McGuireWoods Attorney-Client Privilege/Work Product Case Summary Database

Showing 465 of 465 results

Chapter: 6.13.02
Case Name: Dialysis Clinic, Inc. v. Medley, No. M2017-01352-SC-R11-CV, 2019 Tenn. LEXIS 17, at *23 (Tenn. Jan. 25, 2019)
March 27, 2019 (PRIVILEGE POINTS)

"How Can Companies Successfully Assert the "Functional Equivalent" Doctrine?"

Starting in 1994, most courts have recognized an enormously important privilege doctrine – treating as if they were full-time corporate employees independent contractors who are the "functional equivalent" of such employees. As companies' outsourcing has dramatically increased since then, this "functional equivalent" doctrine has become a key weapon in corporations' privilege arsenal. What must companies prove to successfully rely on this doctrine?

In In re Sampedro, the court held that third-party consulting firm G3M's employees were the "functional equivalent" of respondent Codere's employees. Case No. 3:18 MC 47 (JBA), 2019 U.S. Dist. LEXIS 4973, at *12 (D. Conn. Jan. 10, 2019). The court relied on affidavits establishing that one G3M employee became Codere's CEO, and that "other G3M employees served as the 'primary liaison with external counsel'" on key matters. Id. at *12-13 (internal citation omitted). As the court put it, “[t]his evidence shows that G3M employees were integrated into the corporate structure of Codere rendering them de facto employees of the company." Id. at *13. A couple weeks later, in Dialysis Clinic, Inc. v. Medley, No. M2017-01352-SC-R11-CV, 2019 Tenn. LEXIS 17, at *23 (Tenn. Jan. 25, 2019), the Tennessee Supreme Court similarly held that plaintiff's outside property management company's employees satisfied the "functional equivalent" standard. The court explained that: (1) plaintiff "hired XMi as its agent because of XMi's experience in property management, which [plaintiff] did not have in-house"; (2) "XMi had primary responsibility for the day-to-day management of [plaintiff's] properties" (id. at *22); (3) XMi employees established a "close working relationship" with plaintiff; and (4) XMi "was the entity that interacted directly with the tenants." Id. at *23.

Courts analyzing this often privilege-dispositive "functional equivalent" doctrine also examine whether the independent contractors: exercised decision-making authority for the company; possessed information no one at the company had; interacted with third-parties on the company's behalf; maintained an office or other substantial physical presence at the company; or obtained legal advice from the company's lawyers.

Case Date Jurisdiction State Cite Checked
2019-01-25 Federal TN
Comment:

key case


Chapter: 6.13.03
Case Name: Dialysis Clinic, Inc. v. Medley, No. M2017-01352-SC-R11-CV, 2019 Tenn. LEXIS 17, at *23 (Tenn. Jan. 25, 2019)
March 27, 2019 (PRIVILEGE POINTS)

"How Can Companies Successfully Assert the "Functional Equivalent" Doctrine?"

Starting in 1994, most courts have recognized an enormously important privilege doctrine – treating as if they were full-time corporate employees independent contractors who are the "functional equivalent" of such employees. As companies' outsourcing has dramatically increased since then, this "functional equivalent" doctrine has become a key weapon in corporations' privilege arsenal. What must companies prove to successfully rely on this doctrine?

In In re Sampedro, the court held that third-party consulting firm G3M's employees were the "functional equivalent" of respondent Codere's employees. Case No. 3:18 MC 47 (JBA), 2019 U.S. Dist. LEXIS 4973, at *12 (D. Conn. Jan. 10, 2019). The court relied on affidavits establishing that one G3M employee became Codere's CEO, and that "other G3M employees served as the 'primary liaison with external counsel'" on key matters. Id. at *12-13 (internal citation omitted). As the court put it, “[t]his evidence shows that G3M employees were integrated into the corporate structure of Codere rendering them de facto employees of the company." Id. at *13. A couple weeks later, in Dialysis Clinic, Inc. v. Medley, No. M2017-01352-SC-R11-CV, 2019 Tenn. LEXIS 17, at *23 (Tenn. Jan. 25, 2019), the Tennessee Supreme Court similarly held that plaintiff's outside property management company's employees satisfied the "functional equivalent" standard. The court explained that: (1) plaintiff "hired XMi as its agent because of XMi's experience in property management, which [plaintiff] did not have in-house"; (2) "XMi had primary responsibility for the day-to-day management of [plaintiff's] properties" (id. at *22); (3) XMi employees established a "close working relationship" with plaintiff; and (4) XMi "was the entity that interacted directly with the tenants." Id. at *23.

Courts analyzing this often privilege-dispositive "functional equivalent" doctrine also examine whether the independent contractors: exercised decision-making authority for the company; possessed information no one at the company had; interacted with third-parties on the company's behalf; maintained an office or other substantial physical presence at the company; or obtained legal advice from the company's lawyers.

Case Date Jurisdiction State Cite Checked
2019-01-25 Federal TN
Comment:

key case


Chapter: 6.14
Case Name: Margulis v. The Hertz Corporation, Civ. A. No. 14-1209 (JMV), 2017 U.S. Dist. LEXIS 28311 (D.N.J. Feb. 28, 2017)
(holding that a corporate family was not "one" client, but that a United States law firm jointly represented a U.S. company and an overseas affiliate; "'The Court does not see an 'agent' theory of the attorney-client privilege present in this case. Here, the documents at issue are emails between and among employees of the various Hertz companies referenced above. The application of privilege to such communications would be more appropriately described as 'intra-' or 'inter-' corporate communications between employees and analyzed under that standard. . . . In contrast, an 'agent' is most commonly a non-lawyer third-party that assists a lawyer in providing legal services, such as an investigator, paralegal, or accountant. . . . Except for very minor exceptions identified herein, the agent theory of the attorney-client privilege is largely inapplicable to this dispute.'")

Case Date Jurisdiction State Cite Checked
2017-02-28 Federal NJ

Chapter: 6.102
Case Name: McAirlaids, Inc. v. Kimberly-Clark Corp., No. 7:12-CV-00578, slip op. at 4 (W.D. Va. May 31, 2013)
("It applies to individuals and corporations, and to in-house and outside counsel.")

Case Date Jurisdiction State Cite Checked
2913-05-31 Federal VA B 9/14

Chapter: 6.102
Case Name: Van Every v. Ambrozyak, No. 797 MDA 2017, 2018 Pa. Super. Unpub. LEXIS 1256 (Pa. Super. April 20, 2018)
("When the client is a corporation, the privilege extends to communications between its attorneys and the agents or employees of the corporation authorized to act on its behalf.")

Case Date Jurisdiction State Cite Checked
2018-04-20 State PA

Chapter: 6.102
Case Name: Eagle Forum v. Phyllis Schlafly's American Eagles, Case No. 3:16-cv-946-DRH-RJD, 2018 U.S. Dist. LEXIS 53284 (S.D. Ill. March 29, 2018)
("It is well settled that the attorney-client privilege attaches to corporations as well as to individuals.")

Case Date Jurisdiction State Cite Checked
2018-03-29 Federal IL

Chapter: 6.102
Case Name: Torres v. Whitaker Chalk Swindle & Schwartz, PLLC, No. 03-15-00706-CV, 2016 Tex. App. LEXIS 6300 (Tex. App. 3d June 15, 2016)
(finding that a business's co-owner could not pursue a derivative case against a law firm which he alleged represented the company; concluding that the law firm had not represented the company; "The parties concur that the existence of a duty owing by appellees to CRU with respect to either liability theory turns entirely on whether there existed an attorney-client relationship between CRU and appellees. The attorney-client relationship is contractual in nature -- an attorney and client mutually agree that the attorney will render professional services for the client. While such an agreement need not necessarily be express and may sometimes be implied from the objective manifestations of the parties' conduct, in either case 'there must be evidence both parties intended to create an attorney-client relationship.' In support of their summary-judgment motion, appellees presented evidence that they had once represented Krueger pursuant to an explicit engagement letter, but had never represented CRU -- and that, in fact, much of their representation of Krueger had been adverse to CRU. In response, in an attempt to raise a fact issue, Torres relied solely on what he viewed as proof of an implied attorney-client relationship between appellees and CRU -- emails and other communications between appellees and Krueger between May 31, 2013, the date of a shareholder meeting at which Krueger purportedly wrested control of CRU from Torres, and early July 2013, when appellees and Krueger parted ways. The gist of Torres's reasoning is that these communications objectively manifested the relationship's evolution from representation of Krueger alone to representation also of the corporation Krueger had come to control. We disagree that this evidence, without more, is sufficient to raise a fact issue as to whether CRU and appellees agreed to enter into an attorney-client relationship, as opposed to representing conduct merely consistent with appellees' representation of Krueger. Consequently, the district court did not err in granting appellees' summary judgment on their no-duty ground.")

Case Date Jurisdiction State Cite Checked
2016-06-15 Federal TX

Chapter: 6.102
Case Name: Torres v. Whitaker Chalk Swindle & Schwartz, PLLC, No. 03-15-00706-CV, 2016 Tex. App. LEXIS 6300 (Tex. App. 3d June 15, 2016)
(finding that a business's co-owner could not pursue a derivative case against a law firm which he alleged represented the company; concluding that the law firm had not represented the company; "The parties concur that the existence of a duty owing by appellees to CRU with respect to either liability theory turns entirely on whether there existed an attorney-client relationship between CRU and appellees. The attorney-client relationship is contractual in nature -- an attorney and client mutually agree that the attorney will render professional services for the client. While such an agreement need not necessarily be express and may sometimes be implied from the objective manifestations of the parties' conduct, in either case 'there must be evidence both parties intended to create an attorney-client relationship.' In support of their summary-judgment motion, appellees presented evidence that they had once represented Krueger pursuant to an explicit engagement letter, but had never represented CRU -- and that, in fact, much of their representation of Krueger had been adverse to CRU. In response, in an attempt to raise a fact issue, Torres relied solely on what he viewed as proof of an implied attorney-client relationship between appellees and CRU -- emails and other communications between appellees and Krueger between May 31, 2013, the date of a shareholder meeting at which Krueger purportedly wrested control of CRU from Torres, and early July 2013, when appellees and Krueger parted ways. The gist of Torres's reasoning is that these communications objectively manifested the relationship's evolution from representation of Krueger alone to representation also of the corporation Krueger had come to control. We disagree that this evidence, without more, is sufficient to raise a fact issue as to whether CRU and appellees agreed to enter into an attorney-client relationship, as opposed to representing conduct merely consistent with appellees' representation of Krueger. Consequently, the district court did not err in granting appellees' summary judgment on their no-duty ground.")

