Intrafirm Talks Remain Privileged Under Federal Law

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By Joan C. Rogers

Feb. 29 — Internal consultations between a law firm's attorneys and the firm's in-house counsel about a possible conflict of interest are privileged under federal common law even while the firm was still representing the client, the U.S. District Court for the Northern District of California ruled Feb. 24.

The fiduciary exception to the attorney-client privilege doesn't apply, Magistrate Judge Donna M. Ryu ruled. The communications didn't involve a claim against the law firm, and the firm withdrew within two weeks of learning about the conflict and didn't do any work for the client in the meantime, she said.

The ruling is a notable departure from a string of federal decisions that have applied the fiduciary exception to abrogate the privilege in discovery disputes about a firm's internal communications during a client's representation.

Subpoena for Internal Talks

Ryu decided in a dispute over a subpoena that Orrick, Herrington & Sutcliffe LLP need not provide its former client Loop AI Labs Inc. with documents reflecting discussions that Orrick lawyers had with the firm's in-house counsel when a conflict surfaced between Loop and other parties that Orrick had concurrently represented for a time.

The court first decided that federal common law rather than state law determined whether the attorney-client privilege shielded the communications. Ninth Circuit precedent requires application of federal privilege law in cases involving both federal claims and pendant state law claims, she said.

On the merits, Ryu said that under Ninth Circuit case law the attorney-client privilege may apply to a law firm's communications with its own lawyers within the firm. The question here was whether the fiduciary exception, which the Ninth Circuit has recognized in another context, abrogated Orrick's attorney-client privilege for internal discussions with in-house counsel while the firm was still representing Loop.

Loop argued for applying the fiduciary exception to the privilege by citing a string of previous decisions from the Northern District:

  • Thelen Reid & Priest LLP v. Marland , 2007 BL 226352, No. C 06-2071 VRW, 23 Law. Man. Prof. Conduct 184 (N.D. Cal. Feb. 21, 2007);
  • In re SonicBlue Inc. , 2008 BL 15488, No. 03-51775 (Bankr. N.D. Cal. Jan. 18, 2008);
  • Landmark Screens LLC v. Morgan, Lewis & Bockius LLP , 2010 BL 9754, No. C08-02581 JF (HRL) (N.D. Cal. Jan. 15, 2010); and
  • E-Pass Techs. Inc. v. Moses & Singer LLP , 2011 BL 413257, No. C09-5967 EMC (JSC), 27 Law. Man. Prof. Conduct 561 (N.D. Cal. Aug. 26, 2011).
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    Ryu didn't dispute that the fiduciary exception may apply in some circumstances, but she found indications in Thelen and SonicBlue that public policy favors allowing firms to assert the privilege for internal communications about the firm's legal and ethical obligations to its client.

    The magistrate found that reasoning persuasive and expressly adopted it.

    Fiduciary Exception Doesn't Apply

    Ryu found that under the reasoning of Thelen and SonicBlue, the fiduciary exception to the attorney-client privilege didn't apply here.

    Loop and its litigation opponents are competitors in the field of artificial intelligence technology. The suit alleges that while Anna Gatti was still Loop's chief executive officer, she established a competing company and sabotaged Loop in several ways. When the litigation began, some Orrick attorneys were representing Loop in business matters while other Orrick attorneys had handled various matters for the companies that are now Loop's adversaries, including an employment contract for their use in hiring Gatti.

    Orrick said it first learned of the litigation on Feb. 27, 2015, when it received an e-mail from Loop's counsel asking questions about Orrick's representation of the defendants. Orrick withdrew from representing Loop on March 11, 2015. Loop later issued a subpoena demanding Orrick's internal communications about the lawsuit and its representation of the defendants.

    The magistrate judge said the cases Loop cited are distinguishable on their facts. Orrick didn't perform any work for Loop during the 12-day period from when it learned of the conflict to the date it withdrew from representing Loop. There is no evidence Orrick was previously aware of any impending ethics issues, and it promptly stopped its representation of all parties with conflicting interests, Ryu said.

    Ryu said that with only a couple of exceptions the documents Loop wanted are privileged from discovery because they contain communications about the firm's legal and ethical obligations in connection with representing Loop and its opponents, and they don't discuss claims that Loop might have against Orrick, errors in Orrick's representation of Loop or conflicts between Orrick and Loop.

    Healy LLC and Freitas Angell & Weinberg LLP represented Loop AI Labs. Orrick, Herrington & Sutcliffe LLP represented itself.

    To contact the reporter on this story: Joan C. Rogers in Washington at jrogers@bna.com

    To contact the editor responsible for this story: Kirk Swanson at kswanson@bna.com

    For More Information

    Full text at http://www.bloomberglaw.com/public/document/Loop_AI_Labs_Inc_v_Gatti_No_15cv00798HSG_DMR_2016_BL_53774_ND_Cal.

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