Two trial courts — in New York and New Hampshire — recently weighed in on the in-house firm counsel privilege. The New Hampshire Superior Court, in Moore v. Grau, recognized the parameters of the privilege. In contrast, the New York County Commercial Division judge in Stock v. Shnader Harrison Segal & Lewis LLP ruled that a malpractice plaintiff has a right to discover all relevant communications of his fiduciaries. The New York case is already on appeal, and is being closely watched.
Basis for firm counsel privilege
When issues develop with a firm’s representation of a client, “Who ya gonna call”? Not necessarily Ghostbusters. Rather, lawyers usually want to get advice from an in-house firm ethics guru. But are communications and documents related to that advice privileged from discovery later on?
Courts in the early- and mid-2000’s said “No,” because in-house firm counsel’s advice to the law firm and its lawyers raised a conflict of interest between the firm and its client, which these courts held negated any privilege. See, e.g., Koen Book Distrib. v. Powell, Trachtman (E.D. Pa. 2002). (Other cases are collected here, h/t to the Freivogel on Conflicts blog.)
But the tide later began to turn, with courts recognizing that public policy should “encourage lawyers to consult with in-house counsel to understand and comply with their professional responsibilities,” and that these consultations should be privileged — at least up to the time that the firm determined that an ethical breach had occurred that needed to be disclosed to the client. See, e.g., mag. dec. adopted); In re SonicBlue, Inc. (N.D. Cal. Bankr. 2008).
Then, in fairly quick succession, in 2013 and 2014, the high courts of three states recognized the in-house firm counsel privilege: Massachusetts, Oregon and Georgia. Each court used its own approach to reach the same result. In California, the first intermediate appellate decision to recognize the in-house privilege was issued in November 2014.
The ABA House of Delegates has also urged all jurisdictions to apply the attorney-client privilege to shield “confidential communications between law firm personnel and their firms’ designated in-house counsel made for the purpose of the rendition of professional legal services to the law firm.”
Will the trend continue?
In the recent Moore case, the New Hampshire trial court held that the defendant law firm had made a prima facie showing that e-mails it sought to shield from discovery were privileged — even though the firm’s ethics guru was not officially designated as “firm counsel.” The court said that it was persuaded that sound policy favored the developing trend toward recognizing an in-house firm counsel privilege, notwithstanding that few of the state’s firms were large enough to have a full-time designated in-house counsel.
The New Hampshire trial court adopted a four-factor flexible approach that the Georgia supreme court had used in recognizing the privilege, and said it would examine the documents in camera to assess these factors:
- a genuine attorney-client relationship existed between the lawyer seeking advice and the lawyer giving it;
- communications were intended to advance the firm’s interest in limiting its liability, rather than the client’s interest;
- the communications were kept confidential; and
- no exceptions to the privilege applied.
In contrast, the New York County commercial division court ordered a law firm to turn over 24 documents. Without extensive analysis, the court agreed with the malpractice plaintiff that the firm lawyers did not expect their communications with the firm’s general counsel to be kept confidential from the client. The court also said that the plaintiff had “a right to disclosure from his fiduciaries of communications that directly correlate to his claims of self-dealing and conflict of interest.” The appeal is likely to center on this expression of the “fiduciary exception” to the attorney-client privilege, and whether it applies in the firm-counsel context.
Although the trend is toward recognizing the sound policy basis for the in-house firm counsel privilege, there is still plenty of uncertainty about whether a single conceptual framework will crystallize and emerge as predominant, and whether large commercial states, like New York, will solidly recognize and apply the privilege. Stay tuned, but in the meantime, you might do well to consider the New Hampshire and Georgia courts’ four factors to guide your communications when “Who ya gonna call” sends you to your in-house ethics counsel.