or ris on & F oe rs te r LL P | A ll R ig ht s R es er ve d | m of o. co m
The Attorney-Client Privilege:
What Every In-House
Lawyer Should Know
Ninth Annual GC Roundtable and All Day MCLE January 13, 2012
Presented By James Huston and Erin Bosman, Morrison & Foerster LLP and Richard Maroun, General Counsel, APP Pharmaceuticals, Inc.
Historic Privilege
The oldest of the privileges involving confidential communications
Allows a client to refuse to testify or to have his or her counsel testify about confidential communications made in connection with the
rendering of legal representation
Encourages full and frank communication between attorneys and their clients
Recognizes that sound legal advice depends upon a lawyer being fully informed by the client
However, the privilege comes with a cost; it excludes relevant evidence and stands in derogation of the search for the truth.
Consequently it is not applied indiscriminately
(e.g. the crime fraud exception)
Securing Privilege Leads to Truth
Confidentiality encourages candid communications
Fosters the best understanding and analysis
Best understanding leads to the most effective advice and counsel
Encouraging Legal Compliance
Corporations face innumerable legal issues on a daily basis
Seeking legal advice is a way to conform business policy to the law
The Balancing Act
Full disclosure v. Confidentiality
Liberal discovery v. Privilege
This tension runs through the doctrines of privilege and work
product, and it becomes particularly complex when the client is a corporation
“Confidential” v. “Privileged”
A client tells an attorney about his plastic surgery while representing him in potential criminal charges – not
privileged.
It is confidential.
This is Dillinger after his surgery:
Separate and apart from the privilege rules that affect discovery, attorneys, law firms, and their employees have an ethical duty to maintain the secrecy of a client’s
Elements of the Attorney-Client Privilege
The holder of the privilege:
Is a client or client’s agent, or
Sought to become a client
The communication was between the client or the client’s agent and an attorney or the attorney’s agent
The communication was made confidentially
The communication was made for the purpose of securing legal advice
What Law Applies?
Federal Court
Federal Rule of Evidence 501
Privilege questions shall be governed by common law as interpreted by federal courts in light of reason and experience
However, in civil actions in which state law applies, privilege shall be governed by state law
State Court
Courts have adopted various approaches to corporate attorney-client privilege
Former test: The Control Group:
Criticized for lacking predictability and for failing to reflect the realities of corporate practice
The Supreme Court agreed and rejected this approach in Upjohn Co. v. United States
Declined to use the case to clarify the corporate attorney-client privilege
Unlimited Approach
The Unlimited Approach:
Asserted holder of the privilege is or sought to become a client
Person to whom the communication was made
Is a member of the bar of a court, or his subordinate and
In connection with this communication is acting as a lawyer
Communication relates to a fact of which the attorney was informed
By his client
Without the presence of strangers
For the purpose of securing either an opinion on law, legal services, or assistance in some legal proceeding
Subject Matter Test
The Subject-Matter Test:
Allows a privilege to apply to
corporate communications if:
An employee “makes the communication at the
direction of his superior,” and
The subject matter of the communication “is in the
performance by the employee of the duties of his
employment” (equally divided Supreme Court affirmed
without opinion)
Modified Subject Matter Test
Modified Subject-Matter Test: Five requirements:
1. The communication was made for the purpose of securing legal advice
2. The employee making the communication did so at the direction of his or her corporate superior
3. The superior made the request so that the corporation could secure legal advice
4. The subject matter of the communication is within the scope of the employee's corporate duties
5. The communication is not disseminated beyond those persons who, because of the corporate structure, need to know its contents (8th Circuit case—cited many times by Upjohn)
Hypothetical 1
Pharmaceutical company is being
investigated for off-label promotion of its drug.
As in-house counsel for the company, you decide it would be helpful to interview the marketing personnel responsible for the product.
You call Mary Contrary, a marketing
representative. When she expresses caution about discussing the incident, you tell her, “Don’t worry, this is a privileged conversation. You can tell me anything.”
She tells you that she had a sweetheart deal with a physician. Not only did she provide company-sponsored vacations in exchange for his promise to prescribe the drug for off-label purposes, but she accompanied him on these trips as his companion in violation of company policy. She says she doesn’t want to lose her job over this.
Who is the “client”?
