The ABA/BNA Lawyers’ Manual on Professional Conduct™ is a trusted resource that helps attorneys understand cases and decisions that directly impacts their work, practice ethically, and...
The attorney-client privilege shields confidential communications that lawyers have with their firm's designated in-house counsel about a current client's malpractice accusation, so long as the firm's counsel wasn't involved in the client's representation and the firm eats the cost of the consultations, the Massachusetts Supreme Judicial Court held unanimously July 10 (RFF Family Partnership LP v. Burns & Levinson LLP, Mass., No. SJC-11371, 7/10/13).
Speaking through Justice Ralph D. Gants, the court rejected theories that have led several federal district courts to reach the opposite conclusion. Disallowing the privilege for in-firm consultations about a current client's complaint would have “dysfunctional” results, while recognizing the privilege will often benefit the client and strengthen law firm compliance with ethics obligations, the court said.
The opinion marks the first decision by any state's top court recognizing the in-firm privilege, although Georgia followed suit the very next day. See 29 Law. Man. Prof. Conduct 424.
Several lawyers' groups weighed in with amicus briefs on this issue of keen interest to the legal profession. Lawyers who spoke with BNA lauded the holding and predicted that the decision will prove influential.
Thomas E. Peisch of Conn Kavanaugh Rosenthal Peisch & Ford, Boston, emphasized the clarity and breadth of Gants's opinion. “This opinion is broad enough so that large firms and small firms are now free to get advice when client issues arise without fear that they will be forced to disclose that they made the request and what the response was,” Peisch told BNA. He argued for the defendant law firm in the case, Burns & Levinson.
In an email to BNA, Robert M. Buchanan Jr., who authored the Boston Bar Association's amicus brief in the case, said the decision “provides clear analysis and a clear rule, and this is good news for the profession.” All lawyers face complex questions of professional responsibility, and lawyers who practice in law firms should be encouraged to consult their in-house counsel, he said.
“The Court's careful reasoning should have strong persuasive value in other states,” said Buchanan, who practices with Choate, Hall & Stewart in Boston.
Richard M. Zielinski of Goulston & Storrs, Boston, also praised the ruling. “This is an excellent decision which should change the course of discussions about the privilege for in-house general counsel and ethics advisors,” he said in an email to BNA. He authored an amicus brief in the case for malpractice insurer Attorneys' Liability Assurance Society Inc., along with Timothy J. Dacey and Gary M. Ronan, also of Goulston & Storrs.
The decision is significant in several ways, according to Zielinski. First, he said, it has a practical focus on conflicts situations as they arise in real life, and it seeks the solution that will provide the best results for clients and law firms. Second, “the opinion has a thorough discussion of why the 'current client' exception applied by many courts does not work and is not required by the imputed disqualification principle in Rule 1.10.”
Third, Zielinski said, “the opinion imposes four realistic practical requirements to insure that the privilege will apply only in appropriate cases.” These four requirements “should serve as a list of best practices for law firms that want to insure that their communications with in-house counsel remain protected,” he suggested.
William T. Barker, who wrote an amicus brief in the case for the Association of Professional Responsibility Lawyers, told BNA that the Massachusetts and Georgia high court cases, in combination with Garvy v. Seyfarth Shaw LLP, 966 N.E.2d 523, 28 Law. Man. Prof. Conduct 140 (Ill. App. Ct. 2012), “dramatically change the direction of the law on this issue.” Barker is a partner in Dentons, Chicago.
“Until Garvy, there was an almost solid wall of federal trial court decisions denying the privilege,” Barker said in an email to BNA. “But those decisions failed to consider important lines of authority (regarding the scope of the fiduciary exception to the privilege and the impact of a conflict on availability of the privilege) that have now been utilized in Garvy and RFF Family Partnership.”
“Anyone seeking to rely on the old federal cases must now grapple with both the new appellate cases and the previously overlooked lines of authority on which they were based,” Barker said. That will be a difficult task, he predicted.
Of course, the attorneys representing the plaintiff in this case don't see it the same way. In a statement provided to BNA, Richard E. Briansky and Amy B. Hacket of Prince Lobel Tye, Boston, said that while they understand the policy considerations supporting the court's decision, “we believe the Court failed to properly reconcile the interest in preserving the attorney-client privilege with the fiduciary and ethical obligations an attorney owes his client.”
