State Bar Compliance: In-House Counsel Beware

Friday, December 1, 2006 - 01:00

Corporate watchdogs have recently set their sights on in-house counsel.

In Virginia, Smithfield Foods' general counsel came under attack by union-related groups for allowing his Virginia bar license to lapse. Both internal and bar investigations ensued.

In Milwaukee, a political blogger has been surprising Wisconsin-based companies with calls and questions about the bar admission status of their top legal counsel. Identifying corporate counsel it believes are improperly licensed, Milwaukee World online claimed in October that it "blew the lid off of the unlicensed general counsel racket that has infested [Wisconsin's] roster of large corporations."1

If an in-house lawyer is "practicing law" in a particular state and does not have a state-specific license, then the lawyer could be considered to be engaged in the "unauthorized practice of law." As more states institute special license rules for in-house lawyers, licensing compliance is becoming an increasingly important part of law-department housekeeping.

Due to their extraordinary mobility, in-house counsel ordinarily have at least two separate "domiciles" for licensing purposes:


A "home state," where the counsel is generally admitted to the bar; and


A "host state," where the counsel's office is based.

Some states - and the ABA Model Rules of Professional Responsibility - do not require in-house counsel to be licensed in host states so long as counsel are licensed somewhere.2 The Model Rule makes perfect sense: to allow an in-house lawyer to act outside his or her home licensing state "serves the interests of the employer and does not create an unreasonable risk to the client and others because the employer is well situated to assess the lawyer's qualifications and the quality of the lawyer's work."3

States in which an in-house lawyer need not be admitted include Arkansas, Arizona, the District of Columbia, Nebraska, New Hampshire, and Washington.4 Yet at least twenty-six other states, including Alabama, California, Illinois, Pennsylvania and Ohio require special in-house licenses.5

The license requirements in most states are similar and straightforward. Ordinarily, an applicant must show that he or she: (1) has a law school degree; (2) is admitted to active practice in at least one state; (3) is in good standing in each admitted jurisdiction; and (4) practices solely for a corporation.6 Along with an admission fee, fulfillment of these requirements entitles in-house counsel to limited admission, which generally authorizes in-house lawyers to counsel and otherwise represent their corporate employer.7

As to a non-home state, in-house counsel are likely to fall into one of three categories: (1) counsel who have so little contact with the state that no action is needed because they are not "practicing law" in that state; (2) counsel who qualify for general admission even though they are not in fact generally admitted; and (3) counsel who qualify for limited admission under the state's in-house counsel procedure. In-house counsel admitted elsewhere, but who give advice in a state on an extremely limited basis, probably do not need to take any action. Even protracted negotiations in a single, temporary transaction or dispute are not likely to trigger a licensing requirement. On the other hand, in-house counsel with an office in a particular state should seek admission to that state's bar in some capacity. Likewise, counsel who do not have an office in, but can be said to practice on a systematic and routine basis in, a particular state should also seek prompt admission.

A special and somewhat unclear situation is presented by the in-house lawyer with an exclusively federal practice. For attorneys practicing in an exclusively federal area, the Supremacy Clause of the United States Constitution prevents a state from placing excessive limitations on that privilege.8 Although not frequently litigated, there is case support for lawyers to be excused from a state's disciplinary jurisdiction if the lawyer's practice is confined to federal law and the lawyer has been admitted to the bar of the federal tribunal before which he or she practices.9

Attorneys in the patent, copyright, and trademark areas are classic examples, as are attorneys limiting their work to federal tax issues. However, each situation will need to be considered on a case-by-case basis, because a lawyer who claims to have an "exclusively federal" practice is likely to be carefully scrutinized.10

Yet the same licensing concerns for a lawyer claiming a "purely federal practice" in a law-firm setting are not present in the in-house context. In private practice, the concern of the courts is that clients will not realize the lawyer's practice is limited or that the lawyer's ability to represent the client is restricted. In the in-house context, the corporation appreciates these limitations. Moreover, an in-house lawyer with an exclusively federal practice usually will be employed alongside lawyers who are generally admitted.

The most direct effect of compliance with a state's limited admission rule is that the lawyer may practice without any threat of prosecution or discipline for the unauthorized practice of law. In many states, the unauthorized practice of law is a crime, notwithstanding that it is unlikely to attract the attention of a prosecutor.11 It would be rare for a district attorney to enforce an unauthorized practice statute unless there is a specific complaint from a client, bar association, disciplinary authority or, occasionally, a competing lawyer. However, such prosecutions are not unknown - a lesson learned by two Georgia attorneys only after being indicted by a North Carolina grand jury for unauthorized representation of a North Carolina college.12

And, while prosecutions for the unauthorized practice of law may be rare, it is nearly impossible to predict when one might occur. A prosecution or other disciplinary investigation may be sparked by a motive that has nothing to do with protecting the public. For Smithfield Foods' general counsel, the Virginia bar opened an investigation only after disgruntled union officials researched his background as part of a campaign to organize workers at Smithfield's Tar Heel, North Carolina plant.

