Memo Prepared by Outside Counsel for Corporation Belongs to Corporation, Not In-House Counsel
D’oh, you say. I agree, but last week the Texas Court of Appeals provided a nice discussion of this principle in Kennedy v. Gulf Coast Cancer and Diagnostic Center at Southeast, Inc. The facts of the case seem unusual -- to say the least. But, the discussion in the decision regarding the identity of a client and who has the attorney-client privilege is a good summary of the law -- including the limited circumstances in which counsel may use privileged documents.
According to the corporation:
in late July 2009, [in-house lawyer], without authorization, had diverted approximately $405,000 of Gulf Coast's funds into a bank account, named himself as the sole signatory for the account, and used $170,000 of the funds to pay a retainer to a firm that he claimed to have selected to "represent and defend corporate officers and agents of Gulf Coast, specifically [in-house lawyer]."
The outside firm was retained to prepare a legal opinion regarding the corporation's "potential liability for its former executive's alleged misconduct." The retention letter stated that the firm had been retained to advise the company, not its owners, officers or directors. After the in-house lawyer was terminated, the outside firm inadvertently gave him the opinion letter.
The law firm that received the $170,000 interpleaded the funds. In the litigation that followed, former in-house lawyer wanted to disclose the contents of the memo; he distributed it to his personal lawyers and disclosed it in unsealed filings. Defendant sought and was granted an temporary injunction restraining him from disclosing the memo. The injunction does allow the former employee to use the memo in his defense of state bar grievance proceedings.
Frankly, from the outside, this looks like a lose, lose, lose for all (except the current lawyers) involved -- corporation, former employee and, last, but not least, outside lawyer.
As an aside, I Googled the case name in an attempt to find a free copy of the decision, and discovered that this plaintiff/lawyer is not afraid of being a party to litigation.
