Dallas Bar Association

Protecting the Secrets of In-House Counsel

by Kelli Hinson

When representing a company in business litigation, lawyers are often faced with requests to produce internal company documents, including communications between in-house counsel and other company employees. Although your first instinct is to put all documents to or from in-house counsel in the “Privileged” pile, safe from the eyes of opposing counsel, you need to think twice.

Communications with in-house counsel, like communications with any attorney, must be made for the purpose of securing legal advice to be privileged. Although courts generally presume that communications with outside counsel are for the purpose of securing legal advice, they generally do not apply the same presumption to in-house counsel.

In-house lawyers often wear multiple hats—lawyer, corporate secretary, head of human resources, etc. Whether a communication is privileged depends on what hat the lawyer was wearing when sending or receiving the communication. If it is not the lawyer hat, the document probably is not privileged.

Communications also must be “confidential” to be privileged. Privilege can be lost or waived if, for example, the communication was forwarded to employees not involved in legal decisions or if the lawyer’s advice was discussed at meetings with non-essential employees present.

To be privileged, a communication also must be between an attorney and client. Again, this can be more complicated when dealing with in-house counsel. In-house counsel may not have maintained a law license or may be on “inactive” status, which can sometimes make the assertion of privilege tricky. See Gucci America, Inc. v. Guess?, Inc., 2011 WL 9375 (S.D.N.Y. Jan. 3, 2011). A lawyer on “inactive” status in Texas cannot, by definition, provide legal services.

Identifying the client can also be more complicated when dealing with in-house counsel, and the definition of the corporate “client” can vary by jurisdiction. In sorting through these issues, it is important to understand whether your jurisdiction applies the Upjohn test, control group test, subject matter test, or some hybrid.

In addition to these fairly common issues, in-house counsel can be involved in more complicated situations requiring even more scrutiny of the attorney-client privilege issues. For example, internal investigations can present complicated issues regarding the interplay between the roles of detective, legal counsel and business advisor. In-house attorneys should take care to clearly identify when they are acting as legal counsel so that those communications can be appropriately protected as privileged. Hiring outside counsel to assist on the legal issues can be helpful in identifying and protecting privileged communications.

Special privilege issues also arise when in-house counsel has communicated with a corporate officer who later sues the company. Typically, in-house counsel presumptively represents the company and not its officers.  Thus, former officers generally cannot unilaterally waive the privilege. But many courts use the Bevill test to determine whether counsel actually represented the officer in his individual capacity, in which case the officer may be able to assert control over the privilege.

Similarly, corporate shareholders typically cannot access the company’s privileged documents. However, when shareholders bring litigation accusing the corporation of acting against the shareholders’ interests, courts applying the Garner doctrine will consider whether good cause exists to pierce the company’s privilege, considering such things as the number of shareholders, the nature of their claims, and the need for the documents.

In-house counsel also will often represent multiple entities, such as a parent and subsidiary. Communications between the lawyer and the joint clients are privileged as to third parties. But they may have to be produced if the parent and the subsidiary end up in a legal dispute.

Finally, if the company goes into bankruptcy, control of the company’s attorney-client privilege passes to the bankruptcy trustee, even with respect to pre-bankruptcy communications.. So all the communications in-house counsel thought would be privileged can become discoverable.

Knowing the rules affecting privileged communications of in-house counsel is essential in making correct decisions during litigation. But knowing and educating clients about these rules before litigation arises so they can take appropriate steps to protect important communications can be even more valuable.

Kelli Hinson is a litigation partner at Carrington Coleman Sloman & Blumenthal, LLP. She is head of the firm’s Professional Liability practice group and can be reached at khinson@ccsb.com.

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