Recent Developments in Attorney Client Privilege David Conaway Jim Culbreth Josh Hayes

Recent Developments in Attorney Client Privilege

David Conaway

Jim Culbreth

Josh Hayes

The Origins of Attorney Client Privilege• J. Wigmore on the Attorney Client Privilege:

“The history of this privilege goes back to the reign of Elizabeth [1558- 1603], where the privilege already appears as unquestioned . . . . The policy of the privilege has been plainly grounded, since the latter part of the 1700s . . . . In order to promote freedom of consultation of legal advisors by clients, the apprehension of compelled disclosure by the legal advisors must be removed; and hence the law must prohibit such disclosure except on the client’s consent” 8 J. Wigmore, Evidence s. 2290.

• Ensures: “That one who seeks advice or aid from a lawyer should be completely free of any fear that his secrets will be uncovered.” United States v. Grand Jury Investigation, 401 F. Supp. 361, 369 (W.D. Pa. 1975).

Origins, Continued• Principles of Testimonial Privilege go back to the Roman Republic.

• First reported decision in England involving attorney-client privilege dates back to 1654.

• First reported decisions in America involving attorney-client privilege from 1820s.

• Operated to bar any testimony by an attorney against a client.

• Historically, these early common law cases struggled to define the scope of the privilege, balancing the need for honest and open discussion with counsel with need to reach fair outcomes between parties.

• For example, some early U.S. cases held that privilege only applied during “period in which the suit has been pending,” but “not to be extended to all subjects or conversations which a client may have with his attorney . . .” Dixon v. Parmelee, 2 Vt. 185 (1829).

Privilege and Confidentiality Distinguished

• Principles of Attorney Client Privilege and Confidentiality are often conflated and confused, even among members of the legal community.

• Both relate to information that the attorney must keep private and protect client’s ability to freely confide in his counsel.

Rule 1.6: Confidentiality of Information • (a) A lawyer shall not reveal information relating to the representation of a client unless the

client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure permitted under an exception.

• Exceptions: Disclosure permitted when lawyer reasonably believes is necessary:– To prevent death or bodily harm;– To prevent the client from committing a crime or fraud through the use of the lawyer’s

services;– To prevent, mitigate or fix injury to finances or property of another resulting from

client’s previous commission of crime or fraud;– To comply with the Rules of Professional Conduct;– To establish a claim or defense on behalf of the lawyer;– To comply with the law or a court order;– To detect and resolve conflicts of interest arising from the lawyer’s change of

employment or change in ownership of the firm;

Confidentiality – Rules of Professional Conduct• Model Rule 1.6, Cmt. [3]: The principle of client-lawyer confidentiality is given

effect by related bodies of law: the attorney-client privilege, the work product doctrine and the rule of confidentiality established in professional ethics. The attorney-client privilege and work product doctrine apply in judicial and other proceedings in which a lawyer may be called as a witness or otherwise required to produce evidence concerning a client. The rule of client-lawyer confidentiality applies in situations other than those where evidence is sought from the lawyer through compulsion of law. The confidentiality rule, for example, applies not only to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source. A lawyer may not disclose such information except as authorized or required by the Rules of Professional Conduct or other law.

Definition of Attorney Client Privilege

• Four Basic Elements:

(1) a communication;

(2) made between privileged persons;

(3) in confidence;

(4) for the purpose of seeking, obtaining or providing legal assistance to the client.

Work Product Doctrine

• Relatively recent doctrine arising out of common law decisions interpreting the formal discovery procedures contained in the Federal Rules of Civil Procedure.

• Provides that an attorney’s notes, observations, thoughts, and research are protected from the discovery process.

There Must be an Attorney Client Relationship for the Privilege to Apply:• May be express or implied.• An implied relationship may be evidenced by several

factors, including, but not limited to, the circumstances of the conversation, the payment of fees to an attorney, the degree of sophistication of the would-be client, the request for and receipt of legal advice, and the history of legal representation between the alleged client and the practitioner. While this list of factors is illustrative, none of these factors, standing alone, will affirmatively establish the existence of an attorney-client relationship.

