Some in-house counsel want to have their cake and eat it too on firm-wide disqualification

The Wall Street Journal reports that some in-house counsel are running reverse auctions to get low-bid work from law firms. Speaking as a former general counsel, I like the idea of getting firms to compete. But speaking as a former member of the management committee in a large boutique law firm, this is just another example of something that has often caused me to raise my eyebrows.

Here’s the problem: Many if not most in-house counsel view themselves as “the company’s lawyers.” In their eyes, outside lawyers are pretty much hired help, highly-skilled technicians who are brought in only on an as-needed basis to assist with specific tasks. There’s absolutely nothing wrong with that set-up — as I know from my own experience, in-house lawyers generally have far more historical background with the company and personal relationships within the company, all of which can make them more-effective counselors than outside attorneys could ever hope to be.

The problem is that some of these in-house counsel want it both ways: They want to be “the company’s lawyer,” but if a conflict of interest comes up with one of their outside law firms, they want the entire firm disqualified, not just the lawyers and staff who worked on their matters. The rationale, all but carved in stone in legal-ethics rules, is that the sacredness of the attorney-client relationship requires eliminating virtually any risk that the client’s confidential information might be disclosed to an adverse party. That’s a fine rule when the law-firm lawyer truly is acting as “the lawyer.” But it’s not so clear the rule is appropriate when “the lawyer” is an in-house counsel, and the law-firm lawyer is just hired help.

These imputed-disqualification rules can cause major problems for law firms, including internal battles over which client the firm should keep and which should be sent away (or run off, depending on your perspective). The disqualification rules can even lead to the death of a law firm: Howrey LLP’s troubles reportedly picked up speed, eventually leading to the firm’s dissolution, because U.S.-style disqualification rules caused an exodus of European rainmakers, who were cut off from work they might otherwise have gotten. (Disclosure: My former firm, Arnold, White & Durkee, merged with Howrey in 2000, just after I left to become vice president and general counsel of my long-time client BindView Corporation.)

In-house counsel will no doubt say, that’s the law firm’s problem, not mine. And there’s some validity to that. But in the long term it could end up limiting the number of go-to firms available for in-house counsel to hire.

(I’ve long wondered whether, mutatis mutandis [“necessary changes being made”], law firms would be better off organizing themselves along the “chambers” model of English barristers, where each lawyer is a sole practitioner and two lawyers in the same chambers might find themselves on opposite sides of a case.)