Case Date Jurisdiction State Cite Checked
2016-06-15 State TX

Chapter: 6.102
Case Name: Stevens v. Corelogic, Inc., Case No. 14cv1158 BAS (JLB), 2016 U.S. Dist. LEXIS 12420 (S.D. Cal. Feb. 2, 2016)
("In the case of a corporate client, the attorney-client privilege continues to protect communications between non-attorney employees engaged in discussions to either transmit information to an attorney for the purpose of seeking legal advice or disseminate information from an attorney to corporate employees. It is well established that the attorney-client privilege applies when the client is a corporation, and it may be necessary for a corporate client to collect information relevant to a legal problem from middle management or non-management personnel.")

Case Date Jurisdiction State Cite Checked
2016-02-02 Federal CA

Chapter: 6.102
Case Name: Roberts Technology Group, Inc. v. Curwood, Inc., Civ. A. No. 14-5677, 2015 U.S. Dist. LEXIS 95779 (E.D. Pa. July 20, 2015)
("As the Pennsylvania Superior Court recognized, 'this privilege attaches to communications made by corporate as well as individual clients.' Custom Designs [Custom Designs & Mfg. Co. v. Sherwin-Williams Co., 2012 PA Super 33, 39 A.3d 372, 376 (Pa. Super. 2012)], 39 A.3d at 376 (2012). For a corporate employee to satisfy the third prong, he or she must establish communications were 'kept confidential . . . Made at the behest of counsel and with the goal of furthering counsel's provision of legal advice to the client.' Id., at 379. The claiming party can meet its burden by affidavit or counsel's testimony, but cannot simply assert the lack of evidence to the contrary.")

Case Date Jurisdiction State Cite Checked
2015-07-20 Federal PA

Chapter: 6.102
Case Name: Scott v. Chipotle Mexican Grill, Inc., 12-CV-08333 (ALC) (SN), 2015 U.S. Dist. LEXIS 40176 (S.D.N.Y. March 27, 2015)
("Corporations may be considered clients for the purposes of attorney-client privilege, and the internal communication of corporate legal advice does not necessarily waive the privilege.")

Case Date Jurisdiction State Cite Checked
2015-03-27 Federal NY

Chapter: 6.102
Case Name: Red Vision Sys., Inc. v. National Real Estate Info. Svcs, L.P., No. 416 WDA 2014, 2015 Pa. Super. LEXIS 7 (Pa. Super. Jan. 13, 2015)
("The privilege is available to corporate as well as individual clients.")

Case Date Jurisdiction State Cite Checked
2015-01-13 State PA

Chapter: 6.102
Case Name: Pia v. Supernova Media, Inc., Case No. 2:09-cv-00840-DN-EJF, 2014 U.S. Dist. LEXIS 175028 (D. Utah Dec. 18, 2014)
(holding that a manager/member of an LLC can waive its privilege; "[B]ecause Supernova is a current manager of Shannon's Delaware, it can waive attorney-client privilege on behalf of Shannon's Delaware."; "[T]his case involves an LLC a legally different business organization than a corporation, with a different management structure (manager-managed as opposed to a board of directors). Further, to the extent a corporation and board of directors can be analogized to a manager-managed LLC, Mr. Pia [Lawyer] has not presented any evidence that the majority of the management of Shannon's Delaware wishes to assert the attorney-client privilege, as the majority of the corporation in Milroy [Milroy v. Hanson, 875 F. Supp. 646 (D. Neb. 1995)] desired to do. Rather, the only argument Mr. Pia makes is that Supernova is a 'dissident manager' because it seeks to waive the privilege. Milroy referred to the 'dissident director' because he was the only director voting against the majority of the board of directors. No such evidence is presented by Mr. Pia. Thus, Milroy is factually much different than this case and is not persuasive."; "The attorney-client privilege belongs to the entity, and the entity's management holds the power to assert or waive the privilege. Here, a manager (Supernova) of the entity (Shannon's Delaware) has waived the privilege and there is no evidence that by so doing Supernova is taking an action contrary to the will of the majority.")

Case Date Jurisdiction State Cite Checked
2014-12-18 Federal UT

Chapter: 6.102
Case Name: Carpenters Pension Trust v. Lindquist Family LLC, No. C-13-01063 DMR, 2014 U.S. Dist. LEXIS 54335, at *8 (N.D. Cal. Apr. 18, 2014)
June 25, 2014 (PRIVILEGE POINT)

"How Do Courts Treat LLCs for Privilege Purposes?"

Limited Liability Corporations combine the characteristics of corporations and partnerships. Few courts have dealt with the privilege implications of these hybrid business entities.

In Carpenters Pension Trust v. Lindquist Family LLC, the court acknowledged that "[t]he application of attorney-client privilege to members of an LLC is a relatively uncharted area of law." No. C-13-01063 DMR, 2014 U.S. Dist. LEXIS 54335, at *8 (N.D. Cal. Apr. 18, 2014). The court ultimately applied the privilege principles applicable to corporations. After reviewing withheld documents in camera, the court concluded that despite the LLC's designation of one person to be the LLC's "sole manager," several other LLC members actually "communicated with each other and with the LLC's attorneys about legal advice relating to the LLC's business." Id. at *10-11. Because these members acted as the LLC's day-to-day "managing members," "disclosure of confidential information received by one managing member of the LLC to another managing member does not, by itself, defeat the attorney-client privilege." Id. at *11-12.

Lawyers representing LLCs should explicitly articulate various individuals' roles in seeking and acting on their legal advice, laying the groundwork for both privilege and non-waiver assertions if the need arises.

Case Date Jurisdiction State Cite Checked
2014-04-18 Federal CA
Comment:

key case


Chapter: 6.102
Case Name: Carpenters Pension Trust v. Lindquist Family, LLC, No. C-13-01063 DMR, 2014 U.S. Dist. LEXIS 54335 (N.D. Cal. April 18, 2014)
(treating an LLC the same way as a corporation for privilege purposes; "The application of attorney-client privilege to members of an LLC is a relatively uncharted area of law.")

Case Date Jurisdiction State Cite Checked
2014-04-18 Federal CA

Chapter: 6.102
Case Name: McAirlaids, Inc. v. Kimberly-Clark Corp., No. 7:12-CV-00578, slip op. at 5 (W.D. Va. May 31, 2013)
("It is well settled that a corporation may be a 'client' with standing to assert the privilege. [Upjohn Co. v. United States, 449 U.S. 383, 394 (1981)]. Thus, communications from K-C's legal counsel to its employees may fall within the privilege. However, the confidential communication 'must be for the primary purpose of soliciting legal, rather than business, advice.' Henson By and Through Mawyer v. Wyeth Laboratories, Inc., 118 F.R.D. 584, 587 (W.D. Va. 1987) (citing N.C. Elec. Membership Corp. v. Carolina Power, 110 F.R.D. 511, 514 (M.D.N.C. 1986)).")

Case Date Jurisdiction State Cite Checked
2013-05-31 Federal VA B 9/13

Chapter: 6.102
Case Name: Adair v. EQT Prod. Co., 285 F.R.D. 376 (W.D. Va. 2012)
("While the attorney-client privilege is available to corporations, see Owens-Corning Fiberglas Corp. v. Watson, 243 Va. 128, 413 S.E.2d 630, 638, 8 Va. Law Rep. 1829 (Va. 1992) (citing Upjohn Co. v. United States, 449 U.S. 383, 389-90, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981)), the determination of whether the attorney-client privilege applies to protect a document from production becomes more difficult when the sender or recipient of that document is in-house counsel for a corporate entity. See, e.g., United States v. United Shoe Mach. Corp., 89 F. Supp. 357 (D. Mass. 1950); ABB Kent-Taylor, Inc. v. Stallings & Co., Inc., 172 F.R.D. 53, 55 (W.D.N.Y. 1996).")

Case Date Jurisdiction State Cite Checked
2012-01-01 Federal VA

Chapter: 6.102
Case Name: Rush v. Sunrise Senior Living, Inc., No. CL-07-11322, 2008 Va. Cir. LEXIS 12, at *5-6 (Va. Cir. Ct. Feb. 12, 2008)
(addressing the privilege implications of a company's former CFO's request for a protected document from his former employer, against which he had filed a breach of contract and defamation action; "The attorney client privilege is available to corporations. . . . The policy for extending the privilege to corporate clients is conceptually the same as for individual clients: 'to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.'" (citation omitted)) [Woolridge, J.]

Case Date Jurisdiction State Cite Checked
2008-02-12 State VA B 5/09 & 6/09

Chapter: 6.102
Case Name: Gordon v. Newspaper Assoc. of Am., 51 Va. Cir. 183, 186 (Va. Cir. Ct. 2000)
("'[T]he privilege exists between a corporation and its in-house attorney.' . . . The communications protected are those between employees and in-house counsel which aid counsel in providing legal services to the corporation.")

Case Date Jurisdiction State Cite Checked
2000-01-01 State VA

Chapter: 6.102
Case Name: X Corp. v. Doe, Civ. No. 92-338-A, 1992 Dist. LEXIS 13612 (E.D. Va. Aug. 25, 1992)
(enjoining a former in-house lawyer and his lawyer from disclosing privileged documents in-house lawyer retained when he was terminated for allegedly complaining about corporate misconduct; refusing to order the former in-house lawyer to return the documents to the company; "It is well-settled that the privilege protects corporate as well as individual clients . . . And that it attaches to in-house as well as outside counsel.")

Case Date Jurisdiction State Cite Checked
1992-08-25 Federal VA

Chapter: 6.102
Case Name: X Corp. v. Doe, 805 F. Supp. 1298, 1305-06 (E.D. Va. 1992)
("[i]t is well-settled that the privilege protects corporate as well as individual clients . . . and that it attaches to in-house as well as outside counsel"; holding that an in-house lawyer did not have to return privileged communications that the lawyer took when the lawyer left employment), aff'd sub nom. Seal v. Under Seal, 17 F.3d 1435 (4th Cir. 1994)

Case Date Jurisdiction State Cite Checked
1992-01-01 Federal VA

Chapter: 6.102
Case Name: Jonathan Corp. v. Prime Computer, Inc., 114 F.R.D. 693, 696 (E.D. Va. 1987)
("It is well-settled that the attorney-client privilege does attach to corporations as well as individuals.")

