Attention Law Firm In-House Counsel: New Decision on the Attorney-Client Privilege 1

It is commonplace for law firms to maintain their own in-house counsel, but application of the attorney-client privilege in this setting presents a dynamic situation between law firm members and the firm’s internal counsel.  Some large law firms ask a firm lawyer to forego his or her practice and serve as a full-time in-house counsel, but most simply tag a firm lawyer to serve as the firm’s in-house lawyer while maintaining a full-time practice.  In either situation, law firm members do not hesitate to pop in the firm counsel’s office for a discussion as soon as an adverse client situation arises, even while the client remains a firm client; and when they do, conflicts of interest and the attorney-client privilege become prominent issues.

The Georgia Court  of Appeals, in Hunter, Maclean, Exley & Dunn v. St. Simons Waterfront, LLC, 730 S.E.2d 608 (Ga. Ct. App. 2012), entered the “unchartered jurisprudential waters” of attorney-client privilege for law firm in-house counsel, and produced a thorough and guiding opinion on the subject.   The opinion is lengthy and worth a thorough read, but this post briefly summarizes the factual situation, the question presented, and the court’s ruling.

Facts

The firm represented  a developer selling condos on St. Simons Island, but many buyers began to rescind their condo purchases. The developer became displeased with the firm’s handling of the buyers’ rescission efforts and threatened a malpractice action.  Firm lawyers, while still representing the developer in closing new condo sales and other buyers’ rescission efforts, discussed facts surrounding a potential malpractice claim with the firm’s in-house counsel.  During discovery after the malpractice action was filed, the developer sought production of communications between firm lawyers and the firm’s in-house counsel.

Question Presented

The question for the Georgia appellate court involved Georgia’s conflict of interest rules–whether the firm had a nonwaivable conflict of interest in continuing its representation after the client asserted a claim–and the attorney-client privilege.  The court had to determine the privilege’s scope in the conflict of interest situation.

Ruling

The court noted but rejected two different rules adopted by other courts. Some courts hold that the attorney-client  privilege does not protect otherwise privileged communications in which the firm’s representation of itself created a conflict of interest between the firm and the client seeking the communications, automatically imputing a conflict of interest to in-house counsel.  And other courts hold that such communications are protected and discoverable only if the client can show good cause to overcome the privilege.

The court determined both approaches were inconsistent with Georgia law.  And relying heavily on a law review article authored by Professor Elizabeth Chambliss, the court held that whether a law firm may claim privilege to legal advice  regarding duties to a current client from in-house counsel depends on whether there is a conflict of interest between firm counsel’s duty to the law firm and firm counsel’s duty to the outside client.  And this rule necessarily implicates the imputed disqualification doctrine–if a firm lawyer has a conflict of interest, then that conflict is imputed to all firm lawyers, including the firm’s in-house counsel.

The court rejected the “Draconian rule” adopted in other jurisdictions that automatically imputes conflicts of interest to in-house counsel. Instead, the court held that imputation depends on the structure of the in-house position. Thus, if the firm’s in-house counsel holds a full-time in-house position, then the conflict of interest of other firm lawyers should not be imputed to the in-house counsel, and communications with her are privileged.

Imputation also will not occur when the firm’s in-house counsel serves in a part-time capacity, so long as he does so on a formal, ongoing basis such that the firm is clearly established as the client before the communications occur.  In the part-time situation, there will be no imputation and the privilege will apply so long as the in-house lawyer had no involvement in the outside representation at issue.

But for firm lawyers who serve as in-house counsel on an ad hoc basis, these lawyers are subject to imputation unless the firm can show that an attorney-client relationship was established before the in-firm communication occurred. The burden is on the law firm to show the relationship was established; and if the firm does then the attorney-client privilege will apply.