Navigating the mixed role of executive and attorney presents a range of challenges for in-house counsel – particularly with respect to attorney-client privilege. I recently discussed how in-house counsel can avoid the inadvertent waiver of privilege, best practices for assuring the maintenance of privilege, and when attorneys have a duty to disclose at Priori’s roundtable, Attorney-Client Privilege and the In-House Dilemma. Below is an overview of what we covered:
First, it’s worth noting that a lawyer’s obligation of confidentiality is not limited to attorney-client privileged information; lawyers are obligated not to disclose or use, other than for the benefit of the client, “confidential information.” While the rules vary somewhat from state to state, New York is typical in providing that, “'Confidential information' consists of information gained during or relating to the representation of a client, whatever its source, that is (a) protected by the attorney-client privilege, (b) likely to be embarrassing or detrimental to the client if disclosed, or (c) information that the client has requested be kept confidential."
When it comes to attorney-client privilege, there are at least these four basic elements.
1. Confidential Communications
In order for a communication, in any form, to be confidential, both parties to the conversation must take reasonable precautions to ensure confidentiality. That means that the manner in which the communication transpires and subsequently is preserved or stored must be reasonably secure. Examples of common office scenarios that risk such confidentiality include:
- Overbroad use of CCing on email communications: the typical corporate practice of having twelve CCs on each email means such email is not likely to be considered confidential.
- Any large meeting at which attendance is not based on counsel’s considered determination that such attendees are needed for rendering legal advice is unlikely to be held to be confidential. This would include the CEO’s staff meeting, even if people ask for legal advice during the meeting.
- Conversations in open office space or other open spaces where others can easily listen (e.g., the hallway) are not generally considered to be confidential.
- Even a small, secure meeting held in a conference room may be deemed not confidential if minutes are prepared and subsequently distributed outside the group.
- Storing documents where they are broadly accessible can also waive the privilege.
- Clients disclosing legal advice once it has been received.
Navigating these office realities can be tricky for lawyers; we don’t want to disrupt office chemistry and business practices, but the obligation to maintain confidentiality when necessary isn’t optional. Suggestions for a balanced approach here include:
- Label truly confidential written communications as privileged and confidential or as attorney work product (though avoid overbroad labeling, which can undercut the credibility of the category).
- Work with key stakeholders to establish ground rules before a matter is disclosed in a press release, covered in a press conference, or discussed on an analyst call.
- Manage privacy settings and security thoughtfully if documents must be stored on cloud-based systems.
- Assure that meetings that discuss privileged matters are held in secure settings.
2. Between an Attorney and His or Her Client
In the in-house context, one surprisingly common issue is whether the applicable in-house attorney is, in fact, licensed to practice law in the applicable jurisdiction. The consequences here are significant: the privilege may not attach to communications between the business client and that attorney. Common fact patterns giving rise to this issue include an in-house lawyer who (i) passed the bar, but never completed the other mechanics and requirements of bar admission, (ii) is admitted in good standing in State A but moved to State B and does not comply with State B’s rules, (iii) doesn’t keep up with periodic renewal fees or other obligations (e.g., CLE), (iv) went inactive and neglected to resume active status, and (v) is working as non-US counsel to companies where either the company or the lawyer didn’t follow local requirements for such attorneys.
3. Made in the Course of Legal Representation
Not every communication touched by in-house counsel is privileged. Some or all of these communications might be discoverable depending on the capacity in which the lawyer is functioning in at the time of the particular communication. In-house counsel, of course, can be involved in many aspects of a company’s activities, but there are risks posed by such a multifaceted role. To minimize such risk, it’s important to identify and document the role the counsel is playing in certain key communications. For example, if in-house counsel is the senior company representative on a license agreement negotiation, is that employee acting as a lawyer or a businessperson? In such a context, merely sending the company’s senior negotiator information does not automatically mean such a communication is privileged. If her title is “Senior VP of Business and Legal Affairs,” for example, that does not help. In such cases, simple terminology may help clarify the role. For example, instead of merely appointing a lawyer as a member of a task force, a CEO can appoint that lawyer “counsel to the task force”.
The next issue here is whether the party communicating to the in-house counsel is, in fact, the in-house counsel’s client. The answer depends partly on jurisdiction, but answering a few core questions can be helpful here:
- Is the employee seeking legal advice?
- Is the employee someone who is allowed to seek legal advice for the company?
- Does the communication relate to the employee’s work?
- Is the communication intended to facilitate the rendering of legal advice?
Additional complications arise in the investigations context. Generally, an in-house lawyer’s client is the business entity. But the interests of the employee interviewee may well be different from or directly adverse to that entity. In such cases, would those conversations be privileged? As counsel, it’s important to make clear to the interviewee who you represent, and once you do, it is not at all clear that all of those conversations will take place, and if they do, whether they will be privileged.
4. For the Purpose of Providing Legal Advice
Documents and communications created independent of the process of seeking legal advice are not privileged and are fair game for discovery. This is important to note because many clients believe that if they copy counsel on a document, the document is privileged, and, similarly, if they communicate with counsel, that the underlying facts described to the lawyer are protected. Of course, neither is true. A communication is not protected unless it meets the test above, and the underlying facts are not protected at all – the protection attaches only to the communication itself. Further, the routine practice of copying lawyers and labeling something as privileged not only does not necessarily make a communication privileged, but also puts into question the assertion of privilege in matters where it properly belongs.
How Long does the Privilege Last?
Even communications that qualify as privileged may not remain so indefinitely. Most basically, privilege belongs to the client, which means the client may elect to disclose the communication at any time for any reason. Further, in certain situations, regardless of the wishes of the client, attorney-client privilege must be waived.
One such situation is a shareholders’ derivative. In these cases, the "fiduciary exception" to attorney-client privilege vitiates a business entity's attorney-client privilege in a lawsuit between a stockholder (or its equivalent) and the corporation. This principle allows stockholders to discover corporate communications otherwise protected under attorney-client privilege in order to demonstrate fiduciary breaches. Other situations in which privilege must be waived include:
- to prevent reasonably certain death or substantial bodily harm;
- to prevent the client from committing a crime;
- to withdraw a written or oral opinion or representation previously given by the lawyer and reasonably believed by the lawyer still to be relied upon by a third person, where the lawyer has discovered that the opinion or representation was based on materially inaccurate information or is being used to further a crime or fraud; and
- when otherwise required by the applicable rules of professional conduct or to comply with other law or court order.
Finally, corporate proliferation of subsidiaries and ventures can add complications to previously settled attorney-client relationships – and thus to the attorney-client privilege. While wholly owned subsidiaries present no real issue of conflict, once a subsidiary or affiliate is no longer wholly owned, in-house counsel must do a full-blown conflicts analysis.
Sarbanes-Oxley Act and Privilege
While the future of the Sarbanes-Oxley Act of 2002 remains uncertain, in-house counsel should understand how the current rules impact attorney-client privilege. Under Sarbanes-Oxley, a lawyer appearing and practicing before the SEC – meaning any lawyer with a securities practice – must report evidence of a "material violation of the securities law or breach of fiduciary duty or similar violation by the company or any agent thereof, to the chief legal counsel or the chief executive officer of the company." In the event the CLO or CEO does not respond, certain SEC or state rules may recommend disclosure under specific circumstances to limit damage, fraud and crime.