Attorney Client Privilege does Not Protect Underlying Facts• The attorney-client privilege protects

communications made to obtain legal advice; it does not protect the information communicated.

• Merely conveying something to an attorney will not prevent the underlying facts from compelled disclosure, if they can be discovered from a non-privileged source.

Waiver of Privilege

• The client holds the privilege and thus has the authority to assert or waive it.

• Presence of a third party may operate as a waiver of the privilege.

• Privilege may be carelessly, unintentionally, or inadvertently waived.

Exceptions to Attorney-Client Privilege

• Death of a Client –

– General Rule: In re Miller, 357 N.C. 316, 584 S.E.2d 772 (2003) – Privilege survives death of client

– Exception if litigation ensues among testator-client‘s heirs or devisees.

Exceptions Continued:

• Crime Fraud Exception: if a client seeks advice to assist with furthering a crime or fraud or the post-commission concealment of the crime or fraud, communication is not privileged.


• Common Interest Exception: If two parties are represented by the same attorney in a single legal matter, they may not assert the attorney-client privilege against one another in subsequent litigation if it pertained to the subject matter of the joint litigation.


• Fiduciary Duty Exception: When corporation’s shareholders seek to pierce the corporation’s attorney-client privilege in a derivative action.

– See Garner, Wal-Mart

A/C Privilege in the Corporate Context:Upjohn and Garner• Two important cases regarding the privilege in a

corporate context:

– Upjohn Co. v. United States, 449 U.S. 383 (1981).

– Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. Ala. 1970).

Upjohn v. United States• Unanimous 9-0 decision

• Held: a company can invoke the attorney-client privilege to protect communications made between company attorneys and non-management employees

• Court ruled that the communications at issue in Upjohn were protected because (i) they were made to in-house counsel at the direction of corporate superiors, (ii) concerned matters within the scope of the employees' in-house duties, (iii) the information was not available from upper-level management; and (iv) the employees were aware that they were being questioned in order for the corporation to receive legal advice.

• Rejected the narrower “control group test,” which provided that only employees who exercised direct control over managerial decisions were eligible to have communications with in-house counsel protected.

Garner v. Wolfinbarger• Created a fiduciary duty exception to the attorney-client privilege• Held: that a corporation is not barred from asserting attorney-client

privilege merely because those demanding information enjoy the status of stockholders.

• However, where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests, protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance.

• Note: Garner doctrine does not apply to attorney work product.

Garner Factors:• The court articulated a lengthy list of factors to determine whether shareholders would be

given access, which included: – the number of shareholders; – the percentage of stock they own; – their bona fides; – the nature of their claim; – the necessity or desirability of shareholders receiving the information; – The availability of the information from other sources; – whether any alleged wrongdoing is illegal, criminal, or of doubtful legality; – whether the alleged wrongdoing relates to past or prospective actions; – whether the communication sought concerns the litigation itself; – The extent to which the information requested is identified and not just a "fishing

expedition"; and– the risk of revealing trade secrets or other information that is independently

confidential.

Recent cases add factors to considerGeneral Motors LLC Ignition Switch litigation (S.D. New York)•Ongoing litigation over the massive GM recall resulting from vehicles switching off while in operation on the highway•Multiple deaths and injuries nationally •Multi-district consolidated in NY Federal Court for discovery and motions•GM engaged the law firm of Jenner & Block to conduct an internal investigation into the defects and the delays in the automobile recall •GM disclosed the resulting report (“the Valukas Report”), agreed to disclose the documents cited in the Valukas report but refused to disclose other materials including notes and memoranda relating to the witness interviews conducted by the law firm

General Motors LLC Ignition Switch litigation (continued)

• All interviews were conducted with the disclosed intention of protecting the A/C privilege

• The Court’s Opinion and Order released January 15, 2015 contains an excellent review of the A/C privilege and the work product doctrine

• The litigation is ongoing, but on the A/C issue the Court the relied upon the Upjohn case heavily in finding that the A/C privilege extends on these facts to the witnesses’ statements gathered by counsel

