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Firm Can Prevent Discovery of In-House Advice in Malpractice Suit

By Sara E. Costello, Litigation News Associate Editor – March 19, 2015


Intra-firm legal advice on handling a contentious client can be protected when that client later files a malpractice suit against the firm, the California Court of Appeal for the Second Appellate District ruled. In Edwards Wildman Palmer LLP v. Superior Court, the appellate court decided an issue of first impression and joined a trend of state courts in Massachusetts, Georgia, Illinois, and Oregon finding that such communications can be protected by the privilege.

The Discovery Dispute
In this case, the defendant firm invoked the attorney-client privilege regarding communications between the attorney initially handling the client’s case and three attorneys within the firm who provided advice concerning the client’s complaints. In the malpractice action, the client moved to compel the original attorney to answer deposition questions and produce documents related to the in-house consultations. The Superior Court of Los Angeles County granted the motion, finding that “a firm’s fiduciary and ethical duties to a client trump the attorney-client privilege.” After the trial court granted the motion to compel, the defendant firm filed a petition for a writ of mandate or prohibition requesting that the appellate court set aside the trial court’s ruling and deny the motion.

No Exceptions to the Attorney-Client Privilege Apply
In making its ruling, the appellate court noted that federal courts have adopted two exceptions—the “fiduciary” or “current client” exceptions—to permit disclosure of confidential intra-firm client discussions. For example, in Thelen Reid & Priest LLP v. Marland, the U.S. District Court for the Northern District of California held that the firm’s fiduciary relationship with its client “lifts the lid on these communications.” In addition, the U.S. Bankruptcy Court for the Northern District of California ruled that communications arising out of a conflict of interest between a law firm’s representation of a current client and its representation of itself in In re SonicBlue, Inc. are not privileged.

On the other hand, however, the Supreme Courts of Massachusetts, Georgia, and Oregon have rejected the fiduciary and current client exceptions, allowing firms to assert the attorney-client privilege to protect confidential in-house communications. The California appellate court reached a similar conclusion and ruled that it was “not at liberty to adopt the fiduciary or current client exceptions to the attorney-client privilege.” In California, the attorney-client privilege is set forth in Cal Evid. Code §§ 950–962. While the statute recognizes eight exceptions to the privilege, it does not include the fiduciary or current client exceptions. Because the attorney-client privilege is a “legislative creation,” the court concluded that it could not recognize any implied exception not set forth in the statute.

Firm Must Show That an Attorney-Client Relationship Exists
The privilege will only attach, however, when a “genuine” attorney-client relationship exists between a law firm’s attorneys and in-house counsel, the appellate court emphasized. To help make such a determination, the court listed four factors that should be considered:

  • •The law firm must have designated attorneys to be in-house or ethics counsel.
  • •If a current client has threatened to file suit against the firm, the in-house counsel must not have worked on any matter involving the client.
  • •The in-house communications must not have been billed to the current client.
  • •The communications must have been confidential.

In this case, the appellate court remanded the matter to the trial court to consider whether the firm had established that an attorney-client relationship existed between the attorney seeking advice and two in-house attorneys.

A Trend That Will Grow
“I think that you will see continued growth in these types of cases as firms adopt the practice of having a claims or general counsel” to provide ethics advice, predicts Eric B. Levasseur, Cleveland, OH, cochair of the ABA Section of Litigation’s Motion Practice and Discovery Subcommittee of the Pretrial Practice & Discovery Committee. Whether or not the privilege will apply to intra-firm legal advice may “depend on whether the state has codified the attorney-client privilege or if it is a creature of common law,” he says.

More protection for intra-firm communications is a good thing, suggests Carey L. Menasco, New Orleans, LA, cochair of the Section of Litigation’s Professional Services Liability Litigation Committee. “The state courts have it right and the federal courts have it wrong,” she says. “When a claim is threatened, the firm has to deal with it and should have the option of consulting with its own counsel” regarding the firm’s ethical obligations, Menasco explains.

What to Do When Faced With a Possible Malpractice Suit
“It is important to know who serves as the firm’s loss-prevention counsel,” Levasseur recommends. “If you are seeing storm warnings from a client, you need to understand who you can talk to within the firm so that your communications can be kept private,” he says. “You must talk to someone who is not involved in the matter and make sure that your conversations are set up to be confidential,” Menasco reiterates. “It is tougher for a small shop,” she acknowledges. Smaller law firms may “not have the benefit of general counsel and everyone works on the same matters,” she says. In that case, the firm “may need to retain outside ethics counsel.”

Keywords: attorney-client privilege, intra-firm communications, fiduciary exception, current client exception, California

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