On June 29, 2010, a United States Magistrate Judge for the
Southern District of New York in Gucci America, Inc. v. Guess?,
Inc. held that a company can not assert the attorney-client
privilege to protect communications with a U.S. in-house
lawyer who failed to maintain an active state bar membership
and therefore was not authorized to practice law. This decision is
an important warning to companies that in-house counsel licensure
is vital for a number of reasons, including maintaining the
company's attorney-client privilege.
In Gucci America, Inc. v. Guess?, Inc., Gucci America,
Inc. brought an action against Guess?, Inc. for trademark
infringement and related claims arising out of the alleged use of
certain marks, logos and designs. In discovery Gucci submitted a
privilege log and asserted the attorney-client privilege as a basis
for not producing numerous email communications with its in-house
counsel, Jonathan Moss ("Moss"). At his deposition Moss
revealed that he was an "inactive" member of the
California Bar. The court ultimately found that Moss had not been
an active member of the California Bar during the time that he had
been employed by Gucci. After the deposition Gucci investigated
Moss' Bar status and subsequently terminated Moss.
Guess demanded that Gucci produce the Moss communications on the
grounds that Moss was not an attorney to whom attorney-client
privilege applied given his inactive bar status. Gucci disagreed,
and moved for a protective order.
U.S. Magistrate Judge James L. Cott held that the Moss
communications were not protected by the attorney-client privilege,
and denied Gucci's motion insofar as it was based on the
attorney-client privilege. The court left open the possibility that
Gucci could establish that the Moss communications were protected
by the work product doctrine. The work product doctrine covers
documents prepared for, or in anticipation of, litigation and would
not require that Moss be an attorney.
Gucci argued that Moss was an attorney for purposes of the
attorney-client privilege because he had been a member of the
California Bar, albeit on inactive status. The court rejected
Gucci's argument. The court, instead, held that the
attorney-client privilege applied to communications with an
attorney authorized to practice law and that the attorney-client
privilege did not attach to the Moss communications because
Moss' inactive Bar membership was not the type of Bar
membership that authorized him to practice law. In fact, the court
underscored that an inactive member of the California Bar who holds
"'himself or herself out as practicing or entitled to
practice law,' as Moss did, commits a misdemeanor offense under
California law.
Although the attorney-client privilege can apply to communications
with a person whom a client reasonably and mistakenly
believes to be authorized to practice law, the court held that
Gucci had a duty to conduct minimal due diligence to ensure that
its in-house counsel was actively licensed. According to the court,
at minimum, such due diligence includes: (1) confirming that
in-house counsel was licensed in "some jurisdiction;" (2)
that the license authorized in-house counsel to practice law; and
(3) that in-house counsel "has not been suspended from
practicing, or otherwise faced disciplinary sanctions." Gucci
had performed no such diligence, and thus the court found that
Gucci could not show that it reasonably and mistakenly
believed that Moss was authorized to practice law. The court
further concluded that "Gucci itself bears responsibility for
allowing its counsel to represent its interests without ensuring
that he was authorized to do so." Gucci is not the first case
in which the United States District Court for the Southern District
of New York has refused to extend attorney-client privilege
protection to an unlicensed in-house counsel. See, e.g., Fin.
Tech. Int'l., Inc. v. Smith, No. 99 CIV. 9351 GEL RLE,
2000 WL 1855131, at *7 (Dec. 19, 2000) (using similar reasoning in
finding that attorney-client privilege may not be asserted by a
corporation where its in house counsel had passed the New York bar
exam, but never completed the formal New York admission
process).
Gucci and Fin. Tech. demonstrate the importance
of in-house counsel maintaining an active law license in at least
some jurisdiction. Ensuring that in-house counsel's license is
active, and that in-house counsel is authorized to practice,
includes verification or proof of:
- an active license upon hiring or intra-company transfer of a lawyer from a non-lawyer position to in-house counsel;
- payment of any annual license, registration or bar membership fees, as well as required Client Security Fund assessments;
- completion of all required Continuing Legal Education (CLE) courses in states with mandatory CLE, and the filing of all required reports showing compliance.
Such minimal diligence and compliance can avoid the consequences encountered in Gucci and Fin. Tech. Specifically, it will maintain the company's attorney-client privilege protection, and avoid the cost and delay of motion practice over whether an in-house lawyer was authorized to practice law. The individual in-house lawyer should make sure he or she has fulfilled all of the requirements for a valid license to practice law to avoid the personal consequences of job loss as well as the potential for disciplinary action for the unauthorized practice of law. See, e.g., In re Debacker, 184 P.3d 506 (Okla. 2008) (General counsel for Dana Corp who was permitted to work as House Counsel in Ohio under Ohio rules that required payment of an annual registration fee and an active license elsewhere. DeBacker failed to keep his Kansas and Oklahoma licenses current and was suspended by the Oklahoma Supreme Court for one year); In re Hipwell, 267 S.W.3d 682 (Ky. 2008) (General Counsel for Humana Inc., was suspended by the Kentucky Supreme Court for one year after it was discovered he had failed to pay his annual Kentucky State Bar dues, required for active practice, since 1985).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