• The Court noted that even though GM disclosed the facts in the Valukas Report it is not bound to disclose the communications/interviews in the report

• The Court also discussed the distinction between the information relating to providing business advice or legal advice

• In upholding GM’s motion to protect the A/C privilege regarding the witness interviews, the Court distinguished its own decision in the Allied Irish Banks litigation, in which the same Court denied the A/C privilege to an internal report prepared by a consultant

• The Court noted that the report in Allied Irish Banks did not refer to being part of a legal advice process , but instead was for stated business purposes, and the attorney was hired by the consultant for the purpose of obtaining the A/C privilege

• In the General Motors Ignition Switch litigation, the A/C privilege protection was upheld in part because the legal advice reason was clear and the report was prepared by the law firm (who could have hired a consultant)

General Motors LLC Ignition Switch litigation (continued)

Walmart Stores, Inc. vs Indiana Electrical Workers Pension Trust Fund IBEW 95 A.3d 1264 (Del. 2014)

• The litigation concerned allegations that Walmart’s Mexican subsidiary engaged in illegal bribery schemes, to the detriment of shareholders

• A key allegation was that Walmart did not adequately investigate the issue, rejected an investigation plan suggested by its outside counsel, did not pursue internal findings that there was a reasonable suspicion that multiple laws had been violated, and transferred the investigation to WalMex’s general counsel even though he was part of the investigation

• The Delaware Court relied on Garner in holding that the shareholder-plaintiffs could pierce the A/C privilege and obtain otherwise privileged documents which were necessary and essential to the shareholder’s purpose when the denied materials related to the thwarted investigation

• The decision extends the Garner holding closer to work-products

Scott v Chipotle Mexican Grille, Inc. (S.D. New York)

• Facts present a “one off” A/C privilege issue arising when the privilege is asserted after affirmative defenses inconsistent with the A/C privilege have been raised

• Chipotle initially responded to the wage-hour claims of with a “good faith” claim relying not on advice of counsel but by reference to existing administrative authority

• The Court recently temporarily denied Chipotle’s claim of A/C privilege for counsel’s documents relating the classification of employees because the employer gave up any A/C privilege by asserting that its classification was not based directly upon advice of counsel

• Peculiar facts create unexpected outcomes; inside counsel might have preserved the A/C privilege by asserting advice of outside counsel in the initial responses

Hypothetically…

• Hypothetical #1: Abbie Architect contacts Larry Lawyer by telephone. During the conversation, Abbie confides that she is in a dispute with the I.R.S. over a tax savings arrangement created for business purposes. Abbie gives Larry highly sensitive information related to her business, and then requests Larry’s legal opinion. Is this conversation between Abbie and Larry privileged?

Hypothetically…

• Hypothetical #2: Victor V.P. walks into Cathy Counsel’s office and the two of them exchange a brief conversation about the unfortunate outcome of the Panthers playoff game. Then without saying a word, he hands her a document containing sensitive business information regarding a potential acquisition and leaves. Is this document privileged?

Hypothetically…

• Hypothetical #3: At happy hour, Perry President discusses yet unannounced plan to shift his company’s marketing focus from retail consumers to business clients with some of his old business school friends Huey, Dewey, and Louie. After he gets home, Perry calls his attorney and tells him about the plan, and takes the further step of reducing the plan to writing and sends it to his attorney with a heading marked “Privileged and Confidential.” Is the document privileged?

Hypothetically…

• Hypothetical #4 : Ivan In-house is drafting a settlement proposal that has gone through several rounds of edits, with many corporate officers making changes at various points. An earlier version contained a much higher settlement demand. Ivan sends the proposal to opposing counsel, unaware that the metadata contained in the document shows each previous round of changes, including the previous higher offer. Is Ivan’s metadata privileged?

