On January 3, 2011, a U.S. District Court Judge for the Southern District of New York in Gucci America, Inc. v. Guess?, Inc. reversed the U.S. Magistrate Judge’s prior ruling and held that a company could assert the attorney-client privilege to protect communications with a U.S. in-house lawyer who failed to maintain an active state bar membership.
As we reported in a prior e-Update, 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. 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.
After Gucci objected to Magistrate Judge Cott’s Order, U.S. District Court Judge Scheindlin set aside the Order and granted Gucci’s motion for a protective order. Judge Scheindlin rejected the Magistrate Judge’s conclusion that the attorney-client privilege did not apply because Moss was an “inactive” member of the California Bar and therefore unauthorized to practice law. Judge Scheindlin also rejected the Magistrate Judge’s conclusion that a corporation could not establish the attorney-client privilege based on the reasonable belief (even if incorrect) that a person was authorized to practice law if the corporation had not conducted due diligence and taken reasonable precautions to determine that is counsel was authorized to practice law.
Instead, Judge Scheindlin applied the reasonable belief test without imposing a due diligence obligation on corporations and held that Gucci had demonstrated that it had a reasonable belief that Moss was its attorney when it communicated with him in the course of his employment as its in-house counsel. The court noted that “[w]hile 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.” The court also held that “[t]o 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.”
Notwithstanding this recent decision, and given that it is a decision of one Judge in the U.S. District Court Judge for the Southern District of New York, it remains the best practice for in-house counsel to maintain an active law license and for corporations to make sure that their in-house counsel are properly licensed in order to avoid the fight over privilege that Gucci faced. Corporations can ensure that their in-house counsel’s license is active, and that in-house counsel is authorized to practice by verifying or requesting proof of:
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an active license upon hiring or intra-company transfer of a lawyer from a non-lawyer position to in-house counsel;
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payment of any annual license, registration or bar membership fees, as well as required Client Security Fund assessments;
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completion of all required Continuing Legal Education (CLE) courses in states with mandatory CLE, and the filing of all required reports showing compliance.