Should ‘privilege karma’ be available only to active lawyers?

By Diane Karpman

A host of interesting issues is raised in a new case from the Southern District of New York, Gucci America Inc. v Guess? Inc. 09 Civ. 4373, to certain established California legal concepts. The case involves claims of trademark infringement, an “inactive” California lawyer (actively working as in-house counsel) and designer fashions. (What could be a better mix?)

In the “take no prisoners” trademark litigation in New York, Gucci submitted a privilege log, claiming attorney-client protection for a series of internal e-mails from and to its in-house counsel, who was admitted to the State Bar of California. During a deposition, Gucci’s in-house counsel revealed that he has been inactive in California for years. Guess? objected to the claim of privilege, since Gucci’s in-house counsel was not entitled to practice law.

In California, there are essentially two classes of lawyers, active and inactive. Active members are permitted to practice law, and “practicing” law while on inactive status is a misdemeanor (Business and Professions Code § 6126). Practice of law encompasses more than just court appearances and includes giving legal advice and preparing legal instruments and contracts by which legal rights are secured. Engaging in negotiations regarding settlement constitutes the practice of law. Morgan v. State Bar (1990) 51 Cal. 3d 598.

Gucci claimed that it had relied on its in-house counsel’s representation that he was entitled to practice law and was therefore entitled to the privilege. “There are, in fact, both federal and California cases that have held that the privilege attaches to communications if the client “thought” the person was a lawyer. After all, doesn’t the client “own” the privilege?

That argument was rejected by the court in Gucci. It first noted that the in-house counsel had been inactive for more than a dozen years, since before he was hired by Gucci. The court further held that Gucci’s belief in its in-house counsel being a lawyer was not “reasonable.” “In hiring lawyers most [corporate] institutions make some inquiry into the lawyer’s background.” (Pg. 14) The court further stated: “It does not seem unreasonable to require that [corporations] inquire into professional status as part of their inquiry into professional competence.” (Pg. 14)

Gucci sends a strong message that corporations should review and investigate the credentials of their in-house lawyers or suffer the consequences. This seems to be inconsistent with fundamental fiduciary jurisprudence, since lawyers are fiduciaries as a matter of law. The basis of the attorney-client relationship is trust, and with Gucci, the court is telling corporations to trust no one. The court seems to hold that if you are entitled to actively practice law anywhere, the privilege provides protection. Considering the important decisions being based on the intricate issues of privilege, attorneys might be wise to activate their licenses wherever they are admitted, so that they may claim the “privilege karma” in the event that it is needed.

Some have suggested that this case may have ramifications in the anticipated massive British Petroleum litigation. According to the Business Law Prof Blog, the general counsel of BP is a member of both the English bar and the California bar. According the California bar’s membership records, he is (you guessed it) inactive.

Denise Quinterri, an ethics lawyer in Arizona, suggested a fix for this problem. “Maybe all lawyers should be required to carry their identification, and flash it, or perhaps only those attorneys who look like they might be from out of state.”

• Legal ethics expert Diane Karpman can be reached at 310-887-3900 or at karpethics@aol.com.