In-House Counsel in the United States

In-House Counsel Definition

House Counsel in this Legal Encyclopedia
House Counsel definition in the Law Dictionary

In-House Counsel Budgets and the U.S. Corporate Legal Spending

In each of the past nine years, legal budgets at U.S. corporations have increased by an average of 7 percent. But in 2009 law department spending dropped for the first time in nearly a decade, by 1 percent. Most cuts were on outside counsel, according to a survey of 252 U.S. companies in 22 industries by law firm consultants Hildebrandt Baker Robbins.

But the pendulum continues to swing. A survey of 275 corporate counsel conducted in the spring and summer of 2010 by Fulbright & Jaworski, an international law firm, noted that 21 percent of respondents had expanded their outside counsel roster in the past year. Twenty-five percent expect to see growth there by the summer of 2011.

Companies also are planning to augment their own legal departments, with 11 percent reporting that they foresee hiring more in-house attorneys in the next twelve months. The Hildebrandt study drew even stronger conclusions, with 41 percent of respondents anticipating a jump in law-department hiring.

So when do corporations turn to outside firms? The top reasons, says the Fulbright & Jaworski survey, were to tap into a law firm’s specific areas of expertise; to expand jurisdiction; and to help handle a heavier litigation load.

Source: Hildebrandt Baker Robbins 2010 Law Department Survey; Fulbright & Jaworski 2010 Litigation Trends Survey, both published October 2010.

In-House Counsel Attorney Client Privilege

According to Jackie K. Unger:

Work product protection, which is provided for in Rule 26(b)(3) of the Federal Rules of Civil Procedure, applies to documents and tangible things as well as intangible work product such as an attorney’s mental impressions created “in anticipation of litigation.”

In Visa U.S.A., Inc. v. First Data Corp., attorneys for Visa were involved in reviewing and editing an analysis of the risks and concerns of entering a new private arrangement for transactions, which was transmitted to the board to assist in its decision whether to agree to the arrangement. Although attorneys gave input on the draft materials, the court found that the documents were initially created by Visa’s consultants because of business purposes to aid Visa in making a business decision as to the arrangements, and the analysis would have been undertaken even if no attorneys were involved. 2004 WL 1878209 (N.D. Cal. Aug. 23, 2004). Similarly, in Craig v. Rite Aid Corp., after noting that “courts have eschewed broad claims of privilege premised upon the involvement of in-house counsel in multi-participant corporate restructuring processes, in favor of a far more narrowly tailored and fact specific analysis of privilege claims,” the court held documents seeking feedback from in-house counsel and senior management on a draft proposal relating to business restructuring not privileged as no clear legal advice was sought. 2012 WL 426275 (M.D. Pa. Feb. 9, 2012).

Where the client seeks legal advice which by its nature relates to business concerns, the privilege still applies. This was the case when the communications at issue concerned tax consequences of a possible reorganization and whether those consequences should affect the structure of corporate realignment, advice as to legality of the sale of the corporation, and tax advice with respect to alternative forms of employee compensation. In re Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032, 1037 (2d Cir. 1984).

In-House Counsel Test for Attorney Client Privilege

By Bass, Berry & Sims

Courts have provided a number of tests to help determine whether an individual working within the corporation is a client for the purposes of applying the attorney/client privilege.

CORPORATE CONTROL TEST
Some courts employ the Control Group Test whereby protection is available only to the corporation’s controlling executives and managers. The Control Group Test is relatively restrictive and limits protected communications to those involving employees in a position to control the operations of a corporation or those employees playing a significant role in making the decision utilizing the requested legal advice. City of Philadelphia v. Westinghouse Elec. Corp., 210 F.Supp. 483, 485 (E.D.P. 1962). In practice, this is usually a limited number of corporate employees. The use of the Control Group Test has diminished in recent years, though it is still employed by a minority of jurisdictions.

SUBJECT MATTER TEST
In 1970, the Seventh Circuit in Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th Cir. 1970) changed the focus of the inquiry from the traditional Control Group Test. Instead of looking at the roles of those employees involved, the Harper court looked to the subject matter of the employees’ communications. Under this approach, dubbed the Subject Matter Test, communications to the corporation’s attorney are privileged if the employee communicates with counsel at the direction of his superiors and the subject matter of that communication relates to the performance by the employee of the duties of his or her employment.

THE UPJOHN TEST
In 1981, the U.S. Supreme Court essentially adopted a variation of the Subject Matter Test in Upjohn v. U.S., 449 U.S. 383 (1981). Under Upjohn, an attorney/client privilege protects communications between a corporation’s employees and the corporation’s lawyers provided the following criteria are satisfied:

Corporate employees must have made the communication to corporate counsel acting as such, for the purpose of providing legal advice to the corporation.
The substance of the communication must involve matters that fall within the scope of the corporate employee’s official duties.
The employees themselves must be sufficiently aware that their statements are being provided for the purpose of obtaining legal advice for the corporation.
The communications also must be confidential when made and must be kept confidential by the company.

The Subject Matter Test and the Upjohn Test are relied upon by a majority of those states adopting a specific test.