New England Biz Law Update
Recent decisions have weakened the attorney-client privilege in the corporate context, and serve as a caution that the privilege is not sacrosanct.
In one case, the 5th Circuit held that the privilege could not be applied to shield a company against whistleblower claims brought by its in-house counsel despite the confidential nature of the documents sought.
In the case, in-house counsel for a company had been fired for concluding in several reports that the company was exposed to liability for violating a number of federal environmental statutes.
After he was terminated, the lawyer sued the company under the whistleblower provisions of the statutes. During discovery, the lawyer sought to compel production of his reports, along with other related documents, but the company claimed the documents were confidential and protected from disclosure by the attorney-client privilege because the lawyer had authored them in his capacity as an attorney for the company.
The 5th Circuit noted that under normal circumstances the documents would otherwise carry the privilege. But the court ruled the attorney-client privilege could not be applied to protect communications when they were material to proving a retaliatory discharge claim.
Although the case was decided in the context of an administrative judicial proceeding, the court left open the question of whether its holding would apply to jury trials and public proceedings. In the wake of Sarbanes-Oxley, which imposes internal reporting obligations on attorneys, this holding may blaze a path for successfully proving whistleblower claims.
A recent Massachusetts Bar Association (MBA) Ethics Opinion has suggested the unauthorized disclosure of corporate information that would otherwise carry the privilege may be used by an attorney to investigate and prosecute the company without violating an ethical rule.
In its opinion, the MBA stated if an employee of a company, without authorization, copies and transmits documents to a governmental agency, and those documents would normally be covered by the attorney-client privilege, a government lawyer may ethically use the material to investigate and prosecute violations of law.
Cautionary tales
Cautionary tales abound in the context of waiver of the attorney-client privilege. Among other things, waiver may be effectuated if the client informs a third party of the advice received by his attorney and describes the substance of that advice.
In one recent Massachusetts Superior Court case, Transocean Capital, Inc. v. Glenn M. Fortin, a corporate employee of a private equity firm was forced to disclose communications between himself and his private counsel after communicating his attorney’s advice to a concerned entity.
In that case, the employee, Glenn Fortin, was hired by Transocean, a private equity firm, to identify possible corporate acquisitions for Transocean’s parent company. When Fortin began shopping investment opportunities to other buyers, he questioned the legality of his actions and contacted an attorney for advice.
Fortin shared the attorney’s advice with one of the buyers in an e-mail, and disclosed the attorney’s advice that meeting with the buyer would taint his communications with Transocean’s parent company.
When Transocean sued the employee for misappropriation of a corporate opportunity, and sought to discover communications between Fortin and his private attorney, Fortin tried to claim that the communications were privileged and consequently outside the scope of discovery.
The Superior Court, however, disagreed, holding that Fortin had waived the privilege by describing the attorney’s advice to the buyer in the e-mail, thus dispelling the confidentiality of the communication.
The court also examined the breadth of the waiver, determining that everything relating to the subject matter of the disclosure was no longer protected by the attorney-client privilege.
Accordingly, the court not only allowed Transocean to depose Fortin about the subject matter of these communications, but it also allowed Transocean to depose the attorney. The court suggested as a practical matter this discovery was necessary to assess whether the e-mail accurately described the advice, and whether the advice was actually provided by counsel, information to which Transocean was clearly entitled from a relevance standpoint.
Hybrid role of in-house counsel
Other waiver issues are particularly significant in the context of communications between a company and its in-house counsel. The role of in-house counsel is generally varied, and hybridizes legal and business aspects of the attorney’s function.
Courts generally view communications made by and to corporate counsel concerning legal issues and the rendering of legal advice as protected by the privilege. However, communications concerning business matters, business strategy, or management decisions are not protected.
When business and legal advice is blended, the primary purpose of the communication will be the focus in determining whether the privilege attaches. As a practical matter, in-house counsel should attempt to clearly mark written communications as “privileged” to maximize the likelihood a court will characterize the communication as one for legal purposes, and should attempt to address legal issues in separate memoranda whenever possible.
Waiver issues may also arise in the context of e-mail chains, as communications ordinarily protected by the privilege may be forwarded to individuals who are not part of the attorney-client relationship, thus destroying the necessary confidentiality.
This problem is particularly acute when numerous individuals are copied on, or are forward recipients, of the e-mail. The chains may also complicate the critical distinction between information that is entirely factual and information that clearly communicates legal advice.
Although in some circumstances it may behoove a litigant to disclose material despite a valid claim to protection under the attorney-client privilege, it is desirable to disclose the material only after careful consideration, as a matter of strategy – rather than because disclosure is mandated as a consequence of failing to preserve the privilege.
Margaret Carleen is an associate at Hanify & King, P.C., where she concentrates her practice in complex business and commercial litigation.
