103
AMERICAN BAR ASSOCIATION
ADOPTED BY THE HOUSE OF DELEGATES
AUGUST 12-13, 2013
RESOLUTION
RESOLVED, That the American Bar Association urges all federal, state, tribal, territorial, and local legislative, judicial and other governmental bodies to support the following principles that:
(a) the attorney-client privilege applies to protect from disclosure confidential communications between law firm personnel and their firms’ designated in-house counsel made for the purpose of facilitating the rendition of professional legal services to the law firm (including any legal advice provided by such counsel) to the same extent as such confidential communications between personnel of a corporation or other entity and that entity’s in-house counsel would be protected;
(b) any conflict of interest arising out of a law firm’s consultation with its in-house counsel regarding the firm’s representation of a then-current client and a potentially viable claim the client may have against the firm does not create an exception to the attorney-client privilege;
(c) the “fiduciary exception” to the attorney-client privilege (for a fiduciary’s communications seeking legal advice regarding ordinary affairs of the fiduciary office), if recognized by the jurisdiction, does not apply to confidential communications between law firm personnel, acting on behalf of the law firm in its individual capacity, and the firm’s in-house or outside counsel, even if those communications regard the law firm’s own duties, obligations, and potential liabilities to a current client; and
(d) as a reaffirmation of existing Association policy, confidential communications between personnel of a corporation or other entity and that entity’s in-house counsel should be protected by the attorney-client privilege to the same extent as confidential communications with outside counsel would be protected.
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103
REPORT
I. Law Firm In-House Counsel Serve a Valuable Function.
In recent years, attorneys have faced an increasingly complex array of legal and ethical duties arising from complicated regulatory regimes, changes in rules of professional conduct, and heightened disclosure obligations under the Sarbanes-Oxley Act and similar legislation. The ABA Model Rules of Professional Conduct recognize that lawyers may need to obtain confidential legal advice about client representation.[1]
To guide attorneys on complex ethical issues and assist them in reaching the right decision, in-house counsel have become fixtures at law firms.[2] Indeed, many law firms have created general counsel positions and/or formed professional responsibility committees. Specialization among attorneys has only increased the importance of these advisers, especially with the growth of law firms and the increasingly complex representations they undertake. The availability of in-house legal and ethical advice, without the extra cost and inconvenience of seeking a non-firm lawyer, benefits the firm’s clients and the legal system, as well as the lawyers and their firms, and “may dramatically improve the quality of firms’ self-regulation.”[3]
The availability of in-house counsel “encourages lawyers to raise questions that they might otherwise ignore.”[4] And in-house counsel can provide assistance in navigating and reconciling obligations, including potential disclosure obligations to the client and public, and can provide ready advice in response to client behavior or a lawyer’s mistakes that may avoid or alleviate harm to clients.[5] As a result, the attorney-client privilege for consultations with in-house counsel is critical to ensuring that attorneys and other law firm personnel receive the best possible advice on complicated legal and ethical issues. It is therefore in the public interest for the law to encourage and facilitate the use of law firm in-house counsel.
II. A Number of Federal District and Bankruptcy Courts Have Denied Attorney-Client Privilege for Consultations between Law Firm Personnel and the Firm’s In-House Counsel.
Lawyers commonly consult their firms’ in-house counsel on conflict of interest and other issues regarding obligations to current clients and on claims or potential claims by current clients. If and when such clients later sue the law firm, it has become common for them to seek discovery regarding the law firm’s communications with in-house counsel during the firm’s representation of the client (by now, usually a former client).
A few federal district courts have held that the firm has no privilege for such communications.[6] Others have largely agreed, but with some qualifications.[7] One has disagreed.[8] The first two appellate decisions on that issue have now been rendered by the Illinois Appellate Court, in Garvy v. Seyfarth Shaw LLP.,[9] and the Georgia Court of Appeals in Hunter, Maclean, Exley & Dunn v. St. Simons Waterfront, LLC.[10] Both upheld the privilege, though the Georgia decision is under review by the Georgia Supreme Court. The issue has now come before the Massachusetts Supreme Judicial Court after a trial court upheld the privilege and the Oregon Supreme Court after a trial court denied the privilege.[11]
III. Consultations of Law Firm Personnel Seeking Legal Services from the Firm’s Regularly Designated In-House Counsel Should Be Privileged.
