California Recognizes the In-Firm Attorney-Client Privilege
LACBA Update, February 2015
By Wendy Wen Yun Chang, partner, Hinshaw & Culbertson, LLP, and member, LACBA Professional Responsibility and Ethics Committee. Ms. Chang is the immediate past chair and current advisor to the State Bar of California’s Standing Committee on Professional Responsibility and Conduct. She is a Certified Specialist in Legal Malpractice Law by the State Bar of California's Board of Legal Specialization. She can be reached at firstname.lastname@example.org. The opinions expressed are her own.
The question of whether or not a law firm can assert an attorney-client privilege ("privilege") as to communications between the law firm and its attorneys relating to issues of ethics and/or risk management as against a current client has been an area of developing law throughout the United States. In California, the only guidance was in the form of a trio of federal court decisions appearing to find a very limited window permitting privileged communications in a federal case setting—Thelen, Sonic Blue, and E-Pass.1 The Thelen rule, however, remained confusing in application.
On November 25, 2014, the California Court of Appeal in Edwards Wildman Palmer et al. v. Sup. Crt.(Mireskandari)2 (hereinafter "Edwards") answered question in the affirmative, joining Massachusetts in RFF Family Partnership, LP v. Burns & Levinson LLP,3 Georgia in St. Simons Waterfront, LLC v. Hunter, MacLean, Exley & Dunn P.C.,4 and Oregon in Crimson Trace Corp. v. Davis Wright Tremaine, LLP,5 in recognizing an in-firm privilege and rejecting a fiduciary exception.
In Edwards, law firm represented real party in an invasion of privacy lawsuit. The firm and real party had a short and contentious relationship, with real party expressing dissatisfaction relating to the bills and the quality of the representation. The firm's handling attorney ("Attorney") communicated with two other firm attorneys who acted as in-firm counsel regarding real party's assertions during the time firm continued to represent real party. In the subsequent legal malpractice suit against firm, Attorney asserted privilege over her communications with in-firm counsel. Real party moved to compel both the production of documents and deposition testimony, relying primarily on Thelen and Sonic Blue, arguing that the privilege is inapplicable when a law firm is attorney both to an outside client and to itself. In opposition, the two in-firm counsel submitted declarations that they shared responsibilities on claims handling and loss prevention issues, and that they gave advice to Attorney in that capacity. They also argued they deputized a third attorney to supervise preparation of pleadings being prepared for real party. Firm did not bill real party for the consultation time. The trial court granted the motion to compel, finding Thelen's reasoning to be persuasive—that fiduciary duty trumped privilege.
The Edwards court focused on the California Evidence Code. The privilege has been a "hallmark of Anglo-American jurisprudence for almost 400 years" and fosters full communications between an attorney and client by protecting them.6 The Evidence Code further sets forth eight recognized exceptions to the privilege, and where none of them apply, the privilege is held absolute. Disclosure "may not be ordered, without regard to relevance, necessity or any particular circumstances particular to the case."7
The court noted a law firm's in-firm counsel enjoys a standard attorney-client relationship with the law firm client. The question was whether the fact the attorneys were fiduciaries to the outside client at the time of the in-firm consultation abrogated the privilege. Identifying the cases that recognized a "fiduciary" or "current client" exception to the privilege as "primarily federal," the Edwards court concluded "we are not at liberty to adopt the fiduciary or current client exceptions to the attorney-client privilege."8
Following Crimson Trace's approach as it pertained to the Oregon Evidence Code, the Edwards court noted that it is well established in California that the privilege is a legislative creation, and courts have no power to limit it by recognizing implied exceptions. The eight enumerated exceptions to the privilege in the California Evidence Code do not contain a "fiduciary" or "current client" exception.
The court did not accept the argument that rejection of the privilege was mandated by current law. First, recognition of such a duty would amount to the adoption of an implied exception to the privilege.9 Second, while a firm's representation of itself might raise "thorny ethical issues," "it does not follow that looming specter of ethical issues mandates the extinguishment of the attorney-client privilege."10 There was nothing in the Evidence Code suggesting that a potential or actual conflict of interest arising in circumstances such as that present abrogated the privilege. It was also not a foregone conclusion that such in-firm consultation will always be adverse to a client.11 The duty to communicate under Business and Professions Code Section 6068(m) and California Rule of Professional Conduct 3-500 required ethical disclosures. Finally, an attorney's obligation to keep a client informed of significant developments in the case under Rule 3-500 already requires the firm to disclose material facts that include disclosure of "acts of malpractice,"12 i.e., the underlying facts and circumstances in the underlying case, which occurred independent of subsequent consultation with in-firm counsel.