Case Date Jurisdiction State Cite Checked
1987-01-01 Federal VA

Chapter: 6.102
Case Name: Henson v. Wyeth Labs., Inc., 118 F.R.D. 584, 587 (W.D. Va. 1987)
("it is well settled that a corporation may be a 'client' with standing to assert the privilege")

Case Date Jurisdiction State Cite Checked
1987-01-01 Federal

Chapter: 6.103
Case Name: Maplewood Partners, L.P. v. Indian Harbor Ins. Co., 295 F.R.D. 550, 590 (S.D. Fla. 2013)
(in a first party insurance setting, finding that an insurance company and its insured had a common interest that acted much like a joint representation, so there was no privilege when they later litigated against each other about coverage; "In a particularly significant decision announced after Upjohn [Upjohn Co. v. United States, 449 U.S. 383 (1981)], the Supreme Court of Florida applied a heightened level of scrutiny to claims of corporate privilege in order 'to minimize the threat of corporations cloaking information with the attorney-client privilege in order to avoid discovery.'" (citation omitted))

Case Date Jurisdiction State Cite Checked
2013-01-01 Federal FL B 4/14

Chapter: 6.201
Case Name: Eagle Forum v. Phyllis Schlafly's American Eagles, Case No. 3:16-cv-946-DRH-RJD, 2018 U.S. Dist. LEXIS 53284 at *3 (S.D. Ill. Mar. 29, 2018)
May 23, 2018 (PRIVILEGE POINT)

"Privilege Ownership in High-Stakes Corporate Contexts: Part II"

Last week's Privilege Point focused on privilege ownership when corporations sell assets rather than stock. Privilege ownership issues can also arise when competing board factions claim to be acting on a corporation's behalf.

In Eagle Forum v. Phyllis Schlafly's American Eagles, two Eagle Forum board members retained lawyer Rohlf on behalf of that corporation "to provide … 'representation and counsel with respect to governance matters, Board disputes and litigation as necessary.'" Case No. 3:16-cv-946-DRH-RJD, 2018 U.S. Dist. LEXIS 53284 at *3 (S.D. Ill. Mar. 29, 2018) (internal citation omitted). Rohlf's firm even entered an appearance on Eagle Forum's behalf in an Illinois state court action filed by other Board members (which named Eagle Forum as a nominal defendant). Those other Board members soon exercised their power "as the majority of the Eagle Forum Board of Directors" to suspend Eagle Forum's President and Treasurer – and sought to depose Rohlf. Id. at *4. Not surprisingly, Plaintiffs (having a Board majority) argued that "Eagle Forum, not Joel Rohlf, controls its privilege and can waive it." Id. at *5. Rohlf resisted the deposition, contending that Eagle Forum's privilege "did not, and could not, pass to the individual Plaintiffs from the control group. . . who retained [Rohlf] for the purpose of preventing the individual Plaintiffs from taking control of the organization." Id. at *7. The court rejected Rohlf's argument that the "clear fissure in Eagle Forum's Board and management" was "an occurrence akin to an acquisition." Id. at *9-10. The court ultimately concluded that "at all relevant times hereto [Plaintiffs] constituted the majority of Eagle Forum's Board of Directors" – and therefore "have had control over Eagle Forum, and ultimately its privilege." Id. at *9.

Lawyers involved in corporate transactions and in corporate board disputes must keep track of who owns the corporation's attorney-client privilege and who can waive it.

Case Date Jurisdiction State Cite Checked
2018-03-29 Federal IL
Comment:

key case


Chapter: 6.201
Case Name: In re Oxbow Carbon LLC, Unitholder Litigation, Consol. C.A. No. 12447-VCL, 2017 Del. Ch. LEXIS 425 (Del. Ch. March 7, 2017)
(holding that its point two members of a company's board of directors (appointed by investors) may be so adverse to the company that they can be denied access to privileged communications; "The extent to which the Company can invoke privilege against the Crestview Directors turns on the point at which sufficient adversary existed between them such that the Crestview Directors could no longer have a reasonable expectation that they were clients of Company counsel."; "I conclude that for purposes of discovery, Robert Popeo's email to Michael Carlinsky dated October 23, 2015, was the point at which adversary was established sufficiently to enable the Company to begin asserting privilege. Arguments can be made and evidence cited in support of a finding of adversity before or after that point. Clearly, tensions were rising before then. Equally clearly, there are arguments as to why the Crestview Directors should be able to continue to access privileged material after that date. In my view, it is important for purposes of discovery to have as clear a line of demarcation as possible, and I have selected the date that appears most justified on the facts of the case."; "Consequently, the Company cannot withhold discovery material dated before October 23, 2015, from the Crestview Directors on the basis of the attorney-client privilege or the work product doctrine. The Company shall produce the Crestview Directors all items on its privilege log that pre-date October 23, 2015. Thereafter, the Company can invoke the attorney-client privilege and the work product doctrine, subject to the additional rulings made in this order."; "Because of the nature of the relationship between Crestview and the Crestview Directors, Crestview is entitled to the same information as Crestview Directors and vice versa. . . ."; "Crestview cannot obtain access to otherwise privileged materials separately under Gamer v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970). Once sufficient adversity existed for the Crestview Directors not to have access to privileged information, there was insufficient mutuality of interest between Crestview and the Company for Garner to apply."; "The Company has alleged that Crestview sought to undermine the Company 'from the inside' by secretly enlisting McAuliffe and Eric Johnson 'to undercut the advice the Company was receiving from its outside counsel,' which had been retained specifically to analyze to Put Right. . . . The complaint posits that Crestview already was knowledgeable about the two firms' advice. The complaint further alleges that when one of the two firms produced a memo partially supporting Oxbow's position. McAuliffe had the offending passage removed before sharing the memo with Koch. . . . Given these allegations, the Company has placed at issue its communications with its original counsel and the two additional law firms about ThoughtWorks and the legal advice it received from them."; "The Company similarly has put at issue the advice it received from Mintz Levin regarding a potential payment to the Small Holders by asserting in its answer that Popeo only suggested this to Crestview to broker a compromise and not because it represented his belief or the Company's belief. By taking the additional step of drawing a distinction between what was said that what they believed, the Company placed at issue advice showing what Popeo and the Company actually believed on this point. . . ."; "The Company shall produce the items on its privilege log for which no attorney is identified.")

Case Date Jurisdiction State Cite Checked
2017-03-07 State DE
Comment:

key case


Chapter: 6.201
Case Name: Estate of Paterno, J. v. NCAA, No. 877 MDA 2015 (Pa. Super. Ct. 2017)
("In summary, the Engagement Letter consistently draws a distinction between Penn State's board of trustees and the Task Force. The letter consistently identifies the Task Force as the party for whom FSS was performing services. Appellants do not cite any legal authority precluding an entity such as Penn State from hiring and paying a law firm to represent a task force of the entity's creation. Nor do Appellants cite any authority precluding the parties from limiting the attorney-client relationship to the law firm and the task force, if desired. Furthermore, Appellants cite no authority to support their contention that the Task Force, in order to become a client of FSS, needed to be a distinct legal entity. The signature on the Engagement Letter Steve A. Garban, chair of Penn State's board of trustees was necessary, given that the trustees were paying FSS's bills. We therefore do not view Garban's signature as "fatally inconsistent" with a conclusion that the Task Force was the client, as Appellants clam."; "In summary, Appellants have failed to offer any authority upon which we can conclude that the trial court erred, as a matter of law, in finding that FSS confined its representation to the Task Force. We will not distinguish the trial court's finding, supported by the record, that Penn State cannot assert attorney-client privilege because it was not the client of FSS.").

Case Date Jurisdiction State Cite Checked
2017-01-01 State PA
Comment:

