Judges： Gants
Filed Date： 7/10/2013
Status： Precedential
Modified Date： 11/10/2024
The issue presented on appeal is whether confidential communications between law firm attorneys and a law firm’s in-house counsel concerning a malpractice claim asserted by a current client of the firm are protected from disclosure to the client by the attorney-client privilege. We conclude that they are, provided that (1) the law firm has designated an attorney or attorneys within the firm to represent the firm as in-house counsel, (2) the in-house counsel has not performed any work on the client matter at issue or a substantially related matter, (3) the time spent by the attorneys in these communications with in-house counsel is not billed to a client, and (4) the communications are made in confidence and kept confidential. Because these criteria were met in this case, we affirm the judge’s order allowing the defendant law firm and its attorneys to invoke the attorney-client privilege to preserve the confidentiality of these communications.
Background. The plaintiff RFF Family Partnership, LP (RFF), made a $1.4 million commercial loan to Link Development, LLC (Link), secured by what RFF understood was a first mortgage on Link’s real property in Saugus (property). RFF retained Bums & Levinson, LLP (B&L or law firm), to investigate the title of the property, to conduct the necessary due diligence and draft the required documents, and, subsequently, to accomplish RFF’s foreclosure on the mortgage when Link defaulted in its payment.
On March 25, 2010, the day before the scheduled foreclosure sale, an assignee of a different mortgage on the property filed an action in the Land Court seeking to enjoin RFF’s foreclosure on the grounds that its mortgage was superior to that of RFF.
On March 2, 2011, almost one year after the foreclosure sale, while B&L was representing RFF in active negotiations with a third party for the sale of the foreclosed property, Prince Lobel sent a “notice of claim” to B&L attorney Shepard Davidson, alleging that B&L “breached its obligations to RFF by, among other things, failing to identify and payoff an existing mortgage of record in favor of” another lender, “failing to record a subordination agreement for another existing mortgage of record,” and “failing to inform RFF of these outstanding liens.” Prince Lobel alleged that RFF “has suffered and continues to suffer damages” as a result of “B&L’s legal malpractice and breach of contract,” and demanded that B&L indemnify RFF for the losses incurred. Prince Lobel requested that B&L contact it “no later than Tuesday, March 8, 2011 to discuss this matter.” Attached to the letter was a draft complaint including two counts of liability against B&L and two B&L attorneys, Michael MacClary and Francis Perkins.
The judge found that, on Friday, March 4, MacClary, Perkins, and Davidson sought advice as to how B&L should respond to the notice of claim from David Rosenblatt, who was the partner at B&L designated to respond to ethical questions and risk management issues on behalf of B&L, and who had not worked on any matters for RFF. B&L did not bill RFF for any of the time devoted to these internal communications concerning the notice of claim.
On Monday, March 7, MacClary sent a letter to RFF’s principal, Robert F. Freedman, with a copy sent to Prince Lobel, stating:
“As I am sure you are aware, we have received [the notice*705 of claim] from your counsel . . . contemplating a law suit against our firm. Additionally, you have significant unpaid legal fees and have not made a payment to us for several months. Under these circumstances, we cannot continue representing you. Accordingly, we are withdrawing from further representation effective immediately.”
After receiving the letter, Freedman told MacClary that Prince Lobel had not been authorized to file or threaten any litigation against B&L on RFF’s behalf, and that he wanted B&L to continue to represent RFF in connection with its efforts to sell the property. On March 17, MacClary sent a letter to Freedman stating that, before B&L would recommence its representation of RFF, it needed written confirmation that RFF had not engaged Prince Lobel to bring a claim against B&L or its attorneys. Freedman countersigned this letter to provide the requested confirmation, and B&L thereafter resumed its representation and continued to represent RFF in connection with its efforts to sell the property.
On June 13, 2012, after B&L had concluded its representation of RFF, RFF filed an action in the Superior Court against B&L, MacClary, and Perkins (collectively, B&L defendants), which, as amended, alleged, among other claims, legal malpractice, negligent misrepresentation, and intentional misrepresentation.
