Hot Topics and Recent Decisions on the Applica3on of the A5orney-­‐
client Privilege and the Work-­‐
product Doctrine in the Corporate Arena Mary Blatch Mark Hopson Stephen Marzen Agenda •
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Privilege Basics Internal Inves3ga3ons Waiver of Privilege and Excep3ons Interna3onal Privilege Rules Privilege Basics Basic Elements of Privilege •  Although federal and state laws have minor differences, generally privilege requires proof of the five C’s: –  A Communica3on –  of Confiden3al informa3on –  between a Client –  and Counsel –  for the purpose of seeking or providing legal Counsel 4 Basic Elements of Privilege •  Privilege runs both ways: –  protects client’s provision of informa3on to lawyer for the purpose of obtaining legal advice and –  lawyer’s rendering of legal advice to client 5 Ethics Rules – MR 1.6 •  ABA Rule 1.6: Confiden3ality of Informa3on –  Generally, prohibits disclosure without informed consent –  Broader than the privilege; applies to all informa3on rela3ng to a client –  Permissive disclosure in limited situa3ons, e.g., to prevent substan3al bodily harm or financial injury to others 6 Ethics Rules – MR 1.13 •  ABA Rule 1.13: Organiza3on as Client –  Organiza3on not management or shareholders is the client –  Up the ladder repor3ng obliga3on for legal viola3ons likely to substan3ally injure the corpora3on before permissive disclosure –  “A lawyer represen3ng an organiza3on may also represent any of its directors, officers, employees, members, shareholders or other cons3tuents subject to the [conflict of law] provisions of Rule 1.7” –  To avoid the conflict and disqualifica3on issues, in-­‐house a5orneys who perform legal services for individual directors or officers should insist on wri5en waiver agreements 7 Which Lawyers Are En3tled to the Privilege? •  For privilege to a5ach, a5orneys must be “authorized” to prac3ce law. Gucci America, Inc. v. Guess?, Inc., 2011 WL 9375 (S.D.N.Y. Jan. 3, 2011) •  Authoriza3on generally requires the that lawyer be a licensed member of the bar. See Anwar v. Fairfield Greenwich Ltd., 982 F.Supp.2d 260 (S.D.N.Y. 2013) 8 Privilege in the Corporate Context •  U.S. Supreme Court held in Upjohn v. U.S., 449 U.S. 383 (1981), that privilege applies to corpora3ons and to in-­‐house as well as outside counsel •  The purpose of the privilege “is to encourage full and frank communica3on between a5orneys and their clients” (Upjohn, 449 U.S. at 389) •  Applying privilege in the corporate area enables corpora3ons to obtain more effec3ve legal assistance and to comply with the law 9 Who is the Client? •  Upjohn rejected the “control group” theory, which limited privilege to communica3ons by high-­‐level corporate managers and a5orneys •  Control group test “frustrates the very purpose of the privilege” by discouraging the communica3on of relevant informa3on by employees necessary for a5orneys to render effec3ve legal advice to the corpora3on (Upjohn, 449 U.S. at 392) •  Upjohn adopted a func3onal approach that examines whether the communica3ons were made –  by employees with informa3on necessary for the corpora3on to secure legal advice; or –  to employees who had a “need to know” the legal advice 10 Who Is the Client? •  Privilege applies so long as “the communica3on [was] not disseminated beyond those persons who, because of the corporate structure, need to know its contents” (Diversified Indus. Inc. v. Meredith, 572 F.
2d 596, 609 (8th Cir. 1977)) •  Waiver may occur if the communica3on is disclosed to employees who are not in a posi3on to act or rely on the legal advice contained in the communica3on 11 Power To Assert/Waive the Privilege •  Resides in the corpora3on’s management (Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 348 (1985)) •  “[W]hen control of a corpora3on passes to new management, the authority to assert and waive the corpora3on’s a5orney-­‐
client privilege passes as well”(id. at 349) •  “New managers installed as a result of a takeover, merger, loss of confidence of shareholders, or simply normal succession may waive the a5orney-­‐client privilege with respect to communica3ons made by former officers and directors” (id.) 12 Internal Inves3ga3ons Upjohn Co. v. U.S. 449 U.S. 383 (1981) •  Privilege applies to communica3ons between company a5orneys and company employees if: –  they concern conduct within the scope of employee’s corporate du3es and –  employee was aware ques3oning was to obtain informa3on in order to provide legal advice 14 Upjohn Co. v. U.S. •  In an internal inves3ga3on, communica3ons conducted for a “legal purpose” are protected by the a5orney-­‐client privilege –  Protects communica3ons; not underlying facts •  A5orney-­‐client privilege is applicable outside of li3ga3on context, especially where the purpose is promo3ng compliance with the law •  Recognizes tension between “legal advice/purpose” vs. “business advice/purpose” 15 Standard Inves3ga3on Protocol Conduc3ng Interviews: •  Give and document Upjohn warnings •  Purpose of interview is to obtain informa3on in order to provide legal advice to the company –  Counsel represents the company and not the employee –  Interview is protected by the a5orney-­‐client privilege –  Privilege belongs to the