Corporate counsel represent the corporation, and would be unable to represent an employee with whom the corporation has a conflict
BUT, privilege can be asserted by someone who sought to become a client
Overbroad statement from corporate counsel gave Mary Contrary a reasonable basis to believe counsel might be available to her
Duty of Counsel to Corporate Client
Corporate counsel represents the corporation
Corporate counsel should consider advising the employee that counsel does NOT represent the employee
If corporate counsel is conducting an inquiry into possible illegal activity involving the employee, such advice is a strongly preferred “best practice.”
Hypothetical 2
In-house lawyer is a member of a team assigned to evaluate alternatives for relocation of a business unit
Memo prepared by a non-lawyer member of the team and circulated to all team
members sets forth an interpretation of a landlord’s offer to the company
Company accepts offer
In subsequent litigation between company and landlord, may the memo copied to the lawyer be discovered?
Communication Regarding Legal Advice
In-house counsel often perform multiple roles, covering both legal and business functions
Establishing privilege requires showing that communication was made by in-house counsel acting in legal capacity
“Where the communication is with in-house counsel for a corporation,
particularly where that counsel also serves a business function, the corporation must clearly demonstrate that the advice to be protected was given in a
‘professional legal capacity.’” Avianca, Inc. v. Corriea, 705 F.Supp. 666, 676 (D.D.C. 1989)
“Many courts fear that businesses will immunize internal communications from discovery by placing legal counsel in strategic corporate positions and funneling documents through counsel. As a results, courts require a clear showing that the attorney was acting in his professional legal capacity before cloaking
documents in the privilege’s protection.” In re: Vioxx Prods. Liab. Litig., 501 F. Supp. 2d 789, 797 (E.D. La. 2007).
Was the Lawyer Acting as a Lawyer?
Pure fact gathering (e.g., for purposes of determining where to locate a new warehouse) will not be deemed a legal activity and privilege will not apply
However, if the fact gathering is intertwined with legal analysis (e.g., for purposes of determining whether terminated employee has a discrimination claim), then the activity is legal and privilege will apply
Request for Legal Advice
The communication has to be made in connection with a request for legal advice
However, the request does NOT have to be explicit
“The privilege attaches to a document even if the document does not contain, or is not accompanied by, a written request for legal advice, if the proponent of the privilege sustains its burden of proof to show that the document was prepared with the intention of securing legal advice on its contents.”
Virginia Elec. & Power Co. v. Westmoreland-LG&E Partners, 526 S.E.2d 750, 755
“Mixed” Communications
Often the communication contains BOTH legal and non-legal advice
If the communication is predominantly concerned with legal requirements or opportunities, privilege will apply
Timing matters – a report circulated amongst business people and later given to a lawyer may be deemed a business (non-legal)
communication
The entire mixed communication may be privileged if the non-legal communications were integral to the legal advice
Sealy Mattress Co. of New Jersey, Inc. v. Sealy, Inc., 1987 WL 12500, at *3 (Del.
Practical Tip
Clearly identify when you are communicating in your role as attorney
Repeatedly remind non-lawyer fact gatherers to mention in their written work product that work was done at the request of counsel
Mark documents as privileged when you think the privilege applies
Will save time and avoid errors later in potential document review in litigation
Privilege Disputes
Discovery is already an expensive process; privilege disputes exacerbate the expense
Vioxx privilege dispute initially involved 30,000 documents, amounting to 500,000 pages
After the trial court ruled most of them non-privileged, Merck petitioned for a writ of mandamus
Fifth Circuit declined to issue a writ but suggested that the court review 2,000 “representative documents”
Special master and special counsel incurred over $400,000 in fees and expenses in reviewing 2,500 representative documents over the course of three months
Who Holds The Power Of Waiver?
Client (company) holds all the power
Client will waive the privilege in most states if it sues its counsel for malpractice
Defendant lawyer can use privileged communications to explain/defend conduct
What if outside counsel wants to explain/defend conduct to court (no malpractice suit involved)?
