Attorney-Client Privilege Protects Confidential Communications Between Law Firm Attorney Representing Current Client and Firm’s General Counsel Regarding Disputes with Client Who Later Files Malpractice Suit
In a case of first impression in California, Edwards Wildman Palmer LLP v. Superior Court (No. B255182 – filed November 25, 2014), Division Three of the Second District Court of Appeal addressed the question of whether the attorney-client privilege applies to intrafirm communications between law firm attorneys concerning disputes with a current client, when that client later sues the firm for malpractice and seeks to compel production of such communications. The court concluded that when an attorney representing a current client seeks legal advice from the law firm’s designated in-house “general counsel” concerning disputes with the client, the attorney-client privilege applies to their confidential communications. The court held that adoption of the so-called “fiduciary” or “current client” exceptions to the attorney-client privilege is contrary to California law because California courts are precluded from creating implied exceptions to the statutorily created attorney-client privilege.
Shahrokh Mireskandari (Client) had retained Edwards Wildman Palmer LLP (the Firm) and one of its Los Angeles partners (Shelton) to represent him in an invasion of privacy suit against the London Daily Mail. As the court noted, the relationship between Client and the Firm “was short-lived and, for the most part, contentious.” Within three months after retaining the Firm, Client sent two e-mails expressing extreme dissatisfaction with Shelton’s handling of the matter, and with the Firm’s bills. Shelton thereafter consulted with the Firm’s General Counsel (Swope) and Claims Counsel (Christman) regarding Client’s complaints about the Firm’s representation and his disputes regarding billings for legal services. The Firm eventually withdrew and Client substituted new counsel who later filed a malpractice action against the Firm and Shelton in the Los Angeles Superior Court.
During discovery in the malpractice action, Client sought to compel production of documents and testimony from Shelton concerning her consultations and communications with other Firm attorneys about Client, the underlying action and Client’s threatened malpractice suit. Client, relying on two California federal cases (Thelen Reid & Priest LLP v. Marland (N.D.Cal. 2007) 2007 U.S. Dist. Lexis 17482 (Thelen), and In re SonicBlue, Inc. (Bankr. N.D.Cal. 2008) 2008 Bankr. Lexis 181, argued that the privilege is inapplicable when a law firm is “attorney to both an outside client and to itself.” He asserted that the privilege does not attach to intrafirm communications made during, and concerning, matters related to representation of a current client due to the conflict of interest inherent in such a scenario. The Firm argued the communications in question were privileged and submitted evidence to establish that Swope and Christman had been designated by the Firm as, respectively, General Counsel and Claims Counsel, and that they shared responsibility for claims handling and loss prevention issues affecting the Firm. The Firm did not bill Client for any of Swope’s or Christman’s time. (Swope and Christman had also “deputized” another partner (Durbin) to advise Shelton on her responses to Client’s concerns and on management of the Firm’s relationship with Client and his case; although Durbin’s time was also not billed to the Client, the appellate court concluded that because Durbin also performed services for Client in the Daily Mail case, his communications with Shelton were not privileged and were subject to disclosure.)
The trial court found the reasoning of the Thelen case – that a law firm’s fiduciary and ethical duties to a client trump the attorney-client privilege – persuasive, and granted Client’s motion to compel. The Firm filed a petition for writ of mandate and sought immediate appellate review of the trial court’s order. The Court of Appeal granted review and noted that the specific issue presented was a matter of first impression in California, and of general importance to the profession, then addressed a series of decisions from other jurisdictions cited by the Firm which had rejected the “current client” and “fiduciary” exceptions and held that intrafirm consultations are privileged as against the law firm’s client, including TattleTale Alarm Systems, Inc. v. Calfee, Halter & Griswold, LLP (S.D.Ohio 2011) 2011 U.S. Dist. Lexis 10412; Versuslaw, Inc. v. Stoel Rives, LLP (Wash.App. 2005) 111 P.3d 866; and decisions from the Supreme Courts of Massachusetts, Georgia and Oregon, respectively: RFF Family Partnership, LP v. Burns & Levinson, LLP (Mass. 2013) 991 N.E.2d 1066 (RFF), St. Simons Waterfront LLC v. Hunter, MacLean, Exley & Dunn, P.C. (Ga. 2013) 746 S.E.2d 98, and Crimson Trace Corporation v. Davis Wright Tremaine LLP (Ore. 2014) 326 P.3d 1181. The court then concluded that it did not need to ascertain which approach followed in other jurisdictions was most persuasive because it concluded it was not at liberty to adopt any exceptions to the attorney-client privilege because, in California, the privilege was a legislative creation and thus not subject to judicial modification.
