In RFF Family Partnership, LP v. Burns & Levinson, LLP, et al., SUCV2012-2234-BLS1 (Nov. 20, 2012) (Billings, J.), on crossing motions, one to compel and the other for a protective order, the Massachusetts Superior Court addressed the following two issues which the Massachusetts appellate courts have yet to opine on:

  1. whether an attorney’s consultation with his law firm’s designated in-house ethics counsel regarding potential liability to a client in an ongoing client matter constitutes an attorney-client communication and, therefore, is presumptively protected by the attorneyclient privilege; and,
  2. assuming these intra-firm consultations are protected from disclosure by the attorney-client privilege, is there an exception requiring the disclosure of these communications to the client.

The Court ruled:

  1. intra-firm consultations between a law firm’s designated in-house ethics counsel and an attorney at the firm concerning both the firm and the attorney’s potential liability to a client constitute attorney- client privileged communications; and,
  2. these attorney-client privileged communications do not fall within the “fiduciary exception” to the privilege and, therefore, are protected from disclosure.

This ruling is at odds with the majority of jurisdictions concerning these issues, including two decisions from the U.S. District Court for the District of Massachusetts. See Cold Spring Harbor Laboratory v. Ropes & Gray LLP, 2011 WL 2884893 (D. Mass. July 19, 2011); Burns v. Hale & Dorr LLP, 242 F.R.D. 170, 173-174 (D. Mass. 2007).

In this case, Burn & Levinson LLP (“B&L”) was retained by RFF to provide legal assistance in connection with a commercial loan to a developer holding title (“Title Holder”) to real estate located in Saugus, Massachusetts (the “Property”), which was to be secured by a first mortgage lien on the Property (the “Mortgage Matter”). To perfect RFF’s first mortgage lien on the Property, B&L searched the title to the Property, identified senior liens, reported these liens to RFF, and thereafter secured subordination agreements from senior lien holders. In its lawsuit against B&L, RFF alleges B&L failed to:

  1. either detect one of the senior liens on the Property or, detected the senior lien but failed to disclose it to RFF;
  2. inform RFF that the registry of deeds rejected one of the subordination agreements B&L secured from one of the senior lien holders; and,
  3. inform RFF that the purported principal of the Title Holder may not have had authority to execute the commercial loan documents.

After the Title Holder of the Property defaulted on RFF’s short term loan, B&L represented RFF with the foreclosure and subsequent sale of the Property. The day before the foreclosure sale, the assignee of the senior lien whose subordination agreement was rejected by the registry of deeds filed suit in Land Court against RFF seeking to enjoin RFF’s foreclosure on the Property and to establish the priority of its mortgage lien on the Property. The Land Court rejected the assignee’s emergency motion to enjoin foreclosure, and the sale proceeded as scheduled with RFF being awarded the Property as the highest bidder.

Soon thereafter, RFF replaced B&L with new counsel in the Land Court action. B&L, however, continued to represent RFF in connection with the closing on the sale of the Property. RFF’s new counsel sent B&L a notice of a claim for malpractice (“Notice of Claim”) arising out of B&L’s representation of RFF in connection with the Mortgage Matter. The Notice of Claim enclosed a draft complaint and demanded B&L indemnify RFF against any loss resulting from B&L’s mishandling of the Mortgage Matter. After receipt of the Notice of Claim, the B&L partners who had represented RFF in the Mortgage Matter met with B&L’s managing partner, who at the time also was the partner at B&L designated to respond to ethical questions and risk management issues, seeking legal advice as to how to respond to RFF’s Notice of Claim. B&L’s managing partner had never worked on any matter for RFF. After this meeting, one of B&L’s partners who had represented RFF in the Mortgage Matter sent a letter to RFF’s principal, stating B&L could no longer represent RFF with the closing on the sale of the Property and would be withdrawing its representation immediately.

After receipt of B&L’s letter, RFF’s principal called the B&L partner who sent the letter, stating RFF’s new counsel in the Land Court action was not authorized to file or threaten to file a claim against B&L. A day after this telephone call, B&L responded to the Notice of Claim by denying any liability on its part, contending RFF’s claim was not ripe for litigation, and threatening to seek Rule 11 sanctions against RFF and its new counsel if RFF prematurely commenced litigation against B&L. B&L then sent a letter to RFF’s principal, asking for written confirmation from him that RFF had not engaged its new counsel to file a lawsuit or advance any other litigation, claim, or action against B&L. RFF’s principal countersigned the letter and returned it to B&L. Accordingly, B&L continued to represent RFF in connection with the closing on the sale of the Property. Fifteen months later, B&L withdrew from any further representation of RFF and told RFF it would send a final bill shortly. Soon thereafter, RFF filed suit against B&L, the individual partners at B&L who represented it in connection with Mortgage Matter, and B&L’s professional liability insurer, asserting claims for breach of contract, legal malpractice, negligent misrepresentation, intentional misrepresentation, and violations of Chapters 93A and 176D.

During discovery, RFF requested B&L produce to it all documents: (i) concerning B&L’s investigation of the allegations contained in RFF’s Notice of Claim; and, (ii) supporting B&L’s representations in its response to RFF’s Notice of Claim. B&L objected to these requests on the grounds of relevancy, the attorney-client privilege, and work product protection. B&L also stated it would not search for any responsive documents in connection with these document requests.