company and not the employee –  Company may choose to disclose informa3on obtained during interview to third par3es, including the government 16 Standard Inves3ga3on Protocol Inves3ga3on Findings and Report: •  Deliver in wri3ng? •  Wri5en report or bullet points? •  What is the target audience? But: also consider conduc3ng a non-­‐privileged inves3ga3on and report •  Appropriate for discrete issues •  Where disclosure is certain and facts understood •  Avoids waiver arguments •  Maintains privilege on related communica3ons 17 In re Kellogg Brown & Root [KBR] Inc. 37 F. Supp. 3d 1 (D.D.C. Mar. 6, 2014) •  FCA Relator served discovery requests for documents created as part of a rou3ne Code of Business Conduct internal compliance inves3ga3on required under DOD regula3ons •  District Court ruled documents not privileged unless KBR proved that “the communica3on would not have been made ‘but for’ the fact that legal advice was sought” •  District court held that did not meet the “but for” standard because internal inves3ga3on was “undertaken pursuant to regulatory law and corporate policy” and not primarily to obtain legal advice 18 In re Kellogg Brown & Root [KBR] Inc. 756 F.3d 754 (D.C. Cir. 2014) •  D.C. Circuit rejected “but for” standard •  Legal advice need not be the primary purpose •  Correct standard: “Was obtaining or providing legal advice a primary purpose of the communica3on—meaning one of the significant purposes of the communica3on?” •  “Helping a corpora3on comply with a statute or regula3on—
although required by law—does not transform quintessen3ally legal advice into business advice” 19 In re Kellogg Brown & Root [KBR] Inc. 756 F.3d 754 (D.C. Cir. 2014) •  Fact that inves3ga3on conducted by in-­‐house counsel “without consulta3on with outside lawyers” “does not dilute the privilege” •  Fact that interviews conducted by non-­‐a5orneys not disposi3ve (“communica3ons made by and to non-­‐a5orneys serving as agents of a5orneys in internal inves3ga3ons are rou3nely protected”) •  Fact that KBR employees were not “expressly informed that the purpose of the interview was to assist the company in obtaining legal advice” is not disposi3ve (no “magic words”) 20 In re General Motors LLC IgniLon Switch LiLgaLon, 14-­‐MD-­‐2543 (JMF) (S.D.N.Y. Jan. 15, 2015) •  GM retained outside counsel to conduct an internal inves3ga3on into igni3on switch defect –  Notes made of interviews were not transcribed –  Report submi5ed to Congress, DOJ and other agencies –  Plain3ffs sought discovery of underlying interview notes •  District court followed KBR: “So long as obtaining or providing legal advice was one of the significant purposes of the internal inves3ga3on, the a5orney-­‐client privilege applies, even if there were also other purposes for the inves3ga3on” 21 Paterno v. NCAA/Penn State •  Plain3ffs seeking documents from outside counsel’s inves3ga3on into Sandusky scandal •  State trial court held that engagement le5er did not reference “securing either an opinion of law, legal services or assistance in a legal ma5er” •  Also held that disclosure to NCAA and Big Ten caused subject ma5er waiver of any privilege that did exist •  On appeal, ACC filed amicus brief asking Superior Court of Pennsylvania to reverse ruling –  Argues that holding discourages universi3es, corpora3ons, and non-­‐profits from conduc3ng inves3ga3ons into alleged misconduct 22 Prac3ce Pointers •  The burden is on the party claiming privilege •  Best prac3ce is to expressly state when an inves3ga3on or communica3on is for the purpose of seeking legal advice •  Don’t label all documents “Privileged and Confiden3al” •  Don’t assume labeling as “Privileged and Confiden3al” is disposi3ve •  Don’t assume that including in-­‐house counsel (“cc”) on a communica3on will establish privilege •  Limit distribu3on. Watch out for “Reply All” 23 Prac3ce Pointers •  When prac3cal, segregate business from legal advice in separate documents or separate sec3ons of documents •  Document that internal inves3ga3ons are conducted under direc3on of legal counsel •  Follow inves3ga3on protocol of documen3ng Upjohn warnings •  Decide format and content of deliverables before inves3ga3on begins (e.g., do we really need to prepare interview memoranda?) 24 Choice of Law Rules for Privilege •  In federal cases, analysis starts with Federal Rule of Evidence 501 –  Generally, federal common law governs privilege –  In civil cases, state law governs privilege for claims under state law •  Court applies its state choice of law rules to determine what state’s substan3ve privilege law governs 25 Know What Law Applies •  KBR’s “one of the significant purposes” test is not applied uniformly in all jurisdic3ons –  Jurisdic3ons disagree about standard for determining whether communica3ons are for the “primary purpose” of seeking legal advice –  Jurisdic3ons construe privilege narrowly and require that legal advice be the sole purpose of the communica3on or the primary purpose 26 Waiver Based on Disclosure to Government Agencies Voluntary Disclosure •  Voluntary disclosure may have benefits in criminal and civil cases –  Federal Sentencing Guidelines –  SEC –  An3trust immunity/leniency •  Avoiding interven3on in qui tam li3ga3on •  Voluntary disclosure also may be