Attorney-client privilege is a bit of a misnomer. The name itself fails to convey the full breadth of communications protected (or not protected) by the privilege, one of the oldest common-law evidentiary privileges. The privilege applies to communications made “for the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship.” See, e.g., Spectrum Sys. Intl. Corp. v. Chemical Bank, 78 N.Y.2d 371, 377-378 (1991), quoting Rossi v. Blue Cross & Blue Shield of Greater N.Y., 73 N.Y.2d 588, 593 (1989). Indeed, not every communication is privileged – and determining whether the privilege applies is not always clear cut. For example, if a law firm has designated a particular attorney as their in-house counsel, and another attorney in the firm has an ethical question as it relates to a client, are communications between the two attorneys on the subject protected by the privilege?
In July 2016, the First Department, in Stock v. Schnader Harrison Segal & Lewis LLP, 142 A.D.3d 210 (1st Dep’t 2016), became the first appellate court (and so far the only) in New York State to recognize intra-firm privilege applying to certain communications between an attorney and his or her firm’s in-house counsel. In Stock, the Defendant law firm previously represented the Plaintiff in the negotiation of a separation agreement from Plaintiff’s former employer. Unbeknownst to Plaintiff, his vested stock options, allegedly worth more than $5 million, expired as a result of the negotiation. Plaintiff subsequently commenced a federal lawsuit and an arbitration proceeding against his former employer to recover the value of the lost options. Again, Plaintiff hired the Defendant firm to represent him in the federal litigation and arbitration. However, the Plaintiff’s former employer took the position that Plaintiff’s woes were caused by the Defendant firm’s representation in negotiating the separation agreement. To prove this, the former employer sought to call a Defendant firm lawyer as a fact witness at the arbitration. This progression prompted the Defendant firm to seek legal advice from its in-house counsel regarding ethical obligations under the lawyer-as-witness rule.
After the arbitration was decided in favor of the former employer, Plaintiff sued the Defendant firm for malpractice, claiming that it failed to advise him that his separation would significantly accelerate the expiration date of his stock options. During discovery, Plaintiff sought 24 documents concerning communications Defendant firm’s attorneys had with other lawyers at the firm, most notably including the firm’s in-house counsel. The firm withheld the documents, arguing they were protected from disclosure under attorney-client privilege. However, the trial court disagreed, holding that the documents were discoverable under the “fiduciary exception” to the attorney-client privilege. According to the trial court, the firm, as Plaintiff’s legal representative, was a fiduciary with special obligations to Plaintiff, and thus Plaintiff “ha[d] a right to disclosure from his fiduciaries of communications that directly correlate to his claims of self-dealing and conflict of interest.” Stock v. Schnader Harrison Segal & Lewis LLP, No. 651250/2013, 2014 WL 6879923 at *2 (Sup. Ct. N.Y. Co. Dec. 8, 2014).
On appeal, the First Department unanimously reversed, holding that the fiduciary exception did not apply and that the communications at issue were privileged. Key to the Court’s analysis was determining the “real client” – whether the communications seeking legal advice were sought to protect the individual interests of the attorneys or to guide the attorneys in rendering service to their clients. The Court reasoned that “the purpose of the consultation . . . was to ensure that the attorneys and the firm understood and adhered to their ethical obligations as legal professionals.” Stock, 35 N.Y.S.3d at 223. Despite the primary function of the attorney-client privilege being to facilitate candid discussion between attorneys and their clients, the Court reassured the legal profession that “[t]he protection afforded by the attorney-client privilege encourages lawyers to seek advice concerning their ethical responsibilities and potential liabilities in a timely manner so as to minimize any damage to the client from any conflict or error.” Accordingly, the Court found that “the attorneys and the firm, not plaintiff, were the ‘real clients’” during the consultation. Id. Thus the communications were privileged.
In a similar context involving in-house corporate counsel, it is important to remember that the “real client” is the corporation itself, not its directors, officers, or shareholders, and challenges arise when determining whether communications between a corporation’s in-house counsel and employees regarding both business and legal advice are privileged. The seminal New York Court of Appeals case Rossi v. Blue Cross and Blue Shield of Greater N.Y., 73 N.Y.2d 588, is instructive on this issue. In Rossi, the issue presented to the Court was whether an internal memorandum from a corporate staff attorney to a corporate officer was protected by attorney-client privilege. The contents of the memorandum referenced communications concerning both legal advice and nonlegal business communications. The mixed legal-business nature of the memorandum provided the Court an opportunity to opine on the contours of the attorney-client privilege in context of intra-firm communications. The Court noted that communications with in-house counsel often “blur the line between legal and non-legal communications.” Id. at 593. The Court acknowledged that no bright-line rule exists to distinguish protected legal communications from unprotected business or personal communications. Most importantly, the Court specified that a fact intensive inquiry is necessary to determine whether the nature of the communication is predominantly of a legal character. Applying that rule, the Court held that the content and context of the memorandum was to facilitate legal advice and privilege was not compromised merely because it also referred to certain nonlegal matter.
The attorney-client privilege has developed into a robust doctrine. Do not be fooled into thinking about it in a one-dimensional way. It protects intra-firm communications by attorneys seeking ethical advice, as well as corporate communications that are predominantly legal in character. Of course, not all intra-firm communications are privileged, but that is a small trade-off for the vast protection attorney-client privilege affords.
Patrick McCormick is a partner and the chair of the appellate practice group at Campolo, Middleton & McCormick, LLP, a premier law firm with offices in Ronkonkoma and Bridgehampton. He also serves as General Counsel to the firm and is the Dean of the Suffolk Academy of Law. Richard A. DeMaio is an associate at CMM, where he focuses on litigation, appeals, and the intersection of law and technology. They can be reached at pmccormick@cmmllp.com and rdemaio@cmmllp.com.