In-house Counsel as Gatekeeper: Wearing Many Hats; Weighing Multiple Risks

By: Devika Kewalramani

IT IS NOT UNUSUAL FOR IN-HOUSE COUNSEL TO WEAR many hats in an organization’s business, legal, compliance, regulatory, risk management, or business development matters. Playing different internal roles can create possible risks for both in-house counsel and the organization that is advised by and employs in-house counsel. Some of these risks can range from potential violations of the rules of professional conduct by in-house counsel to loss or impairment of the organizational client’s attorney-client privilege in communications with its counsel. Given the many hats in- house counsel wear internally, if the organization is involved in litigation where there is a dispute over discovery of emails and documents from its in-house counsel, courts may scrutinize their roles and responsibilities to determine whether to uphold the communications as privileged and/or whether to impose sanctions on in-house counsel for ethical violations stemming from their conduct in the litigation. Thus, it is critically important for in-house counsel and their organizations to consider taking steps to mitigate risks that may expose them to loss of privilege or ethics issues.

What proactive measures can in-house counsel take to protect the interests of their organization while complying with the rules of professional conduct, without having to curtail their role in a way that adversely affects the organization? These issues are not always easy to answer. Two recent cases spotlighted below involve in-house counsel who wore multiple hats in their organizations and they highlight how privilege, confidentiality, and unauthorized practice of law issues can be triggered, largely based upon in-house counsel’s roles and activities within an organization. In situations where the corporate employer has subsidiaries and affiliates doing business in multiple jurisdictions, and the parent or an affiliate seeks in-house counsel’s advice in a location where in-house counsel is not licensed or admitted, problems can arise.

In Le Bleu Corp. v. Fed. Mfg. LLC, 2018 U.S. Dist. LEXIS 56291 (E.D. Wis. Apr. 2, 2018), the U.S. District Court for the Eastern District of Wisconsin analyzed whether emails sent by an attorney employed by the defendant corporations, who was not specifically designated by title as in-house counsel, fell within the ambit of the attorney-client privilege for discovery purposes. The plaintiff contended that the lawyer was not acting in a legal capacity when exchanging the disputed emails. The court found that even though the attorney’s title was that of chief administrative officer, his duties included overseeing the legal needs of the corporations, and the emails in question were related to a pending litigation and thus protected by the attorney-client privilege. The court reasoned that since the attorney was giving advice regarding a potential litigation that he was “wearing the hat” of in-house counsel.

Another issue addressed in Le Bleu involved the unauthorized practice of law. The defendants were a subsidiary and its parent company, and in-house counsel rendered legal advice to the parent located in the state where he was licensed to practice, but also advised the subsidiary located in a state where he was not licensed. The plaintiff argued that the attorney who advised the subsidiary in a state where he was not licensed engaged in the unauthorized practice of law, which violated the rules of professional conduct, which in turn destroyed the privilege protecting the defendants’ communications with the lawyer. However, the court rejected this argument and noted that other courts have recognized that if an attorney is authorized to practice law in a jurisdiction then the communication between the client and the attorney is protected by the attorney-client privilege, even if the attorney’s advice would technically be the unauthorized practice of law in another jurisdiction.

Le Bleu illustrates the potential dangers of in-house counsel having a job title that may not be compatible with his or her actual role or responsibilities within the company. The attorney in this case held the title of chief administrative officer, which appears to be a non-legal role, although his job duties involved supervision of the legal needs of his company. Plaintiff’s counsel attempted unsuccessfully to disqualify the attorney’s legal advice from falling within the protection of the attorney- client privilege. There are a few lessons to be learned from this case. First, to avoid losing privilege, a company should consider assigning the title of general counsel, in-house counsel, or a similar designation to the attorney to clarify his or her legal role within the company. Second, to avoid ethical risks involving the unauthorized practice of law, in-house counsel who advise corporate employers who operate in multi-state locations should look closely at those jurisdictions to check whether they are licensed or admitted there before giving any legal advice or rendering legal services. One practical solution to this problem could be to engage the services of local counsel where companies have offices in multiple states. Doing so can preserve the company’s privilege protecting communications with in-house counsel while at the same time preventing in-house counsel from running afoul of the rules of professional conduct.

Wearing many hats can pose other challenges for in-house counsel. Jeddo Coal Co. v. Rio Tinto Procurement, 2018 U.S. Dist. LEXIS 57803 (M.D. Pa. Apr. 5, 2018), involved a contract dispute where the defense wished to designate documents in discovery for “attorney’s eyes only” and to be viewed only by the plaintiff’s outside counsel and not to be shared or discussed with plaintiff’s in-house counsel. The defense claimed that the documents in question were trade secrets and since the plaintiff’s in-house counsel “wore many hats,” including a “business development hat,” the information would give the plaintiff’s business team an unfair competitive advantage over the defendant and its business competitors. The court was not persuaded that the information contained in the flagged documents constituted trade secrets. However, the court did order in-house counsel to treat the information contained in the documents as confidential and use it only in connection with the claims and defenses in the litigation. Thus, in-house counsel was not prohibited from conferring with outside counsel on the litigation, but was barred from disclosing any information contained in the subject documents to other employees within plaintiff’s organization.

The Jeddo case exemplifies some of the quandaries that “wearing many hats” can present for in-house counsel, both in their interactions with outside counsel and with other company employees, especially if in-house counsel’s positions and responsibilities reflect a more expansive role such as business development and strategy, rather than a more traditional legal role. In-house counsel who wear many hats can face dilemmas and challenges to the extent opposing parties in litigation seek to successfully preclude in-house counsel from discussing or sharing sensitive commercial or business information with their non-legal colleagues. On a practical level, one has to wonder how, given the business roles that in-house counsel often play, it is possible for in-house counsel acting in a business role to truly compartmentalize information when advising or interacting with salespeople or other employees within the company. In-house counsel would no doubt face internal pressures from within their own offices to share this information with individuals who may not understand the ethical responsibilities that attorneys carry or the adverse implications they can face if they divulge confidential information—even if it belongs to the other side—that they are ordered or required to protect.

Ultimately, given the ever-evolving roles that in-house counsel play today, they should pause and think about how the different legal and business hats they wear comport with their professional responsibilities as an attorney. The Le Bleu and Jeddocases demonstrate the potential minefields that in-house counsel and their organizations can potentially step into if they are not looking carefully at the risks involved and taking steps to protect themselves.

Devika Kewalramani is a partner at Moses & Singer LLP and co-chair of its Legal Ethics & Law Firm Practice. Ms. Kewalramani focuses her practice on legal ethics, professional discipline, risk management, and ethical compliance. She serves as the co-chair of the Council on the Profession of the New York City Bar Association and is the immediate past chair of its Committee on Professional Discipline.

To find this article in Lexis Practice Advisor, follow this research path:

RESEARCH PATH: Corporate Counsel > Ethics for In-House Counsel > Attorney-Client Privilege > Articles