Are Communications between a Law Firm’s Lawyers and In-House Counsel regarding Actual or Potential Conflicts of Interests with a Client Protected by the Attorney-Client Privilege?
LACBA Update, September 2014

By David B. Parker and Jason J. Rudolph. Mr. Parker is a partner in the law firm of Parker Mills LLP in Los Angeles, where he concentrates his practice on professional liability and business litigation, and is a former chair of LACBA’s Professional Responsibility and Ethics Committee. Mr. Rudolph is an associate attorney in the same law firm and practices in the same fields. The opinions expressed by the authors are their own.

The attorney-client privilege codified under Evidence Code Section 954 is one of the most revered professional privileges and, barring exceptional circumstances, is nearly impenetrable. In California, lawyers are permitted to consult counsel during the course of representing a client and to that end to share with the advising attorney confidential information belonging to the consulting attorney’s client.1 It is also widely recognized that there is an “intra-firm” attorney-client privilege whereby firm attorneys are privileged to consult with designated general counsel or similarly appointed firm attorneys with expertise in professional responsibility.2 However, consider the common scenario where Law Firm Attorney A currently represents the Law Firm’s Client X. During the representation, Attorney A consults with Law Firm Attorney B (who holds the title of “in-house” counsel) about Attorney A’s handling of Client X’s matter, including possible acts of malpractice. Are Attorney A’s communications with Attorney B protected by the attorney-client privilege when Client X subsequently sues the law firm for legal malpractice?

Initially, it might be simple to conclude that Attorney A consulted Attorney B for the purpose of securing legal advice from Attorney B in Attorney B’s capacity as the law firm’s in-house counsel; therefore, any information transmitted in confidence in the course of that relationship must be privileged—right? Well, not so fast. What about the law firm and Attorney A’s ethical and fiduciary duties to Client X, particularly Business and Professions Code Section 6068(e)(1)3 and California Rules of Professional Conduct 3-310(B) and (C)?4 Does the law firm and Attorney A’s ethical and fiduciary duties to Client X trump Attorney A’s claim of privilege over his communications with Attorney B? Surprisingly, the answer is not yet clear. 

What does California say? To date, no California appellate court has squarely addressed the application of the attorney-client privilege to communications between lawyers and their firm’s in-house counsel concerning a firm’s current client. However, three district court decisions in the 9th Circuit, each emanating from the Northern District of California, each applying California law, have provided useful insight in concluding that such communications cannot be withheld. These decisions are consistent with the vast majority of federal court decisions.

In Thelen Reid & Priest LLP v. Marland, the court was called upon to determine “whether the attorney-client privilege applies where a law firm is attorney to both an outside client and to itself.”5 The district court concluded 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…thus creating a prohibited conflict of interest.”6 Where disputed communications and documents “relate to [the client’s] representation and were created during [the client’s representation]…[the law firm’s] fiduciary relationship with [the client] lifts the lid on these communications.”7 

In In Re SonicBlue, Inc., the Northern District similarly concluded that “when a law firm chooses to represent itself, it runs the risk that the representation may create an impermissible conflict of interest with one or more of its clients. In light of these ethical concerns, the courts that have considered the issue have resoundingly found that, where conflicting duties exist, the law firm’s right to claim privilege must give way to the interest in protecting current clients who may be harmed by the conflict.”8 “As a result, a law firm cannot assert the attorney-client privilege when the communications that it seeks to protect arise out of a self-representation that creates an impermissible conflicting relationship with that outside client.”9 

Most recently, E-Pass Technologies, Inc. v. Moses & Singer LLP held that when a law firm’s “interests [are] in conflict with those of [a client] [and] to the extent its interests [are] not fully aligned with [the client]…[the law firm has] a duty to disclose this conflict and obtain [the client’s] consent to continued representation. [If] it fail[s] to do so, it cannot claim that internal communications discussing or implicating such a conflict are privileged.”10

