In-House Counsel and Attorney-Client...
Transcript of In-House Counsel and Attorney-Client...
In-House Counsel and Attorney-Client Privilege Protecting Confidential Information in Business Communications, Depositions and Litigations
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
TUESDAY, JULY 31, 2012
Presenting a live 90-minute webinar with interactive Q&A
Michael B. Hayes, Partner, Montgomery McCracken Walker & Rhoads, Philadelphia
Kenneth E. McKay, Partner, Locke Lord, Houston
Brian M. Martin, General Counsel and Corporate Secretary, KLA-Tencor Corp., Milpitas, Calif.
Sound Quality
If you are listening via your computer speakers, please note that the quality of
your sound will vary depending on the speed and quality of your internet
connection.
If the sound quality is not satisfactory and you are listening via your computer
speakers, you may listen via the phone: dial 1-866-961-8499 and enter your
PIN -when prompted. Otherwise, please send us a chat or e-mail
[email protected] immediately so we can address the problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
Viewing Quality
To maximize your screen, press the F11 key on your keyboard. To exit full screen,
press the F11 key again.
For CLE purposes, please let us know how many people are listening at your
location by completing each of the following steps:
• In the chat box, type (1) your company name and (2) the number of
attendees at your location
• Click the SEND button beside the box
FOR LIVE EVENT ONLY
If you have not printed the conference materials for this program, please
complete the following steps:
• Click on the + sign next to “Conference Materials” in the middle of the left-
hand column on your screen.
• Click on the tab labeled “Handouts” that appears, and there you will see a
PDF of the slides for today's program.
• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.
In-House Counsel and Attorney-Client Privilege:
Recent Developments and Common Applications
Ken McKay Litigation Partner
Locke Lord LLP
600 Travis, Suite 2800
Houston, Texas 77002
(713) 226-1127
Overview
• The Applicable Legal Standards and Factors Considered in
Applying the Privilege to In-House Counsel Communication
• Recent Developments and Common Applications
– Internal Investigations, including Corporate Miranda Warnings
– “At Issue” Waivers relating to External Investigations & Corporate
Litigation
– Board Presentations
– Corporate Acquisitions
– Impact of Business Globalization on the Privilege
• Suggested Best Practices
6
The Applicable Legal Standards and
Factors Considered in Applying the
Privilege to In-House Counsel
Communication
7
A Different Standard?
Courts have repeatedly held that there is no
distinction between the standard to be
applied for in-house and outside counsel for
purposes of the attorney-client privilege. See Hertzog, Calamari & Gleason v. Prudential Ins., 850 F. Supp. 255 (S.D.N.Y. 1994);
U.S. v. Mobil Corp., 149 F.R.D. 533 (N.D. Tex. 1993)
But there is a distinction,
at least in application.
8
Why is a different standard applied to
in-house counsel?
Principally because in-house counsel often perform non-
legal business functions within their organizations and the
law requires that privilege analysis distinguish the two
Having attorneys serve in dual capacities is the most
frequently-cited factor as a basis for
denying a claim of privilege.
See Teltron, Inc. v. Alexander, 132 F.R.D. 394 (E.D. Pa. 1990); N.C. Elec. Membership
Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 517 (M.D.N.C. 1986)
9
Satisfying the “Attorney” Requirement
of the Attorney-Client Privilege
General Rule: If an in-house counsel is acting in her capacity as an attorney, the attorney-client privilege applies. Where, however, counsel is acting as a business advisor or has only limited involvement, the privilege does not apply. “[T]he privilege is limited to confidential communications with an attorney acting in his professional legal capacity for the express purpose of securing legal advice. As a general rule, an attorney who serves a client in a business capacity may not assert the attorney-client privilege because of the lack of a confidential relationship. Thus, ordinary business advice is not protected.”
Teltron, Inc. v. Alexander, 132 F.R.D. 394 (E.D. Pa. 1990). See also The Salvation Army v. Bryson, (2 CA-SA 2011-0091, Ariz. Ct. of Appeals; Mar. 2012) [not yet published];
N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 514 (M.D.N.C. 1986).
10
No single factor is
dispositive in every
case.
See N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110
F.R.D. 511, 516 (M.D.N.C. 1986)
There is no Silver Bullet
11
Examples of Potentially “Non-Legal”
Functions Performed by In-House Counsel
– Conducting investigations
– Fact-gathering regarding issues that may later be the subject of
litigation
– Regulatory compliance issues
– Matters concerning the functioning of the entity
See e.g. Giffin v. Smith, 688 S.W.2d 112 (Tex. 1985) (General counsel's communications
found not to be privileged despite his role in corporate investigation because there
was no evidence that the communication was confidential).
12
Dual Capacities
In-house counsel routinely handle mixed business and legal functions, sometimes with dual titles such as
Corporate Secretary
Vice President
Board Member
These are sometimes perceived to be capacities separate from their legal functions
Apparently, an even higher standard is sometimes applied where such is the case:
“[I]n a situation where the author or recipient of allegedly privileged documents functions as a corporate manager as well as an attorney, efforts must include clear designation of those communications sent or received in his capacity as a legal advisor.”
Hardy v. New York News, Inc., 114 F.R.D. 633, 644 (S.D.N.Y. 1987).
13
How Does an In-House Attorney
Meet this Burden?
Court’s finding in Hardy
“Although some of the documents [were] addressed to [in-
house counsel], there was nothing to indicate that [he]
requested or received any of the documents at issue, or
the information contained in them, in the capacity of a
legal advisor and solely for the purpose of rendering
advice to the corporation.”
Hardy v. New York News, Inc., 114 F.R.D. 633, 644 (S.D.N.Y. 1987).
14
Applicable Test
The client’s communication must be for the primary or dominant purpose of soliciting
legal, rather than business, advice.
See N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 514 (M.D.N.C. 1986); Teltron, Inc. v. Alexander,
132 F.R.D. 394, 396 (E.D. Pa. 1990) (“[must be able to] clearly demonstrate that the advice to be protected was given in a professional
legal capacity.”); U.S Postal Serv. V. Phelps Dodge Ref. Corp., 852 F. Supp. 156 (E.D.N.Y. 1994).