beneficial in maintaining regulatory rela3onships, minimizing ancillary li3ga3on and cost, and protec3ng reputa3on 28 Voluntary Disclosure •  Benefits are difficult to quan3fy and oten do not lead to a posi3ve outcome •  May require extensive (and expensive) development and analysis of evidence that government might not be able to duplicate •  Oten requires difficult disciplinary decisions including termina3on •  May require waiver of the aOorney-­‐client privilege 29 Yates Memo to Federal Prosecutors •  September 9, 2015: DOJ issued memo to federal prosecutors na3onwide with new policies priori3zing prosecu3on of individual employees—not just companies—and puung pressure on companies to turn over evidence against employees •  Calls for inves3gators to focus on individuals from the incep3on of a case, rather than wai3ng un3l the case against the corpora3on is resolved •  Ra3onale that prosecu3ng employees who perpetrated a crime within a company will deter future illegal ac3vity, give incen3ve to make changes in corporate behavior, and ensure proper par3es are held responsible 30 DOJ “Ground Rules” for Coopera3on •
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DOJ Criminal Division pursuing culpable individuals; company may be liable as well DOJ will strongly consider its ability to prosecute individuals Company should share informa3on about all individuals involved, regardless of their posi3ons in company’s management Company should share informa3on about termina3on or other employment ac3on with DOJ before it occurs, especially where a non-­‐ci3zen is involved or conduct occurred abroad Company should iden3fy hot documents to DOJ before interviewing individuals so DOJ can consider approaching individuals before company counsel does Company should no3fy DOJ before sharing documents with individuals who are represented by their own legal counsel, so that DOJ will not be surprised by individuals who have already reviewed and discussed the documents with counsel 31 Waiver Agreements •  Elements of a waiver agreement: –  Scope – Detailed subject ma5er of waiver and par3cular type of work product and communica3ons waived –  Limita3ons – Specify types of work product and communica3ons for which privilege is not waived (e.g., interview memos) –  Use – Specify use of privileged informa3on, including sharing with other government agencies 32 No Selec3ve Waiver •  “Selec3ve Waiver” permi5ed in Diversified Industries, Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977) –  Voluntary disclosure of privileged material to an agency does not waive privilege as to private li3gants •  Not followed in other courts See In re Steinhardt, 9 F.3d 230 (2d Cir. 1993) –  Steinhardt provided Wells submission to SEC which included privileged communica3ons marked “FOIA CONFIDENTIAL TREATMENT REQUESTED” –  Civil plain3ffs brought mo3on to compel produc3on of Wells submission –  Order compelling Wells submission affirmed. Privilege is waived by voluntary submission to SEC in connec3on with inves3ga3on 33 DOJ Waiver Rules •  Filip Memorandum 2008 –  Issued in response to concerns that DOJ “used the threat of criminal indictment and prosecu3on . . . to coerce corpora3ons to waive privilege or work product protec3on against their will” –  “Coopera3on will be measured by the extent to which a corpora3on discloses relevant facts and evidence, not its waiver of privileges” –  Policy prohibits federal prosecutors from demanding privilege waivers 34 SEC Waiver Rules •  2001 Seaboard Report –  Characterizes “complete coopera3on” including fact that company “did not invoke the a5orney-­‐client privilege, work product protec3on or other privileges or protec3ons with respect to any facts uncovered in the inves3ga3on” •  2013 Enforcement Manual –  “Voluntary disclosure of informa3on need not include a waiver of privilege to be an effec3ve form of coopera3on and a party’s decision to assert a legi3mate claim of privilege will not nega3vely affect their claim to credit for coopera3on” –  However, a privilege waiver may be “a means (where necessary) to provide relevant and some3mes cri3cal informa3on to the staff” 35 Supervisory Audit Waiver Rules •  CFPB 2012 Bulle3n:“[B]ecause en33es must comply with the Bureau’s supervisory requests for informa3on, the provision of privileged informa3on to the Bureau would not be considered voluntary and would thus not waive any privilege that a5ached to such informa3on” •  12 U.S.C. § 1828(x): Submission of privileged materials to bank regulators in context of supervisory audit does not waive privilege •  Sec3on 1828(x) does not apply in enforcement context •  CFPB rule (12 CFR Part 1070) says this policy applies to work product, but the statute does not discuss work product 36 Subject-­‐Ma5er and Selec3ve Waiver of Privilege Federal Rules of Evidence •  Fed. R. Civ. P. 502 (a): In the event of an inten3onal waiver in federal court or to a federal office or agency, the waiver extends to an undisclosed communica3on or informa3on if the communica3ons concern the same subject ma5er and if fairness so requires •  When does fairness require? “[T]o prevent a selec3ve and misleading presenta3on of evidence to the disadvantage of the adversary” •  Federal courts may issue binding orders