Outside counsel cannot break privilege without client’s consent, even when faced with sanctions. Qualcomm, Inc. v. Broadcom Corp., 2008 WL 66932
Qualcomm failed to produce relevant documents
Outside counsel subject to sanctions and investigation by state bar
Qualcomm wasn’t suing outside counsel for malpractice, refused to waive privilege
Outside counsel thus precluded from using privileged information to explain/defend their conduct
Hypothetical 3
Your company has three non-lawyer members in the legal department based in Switzerland
During litigation, opposing counsel serves discovery seeking communications between one of the Swiss non-lawyers and an executive
Your litigation counsel objects on the grounds of privilege
Opposing counsel argues that the communications were with non-lawyers, so no privilege attaches
International Privilege Issues
Are communications between international legal
departments and their U.S. counterparts privileged?
American view?
European view?
Japanese view?
General Rules for Int’l Privilege
Any communications related to matters solely involving a foreign country will be governed by applicable foreign privilege law
Non-U.S. companies are entitled to protection when involved in U.S. disputes:
Any communications “touching base” with the U.S. will be governed by federal discovery rules. Tulip Computers Int’l B.V. v. Dell Computers
Corp., 210 F.R.D. 100 (D. Del. 2002)
Even if foreign law would not afford privilege protection, U.S. courts may still protect non-U.S. party on public policy grounds. Astra Aktiebolag v. Andryx
Attorney-Client Privilege for Non-U.S. In-House
Legal Personnel: Broad View
Test for attorney-client privilege “is a functional one of whether the individual is competent to render legal advice and is permitted by law to do so”
“French in-house counsel certainly meet this test; like their American counterparts, they have legal training and are employed to give legal advice to corporate officials on matters of legal significance to the corporation”
Renfield Corp. v. E. Remy Martin & Co., 98 F.R.D. 442
Attorney-Client Privilege for Non-U.S. In-House
Legal Personnel: Narrow View
Rejects “functional equivalence” rationale of Remy Martin
Minolta employee “has never been licensed to practice law in any country and has never been registered as a patent agent in Japan or the United States”
Employee “has a Bachelor’s of Science degree and, over the years, has
attended various seminars, lectures and classes concerning legal and patent issues. The court finds this is insufficient factual support for the finding that [the employee] is a de facto attorney.”
Honeywell, Inc. v. Minolta Camera Co., Ltd., 1990 U.S.
European View
Internal communications with in-house counsel are not privileged, even when in-house counsel is admitted to the bar of an EU State
Akzo Nobel Chemicals Ltd. v. Commission, Case C-550/07 P, 2010
E.C.R. 791 (September 14, 2010)
Akzo: Ruling by the European Court of Justice, the EU’s highest court, in a
competition case
Issue is counsel’s “independence”:
The Court considers that an in-house lawyer, despite his enrollment with a Bar or Law Society and the fact that he is subject to the professional ethical obligations, 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.
European View (cont’d)
Akzo’s argument:
In-house counsel should be considered independent because he was a member of the Dutch bar and subject to same rules/discipline as any external lawyer
ECJ’s response:
In-house counsel have stronger economic dependence on employer and closer personal identification with company and corporate strategy, which means less independence than external lawyer
“Predominant Trend”:
ECJ noted that its holding was consistent with legal systems in the 27 EU Member States
ECJ left door open for future change if and when “a predominant trend towards protection under legal professional privilege of communication within a company or group with in-house lawyers [is] discerned in the legal systems of the 27 MS of the EU”
Japanese View
Communications between a corporation and bengoshi (lawyers) and/or benrishi (patent agents) are privileged under current
Japanese law. See Minsoho [Code of Civil Procedure] arts. 197(2), 220(4).
Japanese corporation’s use of non-bengoshi in-house “lawyers”:
No privilege applicable to non-bengoshi in-house lawyers under current Japanese law. Japanese corporations needs to look to alternative arguments to protect confidential communications with non-bengoshi, non-benrishi in-house lawyers.
Brazilian View
Statutory provision protects the communication between attorney and client, including in-house lawyers (Federal Law no. 8.906/94)
Also enunciated in the Brazilian Bar Association Code of Ethics and Discipline:
Relationship is protected by professional secrecy, which can only be violated in cases of: (1) severe threat to life or honor; (2) when attorney is insulted by client; and (3) in self defense
Privilege also applies to Agentes da Propriedade Industrial (Patent Agents)
Hypothetical 4
Your company has three patent attorneys on its staff
During litigation over one of your company’s patents, opposing counsel serves discovery seeking communications between the in-house patent attorneys and the company’s product manager
Your litigation counsel objects on the grounds of privilege
Opposing counsel cites three cases holding that patent attorneys are technical, business people (not legal), so no privilege attaches
Patent Counsel
Older cases held that in-house patent lawyers were corporate employees whose primary work was business; thus, no attorney-client privilege would attach
Recent cases, however, hold that patent counsel are acting as lawyers in their patent work
“Thus, the fact that a communication between a lawyer and his or her client relates to patent prosecution and contains technical information does not make it ineligible for protection by the attorney-client privilege.” Softview Computer Prods. Corp. v.