The court found that the California Evidence Code enumerates only eight exceptions to the attorney-client privilege, and the “current client” and “fiduciary” exceptions are not among them and, thus, do not exist under California law. The court found support for its conclusion by reference to an earlier decision of the California Supreme Court, Wells Fargo Bank v. Superior Court (2000) 22 Cal.4th 201, which held that a trustee’s reporting obligations to beneficiaries did not trump the attorney-client privilege between the trustee and its attorneys absent a statutorily created exception.
In finding that an attorney-client relationship did, in fact, exist as between Shelton and the Firm’s in-house General Counsel and Claims Counsel, the court cited with approval four key factors noted by the Massachusetts Supreme Court in RFF which it said should be considered in determining whether the attorney-client privilege applies to intrafirm communications:
- Whether the law firm designated, formally or informally, an attorney or attorneys within the firm to represent the firm as in-house or ethics counsel such that there is an attorney-client relationship between in-house counsel and the firm when the consultation occurs?
- Whether the in-house counsel has performed legal services for the client who has threatened a malpractice claim against the firm?
- Whether any of the time spent on in-house communications was billed to the client?
- Whether the communications were made in confidence and kept confidential?
See RFF, supra, 991 N.E.2d at 1068, 1080.
The court emphasized that the foregoing factors were not prerequisites to establishment of an attorney-client relationship under California law but were “among the facts that a trial court may analyze in determining whether an actual attorney-client relationship existed” in the context of intrafirm communications. In this case, the Firm had designated Swope as its general counsel and he performed no services for Client, neither Swope nor the handling attorney billed Client for their consultations, and the declarations submitted showed that the Firm’s attorneys considered the subject communications privileged and confidential.
Finally, the court also rejected Client’s argument that by effectively “concealing” intrafirm communications about his case, the Firm created a conflict of interest which abrogated the privilege. The Client’s assertion that the exceptions to the attorney-client privilege regarding breach of duty (section 958) and for joint clients (section 962) were expressly rejected by the court. Section 958 provides that there is no attorney-client privilege as to a communication “relevant to an issue of breach, by the lawyer or by the client, of a duty arising out of the lawyer-client relationship.” However, that section applies only to communications between the client and the attorney charged with malpractice. (Schlumberger Limited v. Superior Court (1981) 115 Cal.App.3d 386; see also, Travelers Ins. Companies v. Superior Court (1983) 143 Cal.App.3d 436 [section 958 does not apply to communications between attorney charged with malpractice and her errors and omissions insurer, or between the insurer and its attorneys].) The court also quickly disposed of Client’s argument that he and Shelton were “joint clients” of the Firm and that Section 962 precluded application of the privilege. The court found that Client and Shelton had not retained the Firm on a matter of “common interest,” as required by the statute – Client retained Shelton to represent him in the Daily Mail case, whereas Shelton consulted with the Firm’s in-house counsel not as a party in that action but to obtain advice on how best to address Client’s complaints about billing issues and his threat to hold the Firm responsible for any damages he sustained.
The decision is significant as the first explicit recognition by a California appellate court that a law firm may engage in intrafirm consultations between the handling attorney and the firm’s in-house counsel involving a current client’s complaints without concerns that such communications may not be subject to the attorney-client privilege in the client’s subsequent malpractice action. The law firm must, of course, have established the groundwork for such privilege, as discussed in the factors set forth above from the RFF case, but if it has done so, it should prevail if a former client seeks to discover such communications during a subsequent malpractice action. Some firms have taken the further precaution of including disclosure of the possibility and privilege of such in-house consultations in their engagement agreements which, while not among the factors listed by the Edwards Wildman Palmer Court, is certainly an added protection against a disgruntled former client’s subsequent discovery requests in a malpractice claim. Although there are clearly complex ethical and professional responsibility issues presented by the circumstances surrounding this case, careful and contemporaneous attention to such matters should protect the application of the privilege to such intrafirm communications.
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