Outside Inhouse Lawyer Blog

Industry In-House Counsel Meetings May Be Evidence of Antitrust Violation

Grace Healy — Tue, 21 Feb 2012 11:53:46 -0800

Every in-house lawyer planning on meeting -- or attending seminars -- with other counsel in his or her industry should carefully review last week’s decision by Judge Pauley in the In re Currency Conversion Fee Antitrust Litigation (Ross v. Bank of America) litigation. The decision reviews the meetings of counsel and finds that they raise questions of fact requiring trial of an antitrust conspiracy claim. Among the topics discussed by counsel were arbitration clauses and avoidance of class action law suit abuse.

This decision might be a wake up call to lawyers going to any meetings with other counsel in their industries, including meetings or seminars that are firm/vendor sponsored. Given this decision, it might be prudent to have an antitrust monitor and to read an antitrust caution at legal meetings and seminars.

First Department Decision Adopts Requirement for Preservation of Electronic Evidence When a Party "Reasonably Anticipates Litigation"

Grace Healy — Wed, 01 Feb 2012 09:40:02 -0800

Yesterday, the First Department issued a decision in VOOM HD Holdings v. EchoStar Satellite that is must reading for any potential litigant. The court adopted the federal “Zubulake” standard that “once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold to ensure preservation of relevant documents.” Litigation is reasonably anticipated when an organization is "on notice of a credible probability that will become involved in litigation, seriously contemplates initiating litigation, or when it takes specific actions to commence litigation."

Because of defendant’s purported failure to preserve electronic data when litigation was anticipated, and its failure to halt email purges after litigation was started, and its prior issues with destruction of electronic evidence, the decision also discusses the standards for spoliation of evidence and sanctions. The court was not impressed with defendant's argument that it was seeking an amicable business solution so there was no reasonable anticipation of litigation.

The bottom line is that defendant will be subject to an adverse inference -- the a jury will be charged to presume the relevance of the evidence that is not available. In addition, the defendant will return to a judge who has already determined that it is grossly negligent in its management of litigation.

Agreement To Accept Tender Of Policy Limits To Settle All Claims Is Unconditional Contract

Grace Healy — Tue, 17 Jan 2012 13:17:30 -0800

One of the things that I enjoy about being a lawyer is dealing with and learning new things every day. This weekend I learned that using the word “tender” as opposed to “offer” and being very careful in making certain that insurance proceeds were paid to the correct party was expensive for an insurer in Kansas.

Fajardo v. Safeco Insurance Co., from the US District Court for Kansas, was an action to enforce a settlement – not a wrongful death action, although the underlying claim arose following the death of Mr. Fajardo in an auto accident. Plaintiff-heirs claimed they were entitled to interest on the policy limits as they had not been paid within thirty days after they had agreed to a settlement with the other driver’s insurance company. (Payment within thirty days after an insurance settlement is a Kansas statutory requirement. If payment is not made, interest begins to accrue at 18%.) The insurer countered that it was not required to pay the funds within thirty days because the statute did not apply, and because the payment was not due until the court had apportioned the settlement, which is required for a wrongful death recovery in Kansas.

Decision was in favor of the plaintiffs. The 30-day payment requirement applied and, because a settlement is not a “recovery”, apportionment was not necessary. Therefore, there was a settlement at the time that the plaintiffs accepted the tender:

“The parties have stipulated that the Defendant "tendered" (a stronger term than ‘offered’) policy limits to settle all claims stemming from decedent's death, and that Plaintiffs accepted the tender on the same terms. This was an ‘unconditional and positive acceptance’ which formed a contract.”

This is Kansas law and I’m not a Kansas lawyer, and there are some puzzling facts in the decision, but, the fact that a court would see a difference between being offered policy limits and being tendered policy limits got my attention. Presumably, a claimant might find him/herself irrevocably bound after indicating acceptance of a tender. In any event, it is something to think about when making an offer, or accepting one.

WA State Supreme Court Reaffirms Rule that Arbitrator Rules When Plaintiff Challenges Validity of Entire Contract, But Court Rules When Validity of Arbitration Clause is in Issue.