Discussion. RFF on appeal claims, in essence, that it is entitled to discovery of the confidential communications between Rosenblatt, B&L’s in-house counsel for ethical and risk management issues, and the B&L attorneys who had performed legal work for RFF that occurred during the time period between B&L’s receipt of the notice of claim threatening a legal malpractice suit (March 2) and B&L’s first withdrawal from the representation (March 7). Specifically, RFF seeks to learn what was said when Rosenblatt met with MacClary, Perkins, and Davidson on March 4 to discuss a response to the notice of claim. RFF does not claim that it is entitled to discovery of any confidential communications between Rosenblatt and the other B&L attorneys that may have occurred before B&L received the notice of claim, or after B&L’s withdrawal from the representation.
RFF argues that when an attorney in a law firm seeks legal advice from in-house counsel regarding how the attorney or the firm should respond to a claim or threatened claim of malpractice brought by a current client, these communications are not protected from disclosure to the client unless the law firm, before seeking the advice, has either withdrawn from the representation or fully disclosed to the client that the law firm and client have a conflict of interest and obtained the client’s informed consent for the law firm to seek legal advice. RFF contends that, although these attorney-client communications may be protected from disclosure to anyone other than the cli
Neither this court nor any other court of last resort in the United States appears to have addressed the applicability of the attorney-client privilege to a law firm’s in-house communications concerning a current client. As the Court of Appeals of Georgia recently described, “To put it plainly, we are in uncharted jurisprudential waters.” Hunter, Maclean, Exley & Dunn, P.C. v. St. Simons Waterfront, LLC, 317 Ga. App. 1, 13 (2012) {Hunter).
As we set sail on these waters, we recognize legal principles that are in well-established safe harbors. “The classic formulation of the attorney-client privilege, which we indorse, is found in 8 J. Wigmore, Evidence § 2292 (McNaughton rev. ed. 1961): ‘(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from
When a corporation employs an attorney to serve as its in-house counsel, the corporation is the attorney’s client, but confidential communications between the in-house counsel and the corporation’s employees that are intended to help counsel to provide the corporation with sound legal advice are protected by the attorney-client privilege. See id. at 391-392; Clair v. Clair, 464 Mass. 205, 215-216 (2013). Similarly, when a governmental entity employs an attorney to serve as its in-house legal counsel, the entity is the client, but confidential communications between the counsel and the entity’s employees “undertaken for the purpose of obtaining legal advice or assistance are protected under the normal rules of the attorney-client privilege.” Suffolk Constr. Co. v. Division of Capital Asset Mgt., supra at 450.
As one leading legal commentator regarding this subject has noted:
“Law firms, like corporations, face ‘a vast and complicated array of regulatory legislation,’ where the line between permissible and prohibited conduct is not always ‘an in*709 stinctive matter.’ In addition to state and federal law, including civil liability for legal malpractice, lawyers also are subject to an elaborate web of professional regulation, including state-by-state ethics rules, formal and informal bar opinions, judicial regulation, and federal agency regulation. Lawyers engaged in transnational practice face additional layers of regulation as well as complex choice of law questions about which regulations apply.”
Chambliss, The Scope of In-Firm Privilege, 80 Notre Dame L. Rev. 1721, 1756 (2005), quoting Upjohn, supra at 392. To address these increasingly complex issues and to comply with their partners’ obligation under Mass. R. Prof. C. 5.1 (a), 426 Mass. 1405 (1998), to “make reasonable efforts to ensure that [their law firm] has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct,” a large and increasing number of law firms have appointed one or more attorneys within the firm to serve as in-house or ethical counsel. See Mass. R. Prof. C. 5.1 comment 2 (“Some firms . . . have a procedure whereby junior lawyers can make confidential referral of ethical problems directly to a designated senior partner or special committee”); American Bar Association (ABA) Comm, on Ethics and Prof’l Responsibility, Formal Op. 08-453, at 1-2 (2008) (“Increasingly, firms address their obligations under [Model Rule of Professional Conduct] 5.1 by . . . designating an individual lawyer or a committee to counsel the firm or any individual in the firm on questions of professional conduct as applied to the firm or to lawyers within the firm”). “By encouraging questions, providing resources, and monitoring internal policies and procedures, firm counsel may dramatically improve the quality of law firm self-regulation.” Chambliss, supra at 1758. See Chambliss & Wilkins, The Emerging Role of Ethics Advisors, General Counsel, and Other Compliance Specialists in Large Law Firms, 44 Ariz. L. Rev. 559, 560-561 (2002) (“Research in other organizational contexts shows that such specialists tend to promote the development of compliance procedures within firms, and may play a leading role in defining industry standards for compliance”).
