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November 11, 2016 Top Story

Attorney-Client Privilege Protects Communications with Law Firm GC

Client cannot obtain communications between attorneys and law firm's general counsel

Theresa A. Vitello

A law firm's former client cannot access email communications between the firm's lawyers and its in-house general counsel. Since the law firm was not acting as a fiduciary for the client when the firm's attorneys sought the advice of the general counsel, the trial court erred in compelling production under the fiduciary or current client exceptions to the attorney-client privilege according to a New York appellate court.

Arbitration Loss Leads to Malpractice Claim

In Stock v. Schnaeder Harrison Segal & Lewis, LLP, the plaintiff hired the Schnaeder firm to negotiate his departure from a large public company. The client later claimed the law firm failed to advise him his departure would accelerate the expiration of stock options worth approximately $5 million. Once these stock options expired, the client filed an arbitration proceeding against his former employer to recover the value of the lost options.

During the arbitration, the company indicated it planned to call one of the law firm's attorneys as a fact witness. In light of the demand she testify, the attorney sought the advice of her law firm's general counsel on the ethical obligations under New York Rule of Professional Conduct 3.7, the lawyer-as-witness rule.

The client lost at arbitration and subsequently sued the law firm for malpractice. In response to a discovery request in the malpractice case, the law firm produced a privilege log that included approximately 24 emails were exchanged between the firm's attorneys and its general counsel relating to advice on the lawyer-as-witness rule. The trial court granted the client's motion to compel production of those emails, relying on the fiduciary exception to the attorney-client privilege.

The Fiduciary and Current-Client Exceptions to the Attorney-Client Privilege 

The attorney-client privilege protects communications between attorneys and their clients. New York's codification of the attorney-client privilege, New York Civil Practice Law and Rule 4503, does not exclude consultations between a law firm and its general counsel from that protection. Rather, in Rossi v. Blue Cross & Blue Shield of Greater N.Y., New York's highest court recognized the attorney-client privilege applies to communications between a corporation's general counsel and its employees for purposes of providing advice to the corporation.

In Stock, the appellate court rejected the claim that the fiduciary exception to the attorney-client privilege compels disclosure of communications between a firm's attorneys and its general counsel. In the context of intra-firm communications, the fiduciary exception prevents an attorney, acting as a fiduciary to a client, from using the attorney-client privilege to shield from the client communications between the client's attorney and another attorney from whom the client's attorney seeks legal advice. Courts recognizing this exception examine who the "real client" of the attorney rendering the legal advice is—the client's attorney or the client.

Since the law firm's attorneys did not bill the client for time spent consulting with the firm's general counsel, and general counsel never worked on any matter for the client, the appellate court concluded the real client of the general counsel was the law firm's attorneys and not the client. Section leaders agree with the appellate court's reasoning on this point. "The better reasoned approach is to uphold the attorney-client privilege and allow attorneys to seek advice about an ongoing case as needed," says Carey Menasco, New Orleans, LA, cochair of the ABA Section of Litigation's Professional Services Liability Litigation Committee.

The appellate court also refused to compel disclosure of the firm's emails based on the current-client exception. Where recognized, the current-client exception prevents a law firm from using privilege to withhold communications occurring during the firm's representation of the client. The rationale for this exception is the firm's interests and those of the client are not aligned, and simultaneous representation could therefore present a conflict under New York Rule of Professional Conduct 1.10(a). This concern is also noted in ABA House of Delegates Resolution 103, which mandates "once the firm had knowledge that there was a 'potential' claim, it had the duty to tell the client about the implications of the possible claim and the conflict it might create for continued representation," opinesopines Laura L. McLaughlin, Webster Groves, MO, codirector of the Section of Litigation's Division V(a) – Substantive Areas of Litigation.

Practical Steps to Protect Intra-firm Communications with General Counsel

While the law appears to favor protection of communications between law firm attorneys and their in-house general counsel, caution is warranted. "The real key is to make sure that you confer with someone in the firm who is not working on the case and can give you independent advice. It is also important that the client not be charged," warns Menasco. The simplest way to protect communications is to "stop the email traffic—walk down the hall or pick up the phone," suggests Menasco.

Protecting internal legal discussions may warrant a three-pronged approach. "Segregate communication. Use a separate file to create work product protection because it is in anticipation of litigation. Hire outside counsel. Given the uncertainty, have capable counsel outside the firm evaluate the threat as a potential malpractice claim. Limit communication with the general counsel. Focus on the overall situation and decide on a recommended course, like hiring outside counsel," advises McLaughlin.


Theresa A. Vitello is an associate editor for Litigation News.

Keywords: attorney-client privilege, fiduciary exception, current-client exception

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