© 2013 The Texas Lawbook.
By Mark Curriden
Senior Writer for The Texas Lawbook
ATLANTA (June 6) – Do communications between lawyers in a law firm and that firm’s general counsel fall under the attorney-client privilege and work product when a dispute arises between the law firm and one of its current clients?
That question is at the center of a dispute currently pending before the Georgia Supreme Court – a dispute that is quietly attracting serious attention from law firm leaders, legal ethics experts and even corporate general counsels in Texas and across the country.
The outcome of the case, according to legal experts, could significantly shape the debate on the issue, which is taking place in several states, and could redefine the relationship between a law firm’s general counsel and its lawyers.
“This is a case that every law firm and every corporate general counsel’s office should be watching,” says Randy Johnston, a Dallas legal ethics and malpractice expert.
Johnston and others agree that the facts in the Georgia dispute make it an ideal case to examine the broader legal questions. Law firms such as Akin Gump, Baker Botts, Bracewell & Giuliani, Haynes & Boone and Vinson & Elkins – all have an in-house GC – are watching the case closely.
On February 18, 2008, three lawyers with the Savannah law firm Hunter Maclean were on a conference call with the CEO of their client, condominium developer St. Simons Waterfront, which is based in South Carolina.
The law firm had drafted real estate sales contracts and was charged with enforcing the contracts with buyers. A problem arose: the south Georgia real estate market collapsed and buyers were opting out of their deals, pointing to problems with the contracts. The law firm suggested entering settlement negotiations.
St. Simons Waterfront’s CEO was livid, demanded that the lawyers fight to enforce the deals and clearly laid responsibility on the lawyers.
The lawyers for Hunter Maclean took the scolding as a sign that their client was planning a malpractice claim against them and contacted their law firm’s general counsel immediately following the call.
“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,” says John Nelson, an Atlanta lawyer now representing St. Simons Waterfront in its dispute with its former outside counsel.
Nelson denies that St. Simons Waterfront was considering litigation against the law firm.
“Sometimes, clients get upset at their lawyers,” he says. “It happens everyday.”
The difference, according to Nelson, is that Hunter Maclean lawyers secretly started working toward defending itself in litigation against its current client, which automatically created a conflict for the lawyer.
“Hunter Maclean never informed St. Simons Waterfront of this conflict,” says Nelson. “In fact, during this time period, Hunter Maclean lawyers continued to seek additional business from their client.”
Later in 2008, St. Simons Waterfront sued for malpractice and claim that Hunter Maclean breached its fiduciary duties to them as a client. As part of the discovery process, St. Simons Waterfront demanded to examine more than 20 documents listed on the defendant’s privilege log, including a 33-page memo written by lawyers on the Feb. 18 conference the day after the call took place.
Lawyers for Hunter Maclean say Nelson and his client have the facts and the law wrong. They say the law firm informed St. Simons Waterfront during the phone call that new counsel was needed, but it was never put in writing.
“The documents and communications sought [by plaintiff] involve efforts by the firm to investigate, evaluate and consider how to respond to the client’s asserted claim,” says Statesboro, GA lawyer Susan Cox, who represents Hunter Maclean.
Cox says that under the plaintiff’s argument, “a law firm would have to immediately withdraw from any further client representation, regardless of the harm to the client and regardless of whether the client consented to the additional temporary and necessary representation, in order to protect its in-house information from disclosure in the malpractice claim.
“It was impossible for Hunter Maclean to immediately withdraw without causing great harm to the client,” says Cox. “Under Georgia and federal law, the attorney-client privilege is interpreted to protect against disclosure of information obtained or shared in a confidential relationship and that applies equally to communications with in-house and outside counsel.”
The trial court in Georgia decided in favor of St. Simons’ Waterfront, ruling that the law firm failed to inform its client of its conflicts and thus the privilege didn’t apply. The judge ordered Hunter Maclean to turn over its internal documents.
The Georgia Court of Appeals reversed, declaring that Hunter Maclean’s in-house general counsel was completely isolated from the St. Simons Waterfront legal work and thus he did not have a conflict and the attorney-client privilege with the firm’s lawyers remained intact.
But in oral arguments in March, Nelson told the Georgia justices that this approach “makes it too easy for law firms to conceal unethical conduct from clients.”
“It 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 argues.
Nelson says that 15 trial and appellate courts across the U.S. have had cases with facts similar to this one.
“All 15 ruled for the client,” he says. “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.”
The American Bar Association filed an amicus brief with the Georgia Supreme Court stating that the organization “supports the growing presence in law firms of in-house counsel to whom the firms and their members may turn for advice on the legal and ethics issues they face.”
However, the brief notes that ABA policy does not address the scope and effect of the privilege and work product doctrine when lawyers consult with their in-house counsel about a potential or actual dispute with a client.
While the ABA brief doesn’t take a position in the dispute, an amicus brief filed on behalf of 13 law firms, including Alston & Bird, Baker, Donelson, Bearman, Caldwell & Berkowitz, and Sutherland Asbill & Brennan calls on the Georgia justices to uphold the appellate court and preserve the privilege.
“The decision of this Court, as a practical matter, will have direct and significant implications to, and impacts upon, how law firms and their in-house counsel nation-wide practice and also on decisions of the courts of other states addressing issues of law firm privilege in the future,” McKenna Long & Alridge partner Shari Klevens wrote in the amicus brief.
“The resolution of this issue before this court will have a significant impact on [our lawyers’] ability to assess and respond to inquiries from their attorneys who want to understand potential risks to better fulfill their professional obligations to their clients,” Klevens wrote.
According to a footnote in the brief, global law firms such as Weil, Gotshal & Manges, Clifford Chance, Debevoise & Plimpton, Latham & Watkins and Baker Botts, “strongly agree” with the position of the amicus group that the courts should recognize the attorney-client relationship between lawyers at a firm and its in-house counsel and protect such communications equally as it does communications with outside counsel.
One group watching the case closely but have remained silent so far are corporate general counsels. The Supreme Court ruled in 1981 that communications between corporate officials and their in-house counsel are protected by the privilege.
However, many corporate GCs say privately that they are disturbed that law firms actively representing their businesses may be secretly plotting against them based on a litigation perception that isn’t a reality.
“Corporate general counsels have every right to be concerned that their law firm is secretly plotting against them and their best interests and are doing do without notifying them,” says Johnston.
“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,” she says. “Failure to tell the client eviscerates the privilege. Period.”
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