“At a minimum, the Court could have conditioned recognition of the privilege on some form of disclosure to the client before an attorney engages in these types of communications,” they stated. “This minimal disclosure would not be burdensome and would at least put an existing client on notice that his attorney is seeking legal advice in response to the client's malpractice claim and of a potential, if not already existing, conflict of interest.”
While Burns & Levinson was representing RFF Family Partnership LP, the firm received a “notice of claim” from another law firm, Prince Lobel Tye, on behalf of RFF. The letter alleged that B&L had breached its obligations to RFF in an earlier phase of the representation. Attached to the letter was a draft complaint against the firm and two of its attorneys
The lawyers consulted their firm's in-house counsel, David Rosenblatt. Within a week of receiving the notice of claim, B&L notified RFF that it was going to withdraw. However, the firm agreed to step back into the representation after RFF asked it to do so and confirmed that it had not engaged Prince Lobel Tye to sue the firm.
After B&L concluded the representation, RFF filed a malpractice action against the firm. B&L then sought and received a protective order to shield privileged communications among Rosenblatt and the B&L lawyers who consulted him regarding RFF's notice of claim.
The supreme judicial court concluded that the defendants were properly granted a protective order to enable them to preserve the confidentiality of privileged attorney-client communications between the law firm and its in-house counsel about how B&L should respond to RFF's notice of claim and draft complaint.
No other court of last resort in the United States had addressed whether the attorney-client privilege applies to a law firm's in-house communications about a current client, Gants said.
After examining case law and policy considerations, the court held that “the attorney-client privilege applies to confidential communications between a law firm's in-house counsel and the law firm's attorneys, even where the communications are intended to defend the law firm from allegations of malpractice made by a current outside client,” so long as four conditions are met:
• The law firm must designate, at least informally, a lawyer or lawyers within the firm to represent the firm as in-house or ethics counsel, so that there is an attorney-client relationship between the designated counsel and the firm when the consultation occurs.
• Where a current outside client has threatened litigation against the firm, the in-house counsel must not have worked on the particular matter or a substantially related matter.
• The time spent in communications with in-house counsel may not be billed or charged to any outside client, because the law firm is the client and must bear the cost of the communications.
• The communications must be made in confidence and kept confidential, as is required for all attorney-client communications.
All four requirements were met in this case, the court found.
Some courts have cited the “fiduciary exception” to the attorney-client privilege in disallowing the privilege for in-firm communications about a current client. That exception, Gants noted, grew out of trust law recognizing that when a trustee obtains legal advice to guide administration of the trust, the beneficiaries are the real clients and thus are entitled to the production of documents related to that advice.
The fiduciary exception has never been recognized in Massachusetts, Gants observed, but it would not apply here anyway because the attorney-client communications in question were for the law firm's own defense in the threatened litigation. The lawyers' time was not billed to the client, because the firm itself was the real client of the in-counsel counsel whose advice was sought.
A Third Shoe to Drop?
After Massachusetts and Georgia, it appears that a third ruling on in-firm privilege from a state's top court is on the horizon. The Oregon Supreme Court announced March 28 that it will take up the issue in an original mandamus proceeding, Crimson Trace Corp. v. Davis Wright Tremaine LLP, Or., No. S061086, writ granted 3/28/13. The law firm seeks reversal of a discovery order directing the firm to turn over internal communications to its former client.
The question for the court's resolution is “Whether a lawyer's communications with in-house counsel regarding matters involving a current client of the firm are protected by the lawyer-client privilege.”
The docket in this appeal is available at http://www.bloomberglaw.com/public/document/Crimson_Trace_Corporation_v_Davis_Wright_Tremaine_LLP_Docket_No_S.
Building on Koen Book Distrib. v. Powell, Trachtman, Logan, Carrie, Bowman & Lombardo PC, 212 F.R.D. 283, 19 Law. Man. Prof. Conduct 33 (E.D. Pa. 2002), RFF argued that a law firm's paramount fiduciary duty to its client would even prevent the firm from having privileged discussions with outside counsel without first obtaining the aggrieved client's consent or withdrawing from the representation.
