Gucci America, Inc. v. Guess?, Inc., No. 09 Civ. 4373, 2011 WL 9375 (S.D.N.Y. Jan. 3, 2011)

Brief Summary

The U.S. District Court for the Southern District of New York set aside a magistrate judge’s controversial corporate attorney-client privilege ruling, and held that a corporate client’s communications with its in-house lawyer are privileged even though the attorney was not actively licensed at the time of the communications.

Complete Summary

Judge Shira A. Scheindlin of the U.S. District Court for the Southern District of New York set aside a controversial ruling by a magistrate judge regarding the corporate attorney-client privilege. The magistrate judge had held in June 2010 that a corporate party’s communications with an in-house lawyer were not privileged because the attorney was not actively licensed at the time of the communication. See Gucci America, Inc. v. Guess?, Inc., No. 09 Civ. 4373 (S.D.N.Y. June 29, 2010). Judge Scheindlin held that this ruling was clearly erroneous.

Under federal common law, the attorney-client privilege generally only will attach to communications with a member of the Bar of a court. Judge Scheindlin held that although the lawyer was on inactive status as a member of the Bar in California, he was a member of at least one federal court Bar, and therefore was an attorney for purposes of invoking the privilege. In reaching this conclusion, Judge Scheindlin further held, contrary to the magistrate judge’s ruling, that privileged communications need not be made to a person who is actually authorized to practice law.

Judge Scheindlin further held that the communications at issue were privileged because the client had a reasonable belief that it was communicating with an attorney. This holding effectively set aside two of the magistrate judge’s rulings. First, it did so by indicating that the rule which has long applied to individual clients—that the client’s reasonable belief in the existence of an attorney-client relationship effectively creates such a relationship and protects the client’s communications accordingly—also applies to corporate clients. Second, corporate clients have no heightened duty to perform due diligence and ensure that their in-house counsel are actively licensed attorneys. Such a duty, Judge Scheindlin held, would place an unfair burden on corporate entities because “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.”

Finally, in finding the client’s belief reasonable as a factual matter, Judge Scheindlin focused on the client’s knowledge that its counsel had a law degree, the fact that the client paid the counsel’s California Bar membership fees, and the fact that the individual had handled a variety of legal matters competently over a number of years.

Significance of Opinion

This opinion is exceptionally important, setting aside one of the most controversial and troubling rulings from any court in the nation in 2010 in the area of attorney-client privilege. It is likely to be widely accepted and should return a degree of normalcy to internal corporate affairs in this area. Pursuant to this decision, corporations may communicate freely with in-house lawyers without having to constantly monitor each attorney’s Bar membership status, so long as there is some reasonable factual basis for a belief that the lawyer is an active licensed member of a Bar.

On a more conceptual level, the decision also reinforces the important general principle that domestic corporate clients are no less entitled to protection than individual clients with respect to their relationships with their lawyers when the entity is engaged in seeking and obtaining legal advice.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. 

REGISTER NOW for the Tenth Annual Legal Malpractice & Risk Management Conference 

Attend the Tenth Anniversary of the industry's premier event focused on current and important developments in the law and litigation of malpractice claims, legal malpractice insurance and risk management strategies. Each Conference panel examines recent case law and significant developments throughout the last year. One and one-half days will be devoted to legal malpractice (February 16-17), and one and one-half days will be devoted to risk management (February 17-18). The Conference will be held in Chicago at The Westin Chicago River North.

Earn up to 15 hours of CLE credit, including up to 6.50 ethics credit!

Conference Topics

Legal Malpractice Sessions (February 16-17) 

• Settle and Sue: Is Legal Malpractice a Remedy for An Inappropriate Settlement or for the Settlement That Did Not Happen?
• What You Need to Know About Lawyers’ Liability Under the Federal and State Securities Laws
• Establishing a Fiduciary Breach
• Using Pretrial Remedies — Anti-SLAPP Statutes, and Other Evidentiary Early Disposition Motions
• Significant Developments in Litigating Legal Malpractice Claims
• Insurance Law
• Stump the Panel

Legal Malpractice/Risk Management Cross-Over Sessions (February 17)

• The Insurance Marketplace and Considerations
• Who is a “Partner” — The Legal Implications of Titles
• Mitigating or Avoiding the Loss

Risk Management Sessions (February 17-18)

• The General Counsel Forum
• Don’t Ignore the “Basics” — Engagement, Disengagement and End-of-Representation Letters
• The Growing Threats to Client (and Firm) Data — Managing Technology to Meet the Challenges
• High Tech Tools — and Traps — for Mergers and Lateral Hiring
• On the Horizon: Is Susskind Right? Technology and the Future of Large Law Firms

Registration Fees

$1,300 for the Entire Conference — February 16-18
$925 for the Legal Malpractice Sessions Only — February 16-17
$925 for the Risk Management Sessions Only — February 17-18

Discounts (maximum 15% discount per registration)

• Returning registrants receive 5% off the Conference price
• Multiple registrants receive 15% off when two or more colleagues from the same company register for the Conference 

For more information, please visit www.LMRM.com or click here to Register Now!

To speak with the Conference Planner, Katherine McCormack, please call 312-704-3329.