key case


Chapter: 6.202
Case Name: In re CBS Corp. Litig., Consol. C.A. No. 2018-0342-AGB, 2018 Del. Ch. LEXIS 231 (Del. Ch. July 13, 2018)
(analyzing an effort by Redstone-controlled NAI (which controls approximately eighty percent of CBS's voting power and ten percent of CBS's economic stake) to discover communications between a CBS board Special Committee and its communications with CBS's regular outside counsel Wachtell Lipton about the Committee's decision to reject Redstone's suggestion to merge CBS and Viacom; acknowledging that NAI did not seek communications with the Special Committee's separate law firms, but also denying NAI discovery of the Special Committee's communications with Wachtell Lipton; "In its motion, the NAI Parties seek to compel the CBS Parties to produce two categories 'of privileged materials involving communications with CBS Counsel from before May 14, 2018:' (1) Communications with and between CBS Counsel and any officer or director of CBS. (2) Communications between the (i) members of the special committees of the CBS Board formed to consider a potential CBS/Viacom transaction or committee counsel, on the one hand, and (ii) CBS Counsel, on the other hand.'"; "The term 'CBS Counsel' is defined as 'in-house and outside counsel to CBS and its board,' which means, for purposes of this motion, in-house counsel and Wachtell Lipton. The NAI Parties contend that the NAI Affiliated Directors are entitled to the above two categories of documents on the theory that they have a right as directors of a Delaware corporation to unfettered access to any legal advice rendered to CBS or other members of its Board as joint clients of CBS Counsel."'; "When the corporation seeks to assert privilege against a director, the corporation 'has the burden to establish when sufficient adversity existed.'"; "Turning to the period from when the 2016 Special Committee was formed in September 2016 until May 14, 2018, a sufficient record exists in my view for the court to provide guidance on the two categories of information the NAI Parties seek for that time period. I begin with the second category. To repeat, that category seeks 'communications between the (i) members of the special committees of the CBS board formed to consider a potential CBS/Viacom transaction or committee counsel, on the one hand, and (ii) CBS Counsel, on the other hand.' In my opinion, the NAI Affiliated Directors (and thus the NAI Parties) are not entitled to this information."; "In asking the Board to consider a potential combination of CBS and Viacom, the NAI Parties placed themselves across the negotiating table from CBS. As such, the NAI Parties created sufficient adversity with CBS such that the NAI Affiliated Directors could not -- to use the court's words from Kalisman [Kalisman v. Friedman, 2013 Del. Ch. LEXIS 100, 2013 WL 1668205 (Del. Ch. April 17, 2013)] – 'have a reasonable expectation that [they were] a client of the board's counsel or the Special Committee's counsel with respect to' matters delegated to the Special Committees. In forming a Special Committee in 2016 and again in 2018 to consider a potential combination, CBS employed appropriate governance procedures that openly put the NAI Affiliated Directors on notice that they would be segregated from the CBS side of the deliberations, including privileged information relating thereto. At that point, the Board -- operating through the Special Committees -- was 'entitled to deliberate -- and receive legal advice -- in confidence and without having to share that advice with the director whose interests are adverse[.]'"; "Consistent with the foregoing, the NAI Parties do not take issue with being segregated from advice provided by counsel that the Special Committees separately retained (White & Case LLP and Weil, Gotshal & Manges LLP). Indeed, the NAI Parties concede that adversity was 'manifest' between the NAI Affiliated Directors and the Special Committees and their separate counsel. The NAI Parties nevertheless assert that the NAI Affiliated Directors are entitled to access communications between CBS Counsel, on the one hand, and the Special Committees and/or their separate counsel, on the other hand. Although no precedent has been cited analyzing this specific issue, I am not persuaded by the NAI Parties' argument and believe that the adversity should have been equally manifest to the NAI Affiliated Directors in this situation as well."; "In short, given the adversity of interests that prompted the creation of the Special Committees and given the mandate they were provided as part of a transparent process, the NAI Affiliated Directors could not have had a reasonable expectation that they were clients of CBS Counsel insofar as CBS Counsel was acting in aid of the process undertaken by either of the Special Committees. To reach the opposite conclusion would undermine the legitimate expectation that the Special Committees' deliberative processes would be held in confidence and would not be shared with designees of the party whose adverse interests necessitated their formation in the first place. Accordingly, the NAI Parties' request to compel the second category of information is denied."; "The first category of information the NAI Parties seek is 'communications with and between CBS Counsel and any officer or director of CBS.' My reasoning with respect to the second category dictates my disposition of this request as well. That is, insofar as the first category seeks any communications between CBS Counsel and an officer or director of CBS that was undertaken in aid of the process of either of the Special Committees, the motion to compel will be denied for the reasons discussed previously. Otherwise, the motion will be granted because no factual basis has been identified to support the conclusion that the NAI Affiliated Directors were made aware (or reasonably should have been aware) that CBS Counsel was not representing them jointly with the other CBS directors with respect to any matter other than the matters falling within the purview of the Special Committees for which CBS Counsel provided assistance."; "Finally, I reject the CBS Parties' request that access to any CBS privileged information that may be provided as a result of this ruling be limited to the NAI Affiliated Directors and not shared with the NAI Parties or their counsel. Apart from the fact that no clear precedent has been cited supporting the imposition of such a condition, practical considerations dictate this conclusion. Given that Ms. Redstone is one of the NAI Affiliated Directors (as well as one of the NAI Parties) and, by all accounts, is the key decision-maker for NAI, it is simply not realistic or practical to believe that any information to which she may become privy as a result of this ruling could be segregated from her thought process as an adversary of CBS in this case. That said, all of the NAI Parties and the NAI Affiliated Directors are bound by the confidentiality order governing the use of discovery material in this action.")

Case Date Jurisdiction State Cite Checked
2018-07-13 State DE

Chapter: 6.202
Case Name: Terrell v. Memphis Zoo, Inc., 17-cv-2928-JPM-tmp, 2018 U.S. Dist. LEXIS 112385 (W.D. Tenn. July 3, 2018)
(analyzing privilege and work product issues related to the plaintiff's allegation of employment discrimination; "The emails with Bates Nos. 0169, 0170, 1262, 1267-69, 1270-73, 1278-82, 1283-90, and 1297-99 are described in Memphis Zoo's privilege log as protected by the attorney-client privilege because they contain communications with Maria Leggett, a member of Memphis Zoo's Board of Directors, who is also Assistant General Counsel for AutoZone. . . . Dr. Terrell argues that these emails are not privileged because there is no indication that Memphis Zoo was Leggett's client and, even if it was, when participating in these emails she was acting in a business capacity, not a legal capacity. Memphis Zoo argues that Leggett played multiple roles when dealing with this matter, but her primary role was that of legal advisor."; "Memphis Zoo proposes that, because Leggett's role on the Board of Directors was to provide 'legal advice and legal guidance to the other members of the board,' she should be treated as Memphis Zoo's attorney. . . . However, providing legal advice, by itself, does not make the communication privileged -- there must also be an attorney client relationship -- and Memphis Zoo has not demonstrated the existence of the required relationship. Therefore, the court finds that communications between Leggett and Memphis Zoo are not privileged.")

Case Date Jurisdiction State Cite Checked
2018-07-03 Federal TN
Comment:

key case


Chapter: 6.202
Case Name: Eagle Forum v. Phyllis Schlafly's American Eagles, Case No. 3:16-cv-946-DRH-RJD, 2018 U.S. Dist. LEXIS 53284 at *3 (S.D. Ill. Mar. 29, 2018)
May 23, 2018 (PRIVILEGE POINT)

"Privilege Ownership in High-Stakes Corporate Contexts: Part II"

Last week's Privilege Point focused on privilege ownership when corporations sell assets rather than stock. Privilege ownership issues can also arise when competing board factions claim to be acting on a corporation's behalf.

In Eagle Forum v. Phyllis Schlafly's American Eagles, two Eagle Forum board members retained lawyer Rohlf on behalf of that corporation "to provide … 'representation and counsel with respect to governance matters, Board disputes and litigation as necessary.'" Case No. 3:16-cv-946-DRH-RJD, 2018 U.S. Dist. LEXIS 53284 at *3 (S.D. Ill. Mar. 29, 2018) (internal citation omitted). Rohlf's firm even entered an appearance on Eagle Forum's behalf in an Illinois state court action filed by other Board members (which named Eagle Forum as a nominal defendant). Those other Board members soon exercised their power "as the majority of the Eagle Forum Board of Directors" to suspend Eagle Forum's President and Treasurer – and sought to depose Rohlf. Id. at *4. Not surprisingly, Plaintiffs (having a Board majority) argued that "Eagle Forum, not Joel Rohlf, controls its privilege and can waive it." Id. at *5. Rohlf resisted the deposition, contending that Eagle Forum's privilege "did not, and could not, pass to the individual Plaintiffs from the control group. . . who retained [Rohlf] for the purpose of preventing the individual Plaintiffs from taking control of the organization." Id. at *7. The court rejected Rohlf's argument that the "clear fissure in Eagle Forum's Board and management" was "an occurrence akin to an acquisition." Id. at *9-10. The court ultimately concluded that "at all relevant times hereto [Plaintiffs] constituted the majority of Eagle Forum's Board of Directors" – and therefore "have had control over Eagle Forum, and ultimately its privilege." Id. at *9.

Lawyers involved in corporate transactions and in corporate board disputes must keep track of who owns the corporation's attorney-client privilege and who can waive it.

Case Date Jurisdiction State Cite Checked
2018-03-29 Federal IL
Comment:

key case


Chapter: 6.202
Case Name: Eagle Forum v. Phyllis Schlafly's American Eagles, Case No. 3:16-cv-946-DRH-RJD, 2018 U.S. Dist. LEXIS 53284 (S.D. Ill. March 29, 2018)
(holding that a corporation owned and therefore could waive or assert privilege protection for communications between it and its lawyer that occurred before the majority of the corporation's board asserted their power to take control of the corporation; rejecting the lawyer's argument that he could withhold those communications because he was representing a client adverse to the corporation; finding Tekni-Plex inapplicable in determining the privilege's ownership; "Rohlf concedes that ordinarily a change of control of a corporation generally passes control of the privilege on to new management. . . . However, he contends that the 'ordinary' rule should not apply here. Rohlf [Lawyer for the Runnymede Law Group, who was retained by a company, but was later ousted when his allies on the corporate board were overruled by the board majority] asks the Court to find that the control of Eagle Forum's privilege did not, and could not, pass to the individual Plaintiffs from the control group (Ed Martin and Phyllis Schlafy) who retained Runnymede for the purpose of preventing the individual Plaintiffs from taking control of the organization. The Court disagrees."; "Rohlf contends that allowing the privilege to transfer here would defy the purpose of privilege and breach the reasonable expectation of privacy that Eagle Forum had when it hired Runnymede. Rohlf's argument is based on the proposition that Runnymede was retained as counsel by Phyllis Schlafy and Ed Martin, on behalf of Eagle forum, to defeat the takeover of Eagle Forum by the individual Plaintiffs in this lawsuit. In proffering this argument, Rohlf urges the Court to apply case law developed in New York courts in the context of corporation mergers and acquisitions. In particular, New York courts have carved out an exception for confidential communication related to acquisitions, finding that 'to grant [the newly merged company] control over the attorney-client privilege as to communications concerning the merger transaction would thwart, rather than promote, the purposes underlying the privilege.' Tekni-Plex, Inc. v. Meyner and Landis, 89 N.Y. 2d 123, 138, 674 N.E. 2d 663, 651 N.Y.S. 2d 954 (1996). Indeed, the court in Tekni-Plex remarked that allowing access to such confidences would 'be the equivalent of turning over to the buyer all of the privileged communications of the seller concerning the very transaction at issue.' Id."; "Although mindful of the parallels Rohlf is attempting to make, the Court declines to follow the approach adopted by New York courts in the context of mergers and acquisitions because the factual scenario here is not sufficiently analogous. The individual Plaintiffs contend, and Rohlf does not dispute, that at all relevant times hereto they constituted the majority of Eagle Forum's Board of Directors . . . . Because a corporation is generally controlled by its board of directors . . . the individual Plaintiffs, in their capacity as majority directors, have had control over Eagle Forum, and ultimately its privilege, at all times relevant. Despite the clear fissure in Eagle Forum's Board and management, there never was an occurrence akin to an acquisition. That Eagle Forum is named as a nominal defendant in the Madison County action and is actively litigating the same does not affect the Court's reasoning as such status does not create the adversity professed by Rohlf. Further, Rohlf correctly points out that the TRO in the Madison County action indicated that its purpose was to 'maintain the status quo . . . and allow defendants Martin and Schlafy to maintain custody, possession and control of the Eagle Forum property and assets while working cooperatively with Plaintiffs'. . . . The court's statement, however, does not support the finding proposed by Rohlf – that Ed Martin and Phyllis Schlafy controlled Eagle Forum prior to the April 11, 2016 meeting. Rather, it supports the general proposition that officers and directors work together to manage a corporation."; "Based on the foregoing, the undersigned finds no reason to deviate from the well-established principle that the right to waive a corporation's attorney-client privilege is an incident of control of the corporation. The individual Plaintiffs, acting as Eagle Forum's majority directors, have control of Eagle Forum and, as such, have the power to waive attorney-client privilege on its behalf. Plaintiffs' position is further strengthened insofar as Eagle Forum has, at all times relevant, ultimately been in their control (albeit only in their capacity as majority directors). Because the ability to waive privilege lies with Eagle Forum, not Ed Martin and John Schlafy, the Court declines to quash the subpoena directed to Joel Rohlf or enter a protective order concerning the same on the basis of privilege. However, of course, Eagle Forum shall decide whether or not to waive privilege.")

