When Are Confidential Communications with a Law Firm's In-House Counsel Protected by the Attorney-Client Privilege?
LACBA Update, June/July 2010
By Joan Mack, member, LACBA Professional Responsibility and Ethics Committee, and Matthew O’Brien, both of Caldwell Leslie & Proctor, PC, www.caldwell-leslie.com. The opinions expressed are their own.
Many lawyers are aware that their consultations with their law firm’s general counsel or risk-management professional can be covered by the attorney-client privilege.1 The “in-house” privilege encourages the exchange of informed advice and compliance with ethical obligations. Does the privilege, however, protect in-house communications about issues arising from an attorney’s representation of a current client if that client later sues the firm for malpractice? You may be surprised to learn that the answer is a resounding “No.”
“Pursuant to federal jurisprudence, an in-house attorney privilege is vitiated when the firm knows of an existing conflict with a current client, seeks in-house advice regarding the conflict of interest, and continues representation of the client.”2 The reasoning behind this conclusion “is that a law firm’s representation of a client, and its ability to meet its ethical and fiduciary obligations to that client, may be affected by its representation of another client, even if the second client is the law firm itself.”3 Indeed, “the law firm’s representation of itself (through in house counsel) might be directly adverse to, or materially limit, the law firm’s representation of its other client, thus creating a prohibited conflict of interest” and rendering the in-house privilege inapplicable.4 In short, an attorney’s ethical and fiduciary obligations to his or her client trump the in-house attorney-client privilege.
Thus, when a disgruntled client seeks disclosure of otherwise privileged internal communications from its law firm, attorneys face an uphill battle in trying to protect those documents. For example, a firm must produce documents relating to its internal discussions regarding the possible representation of a client who later sues the firm for malpractice based on alleged conflicts of interest.5 Documents discussing claims a client may have against the firm and communications concerning known errors in the representation are also subject to disclosure.6
When facing a client’s motion to compel, a key issue is when the conflict of interest became apparent to the firm. The in-house privilege is not lost until “the law firm learns that a client may have a claim against the firm or that the firm needs client consent in order to commence or continue another client representation.”7 Because the timing is not always obvious, firms can argue that early communications are privileged. For example, a bankruptcy court recently found that internal e-mails indicating a firm “had some inkling of impending ethical issues” were insufficient to “establish the existence of a conflict at that time” and hence did not compel the production of those e-mails.8 “Circumstances giving rise to at least a potential conflict” arose when the client requested a tolling agreement from the law firm; however, even then there may have been a “short period of time” following the client’s request before any conflict of interest became apparent.9 The court drew the line at the date when the firm executed the tolling agreement: “on that date, [the firm’s] ability to withhold intra-firm communications related to its representation…became impaired.”10
If a firm’s representation of a client terminates before the in-house communications occur, there is no concurrent conflict, and the privilege applies.11 Documents also may be protected by accurately and narrowly defining the scope of what is responsive. For example, if e-mails or memoranda pertain to a lateral partner joining the firm rather than the conflicts that may result within the firm due to a lateral’s particular client, the firm can argue the privileged documents are unrelated to the subsequent conflict.12
Note that the work product doctrine does not afford any greater protection than the attorney-client privilege during discovery in a malpractice action. “The doctrine does not apply where a client, as opposed to some other party, seeks discovery of the lawyer’s mental impressions.”13
In light of these considerations, law firms’ in-house ethics counsel are in a difficult position. They cannot do their jobs unless their colleagues—i.e., their clients—are forthcoming when potential conflicts arise. Yet, their consultations may be subject to discovery down the road.
Two recommendations, while perhaps obvious, need to be emphasized repeatedly at every firm. First, attorneys should be very careful about what they put in writing when discussing potential or actual conflicts with current clients. The best defense against a motion to compel is, after all, not to have any documents to produce in the first place.
A second way to help avoid this thorny issue is to identify conflicts of interest as early as possible, and obtain the necessary waivers. The failure of firms to identify all potential conflicts prior to commencing representation is a common source of malpractice actions in which these discovery disputes arise. When a conflict of interest is discovered after the matter has commenced, or when other grounds for a malpractice suit against the firm arise, attorneys should inform the affected client as soon as possible (and avoid putting any in-house communications in writing).
Another, albeit more costly, practice to consider is to retain outside counsel as soon as you learn of a conflict of interest. Law firm’s communications with outside counsel enjoy more protection than in-house communications. Indeed, one court recently noted that it was unaware of “any decision where a court denied the application of the privilege between a law firm and its outside counsel due to the law firm’s breach of a fiduciary duty owed to its own client.”14 Of course, it is only the communications with outside counsel that are protected, not the internal communications among members of the firm.
As a last resort, if a firm suspects that a dispute with a client is headed for litigation, the firm may want to consider whether it is appropriate to terminate the attorney-client relationship. All internal communications subsequent to the termination would be privileged.
Courts are mindful that by ordering the disclosure of in-house communications relating to attorneys’ conflicts with clients, they may be inadvertently dissuading “attorneys from referring ethical problems to other lawyers, thereby undermining conformity with ethical obligations.”15 Despite the risks, lawyers should continue to seek advice about their legal and ethical obligations in client representations. Doing so will result in fewer conflicts with clients, not more.
1 See United States v. Rowe, 96 F. 3d 1294 (9th Cir. 1996); In re Sunrise Sec. Litig., 130 F.R.D. 560, 595 (E.D. Pa. 1989), decision clarified on denial of reconsideration, 109 B.R. 658 (E.D. Pa. 1990). For those readers who do not have access to Westlaw, many of the authorities cited in this article are available on Google Scholar.
2 Asset Funding Group, LLC v. Adams & Reese, LLP, 2009 WL 1605190, *2 (E.D. La. 2009); In re SONICblue, Inc., 2008 WL 170562 (Bankr. N.D. Cal. Jan. 18, 2008) (citing In re Sunrise, 130 F.R.D. at 595; Burns v. Hale and Dorr LLP, 242 F.R.D. 170 (D. Mass. 2007); Thelen Reid & Priest LLP v. Marland, 2007 WL 578989 (N.D. Cal. Feb. 21, 2007); Koen Book Distributors v. Powell, Trachtman, Logan, Carrle, Bowman & Lombardo P.C., 212 F.R.D. 283 (E.D. Pa. 2002); Bank Brussels Lambert v. Credit Lyonnais (Suisse), S.A., 220 F. Supp. 2d 283 (S.D.N.Y. 2002)).
3 Thelen, 2007 WL 578989, at *7 (quoting In re Sunrise, 130 F.R.D. at 595).
4 Id. (quoting In re Sunrise, 130 F.R.D. at 595).
5 See Bank Brussels, 220 F. Supp. 2d at 288.
6 Thelen, 2007 WL 578989, at *8.
8 In re SONICblue, Inc., 2008 WL 170562, at *10.
11 Landmark Screens, LLC v. Morgan, Lewis & Bockius LLP, 2010 WL 289858, *2 (N.D. Cal. Jan. 15, 2010).
12 See id.
13 Thelen Reid & Priest LLP v. Marland, 2007 WL 578989 (N.D. Cal. Feb. 21, 2007), at *8 (quoting Koen Book Distributors, Inc. v. Powell, Trachtman, Logan, Carrle, Bowman & Lombardo, PC, 212 F.R.D. 283, 286 (E.D. Pa. 2002)).
14 In re SONICblue, Inc., 2008 WL 170562 (Bankr. N.D. Cal. Jan. 18, 2008) at *11.
15 Thelen, 2007 WL 578989, at *7.