Where a law firm designates one or more attorneys to serve
“[Individual lawyers who come to the realization that they have made some error in pursuing their client’s legal matters should be encouraged to seek advice promptly about how to correct the error, and to make full disclosure to the attorney from whom that advice is sought about what was done or not done, so that the advice may stand some chance of allowing the mistake to be rectified before the client is irreparably damaged. If such lawyers believe that these communications will eventually be revealed to the client in the context of a legal malpractice case, they will be much less likely to seek prompt advice from members of the same firm.”
TattleTale Alarm Sys., Inc. vs. Calfee, Halter & Griswold, LLP, U.S. Dist. Ct., No. 2:10-cv-226, slip op. at 9 (S.D. Ohio Feb. 3, 2011) (TattleTale). Cf. United States v. Mett, 178 F.3d 1058, 1065 (9th Cir. 1999) (“uncertain attorney-client privilege will likely result in [Employee Retirement Income Security Act (ERISA)] trustees shying away from legal advice regarding the performance of their duties. This outcome ultimately hurts beneficiaries — all else being equal, beneficiaries should prefer well-counseled trustees who clearly understand their duties”).
RFF, however, contends that, once a law firm is threatened with a malpractice claim by a current client, as occurred here, the attorney-client privilege does not protect confidential communications between its in-house counsel and its other attorneys, even if the purpose of the communications is to seek advice as to how the law firm should proceed ethically and protect itself against the risk of financial loss and damage to its reputation, unless the law firm first either withdraws from the representation or fully advises the client about the conflict of interest and obtains the consent of the client to engage in such communications. If this were the law, an attorney threatened with a malpractice claim would have four practical alternatives: first, he could withdraw from the representation without first consulting with better informed and more dispassionate in-house ethics counsel; second, he could advise the client of the conflict without first consulting with in-house counsel, and seek the Ghent’s consent to confer with in-house counsel; third, he could confer with in-house counsel without first having withdrawn from the representation or obtaining the Ghent’s informed consent, recognizing that the communications would not be protected from disclosure to the client; or fourth, he could retain an attorney in another law firm to discuss how best to proceed.
The first alternative poses the risk that a law firm, without the benefit of expert advice, may unnecessarily withdraw from a representation where the apparent conflict was illusory or reparable, or withdraw without adequately protecting the client’s
RFF essentially contends that legal doctrine should trump functionality, and that we should join other jurisdictions in adopting the “fiduciary” and “current client” exceptions to the attorney-client privilege, each of which, RFF claims, would require B&L to disclose the allegedly privileged communications in this case. Although Massachusetts law recognizes several exceptions to the attorney-client privilege, see Mass. G. Evid. § 502(d) (2013), the law of the Commonwealth has not yet recognized either of the proposed exceptions. We address each of the proposed exceptions in turn.
1. The fiduciary exception. RFF argues that we should recognize and adopt the so-called “fiduciary exception” to the attorney-client privilege. The United States Supreme Court recently described this exception as follows:
“English courts first developed the fiduciary exception as a principle of trust law in the 19 th century. The mle was that when a trustee obtained legal advice to guide the administration of the trust, and not for the trustee’s own*714 defense in litigation, the beneficiaries were entitled to the production of documents related to that advice. . . . The courts reasoned that the normal attorney-client privilege did not apply in this situation because the legal advice was sought for the beneficiaries’ benefit and was obtained at the beneficiaries’ expense by using trust funds to pay the attorney’s fees.” (Emphasis added.)
