In-House Counsel: Second Class Lawyers?

In both New Zealand and the United States, in-house legal counsel for corporations have complained that outside counsel and the courts have treated them as second class members of the bar. If this is true, perhaps it is because in-house counsel is seen as representing only one client, engaging in a mixed practice of business and law, being compensated by a salary rather than on the basis of the business he can generate and the trials he wins, and/or resorting to outside counsel when legal proceedings are commenced and the work of a "real lawyer" begins.

Whatever the reason, the treatment is undeserved. In corporate counsel's office, the work of the solicitor is not different from the work of the solicitor in the law firm. Both lawyers draft and review documents, propose courses of action and provide appropriate legal counsel. The fact that in-house counsel does this work for only a single client is evidence of nothing more than the activity of that client and the complexity of the problems it regularly encounters, which justify a lawyer’s full time efforts.

To focus on the mixed legal and business nature of the work performed by corporate counsel suggests that the work performed by all solicitors is not mixed in the same fashion. While corporate counsel may deal with more business issues, legal and business decisions are often inextricably intertwined. Therefore, lawyers, whether inside or out, are constantly caught up in business decisions.

The fact that outside counsel is consulted when the corporation needs representation before a particular judicial body is a reflection of nothing more than the periodic nature of that need, the range of jurisdictions in which the corporations have to appear, and the cost-effectiveness of using assembled local advocates in each location.

The parallel nature of the work of these lawyers is so apparent that it is hard to imagine how outside counsel, as informed as they are, can have such a misperception and bias. An alternative conclusion, of course, in that in-house counsel are being a bit paranoid. The truth is probably some combination of both.
 

In-house counsel have also accused courts of discriminating against them. Typically, this has happened when courts have employed presumptions that legal advice was sought when outside counsel is retained, but refused to employ the same presumption with in-house counsel, thereby compelling in-house counsel to satisfy the burden of proving this element of the privilege claim. This discriminating use of presumptions is not evidence that courts think less of in-house counsel. Courts treat in-house and outside counsel differently in this regard because in the close day-to-day corporate environment, there is a significantly greater possibility that in-house counsel will be used purely in a business capacity.

Relatively few corporations are wealthy enough to pay the hourly fees of outside counsel solely to obtain counsel’s business judgment on a particular matter. However, in-house attorneys are intimately involved in many facets of corporate life and therefore are a valuable resource on many levels for that reason. Their advice is informed, respected, and can be obtained easily -- indeed, often informally--without additional costs.
 

A Broader Concern

However, corporate counsel should be careful not to complain too loudly about their treatment by the courts. If they ever get the courts’ serious attention, judges may take a fresh look at their entity client, its nature, and the dynamics of the privilege in the corporate context. This could lead to the total abolition of the corporate attorney-client privilege!

The logic of the court might be as follows: First, in the corporate context, the corporate entity is the client. This entity is a legal fiction that cannot speak. Therefore, a privilege designed to encourage more open communications when legal advice is sought serves no purpose.

Second, the individuals who do speak for the corporate entity -- its employees, officers and directors -- receive no direct protection from the corporate privilege. They risk their personal wealth and freedom when they communicate with corporate counsel and acknowledge their actionable conduct, because they do not control whether the corporate entity will later assert its privilege claim (when, for example, the communications are sought by a grand jury or in a shareholders’ derivative action) or whether it will waive its privilege protection for the benefit of its share-holders (which could occur when a government agency demands disclosures before stock options are approved).

Although corporate employees benefit when the corporation sees fit to assert its privilege, their protection is indirect and quite fortuitous. One reason employees are candid in communications with corporate counsel is the mistaken belief that they are personally represented. But even when they know they are not represented, many employees speak with corporate legal counsel because of the economic power that the corporation holds over them--they either speak with counsel or are fired -- the "talk or walk" ultimatum. Even so, a recent survey indicated that half of these corporate employees who talk with legal counsel are not candid.

If the privilege were abolished, the economic power that currently "encourages" employee communications with counsel would remain unaltered. Therefore, the flow of information would also remain unaltered.

Defenders of the corporate privilege might argue that if the privilege were abolished the corporation, through its officers and directors, would stop seeking legal assistance. However, advice would still necessarily be sought by corporate officers and directors in order to avoid personal liability for the negligent mismanagement of corporate assets. Corporate officers are not going disregard the corporation’s welfare and their personal financial security simply because confidentiality can no longer be maintained. Thus, the sky would not fall if the privilege disappeared. And, it must be added, since the privilege would be denied to all corporations, none would have an unfair advantage over the other by its abolition.

The attorney-client privilege is an exception to the principle that the law is entitled to every man’s evidence. It is an exception that courts profess to strictly limit in its application to communications that are necessary to achieve its goal of candor. When courts appreciate that economic pressure is the dynamic that compels what the privilege is designed to accomplish, the privilege will be abolished.

Fortunate for corporations, that day appears to be in the distant future. Many evidentiary principles have been followed for so long they survive on nothing more than tradition. The attorney-client privilege itself may be one, but the privilege’s application to corporations is definitely one of the more prominent. Until courts discover that the emperor is wearing no clothes, relative to the application of the attorney-client privilege, a legitimate distinction cannot be drawn between in-house counsel who constantly represents the corporation and outside counsel who is retained for special, limited purposes.