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In-Firm Privilege: Lawyers Have Legal Problems Too

For many years in the modern era of law firms, a few federal district court decisions starting in the 1980s set forth the notion that lawyers and law firms could not invoke the attorney-client privilege to shelter communications with their lawyers about their legal problems from the lawyers’ clients. Since that time, law firms have grown tremendously in size, scope, and complexity, making such an approach a thorn in the side of law firms’ in-house counsel.

Fortunately, since 2011, there has been an unbroken string of well-reasoned opinions deciding that the cases holding against the in-firm privilege were in fact mistaken. The supreme courts of Massachusetts, Georgia, Oregon, California, and New York have now upheld the rights of lawyers to get privileged legal advice, as have intermediate appellate courts or federal district courts in Illinois, Ohio, and California.

The New York Court of Appeals was the last state high court to go down this path. In Stock v. Schnader Harrison Segal & Lewis, 35 N.Y.S.3d 31 (2016), the court affirmed the right of lawyers to seek privileged legal advice about legal problems relating to current clients of the lawyers. Following other recent cases, the court explained that the fiduciary exception is not applicable in this context simply because lawyers are their clients’ fiduciaries. The court also deconstructed the flawed thinking behind the “current client exception” to the privilege set forth in some of the earlier cases as well.

In Stock, the New York high court rejected the arguments of an amicus, the prominent Association of Corporate Counsel, whose members are in-house corporate counsel. The ACC argued that lawyers and law firms cannot obtain legal advice about problems involving their current clients because it is the clients who hold the privilege. The ACC even went so far as to argue that the privilege not only does not exist in communications with a firm’s in-house counsel, but that the same rule should apply to consultations with a law firm’s outside counsel. In its amicus brief, the ACC prominently relied upon a law student’s law review note to advance its argument. (Really?)

The ACC’s argument neglects the fact that lawyers need legal advice too, and when they do, they are the clients. The Stock court declined to adopt the rule urged by the ACC, which has not been adopted by any American court. When a lawyer needs legal advice about a situation involving a current client, she is really between a rock and a hard place. The Court of Appeals explained that lawyers’ duty of loyalty to their clients does not prevent them from defending against client claims or getting advice about compliance with the rules of professional conduct. The court observed that the ACC’s proposed rule would force law firms to withdraw at the first hint of a problem with a client, thereby limiting the firm’s ability to mitigate any potential harm to its client. The court found the better course is to allow law firms to get legal advice and is preferable for both law firms and clients.

After its position in Stock was rejected, the ACC had more to say. U.S. Law Week quoted the ACC’s chief legal strategist as saying that the ACC viewed Stock as a “a sort of ‘Maginot Line’” that had to hold to protect corporate clients. Corporate Counsel Weigh New Plan of Attack After Losing “Intrafirm” Privilege Case in N.Y., U.S. Law Week, vol. 85, no. 2, at 40. U.S. Law Week further reported that the ACC’s strategist said that ACC members may turn to putting waivers of the law firm’s attorney-client privilege in their outside counsel guidelines. This effort is as ill-conceived a way to protect clients as the Maginot Line was to protect France from Hitler’s tanks.

Law firms most often represent the ACC’s member’s companies with great skill, devotion and loyalty. Is it really important to corporate America that their lawyers can’t receive privileged legal advice? A privilege does not mean that you can hide facts that a client is entitled to know. Whenever we professional liability and professional responsibility lawyers are consulted by law firm clients, duty to clients is a paramount concern on both sides of the attorney-client relationship. This is true even where law firms naturally want to take steps to limit their liability. How can a lawyer best protect a client in this difficult situation? It’s simple: by preventing or minimizing harm. By making sure that the mandates of the rules of professional conduct are followed.

Lawyers have legal problems too. Their clients are best served by the lawyers getting legal advice when they need it. Just like the clients’ interests are served by getting the same kind of thoughtful legal advice. Corporate counsel should think twice about trying to strong-arm their clients into foregoing their legal rights as a price of doing business.