District Court Judge Gives Gucci Back its Privilege

January 26, 2011

Several earlier Privilege Points reported on a Magistrate Judge’s frightening finding that several years of communications between Gucci executives and the company’s in-house lawyers did not deserve privilege protection because the lawyer had let his California license lapse. In essence, the Magistrate Judge found that Gucci (and presumably other corporations) had to “vet” their in-house lawyers to assure that they were eligible to practice law and therefore entitled to the privilege.

Well-respected Southern District of New York Judge Shira Scheindlin reversed the Magistrate Judge. Gucci Am. Inc. v. Guess?, Inc., No. 09 Civ. 4373 (SAS), 2011 U.S. Dist. LEXIS 15 (S.D.N.Y. Jan. 3, 2011). Judge Scheindlin first pointed to an ambiguity in a California statute in concluding that Gucci’s in-house lawyer was “not unreasonable” in assuming that he could practice elsewhere while on “inactive” status in California. Id. at *13. Most importantly, Judge Scheindlin pointed to Gucci’s reliance on what is called the “reasonable belief” standard – under which clients can claim privilege protection if they reasonably believed they were dealing with a lawyer. Id. at *22-23. In fact, she found that an earlier Southern District of New York case essentially holding otherwise was “wrongly decided.” Id. at *19.

While corporations would still be wise to “vet” their in-house lawyers to at least some degree, Judge Scheindlin’s rejection of the Magistrate Judge’s “due diligence” requirement should come as a huge relief to corporations everywhere.