Grace Healy — Thu, 05 Jan 2012 18:16:50 -0800

I know I didn't do a blog post for more than three months and am now doing my second post in two days. It isn't a New Year resolution, I simply came across two cases that seem to be of general interest to commercial lawyers. Today's case shows the importance of the way in which a challenge to an arbitration clause is framed. Challenge just the arbitration clause, you're in court; the entire agreement, you're in arbitration.

Everyone I know who has purchased a newly constructed home has had some issues. The plaintiff-purchasers and children in Townsend v. The Quadrant Corporation apparently had more than some. They sued in Superior Court for outrage, fraud, unfair business practices, negligence, negligent misrepresentation, rescission and breach of warranty. The seller, and its parent and its parent corporation, moved to compel arbitration, based upon a clause in the purchase/sale agreement. (The parent corporations’ motion for summary judgment was denied; the decision also discusses when compelling arbitration in waived.)

The Supreme Court ruled – in an opinion signed by four justices – that because plaintiffs challenged the validity of the entire purchase/sale agreement, not just the arbitration provision, the claim would be determined by an arbitrator. The opinion ruled that the children’s claims, which tracked the parents’ claims would also be arbitrated on the theory of equitable estoppel.

However, a concurrence/dissent signed by five justices stated that the children’s claims would not be subject to arbitration because they were not signatories to the purchase/sale agreement.

I have no idea or position regarding the merits of these claims, or the facts in this matter, and it is helpful for any business operating in this state to have the court speak on enforceability of arbitration clauses. But this seems puzzling to me – why isn’t the concurrence/dissent the primary opinion, it is signed by the majority of the justices. More disturbing is the apparent result that the non-signatory parent corporations are going to arbitration, while the non-signatory children will have a court determine these same claims. I doubt this made anyone happy.

NY Appellate Division, 1st Dep't, Discusses Summary Judgment Procedure

Grace Healy — Wed, 04 Jan 2012 11:35:46 -0800

An Appellate Division, First Department, decision handed down yesterday, Ostrov v. Rozbruch, should be must reading for any lawyer involved in filing a complaint, supplying a bill of particulars, or filing or responding to a summary judgment motion in New York state court.

Defendant/doctor appealed the denial of summary judgment in regard to a medical malpractice theory that was more fully developed by the plaintiff in supplemental submissions after the initial oral argument of the defendant's summary judgment motion. The Appellate Division unanimously ruled that supplemental submissions are only permissible in very rare circumstances that weren’t present in this case. Absent those rare circumstances, the CPLR procedure must be followed. Summary judgment granted to the defendant.

For me, reading the decision – without the benefit of the entire record – this seemed pretty close as to whether the plaintiff had identified the issue in the complaint or the bill of particulars, and the trial court was trying to be fair to the plaintiff and defendant in allowing more briefing on the point.

However, there seem to be policy considerations at work -- the opinion notes that summary judgment is supposed to be expeditious, and, in this case, seventeen (17) months had elapsed between filing of the motion and the trial court’s final order. Therefore, my interpretation of this decision is: motions are to be decided, not held over; the CPLR is really the rule and second bites of the apple will be permitted only in the rarest of circumstances; and/or do not even think of sandbagging an opposing party with a new theory at the summary judgment stage, whether intentional or not.

In other (nicer) words, the lesson here is that a plaintiff must clearly plead all of his or her theories in the complaints and bill of particulars, and provide evidence to support them in opposition to summary judgment. Maybe the message to the trial court is to exercise its discretion at risk of reversal.

Decision Provides Extensive Analysis of Standard for Disqualification of Law Firm Because of Prior Representation

Grace Healy — Mon, 12 Sep 2011 10:05:49 -0800

I’ve seen a number of recent articles pointing out that law firms seem to be on a merger binge. That, coupled with lawyers moving from firm to firm, as well as bankruptcies, securities cases and mass torts – where the list of counsel often seems almost as long as a decision -- makes last month’s opinion in Roosevelt Irrigation Dist. v Salt River Project, from the Federal District Court in Arizona, a good resource for deciding whether to move to disqualify a firm because of some prior involvement in a matter. Disqualification motions in a CERCLA action were granted in a 127 page decision.

