When attorneys face potential malpractice claims from existing clients, they often
turn to their firm's in-house counsel or a trusted partner to seek legal advice and
guidance. Such intrafirm communications are undoubtedly meant to be confidential and
privileged, often addressing whether the attorney erred or how to mitigate any potential
harm. However, attorneys involved in disputes with existing clients still owe clients
a fiduciary duty of loyalty and must communicate significant developments so long
as the representation continues.
Until recently, considerable uncertainty existed in California as to whether an attorney's
duties to his or her client trumped application of the attorney-client privilege to
intrafirm communications about the existing client's representation. Fortunately,
a recent decision provides much-needed guidance on this obviously touchy situation.
(See
Edwards Wildman Palmer v. Superior Court, 231 Cal. App. 4th 1214 (2014).)
Recent Dispute
Shahrokh Mireskandari filed a legal-malpractice action against both the law firm of
Edwards Wildman Palmer LLP and Dominique Shelton, a partner in the firm's Los Angeles
office. The firm represented the client for only two months, during which time the
client voiced dissatisfaction over the firm's representation in an invasion-of-privacy
case against the
Daily Mail, a newspaper based in the United Kingdom. In response to the client's complaints,
Shelton had numerous communications with the firm's general counsel (Jeffry Swope)
and its claims counsel (James Christman), about how she should respond to the client,
as well as how she should handle the attorney-client relationship. During those communications,
Swope and Christman gave Shelton advice regarding legal issues relating to the firm's
representation of Mireskandari.
The firm "deputized" Mark Durbin, a partner in its Chicago office, to supervise the
preparation of all pleadings in the client's case and assist Shelton in responding
to client complaints. (See
Edwards Wildman, 231 Cal. App. 4th at 1223.) The firm did not bill the client for any of Swope's,
Christman's, or Durbin's time.
During Shelton's deposition in the malpractice action, the client's attorneys asked
her several questions about her communications with the firm's general counsel and
sought production of documents related to them. Shelton claimed the attorney-client
privilege. The trial court granted the client's motion to compel based on two exceptions
to the privilege recognized by federal courts-the "fiduciary" and "current-client"
exceptions. The trial court reasoned: "If there were ... discussions among members
of the firm regarding the client, the client's case, what was going on, that belongs
to the client. The client is the holder of the privilege." (231 Cal. App. 4th at 1223.)
The court of appeal reversed, finding that the fiduciary and current-client exceptions
did not apply in California. (231 Cal. App. 4th at 1227-1233.)
Attorney-Client Privilege
In California, the attorney-client privilege is codified in a statute that vests the
"holder" of the privilege (generally the client) with a privilege to refuse to disclose,
or prevent another from disclosing, a "confidential communication between client and
lawyer." (See Cal. Evid. Code § 954.) There are two general prerequisites. First,
the communication must be made in the course of the attorney-client relationship.
Second, the communication must be made "in confidence by a means which, so far as
the client is aware, discloses the information to no third persons other than those
who are present to further the interest of the client in the consultation or those
to whom disclosure is reasonably necessary for the transmission of the information
or the accomplishment of the purpose for which the lawyer is consulted." (See Cal.
Evid. Code § 952.)
In the
Edwards Wildman case, the court examined whether an attorney-client relationship actually existed
between Shelton and the in-firm attorneys with whom she consulted about the client's
complaints. The court found that a formal agreement or compensation is not necessary
to create the attorney-client relationship for purposes of the privilege. The relationship
exists whenever a person consults an attorney to obtain the attorney's legal services
or advice. (See 231 Cal. App. 4th at 1226.) The court also found that there was no
reason the privilege could not apply when one attorney consults another attorney in
the same firm for the purpose of securing confidential legal advice about a current
client. (231 Cal. App. 4th at 1227.) Therefore, if an attorney-client relationship
did exist and no exceptions applied, Shelton's communications with the firm's general
counsel would be protected.
Exceptions to the Privilege
The attorney-client privilege is not absolute. It is subject to eight statutory exceptions.