What do other jurisdictions say? Across the country nearly all of “the courts that have considered the issue have resoundingly found that, where conflicting duties exist, the law firm’s right to claim privilege must give way to the interest in protecting current clients who may be harmed by the conflict.”11 Even those states that unequivocally protect communications between lawyers and their firm’s in-house counsel (notably Massachusetts and Georgia) readily acknowledge that “the majority of courts that have been confronted with the issue…have invoked some variation of the current client exception and ruled that, where a law firm seeks legal advice from its in-house counsel in response to an adverse claim brought by a current outside client, the communications are not protected from disclosure to the outside client.”12 Most recently and as an issue of first impression, the Oregon Supreme Court held that communications between a firm’s lawyers and in-house counsel regarding actual and potential conflicts of interests between lawyers and clients were protected by the attorney-client privilege because Oregon does not follow the “fiduciary exception” to the attorney-client privilege doctrine.13 Oregon decidedly joined the minority. On the other hand, “[t]he ‘fiduciary duty trumps privilege’ rationale is more commonly invoked in applying the fiduciary exception to the law firm in-house counsel context. In those instances, courts have reasoned that the duty of loyalty owed by the firm's attorneys to the firm's client supersedes any privilege that the firm's attorneys might otherwise enjoy for their communications with in-house counsel.”14 

What can you do? The question of whether the attorney-client privilege protects communications between a law firm’s lawyers and in-house counsel regarding actual or potential conflicts of interest with a client is presently before the Second District Court of Appeal, and is set for oral argument in August 2014. It is not yet known if the case will yield a published decision clarifying the law in California, but until then, practitioners and law firms alike are encouraged to carefully consider whether consulting outside counsel is instead the more prudent course. Until California law is clarified, consulting with outside counsel may be the only way to ensure that your communications are protected.

1 Fox Searchlight Pictures, Inc. v. Paladino, 89 Cal. App. 4th 294, 310-11 (2001).

2 See, e.g., U.S. v. Rowe, 96 F. 3d 1294 (9th Cir. 1996) (attorney-client privilege applies to communications between lawyers in the same firm where professional legal services sought from in-house lawyer).

3 Bus. & Prof. Code §6068(e)(1) (“It is the duty of an attorney to…maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.”).

4 Cal. R. of Prof’l Conduct R. 3-310(B) (“A member shall not accept or continue representation of a client without providing written disclosure to the client where…[t]he member has a legal, business, financial, professional, or personal relationship with a party or witness in the same matter [or] [t]he member has or had a legal, business, financial, professional, or personal relationship with another person or entity the member knows or reasonably should know would be affected substantially by resolution of the matter”); Cal. R. of Prof’l Conduct R. 3-310(C) (“A member shall not, without the informed written consent of each client…[a]ccept representation of more than one client in a matter in which the interests of the clients potentially conflict; or [a]ccept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or [r]epresent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.”).

5 Thelen Reid & Priest, LLP v. Marland (N.D. Cal.) 2007 WL 578989 at *6.

6 Id. at *7 (citations omitted).

7 Id. at *7 (emphasis added).

8 In Re SonicBlue, Inc. (N.D. Cal.) 2008 WL 170562 at *9 (citations omitted).

9 Id. (emphasis added).

10 E-Pass Technologies, Inc. v. Moses & Singer, LLP (N.D. Cal.) 2011 WL 3794889 at *3.

11 In Re SonicBlue, Inc., 2008 WL 170562 at *9 (citations omitted).

12 RFF Family Partnership, LP v. Burns & Levinson LLP, 465 Mass. 702, 717 (2013).

13 Crimson Trace Corp. v. Davis Wright Tremaine, LLP, 355 Or. 476, 501-02 (2014).

14 St. Simons Waterfront, LLC v. Hunter, Maclean, Exley & Dunn, P.C., 293 Ga. 419, 428-29 (2013).

LACBA's Professional Responsibility and Ethics Committee welcomes new inquiries from LACBA members regarding ethical issues or concerns about professional responsibilities. The identity of the inquirer is kept confidential within the committee. The committee, however, does not publish formal opinions that are the subject of any pending litigation involving the inquirer. If you have an ethical question that you would like the committee to consider, you can mail your written inquiry to Los Angeles County Bar Association, Professional Responsibility and Ethics Committee, P.O. Box 55020, Los Angeles, CA 90055-2020, or e-mail your inquiry marked “Confidential” to Member Services at msd@lacba.org .