15
Factors to be Considered
• Is the subject “ordinary business activities”?
Whether the subject matter of the document is primarily business-oriented, such as documents discussing cost information, technical data, contract negotiations, delivery problems or lobbying efforts.
See Coleman v. Am. Broad. Cos., 106 F.R.D. 201, 205 (D.C. Cir. 1985) (concluding that communications between an
attorney and another individual which relate to business, rather than legal matters, do not fall within the protection of the privilege.); N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 514 (M.D.N.C. 1986).
Stated differently, would the document have been prepared whether
or not the attorney was sent a copy?
U.S Postal Serv. V. Phelps Dodge Ref. Corp., 852 F. Supp. 156, 163 (E.D.N.Y. 1994).
16
Factors to be Considered
• Do the documents specifically request legal advice or,
if generated by counsel, reference the request for legal
advice?
See N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 516 (M.D.N.C. 1986)
17
Factors to be Considered
• Was the communication confidential?
Whether the document in question is simply marked “Memorandum” with no notation of confidentiality
See N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110
F.R.D. 511, 516 (M.D.N.C. 1986)
18
This is not just a question of labeling.
Does the communication itself reveal any
confidential information?
See N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 514
(M.D.N.C. 1986)
19
Can you overuse your
“Privileged” stamp?
No case so finding, but perhaps.
20
Factors to be Considered
Did the attorney have only “Limited Involvement” in the Matter?
• Whether the document is addressed to a number of individuals, only one of whom is in-house counsel
• “Copying the Lawyer” does not create a privileged document.
An entity cannot shield its business transactions from discovery simply by funneling its communications through an attorney.
See U.S Postal Serv. V. Phelps Dodge Ref. Corp., 852 F. Supp. 156 (E.D.N.Y. 1994); Teltron, Inc. v. Alexander,
132 F.R.D. 394, 396 (E.D. Pa. 1990); Hardy v. New York News, Inc., 114 F.R.D. 633 (S.D.N.Y. 1987).
21
“Limited Involvement” (Cont.)
• Whether the document is addressed to counsel vs. “cc” and whether many others, outside of the legal function, were addressees
• Whether the document refers to her as “counsel”
• Whether the documents were segregated from other, non-privileged documents.
• Whether the document was marked as “Privileged” and/or “Confidential”
See Hardy v. New York News, Inc., 114 F.R.D. 633,644 (S.D.N.Y. 1987);
U.S Postal Serv. V. Phelps Dodge Ref. Corp., 852 F. Supp. 156 (E.D.N.Y. 1994).
22
Common Applications of the Privilege
to In-House Counsel Communication
23
The In-House Privilege in the Context of
Internal Investigations
24
Objective:
Avoiding the Creation of an
Attorney-Client Relationship with
an Individual by using an Upjohn or
“Corporate Miranda” Warning
25
Rule 1.13 of the ABA Model Rules of
Professional Conduct
(a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents…
(f) In dealing with an organization’s directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.
Comment 10: …Care must be taken to assure that the individual understands that, when there is such adversity of interest, the lawyer for the organization cannot provide legal representation for that constituent individual, and that discussions between the lawyer for the organization and the individual may not be privileged.
ABA Model Rules of Prof’l Conduct (1983) (emphasis added)
26
Case Study: Broadcom Option
Backdating Investigation
• Broadcom’s board hired lawyers to conduct an internal investigation regarding its alleged practice of backdating stock options. Shortly thereafter, civil suits were filed against the company and several of its executives.
• The lawyers conducted an interview of the CFO, but never disclosed to him that they represented only Broadcom and that whatever he told them could later be disclosed at Broadcom’s discretion.
• The SEC and US Attorney’s Office then commenced an investigation of several Broadcom executives relating to the company’s option granting practices and Broadcom agreed to allow interviews of its attorneys regarding the internal investigation, including information concerning the CFO’s interview.
• The CFO was indicted, but claimed that the information from the meetings was privileged. The lawyers claimed that, at the beginning of the interview, they had provided the CFO with an Upjohn or “Corporate Miranda” warning, but the CFO denied receiving such a warning.
27
Case Study: Broadcom Option
Backdating Investigation
• The district court held that: “an oral warning, as opposed to a written waiver of the clear conflict presented by [the law firm’s] representation of both Broadcom and [the CFO], is simply not sufficient to suspend or dissolve an existing attorney-client relationship and to waive the privilege.”
• Ultimate outcome: – Ninth Circuit reversed based upon the CFO’s knowledge that the
investigation was to be turned over to the company’s auditors and probably the government.
– The district court referred the law firm to the California State Bar for disciplinary action.
See United States v. Ruehle, 583 F.3d 600 (9th Cir. 2009);
United States v. Nicholas, 606 F.Supp. 2d 1109 (C.D. Cal. 2009).
28
The Proper Upjohn or
Corporate Miranda Warning • Disclosures (before the interview begins):
– The lawyer represents the company and not the individual personally.
– The interview is part of an investigation being conducted for the purpose of providing legal advice to the company.
– The interview is protected by the attorney-client privilege that belongs solely to the company and not the individual.
– The privilege is subject to waiver at any time by the company without the individual’s consent or knowledge.
– The substance of the interview is to be kept confidential, including as to other employees.
– The individual may want to retain outside counsel to represent his interests.
• Make a written record of the disclosures
See also, Upjohn Warnings: Recommended Best Practices When Corporate Counsel Interacts
with Corporate Employees, American Bar Association
(http:meetings.abanet.org/webupload/commupload/CR301000/newsletterpubs/
ABAUpjohnTaskForceReport.pdf)
29
Rule 4.3 of the ABA Model Rules of
Professional Conduct
Dealing with Unrepresented Person
“In dealing on behalf of a client with a person who is not represented by counsel,
a lawyer shall not state or imply that the lawyer is disinterested…The lawyer
shall not give legal advice to an unrepresented person, other than the advice
to secure counsel, if the lawyer knows or reasonably should know that the
interests of such person are or have a reasonable possibility of being in
conflict with the interests of the client”
When witness becomes upset or worried, temptation to say:
“I’m just giving you this warning as a formality”
“I’m just asking you these questions to learn the facts”
Or answering the question “do I need my own lawyer?”
