A 2005 survey by Altman Weil, the law firm consultancy, disclosed that 69 percent of the nation’s largest 200 law firms now have in-house general counsel—typically a senior practitioner drawn from their ranks. Full and part-time general counsel at law firms is a recent development, but many believe it is also a trend, and predict that over the next decade most firms with more than 150 lawyers will have appointed in-house general counsel whose primary responsibilities will include ethics counseling, loss prevention, practice oversight, conflict analysis, and in-house training on evolving professional responsibilities.

The Situation in New Hampshire

In New Hampshire—where even the largest firms are still well below the suggested 150-lawyer threshold—economics discourage the creation of separate, well-compensated positions for attorneys whose client, the firm itself, is not billed for their legal services. (The Altman Weil survey found that compensation for general counsel in larger firms averaged $493,292 and ranged from $250,000 to $1.3 million.) At the same time, the need for ethics counseling and loss prevention programs remains. The same complex rules apply, the same malpractice litigation explosion has occurred, and the same professional obligations of oversight are imposed on New Hampshire partners by our professional rules. 

In fact, evidence suggests that partners in smaller firms are more likely to encounter claims of negligence in the supervision and oversight of firm lawyers than their larger-firm counterparts.

There are numerous advantages for a firm that is able to employ a general counsel whose sole concern is the law firm itself.  Most important, the management’s decision to move one (and sometimes more) of its experienced lawyers from outside client work to in-house representation of the firm and its lawyers is a strong statement of the firm’s value system and the importance  placed on professional responsibility issues.  For younger attorneys, paralegals and staff, in particular, this is a crucial message.

In addition, permanent in-house counsel provide readily accessible, and detached, guidance on conflict issues, problematic client relationships, decisions on the representation of new clients, resolution of billing disputes, privilege questions, disqualification motions, marketing ethics, law-related businesses, cross-border practice, and countless practice issues. However, the reality is that few New Hampshire firms have the resources that typically justify the creation of a permanent, in-house position. Consequently, most firms address this critical need with outside counsel, or by borrowing their own attorneys from their own active practices.

Limitations on the Utility of In-House and General Counsel

While the benefits of full or part-time general counsel are extensive, there are clearly professional responsibility situations, other than the obvious situation of litigation, in which even the largest firms may wish to seek the assistance of outside counsel. 

If the conflict issue facing the firm is a close one, a second opinion from outside the firm is going to provide increased protection if the representation is challenged in the future. Seeking an outside opinion will demonstrate the firm’s sensitivity to the ethical issues involved, and the objectivity of an outside opinion will assist in meeting the “harsh reality” test imposed under our rules.

The value of outside, independent analysis is also clear in a variety of economic and practice development ventures contemplated by firms and their attorneys.  These might include a business transaction with a firm client; the initiation of law-related businesses (an area where the law remains unsettled); or the unauthorized practice of law implications in the representation of regional clients. 

Does Privilege Protect Discussions with In-House Counsel?

Does privilege apply to discussions between in-house counsel and firm lawyers with regard to potential claims against the firm and its lawyers? It is a major unresolved issue. Such  consultations are a significant part of the work of any firm’s in-house professional responsibility lawyer—whether designated as general counsel, in-house ethics counsel, conflicts partner, loss prevention partner or any combination of the above.

There is a dearth of authority on whether the privilege can be asserted against a client with regard to intra-firm communications concerning a potential malpractice action by that client. Whether the privilege applies may hinge upon the timing of the communication.  Courts have afforded protection to in-firm communications occurring after representation of the client has terminated, but have been less protective of communications that occur during such representation. 

Courts have reasoned that, in the current-client context, a law firm’s consultation with its own lawyers may give rise to a conflict between the firm’s two clients—itself and the original client.  As one court noted, “when a law firm seeks legal advice from its in-house counsel, the law firm’s representation of itself (through in-house counsel) might be directly adverse to, or materially limit, the law firm’s representation of another client, thus creating a prohibited conflict of interest.”  In re Sunrise Securities Litigation, 130 F.R.D. 560, 596 (E.D. Pa. 1989). 

Under the Sunrise analysis, the attorney must first prove that the communication at issue is subject to the privilege, i.e., that it was made for the purpose of seeking legal advice.  If the attorney-client privilege attaches, then the court assesses whether a conflict exists.  The privilege will not apply “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 communication.”  Sunrise at 597. 

The New Hampshire Supreme Court has not weighed in on the issue, and whether practitioners in this state can glean direction from the case law in other jurisdictions is unclear.  The Sunrise approach has been criticized as “misguided.” See Douglas R. Richmond & William Freivogel, The Attorney-Client Privilege and Work Product in the Post-Enron Era, 2004 A.B.A. Sec. Bus. L. 23 (available at http://www.abanet.org/buslaw/newsletter/0027/materials/11.pdf).

In a very recent opinion, the New York State Bar Association rejected the notion that consultation with an in-house ethics advisor itself gave rise to a conflict of interest. The NYSBA  opined that such advice is indeed necessary to ensure compliance with the attorney’s ethical obligations.  See N.Y. State Bar Ass’n, Ethics Op. 789 (Oct. 26, 2005).  Although not addressing the privilege issue, the New York Ethics Opinion concluded that the firm does not have a duty to disclose the fact that it has consulted an in-house ethics advisor, but it may have an ethical obligation to disclose the conclusions reached, such as if it concludes that it has a conflict or that it made a significant mistake. 

The ABA Section of Business Law offers some guidance on preserving the in-firm privilege, suggesting that law firms should:

• designate a regular general counsel or ethics counsel;
• make written requests seeking legal advice from such counsel when a professional liability issue surfaces;
• have firm counsel handle the matter as if it were a client matter, such as by opening a file and billing time to the firm; and
• maintain confidentiality of the investigation by not disseminating information generally to other members of the firm or discussing it with the client.  Richmond & Freivogel, supra, at 23-24. 

Additionally, law firms may wish to consider withdrawing from the client’s representation, seeking a waiver from the client of any potential conflict, or engaging outside counsel to conduct the investigation.  Id. at 24.

Firms may wish to consider these suggestions as they develop procedures for handling claims that, unfortunately, are an inevitable part of the practice of law in a litigious society.

Peter G. Beeson and Elizabeth J. Baker practice in the Attorney Conduct & Liability Practice Group of Devine, Millimet & Branch, P.A. in Manchester.  This article is a followup to “Lawyers as Clients: The Expanding Call for Professional Responsibility Lawyers,” by Peter Beeson and Mitchell Simon, published in the Oct. 21, 2005 Bar News.

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