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).