United States v. Jicarilla Apache Nation, 131 S. Ct. 2313, 2321 (2011) {Jicarilla Apache Nation).
Under the fiduciary exception, where a trustee, acting on behalf of his beneficiaries, uses trust funds to obtain legal advice regarding a trust matter, such as advice from a tax attorney regarding a trust tax return, “the beneficiaries [are] the ‘real clients’ of the attorney who . . . advised the trustee on trust-related matters, and therefore the attorney-client privilege properly belong[s] to the beneficiaries rather than the trustees.” Id. at 2322, quoting Riggs Nat’l Bank of Wash., D.C. v. Zimmer, 355 A.2d 709, 711-712 (Del. Ch. 1976) {Zimmer). In contrast, where legal advice is procured “at the trustee’s own expense and for his own protection” (emphasis in original), such as where the trustee is defending himself against the threat of litigation brought by a beneficiary, the fiduciary exception does not apply and the communications between the trustee and her attorney remain privileged. Jicarilla Apache Nation, supra, quoting Zimmer, supra at 712. See United States v. Mett, 178 F.3d 1058, 1063-1064 (9th Cir. 1999) (“by agreeing to serve as a fiduciary, a . . . trustee is not completely debilitated from enjoying a confidential attorney-client relationship. . . . [Wjhere [an ERISA] plan fiduciary retains counsel in order to defend herself against the plan beneficiaries [or the government acting in their stead], the attorney-client privilege remains intact”); Garvy v. Seyfarth Shaw LLP, 966 N.E.2d 523, 535 (111. App. Ct. 2012) (“fiduciary-duty exception does not, however, apply to legal advice rendered concerning the personal liability of the fiduciary or in anticipation of adversarial legal proceedings against the fiduciary”).
“The Federal Courts of Appeals apply the fiduciary exception,” but “[s]ome state courts have altogether rejected the notion that the attorney-client privilege is subject to a fiduciary
RFF, however, contends that, where a law firm continues to represent a client despite being threatened with a claim of legal malpractice, all attorney-client communications are discoverable by the client under the fiduciary exception, including communications made for the law firm’s own defense in litigation, because the duties owed by a law firm to its current client are “paramount to its own interests.” Koen Book Distribs. v. Powell, Trachtman, Logan, Carrle, Bowman & Lombardo, P.C., 212 F.R.D. 283, 285-286 (E.D. Pa. 2002). The premise of this argument is that, when the threat of a conflict emerges, a current client is entitled to learn all that its attorney has said regarding the representation, even what the attorney has said to the law firm’s attorney in defense against the client’s claim. Consequently, in oral argument, RFF suggested that the fiduciary exception would exclude from the attorney-client privilege not only confidential communications between the attorneys for a current client and in-house counsel, but also confidential communications between a current client’s attorneys and outside counsel that were intended to provide legal advice to the attorneys to defend against a client’s threatened claim. This proposed rule would be the most dysfunctional of all because it would deny a law firm and its attorneys any protection provided by the attorney-client privilege, even if it sought the advice of outside counsel, unless the law firm first withdrew from the representation or obtained the consent of the client.
Nor is such a draconian rule necessary to protect the interests of clients. Preserving the privileged nature of these communications does not affect a law firm’s duty to provide a client with “full and fair disclosure of facts material to the client’s interests”
“It is simply not the case that a legal malpractice plaintiff will be functionally unable to prove negligence without gaining access to intra-firm communications made during loss prevention efforts. The client still has access to every communication between the client and the firm and to every communication made by the lawyer, whether within the firm or outside of it, that reflects how the lawyer was carrying out the client’s legal business.”
For these reasons, we reject RFF’s overbroad interpretation of the fiduciary exception.
2. The current client exception. The so-called “current client” exception is most clearly articulated by the United States
“[W]hen a law firm chooses to represent itself, it runs the risk that the representation may create an impermissible conflict of interest with one or more of its current clients. In light of these ethical concerns, the courts that have considered the issue have resoundingly found that, where conflicting duties exist, the law firm’s right to claim privilege must give way to the interest in protecting current clients who may be harmed by the conflict. . . . As a result, a law firm cannot assert the attorney-client privilege against a current outside client when the communications that it seeks to protect arise out of self-representation that creates an impermissible conflicting relationship with that outside client.”