The court rejected that proposition as “dysfunctional” and “draconian.” Gants acknowledged that a client is entitled to full and fair disclosure of facts that are relevant to the representation, including any bad news, and to sound legal advice from its lawyers. “But a client is not entitled to revelation of the law firm's privileged communications with in-house or outside counsel where those facts were presented and the sound legal advice was formulated if those communications were conducted for the law firm's own defense against the client's adverse claims,” he wrote.
Gants noted that the majority of courts confronted with the issue presented here have invoked some variant of the “current client” exception articulated in In re SonicBlue, No. 03-51775, 2008 BL 15488 (Bankr. N.D. Cal. 2008).
That principle states that where a current outside client threatens legal action against a law firm and the attorneys in the firm seek legal advice from the firm's in-house counsel, the firm is both the attorney for the outside client and itself a client, and these two “clients” have conflicting interests that make it improper under professional conduct rules governing current-client conflicts (Rule 1.7) and imputation of conflicts (Rule 1.10) for the in-house lawyer to represent the firm unless the firm withdraws from representing the client or obtains the client's informed consent. Furthermore, this conflict of interest vitiates the attorney-client privilege.
The court declined to adopt that exception in Massachusetts. “The 'current client' exception is a flawed interpretation of the rules of professional conduct that yields a dysfunctional result,” Gants declared.
Gants identified two fundamental problems with the current-client exception. First, he said, nothing in Rule 1.10 indicates that the rule of imputation is meant to prohibit an in-house lawyer from providing legal advice to his own law firm in response to an outside client's threatened claim.
The court also said that the purposes underlying the rule of imputation--loyalty and confidentiality--would not be served by applying it to the representation of a law firm by its in-house counsel. “[A] law firm is not disloyal to a client by seeking legal advice to determine how best to address the potential conflict, regardless of whether the legal advice is given by in-house counsel or outside counsel,” Gants wrote.
Regarding confidentiality, he pointed out that a law firm accused of malpractice already possesses the outside client's information and has a right to defend itself under Rule 1.6(b)(5) against the outside client's claims even to the point of disclosing information imparted to the law firm in confidence.
Second, Gants said that even where a law firm actually violated Rule 1.7 by representing two clients with adverse interests without the consent of each client, this conflict should not deprive the client of the privilege.
As authority, he cited In re Teleglobe Comm'ns Corp., 493 F.3d 345, 23 Law. Man. Prof. Conduct 373 (3d Cir. 2007), which stated it is “black-letter law” that when a lawyer improperly represents clients whose interests are adverse, the communications are privileged against each other notwithstanding the lawyer's misconduct.
Gants also noted that Section 6 of the Restatement (Third) of the Law Governing Lawyers (2000) identifies 13 possible sanctions for a law firm's breach of Rule 1.7--without mentioning disclosure of otherwise privileged communications as a remedy.
The court pointed out that a law firm would have four unsatisfactory choices if, as RFF argued, a lawyer could not engage in privileged discussions with the firm's in-house counsel about a current client's threatened malpractice claim without either withdrawing or seeking the client's informed consent.
First, the lawyer could immediately withdraw without getting expert advice. But this choice, the court said, poses the risk that the firm may withdraw when it is actually unnecessary or without protecting the client's interests.
Second, the lawyer could advise the client of the conflict and seek consent without first consulting in-house counsel. But in doing so, Gants said, the lawyer firm would be advising the client before obtaining advice needed to better understand the conflict.
Third, the lawyer could confer with in-house counsel without first having withdrawn or obtained the client's consent. This alternative carries a risk that the information provided to in-house counsel will be “sugar-coated” because it might have to be disclosed to the client, and the advice received will suffer from the lack of candor, the court said.
Fourth, the lawyer could retain a lawyer in another law firm for advice. That alternative, apart from the additional cost to the firm, could delay the receipt of the needed advice, the court said.
None of these alternatives best serves the client's interests, the court said, describing RFF's proposed approach as “dysfunctional, both to the client and the law firm.”
Saying that “form should follow function,” the court said “we prefer a formulation of the attorney-client privilege that encourages attorneys faced with the threat of legal action by a client to seek the legal advice of in-house ethics counsel before deciding whether they must withdraw from the representation to one that would encourage attorneys to withdraw or disclose a poorly understood potential conflict before seeking such advice.”
Copyright 2013, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)