30
The In-House Privilege in the Context
of “At Issue” Waivers relating to
External Investigations & Corporate
Litigation
31
General Rule: Rule 502 of the
Federal Rules of Evidence
Disclosures made in a federal proceeding or to a federal office or
agency—Disclosure waives the attorney-client privilege and
extends to an undisclosed communication or information is a
federal or state proceeding if: (1) the waiver is intentional; (2)
the disclosed and undisclosed communications concern the same
subject matter; and (3) “they ought in fairness to be considered
together”.
(rule also addresses effect if inadvertent disclosure, disclosures made in state court proceedings, the ability of a
court to rule that a waiver does not extend to other proceedings, the effect of parties’ agreement as to the effect
of a disclosure and the interaction of this rule with other federal and state court rules)
» ((
32
Case Study: B of A’s Proxy Statement
re: Merrill Lynch Acquisition • Regarding investigations conducted by the SEC and the NY Attorney General’s office
concerning possible misleading statements in B of A’s proxy statement which solicited approval for the acquisition of Merrill Lynch, B of A claimed that the statements were not misleading and that the bank’s lawyers determined what to disclose, but was not willing to waive the A/C privilege so that the lawyers’ involvement could be investigated.
• B of A claimed that it had not put the subject matter of legal advice “at issue” because it had not asserted reliance of legal advice as a justification for any inadequate or wrongful disclosures; but rather, that the disclosures complied with all applicable laws.
• B of A claimed that a regulator cannot create a basis for waiver of the A/C privilege by compelling answers to questions that might provoke answers concerning privileged communications. The holder of the privilege alone must affirmatively place the advice he received from his attorney “at issue” in the case.
• B of A’s ultimate agreement to waive the privilege and settle with the SEC did not resolve the question as to the NY AG’s investigation, which is ongoing.
See Securities and Exchange Commission v. Bank of America Corp., 653 F.Supp.2d 507, 508 (S.D.N.Y. 2009)
33
Question:
If B of A had not chosen to waive the privilege, would both
investigations have been thwarted due to lack of evidence
regarding reliance on legal advice?
Case Study: B of A’s Proxy Statement
re: Merrill Lynch Acquisition
34
The In-House Privilege in the Context of
Board Presentations
35
Case Study:
Maxim Option Back-Dating Case
• Facts: A special committee formed by Maxim’s board of directors shared the report of its outside counsel’s special investigation with the full board, which included individual board members who were under investigation for alleged wrongdoing,
• Trial Court Decision
– Maxim waived any claim to privilege regarding communications with outside counsel because board members who were individual defendants were present at the meeting that the relationship between the individual defendant board members and the special committee was “adversarial in nature,” and that the privilege did not therefore survive.
– The board presentations waived privilege not merely as to the report itself, but to all communications relating to the subject matter of the investigation.
Ryan v. Gifford, Civ. Action No. 2213-CC (Del. Ch. Nov. 30, 2007) [unpublished opinion].
36
Case Study:
Maxim Option Back-Dating Case
• Subsequent Denial of Interlocutory Review “[T]he relevant factual circumstances here include the receipt of purportedly
privileged information by the director defendants in their individual capacities from the Special Committee. The decision would not apply to a situation (unlike that presented in this case) in which board members are found to be acting in their fiduciary capacity, where their personal lawyers are not present, and where the board members do not use the privileged information to exculpate themselves. Similarly, the decision would not affect the privileges of a Special Litigation Committee formed under Zapata, or any other kind of committee that (unlike the Special Committee here) has the power to take actions without approval of other board members.”
Ryan v. Gifford, 2008 WL 43699 (Del. Ch. 2008).
37
The In-House Privilege in the Context of
Asset Acquisitions
38
Who Owns the Attorney/Client
Privilege After an Asset Acquisition?
• The answer apparently varies by jurisdiction
• New York:
– The seller retains the privilege as to communications with its counsel
concerning the transaction and as to assets/liabilities not included in the
sale.
– The buyer acquires the privilege as to pre-closing issues pertaining to
post-closing operations
See Tekni-Plex, Inc. v. Meyner & Landis, 674 N.E.2d 663 (N.Y. 1996);
Postorivo v. AG Paintball Holdings, Inc., Del. Ch., C.A. No. 2991, VC Parsons (2/7/08) (applying New York law)
39
Who Owns the Attorney/Client
Privilege After an Asset Acquisition?
• Illinois:
– The buyer generally acquires the privilege as a whole,
including assets/liabilities not included in the sale
See American Int’l Specialty Lines Ins. Co. v. NWI-I, Inc., 240 F.R.D. 401 (N.D. Ill 2007)
40
The Impact of Business Globalization
on the In-House Privilege
41
Question:
Are communications between U.S. in-house
lawyers and their foreign affiliates protected by the
privilege?
Answer:
It depends on the
country and the
communication.
42
Akzo Nobel Case:
No Privilege for In-House Counsel
Communications
On September 14, 2010, the European Union’s highest court, the European
Court of Justice, issued its final opinion excluding communications between
in-house counsel and the entity’s employees from the protection of the EU’s
counterpart to the attorney-client privilege (“the legal professional privilege”).
Akzo Nobel Chemicals, Ltd. v.
European Commission
(Case C-550/07 P) [2010]
43
From Akzo Nobel Opinion:
“An in-house lawyer, despite his enrolment with a Bar or Law Society and the professional obligations to which he is, as a result, subject, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his client. Consequently, an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client.”
Also cited as a basis for the decision: The court’s concern over the fact that in-house counsel are “dual-purpose” lawyers
in that they perform functions in addition to legal representation of the company.
44
Akzo Nobel Case:
Possible Implications
• Although in the context of an EU investigation into alleged anti-
competitive activities and to document production only, the
language of the opinion seems to indicate application by the ECJ to
a broader context.
• Communications with in-house counsel in the United States that
would be clearly privileged must be scrutinized in any company
operating in the EU or routinely conducting business there.
Note: The Association of Corporate Counsel (“ACC”) intervened in the case and filed an
amicus brief.