Courts routinely consider whether communications to or from in-house counsel are entitled to privileged status as attorney-client communications. It is generally accepted that, so long as an in-house lawyer is acting as a lawyer as opposed to a business executive, the communications are entitled to this privilege.13 Moreover, courts have held that, in order to create a privilege, an in-house lawyer need not be licensed in every jurisdiction in which he or she might make or receive a communication.14

Obviously, however, one can argue that if an in-house lawyer is required to be licensed in a particular state, but is not, then there is no basis for a privilege. This is particularly true for an in-house lawyer with an office in a state with a specific in-house licensing rule.

Even though there is a theoretical argument that locally unlicensed lawyers cannot create a privilege, this argument has been explicitly considered and rejected. In Georgia-Pacific Plywood Co. v. United States Plywood Corp. , the court concluded that to expect multi-state licensing of in-house counsel would create a nearly impossible burden on the lawyer, and would require a practice devoted "almost entirely to studying for bar examinations."15 The court reasoned that to destroy the privilege in this context would elevate form over substance, harm the very entity deserving protection (the corporation), and ignore reality. This reasoning appears to hold true today.16

While union and web blog "investigations" of corporate counsel may be rare, there is an ever-present risk that the bar admission status of corporate counsel will be investigated and revealed, especially as the issue becomes more popular among corporate watchdogs and other critics. Because many states have adopted simple in-house licensing rules, providing counsel a clear-cut vehicle for avoiding the unauthorized practice of law, bar-licensing is an item well worth adding to every law department's compliance checklist.

1 See www.milwaukeeworld.com/ at posts dated October 17, 2006 ("Unlicensed Corporation Lawyers Found"), October 24, 2006 ("Lack of Wisconsin License No Bar to Promotion for Sensient Exec"), November 2, 2006 ("More Unlicensed GCs Named").

2 See ABA Model Rule Prof'l Conduct 5.5(d) ("A lawyer admitted in another United States jurisdiction and not disbarred or suspended from practice in any jurisdiction, may provide legal services in this jurisdiction that: (1) are provided to the lawyer's employer or its organizational affiliates and are not services for which the forum requires pro hac vice admission. . . .")

3 Id. at comment 16.

4 See www.acca.com/admissionRules/index.php.

5 See id.

6 See, e.g., Pa. Bar Adm. R. 302; Ala. Bar Rule IX ("Rules Governing Admission to the Alabama State Bar); Cal. Bar Rule 965 ("Registered In-House Counsel"); Co. Bar Rule 222 ("Single-Client Counsel Certification"); Ill. Bar Rule 716 ("Limited Admission of House Counsel").

7 There are some limitations on the scope of representation permitted under an in-house license . See, e.g., Pa. Bar Adm. R. 302 (in-house lawyer may not represent corporation in court).

8 See, e.g., Sperry v. State of Florida , 373 U.S. 379, 385 (1963).

9 See, e.g., Surrick v. Killion, No. 04-5668, 2005 WL 913332 (E.D. Pa. Apr. 18, 2005 ), aff'd 449 F.3d 520 (3d Cir. 2006).

10 See, e.g., Office of Disciplinary Counsel v. Marcone, 855 A.2d 654 (Pa. 2004).

11 See, e,g,, 42 Pa. Cons. Stat. Ann. 2524; S.C. Code Ann. 40-5-310; N.C. Gen. Stat. Ann. 84-4; Mich. Comp. Laws 600.916.

12 See Georgia Lawyers Indicted for Advising North Carolina College, Fulton County Daily Report (Apr. 8, 2004).

13 See, e.g., Koen Book Distribs. v. Powell, Trachtman, Logan, Carrle, Bowman & Lombardo, P.C., 212 F.R.D. 283, 284 (E.D. Pa. 2002); Andritz Sprout-Bauer v. Beazer East, 174 F.R.D. 609, 633 (M.D. Pa. 1997); see also Monah v. Western Pennsylvania Hosp., 44 Pa. D. & C.3d 513 (C.P. Allegheny County 1997); Florida Marlins Baseball Club, LLC v. Certain Underwriters at Lloyd's, 900 So.2d 720 (Fla. Dist. Ct. App. 2005).

14 See, e.g., Renfield Corp. v. E. Remy Martin & Co ., S.A., 98 F.R.D. 442 (D. Del. 1982); Georgia-Pacific Plywood Co. v. United States Plywood Corp ., 18 F.R.D. 463 (S.D.N.Y. 1956).

15 Georgia-Pacific, 18 F.R.D. at 466.

16 See, e.g., Florida Marlins Baseball Club, LLC v. Certain Underwriters at Lloyd's.

John E. Iole is a partner in the Pittsburgh office of Jones Day, practicing in the complex litigation area. He was a member of the Disciplinary Board of the Supreme Court of Pennsylvania from 1997 to 2003 (as chair in 2002-2003) and is currently co-vice chair of the Pennsylvania Bar Association Legal Ethics and Professional Responsibility Committee Rebekah Byers Kcehowski , a litigation associate, assisted with the preparation of this article.

Please email the author at jeiole@jonesday.com with questions about this article.