Yesterday Chris Froome won the 100th incarnation of the Tour de France. He held the leader’s position, as signified by wearing the Yellow Jersey, since Day 8 of the Tour. Froome is the second Englishman to win the race in the last 100 years, the first being Bradley Wiggins last year. Perhaps even Cubs fans can take heart from waiting 99 years to win and then having two Brits win it back-to-back. It was a great Tour this year and a big tip of the racing helmet to Chris Froome and Team Sky. (One programing request to the Tour officials – please do not begin next year’s race during the final week of Wimbledon, as my wife has control of the television during that two week event.)
This past week there was a decision by the Georgia Supreme court in the case of St. Simons Waterfront LLC v. Hunter, MacLean, Exley & Dunn, PC (No. S12G1924, decided July 11, 2013). This was a much awaited decision on the extent that a law firm could claim attorney-client privilege for its internal legal consultations in the face of a malpractice claim. The law firm had prepared certain real estate sales contracts, which were used by the firm’s client, St. Simons Waterfront LLC (SSW). After buyers began to opt out of these contracts to purchase certain properties, the law firm suggested that the company negotiate with the purchasers.
I. Background
The company demanded that the law firm work to enforce the agreements. Curriden wrote that “The lawyers for Hunter Maclean took the scolding as a sign that St. Simons Waterfront was planning a malpractice claim against them and contacted the firm’s in-house counsel immediately after the call.” He quoted the lawyer for St. Simons Waterfront who said that “Within minutes of the conference call, Hunter Maclean lawyers were already taking legal steps to defend themselves for litigation, even though they were still representing the client and would continue to represent the client for another three months.”
The law firm understood that their client was threatening litigation and claimed they told the client that it needed new counsel. The client said at no time did it suggest that it was preparing to sue its own lawyers and denies that the law firm told them after the phone call in question that a conflict existed and that they should retain new counsel. Indeed later, the client sued the law firm for malpractice in the drafting of the real estate contracts. The dispute before the Georgia Supreme Court was over certain documents that the law firm claims is its internal attorney-client privileged communications, specifically including a 33-page memo from the firm’s own in-house lawyer describing the Feb. 18, 2008, conference call, referenced above, that lawyers at the firm wrote the day after the telephone conversation occurred.
II. Positions of the Parties
Susan W. Cox, counsel representing Hunter Mclean, said that “The documents and communications sought involve efforts by the firm to investigate, evaluate and consider how to respond to the client’s asserted claim.” Therefore, all communications with the firm’s own in-house counsel should be privileged. However, Attorney John G. Nelson, counsel for SSW, said that this reasoning “makes it too easy for law firms to conceal unethical conduct from clients…If the client’s attorneys consult with the in-house attorney—not for the purpose of meeting their ethical obligations to the client but to cover up their own malpractice, and the in-house attorney assists them in doing so—the firm could withhold that information simply because the in-house attorney was ‘segregated’ from directly representing the client.” Nelson further said that “The reason is simple: When a law firm represents a current client, the entire law firm’s fiduciary and ethical duties are to that client.”
III. Georgia Supreme Court Holding
The Georgia Supreme Court held that the attorney/client privilege was available for the law firm to protect its communications with its in-house counsel. After initially noting that it had not addressed the issue before it, the Georgia Supreme Court specifically stated that it the question before it had no bearing on the ethical obligations of lawyers in Georgia under the state’s Rules of Professional Conduct. Hence, the Court said, “we conclude that the potential existence of an imputed conflict of interest between in-house counsel and the firm’s client is not a persuasive basis for abrogating the attorney-client privilege between in-house counsel and the firm’s attorneys.”
After having said that it would analyze the question before it “as we would in any other lawsuit in which the attorney/client privilege is asserted”, the Court said that a determination is based upon a four-part test.
(1) There is an attorney/client relationship. Under this prong, there must be a determination “that the attorney purporting to act as the firm’s in-house counsel was actually acting in that capacity with regard to anticipated legal action against the firm or other matters related to the firm’s compliance with its legal and ethical obligations. The firm should be clearly established as the client before or in the course of the in-firm communication for the attorney-client privilege to attach. Whether the firm has attained the status of its in-house counsel’s “client” in a given situation is a fact-based determination, which may depend in part on the procedures undertaken to establish the potential or actual malpractice claim against the firm as a matter distinct from the firm’s underlying representation of the client asserting the claim.”
(2) The communications in question relate to the matters on which legal advice was sought. The attorney/client privilege attaches only to communications that have been made in the course of an attorney client relationship. Further, the communication must have been made for the purposes of receiving or giving legal advice. The Court stated that “In the law firm in-house counsel context, these principles require that the communications be made between the in-house counsel in its capacity as firm counsel and the firm’s attorneys in their capacity as representatives of the client, the law firm, regarding matters within the scope of the attorneys’ employment with the firm.”
(3) The communications have been maintained in confidence. The Court emphasized that any such communications must be of a confidential nature to maintain the attorney/client privilege. So “As applied within law firms, this principle means that, in order to maintain privileged status, intra-firm communications regarding the client’s claims against the firm should generally involve only in-house counsel, firm management, firm attorneys, and other firm personnel with knowledge about the representation that is the basis for the client’s claims against the firm.”
(4) There are no exceptions to the attorney/client privilege that are applicable. Most jurisdictions, including Georgia, recognize exceptions to the attorney/client privilege for communications in the furtherance of “crime, fraud or other unlawful end. So, “to the extent there is an allegation that in-house counsel has been employed by firm attorneys in an effort to defraud rather than merely defend against a client, the privilege may be waived.” However, the Georgia Supreme Court refused to graft on a fiduciary or fiduciary duty exception that “one who is acting in a fiduciary capacity cannot assert privilege to shield its communications with counsel from the beneficiary of the fiduciary relationship.”
IV. Conclusion
The Court’s decision is note-worthy not only for what it says but also for what it doesn’t say. The Court held that an analysis of the attorney/client privilege for a law firm is no different than any other commercial enterprises. But the Georgia Supreme Court holds that any analysis of the duties that a Georgia lawyer or law firm have towards its clients are governed by the Georgia Rules of Professional Conduct and require a separate analysis. As a former in-house counsel I certainly find it troubling if, at the slightest spat between a law firm and a client, the law firm then ‘lawyers-up’ and girds for a lawsuit. One of the greatest things about the legal profession is that it holds the highest duty possible to its clients. If a law firm is taking a position contrary to its client’s interest, it can no longer ethically represent the client.
In an article in the May issue of the ABA Journal, entitled “Inside Story”, author Mark Curriden reported that, “many corporate GCs privately express concerns about what their law firms may be doing behind their backs.” He quoted Randy Johnston, who focuses his practice at JohnstonTobey PC in Dallas on professional malpractice cases, who said “Corporate general counsel have every right to be concerned that their law firm is secretly plotting against them and their best interests, and are doing so without notifying them”. Johnston goes on further to say “In the end, I think there’s only one solution: Law firms should have the right to internal defense and to work product, but the law firm must immediately inform the client when there is a conflict. Failure to tell the client eviscerates the privilege. Period.”
So, while the law firm won this battle over its own attorney/client privilege, it still may be liable at the end of the day. I would suspect that the matter will be resolved and we will never know the full story. But while we wait, let us all remember the spectacular light show the Tour put on during the awards ceremony yesterday and Chris Froome’s historic win.
For a copy of the Georgia Supreme Court’s decision, click here.
Filed under: Attorney-Client Privilege,Best Practices,compliance programs
© Thomas R. Fox, 2013