45
Akzo Nobel Case:
Possible Implications
Questions: – If part of an EU investigation (or perhaps any EU proceeding), will the
origin of the communication determine whether a communication is privileged? Or the location of the proceeding?
– May information seized by an EU investigation containing attorney-client communications be shared with its U.S. counterparts?
– Does information contained in digital form exist anywhere it can be accessed by computer?
– If a U.S. court determines that an entity had no expectation that the communication would be privileged because of its significant business in the EU, will that conceivably affect a domestic privilege determination?
– If a U.S. court is asked to determine whether such communications are privileged that would otherwise not be privileged in the EU, what would be the outcome?
46
Other Countries
• Privilege Applies to In-House Counsel: Brazil , Mexico
• Privilege Applies to In-House Counsel under certain circumstances:
– Where advice also given by Outside Counsel: Norway, Portugal, Spain,
The Netherlands
– For legal advice, but not commingled with management or compliance
issues: UK, Germany, Australia
• Privilege Not Extended to In-House Counsel: Austria, Finland, France
(except communications with outside counsel), Italy, Luxembourg, Sweden
• No Concept of Privilege Recognized: China (in-house counsel not treated
differently)
47
Suggested Best Practices
• Make strategic decisions regarding which types of documents to protect
• Reconsider dual titles and perhaps dual functions, where possible
• Make a practice of specifically referencing the “request for legal advice” or of the “legal advice” being provided
• Address communications to counsel rather than using “cc”
• Label documents to be protected as “Attorney-Client Privileged” and “Confidential”
• In addition to in-house counsel themselves, non-lawyers who interact with in-house lawyers must be educated on privilege parameters
48
Suggested Best Practices (cont.)
• Separate factual recitations and business considerations from actual legal advice as
much as possible, i.e. “here is what the law is” or “here is my legal advice”
• Create a new e-mail rather than hitting the “Reply” option as an initial e-mail may
affect whether the Reply is privileged. See Vioxx Products Liability Litigation, 501
F.Supp.2d 789 (E.D. La. 2007)
• Understand whether data/communications are being stored on a server in the
European Union or other jurisdiction where privilege may not be recognized
• Create appropriate Upjohn/Corporate Miranda warning documents for investigation
interviews
• Consider the information to be disclosed at board meetings and attendees
• Where absolutely critical to protect privilege, involve outside counsel
49
In-House Counsel and Attorney-Client Privilege:
Recent Developments and Common Applications
Ken McKay Litigation Partner
Locke Lord LLP
600 Travis, Suite 2800
Houston, Texas 77002
(713) 226-1127
In-House Counsel and the Attorney-Client Privilege: Protecting Confidential Information in Business
Communications, Depositions and Litigation
___________________________
Program Materials Prepared by:
Michael Hayes
Partner, Litigation Department and
E-Discovery Group Co-Chair
Montgomery, McCracken, Walker & Rhoads, LLP
123 South Broad Street
Philadelphia, PA 19109
(215) 772-7211
Tuesday, July 31, 2012
51
Facts Versus Privileged Communications
The attorney-client privilege offers protection against the forced disclosure
of confidential communications between client and lawyer.
The privilege does not, however, extend to protect against disclosure of the
facts discussed in otherwise confidential attorney-client communications.
52
Facts Versus Privileged Communications (cont’d)
A fact is one thing and a communication concerning that fact is an entirely different thing. The client cannot be compelled to answer the question, ‘What did you say or write to the attorney?’ but may not refuse to disclose any relevant fact within his knowledge merely because he incorporated a statement of such fact into his communication with the attorney.
Upjohn v. United States, 449 U.S. 383, 395-96 (1981).
Facts are discoverable, the legal conclusions regarding those facts are not. A litigant cannot shield from discovery the knowledge it possessed by claiming it has been communicated to a lawyer; nor can a litigant refuse to disclose facts simply because the information came from a lawyer.
Rhone-Poulenc Rorer, Inc. v. Home Indem. Co., 32 F.3d 851, 864 (3d Cir. 1994).
53
Documents and the Privilege
Documents which would not be privileged if they remained in the client’s hands do not acquire protection merely because they are transferred to a lawyer.
See United States v. Robinson, 121 F.3d 971, 975 (5th Cir. 1997); Gould, Inc. v. Mitsui Min. & Smelting Co., Ltd., 825 F.2d 676, 679-80 (2d Cir. 1987); see also Zelaya v. UNICO Service Co., 682 F. Supp. 2d 28 (D.D.C. 2010).
Nor does the mere fact that a document acknowledges the existence of an attorney-client communication imbue the document with privilege protection.
See Burton v. R.J. Reynolds Tobacco Co., 177 F.R.D. 491 (D. Kan. 1997) (ordering production of redacted document concerning scientific studies conducted for defendant relating that a draft work statement was submitted to in-house counsel for legal input).
However, documents need not be authored by or addressed to an attorney in order to obtain attorney-client privileged status.
See SEPTA v. Caremark PCS Health, L.P., 254 F.R.D. 253, 258 (E.D. Pa. 2008) (“[T]he privilege may also extend to certain documents, that while not involving employees assisting counsel, still reflect confidential communications between client and counsel . . . .”).
54
Documents and the Privilege (cont’d)
Employees can share privileged communications in order to relay information requested by counsel or to properly inform the corporation of legal advice without waiving the privilege.
See Smithkline Beecham Corp. v. Apotex Corp., 232 F.R.D. 467, 477 (E.D. Pa. 2005).
Drafts of the client’s confidential communications with counsel are protected.
See WebXchange v. Dell, Inc., 264 F.R.D. 123 (D. Del. 2010) (client’s notes memorializing privileged communications with counsel protected by the privilege); see also Laethem Equip. Co. v. Deere & Co., 261 F.R.D. 127, 142 (E.D. Mich. 2009) (“drafts of a [confidential] communication to an attorney are privileged.”); Adamowicz v. I.R.S., 672 F. Supp. 2d 454 (S.D.N.Y. 2009).
Drafts of documents (including contracts) prepared by counsel or circulated to counsel for comment on legal issues may be privileged to the extent that they contain information not included in the final version.
