In-House Counsel Privilege Upheld

Author: Robert Tyson

Palmer v. Superior Court
2014 WL 6662053 (2014)

Case Overview

In this legal malpractice case, the issue presented was whether the attorney-client privilege applies to intra-firm communications between attorneys concerning disputes with a current client, when that client later sues for malpractice. The California Court of Appeal, Second District, concluded that when an attorney representing a current client seeks legal advice from an in-house attorney concerning a dispute with that client, the attorney-client privilege may apply to in-house attorney communications.

Factual Background

Plaintiff brought a malpractice lawsuit against an attorney (Shelton) and her firm stemming from the firm’s representation of Plaintiff in an invasion of privacy claim. The relationship between the firm and Plaintiff quickly went south. Shortly after retaining the firm, Plaintiff sent Shelton two emails expressing dissatisfaction with the firm’s billings and representation. Shortly thereafter, Plaintiff filed a malpractice action against Shelton and her firm. Plaintiff also substituted new counsel in the underlying action.

While still representing Plaintiff, Shelton consulted with the firm’s General Counsel (Swope) and Claims Counsel (Christman), regarding Plaintiff’s complaints. Swope and Christman “deputized” another partner (Durbin) to advise Shelton regarding her responses to Plaintiff’s complaints. The firm did not bill Plaintiff for any of Swope’s, Christman’s, or Durbin’s time. Swope and Christman did not work on Plaintiff’s underlying action.

During Shelton’s deposition in the malpractice suit, Shelton invoked the attorney-client privilege for internal communications between Shelton and Swope and other firm lawyers acting in their capacity as counsel for the firm and/or documents prepared in anticipation of litigation. Plaintiff filed a motion to compel, which the trial court granted. Shelton and her firm filed a petition for writ of mandate or prohibition, requesting the trial court to set aside its order and enter a new order denying the motion to compel.

Ruling

On appeal, Plaintiff relied on federal district and other state courts that have recognized “fiduciary” and “current client” exceptions in the context of intra-firm communications.

The Palmer Court declined to recognize the “fiduciary” and “current client” exceptions to the attorney-client privilege. The Palmer Court explained that under California law, the attorney-client privilege is a legislative creation, which courts have no power to expand or to recognize implied exceptions. The “fiduciary” and “current client” exceptions were not one of the eight exceptions to the attorney-client privilege enumerated in the California Evidence Code. As such, the Palmer Court was not at liberty to create implied exceptions to the attorney-client privilege.

The Palmer Court held that when an attorney representing a current client seeks legal advice from an in-house attorney concerning a dispute with that client, the attorney-client privilege may apply to their confidential communications. The Palmer Court noted that the privilege attaches only when an attorney-client relationship exists. The Palmer Court found no attorney-client privilege as to communications between Shelton and Durbin, as Durbin performed work on Plaintiff’s invasion of privacy case. As to Shelton’s communications with Swope and Christman, the parties did not brief and the trial court did not rule upon, whether Shelton and the firm made a sufficient showing to support a privilege. However, Shelton testified at her deposition that she considered Swope to be her attorney. Christman declared that Shelton sought legal advice about Plaintiff’s matter, and he gave her such advice in his official capacity as Claims Counsel for the firm. In the Palmer Court’s eyes, the trial court could have concluded, as a factual matter, that Shelton and the firm met their preliminary burden to establish the existence of an attorney-client privilege.

The Takeaway from Palmer

In determining whether the attorney-client privilege applied to confidential communications between law firm attorneys and the firm’s in-house counsel, the Palmer Court followed factors set forth by the Supreme Court of Massachusetts in RFF v. Burns. While the RFF factors are not prerequisites under California law, the Palmer Court believed trial courts in the future could analyze the RFF factors in determining whether an actual attorney-client relationship exists. To make sure a genuine attorney-client relationship exists between the firm and in-house counsel, firms should do the following:

  1. The law firm should designate, either formally or informally, an attorney or attorneys within the firm to represent the firm as in-house or ethics counsel;
  2. Where a current outside client has threatened litigation against the law firm, the in-house counsel should refrain from performing any work on the particular client matter or a substantially related matter;
  3. The time spent on the in-house communications should not be billed to the client; and
  4. The communications should be made in confidence and kept confidential. 

ABOUT THE AUTHOR: Mr. Rogers is a graduate of University of San Diego School of Law. He specializes in general liability, professional liability, and business litigation. Contact him at krogers@tysonmendes.com.

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