The majority of courts that have been confronted with the issue before us have invoked some variation of the current client exception and ruled that, where a law firm seeks legal advice from its in-house counsel in response to an adverse claim brought by a current outside client, the communications are not protected from disclosure to the outside client.
We find two fundamental flaws in this reasoning. First, it is plain that the rule of imputation in rule 1.10 (a) of both the Massachusetts Rules of Professional Conduct and the ABA Model Rules of Professional Conduct generally prohibits attorneys in the same law firm from representing outside clients that are adverse to each other, but there is nothing in the language of or commentary to these rules to suggest that the rule of imputation was meant to prohibit an in-house counsel from providing legal advice to his own law firm in response to a threatened claim by an outside client. Nor does it make sense to apply the rule in this context. “The primary reasons for imputation are to ‘[give] effect to the principle of loyalty to the client as it applies to lawyers who practice in a law firm’ and to prevent the misuse of confidential information by lawyers in the same firm.” Chambliss, supra at 1747-1748, quoting Rule 1.10 comment 2 of the ABA Model Rules of Professional Conduct (2003).* **
The rule of imputation safeguards the duty of loyalty by prohibiting a law firm from representing two clients who are adverse to each other, where loyalty to one client may risk disloyalty to
The rule of imputation also protects the confidentiality of client information by eliminating the risk that information provided by one client will be misused to the advantage of an adverse client. When the adverse client, however, is the law firm itself, the outside client’s information is not protected from the law firm client by imputing the conflict to the in-house counsel because the law firm already possesses the outside client’s information, and it has a right to defend itself against the outside client’s adversarial claims even to the point of disclosing information given to the law firm in confidence. See Mass. R. Prof. C. 1.6 (b) (2), 426 Mass. 1435 (1998) (lawyer may reveal confidential information relating to representation of client “to the extent the lawyer reasonably believes necessary to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client”). See Rule 1.6(b)(5) of the ABA Model Rules of Professional Conduct (2012) (same).
Second, even where a law firm actually violates Mass. R. Prof. C. 1.7 (a) by representing two clients with adverse interests without the consent of each client, “counsel’s failure to avoid a conflict of interest should not deprive the client of the privilege.” In re Teleglobe Communications Corp., 493 F.3d 345, 369 (3d Cir. 2007) (Teleglobe), quoting Eureka Inv. Corp. v. Chicago Title Ins. Co., 743 F.2d 932, 938 (D.C. Cir. 1984). “[T]he black-letter law is that when an attorney (improperly) represents two clients whose interests are adverse, the communications are privileged against each other notwithstanding the lawyer’s misconduct.” Teleglobe, supra at 368. Applying this “black-letter law,” a client should not be deprived of the benefit of the attorney-client privilege because of its attorney’s violation of rule 1.7, even if that “client” is a law firm and the “attorney” is an in:house counsel within that same law firm.
Moreover, Restatement (Third) of the Law Governing Lawyers § 6, at 65-66 (2000), identifies thirteen possible sanctions for a law firm’s breach of rule 1.7 by engaging in an impermissible conflict of interest representation. With the exception of the final catch-all remedy of entering an “other sanction,” none of these remedies includes disclosure of otherwise privileged communications.*
Instead, because applying the privilege in such contexts will
Conclusion. Because each of the four conditions was either properly found by the judge or undisputed in this case, we affirm the judge’s partial allowance of the B&L defendants’ motion for a protective order to enable them to preserve the
So ordered.
We acknowledge the amicus briefs of the Association of Professional Responsibility Lawyers; the American Bar Association; the Attorneys’ Liability Assurance Society, Inc.; and the Boston Bar Association.
Bums & Levinson, LLP (B&L or law firm), had been notified in advance of the filing of a complaint by RFF Family Partnership, LP (RFF), and informed Freedman on June 8 that it would withdraw from any further representation of RFF.