See Muller v. Walt Disney Prods., 871 F. Supp. 678, 682 (S.D.N.Y. 1994) (“Preliminary drafts of contracts are generally protected by attorney/client privilege, since they may reflect not only client confidences, but also legal advice and opinions of attorneys.”).
55
What About Facts Compiled, Analyzed and Reported Internally at the
Request of Counsel?
Internally-generated corporate reports and analyses may be protected from disclosure depending on the nature of the documents and the circumstances surrounding their creation.
See Holt v. KMI-Continental, Inc., 95 F.3d 123 (2d Cir. 1996) (internal report reviewing employer’s potential exposure for Equal Pay Act violations was protected by the attorney-client privilege as it sought legal advice in connection with employment discrimination action).
Factual information contained in internal reports commissioned by in-house counsel generally are not protected by the privilege (but may constitute work product depending on the primary motivation for their creation).
See Smith v. Texaco, Inc., 186 F.R.D. 354, 357 (E.D. Tex. 1999) (rejecting claim of privilege in connection with data drawn from employee records an internal report commissioned by in-house counsel subject to discovery).
However, interpretive material and analyses contained in such reports may constitute confidential communications from client to counsel and therefore fall within the privilege.
See id. (finding “interpretive material comprised of tables, lists, statistical analyses, and graphical representations” contained in report commissioned by in-house counsel were covered by the attorney-client privilege).
56
Confidentiality and the Privilege in the Corporate Context
In order for the attorney-client privilege to apply, the parties to the communications at issue must have intended and in fact kept them confidential.
See Pritchard v. County of Erie, 473 F.3d 413, 418-19 (2d Cir. 2007).
Communications involving in-house counsel acting primarily in a business role, rather than a legal one, are not entitled to privilege protection.
Marking an email, letter, memorandum or draft “Confidential” and/or “Attorney-Client Privileged” does not guarantee applicability of the privilege, but is a factor courts consider when making privilege determinations. Careless overuse of these labels should, however, be carefully avoided.
In federal court, attorney-client communications in the corporate context remain confidential so long as they are only disseminated to individuals/employees who “need to know” about them.
See WebXchange Inc. v. Dell Inc., 264 F.R.D. 123, 126 (D. Del. 2010); Southeast Pa. Transp. Auth. v. CaremarkPCS Health, L.P., 254 F.R.D. 253, 260 (E.D. Pa. 2008); Williams v. Sprint/United Mgmt. Co., 238 F.R.D. 633, 641 (D. Kan. 2006); In re Grand Jury Subpoenas, 561 F. Supp. 1247, 1258-59 (E.D.N.Y. 1982).
57
Consider Confidentiality Concerns
In order to properly identify and assess potentially privileged communications, you must consider whether your legal advice was sought and provided in confidence:
Have the participants in / audience to your privileged communications been appropriately limited to those who “need to know?”
Has the confidential nature of your privileged communications been respected and maintained?
Have you established and maintained clear distinctions between your confidential communications as in-house counsel versus communications involving your business role(s)?
Does your company have any policies or procedures concerning how confidential legal advice is to be requested, provided, and disseminated? Have they been consistently followed?
58
Ensure Confidentiality to Protect the Privilege
Maintaining confidentiality in your attorney-client communications is essential to establish privilege and avoid waiver.
At a deposition, the smart deposing lawyer . . . will not merely ask the in-house counsel to repeat communications made to him by upper management and hope that she momentarily forgets the privilege and answers the question. Rather, the lawyer will attempt, through rigorous questioning, to lay a foundation for the argument that the communications are not actually privileged or, alternatively, that the privilege has been waived. For example, the lawyer will ask the in-house lawyer to name all recipients of the subject communication to see if any third parties received the information which, if so, would constitute a waiver of the privilege. Or, the lawyer will question the in-house attorney about all the measures taken to ensure that the communication remained confidential and not subject to disclosure, again hoping to later argue that a waiver has occurred. The equally smart in-house lawyer, therefore, will take the necessary steps - long before receiving a deposition subpoena - to ensure that the privilege is not only established at the time of the communication, but also maintained thereafter.
Todd Presnell, Depositions of In-House Counsel – Protecting the Attorney-Client Privilege;
In-House Def. Q. 50 (Winter 2007) (emphasis added).
59
Waiver of the Attorney-Client Privilege In Federal Proceedings
Federal Rule of Evidence 501 governs choice of law issues involving the attorney client privilege.
Diversity cases: state law applies
Federal question cases: federal law applies
Federal Rule of Evidence 502(f) applies federal law of waiver to all federal proceedings.
60
Inadvertent Disclosure, Waiver and Federal Rule of Evidence 502
F.R.E. 502 reflects an attempt to reduce the substantial costs and significant risks associated with discovery (including e-discovery).
The Rule also addresses concerns that the inadvertent production of privileged documents in discovery could result in broad subject matter waiver.
FRE 502 Allows for subject matter waiver only where the disclosure is “intentional” and where disclosed and undisclosed communications should “in fairness” be considered together. See F.R.E. 502(a).
61
Inadvertent Disclosure, Waiver and F.R.E. 502 (continued)
FRE 502 prevents any waiver where the producing party made reasonable efforts both to protect against and rectify the inadvertent disclosure of privileged communications.
The Rule does not address or supplant other common law principles of waiver (such as coerced and implied waivers).
Limits application to “disclosure” not “use”.
62
F.R.E. 502 Prevents Finding of Subject Matter Waiver Based on
Inadvertent Disclosure
(a) Disclosure made in a federal proceeding or to a federal office or agency; scope of a waiver. – When the disclosure is made in a federal proceeding or to a federal office or agency and waives the attorney-client privilege or work product protection, the waiver extends to an undisclosed communication or information in a federal or state proceeding only if:
(1) the waiver is intentional;
(2) the disclosed and undisclosed communications or information concern the same subject matter; and
(3) they ought in fairness to be considered together.
