Privilege for Internal Talks May Disappear If Firm Bills Ex-Client for Consultation Time

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Law firms should avoid billing a dissatisfied former client for time spent by lawyers consulting the firm's inside counsel about the alleged mistakes, the U.S. District Court for the Northern District of California indicated Aug. 26 (E-Pass Technologies Inc. v. Moses & Singer LLP, N.D. Cal., No. C09-5967 EMC (JSC), 8/26/11).

Magistrate Judge Jacqueline Scott Corley made this point in the course of discussing whether a law firm lost its attorney-client privilege for several internal e-mails about a former client's potential claims against the firm by billing the client for time spent on those communications after the representation ended.

Although the judge ultimately found it unnecessary to decide this issue, she expressed doubt that a law firm's internal post-termination discussions remain privileged if it bills the ex-client for them. Research failed to uncover any authorities on the question, Corley said.

Ruling on a discovery dispute between a law firm and an ex-client suing it, Corley held that the point at which a law firm's representation of an unhappy client ends constitutes a key point in determining whether internal communications about the firm's alleged errors or the client's potential claims against the firm must be produced to the former client.

Communications predating the end of the attorney-client relationship about the client's possible claims against the firm may not be withheld from the client in a malpractice suit against the firm, but the firm may claim the privilege for discussions about its alleged errors after that point, Corley ruled.

Differing Views.

In an interview with BNA, Richard Hoffman and Robert M. Fineman of Duane Morris, San Francisco, pointed out that courts are split about the scope of privilege for a law firm's intrafirm communications. Hoffman and Fineman are representing the defendants in the E-Pass case.

One view is set out in Thelen Reid & Priest LLP v. Marland, No. 06-2071, 2007 U.S. Dist. LEXIS 17482, 23 Law. Man. Prof. Conduct 184 (N.D. Cal. Feb. 21, 2007).

The court in Thelen said that a rule requiring disclosure of all communications relating to a client would dissuade lawyers from referring ethics problems to other lawyers, but that where there was a potential conflict of interest between the firm and its clients, the firm must produce any communications discussing the client's potential claims against the firm, any known errors in the representation, and any known conflicts between the firm and the client.

In contrast, a federal magistrate judge in Ohio ruled that when a client sues a law firm for malpractice, the attorney-client privilege protects the firm's internal “loss prevention” communications that took place after the possibility of a malpractice claim surfaced--even for documents that were created before the firm withdrew from the representation. Tattletale Alarm Sys. Inc. v. Calfee, Halter & Griswold LLP, No. 10-cv-226, 2011 U.S. Dist. LEXIS 10412, 27 Law. Man. Prof. Conduct 106 (S.D. Ohio Feb. 3, 2011).

The magistrate judge in the E-Pass case embraced the “carve-out” in Thelen, Fineman said, rather than the much bolder position taken on the scope of a firm's privilege in Tattletale. Corley did not mention Tattletale in her opinion.

On another aspect of the privilege rulings in E-Pass, Hoffman drew attention to the magistrate judge's holding that after the firm's representation of the client ceases, there is a clear privilege for subsequent internal communications about the client's claims and the firm's alleged errors.

Under this view, Fineman said, “the battleground of the future” for firms claiming the privilege will be: When did the representation end?

Fallout From Patent Litigation.

In this federal action, E-Pass Technologies Inc. is suing its former counsel, Moses & Singer LLP and partner Stephen Weiss, on various theories.

According to E-Pass, the defendants encouraged the company to pursue doomed patent infringement litigation that caused E-Pass to be viewed as a “patent troll” and resulted in a $2.3 million fee award against it.

E-Pass is also pursuing malpractice claims relating to the failed patent infringement litigation in California state court. Although that case was initially thrown out, a state appellate court revived it, ruling that E-Pass's claims did not present a substantial issue of federal patent law and thus could be decided in a California trial court. See 26 Law. Man. Prof. Conduct 694. The state court case remains ongoing at this point.

In the plaintiff's federal case, the defendants asserted the attorney-client and work product privileges for the firm's internal e-mail communications with counsel. The parties agreed that the magistrate judge could review the documents in camera in order to decide whether the e-mails must be turned over.

