Is it Safer to Discuss Some Things with Outside Counsel?

By Carol O’Riordan and Jay Shah

Does the attorney-client privilege apply less definitively to in-house counsel than to outside attorneys? About a year ago, the New Mexico Court of Appeals ruled in Bhandari v. Artesia General Hospital that a memo written by a hospital’s general counsel regarding an employee’s termination was not privileged because it contained mixed business and legal advice. This ruling continues to have major significance in the in-house corporate world.

One of the New Mexico court’s primary bases for its holding was that in-house counsel performs two roles within the hospital corporation: that of legal advisor and that of business advisor. Consequently, a corporation will be subject to heightened evidentiary scrutiny in order to demonstrate that the advice of its in-house counsel was primarily legal in nature.

Some of the oft-cited benefits of relying on in-house counsel include their ability to function as generalist attorneys, the availability of immediate access for quick and easy legal questions, their lower costs as reflected by their salaried pay structure, and their intimate knowledge of the business with which they work. Corporations will still rely on in-house counsel, but Bhandari highlights how some of these advantages can become disadvantages if the attorney’s work product or client communications can become discoverable in the course of litigation.Since the client’s easy access to its in-house counsel, along with counsel’s familiarity with the corporation’s structure and practices, can cause the in-house attorney’s advice to blur the lines between business and legal advice, these very strengths may become unnecessary risks.

Consider an in-house counsel who also holds a managerial title or partner status in his or her business. While counsel knows that a partner meeting is generally considered to be a business activity, the in-house counsel may also make a presentation to the board or management in her role as legal advisor. Even though mixed business and legal advice may characterize the function of an in-house counsel, the attorney’s communication to the client could be construed as business advice on the basis of the attorney’s status as a business partner, putting any mixed business/legal communication into dispute.

This is particularly the case when business and legal questions are particularly intertwined. Bhandari provides the example of an employment dispute, but other areas such as real estate, financial transactions or the issuing of dividends, government contracting, or compliance with government regulations may all involve gray areas between legal and business advice.

The experience and business expertise of in-house counsel can be invaluable – but if they are presenting the client with legal advice that the business would prefer to remain privileged, it may be safer to retain outside counsel.

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