit. Crimson Trace Corp. v. Davis Wright Tremaine LLP, 355 Or. 476 (2014).
Most recently, New York's Appellate Division (First Department) has also upheld the attorney-client privilege for in-house counsel communications in New York. Stock v. Schnader Harrison Segal Lewis LLP, No. 651250/13 (N.Y. App. Div. June 30, 2016). In so holding, the court rejected the application of the fiduciary exception to the privilege, reasoning that the in-house counsel's "real clients" were the lawyers and the firm itself, not the firm client from whose representation the issues arose.
While the Stock decision reflects a growing trend among state courts in rejecting the fiduciary exception to the attorney-client privilege and upholding the privilege for communications between firm attorneys and in-house counsel under certain circumstances, many jurisdictions have yet to jump on the bandwagon. In those jurisdictions, attorneys must tread carefully or risk losing all benefits of the attorney-client relationship.
Moreover, even in the jurisdictions where the privilege exists, the cases suggest that certain steps should be taken to protect the privilege. Thus, law firms and their attorneys may wish to consider the following recommendations.
1. Appoint in-house counsel
Regardless of the size of the law firm or type of practice, formally designating an attorney (or team of attorneys) to serve as in-house counsel benefits the firm and its clients. Maintaining confidentiality and avoiding conflicts of interest with clients are chief among the reasons for appointing in-house counsel.
Increased efficiency and expertise, both of which develop from handling similar matters over time, further maximize the protections for the firm and its clients. From a loss prevention perspective, in-house counsel may help to avoid malpractice claims or minimize exposure when they inevitably arise.
Larger firms typically opt to employ full-time in-house counsel, who either does not represent outside clients or represents only a limited number. This is an important limitation because in-house counsel cannot advise the firm and its attorneys on a client issue while simultaneously representing the same firm client.
Because a full-time in-house attorney does not represent any outside clients, any potential conflict of interest on behalf of the attorneys handling the matter at issue is not imputed to the in-house counsel. That the in-house counsel in Stock did not represent the firm client in any matters was an important consideration in the court's analysis.
If, however, full-time in-house counsel is not feasible, part-time in-house counsel may be adequate to protect firm and attorney confidences and communications. This individual generally represents outside clients as well as representing the firm.
Firms appointing part-time in-house counsel should nevertheless ensure that the attorney serving in that capacity does so on a formal, ongoing basis. When acting as in-house counsel, the attorney should clearly establish the firm as the client prior to any communications occurring or to rendering any legal advice.
Firms that cannot formally designate in-house counsel, opting instead for an ad hoc firm counsel where law firm matters are simply delegated to different firm attorneys whenever they arise, may face greater risks than those that institutionalize the in-house counsel role. Thus, if possible, firms should attempt to ensure that the designated in-house attorney does not and has not provided legal services to the client involved. If that's not possible, consider seeking the advice of outside counsel instead.
2. Treat in-house counsel as counsel to the firm in form and substance
Because they're often viewed as another member of the firm's team, interactions with in-house counsel may be less formal than would exist with outside counsel. Formal written correspondence, for example, is typically deemed unnecessary, while short emails are considered the norm. In most contexts, informality is not a significant issue. With potential claims or third-party discovery disputes, it can make the dividing line between the practice of law and the provision of legal advice as in-house counsel difficult to discern.
It is therefore critical that in-house counsel, when acting in her or his capacity as such, be treated in form and in substance as counsel to the firm. Ensuring the legitimacy and effectiveness of in-house counsel requires more than just the provision of a title. Instead, the position should be assigned responsibilities, including, but not limited to, the investigation and analysis of matters that might involve attorney exposure.
Many firms delegate responsibilities akin to those expected of general counsel. For example, in-house counsel's role might include purchasing legal malpractice insurance, identifying and resolving conflicts of interests, advising attorneys on ethical obligations, reporting potential claims and actual claims, and updating the status of the firm's partnership agreement or corporate structure.
Additionally, when discussing claims or rendering advice on specific matters involving firm clients, those clients should not be billed for any time devoted to consulting on such matters. The court in Stock emphasized this point repeatedly throughout its decision.
To ensure that the in-house counsel's role and the communications are viewed as legitimate, which is an issue that has been raised by some courts, it is recommend that in-house counsel act in the same manner as the firm's attorneys do for outside clients.
As such, some experts recommend separate billing numbers be created for general counsel matters, just as they would be for paying clients, and that all time be separately tracked for each matter. Doing so ensures that the attorneys seeking the legal advice of the general counsel do not inadvertently bill their time seeking such advice to the client.
It also assists with internal tracking of these matters for budgetary purposes (by allowing a review of the time spent by the general counsel on various matters or tasks) and also allows for the possibility of later claims for legal fees.
3. Segregate client files and in-house counsel files
Because the purpose of the communication is to seek legal advice on behalf of the firm, files maintained by in-house counsel should be segregated from those maintained by attorneys during the normal course of client representations.
Too often, internal communications discussing ethics inquiries or potential conflicts are maintained with other documents and materials for the case under which the issue arose. When that occurs, disclosure of those communications may be contested. The former client may insist that those documents corroborate claims of ethical violations or other attorney misconduct.
Keeping communications with in-house counsel separate helps prevent their disclosure, even in jurisdictions where the client "owns" the client file. To protect communications, in-house counsel should store emails and memoranda of conversations in files created for the purpose of advising the attorney or firm, while the attorney should keep them out of client files.