January 15, 2015 Practice Points

Another Court Finds Privilege Applies to Firm In-House Counsel Communications

A new California opinion is the latest to reject the "fiduciary" or "current client" exception and uphold the attorney-client privilege.

By Merri A. Baldwin

The issue of whether a law firm may assert the attorney-client privilege concerning communications between lawyers at the firm and law firm in-house counsel in a later dispute with a client is a hotly contested one. Recent appellate decisions from around the country have rejected the holding of earlier cases that found a “fiduciary exception” to the privilege and ordered communications with in-house counsel produced to the clients. See Crimson Trace Corp. v. David Wright & Tremaine LLP, 326 P.3d 1181 (2014); RFF Family Partnership, LP v. Burns & Levinson, LLP, 991 NE2d 1066 (2013).

A new California opinion is the latest to reject the “fiduciary” or “current client” exception and uphold the privilege. In Edwards Wildman Palmer v. Superior Court, 180 Cal.Rptr.3d 620 (2014), the court held that California law did not recognize a fiduciary exception to the privilege, and that courts are not free to create new exceptions to the law governing privilege. “[I]n the absence of a statutory exception, the Firm’s ethical duties to its client do not trump assertion of the privilege here.” That holding contradicts several long-standing federal district court cases in California purported to apply California law.

In that case, the plaintiff in a legal-malpractice case sought production of internal communications between lawyers at the firm and the firm’s in-house counsel concerning the underlying matter that took place while the firm was still representing the plaintiff. The plaintiff objected that the privilege was inapplicable when “’a law firm is attorney to both an outside client and itself.’” The court rejected that argument, finding that allowing attorneys to seek privileged advice concerning current clients does not necessarily create adversity between the law firm and its client. “As a practical matter, it is not a foregone conclusion that an attorney’s consultation with in-house counsel with regard to a client dispute will always be disloyal to the client.” The client and the attorney have the same interests in ensuring that the attorney complies with his or her ethical obligations. Further, the court noted, the existence of the privilege does not affect the lawyer’s ethical obligations of disclosure to the client. “Should an attorney’s consultation with in-house counsel reveal that the attorney, or the firm, has committed malpractice, the attorney or firm would be obliged to report the malpractice to the client, although the confidential communication itself [between the lawyer and in-house counsel] would remain privileged.”

Echoing other courts who have considered this issue, the California court focused on the factors needed to demonstrate that an attorney-client relationship exists between lawyers at the firm and in-house counsel. Citing RFF, the court identified four prerequisites that must be established: 1) The law firm must have designated an attorney or attorneys within the firm to serve as in-house counsel; 2) in regard to a particular client dispute, the in-house counsel must not have performed any work on that client matter or on substantially related matters; 3) in-house counsel’s time spent must not have been billed to the client; and 4) the communications between the lawyers and in-house counsel must have been made in confidence and kept confidential. Applying these factors, the court found that certain of the communications designated as privileged by the law firm were not within the scope of the privilege, because the lawyer involved had not been “deputized” as in-house counsel until after the dispute arose and had actually worked on the client matter.

Palmer is the first California state-court opinion to address the issue of attorney-client privilege within law firm, and joins what appears to be an emerging consensus by courts protecting the ability of law firms to obtain privileged legal advice concerning current client matters.  

— Merri A. Baldwin, Rogers Joseph O'Donnell, P.C., San Francisco, CA

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