Additionally, B&L did not provide RFF with a privilege log as required by Rule 26(b)(5) of the Massachusetts Rules of Civil Procedure and made no effort to respond to RFF’s request for a Superior Court Rule 9C conference concerning B&L’s objections to RFF’s discovery requests.

The Court first addressed B&L’s objections to RFF’s discovery requests. It found these objections to be “both high-handed and anachronistic,” as the burden was on B&L to establish that each responsive document withheld is privileged, an issue that could not be resolved without the documents being located, identified, and described in a privilege log. The Court then addressed whether B&L’s intra-firm consultations with its in-house ethics counsel constituted attorney-client communications and, thus, were protected from disclosure by the attorney-client privilege. Accepting B&L’s representations as true that these intra-firm consultations were indeed with B&L’s designated in-house ethics counsel and for the express purpose of obtaining legal advice concerning the firm and its attorneys’ ethical and legal obligations to RFF, the Court held these intrafirm consultations constituted attorney-client privileged communications and, therefore, are presumptively protected from disclosure absent an exception to the rule.

Next, the Court addressed the “fiduciary exception” to the attorneyclient privilege. Although it recognized the majority of jurisdictions hold this exception waives the attorney-client privilege, the Court agreed with the rationale provided by the courts in the minority. The Court explained that the “fiduciary exception” to the attorney-client privilege was adopted from the law of trusts and derives from nineteenth century English law.

[T]he rule was that when a trustee obtained legal advice to guide the administration of the trust, and not for the trustee’s own defense in litigation, the beneficiaries were entitled to the production of documents related to that advice. The courts reasoned that the normal attorney-client privilege did not apply in this situation because the legal advice was sought for the beneficiaries’ benefit and was obtained at the beneficiaries’ expense by using trust funds to pay the attorney’s fees.

The Court then distinguished the rationale for the “fiduciary exception” to the intra-firm legal advice provided by B&L’s in-house ethics counsel to the B&L partners concerning RFF’s notice of a malpractice claim against B&L while B&L was still representing RFF in the Mortgage Matter. The Court explained, unlike the trustee who seeks legal advice for the benefit of the beneficiary and at the expense of the beneficiary, the B&L partners sought and received legal advice from the firm’s designated in-house ethics counsel for their benefit, not for RFF’s, and B&L did not bill RFF for this time. Accordingly, the Court ruled the “fiduciary exception” did not apply to these B&L intra-firm attorney-client communications.

The Court also acknowledged and addressed the seemingly inherent conflict its ruling creates with an attorney’s duty to provide his or her client with full and fair disclosure of the facts material to the client’s interests. The Court explained, there is a distinction between the facts giving rise to the malpractice claim, which are not protected from disclosure, and attorney-client communications discussing these facts, which are protected from disclosure by the attorneyclient privilege. The Court provided the following example from the United Supreme Court decision in Upjohn Co. v. United States, 449 U.S. 383, 395-396 (1981).

The client cannot be compelled to answer the question, “What did you say or write to the attorneys?” but may not refuse to disclose any relevant fact within his knowledge merely because he incorporated a statement of such fact into his communications to his attorney.

The Court further explained, whereas the compelled disclosure of B&L’s intra-firm legal consultations with its in-house ethics counsel concerning RFF’s malpractice claim would do little to advance the interests of RFF, who is owed the disclosure of facts material to its interests, it would do much to undermine the important societal goals served by the attorney-client privilege, which is to enable clients to make full disclosure to legal counsel of all relevant facts so that counsel may render fully informed legal advice.

Although the Court ruled B&L’s intra-firm legal consultations with its designated in-house ethics counsel were protected from disclosure by the attorney-client privilege, given the circumstances in this case, namely, (i) B&L’s counsel’s failure to prepare a privilege log identifying and describing the documents withheld so that the Court could make a determination whether the documents were protected from disclosure, and (ii) B&L’s counsel’s disregard to the request from RFF’s counsel to engage in Rule 9C conference, the Court ordered the production of these privileged attorney-client communications.

The Court, however, did allow B&L’s motion for a protective order to prevent RFF’s counsel from inquiring at B&L’s forthcoming 30(b)(6) deposition about B&L’s intra-firm legal consultations with its in-house ethics counsel and B&L’s communications with its professional liability carrier. The Court stated B&L’s counsel could object, and where appropriate, instruct witnesses not to answer questions regarding these communications. With respect to B&L’s communications with its professional liability insurer, the Court explained that some, if not all, of these communications may be protected from disclosure by the work product doctrine.

In the wake of these rulings, to protect against the disclosure of intrafirm legal consultations and documents prepared in connection with an internal investigation concerning the firm’s potential liability to a client, law firms should: (1) designate an in-house ethics counsel from whom its attorneys can seek, and obtain, legal advice on their ethical and legal obligations to a client; (2) make sure the designated in-house ethics counsel has not performed any legal work on the underlying client matter; (3) not bill the client for the time spent conducting the internal investigation or consulting with the firm’s designated in-house ethics counsel; and, (4) not place any documents regarding the internal investigation or any intra-firm legal consultations in the client’s files.