Case Date Jurisdiction State Cite Checked
2018-03-29 Federal IL
Comment:

key case


Chapter: 6.202
Case Name: Estate of Joseph Paterno v. National Collegiate Athletic Assoc., No. 877 MDA 2015, No. 1709 MDA 2014, No. 878 MDA 2015, 2017 Pa. Super. LEXIS 570, 2017 Pa. 247 (Pa. July 25, 2017)
(holding that a Task Force rather than Penn State itself was the client in connection with the investigation into the Sandusky sexual misconduct scandal conducted by Freeh; holding that the investigation-related interview notes and summaries necessarily reflected lawyers' opinions; noting that Pennsylvania Rules the work product doctrine could extend to documents without anticipated litigation; "[T]he Engagement Letter consistently draws a distinction between Penn State's board of trustees and the Task Force. The letter consistently identifies the Task Force as the party for whom FSS was performing services. Appellants do not cite any legal authority precluding an entity such as Penn State from hiring and paying a law firm to represent a task force of the entity's creation. Nor do Appellants cite any authority precluding the parties from limiting the attorney-client relationship to the law firm and the task force, if desired. Furthermore, Appellants cite no authority to support their contention that the Task Force, in order to become a client of FSS, needed to be a distinct legal entity. The signature on the Engagement Letter Steve A. Garban, chair of Penn State's board of trustees was necessary, given that the trustees were paying FSS's bills. We therefore do not view Garban's signature as 'fatally inconsistent' with a conclusion that the Task Force was the client, as Appellants claim."; "In summary, Appellants have failed to offer any authority upon which we can conclude that the trial court erred, as a matter of law, in finding that FSS confined its representation to the Task Force. We will not disturb the trial court's finding, supported by the record, that Penn State cannot assert attorney-client privilege because it was not the client of FSS.")

Case Date Jurisdiction State Cite Checked
2017-07-25 State PA

Chapter: 6.202
Case Name: In re Oxbow Carbon LLC, Unitholder Litigation, Consol. C.A. No. 12447-VCL, 2017 Del. Ch. LEXIS 425 (Del. Ch. March 7, 2017)
(holding that its point two members of a company's board of directors (appointed by investors) may be so adverse to the company that they can be denied access to privileged communications; "The extent to which the Company can invoke privilege against the Crestview Directors turns on the point at which sufficient adversary existed between them such that the Crestview Directors could no longer have a reasonable expectation that they were clients of Company counsel."; "I conclude that for purposes of discovery, Robert Popeo's email to Michael Carlinsky dated October 23, 2015, was the point at which adversary was established sufficiently to enable the Company to begin asserting privilege. Arguments can be made and evidence cited in support of a finding of adversity before or after that point. Clearly, tensions were rising before then. Equally clearly, there are arguments as to why the Crestview Directors should be able to continue to access privileged material after that date. In my view, it is important for purposes of discovery to have as clear a line of demarcation as possible, and I have selected the date that appears most justified on the facts of the case."; "Consequently, the Company cannot withhold discovery material dated before October 23, 2015, from the Crestview Directors on the basis of the attorney-client privilege or the work product doctrine. The Company shall produce the Crestview Directors all items on its privilege log that pre-date October 23, 2015. Thereafter, the Company can invoke the attorney-client privilege and the work product doctrine, subject to the additional rulings made in this order."; "Because of the nature of the relationship between Crestview and the Crestview Directors, Crestview is entitled to the same information as Crestview Directors and vice versa. . . ."; "Crestview cannot obtain access to otherwise privileged materials separately under Gamer v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970). Once sufficient adversity existed for the Crestview Directors not to have access to privileged information, there was insufficient mutuality of interest between Crestview and the Company for Garner to apply."; "The Company has alleged that Crestview sought to undermine the Company 'from the inside' by secretly enlisting McAuliffe and Eric Johnson 'to undercut the advice the Company was receiving from its outside counsel,' which had been retained specifically to analyze to Put Right. . . . The complaint posits that Crestview already was knowledgeable about the two firms' advice. The complaint further alleges that when one of the two firms produced a memo partially supporting Oxbow's position. McAuliffe had the offending passage removed before sharing the memo with Koch. . . . Given these allegations, the Company has placed at issue its communications with its original counsel and the two additional law firms about ThoughtWorks and the legal advice it received from them."; "The Company similarly has put at issue the advice it received from Mintz Levin regarding a potential payment to the Small Holders by asserting in its answer that Popeo only suggested this to Crestview to broker a compromise and not because it represented his belief or the Company's belief. By taking the additional step of drawing a distinction between what was said that what they believed, the Company placed at issue advice showing what Popeo and the Company actually believed on this point. . . ."; "The Company shall produce the items on its privilege log for which no attorney is identified.")

Case Date Jurisdiction State Cite Checked
2017-03-07 State DE
Comment:

key case


Chapter: 6.202
Case Name: Estate of Paterno, J. v. NCAA, No. 877 MDA 2015 (Pa. Super. Ct. 2017)
("In summary, the Engagement Letter consistently draws a distinction between Penn State's board of trustees and the Task Force. The letter consistently identifies the Task Force as the party for whom FSS was performing services. Appellants do not cite any legal authority precluding an entity such as Penn State from hiring and paying a law firm to represent a task force of the entity's creation. Nor do Appellants cite any authority precluding the parties from limiting the attorney-client relationship to the law firm and the task force, if desired. Furthermore, Appellants cite no authority to support their contention that the Task Force, in order to become a client of FSS, needed to be a distinct legal entity. The signature on the Engagement Letter Steve A. Garban, chair of Penn State's board of trustees was necessary, given that the trustees were paying FSS's bills. We therefore do not view Garban's signature as "fatally inconsistent" with a conclusion that the Task Force was the client, as Appellants clam."; "In summary, Appellants have failed to offer any authority upon which we can conclude that the trial court erred, as a matter of law, in finding that FSS confined its representation to the Task Force. We will not distinguish the trial court's finding, supported by the record, that Penn State cannot assert attorney-client privilege because it was not the client of FSS.").

Case Date Jurisdiction State Cite Checked
2017-01-01 State PA
Comment:

key case


Chapter: 6.202
Case Name: Krys v. Paul, Weiss, Rifkind, Wharton, & Garrison LLP (In re China Med. Techs., Inc.), 539 B.R. 643 (S.D.N.Y. 2015)
(holding that a bankruptcy liquidator could waive the attorney-client privilege that belonged to a company's Audit Committee, but could not waive the Audit Committee's work product protection, which belonged solely or jointly to the Audit Committee's lawyer's at Paul Weiss; "The issue now before the Court is whether the capacity of the Audit Committee to retain independent counsel and to conduct unfettered internal investigations that implicate corporate management should thwart the statutory obligation of a trustee in bankruptcy to maximize the value of the estate by conducting investigations into a corporation's prebankruptcy affairs."; "Weintraub did not squarely address the circumstances here. Its analysis was limited to whether privileges asserted by a corporation's counsel were waivable by that corporation's trustee in bankruptcy. The asserted privileges here relate to an investigation by Appellees on behalf of a corporation's audit committee, and the precise relationship between that committee and the corporation is disputed. Despite these factual distinctions, however, the same considerations that weighed in favor of the trustee in Weintraub weigh in favor of Appellant here."; "It is true that the Audit Committee was 'independent' in some sense. It could retain counsel, and it legitimately expected that its communications with counsel would be protected against intrusion by management. But the Audit Committee is not an individual, nor is its status analogous to that of an individual. Instead, it was a committee constituted by CMED's Board of Directors, and thus a critical component of CMED's management infrastructure."; "[T]he justifications for protected attorney-client communications dissipate in bankruptcy. Prebankruptcy, audit committees 'play a critical role in monitoring corporate management and a corporation's auditor.'. . . Without the prebankruptcy protection of attorney-client privilege, audit committees could not provide 'independent review and oversight of a company's financial reporting processes, internal controls and independent auditors,' nor could they offer a 'forum separate from management in which auditors and other interested parties [could] candidly discuss concerns.' SEC Release No. 8220, 'Standards Relating to Listed Company Audit Committees,' File No. 87-02-03, 79 SEC Docket 2876, 2003 WL 1833875, at *19 (Apr. 9, 2003). But as the Bankruptcy Court noted in its Opinion, 'any miscreants have left the company' in bankruptcy, Op. 17; corporate management is deposed in favor of the trustee, and there is no longer a need to insulate committee-counsel communications from managerial intrusion. Without a legitimate fear of managerial intrusion or retaliation in bankruptcy, Appellees' assertions as to a potential chilling effect ring hollow."; "Although the Court recognizes that this is a difficult issue in a largely ill-defined area of the law, it nevertheless respectfully disagrees with the legal determination of the Bankruptcy Court below. The Court finds that Appellant, as CMED's Liquidator, now owns and can thus waive the Audit Committee's attorney-client privilege, regardless of the Committee's prebankruptcy independence. The Bankruptcy Court's ruling to the contrary is hereby reversed."; "The Court's ruling as to attorney-client privilege does not extend, however, to Appellees' assertion of work product protections, which the Bankruptcy Court Opinion only peripherally addressed. . . . Importantly, because 'work product protection belongs to the Audit Committee's counsel and cannot be waived by the client' . . . It does not fall within the ambit of Weintraub. . . . Thus, even assuming that the Liquidator owns those documents for which Appellees have asserted work-product protection, he cannot waive this protection unilaterally. Appellant, at the very least, has not cited any cases suggesting otherwise.")