Thanks to Justia.com for posting a copy to download.

In NY, Get Discovery Before You Sign a General Release

Grace Healy — Wed, 08 Jun 2011 10:37:20 -0800

I’ve always counseled clients that releases are construed narrowly by New York courts. Maybe they still are for consumers, but if you are a corporation or a “sophisticated” person, be very, very wary of signing any release of all "claims known or unknown" if you think the person you are releasing isn’t as honest as George Washington. That is the message that I get from decisions handed down yesterday by the NY Court of Appeals in Centro Empresarial Cempresa S.A. v. America Movil and Arfa v. Zamir.

In each of these cases plaintiffs allegedly learned that the facts were markedly different from those represented by the defendants at the time the releases were signed. The court upheld the dismissal of fraud claims. For a claim to survive the release, the court required that plaintiffs allege that the releases were induced by a separate fraud; misrepresentations during negotiation are not the basis of a subsequent fraudulent misrepresentation or fraudulent inducement claim.

A few other points from the decisions:

The existence of a fiduciary relationship doesn’t change this rule if the “fiduciary relationship is no longer one of unquestioning trust”. My query: Does a breakdown of trust in a relationship destroy the a person's right to rely on a fiduciary, or a fiduciary's obligations?
Dismissal of the fraudulent inducement or misrepresentation claim connected to a release can be granted on a motion to dismiss – usually, a high burden for a defendant even where fraud is involved. (The Appellate Division decision in Arfa reveals the decision was on a motion to dismiss. It has a longer discussion of the facts.)
Demonstrating justifiable reliance requires that you investigate any alleged misconduct if you determine that the party you are dealing with isn’t trustworthy.

Two (maybe, three) key learnings:

If you suspect that the person you have a dispute with is not trustworthy, be really careful of signing a release that doesn’t carefully list what you are releasing.
Choice of law may be important in releases.
If you sleep with dogs, you get fleas.

I think the goal here is to have finality in resolving disputes, but the result may be prolonged disputes and increased litigation. After reading these decisions, unless unusual considerations existed, I would not recommend signing a release of all claims without the sort of discovery that you can get in litigation.

Is Washington's Refusal to Enforce Consumer Class Action Prohibitions Still Good Law?

Grace Healy — Thu, 28 Apr 2011 09:43:49 -0800

Here’s a topic for a few law review articles (not this blog). What is the effect, if any, of yesterday’s Supreme Court decision in AT&T Mobility v. Concepcion, on the Washington Supreme Court’s decision in McKee v. AT&T, which struck down a contractual prohibition on class actions? Here is a blog post I did in 2008 regarding McKee.

Yesterday's case reversed the Ninth Circuit, which had applied California law, but the statements regarding the Federal Arbitration Act and its intent, raise questions for anyone dealing with consumer claims.

NY Court of Appeals Clarifies What Constitutes Improper Solicitation After Sale of Good Will of A Business

Grace Healy — Thu, 28 Apr 2011 09:07:52 -0800

This is an update to a post I did last September about solicitation of former customers after the sale of the good will of a business. The Second Circuit requested that the NY Court of Appeals give guidance on whether New York still implied a covenant of non-solicitation of former customers after the sale of the good will of a business, and, if it did, what are its limits.

Today, in Bessemer Trust Co. v. Branin, The court ruled that there is still an implied covenant of non-solicitation of former customers after the sale of the good will of a business. Determining whether there has been improper solicitation is a question of fact.

The court recognized that there is always a risk on the part of the purchaser of a business that customers will decide to go elsewhere as a result of the change in ownership. The decision discusses how a seller of good will – who is no longer working for the purchaser -- may respond to former customers who inquire about the seller’s current employer or business.

