In a dense (actually very dense) opinion, the First Department has determined that under certain circumstances, your attorneys are fee to discuss your case amongst themselves, and may do so in an air of confidentiality…they need not tell you what they discussed.

Stock v Schnader Harrison Segal & Lewis LLP   2016 NY Slip Op 05247  Decided on June 30, 2016  Appellate Division, First Department  Friedman, J., J. is the situation where the attorneys may have committed malpractice to the tune of $5 million, but then are called to testify to their actions in a securities arbitration.  When the subpoena comes, discussions ensue.  Are the conversations discoverable?

“The primary issue on this appeal is whether attorneys who have sought the advice of their law firm’s in-house general counsel on their ethical obligations in representing a firm client may successfully invoke attorney-client privilege to resist the client’s demand for the disclosure of communications seeking or giving such advice. We hold that such communications are not subject to disclosure to the client under the fiduciary exception to the attorney-client privilege (recognized in Hoopes v Carota, 142 AD2d 906 [3d Dept 1988], affd 74 NY2d 716 [1989]) because, for purposes of the in-firm consultation on the ethical issue, the attorneys seeking the general counsel’s advice, as well as the firm itself, were the general counsel’s ” real clients'” (United States v Jicarilla Apache Nation, 564 US 162, 172 [2011] [Apache Nation], quoting Riggs Natl. Bank of Washington, D.C. v Zimmer, 355 A2d 709, 711-712 [Del Ch 1976]). Further, we decline to adopt the “current client exception,” under which a number of courts of other jurisdictions (see e.g. Bank Brussels Lambert v Credit Lyonnais [Suisse] S.A., 220 F Supp 2d 283 [SD NY 2002]) have held a former client entitled to disclosure by a law firm of any in-firm communications relating to the client that took place while the firm was representing that client. Because we also find unavailing the former client’s remaining arguments for compelling the law firm and one of its attorneys to disclose the in-firm attorney-client communications in question, we reverse the order appealed from and deny the motion to compel.”

“In 2008, the defendant law firm, Schnader Harrison Segal & Lewis LLP (SHS & L), through the managing partner of its New York City office, defendant M. Christine Carty, Esq., represented plaintiff Keith Stock in the negotiation of his separation agreement from his former employer, MasterCard International. Unbeknownst to plaintiff during the negotiation of the separation agreement, his termination by MasterCard triggered the acceleration of the ending dates of the exercise periods of certain stock options granted to him under MasterCard’s Long-Term Incentive Plan (LTIP). Specifically, the termination of plaintiff’s employment caused the exercise periods of his vested stock options under the LTIP to shrink from 10 years to between 90 and 120 days. Although SHS & L negotiated a delay of the date of plaintiff’s termination for the purpose of allowing additional stock options to vest, the firm did not negotiate an extension of the truncated exercise periods of the vested options.

In January 2009, plaintiff learned from Morgan Stanley Smith Barney (MSSB), the administrator of the MasterCard LTIP, that all of his vested stock options, which allegedly had been worth more than $5 million in aggregate, had already expired under the terms of the LTIP as a result of the termination of his employment. Plaintiff thereupon consulted with SHS & L concerning possible remedies for this loss. Plaintiff, represented by SHS & L, subsequently commenced a lawsuit in federal court against MasterCard and an arbitration proceeding before the Financial Industry Regulatory Authority (FINRA) against MSSB. The SHS & L attorneys who [*3]represented plaintiff in these litigations were Theodore Hecht, Esq., and Cynthia Murray, Esq.^[FN1]

On January 8, 2011, 11 days before the hearing of plaintiff’s arbitral proceeding against MSSB was scheduled to begin, MSSB’s counsel gave notice that it intended to call Carty to testify as a fact witness at the arbitration ^[FN2]. This development prompted Carty, Hecht and Murray to seek legal advice from SHS & L’s in-house general counsel, Wilbur Kipnes, Esq ^[FN3]. The subject on which Carty, Hecht and Murray sought Kipnes’s advice was their and the firm’s ethical obligations, in light of MSSB’s demand for Carty’s testimony, under the lawyer-as-witness rule (see Rules of Professional Conduct [22 NYCRR 1200.0] [RPC] rule 3.7)^[FN4]. Kipnes never worked [*4]on any matter for plaintiff, and plaintiff was not billed for any of the time he devoted to the consultations with Carty and Hecht.”

“Plaintiff does not take issue with the right of SHS & L and Carty to invoke attorney-client privilege with respect to the January 2011 emails as against the rest of the world. Plaintiff contends, however, that these documents cannot be withheld from him, on the ground that the communications in question took place while the firm was still representing him and related to that representation. Plaintiff’s primary reliance in seeking to obtain the January 2011 emails is on a doctrine known as the fiduciary exception to the attorney-client privilege. Disagreeing with plaintiff and Supreme Court, we find that the fiduciary exception does not apply to the January 2011 emails.”

“The interests of SHS & L and its attorneys in adhering to their ethical obligations did not necessarily coincide with plaintiff’s interest in successfully and efficiently prosecuting the arbitration against MSSB. For example, an opinion by SHS & L’s in-house counsel that the firm should withdraw from representing plaintiff would have protected the professional interests of the firm and its attorneys but would not have directly advanced plaintiff’s claims in the arbitration or the federal court action. Indeed, the firm’s withdrawal from the representation likely would have significantly delayed the resolution of plaintiff’s claims and increased the expense of the arbitration. Any benefit to plaintiff from his attorneys’ adherence to their ethical [*9]obligations as a result of the consultation with the in-house counsel would have been indirect and incidental (cf. Riggs, 355 A2d at 713 [ordering disclosure of the trustee’s attorney-client communications to the trust beneficiaries, who were “not simply incidental beneficiaries who chance to gain from the professional services rendered”])^[FN9]. Thus, because the purpose of the consultation with Kipnes — for whose time, to reiterate, plaintiff was not billed — was to ensure that the attorneys and the firm understood and adhered to their ethical obligations as legal professionals, the attorneys and the firm, not plaintiff, were the “real clients” in this consultation.

We also reject plaintiff’s argument that the January 2011 emails are necessarily subject to the fiduciary exception because his relationship with SHS & L had not yet reached the stage of actual hostility as of the time of those communications. The considerations that support sustaining SHS & L’s invocation of attorney-client privilege as to these communications are not diminished by the fact that, when the communications took place, neither plaintiff nor SHS & L was threatening to sue the other. The protection afforded by the attorney-client privilege encourages lawyers to seek advice concerning their ethical responsibilities and potential liabilities in a timely manner so as to minimize any damage to the client from any conflict or error. Much of this benefit — to both lawyers and clients — would be lost if the attorney-client privilege could be invoked by a lawyer who sought legal advice to protect his or her own interests only for consultations that took place after the lawyer or the client had openly taken a position adverse to the other.”