limi3ng waiver •  Not intended to otherwise “alter” exis3ng privilege rules •  Does not change rules on “selec3ve” waiver. Advisory Commi5ee Notes 38 Applica3on of Rule 502 •  Gruss v. Zwirn, 2013 WL 3481350 (S.D.N.Y. July 10, 2013) (waiver occurred where company “deliberately, voluntarily, and selec3vely” presented privileged informa3on to SEC – despite confiden3ality agreement with SEC) •  US v. Treacy, 2009 WL 812033 (S.D.N.Y. Mar. 24, 2009) (relies on FRE 502 to uphold par3al waiver of certain interview memoranda) –  Criminal defendant obtained all interview memoranda shared with DOJ –  Undisclosed memoranda did not concern the same subject –  No evidence of selec3ve or misleading disclosure 39 In re General Motors LLC IgniLon Switch LiLgaLon, 14-­‐MD-­‐2543 (JMF) (S.D.N.Y. Jan. 15, 2015) •  GM’s agreement to make final report public and share it with Congress and various agencies did not waive privilege for underlying interview memoranda •  Counsel’s delivery of Upjohn warnings proves GM intended to maintain privilege of communica3ons in interview memos •  Holds that KBR is consistent with Second Circuit standard: legal advice was “one of the significant purposes of the internal inves3ga3on” •  Privilege is not lost because “nonlegal considera3ons” are included in a communica3on that includes legal advice 40 Paterno v. NCAA/Penn State •  Disclosure of independent report by outside counsel waived a5orney-­‐client privilege as to underlying documents •  ACC amicus brief urged Superior Court to reject that argument –  “There are oten good reasons for privilege holders to disclose the conclusions of an inves3ga3on to the government or other third par3es, e.g., to report viola3ons of the law, facilitate se5lement, and/or obtain reduced sanc3ons. If companies know that disclosure of an inves3ga3on report will automa3cally waive all materials and communica3ons rela3ng to the report, they will be less likely to release reports, thereby disserving the companies' stakeholders as well as the public” 41 At-­‐Issue Waiver of Privilege At-­‐Issue Waiver •  Privilege may be waived if a party puts the privileged communica3on at issue by relying on it to support “a claim or defense.” In re Cnty. of Erie, 546 F.3d 222, 228-­‐29 (2d Cir. 2008) •  The doctrine of “at-­‐issue” waiver recognizes that a5orney-­‐client communica3ons cannot be used as both “a sword and a shield” •  “[E]ven if a party does not a5empt to make use of a privileged communica3on, he may waive the privilege if he asserts a factual claim the truth of which can only be assessed by examina3on of a privileged communica3on.” Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 488 (S.D.N.Y. 1993) 43 ScoO v. Chipotle Mexican Grill, 2014 WL 7236907 (S.D.N.Y. Dec. 18, 2014) •  In FLSA case, magistrate judge held that Chipotle was required to produce privileged communica3ons because its affirma3ve defenses under 29 USC § 259 and § 260 put them at issue •  Sec3on 259 provides an affirma3ve defense if employer was ac3ng in good faith reliance on a regula3on, order or ruling of Labor Department •  Sec3on 260 limits liquidated damages if the viola3on was based on good faith, objec3vely reasonable grounds to believe classifica3on of employees was consistent with FLSA standards •  Chipotle did not plead reliance on advice of counsel – and, in fact, specifically disclaimed reliance on advise of counsel 44 ScoO v. Chipotle Mexican Grill, 2014 WL 7236907 (S.D.N.Y. Dec. 18, 2014) •  Court holds that defenses necessarily put “good faith” at issue and that defendant cannot “plead around” evidence of its state of mind •  Deposi3ons and discovery responses prove that Chipotle did receive advice of counsel •  Privilege waived because evidence of “legal advice” “may well demonstrate the falsity of [company’s] claims of good faith belief.” Plain3ffs are en3tled to know if defendant “ignored counsel’s advice” •  Chipotle may amend its answer to eliminate good faith defenses 45 ScoO v. Chipotle Mexican Grill, 2014 WL 7236907 (S.D.N.Y. Dec. 18, 2014) •  In effect, plain3ffs successfully forced disclosure of legal advice in order to disprove “good faith” – even though company is not relying on legal advice to prove “good faith” •  May be limited to Fair Labor Standards Act? •  But see 19 U.S.C. § 1592 (In penalty case, if Customs proves importer made false statement or omission, “the defendant must affirma3vely demonstrate that it exercised reasonable care under the circumstances”) •  U.S. Customs and Border Protec3on (“CBP”) guidance provides reasonable care may be established by consul3ng a customs expert, such as an a5orney or a customs broker or consultant 46 In re Kellogg Brown & Root [KBR] Inc. Part II (D.C. Cir. August 11, 2015) •  On remand, District Court finds waiver because –  Required under FRE 612 because in-­‐house counsel reviewed inves3ga3on report in prepara3on for deposi3on – at which privilege was claimed –  KBR waived privilege under “at issue” doctrine. KBR sought an inference that the privileged inves3ga3on uncovered no misconduct by this “chain of reasoning:” (1) an inves3ga3on of alleged misconduct was conducted, (2) any misconduct was required to be reported to DOJ and (3) no report was made to DOJ in this case 47 In re Kellogg Brown & Root [KBR] Inc. Part II (D.C. Cir. August 11, 2015) •  Held: District Court’s balancing test under 612 was inappropriate and, in any event, accorded insufficient weight to privilege •  Plain3ff no3ced the 30(b)(6) to inquire about the privileged inves3ga3on •  Counsel had “no choice” but to review privileged material to prepare •  Simply reviewing privileged communica3ons prior to tes3mony does not cons3tute using a wri3ng to refresh recollec3on under 612 48 In re Kellogg Brown & Root [KBR] Inc. Part II (D.C. Cir. August 11, 2015) •  Held: No ”at issue” waiver because KBR did not “ac3vely” seek a “posi3ve inference’ from the privileged inves3ga3on •  Statements were only in the “recita3on of facts” and not in the argument sec3on •  Statement was only in a footnote (court does not “indulge in cursory arguments made in a footnote”) •  Par3es were on summary judgment and any “inference” from statements had to have been drawn against KBR •  Cannot be reconciled with Chipotle 49 Crime-­‐Fraud Excep3on Crime-­‐Fraud Excep3on •  Applies where “there is a reasonable basis to suspect that the privilege holder was commiung or intending to commit a crime or fraud and that the a5orney-­‐client communica3ons or a5orney work product were used in furtherance of the alleged crime or fraud.” In re Grand Jury Subpoena, 705 F.3d 133, 153 (3d Cir. 2012) •  “If the a5orney merely informs the client of the criminality of a proposed ac3on [or lack thereof], the crime-­‐fraud excep3on does not apply” since that advice alone cannot be used “in furtherance” of a crime. In re Grand Jury Subpoena, 745 F.3d 681, 692-­‐93 (3d Cir. 2014) (3d Cir. 2014) (excep3on applied where client used a5orney’s advice in furtherance of the crime) 51 Co-­‐Client and Common-­‐Interest Excep3ons to Waiver Co-­‐Client Excep3on Requires Consent and No Conflict •  Counsel can serve mul3ple clients on same ma5er, consistent with rules of professional conduct, if –  all clients consent and –  no substan3al risk of the lawyer being unable to fulfill her du3es to them all Restatement (Third) of the Law Governing Lawyers §§ 128-­‐31. 53 Co-­‐Client Excep3on Avoids Waiver, but No Privilege between Co-­‐Clients •  Communica3ons between co-­‐clients and their a5orney are protected against third par3es •  No unilateral waiver (except probably for client’s own communica3ons concerning only itself) •  But communica3ons in joint representa3on are not privileged in li3ga3on between co-­‐clients In re Teleglobe CommunicaLons Corp., 493 F.3d 345, 366 (3d Cir. 2007) 54 Common-­‐Interest Excep3on Dis3nguished •  Applies where clients pursue common legal interest through separate counsel. See United States v. Schwimmer, 892 F.2d 237 (2d Cir. 1989) •  No need for “actual li3ga3on [to be] in progress for the common interest” doctrine to apply (Schwimmer at 244), but “[t]he common interest must be a legal” rather than a “commercial or financial interest” (Blanchard v. EdgeMark Fin. Corp., 192 F.R.D. 233, 237 (N.D. Ill. 2000)) 55 Common-­‐Interest Default Rules •  Protects privilege only of communica3ons in furtherance of common interest •  Confiden3ality owed to co-­‐defendants – cannot use joint defense informa3on against co-­‐defendants •  To clarify rules, and preserve op3ons to disclose and cross-­‐examine, best prac3ce is to agree on rules, oten in wri5en common legal interest or joint defense agreement (JDA) 56 Parent/Subsidiary/Affiliate Issues In re Teleglobe CommunicaLons Corp., 493 F.3d 345 (3d Cir. 2007) •  Bell Canada Enterprises a cquired Teleglobe and Teleglobe’s subsidiaries •  BCE in-­‐house counsel jointly represented BCE and Teleglobe on securi3es filings – both public companies •  BCE ceased further funding and Teleglobe and its subsidiaries filed for bankruptcy •  Teleglobe’s U.S. subsidiaries as debtors in bankruptcy sued BCE and demanded privileged communica3ons 58 Teleglobe Appellate Decision •  Joint representa3on of BCE and Teleglobe did not include the Debtors à adverse li3ga3on proviso to the co-­‐client excep3on did not apply •  Funneling documents through supposedly “conflicted” in-­‐house counsel did not deprive parent BCE of its privilege: Eureka principle •  Remand for eviden3ary hearing on Garner fiduciary excep3on to a5orney-­‐client privilege 493 F.3d at 380-­‐86 (3d Cir. 2007) 59 Eureka: Client Retains Privilege Even if Counsel Had Conflict •  A5orney jointly represented insurer and insured in li3ga3on, which insured se5led without insurer’s consent •  Both insurer and insured thought they had retained the same a5orney for bad-­‐faith refusal to consent to se5lement •  Insurer moved to compel confidences to support affirma3ve defense of non-­‐coopera3on •  Held: “[C]ounsel’s failure to avoid a conflict of interest should not deprive the client of the privilege” (Wigmore; Restatement Third) •  Policy: “openness and coopera3on between joint clients . . . does not apply to ma5ers known at the 3me of the communica3on not to be in the common interest of the a5orney’s two clients” Eureka Inv. Corp. v. Chicago Title Ins. Co., 743 F.2d 932 (D.C. Cir. 1984) (per curiam) 60 Red Flags for In-­‐House Conflicts •  Parent begins to consider exi3ng certain businesses (poten3al sale) •  Parent begins to consider dives3ng certain subsidiaries (poten3al spin off) •  Subsidiary begins to encounter substan3al opera3ng, financial, or legal problems, such that bankruptcy becomes a real possibility (poten3al insolvency) 61 Solu3ons Imprac3cal or Ineffec3ve Apparent Solu1ons Poten1al Pi5alls •  Separate in-­‐house counsel for parent and subsidiary •  In-­‐house counsel for parent and separate outside counsel for subsidiary •  Contract provisions or waivers •  Imprac3cal: Teleglobe court’s sugges3on, but ma5er segrega3on difficult with central func3on or small staff •  Imprac3cal: requires JDA with outside counsel and $ •  Likely ineffec3ve: some courts have rejected (especially in bankruptcy) 62 Risk-­‐Based Approach to Avoid In-­‐House Conflicts •  Be alert to parent considera3on of subsidiary’s poten3al sale, spin off, or insolvency •  Have subsidiary retain separate outside counsel to represent it on ma5ers in which it may become adverse to the parent •  Iden3fy and document respec3ve lawyers’ clients and the scope of their representa3ons •  Enter into common legal interest agreement 63 Teleglobe Remand: Garner Fiduciary Excep3on •  The excep3on: “where the corpora3on is in suit against its stockholders on charges of ac3ng inimically to stockholder interests, protec3on of those interests as well as those of the corpora3on 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 par3cular instance.” Garner v. Wolfinbarger, 430 F.2d 1093, 1103-­‐04 (5th Cir. 1970) •  The (good) “cause” standard: eight factor ad hoc balancing test including the seriousness of the alleged corporate wrongdoing, the need for the requested documents, and their unavailability through other means 64 Garner’s Mixed Ra3onales •  Commentators have described the fiduciary excep3on as applying to “internal warfare” or “almost clients” •  Fith Circuit relied on –  Common law trust rule: “when a trustee obtain[s] legal advice rela3ng to his administra3on of the trust, and not in an3cipa3on of adversarial legal proceedings against him, the beneficiaries of the trust ha[ve] the right to the produc3on of that advice.” Wachtel v. Health Net, Inc., 482 F.3d 225, 231 (3d Cir. 2007) –  Co-­‐client excep3on: persons who shared lawyer can’t assert privilege against each other in subsequent li3ga3on –  Crime-­‐fraud excep3on to the a5orney-­‐privilege –  Statutory rights to books and records 65 Garner Codifica3on •  Garner’s fiduciary excep3on is “codified” in § 85 of the Restatement (Third) of the Law Governing Lawyers with 10 factors •  Restatement § 85 relies on “[t]wo policy considera3ons”: –  Directors’ and officers’ duty to inform shareholders and –  Risk that, “in li3ga3on against their cons3tuents, the ques3on of waiver may not be decided objec3vely” •  Garner applied the fiduciary excep3on to a shareholder deriva3ve suit, but the “decision does not turn on whether that claim is in the case or out” (430 F.2d at 1097 n.11) •  Subsequent courts have generally but not always applied the excep3on to other claims of fiduciary malfeasance (e.g., non-­‐
deriva3ve shareholder suits, trust ac3ons, partnership disputes) 66 Wal-­‐Mart v. Indiana Elec. Workers •  Delaware Supreme Court recognizes fiduciary excep3on (Garner had been applied by Court of Chancery before) •  Stockholder sought “informa3on regarding the handling of the WalMex Inves3ga3on, whether a cover up took place, and what details were shared with the Wal-­‐Mart Board,” all of which were necessary to inves3ga3ng the alleged fiduciary breaches. •  Delaware Supreme Court ordered Wal-­‐Mart to produce privileged documents on handling of internal FCPA inves3ga3on Wal-­‐Mart Stores Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, No.614-­‐2013 2014 WL 3638848 (Del. July 23, 2014) 67 De Vries v. Diamante Del Mar •  Master in Delaware Court of Chancery emphasized three of Garner’s eight factors: –  Colorable claim (3) –  Unavailability from other sources (4) and –  Specificity of request (no “fishing expedi3on”) (7) •  In plenary ac3ons, fiduciary excep3on is “narrow, exac3ng and intended to be very difficult to sa3sfy” •  But lower standard applies in Delaware ac3on to inspect records – credible basis to infer wrongdoing De Vries v. Diamante Del Mar, L.L.C., 2015 WL 3534073 (Del. Ch. June 3, 2015) 68 Garner Applica3on: Asserted Internal Law Firm Privilege •  Garner considera3ons apply if law firm has underlying work conflict –  Counsel has fiduciary duty to corporate client, including du3es not to withhold informa3on and affirma3ve ethical duty (MRPC 1.4) to provide informa3on bearing on representa3on –  Underlying work conflict may materially limit counsel’s ability to represent corporate client •  Garner “internal warfare” ra3onale applies to law firm partner, but less well to outside counsel to law firm •  Commentators suggest a balance: no privilege for advice by lawyers on ma5er, but allow privileged communica3ons with outside counsel and perhaps dedicated in-­‐house counsel (Hazard & Hodes, The Law of Lawyering § 9.6.3 at 9-­‐29 (Supp. 2012) 69 In-­‐House Traps: Client-­‐to-­‐Client Talk Not Privileged •
•
•
“[T]he communica3on must be shared with an aOorney of the member of the community of interest . . . . [S]eparate a5orneys share informa3on (and not the clients themselves) . . . .” (Teleglobe, 493 F.