Here is the bottom line:

while a seller may not contact his [*9]former clients directly, he may, "in response to inquiries" made on a former client's own initiative, answer factual questions. Furthermore, under the circumstances where a client exercising due diligence requests further information, a seller may assist his new employer in the "active development . . . of a plan" to respond to that client's inquiries. Should that plan result in a meeting with a client, a seller's "largely passive" role at such meeting does not constitute improper solicitation in violation of the "implied covenant." As such, a seller or his new employer may then accept the trade of a former client.

If you plan on doing this, read the entire opinion carefully.

NY Court of Appeals Joins Other States in Allowing Special Admission of In-House Counsel

Grace Healy — Tue, 12 Apr 2011 09:04:43 -0800

Effective April 20, 2011, lawyers will be able to act as in-house counsel for New York organizations without satisfying the traditional requirements. The new 22 NYCRR Part 522 sets forth the proof required for the special admission, what is required for compliance, what services may be performed, and how to terminate the admission.

Anyone who is working in-house without being admitted in NY should pay close attention as the rule sets forth time limits for admission, and states that failure to comply with the rule is professional misconduct.

NY Court of Appeals Rules that Choice of Law Analysis Is Necessary To Reject Or Approve Insurance Claims Made To Liquidator

Grace Healy — Wed, 06 Apr 2011 09:52:14 -0800

Normally, I would think that "interesting" and "choice of law" was an oxymoron. But, a decision issued yesterday by the NY Court of Appeals, Matter of Liquidation of Midland Insurance Co., is actually interesting – it deals with what substantive law applies to claims submitted against an insurer that has been placed into liquidation in New York. The law applicable to liquidated insurers is probably relevant to any entity with pollution and/or toxic tort issues because many insurers facing these claims have been judged insolvent and placed into liquidation. The decision particularly analyzes the language of Article 74 of the Insurance Law of New York, but is a good summary of New York law regarding insurance choice of law.

Not surprisingly, the liquidator (the Superintendent of the NYS Insurance Department) argued that New York substantive law should apply to all decisions to disallow claims of policyholders. The claimants argued that claim determinations required a choice of law analysis to determine the substantive state law applicable to each policy. The court decides that the “grouping of contacts” analysis must be made to determine what state’s law controls whether a claim in the liquidation may be allowed or denied.

This seems like good news for insurance claimants in states that have laws that generally favor policy holders, and bad news for those in more restrictive states (after all, there is only one pot of money here), and a lot of work for the insurance liquidator.

From my perspective, this would be easy to argue on both sides.

Attorney-Client Privilege is Present if Client Has a Reasonable Belief that Lawyer is Authorized to Practice Law

Grace Healy — Wed, 05 Jan 2011 11:25:58 -0800

Last July, I did a post on the problem of a client who was denied the protection of the attorney-client privilege for its communications with its in-house lawyer because the lawyer was not actually authorized to practice law. The magistrate had ruled that a client must use due diligence to ensure that its lawyer is authorized to practice law for its communications with that person to be privileged. In the absence of that effort, the client's communications were subject to discovery.

Earlier this week, in Gucci America, Inc. v Guess?, Inc. Judge Scheindlin reversed this decision and ruled that the privilege exists if the client has a reasonable belief that the attorney is authorized to practice law in any state or nation.

The opinion concludes:

To require businesses to continually check whether their in-house counsel have maintained active membership in bar associations before confiding in them simply does not make sense. While an attorney has an obligation to ensure that he is properly practicing law -- and faces the specter of disciplinary action if he engages in unauthorized practice -- the sins of the attorney must not be visited on the client so long as the client has acted reasonably in its belief that its counsel is, in fact, an attorney.

It probably is still a good idea for employers to check that in-house counsel are active members of a bar – if for no other reason than to spare the expense of this sort of battle.

NY Golfer Does Not Have Duty To Call "Fore" Before Shanking A Shot

Grace Healy — Tue, 21 Dec 2010 09:09:13 -0800

When I was in law school, my torts professor lectured that the New York Court of Appeals will always rule for the golfer. That still seems to be a good way to analyze a golf case. Today, in Anand v. Kapoor, the court ruled that being hit in the eye by a shanked shot, was a “commonly appreciated” risk of the game and, therefore, within the risks assumed in playing the game. Case dismissed.