Case Date Jurisdiction State Cite Checked
2015-09-30 Federal NY

Chapter: 6.202
Case Name: TP Orthodontics, Inc. v. Kesling, No. 46S03-1405-MI-337, 2014 Ind. LEXIS 715, at *22-23 (Ind. Sept. 3, 2014)
(analyzing privilege protection for a report prepared by a special committee in a derivative case; holding that any opinion work product deserved absolute protection, and that a company did not trigger an "at issue" waiver by relying on the report; remanding for an in camera review to assess privilege claims; "The SLC report attached to TPO's motion to dismiss satisfies both requirements. First, the report states that the SLC retained the attorneys of the law firm of Wooden & McLaughlin for assistance in conducting the underlying investigation. Thus, an attorney-client relationship existed between the attorneys at Wooden & McLaughlin and the SLC. Second, as discussed above, the report contained recommendations from the SLC's counsel -- communications in response to the SLC's efforts to obtain legal advice regarding the validity of the derivative claims from attorneys acting in their professional capacity. Given that TPO has met its burden of establishing the presence of confidential attorney-client communications within the SLC report, we find the sibling shareholders' contrary assertion without merit.")

Case Date Jurisdiction State Cite Checked
2014-09-03 State IN

Chapter: 6.202
Case Name: Gary Miller Imports, Inc. v. Doolittle, Civ. No. 11-178 Erie, 2014 U.S. Dist. LEXIS 108772 (W.D. Pa. Aug. 7, 2014)
(holding that a law firm had represented minority shareholders rather than the company, even though the company paid the bills; "Of course a minority shareholder seeking to protect his personal rights and interests is going to communicate to counsel about the corporation. As a matter of substance, talking about the corporation in relation to protecting a minority shareholder's rights and interests is entirely different from communicating with counsel about matters within the company or the general affairs of the company. To be more specific, with respect to the withheld documents, it appears that the substance of the Doolittles conversations with counsel concerned matters related to the Doolittles personal rights and interest as minority shareholders and did not concern matters within the company or the general affairs of the company.")

Case Date Jurisdiction State Cite Checked
2014-08-07 Federal PA

Chapter: 6.202
Case Name: Carpenters Pension Trust v. Lindquist Family LLC, No. C-13-01063 DMR, 2014 U.S. Dist. LEXIS 54335, at *8 (N.D. Cal. Apr. 18, 2014)
June 25, 2014 (PRIVILEGE POINT)

"How Do Courts Treat LLCs for Privilege Purposes?"

Limited Liability Corporations combine the characteristics of corporations and partnerships. Few courts have dealt with the privilege implications of these hybrid business entities.

In Carpenters Pension Trust v. Lindquist Family LLC, the court acknowledged that "[t]he application of attorney-client privilege to members of an LLC is a relatively uncharted area of law." No. C-13-01063 DMR, 2014 U.S. Dist. LEXIS 54335, at *8 (N.D. Cal. Apr. 18, 2014). The court ultimately applied the privilege principles applicable to corporations. After reviewing withheld documents in camera, the court concluded that despite the LLC's designation of one person to be the LLC's "sole manager," several other LLC members actually "communicated with each other and with the LLC's attorneys about legal advice relating to the LLC's business." Id. at *10-11. Because these members acted as the LLC's day-to-day "managing members," "disclosure of confidential information received by one managing member of the LLC to another managing member does not, by itself, defeat the attorney-client privilege." Id. at *11-12.

Lawyers representing LLCs should explicitly articulate various individuals' roles in seeking and acting on their legal advice, laying the groundwork for both privilege and non-waiver assertions if the need arises.

Case Date Jurisdiction State Cite Checked
2014-04-18 Federal CA
Comment:

key case


Chapter: 6.202
Case Name: Weiser v. Grace, Index No. 106285/95, Seq. No. 005, 1998 N.Y. Misc. LEXIS 592 (N.Y. Sup. Ct. Aug. 31, 1998)
(addressing derivative plaintiff shareholders' motion compelling production of Cravath's documents generated during its representation of a Special Litigation Committee; explaining the court's role in analyzing a Special Litigation Committee's recommendation to dismiss the derivative case, and ultimately ordering an in camera review of privileged and work product-protected documents relating to Cravath's investigation, and indicating that the court probably would order production of documents; among other things, noting that the Special Litigation Committee lawyers represent the Committee "and the corporation as a whole (e.g., the [derivative] plaintiff shareholders]"; "Plaintiffs move for an order compelling the Special Litigation Committee of the W.R. Grace & Co. Board of Directors (the SLC) to produce witness outlines, notes and summaries of interviews conducted by the SLC and its counsel, which interviews form the basis of the SLC's pending motion to dismiss the amended complaint."; explaining that the derivative action alleges the company's favoritism toward the former CEO J. Peter Grace and his family; "On May 9, 1997, the Board created the SLC to investigate the allegations in the amended complaint. Specifically, the SLC was charged with determining whether continued pursuit of this lawsuit was in the best interests of Grace. The Board resolution appointing the SLC accorded the committee full authority to deal with this lawsuit without any further reference to the Board. The SLC retained the firm of Cravath, Swaine & Moore (Cravath) to act as its counsel. The SLC conducted its investigation by reviewing documents and conducting interviews of defendants and other personnel concerning the matters raised in the complaint. The committee relied heavily on its counsel in its investigation. Indeed, counsel conducted 10 of the 14 interviews and then reported back to the SLC about the substance of the interviews."; pointing to ZaPata Corp. v. Maldonado (430 A2d 779 (Del. Sup. Ct. 1981) as indicating how Delaware court handle Special Litigation Committees; "[T]he court finds that the production of the notes, summaries and outlines regarding the committee's interviews of witnesses is necessary and will facilitate determination of the reasonableness and good faith of the SLC's investigation. Contrary to the SLC's contentions, plaintiffs' requests do not constitute all-encompassing merits discovery. In order for plaintiffs to reasonably challenge the thoroughness of the SLC's factual investigation, they must be able to examine the questions posed and the subjects explored in the witness interviews. Similarly, it is impossible for the court to assess whether the SLC pursued its charge with diligence and zeal, if the court is unable to review the development of the factual record that underlies the Revised Report."; "[T]he SLC in the instant case relied heavily on counsel who conducted 10 of the 14 interviews which formed the factual basis for its Revised Report. Likewise, the witness interviews were not transcribed. The only witness record of the interviews are counsel's notes, outlines and summaries. To deny plaintiffs the opportunity to discover the questions asked of the key witnesses, and whether the responses thereto were used or ignored by the SLC in forming its conclusions and preparing its report, would impermissibly allow the SLC to insulate its investigation from scrutiny by simply using counsel to conduct the interviews. . . . this court is troubled by the issue of whether the SLC acted in good faith when it preserved the interview testimony in such a way that it could then protect it from examination by asserting."; "When assessing the good faith and reasonableness of the SLC's investigation, the court must also determine whether the committee's reliance on counsel was in good faith. . . . To successfully challenge the committee's good-faith reliance on counsel, plaintiffs must show overreaching by counsel or neglect by the SLC. . . . If counsel incompetently conducted the interviews, the SLC's reliance and good faith would be called into question."; "The court recognizes that some of the documents sought may contain privileged matter which may be immune from discovery, notwithstanding their relevance to issues of good faith and the reasonableness of the investigation. Thus, an in camera review is the appropriate procedural vehicle to ensure that those privileges are not violated, while permitting plaintiffs to obtain the discovery necessary to challenge the SLC's good faith. However, the court notes that the application of the attorney-client privilege is problematic. The SLC's counsel represents both the SLC and the corporation as a whole (e.g., the plaintiff shareholders). Under such circumstances, the attorney-client privilege would not bar discovery of all communications between counsel and the SLC."; also addressing the work product protection; "The work product doctrine protects materials specifically written in preparation for threatened or anticipated litigation. . . . Again, even if the SLC's materials qualify for work product protection, they may still be discoverable if the shareholder seeking such discovery from the corporation can demonstrate 'good cause.'"; "In this case, plaintiffs have shown that there are many shareholder interests at stake, including the interests of one of the corporation's largest shareholders, the California Public Employees Retirement System. In addition, plaintiffs have demonstrated that the discovery they seek is not available from other sources since the interviews were not recorded. Plaintiffs have also established that the communications do not necessarily disclose counsel's advice to the SLC regarding this litigation. However, before ordering production of the requested documents, the court will review the documents in camera. . . . The in camera review will protect against disclosure of the mental impressions, conclusions, opinions or legal theories of SLC's counsel."; "Accordingly, it is ordered that the motion to compel is held in abeyance pending the court's in camera review, and it is further ordered that the SLC shall submit the subject documents to the court within 15 days of service of a copy of this decision with notice of entry.")

Case Date Jurisdiction State Cite Checked
2006-12-06 Federal IL
Comment:

key case


Chapter: 6.203
Case Name: In re CBS Corp. Litig., Consol. C.A. No. 2018-0342-AGB, 2018 Del. Ch. LEXIS 231 (Del. Ch. July 13, 2018)
(analyzing an effort by Redstone-controlled NAI (which controls approximately eighty percent of CBS's voting power and ten percent of CBS's economic stake) to discover communications between a CBS board Special Committee and its communications with CBS's regular outside counsel Wachtell Lipton about the Committee's decision to reject Redstone's suggestion to merge CBS and Viacom; acknowledging that NAI did not seek communications with the Special Committee's separate law firms, but also denying NAI discovery of the Special Committee's communications with Wachtell Lipton; "In its motion, the NAI Parties seek to compel the CBS Parties to produce two categories 'of privileged materials involving communications with CBS Counsel from before May 14, 2018:' (1) Communications with and between CBS Counsel and any officer or director of CBS. (2) Communications between the (i) members of the special committees of the CBS Board formed to consider a potential CBS/Viacom transaction or committee counsel, on the one hand, and (ii) CBS Counsel, on the other hand.'"; "The term 'CBS Counsel' is defined as 'in-house and outside counsel to CBS and its board,' which means, for purposes of this motion, in-house counsel and Wachtell Lipton. The NAI Parties contend that the NAI Affiliated Directors are entitled to the above two categories of documents on the theory that they have a right as directors of a Delaware corporation to unfettered access to any legal advice rendered to CBS or other members of its Board as joint clients of CBS Counsel."'; "When the corporation seeks to assert privilege against a director, the corporation 'has the burden to establish when sufficient adversity existed.'"; "Turning to the period from when the 2016 Special Committee was formed in September 2016 until May 14, 2018, a sufficient record exists in my view for the court to provide guidance on the two categories of information the NAI Parties seek for that time period. I begin with the second category. To repeat, that category seeks 'communications between the (i) members of the special committees of the CBS board formed to consider a potential CBS/Viacom transaction or committee counsel, on the one hand, and (ii) CBS Counsel, on the other hand.' In my opinion, the NAI Affiliated Directors (and thus the NAI Parties) are not entitled to this information."; "In asking the Board to consider a potential combination of CBS and Viacom, the NAI Parties placed themselves across the negotiating table from CBS. As such, the NAI Parties created sufficient adversity with CBS such that the NAI Affiliated Directors could not -- to use the court's words from Kalisman [Kalisman v. Friedman, 2013 Del. Ch. LEXIS 100, 2013 WL 1668205 (Del. Ch. April 17, 2013)] – 'have a reasonable expectation that [they were] a client of the board's counsel or the Special Committee's counsel with respect to' matters delegated to the Special Committees. In forming a Special Committee in 2016 and again in 2018 to consider a potential combination, CBS employed appropriate governance procedures that openly put the NAI Affiliated Directors on notice that they would be segregated from the CBS side of the deliberations, including privileged information relating thereto. At that point, the Board -- operating through the Special Committees -- was 'entitled to deliberate -- and receive legal advice -- in confidence and without having to share that advice with the director whose interests are adverse[.]'"; "Consistent with the foregoing, the NAI Parties do not take issue with being segregated from advice provided by counsel that the Special Committees separately retained (White & Case LLP and Weil, Gotshal & Manges LLP). Indeed, the NAI Parties concede that adversity was 'manifest' between the NAI Affiliated Directors and the Special Committees and their separate counsel. The NAI Parties nevertheless assert that the NAI Affiliated Directors are entitled to access communications between CBS Counsel, on the one hand, and the Special Committees and/or their separate counsel, on the other hand. Although no precedent has been cited analyzing this specific issue, I am not persuaded by the NAI Parties' argument and believe that the adversity should have been equally manifest to the NAI Affiliated Directors in this situation as well."; "In short, given the adversity of interests that prompted the creation of the Special Committees and given the mandate they were provided as part of a transparent process, the NAI Affiliated Directors could not have had a reasonable expectation that they were clients of CBS Counsel insofar as CBS Counsel was acting in aid of the process undertaken by either of the Special Committees. To reach the opposite conclusion would undermine the legitimate expectation that the Special Committees' deliberative processes would be held in confidence and would not be shared with designees of the party whose adverse interests necessitated their formation in the first place. Accordingly, the NAI Parties' request to compel the second category of information is denied."; "The first category of information the NAI Parties seek is 'communications with and between CBS Counsel and any officer or director of CBS.' My reasoning with respect to the second category dictates my disposition of this request as well. That is, insofar as the first category seeks any communications between CBS Counsel and an officer or director of CBS that was undertaken in aid of the process of either of the Special Committees, the motion to compel will be denied for the reasons discussed previously. Otherwise, the motion will be granted because no factual basis has been identified to support the conclusion that the NAI Affiliated Directors were made aware (or reasonably should have been aware) that CBS Counsel was not representing them jointly with the other CBS directors with respect to any matter other than the matters falling within the purview of the Special Committees for which CBS Counsel provided assistance."; "Finally, I reject the CBS Parties' request that access to any CBS privileged information that may be provided as a result of this ruling be limited to the NAI Affiliated Directors and not shared with the NAI Parties or their counsel. Apart from the fact that no clear precedent has been cited supporting the imposition of such a condition, practical considerations dictate this conclusion. Given that Ms. Redstone is one of the NAI Affiliated Directors (as well as one of the NAI Parties) and, by all accounts, is the key decision-maker for NAI, it is simply not realistic or practical to believe that any information to which she may become privy as a result of this ruling could be segregated from her thought process as an adversary of CBS in this case. That said, all of the NAI Parties and the NAI Affiliated Directors are bound by the confidentiality order governing the use of discovery material in this action.")

Case Date Jurisdiction State Cite Checked
2018-07-13 State DE

Chapter: 6.203
Case Name: Kirsch v. Dean, No. 17-5650, 2018 U.S. App. LEXIS 11478 (6th Cir. App. May 3, 2018)
(analyzing a dispute between two fifty-percent shareholders, including one's effort to disqualify the other's lawyer because the lawyer had allegedly represented him in a related matter; upholding the trial court's ruling that the company could have sought to disqualify the shareholder's lawyer, but had sought to intervene too late; "According to Dean [One-half owner of the company], Middleton [Lawyer] represented Kirsch, Dean, and ZFX when it reviewed and provided advice on the SRA in 2012, and therefore Middleton could not legally represent Kirsch [Other shareholder] in her current efforts 'to circumvent [the] contract' by objecting to Dean's motion to compel arbitration under the SRA. R. 20-1."; "In response, Kirsch argued that Middleton Reutlinger represented only ZFX [Company half owned by Dean and half owned by Kirsch] in connection with its review of the SRA -- not Dean or Kirsch in their individual capacities. . . As a result, Dean was not a 'former client' and was not 'entitled to even assert an objection.' Id. Kirsch further argued that Dean's delay in objecting to Middleton Reutlinger's involvement in the case amounted to waiver; Middleton's prior representation was not 'substantially related' to the current case; Dean did not previously provide Middleton Reutlinger with confidential information that could be materially adverse to his current interests; Dean failed to identify a 'specific impropriety' associated with Middleton's conduct; and Dean's own attorneys had also previously represented ZFX in other matters, and therefore his 'arguments for Middleton Reutlinger's disqualification warrant the disqualification of his own attorneys.'")

Case Date Jurisdiction State Cite Checked
2018-05-03 Federal

Chapter: 6.203
Case Name: Mirra v. Mirra, Op. No. 136811, Dkt. No. 1484CV03857BLS2, 2017 Mass. Super. LEXIS 54 (Mass. Super. Ct. April 26, 2017)
(analyzing the waiver implications of two minority shareholders in a closely held corporation (brother and sister) sharing privileged communications with another brother, who is also a minority shareholder; noting that the other brother testified that he did not seek legal advice from the lawyer representing his brother and sister, and rejecting his later affidavit claiming that he did; finding that the disclosure waived the brother and sister's attorney-client privilege; "It is undisputed that Anthony never had any express attorney-client relationship with Posternak. In 2010 Lenny, Sandra, and Anthony all met with Attorney Nicholas Nesgos of Posternak to discuss ongoing disputes with the majority shareholders in Mirra Co. (Defendants do not seek disclosure of anything said at that meeting.) Thereafter Lenny and Sandra hired Posternak to represent them. Anthony did not. He never signed an engagement letter with Posternak, never paid Posternak any money, never asked Posternak to represent him, and was never told that Posternak or Attorney Negros was representing him."; "Plaintiffs insist that Anthony nonetheless had an implied attorney-client relationship with Posternak. In an interesting twist, Anthony does not join in that argument and does not oppose the motion to compel production emails he received or sent."; "Plaintiffs' claim that Anthony had an implied attorney-client relationship with Posternak fails to meet the first requirement, because Plaintiffs have not convincingly demonstrated that Anthony ever sought advice or assistance from Attorney Nesgos.")

Case Date Jurisdiction State Cite Checked
2017-04-26 State MA

Chapter: 6.203
Case Name: McKinney/Pearl Restaurant Partners, L.P. v. Metropolitan Life Insurance Co., No. 3:14-cv-2498-B, 2016 U.S. Dist. LEXIS 68354 (N.D. Tex. May 25, 2016)
(finding that the minority owner of a limiited partnership was within privilege protection; "Plaintiff explains that Mr. Lieberman is a minority owner of Sambuca [Plaintiff]; that Sambuca's discussions with Mr. Lieberman were in his capacity as an owner of Sambuca; that Mr. Lieberman is also CEO of The Retail Connection, and certain of The Retail Connection employees were included on some of the communications as indicated in the Affidavit of Kim Forsythe; and that, to the extent these employees were included on privileged communications, they were acting at the direction of Mr. Lieberman as agents in his capacity as minority owner of Sambuca. Plaintiff asserts that, in his capacity as owner, Mr. Lieberman is entitled to attorney-client privilege, and his agents are entitled to the same."; "The Court determines that, through the Affidavit of Kim Forsythe . . .Plaintiff has sufficiently established that Mr. Lieberman and his employees were making or receiving the confidential communications at issue with Plaintiff's counsel while acting in the scope of employment with -- or, in this case, minority ownership of -- Plaintiff (or as agents of the minority owner) for the purpose of effectuating legal representation to Plaintiff. This conclusion is not undermined by Plaintiff also having retained The Retail Connection and Mr. Lieberman to negotiate on Plaintiff's behalf with Defendants. . . . Mr. Lieberman's serving as Plaintiff's agent in any negotiation does not preclude his making or receiving confidential communications while acting within the scope of his role as minority owner for the purpose of effectuating legal representation to Plaintiff, even in connection with the same negotiations.")

Case Date Jurisdiction State Cite Checked
2016-05-25 Federal TX
Comment:

key case


Chapter: 6.302
Case Name: Mun. Auth. of Westmoreland Cnty. v. CNX Gas Co., LLC, Civ. A. No. 2:16-CV-422, 2017 U.S. Dist. LEXIS 209659 (W.D. Pa. Dec. 21, 2017)
("MAWC avers that the emails are not privileged because Fink was acting on behalf of CONE Gathering when he participated in the communications and there was no 'joint client' relationship between Fink and the CONSOL attorneys. . . . The court recognizes that the presence of a third-party generally destroys the attorney-client privilege . . . but Fink was not a third-party. The emails reveal that Fink drafted and received all the communications at issue to and from his CONSOL address. The record is also clear that Fink worked for both CONE Gathering and CONSOL at the time of the emails. . . . The court's in camera review further reveals that all parties to the emails have CONSOL or CNX email addresses, with the exception of attorney Cole DeLancey from Steptoe & Johnson LLC who is copied on three email chains. . . . The court finds that the mere email exposure to outside counsel or individuals with CNX email addresses did not destroy the privilege.")