3d at 364) Communica3ons between the clients (absent a lawyer) are not privileged, which is why the lawyers should tell their clients not to discuss the ma5er among themselves.” (Professor Stephen Gillers, RegulaLon of Lawyers 285 (8th ed. 2009)) Example: client-­‐to-­‐client communica3ons held not privileged in Hoffman-­‐LaRoche, Inc. v. Roxanne Laboratories, Inc., 2011 WL 1792791 (D.N.J. May 11, 2011) Privileged •
•
•
“If informa3on that is otherwise privileged is shared between par3es that have a common legal interest, the privilege is not forfeited even though no a5orney either creates or receives that communica3on.” Gucci America, Inc. v. Gucci, 2008 WL 5251989, *1 (S.D.N.Y. 2008) “These documents contain discussions of counsels’ opinions. Being communica3ons between par3es with a community of interest, they are each privileged under the a5orney-­‐client privilege.” Heidelberg Harris, Inc. v. Mitsubishi Heavy Indus., Ltd., 1996 WL 514997, *2 (N.D. Ill. 1996) Teleglobe limita3on “largely lost in contemporary jurisprudence” (Paul R. Rice et al., A5orney-­‐Client Privilege in the United States § 4:35, at 529 (2014)) 70 In-­‐House Traps: Confidences Between Co-­‐Clients No Secrets Secrets Kept Duty of loyalty Duty/power to inform •  Restatement (Third) of the •  ABA Opinion 08-­‐450 (2008) Law Governing Lawyers § 60 (which Professor Gillers cmt. k characterizes as “a poorly •  Johnson v. Superior Court drated analysis”) (Cal. Ct. App.) •  Professor Stephen Gillers, Regula3on of Lawyers 286 (8th ed. 2009) 71 In-­‐House Traps: Unilateral Waiver Waiver No Waiver Restatement Third •  Co-­‐clients and common-­‐
interest clients can waive the privilege to their own communica3ons, absent contrary agreement •  Waiver of privilege in document containing communica3ons by more than one client requires agreement, unless the non-­‐waiving client’s communica3ons can be redacted California •  “[A] waiver of the right of a par3cular joint holder of the privilege to claim the privilege does not affect the right of another joint holder to claim the privilege” •  California Evidence Code § 912(b) 72 In-­‐House Traps: Common Interest – Iden3cal or Similar Iden1cal •
•
“A community of interest exists among different persons or separate corpora3ons where they have an iden3cal legal interest with respect to the subject ma5er of a communica3on between an a5orney and a client concerning legal advice. . . . The key considera3on is that the nature of the interest be iden3cal, not similar, and be legal, not solely commercial.” Duplan Corp. v. Deering Milliken, Inc., 397 F. Supp. 1146, 1172 (D.S.C. 1974) This . . . standard . . . coined in Duplan . . . has been widely followed.“ Paul R. Rice et al., A5orney-­‐Client Privilege in the United States § 4:36 Similar "[T]he common interest . . . may be either legal, factual, or strategic in character. The interests of the separately represented clients need not be en3rely congruent." Restatement (Third) of the Law Governing Lawyers § 76 cmt. e. 73 Interna3onal Privilege Rules/ Cross-­‐Border Privilege Issues Attorney-Client Privilege Abroad
•  Privilege in United States applies to in-house counsel
•  A few countries outside the United States do not treat
communications with counsel as privileged
•  Many countries outside the United States (especially
civil law countries) do not treat communications with
in-house counsel as privileged (e.g., in-house and
outside counsel in France are different professions)
75 Choice of Privilege Law – U.S. Courts •  Privilege law chosen based on country with which the communica3ons “touch base.” Anwar v. Fairfield Greenwich Ltd., No. 09 Civ. 118(VM)(FM), 2013 WL 3369084, at *1 (S.D.N.Y. Jul. 8, 2013), aff’d, 982 F.Supp.2d 260 (S.D.N.Y. Nov 08, 2013) •  “Touching base” analysis considers –  Where rela3onship was entered into –  Place rela3onship centered at 3me of communica3on –  Jurisdic3on where advice pertains •  U.S. privilege law typically applies to “[c]ommunica3ons rela3ng to legal proceedings in the United States, or that reflect the provision of advice regarding American law . . . even though the communica3on may involve foreign a5orneys or a foreign proceeding.” (Gucci America, Inc. v. Guess?, Inc., 271 F.R.D. 58 (S.D.N.Y. 2010)) 76 EU and BRIC Privilege Table No Legal Professional Privilege LPP only for Outside Counsel LPP for In-­‐House and Outside Counsel China Austria Bulgaria Czech Republic Finland France Greece India Italy Poland Russia Sweden Belgium Brazil Canada Denmark Germany Israel Netherlands Portugal Spain South Africa UK 77 EU: Belgium, Germany, UK
•  Belgium
–  Expressly rejects Akzo Nobel
–  But LPP protects in-house attorneys only if they are members of
the Belgian Institute for Company Lawyers
•  Germany
–  LPP applies to attorneys enrolled at the German Bar and other
EU-member states
–  But not likely foreign lawyers
•  United Kingdom
–  In-house counsel communications must meet “dominant purpose”
test
–  “Client” narrowly defined – employees and officers tasked with
obtaining legal advice from outside and in-house counsel
–  Does not extend to many classes of employees or to in-house
counsel’s communications with third parties
78 European Union
•  “Legal Professional Privilege” (LPP)
–  European equivalent to U.S. attorney-client privilege
–  Each EU member state has national and EU privilege rules
•  EU regulatory investigations under European
Commission do not treat in-house counsel as legal
professionals for purpose of LPP (Akzo Nobel) – LPP
only if
–  Communications made for purposes, and interests of,
client’s right to defense; and
–  Emanate from an independent lawyer (in-house counsel
is not independent) who is entitled to practice in EU
79 Akzo Nobel v. European Commission
(Sept. 2010)
•  Facts: EC seized documents in antitrust investigation,
including emails with in-house counsel and company
•  Held: communications with in-house counsel not privileged
•  Reasoning: in-house counsel lacks ability to exercise