The memo opinion is, in fact, must reading for anyone interested in the assumption of the risk doctrine in New York. (Or, for anyone who is going to a holiday party with golfers.)

NY Court of Appeals Defines "Latent" Injury Broadly for Statute of Limitation Purposes

Grace Healy — Thu, 18 Nov 2010 12:04:33 -0800

The NY Court of Appeals – in a four/three decision handed down today -- answered certified questions involving the interpretation of CPLR 214-c, the provision that extends the statute of limitations for persons suffering latent injuries. The court ruled that the statute is limited to latent effects, but that a latent injury can be one that manifests itself several hours after exposure to a substance.

Plaintiff in Giordano v. Market America, Inc., claimed that he suffered a series of strokes as a result of taking pills containing ephedra. The effects of ephedra that allegedly increase the risk of stroke typically occur within hours of ingestion. However, plaintiff only became aware of the alleged relationship between strokes and ephedra about four years after his illness, when the death of a major league pitcher was reported in the news as being related to the drug. Thus, the suit was commenced outside the standard three year statute of limitation.

Historically, the CPLR 214-c extension has been available to parties who alleged exposure to substances that did not manifest symptoms of injury for several years – such as DES and asbestos. Today’s decision seems to broaden the application of the statute, from injuries allegedly caused by substances that are dormant in the system for years before they manifest their allegedly injurious effects, to -- pretty much -- anything that doesn’t result in an immediate, obvious physical response after exposure.

The court also held that the standard for knowledge of the purported connection between the injury and substance was whether it was sufficiently known in the scientific or expert community, not the general press. Thus, when a latent injury claim is used to extend the three year statute, the parties will have to gear up for a battle of experts.

If there is a problem with the broad definition of “latent”, it is lack of certainty about the statute of limitations. Reading the decision, you can see that a lot of effort and expense have already been incurred by plaintiff and defendant, and the case is now on its way back to federal court, probably for more of the same.

Ironically, this broad definition of latent might create more risk for a plaintiff’s counsel deciding whether to take a case, than for defendants who will be forced to do a really early evaluation of the scientific merit of a claim. Defendants are probably relieved that the focus remains on the scientific or expert knowledge, rather than the general media -- which seemingly would change the focus to the knowledge of the plaintiff.

Having A Document Notarized Correctly Is Worth The Effort

Grace Healy — Wed, 20 Oct 2010 10:06:56 -0800

When I first got out of law school, I was a licensed notary public. The partner who I often worked for said: “Are you crazy? If you’re smart you’ll get rid of that as soon as possible.” The idea was that everyone would want me to notarize signatures that weren’t signed in front of me so that clients, spouses, and neighbors wouldn’t be inconvenienced by actually having to see a notary. Obviously, refusing to help is not a great spot for a junior associate.

This is not a theoretical problem for any notary, or for clients who can be made to look, at best, like people who take the easy way-out, or, at worst, like liars. For example, I once had a client who had a document notarized in the State of New York, County of Kings, aka, Brooklyn. At his deposition, he was asked if he had ever been to Brooklyn. Oops, no. Not great for a misrepresentation defendant. (Fortunately, the document was signed long before his defense counsel had anything to do with this.)

A recent Seventh Circuit decision, Ponsetti v. GE Pension Plan, discusses a similar problem, with a more profound result – the notarized document, which purported to consent to a change of beneficiary, was not given effect. In the litigation challenging the plan's refusal to give effect to the change, an affidavit prepared by the notary admitting that she had not actually witnessed the signature was among the evidence showing that the consent could not be valid. Not a pretty picture for anyone involved. The beneficiary was not changed, and, I suspect, there was a lot of grief for the notary. The case has a good discussion of this area of the law.

My license expired without renewal.