In the words of the United States Supreme Court, “the attorney-client privilege is the oldest of the privileges for confidential communications known to the common law. It encourages full and frank communication between attorneys and clients and thereby promotes public interests in the observance of law and administration of justice.”[12] It does this “‘“by removing the fear of compelled disclosure of information.”’”[13] Recognizing a corporation’s need to comply with a “vast and complicated array of regulatory legislation,” the Court concluded that the privilege must extend to communications between a corporation’s in-house counsel and individual corporate employees.[14]
Many courts have recognized that communications between attorneys in a law firm and the firm’s in-house counsel are privileged.[15] But, as already noted, some courts have refused to recognize the privilege as to consultations with law firm in-house counsel with respect to the ongoing representation of a current client, when that client later sues for malpractice and seeks discovery.
The ABA strongly supports the preservation of the attorney-client privilege and work product doctrine as essential to maintaining the confidential relationship between client and attorney required to encourage clients to discuss their legal matters fully and candidly with their counsel so as to (1) promote compliance with law through effective counseling, (2) ensure effective advocacy for the client, (3) ensure access to justice and (4) promote the proper and efficient functioning of the American adversary system of justice.[16] ABA policy also “supports the principle that the attorney-client privilege for communications between in-house counsel and their clients should have the same effect as the attorney-client privilege for communications between outside counsel and their clients.”[17] These principles should apply to protect the confidential communications between law firms and their in-house counsel to the same extent that such communications are protected as between law firms and their outside counsel.
IV. Seeking Prospective Advice Regarding the Law Firm’s Legal or Ethical Obligations and Future Conduct Does Not Create any Conflict, Nor Does It Require Consultation with or Consent by any Current Client Whose Ongoing Representation May Be Implicated.
Cases which abrogate the privilege for law firm consultations with in-house counsel assume that the law firm creates a conflict when it consults its in-house counsel with respect to an ongoing representation of a client.[18] But that is not true as to all such consultations, so even if a conflict were considered to preclude privilege, that preclusion would not apply to all consultations during a representation.
Both the ABA and the New York State Bar Association have concluded that consultation with law firm in-house counsel about a current representation involves no inherent conflict of interest. As the ABA Standing Committee on Ethics and Professional Responsibility has explained:
A lawyer's effort to conform her conduct to applicable ethical standards is not an interest that will materially limit the lawyer's ability to represent the client. On the contrary, "it is inherent in that representation and a required part of the work of carrying out the representation. It is, in other words, not an interest that 'affects' the lawyer's exercise of independent professional judgment, but rather is an inherent part of that judgment." For example, a lawyer who is asked by a client to undertake a course of action that the lawyer fears might be criminal or fraudulent would be well-advised to consult with in-house ethics counsel on the propriety of following the client's direction. Although the lawyer has an interest in avoiding conduct that will violate her own ethical duties, the consultation also serves the legitimate purpose of enabling the lawyer to advise a firm client about the legality and wisdom of the proposed course of action and about other available options. In situations such as this, where the lawyer is seeking prophylactic advice to assist in her representation of the client, there is no significant risk that the lawyer's ability to consider, recommend, or carry out an appropriate course of action for the client will be materially limited by the lawyer's interest in avoiding ethical misconduct.[19]
V. A Law Firm’s Knowledge of a Current Client’s Potentially Viable Claim May Create a Conflict with That Client and--to the Extent that the Primary Goal of Consultations with the Law Firm’s In-House Counsel Concerns Ways of Defending Against such a Claim—the Consultations May Implicate That Conflict
The preceding analysis applies to advice sought to determine whether a conflict has arisen requiring the lawyer to withdraw or to seek the client’s informed consent for continued representation. But, once the firm has concluded that a client may have a potentially viable malpractice claim against it, the law firm must consult with the client about the implications of that possibility and the conflict it may create for the lawyer’s continued representation.[20]
As the ABA opinion summarizes:
Consent of the client is not required before a lawyer consults with in-house ethics counsel, nor must the client be informed of the consultation after the fact. The consultation does not give rise to a per se conflict of interest between the firm and its client, although a personal interest conflict will arise if the principal goal of the ethics consultation is to protect the interest of the consulting lawyer or law firm from the consequences of a firm lawyer's misconduct. In that event, the representation may continue only if the client gives informed consent.[21]
While, as the ABA opinion notes, a conflict may arise from efforts to protect the law firm from the consequences of a firm lawyer’s error or misconduct, not all such efforts create conflicts. Firm counsel may, without conflict (1) consider possible ways to correct or cure any error or to mitigate any harm, if necessary at firm expense, (2) consider the possible full or partial responsibility of third-party service providers, and (3) investigate and marshal the facts in preparation for accurate disclosure to the client.
