Exley & Dunn v. St. Simons Waterfront LLC, Ga. Ct. App., No.
Key Holding: An unhappy client is not entitled to see evidence of the
law firm's internal investigation of the problem by the firm's internal counsel
if that lawyer had no part in the client's representation.
Significance: Provides an analytical framework for law firms to use to
maximize chances of claiming attorney-client privilege for internal firm
By Kirk Swanson
Privilege and work product protection attach to lawyers' communications with
their firm's in-house counsel about a dissatisfied client when the conflict of
the lawyers still representing the client cannot fairly be imputed to the
attorney serving as in-house counsel, the Georgia Court of Appeals declared July
13 (Hunter, Maclean,
Exley & Dunn v. St. Simons Waterfront LLC, Ga. Ct. App., No.
The court, speaking through Judge Stephen Louis A. Dillard, offered guidance
for determining when imputation in this context can be avoided. The
analysis--which draws heavily from a 2005 law review article--depends mostly on
evidence that the in-house counsel was not and did not become involved in the
outside client's representation.
The Georgia Court of Appeals indicated that whether it is appropriate to
impute to a firm's internal counsel the conflict that develops when a law firm
continues to represent a client while investigating whether the client may have
a claim against it depends in large part on how much time the lawyer in question
serves in the general counsel role:
▸Imputation of the conflict typically is not appropriate when the firm's
general counsel serves in that position full-time and does not represent outside
clients, the court said.
▸Serving as general counsel part-time qualifies for the privilege if the
lawyer “'does so on a formal, ongoing basis'” and the lawyer “had 'no
involvement in the outside representation at issue and the firm is clearly
established as the client before the in-firm communication occurs.'”
▸When a firm uses one of its lawyers as internal counsel on an as-needed
basis only, the court said, imputation of the other lawyers' conflict to firm
counsel is appropriate “'unless the firm can show that an attorney-client
relationship was established before the in-firm communication occurred,' which
shifts the burden to the law firm 'to show that the identity and role of “firm
counsel” was clearly defined.'”
The court warned that even if this test is satisfied, “a conflict may
nevertheless result if in-firm counsel delegates tasks or directs aspects of the
client representation through attorneys who are subject to
The opinion makes clear that the attorney-client privilege for a law firm's
internal communications may apply even if the firm's in-house counsel serves in
that role only on a part-time or as-needed basis.
Notably, the court announced that its analysis also applies to lawyers'
discussions with outside counsel about their firm's dilemma. Those
communications will be protected from discovery only if the firm can establish
that outside counsel was consulted solely to advise the firm about its own
course of action, and did not become involved in the firm's representation of
the client's interests in the underlying matter, Dillard said.
The case grew out of the representation of real estate developer St. Simons
Waterfront LLC (SSW) by the law firm of Hunter, Maclean, Exley & Dunn in the
sale of expensive condominiums. When a number of buyers rescinded their purchase
contracts, SSW indicated a desire to enforce the specific performance clause in
the agreements. The law firm expressed doubt whether this provision would be
upheld in court.
Representatives of SSW and Hunter Maclean held a conference call about how to
proceed. Firm lawyers came away with the impression that SSW was so unhappy with
the law firm's services that, in the court's words, “it was probable that SSW
would eventually file a claim against the firm.”
Two of the lawyers consulted the firm's in-house general counsel, Arnold
Young, soon after the call. The firm began an internal investigation, headed by
Young. According to the court, Hunter Maclean did not inform SSW that the law
firm was “evaluating its own exposure or building a defense” while the firm was
still representing SSW.
The firm said it began to seek replacement counsel for SSW, but the trial
court found that Hunter Maclean continued to represent the company for several
months until new counsel was in place. Before the representation ended, Hunter
Maclean contacted and eventually retained an outside attorney, Darla McKenzie,
asking her to advise the firm about how to proceed.
After retaining new counsel SSW sued the law firm for malpractice, breach of
fiduciary duty, and fraud. It sought depositions and documents from both Young
and McKenzie. The trial court held that Hunter Maclean's communications with
McKenzie were privileged, but that internal discussions involving Young were
The court of appeals surveyed many of the decisions from other jurisdictions
on the topic of privilege for internal law firm communications, but in the end
it adopted the framework advocated by New York Law School professor Elizabeth
Chambliss in her article The
Scope of In-Firm Privilege, 80 Notre Dame L. Rev. 1721 (2005).
The premise that the court adopted is that “whether a law firm may claim
privilege to legal advice regarding duties to a current client from in-house
counsel 'depends on whether there is a conflict of interest between firm
counsel's duty to the law firm and firm counsel's duty to the outside
The key, the court said, is to determine whether the conflict the lawyers
representing the outside client have--from helping the firm while still
representing the client--is imputable under Georgia Rule of Professional Conduct
1.10 to the lawyer serving as the firm's own counsel.
Whether a firm's internal counsel devotes all her time to that role is not
determinative in deciding the imputation issue, the court said, although it
affects what a trial judge should consider before ruling on the firm's privilege
claim. Using Chambliss's article as guidance, the court explained the
differences when internal counsel is full-time, part-time, or ad hoc. (See
If the other lawyers' conflict is imputable to firm counsel, the court said,
the client may waive the conflict for the time being by agreeing to the firm's
continued representation--but a valid waiver depends on informed consent, which
in turn requires the firm to give “adequate notice to the client of the firm's
potentially adverse interests,” Dillard stated. The court offered this
[A] law firm would be well advised to
explain in writing the firm's perception and (1) seek the client's informed
consent for an immediate withdrawal, disclosing to the client the potential harm
that could result from such withdrawal, and/or (2) seek the client's informed
consent to continued representation until such time as the firm can withdraw,
with disclosure that the firm will simultaneously take steps to protect its own
interests. Nevertheless, in the latter option, … the firm should segregate the
attorneys who will continue with the client representation and the attorneys who
will conduct the investigation, except for the limited purpose of providing
pertinent information necessary to begin the investigation.
The appellate court remanded the case so that the trial court could resolve
the privilege questions using the guidelines Dillard explained in this
If Young was “completely segregated from the underlying matter,” or if SSW
gave informed consent to establish a waiver of conflict, “the usual rules of
privilege will attach,” Dillard said.
But if neither of those circumstances exists, he continued, the trial judge
must look at SSW's discovery request and the law firm's privilege log, and then
order production of communications that implicate the conflict of
interest--which Dillard described as “those discussing claims the client might
have against the firm, known errors in the firm's representation of the client,
conflicts in its representation, and other circumstances that would have
triggered the firm's duty to advise the client and obtain the client's
A trial court should use the same analytical approach in determining whether
discussions between a firm and outside counsel it has retained are privileged,
“In other words,” he said, in this case “the trial court must determine
whether the attorneys with whom McKenzie communicated--aside from any necessary
exchange of background information for investigation and research purposes--were
subject to an imputed conflict of interest and, if so, continue to apply the
analysis discussed supra.”
Much the same process will determine whether a law firm may claim work
product protection for its internal discussions about a problem client, the
Hunter Maclean was represented by Susan W. Cox, Benjamin J. Colson, and Marc
M. Bruce of Edenfield, Cox, Bruce & Classens, Statesboro, Ga.
Representing SSW were John G. Nelson of Weissman, Nowack, Curry & Wilco,
Atlanta, and Jenny E. Jensen of Jones, Jensen & Harris, Norcross, Ga.
Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-8w6png.
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