Hypothetically…

• Hypothetical #5: After meeting with his IT staff and receiving a quick primer on metadata, Ivan In-house receives the counter settlement proposal from opposing counsel. Though Ivan now knows that metadata is privileged, his firm’s software accidentally reveals opposing counsel’s notes on this latest draft contained in the document’s metadata. Does Ivan have to disclose this accident to opposing counsel?

Hypothetically…

• Hypothetical #6: Carl Counsel is corporate counsel for a company owned by 1,000 shareholders. Carl learns that about 150 of those shareholders have filed a derivative action targeting several company executives, who the shareholders claim to have engaged in wrongdoing. The lawyers filing the derivative case notified Carl that they will be seeking access to his communications with the corporation’s upper management as part of their expedited discovery. Will the shareholders successfully gain access to Carl’s communications?

Hypothetically…• Hypothetical #7: Darla Deputy Counsel is asked to advise her

company’s ERISA administrator who has just received word that an ERISA plan beneficiary has filed an action claiming improper denial of health benefits. This plaintiff seeks several types of communications between Darla and the ERISA administrator. Will plaintiff gain access to communications about:

1. The Company’s creation of the ERISA plan?

2. The reason for the ERISA administrator’s denial of the plaintiff’s health benefit claim?

3. The ERISA administrator’s concerns about his liability for having denied the plaintiff’s claims?

Practice Points for Corporate Counsel

• If business advice is sought along with legal advice, address each issue separately.

• Although in theory the privilege will be maintained if the legal aspect of the advice is the "predominant" part of the communication, it is best to eliminate any uncertainty by addressing the issues separately.

Practice Points for Corporate Counsel• Carefully weigh the pros and cons of written communication vs. oral

communication before choosing one form over the other when furnishing legal advice.

• Oral communication is usually more efficient.

• Written communication can be expressly labeled privileged and confidential

• However, with written communications,

– Do not be overly broad in defining most or all documents as privileged, the system may lose persuasive force.

– Be wary of emails, which can be forwarded or inadvertently sent to a party outside of the zone of privilege, which can be construed as a waiver.


• During meetings with counsel and employees where legal advice is sought, keep good records and minutes of the meeting. Note the intent to keep these confidential on the records.

• Note that having an attorney present does not automatically render all communications during that meeting privileged.


• Before a communication that is intended to be privileged takes place at a meeting, consider the topics that will be discussed at the meeting and whether such communication will be protected by the privilege.


• Make it company policy to periodically remind employees of their responsibility to the corporation and that privilege with legal counsel is not absolute.

• Provide written information on how to retain the privilege as an employee.

• Employees should also be told that the privilege belongs to the corporation and may be waived only by the corporation, even if to do so might expose the employees to liability.


• Corporations should hire outside counsel to conduct internal investigations.

• As added protection, the company should execute a written agreement with the law firm conducting the investigation expressly noting the confidential and legal nature of the services that the investigator will provide and, if possible, insure that outside counsel reports back to in-house counsel, not company business groups, during the course of the investigation.


• Restrict circulation of any communications with counsel only to those on a "need to know" basis, and when communicating, clearly express that the communication is intended to address legal, not business, advice.


• If a corporation is served with a grand jury subpoena or receives correspondence from the Securities and Exchange Commission (or any other investigatory arm of the government) signaling an investigation into the company's practices, hire outside counsel immediately.

• A voluntary presentation to the government, even if intended to avoid the filing of any charges, can waive the privilege.

Summary of Practices Points for Corporate Counsel:

• Maintain a distinction between legal and business issues, especially when:– Dealing with international/foreign jurisdictions– Director & Officer (D&O) Policy is implicated– Illegality is alleged

• Deliberately consider whether discussions and directives related to privilege will be delivered orally or in writing; have established record keeping policy

– Clearly mark records as privileged and confidential, attorney work product

• Routinely educate employees on nature and scope of the privilege, and warn against unintentional waiver of privilege

• For company investigations, consider:– Record keeping policies for investigative team– Who should be involved in the process, which parties are on “need to know” basis– Whether to hire outside counsel

Documents

Recent Developments in Attorney Client Privilege David Conaway Jim Culbreth Josh Hayes