The Edwards court was careful to note that for privilege to apply, an actual attorney-client relationship with a firm attorney and in-firm counsel must exist. To establish the relationship, the court cited with approval the four factors set forth in RFF Family Partnership as persuasive, though not prerequisites: in-firm counsel must have an actual designation as in-firm counsel, the in-firm counsel cannot have performed work on either the matter at issue or a substantially related matter, the consultation cannot have been billed to the client, and the communications must have been made in confidence and kept confidential.13
In application, the court held in-firm counsel's communications with Attorney to be protected but not those with deputized counsel, as he had no normal role as in-firm counsel and also worked on real party's case. The matter was remanded to the trial court for further proceedings consistent with the opinion.14
Does this mean that attorneys are in the clear when communicating with in-firm counsel? The question of the non-discoverability of the in-firm privileged communications, when an attorney-client relationship is established, is answered affirmatively in state court matters. What this ruling does, if anything, to Thelen's approach in the federal courts is an open question. Also, by analyzing the issue as one of pure privilege and not addressing the Rule 3-310 conflicts arguments, the Edwards court, as was the case with its sister state judicial brethren, theoretically left open the door for a continuing debate over the "two client" analysis set forth in Thelenand its progeny—not as an evidentiary question but as an ethical one. What the Edwards ruling clarifies is that an alleged conflict does not equate to a privilege waiver in this setting. Whether or not a conflict actually exists under those factual circumstances, and what the ethical ramifications would be if a conflict was found, remains theoretically an open question. The Edwards court addressed this issue by stating its holding did not excuse an attorney's compliance with any ethical obligations implicated. In doing so, however, the court focused on disclosure obligations, not on conflicts.
Despite these issues, this decision brings some welcome clarity to the evidentiary law, at least in the state courts. On the issue of discoverability of ethics/risk management communications, if your firm does not currently have a designated in-firm counsel, it would be wise to appoint someone in that role and train them to fulfill the functions. If it is impossible to consult with in-firm counsel, attorneys should consult with outside counsel, where the privilege has been routinely recognized.
1 Thelen Reid & Priest LLP v. Marland (N.D. Cal. 2007) 2007 WL 578989 ("Thelen"); In Re Sonic Blue, Inc. (Bankr. N.D. Cal. 2008) 2008 WL 170562 ("SonicBlue"); and E-Pass Technologies, Inc. v Moses & Singer, LLP (N.D. Cal. 2011) 2011 WL 3794889 ("E-Pass"). For an excellent discussion of the federal court decisions, see Parker and Rudolph, "Are Communications between a Law Firm's Lawyers and In-House Counsel regarding Actual or Potential Conflicts of Interest with a Client Protected by the Attorney-Client Privilege?" L.A. County Bar Ass’n, County Bar Update, September 2014, Vol. 34, No. 9.
2 Edwards Wildman Palmer et al. v. Sup. Crt. (Mireskandari), 2014 WL 6662053 (Nov. 25, 2014).
3 RFF Family Partnership, LP v. Burns & Levinson LLP, (2013) 465 Mass. 702, 991 N.E.2d 1066.
4 St. Simons Waterfront, LLC v. Hunter, MacLean, Exley & Dunn P.C., (2013) 293 Ga. 419, 740 S.E.2d 98.
5 Crimson Trace Corp. v. Davis Wright Tremaine, LLP, (2014) 355 Or. 476, 501-502.
6 Edwards, 2014 WL 6662053 at *4.
7 Id. at *6.
8 Id. at *7-8.
9 Id. at *10.
10 Id. at 10.
11 Id. at *10.
12 Id. at *11 (citing Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal. 4th, 503, 514).
13 Id. at *11.
14 Id. at *12.
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 email@example.com.