Legal Standards.

In her opinion, Corley said that California law governs claims of attorney-client privilege in this action, whereas federal common law governs disposition of work product privilege.

The question here, she said, is “whether and to what extent these privileges apply to communications within a law firm regarding potential claims against the firm arising from its representation of an outside client.”

Corley agreed with the rulings in the Thelen case, Sunrise Sec. Litig., 130 F.R.D. 560 (E.D. Pa. 1989), and In re SonicBlue Inc., No. 03-51775-MM, 2008 Bankr. LEXIS 181 (Bankr. N.D. Cal., Jan. 18, 2008), that a law firm's communication with in-house counsel is not protected by the attorney-client privilege if it involves a conflict between the law firm and its duties to the client seeking to discover the communication.

Federal courts have applied the same analysis to a claim of privilege under the work product doctrine, she said, citing Thelen and Koen Book Distrib. v. Powell, Trachtman, Logan, Carrie, Bowman & LombardoPC, 212 F.R.D. 283, 19 Law. Man. Prof. Conduct 33 (E.D. Pa. 2002).

Communications During Representation.

Corley found that the attorney-client relationship between E-Pass and Moses & Singer ended, at the latest, on May 8, 2008.

By that time, E-Pass had retained new counsel to represent it on appeal of the fee award, and its new counsel had sent Moses & Singer a proposed agreement to toll any claims that E-Pass might have against the firm arising from the “former” representation.

Corley found that most of the disputed communications that took place before that date related to the attorneys' fee motion brought against both E-Pass and Moses & Singer.

The firm was essentially making “the unprecedented argument,” Corley said, that while it was representing E-Pass on the fee motion, it could confer internally about how to protect itself from liability on the motion and then withhold those communications from E-Pass.

To the extent that the firm's interests were not fully aligned with E-Pass, the magistrate judge said, the firm had a conflict, and if it intended to separately--and confidentially--represent itself on the fee motion, it had a duty to disclose the conflict and obtain E-Pass's consent to continued representation.

Having failed to do so, the firm cannot claim that internal communications discussing or implicating such a conflict are privileged, Corley ruled.

These communications must be produced regardless of whether E-Pass was billed for them, she said.

Post-Termination.

On the other hand, Corley ruled that communications between Moses & Singer attorneys after termination of the attorney-client relationship--even those that discussed E-Pass--are protected by the attorney-client privilege.

The magistrate judge did not resolve the question--which she termed “close and novel”--whether several e-mails exchanged within the firm after the end of the representation were not privileged after all because E-Pass had been billed for reviewing the communications. It was unnecessary to answer that question, she found, because the e-mails were not relevant to E-Pass's claims, and therefore were not discoverable.

Corley noted, however, that “it seems fundamentally unfair to bill a client (or, more precisely, former client) for work and then assert a claim of privilege against that same client with respect to disclosure of the billed-for work.” Although the firm was free to engage in internal communications regarding E-Pass during this time, it should not have billed E-Pass for reviewing the communications, she said.

The parties did not offer any authorities on this issue, and the court's independent research did not reveal any precedent, Corley said.

Moses & Singer was free to communicate internally about E-Pass once the representation ended, Corley stated, “but it should have set up a separate billing code for those communications and not continued to bill them to E-Pass.”

Communications Involving Third Parties.

Moses & Singer also asserted privilege for four communications consisting of e-mails from E-Pass's new counsel to Moses & Singer attorneys that were forwarded to other lawyers at Moses & Singer. From one of the e-mails, the firm redacted the portion of the e-mail forwarding it.

The magistrate judge rejected the privilege claim for these documents, saying that the firm's attorney-client privilege protects only communications between its own attorneys, and that communications between the firm and a third party are not subject to a claim of privilege.

James R. Rosen, Adela Carrasco, and Ryan D. Saba of Rosen Saba, Beverly Hills, Cal., represented E-Pass. Richard Hoffman, Robert M. Fineman, and Eun Jung Kim of Duane Morris, San Francisco, represented Moses & Singer and Stephen Weiss.

By Joan C. Rogers


Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-8l8rc9 .

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