63
F.R.E. Rule 502(a) Explanatory Note
Subdivision (a). The rule provides that a voluntary disclosure in a federal proceeding or to a federal office or agency, if a waiver, generally results in a waiver only of the communication or information disclosed; a subject matter waiver (of either privilege or work product) is reserved for those unusual situations in which fairness requires a further disclosure of related, protected information, in order to prevent a selective and misleading presentation of evidence to the disadvantage of the adversary. Thus, subject matter waiver is limited to situations in which a party intentionally puts protected information into the litigation in a selective, misleading and unfair manner. It follows that an inadvertent disclosure of protected information can never result in a subject matter waiver.
64
F.R.E. Rule 502(a): Intentional Waiver
“A party must intend to waive the privilege or protection in order for there to be a waiver of undisclosed information pursuant to Rule 502(a).” Bear Republic Brewing Co. v. Central City Brewing Co., 275 F.R.D. 43, 47 (D. Mass. 2011).
But see U.S. Airline Pilots Assoc. v. Pension Benefit Guar. Corp., 274 F.R.D. 28, 31 (D.D.C. 2011) (“Deliberate disclosure constitutes an intentional waiver, at least absent credible evidence that the disclosing party was unaware of the contents of the disclosed material.”).
See also Seyler v. T-Systems N. Am. Inc., 771 F. Supp. 2d 284 (S.D.N.Y. 2011) (finding disclosure of privileged e-mails between plaintiff and sister not intentional when counsel did not know that sister was attorney).
65
F.R.E. Rule 502(a): Fairness
Carpenter v. Churchville Greene Homeowner’s Assoc., 2011 WL 4711961 (W.D.N.Y. 2011) (no subject matter waiver under 502(a) where disclosed testimony was not “selective or misleading,” thus precluding disclosure of subsequent e-mail).
Bear Republic Brewing Co. v. Central City Brewing Co., 275 F.R.D. 43 (D. Mass. 2011) (intentional waiver of material collected by investigator required disclosure of “circumstances involved with respect to this material.”).
Seyler v. T-Systems N. Am. Inc., 771 F. Supp. 2d 284 (S.D.N.Y. 2011) (finding no subject matter waiver where party disclaimed future use of document).
66
F.R.E. Rule 502(b): Inadvertent Disclosure
(b) Inadvertent Disclosure - When made in a Federal proceeding or to a
Federal office or agency, the disclosure does not operate as a waiver in a
Federal or State proceeding if:
(1) the disclosure is inadvertent;
(2) the holder of the privilege or protection took reasonable steps to
prevent disclosure; and
(3) the holder promptly took reasonable steps to rectify the error,
including (if applicable) following Federal Rule of Civil Procedure
26(b)(5)(B).
67
F.R.E. Rule 502(b): Inadvertent Disclosure (cont’d)
Test for determining whether disclosure was “inadvertent” is whether “the party intended to produce a privileged document or whether the production was a mistake.”
See Sidney I. v. Focused Retail Prop. I, LLC, 274 F.R.D. 212, 216 (N.D. Ill. 2011); Amobi v. District of Columbia Dep’t of Corr., 262 F.R.D. 45 (D.D.C. 2009).
“Disclosure is unintentional even if a document is deliberately produced, where the producing party fails to recognize its privileged nature at the time of production.”
Valentin v. Bank of New York Mellon Corp., 2011 WL 1466122 at *2 (S.D.N.Y. 2011); see also Datel Holdings Ltd. v. Microsoft Corp., 2011 WL 866993 (N.D. Cal. 2011) (computer glitch truncated documents precluding reviewing lawyers from recognizing privileged nature of e-mails)
68
F.R.E. Rule 502(b): Reasonable Efforts to Prevent and Rectify
Pacific Coast Steel v. Leany, 2011 WL 4704217 (D. Nev. 2011) (production of 3 privileged e-mails out of 2.3 million pages produced where party used software to search material, conducted multiple reviews, objected to documents at deposition and filed motion within three weeks of deposition);
Datel Holdings, Ltd v. Microsoft Corp., 2011 WL 866993 (N.D. Cal. 2011) (“robust measures” involving contract lawyers, quality control team, and privilege team had detailed instructions on how to review material, with court noting that “perfection” not the standard)
Sheet Metal Workers’ Nat’l Pension Fund v. Palladium Equity Ptnrs., LLC, 722 F. Supp. 2d 845 (E.D. Mich. 2010) (party submitted statistics of document review and production and notified adversary following business day after discovering inadvertent disclosure)
69
F.R.E. Rule 502(b): Not Reasonable
Thorncreek Apts. III, LLC v. Village of Park Forrest, 2011 WL 3489828 (N.D.
Ill. 2011) (mere assertion that attorney spent “countless hours” on review, failure to investigate database pre-production, and review process that identified no privilege documents not reasonable to prevent disclosure; access to database with privileged material for nine months and failure to create privilege log not reasonable to rectify error).
Martin v. State Farm Mut. Auto. Ins. Co., 2011 WL 1297819 (S.D.W.V. 2011) (failure to describe process of reviewing documents and failure to object when document used at deposition constitutes waiver under Rule 502(b) but not subject matter waiver under 502(a) because not intentional).
Mt. Hawley Ins. Co. v. Felman Prods., Inc., 271 F.R.D. 125 (S.D.W.V. 2010) (counsel failed to test reliability of keyword searches resulting in a large number of disclosed privileged documents and delayed measures to rectify disclosure).
70
F.R.E. Rule 502(d) & (e)
(d) Controlling Effect of a Court Order- A Federal court may order that the
privilege or protection is not waived by disclosure connected with the
litigation pending before the court--in which event the disclosure is also not
a waiver in any other Federal or State proceeding.
(e) Controlling Effect of a Party Agreement – An agreement on the effect of
disclosure in a Federal proceeding is binding only on the parties to the
agreement, unless it is incorporated into a court order.
71
Protective Effect of F.R.E. Rule 502(d) Orders
Rule 502(d) Order preventing subject matter waiver:
SEC v. Bank of America, No. 09 Civ. 6829(JSR), 2009 WL 3297493 (S.D.N.Y. 2009) (granting stipulated protective order that permitted disclosure and waiver of privilege as to certain documents without effecting a broader subject matter waiver pursuant to Rule 502(a)).
