Sometimes the first notice of a legal malpractice claim is a demand or a complaint. However, attorneys or law firms often become aware of a claim through threats from the client during the course of a representation or through circumstances that indicate that the attorney or law firm should suspect a claim. In such situations, the first step taken by attorneys is often to discuss the issue with colleagues to assess whether the attorney or the law firm faces any exposure. But this can be an issue that is much more complicated than it might appear, primarily due to whether an attorney can claim a privilege with the firm's general or in-house counsel.
This is a high-profile issue that is receiving attention from courts. See RFF Family Partnership v. Burns & Levinson; St. Simons Waterfront v. Hunter, Maclean, Exley & Dunn; and Crimson Trace Corp. v. Davis Wright Tremaine.
The risk is that some courts, including some in California, suggest that when an attorney seeks advice from in-house counsel regarding a representation—such as whether the attorney has committed malpractice against a client—it automatically creates a conflict between the attorney and that client. Sometimes, this can result in compelled disclosure of communications between the attorney and in-house counsel.
Whether internal communications between an attorney and in-house counsel are protected is back in the news in light of a recent decision in New York. In Stock v. Schnader Harrison Segal & Lewis, 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.
Although this is good news for attorneys, the fact remains that there is still a degree of uncertainty when it comes to guaranteed protection of internal communications in law firms. Here are some suggestions—based on case law—that may help attorneys protect their external clients and help general counsel protect their internal clients.
1. Track internal matters
Some courts look at how in-house counsel treats its representation of the firm. It is helpful for in-house counsel to treat the firm like a real client. This might mean labeling communications from in-house counsel, when serving as the firm's lawyer, as privileged. A law firm may also consider segregating files maintained by in-house counsel.
Any communication that ends up in the client's file may be discoverable. To protect such communications, emails, documents and memoranda of conversations should generally be kept out of client files and kept in files by in-house counsel for the purpose of advising the firm. If the communications are maintained in the client's file, it may be difficult for the attorney to argue that the communications may be withheld from the client.
2. The role is not ad hoc
To provide protection to the practice's attorneys, most firms ensure that the role of in-house counsel involves more than just a title or designation. Instead, it generally is a position with assigned responsibilities including, but not limited to, the investigation and analysis of matters that might involve attorney exposure.
The formal designation of an attorney for loss prevention issues can be an important step for a number of reasons. At many firms, in-house counsel may be responsible for, among other things, purchasing legal malpractice insurance; identifying and resolving conflicts of interests; reporting potential and actual claims; and updating and providing the status of the firm's partnership agreement or corporate structure.
At larger firms, full-time in-house counsel sometimes do not represent outside clients or represents only a limited number of outside clients. This can be an important limitation, since in-house counsel may not be permitted to advise both the firm and its attorneys while simultaneously representing the firm's clients in connection with the same issue. 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 likely will not be imputed to the in-house counsel. As such, communications regarding current clients can remain privileged.
If a full-time in-house counsel is not feasible, communications may also be protected through the appointment of part-time in-house counsel who represents outside clients as well as the firm. Firms appointing a part-time in-house counsel generally take steps to ensure that the attorney serving in that capacity does so on a formal, ongoing basis; that the attorney clearly establishes the firm as the client prior to any communications occurring while in that role; and that either the in-house counsel has no involvement in the representation at issue or the in-house counsel obtains informed consent from both the firm and the outside client. Each firm can determine what works best for its practice.
Firms may face risks if they opt instead for ad hoc firm counsel where law firm matters are simply delegated to different attorneys within the firm as they come up, rather than being handled by formally designated in-house counsel.
3. In-house counsel is the firm's lawyer
In-house counsel often operates in lieu of outside counsel to advise law firms and attorneys on matters involving the law firm and attorneys. The communications sometimes are less formal than would exist with outside counsel. In most contexts, this is not a significant issue. However, with potential claims, it can make the dividing line between the practice of law and legal advice by an in-house counsel to her or his client difficult to discern.
Such issues can defeat one of the most important purposes of the in-house counsel. As such, a law firm should ensure that in-house counsel, when acting in her or his capacity as such, is treated in form and in substance as counsel to the firm. This may include communicating the designation and role to all personnel, who need to know who to call if they need to discuss a potential claim, and any other protocols for keeping those communications privileged.