VI. A Conflict Regarding a Then-Current Client’s Potentially Viable Claim Against a Law Firm Does Not Create an Exception to the Attorney-Client Privilege, at Least So Long as the Client Is Appropriately and Timely Informed of the Potentially Viable Claim.
Courts piercing a law firm’s privilege for communications with its counsel have relied significantly on existence of a conflict of interest for the in-house counsel who provides advice to the firm, concluding that such a conflict vitiates any privilege.[22] In other contexts, other courts and the Restatement have concluded that the privilege is not impaired by such a conflict.
The Restatement rejects the “conflict” theory by concluding that a law firm ought to be able to assert the attorney-client privilege against existing clients:
[a] lawyer may refuse to disclose to the client certain law firm documents reasonably intended only for internal review, such as a memorandum discussing whether a lawyer must withdraw because of the client’s misconduct or the firm’s possible malpractice liability to the client. The need for lawyers to be able to set down their thoughts privately in order to assure effective and appropriate representation warrants keeping such documents secret from the client involved.[23]
These conclusions are supported by well-reasoned cases that have considered the effect of a conflict on the privilege, albeit not in the context of a law firm’s counsel. A leading case is Eureka Investment Corp. v. Chicago Title Insurance Co.[24] Chicago Title had insured the title of an apartment building Eureka wished to convert to condominiums; the insurance covered the enforcement or attempted enforcement of certain tenants rights’ legislation. Eureka was represented in the condo conversion by its long-time counsel, Fried Frank. Tenants obtained an injunction and Chicago Title agreed to Fried Frank’s retention to handle the litigation, thereby becoming a joint client with Eureka in that litigation. Chicago Title wanted to defend the litigation, and Eureka wanted to settle and get on with the conversion. Eureka settled and sued Chicago Title. Chicago Title contended that Eureka had breached its duty of cooperation by colluding with Fried Frank to settle and sue Chicago Title, at a time when Fried Frank was representing Chicago Title and owed it a duty of loyalty. It contended that the district court had erred in sustaining privilege for Eureka’s communications with Fried Frank about settling. In essence, it claimed that Fried Frank’s conflict of interest vitiated the privilege.
The D.C. Circuit disagreed. It framed the dispute as one regarding application of two principles stated by Wigmore. One the one hand, “’a communication by A to X as the common attorney of A and B, who afterwards become party opponents, is not privileged as between A and B since there was no secrecy between them at the time of communication.’”[25] On the other hand,
[a] communication by A to X as A's attorney, X being then also the attorney of B, now become the party opponent, is ordinarily privileged because of the relation of X toward A. Nor does the fact of A's knowledge that X is already B's attorney, nor the fact of B's being already adversely interested destroy the privilege. This is so because, although X ought not to undertake to act for both in any matter where there is a possibility of adverse interests, nonetheless A is protected by reason of the relation.[26]
The D.C. Circuit concluded that the second principle applied in Eureka:
First, Wigmore's first principle presupposes the absence of secrecy between the parties at the time of communication. Here, although there was no secrecy with respect to the defense of tenant claims, Eureka assuredly was concealing from CTI its consideration of legal action against the latter. Second, and closely related, Wigmore's first principle presupposes that the communication at issue was made in the course of the attorney's joint representation of a “common interest” of the two parties. Here, although Fried, Frank was representing Eureka and CTI in a matter of common interest at the time the communications at issue were made, those communications were not made in the course of its representation on that matter; indeed, they were made in the course of representation distinctly not in the interest of CTI. The policy behind Wigmore's first principle--to encourage openness and cooperation between joint clients--does not apply to matters known at the time of communication not to be in the common interest of the attorney's two clients.[27]