(See Cal. Evid. Code §§ 956-962.) In the
Edwards Wildman case, the client did not invoke any of the statutory exceptions but instead relied
on the fiduciary and current client exceptions recognized in two federal court opinions
from the Northern District of California. (See
Thelen Reid & Priest LLP v. Marlyand, 2007 WL 578989 (N.D. Cal.);
In re SonicBlue, Inc., 2008 WL 170562 (Bankr. N.D. Cal.).)
In
Thelen the court found that a law firm's fiduciary duties to an existing client precluded
it from asserting the attorney-client privilege with respect to intrafirm communications
that implicate or affect the client's interests. Recognizing that attorneys often
seek ethics advice from in-house counsel, the
Thelen court held that "once the law firm learns that a client may have a claim against
the firm or that the firm needs client consent in order to commence or continue another
client representation, then the firm should disclose to the client the firm's conclusions
with respect to those ethical issues." (
Thelen, 2007 WL 578989 at *8.)
Similarly, the court in
SonicBlue found that a law firm could not shield intrafirm communications about a client so
long as the firm's representation continues. The court reasoned that "when a law firm
chooses to represent itself, it runs the risk that the representation may create an
impermissible conflict of interest with one or more of its current clients." Accordingly,
"where conflicting duties exist, the law firm's right to claim privilege must give
way to the interest in protecting current clients who may be harmed by the conflict."
The court concluded that "a law firm cannot assert the attorney-client privilege against
a current outside client when the communications that it seeks to protect arise out
of self-representation that creates an impermissible conflicting relationship with
that outside client." (
SonicBlue, 2008 WL 170562 at *9.)
The
Edwards Wildman court did not follow the same path. It noted that neither the fiduciary nor current-client
exceptions are based on any of California's eight statutory exceptions. The court
held that California judges are not permitted to create additional exceptions or expand
existing ones. Thus the court ruled that the fiduciary and current-client exceptions
to the attorney-client privilege do not apply in California. (
Edwards Wildman, 231 Cal. App. 4th at 1230-31.)
Ethics Issues
Although the
Edwards Wildman court rejected the fiduciary and current-client exceptions, it nevertheless recognized
that a law firm's self-representation in regard to a dispute or threatened claim by
a current client "may raise thorny ethical issues." (231 Cal. App. 4th at 1233.) Indeed,
a conflict of interest may arise if an attorney consults with in-house general or
ethics counsel when the primary goal is to protect the attorney or firm from consequences
of a professional lapse that has already occurred. (See
Cal. Prac. Guide Prof. Resp. (TRG), Ch. 4-E, § 4:264.17.)
In addition, "recognition of the attorney-client privilege under these circumstances
does not undercut a firm's duty to keep a client apprised of developments in the case
or alert the client to an incident of malpractice." Failure to do so may result in
the firm's or attorney's breach of their ethical duty to fully and fairly disclose
facts material to the client's interests. (
Edwards Wildman, 231 Cal. App. 4th at 1234.)
However, the court also concluded that "it does not follow that the looming specter
of ethical issues mandates the extinguishment of the attorney-client privilege." (231
Cal. App. 4th at 1233.)
Genuine Relationship
Responding to the client's argument that an intrafirm exception would encourage or
permit firms to create artificial attorney-client relationships "in order to negate
the firm's duties and place information regarding the representation behind the cloak
of privilege," the
Edwards Wildman court ruled that "the privilege will attach only when a genuine attorney-client relationship
exists." (231 Cal. App. 4th at 1234.)
According to the court, four factors provide a helpful template in determining whether
such a genuine attorney-client relationship exists: (1) the law firm must have designated,
either formally or informally, an attorney or attorneys within the firm to represent
the firm as in-house or ethics counsel, so that an attorney-client relationship exists
between in-house counsel and the firm when the consultation occurs; (2) when a current
outside client has threatened litigation against the law firm, the in-house counsel
must not have performed any work on the particular client matter or a substantially
related matter; (3) the time spent on the in-house communications may not have been
billed to the client; and (4) the communications must have been made in confidence
and kept confidential. (See
Edwards Wildman, 231 Cal. App. 4th at 1234-35.)
