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.

Must Read IADC Article–Subject Matter Waiver and the Attorney-Client Privilege 3

The subject matter waiver doctrine associated with evidentiary privileges, most notably the attorney-client privilege, is relatively underdeveloped yet has frightening consequences.  And while some courts have considered the subject matter waiver doctrine in the context of disclosures during civil litigation, even fewer have addressed waiver where disclosures occurred outside the litigation context.  For example, it is common for clients and lawyers to disclose some privileged information during negotiations in business transactions; and if

Illinois Supreme Court

subsequent litigation ensues over the transaction the question becomes whether those limited pre-litigation disclosures result in waiver of the privilege with respect to all documents concerning the same subject matter.

In their article, The Perils of Oversharing: Can the Attorney-Client Privilege be Broadly Waived by Partially Disclosing Attorney Communications During Negotiations?, 79 Def. Counsel J. 265 (July 2012), lawyers Andrew Kopon, Jr. of Kopon Airdo, LLC in Chicago, and Mary-Christine Sungaila of Snell & Wilmer in Orange County, provide a comprehensive analysis of the scope of the subject matter waiver doctrine.  The article discusses how courts have handled subject matter waiver in settings outside the litigation context, such as settlement negotiations, public or media disclosures, grand jury investigations, patent disputes, SEC filings, and general business transactions. And, using the pending Illinois Supreme Court case of Center Partners, Ltd. v. Growth Head GP, LLC, (the intermediate appellate court’s decision published at 957 N.E.2d 496 (Ill. App. Ct. 2011)), the article highlights how the Court’s upcoming decision may shape the subject matter waiver discussion in this underdeveloped yet important area.

The article may be found here.  My thanks to Mr. Kopon and Ms. Sungaila, and the well-respected International Association of Defense Counsel (IADC), for permitting access to the article through this post.

Inadvertent Disclosure of 347 In-House Counsel Emails Waives Attorney-Client Privilege

Another federal court reminds companies and their in-house counsel that (1) the fact that in-house lawyers send or receive internal emails does not automatically render the emails privileged; and (2) the failure to take steps to prevent inadvertent disclosure will result in privilege waiver.

The federal court for the Southern District of Ohio, in Inhalation Plastics, Inc. v. Medex-Cardio-Pulmonary, Inc., 2012 WL 3731483 (S.D. Ohio Aug. 28, 2012), ruled that the attorney-client privilege covering 347 emails involving 3 in-house lawyers was waived through an inadvertent disclosure.  Medex Cardio-Pulmonary, Inc. produced 7500 documents that contained 347 emails either sent or received by in-house counsel.  When the plaintiff attempted to depose two of these lawyers based on the production, Medex asserted the attorney-client privilege and claimed the emails were inadvertently produced.

The court first questioned whether Medex met its burden of proving the emails were privileged, noting that “[t]he mere fact that [the in-house lawyer] was the sender or recipient of the documents at issue does not render them privileged.” The Court found that the burden was not met because Medex did not identify which of the 347 emails were privileged, did not provide a privilege log, and offered little factual evidence that the communications pertained to legal advice.

But the Court’s in camera review revealed that some emails were, in fact, privileged and evaluated whether the inadvertent disclosure of these documents constituted waiver. The Court considered the following 5 factors in its analysis: (1) the reasonableness of the precautions taken in view of the extent of document production; (2) the number of inadvertent disclosures; (3) the magnitude of the disclosure; (4) any measures taken to mitigate the damage of the disclosures; and (5) the overriding interests of justice.

The Court ruled that reasonable precautions were not proven because Medex did not specify who reviewed the documents pre-production or the steps taken to review for privilege, and did not provide a privilege log. The disclosure of 347 of 7500 privileged emails was significant and, although Medex acted promptly upon learning of the disclosure, it failed to comply with Fed. R. Civ. P. 26(b)(5)(B) to identify the privileged documents with specificity and explain why they are protected from disclosure.  And for these reasons, the Court found that the attorney-client privilege had been waived.

PoP Analysis.  The Inhalation Plastics decision reminds corporate and outside counsel that producing a significant number of documents requires diligent efforts on the front-end and back-end of the production.  In-house and outside counsel must not only conduct a pre-production privilege review, but must be able to specify the measures taken to prevent inadvertent disclosure. And while inadvertent disclosures may nevertheless occur in large productions, counsel must act swiftly to notify the other party and be disciplined in providing a detailed privilege log and detailing, in writing, the basis for the privilege claim.