Ethics Corner: Unauthorized Practice of Law and the Transplanted In-House Counsel

George, an in-house lawyer employed by Acme Corporation, is licensed to practice law in New York. Fifteen years ago, George moved to Acme’s headquarters in Chicago, where he has worked ever since. He is not a member of the Illinois bar. Is George engaged in the unauthorized practice of law (UPL), and if so, what might be the consequences?

In-House Lawyers and Unauthorized Practice

Lawyers move – including, frequently, both across state lines and from private law firm practice to in-house legal departments. For decades prior to the adoption of Rule 5.5(d) of the American Bar Association’s Model Rules of Professional Conduct, an in-house lawyer licensed only in a state other than where he or she worked rarely attracted scrutiny with respect to UPL, from bar authorities or otherwise. To the extent that issues arose, it was often when the lawyer left the in-house position to return to private firm practice and applied for local bar admission; at that point some state bar regulators might pose pointed questions about what the lawyer did during his or her in-house tenure.

The Model Rule 5.5(d)-(e) Safe Harbor for In-House Lawyers

Model Rule 5.5(d)-(e) (see sidebar), adopted by the ABA House of Delegates in 2002, was meant to create a safe harbor for in-house lawyers admitted in a U.S. jurisdiction, but not where they work. This was one of several multijurisdictional practice safe harbors added to Rule 5.5. In general, it is relatively easy for an in-house lawyer to comply with subsections (d) and (e) of Model Rule 5.5, which reflect a policy judgment that such an in-house role “does not create an unreasonable risk to the client and others because the employer is well situated to assess the lawyer’s qualifications and the qualities of the lawyer’s work.” Model Rule 5.5, Comment 16.

New In-House Registration and Limited Admission Rules

Illinois adopted a modified version of Model Rule 5.5(d). If that had been the only step taken on this topic in Illinois and elsewhere, George and other in-house lawyers licensed only in other states would have little to worry about with respect to UPL (as long as they kept their licenses current and confined their practices to representation of their employers). In tandem with the adoption of versions of Model Rule 5.5(d)-(e), however, many states (including Illinois, where George works) also adopted rules requiring in-house lawyers who are only admitted elsewhere in the United States to register with or obtain limited admission from the state bar regulatory authority. While the safe harbor in Illinois Rule of Professional Conduct 5.5(d) covers George, Comment 17 to the Illinois rule (based on Comment 17 to Model Rule 5.5) also contains a cross-reference to another Illinois rule on limited admission of in-house counsel in George’s position. The 2014 edition of the Comprehensive Guide to Bar Admission Requirements, compiled by the National Conference of Bar Examiners and the American Bar Association Section of Legal Education and Admission to the Bar, states that 33 states now have license, registration, or certification requirements for corporate counsel not otherwise admitted in-state, with application fees ranging from zero to $1,300.

The ABA has adopted a Model Rule for Registration of In-House Counsel, but state rules on this topic vary on a number of subjects, including whether:

• The rule is framed in terms of “registration” or “limited admission” of in-house lawyers;
• Representation is also permitted of organization personnel on matters relating to their organizational roles;
• Court appearances on behalf of the organization are allowed;
• Pro bono work for clients other than the organizational employer is authorized;
• Time worked under the rule can later be used to “waive in” for general bar admission purposes;
• The in-house lawyer must satisfy continuing legal education requirements; and
• A one-time fee, annual payments, or both are required.

Some states have no such in-house counsel rules. For that matter, not all states have yet even adopted a version of Model Rule 5.5(d)-(e); a number of states simply retain a vague prohibition on engaging in or assisting the unauthorized practice of law.

A New Risk Spectrum

Whereas UPL by in-house lawyers was once a relatively low-risk subject nationwide, if only because of a relative lack of scrutiny, the UPL risk spectrum for in-house lawyers has broadened considerably. At one end of the spectrum, jurisdictions in which versions of Model Rule 5.5(d)-(e) have been adopted without any supplemental rules relating to registration of out-of-state in-house lawyers are even lower-risk from a UPL perspective than they once were. On the other hand, lawyers like George working in jurisdictions that have adopted registration or limited admission rules for in-house lawyers who are only licensed elsewhere now face greater risks than they did before Model Rule 5.5(d)-(e) – at least if they fail to comply. An initiative that was intended to help house counsel like George who are not locally admitted seems to have focused added local bar attention on in-house lawyers.

Privilege Loss?

Another possible issue, on which there does not yet seem to be any case law, is whether George’s failure to comply with the Illinois house counsel rule could be used as a basis for claiming that Acme’s communications with George are not covered by the attorney-client privilege. A similar argument in analogous circumstances was rejected in Gucci America, Inc. v. Guess?, Inc., 2011 U.S. Dist. LEXIS 15 (S.D.N.Y. January 3, 2011). In that case, the in-house lawyer had been admitted in a state other than where he worked in-house, but had then gone on inactive status. The court concluded that a lawyer on inactive status was nonetheless a lawyer for purposes of the attorney-client privilege, and that the corporate employer was not under any obligation to check on the active bar status of its in-house lawyer. The case, however, did not address any in-house lawyer admission or registration rules, and it is unclear whether courts would take the Gucci approach in cases involving such rules.

Illinois Amnesty

Responding to a perception that a significant number of in-house lawyers who are subject to the Illinois rule on this subject may not yet have obtained the required limited in-house licenses, the Illinois Supreme Court declared an amnesty for lawyers who apply for such licenses during 2014. In addition to the $1,250 registration fee provided for under the Illinois rules, an in-house lawyer taking advantage of the amnesty must also pay an additional $1,250 penalty, but is not expected to make up back payments or continuing legal education requirements. The court stated that the prior failure of such lawyers to apply under the rule would not be a basis for prosecution for having engaged in the unauthorized practice of law, that it would not be grounds for denying a license or discipline, and that such applicants would not be investigated by the Illinois Attorney Registration and Disciplinary Commission. Presumably implicit in those statements is the possibility that a lawyer such as George who is covered by the house counsel rule (Illinois Supreme Court Rule 716) and who does not take advantage of the amnesty could be subject to those actions thereafter.

Conclusion

If unauthorized practice rules exist primarily to protect clients and others against unqualified lawyers, it is difficult to find many situations in which such problems have been experienced by corporations or other organizations employing in-house lawyers. To some, state rules regarding registration or limited admission of in-house lawyers like George are solutions in search of a problem. As a practical matter, these rules are probably designed, not to solve systemic problems relating to the performance quality of George or other in-house lawyers, but rather to (a) require such in-house lawyers to contribute financially to funding the state bar, and (b) ensure that such in-house lawyers are subject to local state bar jurisdiction. In-house lawyers such as George who have not complied with such rules should consider addressing the situation, and Acme and other employers of such lawyers may want to help or require them to do so.