The judge also allowed RFF’s motion to compel the production of certain
Rule 1.7 of the Massachusetts Rules of Professional Conduct, as amended, 430 Mass. 1301 (1999), provides:
“(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:
“(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
“(2) each client consents after consultation.
“(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless:
“(1) the lawyer reasonably believes the representation will not be adversely affected; and
“(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.”
“To hold that a law firm must always seek guidance outside its halls in order to preserve an attorney-client relationship ... is simply impractical in the day-to-day life of many law firms, when issues of professional responsibility frequently require prompt responses most usefully provided by lawyers knowledgeable about the firm, its client relationships and its culture.” N.Y. State Bar Ass’n Comm, on Prof. Ethics, Op. 789 (2005).
We note that the rationales used by courts in reaching this conclusion are varied, and therefore the cases do not readily coalesce into a single coherent theory of why such a conclusion must be reached. See, e.g., Cold Spring Harbor Lab. vs. Ropes & Gray LLP, U.S. Dist. Ct., No. 11-10128, slip op. at 3-4 (D. Mass. July 19, 2011) (where law firm defendant attempted to assert attorney-client privilege over communications between itself and its in-house counsel, “absent an affirmative act on the part of [law firm] that would have caused [client] to know that [law firm] had unequivocally ended its representation, [law firm’s] fiduciary duty to [client] overrides any claim of privilege”); Asset Funding Group, LLC vs. Adams & Reese, LLP, U.S. Dist. Ct., No. 07-2965, slip op. at 9 (E.D. La. Nov. 17, 2008) (“A law firm’s communication with in-house counsel is not protected by the attorney-client privilege if the communication implicates or creates a conflict between the law firm’s fiduciary duties to itself and its duties to the client seeking to discover the communications”); Burns ex rel. Office of Pub. Guardian v. Hale & Dorr LLP, 242 F.R.D. 170, 173 (D. Mass. 2007) (where “ ‘client’ invoking the privilege is [the law firm] itself, which is being represented by another lawyer of the firm,” none of interests justifying attorney-client privilege is served); Koen Book Distribs. v. Powell, Trachtman, Logan, Carrie, Bowman & Lombardo, P.C., 212 F.R.D. 283, 285-286 (E.D. Pa. 2002) (because firm did not withdraw
Although none of the courts that have applied the “current client” exception explicitly acknowledges that it is relying on the rule of imputation, most implicitly do so, because their theory is that a conflict of interest arises
The quoted portion of this statement also appears in Mass. R. Prof. C. 1.10 comment 6, 426 Mass. 1346 (1998).
In 2002, the ABA amended its Model Rules of Professional Conduct explicitly to authorize a lawyer to reveal confidential information relating to the representation of a client “to the extent the lawyer reasonably believes necessary ... to secure legal advice about the lawyer’s compliance with these
The Restatement (Third) of the Law Governing Lawyers § 6, at 65-66 (2000), provides thirteen judicial remedies “[f]or a lawyer’s breach of a duty owed to the lawyer’s client or to a nonclient”:
“(1) awarding a sum of money as damages;
*722 “(2) providing injunctive relief, including requiring specific performance of a contract or enjoining its nonperformance;
“(3) requiring restoration of a specific thing or awarding a sum of money to prevent unjust enrichment;
“(4) ordering cancellation or reformation of a contract, deed, or similar instrument;
“(5) declaring the rights of the parties, such as determining that an obligation claimed by the lawyer to be owed to the lawyer is not enforceable;
“(6) punishing the lawyer for contempt;
“(7) enforcing an arbitration award;
“(8) disqualifying a lawyer from a representation;
“(9) forfeiting a lawyer’s fee ... ;
“(10) denying the admission of evidence wrongfully obtained;
“(11) dismissing the claim or defense of a litigant represented by the lawyer;
“(12) granting a new trial; and
“(13) entering a procedural or other sanction.”
In the commentary to this section, the only reference made to the privilege is in the context of a judge’s ability to exclude evidence “even if the evidence is not otherwise subject to exclusion because of the attorney-client privilege . . . or the work-product immunity.” Id. at § 6 comment j, at 70.