Rule 502(d) Order preventing any waiver:
Whitaker Chalk Swindle & Sawyer, L.L.P. v. Dart Oil & Gas Corp., 2009 U.S. Dist. LEXIS 15901 (N.D. Tex. 2009) (ordering production of privileged documents pursuant to Rule 502(d) so as to preserve privilege and protection in dispute between law firm and former client).
Rule 502(d) Order preventing waiver even without pre-production review:
Radian Asset Assurance, Inc. v. College of the Christian Bros. of New Mexico, 2010 WL 4928866 (D.N.M. 2010) (issuing 502(d) order preserving privilege as to contents of backup tapes and hard drives produced without review).
72
F.R.E. Rule 502(d) and Selective Waiver: Statement of
Congressional Intent
[T]his subdivision does not provide a basis for a court to enable parties to agree to a selective waiver of the privilege, such as to a federal agency conducting an investigation, while preserving the privilege as against other parties seeking the information. . . . While the benefits of a court order under this subdivision would be equally available in government enforcement actions as in private actions, acquiescence by the disclosing party in use by the federal agency of information disclosed pursuant to such an order would still be treated as under current law for purposes of determining whether the acquiescence in use of the information, as opposed to its mere disclosure, effects a waiver of the privilege. The same applies to acquiescence in use by another private party.
154 Cong. Rec. H7818-19 (Sept. 8, 2008)
73
The Selective Waiver Doctrine
Designed to allow disclosure of privileged communications to the
government only, while maintaining the privilege as to all others.
Introduced by Eighth Circuit in Diversified Indus., Inc. v. Meredith, 572 F.2d
596 (8th Cir. 1977) (en banc)
Producing internal report to SEC “in separate and nonpublic” investigation was
“limited waiver”
Court determined “to hold otherwise may have the effect of thwarting the
developing procedure of corporations to employ independent outside counsel to
investigate and advise them in order to protect stockholders, potential
stockholders and customers.”
74
Selective Waiver: Other Jurisdictions Have Not Followed
D.C.: Permain Corp. v. United States, 665 F.2d 1214 (D.C. Cir. 1981).
1st Cir.: United States v. Massachusetts Inst. of Tech., 129 F.3d 681 (1st Cir. 1997).
2d Cir.: In re Steinhardt Ptnrs., L.P., 9 F.3d 230 (2d Cir. 1993).
3d Cir.: Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414 (3d Cir. 1991).
4th Cir.: In re Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988).
6th Cir.: In re Columbia/HCA Corp. Billing Practices Litig., 293 F.3d 289 (6th Cir. 2002).
9th Cir: In re Pacific Pictures Corp., ___ F.3d ___, 2012 WL 1293534 (9th Cir. April 17, 2012).
10th Cir.: In re Quest Comm. Int’l, Inc., 450 F.3d 1179 (10th Cir. 2006).
75
In-House Counsel and the Attorney-Client Privilege: Protecting Confidential Information in Business
Communications, Depositions and Litigation
___________________________
Program Materials Prepared by:
Michael Hayes
Partner, Litigation Department and
E-Discovery Group Co-Chair
Montgomery, McCracken, Walker & Rhoads, LLP
123 South Broad Street
Philadelphia, PA 19109
(215) 772-7211
Tuesday, July 31, 2012
76
The Attorney-Client
Privilege in the
Corporate Setting
Brian Martin
General Counsel
KLA-Tencor, Corp.
78
Knowledge Gap
The best evidence of this knowledge gap is recent case law where courts have been forced to remind us of the following fundamental points:
Conversations are not privileged simply because a lawyer is in the meetings.
E-mails are not privileged because a lawyer is copied on the e-mail.
Communications are not privileged when a lawyer serves as a conduit for the communication.
79
Who is the Client?
Two principal tests have been used to determine whether corporate communications fell within the attorney-client privilege: (1) Control group test and (2) Subject matter test.
80
The Control Group Test
A corporate employee communicating with the company's lawyer has to be a member of management with authority to take part in decisions on the matter in question for the privilege to apply. In re Grand Jury Investigation, 599 F.2d 1224, 1235 (3rd Cir. 1979).
81
The control group test essentially requires that the employee with whom an attorney communicates be a member of senior management for the communication to be privileged.
Management is the “client.”
The control group test has been severely criticized because: it has a chilling effect on corporate communications;
it frustrates the very purpose of the privilege by discouraging subordinate employees from communicating important information to corporate counsel;
it makes it difficult for corporate counsel to properly advise their clients and to ensure their clients' compliance with the law; and
it yields unpredictable results.
The Control Group Test
82
The Subject Matter Test
The privilege extends to communications made by any corporate employee so long as the communication is both made at the direction of his superiors and relates to the performance of the employee's duties. Diversified Indus., v. Meredith, 572 F.2d 596 (8th Cir. 1978).
83
The Upjohn case
Facts Independent auditor uncovered potentially illegal
payments by foreign subsidiaries to foreign gov't officials to secure government business.
General Counsel retains outside counsel and confers with chairman. Initiates investigation by sending questionnaires to management and requesting "full information" concerning any such payments.
Managers were instructed to treat the process as highly confidential.
84
The Upjohn case
Upjohn Facts continued The GC and outside counsel interviewed 33
employees.
The company disclosed the questionable payments on the company's Form 8-K and a copy of the Form was submitted to the IRS who began investigations regarding the potential tax implications of the payments.
The IRS sought the production of the questionnaires and the GC's files. Upjohn declined production based upon the attorney-client privilege. The IRS instituted an action seeking enforcement of the IRS summons.
85
Upjohn
Control group test rejected by Supreme Court Lower level employees can embroil the corporation in
serous legal difficulties and thus will have relevant information needed by corporate counsel if he/she is to perform his/her mission of counseling the corporation regarding these issues.
Privilege protects employee communications and thereby enables the attorney to counsel the corporation.
86
Upjohn
The Supreme Court's holding:
Sound legal advice serves the public interest and full disclosure from the client insures that the lawyer is fully informed.