Memo Prepared by Outside Counsel for Corporation Belongs to Corporation, Not In-House Counsel

Grace Healy — Tue, 28 Sep 2010 09:24:28 -0800

D’oh, you say. I agree, but last week the Texas Court of Appeals provided a nice discussion of this principle in Kennedy v. Gulf Coast Cancer and Diagnostic Center at Southeast, Inc. The facts of the case seem unusual -- to say the least. But, the discussion in the decision regarding the identity of a client and who has the attorney-client privilege is a good summary of the law -- including the limited circumstances in which counsel may use privileged documents.

According to the corporation:

in late July 2009, [in-house lawyer], without authorization, had diverted approximately $405,000 of Gulf Coast's funds into a bank account, named himself as the sole signatory for the account, and used $170,000 of the funds to pay a retainer to a firm that he claimed to have selected to "represent and defend corporate officers and agents of Gulf Coast, specifically [in-house lawyer]."

The outside firm was retained to prepare a legal opinion regarding the corporation's "potential liability for its former executive's alleged misconduct." The retention letter stated that the firm had been retained to advise the company, not its owners, officers or directors. After the in-house lawyer was terminated, the outside firm inadvertently gave him the opinion letter.

The law firm that received the $170,000 interpleaded the funds. In the litigation that followed, former in-house lawyer wanted to disclose the contents of the memo; he distributed it to his personal lawyers and disclosed it in unsealed filings. Defendant sought and was granted an temporary injunction restraining him from disclosing the memo. The injunction does allow the former employee to use the memo in his defense of state bar grievance proceedings.

Frankly, from the outside, this looks like a lose, lose, lose for all (except the current lawyers) involved -- corporation, former employee and, last, but not least, outside lawyer.

As an aside, I Googled the case name in an attempt to find a free copy of the decision, and discovered that this plaintiff/lawyer is not afraid of being a party to litigation.

Second Circuit Asks NY Ct of Appeals to Clarify What Constitutes Improper Solicitation After Sale of Good Will of A Business

Grace Healy — Tue, 07 Sep 2010 10:46:04 -0800

Stay tuned. This should be important to anyone voluntarily selling (or buying) the assets of a business, including its good will (or to anyone who hires a person who benefited from the asset sale). In case the relationship doesn’t work out, what are the limits on a seller helping his or her new employer to get the customers who were transferred as part of the sale?

In Bessemer Trust Company v. Branin, the executive of an investment company actively participated in, and was compensated for, the sale of the assets of the company. Following the sale he went to work for the purchaser. That didn’t work out. About twenty months after the sale, he left and went to another company, which approached the clients who were transferred with the sale. He apparently tried to limit his direct involvement in the solicitation, but did have some direct participation. (This grossly simplifies the facts.) The purchaser filed suit.

Historically, in New York, there has been an implied warranty of non-solicitation following the voluntary sale of the good will of a business. Here, the Second Circuit has asked the NY Court of Appeals to clarify what degree of participation constitutes improper solicitation when the new employer of the seller solicits of a former employer's—or purchaser’s -- client. The Second Circuit has asked the Court of Appeals for guidance on the following sets of circumstances:

(1) the active development and participation by the seller, in response to inquiries from a former client whose good will the seller has voluntarily sold to a third party, in a plan whereby others at the seller's new company solicit the client, and (2) participation by the seller in solicitation meetings where the seller's role is largely passive.

Because the sale of a business often results in an unhappy seller – who no longer has the same dominant role in the business – and job applicants often have to bring some business to a new employer, I hope that the Court of Appeals will find this an issue worthy of its attention.

Wisconsin Supreme Court Rules that Arbitration Order Reinstating In-House Counsel Violates Public Policy

Grace Healy — Fri, 23 Jul 2010 15:54:22 -0800

This week, In Sands v. Menard, the Wisconsin Supreme Court set aside an arbitration order that had reinstated an in-house lawyer who had prevailed on an Equal Pay Act claim. This reverses the holding of the lower appeal court that was discussed in a blog post in April 2009.