Applying these factors, the court found that Shelton met her burden of establishing
the existence of an attorney-client relationship with Swope and Christman. During
her deposition, Shelton testified that she considered Swope to be her attorney. Moreover,
Shelton and Christman were respectively designated as the firm's general counsel and
claims counsel before the dispute with the client arose; they did not work on the
client's case; and they did not bill the client for the time spent advising Shelton.
Finally, both Swope and Christman declared that they gave Shelton legal advice regarding
her response to the client's complaints and management of the relationship.
On the other hand, the court concluded as a matter of law that Shelton had failed
to establish the existence of an attorney-client relationship with Durbin. Unlike
Swope and Christman, Durbin had not been designated as the firm's general or ethics
counsel prior to the dispute with the client. Rather, as the court pointed out, Durbin
was "deputized" by Swope and Christman-after the dispute arose-to actually work on
the client's case, including supervising the preparation of pleadings (
Edwards Wildman, 231 Cal. App. 4th at 1223). Based on these facts, the court found that the firm
could not establish that Shelton's communications with Durbin were made in the course
of an attorney-client relationship between them.
Designating Counsel
Designating in-house or ethics counsel is the first step to ensuring that intrafirm
communications about current-client disputes are protected under the attorney-client
privilege. Many large law firms likely have designated counsel in such a role. Smaller
firms, on the other hand, likely do not. Although formal designation of a permanent
in-house counsel position is the best practice for protecting intrafirm attorney-client
communications, it is not required under
Edwards Wildman. However, not designating in-house counsel may be an impediment to later enforcement
of the attorney-client privilege regarding intrafirm communications about a current-client
dispute.
The attorney-client privilege does not attach to communications when the dominant
purpose for the communication is something other than to obtain a legal opinion or
advice. (
Costco Wholesale Corp. v. Superior Court, 47 Cal. 4th 725, 735 (2009).) Absent the in-house counsel moniker, serious questions
could arise regarding the purpose of the communication that could undermine the attorney-client
privilege's application. This could be particularly problematic for firms with a small
number of lawyers.
Fortunately, no specific formalities are required to designate in-house counsel. The
designation must, however, be made prior to the intrafirm communication taking place.
This could be done, for example, in minutes taken during a partnership meeting, in
a firm-wide memorandum, or an intrafirm email communication.
Designation of in-house counsel after a current-client dispute arises-but before a
confidential communication takes place-may suffice. Post-dispute designations, however,
may give rise to questions about the designated attorney's role in the client's case
prior to his or her being designated as in-house counsel. If a post-dispute designation
is necessary, the attorney designated as in-house counsel must be an attorney who
has not worked on the client's case or even on a substantially related matter. Ideally,
the attorney designated would be someone who has no knowledge of the client's case,
even though this does not appear to be a necessary factor under
Edwards Wildman.
Though in-house counsel may desire to keep track of his or her time handling the current-client
dispute, in-house counsel's time must not be billed to the client. Instead, firms
should have a separate administrative code or billing number for in-house counsel
to track his or her time in that circumstance.
Keep It Confidential!
Even if in-house counsel is properly designated, communications that are not kept
confidential will not be privileged. All written communications such as e-mails or
memos with designated in-house counsel about a current-client claim or dispute should
be expressly marked as an intra-firm attorney-client privileged communication.
Moreover, intrafirm communications should be strictly limited between in-house counsel
and the attorney seeking legal advice or guidance. For example, confidential emails
should not be copied or shared with other attorneys in the firm who have worked on
the client's matter. To ensure maximum protection, notes, memos, or other communications
stored in databases that are accessible firm-wide should be password-protected or
restricted, and only accessible by the firm attorneys to whom the privilege applies.
Attorneys need legal advice, and they often turn to their colleagues to obtain it.
Adherence to the guidelines recognized in
Edwards Wildman will assist in protecting intrafirm legal advice. At the same time, attorneys who
seek in-house counseling must be mindful of their ethics obligations to clients. Attorneys
must be careful to disclose to their clients the significant developments in the matters
being handled. This can be done without also breaching the attorney-client privilege
that attaches to communications with in-house counsel.
Jessica R. MacGregor is a partner and Shane M. Cahill is a senior associate at Long
& Levit in San Francisco, where they defend lawyers and other professionals.
Donna Mallard
Daily Journal Staff Writer