Haworth, Inc., 2000 WL 351411, at *3, (S.D.N.Y. 2000); see also In re Ampicillin Antitrust Litig., 81 F.R.D. 377 (D.D.C. 1978)
International Patent Counsel
Communications between U.S. lawyers and non-U.S. patent agents:
If foreign patent agent is merely a conduit between U.S. lawyer and foreign patent office, privilege will probably not apply
If communication is between client and foreign patent agent and is just “funneled” though attorney, privilege unlikely to apply absent an independent ground for privilege
If foreign patent agent is working for attorney or is engaged in the lawyering process, then privilege might apply
Disclosure to Governmental Authorities
Troublesome cases arise, often in context of disclosures to the SEC or DOJ
Voluntary or pursuant to subpoena
2008 change in DOJ policy
Majority of courts hold that such disclosures constitute a waiver of privilege as to disclosure and “details underlying” disclosed material
Selective waiver provision not included in FRE 502
Little room for optimism about the possibility of cooperating with the government while maintaining privilege protections
Avoiding Complete Waiver After Disclosure to
Governmental Authorities
There are some isolated cases, however, suggesting that waiver canbe avoided by means of a privilege reservation agreement with the government
Inadvertent Production
“Clawback” agreements and “no waiver” agreements
Newly amended FRCP requires return,
destruction, or sequestering of a document that the producing party advises is privileged, but produced inadvertently. FRCP 26(b)(5).
Ethical rules may require immediate notification by receiving party to disclosing party, and return or destruction
Insurance Carrier Issues
Are communications between your outside counsel and your insurance carriers privileged?
Depends! States differ:
California: Yes, company/outside counsel/insurance carrier are in a tripartite relationship and privilege attaches
New York: Not necessarily. “Attorney-created documents in a claims file created by or for an insurance company as part of its ordinary course of business are not afforded work-product protection.” AIU Ins. v. TIG Ins., 2008 U.S. Dist. LEXIS 66370 (S.D.N.Y. Aug. 28, 2008)
Texas: Yes, privilege intact because insurer is a “representative of the client.” In re Fontenot, 13 S.W.3d 111 (Tex. App. 2000)
Caution! If your insurance carrier requests status reports from outside counsel, know the rules before forwarding privileged information.
Worst-case scenario: not only do you lose privilege on whatever is forwarded to insurance carrier, but this constitutes a waiver of privilege that opens up the floodgates to discoverable information
Joint Defense Privilege
Not an independent privilege – all elements of attorney-client privilege must be met
Permits counsel and parties facing the same legal claims to share privileged information without destroying privilege
Threatened or actual litigation or criminal proceedings can give rise to the privilege. This privilege can exist even if the litigation or
When is the Joint Defense Privilege Useful?
Complex litigation where multiple defendants are jointly and severallyliable for damages (such as an antitrust action)
Industry-wide litigation on the same claims
Regulatory actions where a company and its directors and officers are defendants
Maximizing Privilege Protections
Clearly establish that an attorney-client relationship exists, and when that relationship started
Label all documents that relate to communications with counsel as “Confidential Attorney-Client Privilege”
Maintain the confidentiality of the communications; do not distribute copies or reveal communications outside the company
Maximizing Privilege Protections
(International)
If working with foreign legal dep’t, make sure foreign agents are aware of the existence of the privilege and their confidentiality obligations under U.S. law
Where the company’s foreign legal dep’t has responsibility for
communications with U.S. attorneys, make clear that attorney-client relationship exists directly between U.S. attorneys and the company
If potential U.S. dispute, involve U.S. counsel early
Seek to maximize features of “functional equivalence” for foreign legal dep’t members:
Provide foreign legal dep’t members with legal training in their home country
Questions?
James W. HustonJHuston@mofo.com
Erin M. Bosman EBosman@mofo.com