Many firms have an in-house attorney or even a general counsel dedicated to managing risk for the firm and protecting the firm's legal interests. Part of this role can involve reviewing potential claims against the firm. For example, if an attorney discovers a mistake or a potential mistake in a client representation, that attorney may seek the advice of the in-house counsel with regard to how to proceed.

In recent years, there have been a handful of cases reviewing whether the communications between an attorney and an in-house attorney are protected by the privilege, or whether the client is entitled to them. Some clients have argued that because the firm owes a duty to the client, any internal communications necessarily mean the firm is putting its own interests ahead of the client's. However, the vast majority of courts that have reviewed this issue have recognized that such internal communications should be protected by privilege in appropriate circumstances.

In similar analyses, Texas courts have concluded that the attorney-client privilege can extend to a corporation and, depending on the nature of the communications, to corporate in-house counsel's communications. However, the risk for law firms is that if they are not careful about defining and protecting the privilege, a court could find waiver and order production of communications that the firm intended to protect. Thus, by relying on the high-profile decisions from other states, Texas lawyers can identify some common elements and tips that may provide a firm with compelling arguments for recognizing and protecting the privilege if a former client contests it.

Maintain Separate Files for the In-House Counsel

Segregating communications with the in-house counsel from client matters can help prevent their disclosure in litigation, even in jurisdictions such as Texas where the client “owns” the client file.

A primary reason for keeping the in-house counsel's files separate is because the communication is intended to seek legal advice separate and independent from the legal advice sought by the client in the representation. If the files are mixed, however, it may be difficult to discern whether the attorney representing the client is seeking advice independent from the representation, whether the advice was in service of the client or the firm, and, therefore, whether the communication is truly privileged.

When firms do not maintain separate files for their in-house counsel, clients may contest non-disclosure. Indeed, if a communication between an attorney and an in-house counsel regarding a matter is stored in that matter's file, it gives the appearance that the communication was made for the client's benefit and, thus, belongs to the client. For this reason, and regardless of whether a firm elects to employ in-house counsel on a full-time, part-time, or ad hoc in-house basis, the attorney or attorneys fulfilling the role will often take steps to segregate their files relating to firm legal advice from client representation files.

Decide the Appropriate In-House Counsel Position

Depending on the number of attorneys and other firm needs, a law firm may decide to employ full-time in house counsel, part-time in house counsel, or formally designate the work to attorneys within the firm on a case-by-case basis. Nonetheless, officially assigning an attorney or group of attorneys as the firm's in-house counsel may improve the likelihood of positive outcomes for the law firm. These benefits include preserving confidentiality, as well as recognizing and preventing conflicts of interest.

Law firms with more attorneys tend to appoint or employ a lawyer or team as in-house counsel. In that role, the in-house counsel may only represent the firm as a client and give up representing other clients. By not representing any other clients, the in-house counsel of a large law firm is less likely to have a potential conflict of interest when advising the firm with regard to a specific client or matter. Further, if the in-house counsel does not represent any clients besides the firm, that may support a court's determination that the in-house counsel's role was unambiguous.

For medium to smaller firms, however, employing in-house counsel on a full-time basis may not be financially feasible or beneficial. Some firms will instead utilize in-house counsel on a part-time basis and will permit those attorneys to continue to represent outside clients. Then, if the firm seeks advice regarding a specific matter or client, most firms will ensure that the part-time in-house counsel working on the file does not have any role with that client. To avoid any doubt, part-time in-house counsel may take extra steps to confirm when they are rendering legal advice on behalf of the firm, by for example marking all communications clearly as such.

Some firms will, however, be unable or unwilling to employ in-house counsel. Another option is to assign the firm's attorneys in-house counsel responsibilities when they arise. This option can create more risk because it may be harder for the firm to argue that the ad hoc attorney's role was well-defined. Some firms in this situation may find it more feasible to retain outside counsel to assist with any internal issues.

Formalize the In-House Counsel Position

Once an in-house counsel position has been created within a firm, most firms will add to the legitimacy of the role by treating the position as legal counsel to the law firm in both form and substance. While providing a title and e-mail signature are a starting point, solidifying the role will often involve assigning relevant responsibilities (similar to what might be assigned to a corporation's general counsel) and honoring them within the firm.

Finally, many firms will find it is helpful to create separate billing numbers for their in-house attorneys and bill the firm as a client. Formality of process and substance for the in-house position can help protect legitimate claims of privilege should they be contested.

Shari L. Klevens is a partner at Dentons and serves on the firm's US Board of Directors. She represents and advises lawyers and insurers on complex claims and is co-chair of Dentons' global insurance sector team.  Alanna Clair is a partner at Dentons and focuses on professional liability defense.  Shari and Alanna are co-authors of “The Lawyer's Handbook: Ethics Compliance and Claim Avoidance.”