professional independence because:
–  Economically dependent on client, and
–  Cannot ignore commercial strategies pursued by employer
•  Limitations:
–  Applies to EU law and action
–  EU member states are not bound by decision in framing privilege
rules in their own jurisdictions
80 Implications of Akzo Nobel
•  1. Risk for U.S.-­‐based in-­‐house counsel –  During EC inves3ga3ons, communica3ons from U.S. in-­‐house counsel are likely not privileged •  2. Risk for U.S.-­‐based outside counsel –  Outside counsel likely must qualify to prac3ce law within EU (e.g. AM&S Europe Ltd. v. Commission) –  Therefore, U.S.-­‐based outside counsel communica3ons would not be privileged •  3. Risk of inadvertent waivers of U.S. privilege –  Valid U.S. privileges can be waived if party “voluntarily” compromises confiden3ality of relevant documents –  Turnover of documents to EC could be deemed waiver 81 Denying In-­‐House Counsel LPP Disserves the Purposes of the Privilege •  Frustrates compliance by cuung in-­‐house lawyers out of sensi3ve planning discussions where they can prevent problems: “an uncertain privilege is the same as no privilege at all” (Upjohn) •  Extending LPP to in-­‐house counsel would not lose material evidence, because without LPP the communica3ons will likely not occur 82 Protec3ng LPP Cross-­‐Border •  Spot the issue –  Don’t assume similar eviden3ary and discovery rules –  Become familiar with varia3ons in scope of LPP where company does business •  Encourage in-­‐house lawyers to be licensed in jurisdic3ons in which they reside to obtain LPP on ma5ers of na3onal (not EU compe33on) law •  Communicate cri3cal advice –  Through local outside counsel (vast majority recognize LPP for outside counsel) –  Orally •  Contractually avoid li3ga3on in unfavorable forums: licensing, distributor, vendor, employment, and other contracts may provide an opportunity to prevent future privilege issues 83 In-­‐House Tips Remind Internal Clients •  E-­‐mail is for facts, not feelings •  Sending a courtesy copy to in-­‐house counsel does not make the e-­‐mail privileged, even in the United States, and certainly not outside •  For sensi3ve form documents, revise the form to collect privileged communica3ons in one sec3on and document the privileged nature of the sec3on for ready redac3on •  Limit distribu3on of legal advice to those who genuinely need to know 85 For In-­‐House Counsel •  Who is your client? Act appropriately if they are “almost clients” or not clients –  Poten3al waiver or conflict issues with “almost clients” –  Upjohn or Miranda warnings may be appropriate with non-­‐clients •  Are you providing legal or business advice? If it’s important that the legal advice remain privileged, consider saying that it’s legal advice and marking it accordingly 86 PRIVILEGE JEOPARDY! Internal Inves1ga1ons Potpourri Waiver and Excep1ons Who’s the Client 200 200 200 200 400 400 400 400 600 600 600 600 800 800 800 800 1000 1000 1000 1000 Internal Inves3ga3ons -­‐ $200 These federal rules don’t require internal inves3ga3ons per se, but have played a substan3al role in encouraging companies to undertake inves3ga3ons when appropriate. Internal Inves3ga3ons -­‐ $400 In conduc3ng an internal inves3ga3on, it may be advisable for in-­‐house counsel to consult with these individuals for assistance. Internal Inves3ga3ons -­‐ $600 The warning typically given to employees before they par3cipate in an internal inves3ga3on being conducted at the request of their employer. Internal Inves3ga3ons -­‐ $800 When members of this corporate department or division undertake an internal inves3ga3on, it should be made clear that a purpose of the inves3ga3on is to secure legal advice. Internal Inves3ga3ons -­‐ $1000 The KBR court rejected the narrow but-­‐for test for a5orney-­‐
client privilege in favor of this test. Potpourri -­‐ $200 The protec3on from disclosure given to documents prepared in an3cipa3on of li3ga3on. Potpourri -­‐ $400 This party bears the burden of establishing a par3cular communica3on is privileged. Potpourri -­‐ $600 Unlike the common law, this type of legal system oten does not recognize a5orney-­‐client privilege in the corporate context. DAILY DOUBLE Potpourri -­‐ $800 In a federal case, this law controls the applica3on of the a5orney-­‐
client privilege. Potpourri -­‐ $1000 This decision out of the European Union held that communica3ons with in-­‐house counsel are not privileged. Waiver and Excep3ons -­‐ $200 This applies when communica3ons are used in furtherance of an alleged crime or fraud. DAILY DOUBLE Waiver and Excep3ons -­‐ $400 Voluntary disclosure of a poten3al viola3on of law to federal officials may some3mes require waiver of this. Waiver and Excep3ons -­‐ $600 If you incorporate the advice of counsel as a defense, you may have to reveal that privileged advice under this legal theory. Waiver and Excep3ons -­‐ $800 This type of privilege waiver may occur when privileged communica3ons on a par3cular topic are inten3onally disclosed to third par3es. Waiver and Excep3ons -­‐ $1000 This excep3on to a5orney-­‐client privilege waiver may apply when clients with a shared legal issue work together with counsel and exchange privileged informa3on. Who’s the Client? -­‐ $200 This model rule of professional conduct states that a lawyer employed by an organiza3on represents the organiza3on ac3ng through its duly authorized cons3tuents. Who’s the Client? -­‐ $400 When an in-­‐house a5orney is advising both a parent corpora3on and its subsidiaries, this en3ty generally holds the privilege. Who’s the Client? -­‐ $600 In a corporate seung, this type of problem can arise when an in-­‐house a5orney advises both the business and an individual employee. Who’s the Client? -­‐ $800 A 2015 DOJ memo announced new policies priori3zing this in corporate inves3ga3ons and prosecu3ons. Who’s the Client? -­‐ $1000 This group of corporate fiduciaries may some3mes need legal counsel independent of the company’s in-­‐house a5orneys.