The court ruled that the arbitration panel exceeded its authority in ordering reinstatement because – in this case -- plaintiff could not ethically continue to represent defendant; therefore, the reinstatement violated public policy. The arbitration panel had indicated that it would award either front pay or reinstatement. It chose reinstatement. The Wisconsin Supreme Court ordered that an appropriate award of front pay be made.

The majority expressly left open the question of whether the Rules of Professional Conduct, which give employers the right to discharge attorneys at any time, apply when the defendant has violated non-discrimination laws.

Three judges dissented.

Whatever the legal merits of this case, given the facts -- it is difficult to imagine how plaintiff could have continued as defendant’s in-house counsel.

Ninth Circuit Clarifies What Is Necessary for Attorney-Client Privilege to Apply to Actual Employees and Functional Employees

Grace Healy — Fri, 23 Jul 2010 14:10:06 -0800

At my first oral argument – a motion to dismiss for failure to prosecute – opposing counsel argued that the judge should not dismiss the case because his co-counsel would get his a** in a sling. The judge pointed out that the assertion was not his most attractive argument.

That came to mind today when I read United States v. Graff. The Ninth Circuit decision sets out what is necessary for an employee to claim the benefit of a company's attorney client privilege. That said, as described in the decision, defendant was not an attractive candidate for anything but the most narrow application of the attorney client privilege.

Defendant had set up an health insurance company, fraudulently marketed coverage, and diverted a significant amount of the company’s funds to buy jewelry, a sports car and a house, while some people who allegedly were insured had their credit ratings destroyed, failed to get a kidney transplant, or almost failed to get necessary chemotherapy, etc.

Defendant argued that evidence presented at trial by the corporation’s attorneys was privileged. He claimed that he had an independent relationship with the lawyers because he was not an employee of the company. As a corporate consultant, he and the company had a joint relationship with counsel; the company couldn’t waive his privilege.

He wasn’t an employee because he couldn’t be – he was banned from insurance work in the State of California. Unsurprisingly, the court determined that he was functionally an employee of the company and did not have an independent relationship with counsel. The decision sets forth what is necessary for a finding that a person who, although technically not an employee, is functionally an employee.

After determining that defendant was a functional employee, the court went on to determine if – as an individual -- he shared the attorney client privilege with the corporation. The decision adopted a five-part analysis to make this determination:

• Did the employee approach the attorneys for the purpose of seeking legal advice;
• When he did so, did he make it clear to the attorneys that he was seeking legal advice in his individual rather than in his representative capacity;
• Did the attorneys see fit to represent him personally, knowing a conflict could arise;
• Were his conversations with the attorneys in confidence; and
• The substance of the conversations with the attorneys did not concern matters within the company or the general affairs of the company.

This issue comes up frequently -- mercifully, not in a fact pattern this dramatic -- so this is an important case. Employees, and management, must understand that the lawyers represent the company – not the individuals in the executive suite.

If you want to claim attorney client privilege, make sure at least one person is licensed to practice law.

Grace Healy — Mon, 05 Jul 2010 13:45:57 -0800

Last week the New York Law Journal featured two decisions regarding attorney-client and work product disputes in litigation between Gucci America and Guess?.

In the first decision, the protection of the attorney-client privilege was denied because Gucci’s in-house lawyer was not an active member of any bar – he only maintained inactive status in California.

Active bar membership is necessary for the benefit of the attorney client privilege. There is an exception to this rule where: the lawyer fraudulently held himself out to the client as an attorney; the clients genuinely and reasonably believe that the person is an attorney; and if, pursuant to this belief, the client made confidential communications to the person. Here, Gucci’s belief that the in-house counsel was a lawyer was unreasonable – it never tried to confirm the extent of the counsel’s qualifications.

This decision has implications for everyone: clients must take steps to confirm that their lawyers maintain active bar membership; litigators, in disputes where attorney client privilege is asserted, should confirm that the communications involved a licensed attorney as well as substance protected by the privilege. The information regarding bar status is usually available on-line.

The second decision involves work product privilege and choice of law issues between United States and Italian law. Gucci was instructed to revise its privilege log, and to meet and confer with opposing counsel before returning to the court for decision.