87
The Upjohn Factors
The Supreme Court set down five factors to guide courts in determining the validity of attorney-client privilege claims for communications between legal counsel and lower-echelon corporate employees: 1. The information is necessary to supply the basis for
legal advice to the corporation or was ordered to be communicated by superior officers;
2. The information was not available from "control group" management;
88
The Upjohn Factors
(continued)
3. The communications concerned matters within the scope of the employees' duties;
4. The employees were aware that they were being questioned in order for the corporation to secure legal advice; and
5. The communications were considered confidential when made and kept confidential.
89
The Upjohn Factors
(continued)
When each of these elements is met, a lower-echelon employee is considered a client under the attorney-client privilege, and the employee's communications with corporate counsel are privileged. Bruce v. Christian, 113 F.R.D. 554, 560 (S.D.N.Y. 1986) (privilege extends to employee communications on matters within the scope of their employment and when the employee is being questioned in confidence in order for an employer to obtain legal advice).
90
Clarify the Relationship
Some courts place the burden on the corporate counsel to clarify the nature of the relationship with the employee. In those jurisdictions, if a lawyer fails to clarify that she is solely representing the organization, then the employee can assert the privilege if the employee reasonably believed that the lawyer represented the employee. United States v. Hart, No. Crim. A. 92-219, 1992 WL 348425 (E.D. La. Nov. 16, 1992) (employees reasonably believed that corporate counsel was representing them individually and therefore could invoke privilege).
Confidential
Communications
92
"Confidential Communications"
To remain privileged a communication must be made in confidence and kept confidential. The test is (1) whether the communicator, at the time the communication was made, intended for the information to remain secret from non-privileged persons, and (2) whether the parties involved maintained the secrecy of the communication. See Haines v. Liggett Group, Inc., 975 F.2d 81 (3d Cir. 1992) (privilege protects verbal and written communications conveyed in confidence for purpose of legal advice).
93
Confidential Communications
For organizational clients, the courts have permitted "need-to-know" agents to have access to privileged documents without destroying confidentiality and relinquishing the privilege. See Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854, 863 (D.C. Cir. 1980); Diversified Indus., Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977).
94
Confidential Communications
The group of "need-to-know" agents is comprised of employees of the organization who reasonably need to know of the communication in order to act in the interest of the corporation. Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854, 863 (D.C. Cir. 1980) (applying a "need-to-know" test to find that indiscriminate circulation of a memorandum constituted disclosure).
95
Confidential Communications
Exxon and the "Broome Letter"
In-house counsel rendered legal opinion on whether Exxon was required to make royalty payments to the state of Alabama. Memo was circulated to senior management
Counsel was not involved with mgmt. decision
State sues and lower court orders production of Broome Letter. Content and circulation list
Result: $87m direct damages; $3.42b punitive damages
96
Confidential Communications
Exxon and the "Broome Letter" (continued)
Alabama Supreme Court reverses
Content: non-confidential facts contained in letter but predominant purpose was a legal opinion letter.
Circulation: lawyer testified why each person needed to review the memo and "no mere spectators or 'fyi' recipients."
Legal Advice
98
"Legal Advice"
For the privilege to apply, the communication must be made for the purpose of securing legal advice or assistance. See In re Six Grand Jury Witnesses, 979 F.2d 939 (2d Cir. 1992) (privilege protects communications made in confidence to lawyer to obtain legal counsel).
99
"Legal Advice"
Business Advice is excluded
A communication is not privileged simply because it is made by or to a person who happens to be an attorney.
When the attorney-client privilege is invoked with regard to communications with in-house counsel, the court will look particularly closely at whether the counsel was providing business advice, rather than legal advice.
100
Mixed Advice
Cases of Mixed Purpose: For the privilege to apply in such cases, the communication between client and lawyer must be primarily for the purpose of providing legal assistance and not for another purpose. As long as the client's purpose was to gain some advantage from the lawyer's legal skills and training, the services will be considered legal in nature, despite the fact the client may also get other benefits such as business advice or friendship. United States v. Bornstein, 977 F.2d 112 (4th Cir. 1992).
101
Mixed Advice
But see: Kramer v. Raymond Corp., No. 90-5026, 1992 U.S. Dist. LEXIS 7418 at *3-4 (E.D. Pa. May 29, 1992). ( "The attorney-client privilege is construed narrowly. This is especially so when a corporate entity seeks to invoke the privilege to protect communications to in-house counsel. Because in-house counsel may play a dual role of legal advisor and business advisor, the privilege will apply only if the communication in question was made for the express purpose of securing legal not business advice." ).
102
Preventative Measures
Require written request for legal advice on any sensitive measures
Keep privileged communications confidential
Counsel should direct investigations
Use of “Upjohn letters”
Where experts are used to assist counsel, there must be a contemporaneous record of the privileged nature of the engagement
In-house counsel should obtain information from the most senior source available
103
Preventative Measures
Assertion of privilege must be particularized
Resist indiscriminate use of privilege label
Use legal titles in correspondence
Assume non-lawyers neither understand nor respect the privilege
Documents setting forth legal advice should relate only to legal subjects
Control distribution
Develop procedures to protect confidentiality
104
5 Strategies for Managing the
Privilege 1. Call your team to action.
Too many in-house lawyers are unacceptably operating under their law-school-vintage understanding of the privilege.
Ask one of your team members to take responsibility for refreshing the group on the law. One of your law firms would be happy to take responsibility
for this training. Create a “privileged or not” game Jenner and Block publishes a handy compendium of cases
relating to the privilege. www.jenner.com/news/news_item.asp?id=000013872224 .
105
5 Strategies for Managing the
Privilege
2. Educate your business teams
Watch your language; use of the term “client”
One approach to educating the business teams is to publish a brief white paper explaining the privilege to non-lawyers. http://www.calstate.edu/gc/Docs/AttorneyClientPrivilege.pdf
106
5 Strategies for Managing the
Privilege
3. Develop and implement a standard internal investigation process.
The effectiveness of an internal investigation is dependent upon the actions and decisions made in the first 48 hours.
107
5 Strategies for Managing the
Privilege
4. Internalize the lessons of Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854 (D.C Cir. 1980) and Exxon v. Department of Conservation and Natural Resources 859 So. 2d 1096, 1100 (Ala. 2002).
108
5 Strategies for Managing the
Privilege
5. Give Courts a break!