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By Samson Habte
Attorney-client privilege and work product protection attach to lawyers' communications with their firm's in-house counsel about potential malpractice liability to a dissatisfied client, the Georgia Supreme Court held July 11 (St. Simons Waterfront LLC v. Hunter, Maclean, Exley & Dunn PC, Ga., No. S12G1924, 7/11/13, vacating 28 Law. Man. Prof. Conduct 433).
The ruling was the second in two days on this issue, following a decision from the top court in Massachusetts that also validated the in-firm privilege. See 29 Law. Man. Prof. Conduct 422.
The Georgia opinion establishes new law in that state on a question that has divided courts nationwide: Do the fiduciary and ethical duties that lawyers owe clients preclude or circumscribe their ability to rely on attorney-client and work product protections when sued for malpractice and asked to turn over internal communications bearing on those claims?
Writing for the court, Chief Justice Carol W. Hunstein said “no”: those doctrines apply no differently when they are invoked to shield internal communications between lawyers in a law firm and an in-house counsel.
“[T]he same basic analysis that is conducted to assess privilege and work product in every other variation of the attorney-client relationship should also be applied to the law firm in-house counsel situation,” Hunstein declared.
In so ruling the court rejected arguments accepted by other courts that the privilege should not apply either because of a “fiduciary exception” to the privilege or because of a perceived inherent conflict that arises when one or more lawyers in the firm are representing the outside client while the in-house counsel in the firm is looking out for the firm's own interests.
The court acknowledged that the scenario in which a law firm continues to represent a client while the firm itself becomes a client of its in-house counsel concerning its representation of the outside client presents an “ethical quandary.”
But the ethics of the matter and the question of privilege are separate issues that must not be lumped together, Hunstein said.
“We hold … that the Georgia Rules of Professional Conduct do not govern the applicability of the attorney-client privilege or work product doctrine,” she stated, “and therefore the conflict of interest that may arise between the firm and the client when the firm begins acting in its own defense does not affect the protections afforded to privileged communications and attorney work product.”
Accordingly, the court vacated an appellate opinion which had declined to endorse a rule using general privilege principles solely.
In 2006, St. Simon's Waterfront LLC (“SSW”) retained the law firm Hunter, Maclean, Exley & Dunn to draft form contracts that the developer used to “pre-sell” condominium units in a planned development project. Several purchasers who signed those agreements subsequently rescinded and cited alleged defects in the purchase contracts as grounds for doing so.
The lawyers who drafted the agreements told Hunter Maclean's in-house general counsel, Arnold Young, that SSW blamed the firm and could seek to hold it liable for the rescissions. Young interviewed those attorneys and also sought advice from outside counsel.
The firm continued representing SSW in closings and in negotiating with rescinding purchasers while looking for replacement counsel for SSW.
The disgruntled client later retained another firm to take over the representation as to the rescinding purchasers and also to explore bringing an action against Hunter Maclean. New counsel asked Hunter Maclean to continue handling the ongoing closings, however, and the firm did so for a few months longer.
“In 2009, SSW filed suit against Hunter Maclean, asserting claims for legal malpractice, breach of fiduciary duty, and fraud in connection with its representation in the condominium transactions and its conduct once the firm's interests became adverse to SSW's,” Hunstein stated.
SSW sought to depose and obtain documents from Hunter Maclean's outside counsel as well as from Young and four other firm lawyers. Hunter Maclean resisted, citing attorney-client privilege and the work product doctrine. SSW moved to compel production.
The trial court granted the motion to compel except as to Hunter Maclean's communications with outside counsel, which it found to be privileged. The court reasoned that any privilege Hunter Maclean may have enjoyed as to its communications with Young was abrogated by the conflict that developed when the firm continued to represent SSW without advising the client of the adversity of interests that had emerged.
Hunter Maclean challenged the ruling as to Young, while SSW challenged it as to outside counsel.
the Court of Appeals' framework assessed the nature of the communications at issue; the structure of the in-house counsel position; and the extent to which the client gave informed consent, in conformity with the Rules of Professional Conduct, to the firm's undertaking defensive measures in anticipation of litigation during its ongoing representation of the client.
The supreme court described that ruling as “carefully considered” but nevertheless concluded that it was erroneous. “We now restructure this framework to fit within the parameters of Georgia's general law on privilege and work product and to remove the Rules of Professional Conduct from the analysis,” Hunstein declared.
The supreme court acknowledged that it had “never addressed the parameters of the attorney-client privilege in the context of communications involving a law firm's in-house counsel.” It further observed that courts in other jurisdictions have reached different conclusions on the issue.
“Some have concluded that intra-firm communications regarding a current firm client are not entitled to privilege under any circumstances, due to the fiduciary relationship between the firm and its client,” Hunstein noted. She cited Koen Book Distribs. v. Powell, Trachtman, Logan, Carrle, Bowman & Lombardo PC, 212 F.R.D. 283, 19 Law. Man. Prof. Conduct 33 (E.D. Pa. 2002), Bank Brussels Lambert v. Credit Lyonnais (Suisse) SA, 220 F. Supp.2d 283, 18 Law. Man. Prof. Conduct 598 (S.D.N.Y. 2002), and In re SonicBlue Inc., No. 03-51775, 2008 BL 15488 (Bankr. N.D. Cal. 2008).
“Other courts have held that the privilege applies only in limited circumstances,” she added, pointing to Thelen Reid & Priest LLP v. Marland, No. C 06-2071 VRW, 23 Law. Man. Prof. Conduct 184 (N.D. Cal. Feb. 21, 2007) (requiring disclosure of communications made after firm learns of client's adverse claim).
“Still others have held that the privilege does apply or that it applies with narrow exceptions,” Hunstein said, citing TattleTale Alarm Sys. Inc. v. Calfee, Halter & Griswold LLP, 772 F. Supp.2d 893, 27 Law. Man. Prof. Conduct 106 (S.D. Ohio 2011) (burden on client to show “good cause” for disregarding privilege), and Garvy v. Seyfarth Shaw LLP, 966 N.E.2d 523, 28 Law. Man. Prof. Conduct 140 (Ill. App. Ct. 2012) (rejecting “fiduciary duty” exception to privilege).
“Having examined these varying approaches and considered their underlying rationales, we have determined that the best course is simply to analyze the privilege issue here as we would in any other lawsuit in which the privilege is asserted,” the court declared.
Accordingly, the court said, attorney-client privilege will attach to “intrafirm” communications under the same circumstances they will in other contexts--where four conditions are met:
• there is an attorney-client relationship;
• the communications in question relate to the matters on which legal advice was sought;
• the communications have been maintained in confidence; and
• no exceptions to privilege are applicable.
Work product doctrine is similarly applied under the same rules and standards as it is in other contexts, the court said. Thus, the disclosure of factual materials prepared in anticipation of litigation by an in-house counsel will not be compelled unless the party seeking those documents shows: (1) that it has a “substantial need” for the materials to prepare the case, and (2) that it is unable without undue hardship to obtain the substantial equivalent of the materials by other means.
“Even if the requisite showing is made to compel disclosure under this standard, absolute protection is still afforded to 'mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation,'” the court said.
Hunter Maclean was represented by John G. Nelson of Weissman, Norwack, Curry & Wilco, Atlanta. St. Simons was represented by Susan W. Cox and Benjamin J. Colson of Edenfield, Cox, Bruce & Classens, Statesboro, Ga.
Copyright 2013, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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