Case Date Jurisdiction State Cite Checked
2017-12-21 Federal PA

Chapter: 6.302
Case Name: United States v. Owensboro Dermatology Assoc., P.S.C., Civ. A. No. 4:16-mc-00003-JHM, Civ. A. No. 4:16-mc-00004-JHM, Civ. A. No. 4:16-mc-00005-JHM, 2017 U.S. Dist. LEXIS 105099 (D. Ky. July 7, 2017)
(holding that related corporations could safely share privileged communications without waiving the privilege; "[T]he undersigned notes and relies on the affidavit-based roster of relevant persons filed in the record. . . . All relevant persons are either within the law firm or an agent or employee of Respondents. Drs. Crowe and Truett were the joint owners of Beveled Edge and are co-owners of the Insured Entities. Each used the same integrated staff, Sara Elder (Sara Burden) and Angie Grant, to make confidential communications to assist the lawyers in performing legal counseling to Respondents. Brenda Clayton provided accounting and advisory services to Beveled Edge and the Insured Entities. The undersigned finds that she acted as an agent or representative of Beveled Edge and the Insured Entities because it is clear from the emails that Drs. Crowe and Truett had authorized her to make and receive confidential communications for the purpose of assisting the lawyers in performing legal counseling to Beveled Edge and the Insured Entities. Thus, the only issue remaining is whether there has been a waiver of the attorney-client privilege as to the emails."; "The evolution and structure of all three Respondent entities shows an integrated path from the lone captive entity, Beveled Edge, to the Insured Entities. This involved direct and thorough participation of both owners, at logical points, and much of the management and decisional information over time funneled through a common administrative source for Drs. Crowe and Truett. The owners, Drs. Crowe and Truett, jointly retained the law firm MIJS for the purposes of captive management and compliance. The undersigned sees clear commonality of interest, counsel, ownership history, management, insured operation/ownership, and personnel that, in this context, prevents waiver and keeps the privilege intact despite the separate ownership of the later captives, Micro Cap and Cavallo Nero. In assessing the privileged status of the emails at issue, the undersigned has considered the real-world structure of the relationships, including the joint retention of the law firm and the need for legal advice on identical issues and concerns. The undersigned concludes that the common-interest privilege is applicable to the email communications generated in these circumstances.")

Case Date Jurisdiction State Cite Checked
2017-07-07 Federal KY

Chapter: 6.302
Case Name: Robinson Mechanical Contractors Inc. v. PTC Group Holding Corp., Case No. 1:15-CV-77 SNLJ, 2017 U.S. Dist. LEXIS 72636 (E.D. Mo. May 12, 2017)
(holding that a parent and a wholly-owned subsidiary were jointly represented by the same lawyer; "[S]everal Delaware courts have held that parent corporations and their wholly-owned subsidiaries have the same interests 'because all of the duties owed to the subsidiaries flow back up to the parent.'. . . In fact, 'the only interest of a wholly owned subsidiary is in serving its parent.'")

Case Date Jurisdiction State Cite Checked
2017-05-12 Federal MO
Comment:

key case


Chapter: 6.302
Case Name: Robinson Mechanical Contractors Inc. v. PTC Group Holding Corp., Case No. 1:15-CV-77 SNLJ, 2017 U.S. Dist. LEXIS 72636 (E.D. Mo. May 12, 2017)
(holding that a parent and a wholly-owned subsidiary were jointly represented by the same lawyer; "Here, PTC Group [parent of now-dissolved former subsidiary Seamless, possessing Seamless's documents] claims that it can independently assert the attorney-client privilege shared by it and Seamless in the alleged joint-client representation. This is so because, as PTC Group alleges, essentially at all times and for all matters relevant to this action, PTC Group and Seamless shared a common interest and shared in-house counsel, making them joint-clients. This Court agrees that PTC Group may assert the joint-client privilege, on behalf of itself and Seamless, for documents that otherwise qualify as privileged and relate to matters of common interest of the two corporations. For the same reasons, PTC Group can assert Seamless' work product doctrine privilege.")

Case Date Jurisdiction State Cite Checked
2017-05-12 Federal MO
Comment:

key case


Chapter: 6.302
Case Name: Blake v. Harvest New England, LLC, HHDCV166065384S, 2017 Conn. Super. LEXIS 535 (Conn. Super. Ct. March 17, 2017)
(holding that a corporate parent's in-house lawyer also represented the parent's wholly-owned subsidiary; "It is true that Vittiglio is identified in his affidavit as corporate counsel only for Harvest Power, Inc. and no evidentiary basis has been provided that he had or has a direct relationship with the defendant, Harvest New England, LLC. However, the plaintiff provides no authority for the proposition that counsel for a parent company, as a matter of law, does not or cannot act in a professional legal capacity for a wholly owned subsidiary in his investigation of liabilities to which the subsidiary, and consequentially the parent company, might be exposed. The court is of the view, and so finds, that Vittiglio was in fact acting on behalf of both Harvest New England, LLC and Harvest Power, Inc. in the capacity of a professional legal adviser when he directed Davis, also an attorney, to interview Bowman and Brigano to request a statement from de Rahm. Thus, if the documents possess the other attributes required for protection under the attorney-client privilege or as work product they may not be disclosed.")

Case Date Jurisdiction State Cite Checked
2017-03-17 Federal CT

Chapter: 6.302
Case Name: Margulis v. The Hertz Corporation, Civ. A. No. 14-1209 (JMV), 2017 U.S. Dist. LEXIS 28311 (D.N.J. Feb. 28, 2017)
(holding that a corporate family was not "one" client, but that a United States law firm jointly represented a U.S. company and an overseas affiliate; "This is an email between counsel relating to the allegations in the case. Although the lawyers are employed by different Hertz entities, the joint client relationship protects the communication.")

Case Date Jurisdiction State Cite Checked
2017-02-28 Federal NJ

Chapter: 6.302
Case Name: Loop AI Labs Inc. v. Gatti, Case No. 15-cv-00798-HSG (DMR), 2017 U.S. Dist. LEXIS 4254 (N.D. Cal. Jan. 11, 2017)
(finding that a firm represented an Italian company and its subsidiary, even if there was no retainer agreement; "Plaintiff argues that Almawave never established a privileged relationship with Orrick, lacked the ability to assert privilege on behalf of Almaviva S.p.A. and Almawave S.r.l., and therefore did not have standing to move to quash the Orrick subpoena. This argument is without merit. Almawave submitted the declaration of Valeria Sandei, the Chairman and President of Almawave USA and CEO of Almawave S.r.l., in which she stated that Almawave S.r.l. formally engaged Orrick to assist in setting up a United States subsidiary. . . . After the establishment of Almawave USA, Sandei states that 'Orrick served as counsel to both Almawave S.r.l. as well as to Almawave USA, providing legal advice to each company.'. . . Given this undisputed evidence, Almawave could reasonably have believed that Orrick was acting as its attorney during the relevant period, even if Orrick was never formally retained to represent that entity.")

Case Date Jurisdiction State Cite Checked
2017-01-11 Federal CA

Chapter: 6.302
Case Name: Airport Fast Park-Austin, L.P. v. John Hancock Life Ins. Co., Case No. 1:15-cv-245, 2016 U.S. Dist. LEXIS 125931, at *4, *8-9, *9-10 (S.D. Ohio Sept. 15, 2016)
(holding that affiliate corporations with common ownership could communicate within privilege protection; "In the corporate context, it is well-settled that the 'attorney-client privilege is not waived merely because the communications involved extend across corporate structures to encompass parent corporations, subsidiary corporations, and affiliated corporations.' Crabb v. KFC Nat. Management Co., No. 91-5474, 1992 U.S. App. LEXIS 38268, 1992 WL 1321, at *3 (6th Cir. 1992) (citing United States v. American Tel. & Tel. Co., 86 F.R.D. 603, 616 (D.D.C. 1979)."; "The communications AFP seeks to protect from disclosure are privileged communications AFP sent to PCA, which is an affiliated entity by virtue of the entities' common ownership and the overlap in their operations, or that the affiliates' joint counsel exchanged with PCA employees. Cf. Ohio Valley Coal Co. v. Pleasant Ridge Synfuels, LLC, 54 F. App'x 610, 614 (6th Cir. 2002) (upholding a finding that companies were affiliates where one individual served as the CEO of one company and owned and controlled another company)."; "'Chavez Properties' is the name 'loosely use[d] to describe a family of affiliated entities,' including AFP and PCA. . . . The vast majority of Chavez Properties are single-asset entities that are limited liability companies which own parking real estate assets. . . . PCA is a management company which manages the vast majority of the affiliates of Chavez Properties. . . . Manuel Chavez, Robert Chavez and Martin Chavez are the common owners of both Austin Airport Fast Park, LLC, which is the managing partner of AFP, and of PCA, the entity which manages AFP's business. . . . AFP and PCA, though separate entities, share a common attorney and common legal interests. There is nothing in the documentation before the Court or about the parties' relationship that suggests AFP waived the confidentiality of its privileged communications when outside counsel for AFP communicated with employees of PCA on the JHLIC loan transaction or when AFP copied employees of PCA on emails it sent to the parties' joint counsel. Accordingly, the same result reached in Crabb [Crabb v. KFC Nat'l Mgmt. Co., No. 91-5474, 1992 U.S. App. LEXIS 38268 (6th Cir. Jan. 6, 1992)] and Roberts [Roberts v. Carrier Corp., 107 F.R.D. 678 (N.D. Ind. 1985)] is warranted under the facts of this case.").

Case Date Jurisdiction State Cite Checked
2016-09-15 Federal OH

Chapter: 6.302
Case Name: Cohen v. Trump, Civ. No. 13-CV-2519-GPC (WVG), 2015 U.S. Dist. LEXIS 74542 (S.D. Cal. June 9, 2015)
(holding that an executive of a corporate affiliate was within the privilege, so his presence did not destroy the privilege protection, and disclosing privileged communications that did not waive the privilege; "Corporations can claim an attorney-client privilege over their own communications with attorneys, and courts have extended the privilege to communications between a parent corporation and its attorneys which are also communicated to a subsidiary."; "Thus, if a corporation with a legal interest in an attorney-client communication relays it to another related corporation, the attorney-client privilege is not thereby waived."; "The Ninth Circuit has observed in dicta that 'communications between employees of a subsidiary corporation and counsel for the parent corporation, like communications between former employees and corporate counsel, would be privileged if the employee possesses information critical to the representation of the parent company and the communications concern matters within the scope of employment.'. . . Moreover, the clear implication of this dictum -- that a parent corporation and its wholly owned subsidiary should be treated as a single entity for purposes of applying the attorney-client privilege doctrine -- has found support in a number of district court decisions applying federal common law privilege rules.")

Case Date Jurisdiction State Cite Checked
2015-06-09 Federal CA
Comment:

key case


Chapter: 6.302
Case Name: Cohen v. Trump, Civ. No. 13-CV-2519-GPC (WVG), 2015 U.S. Dist. LEXIS 74542 (S.D. Cal. June 9, 2015)
(holding that an executive of a corporate affiliate was within the privilege, so his presence did not destroy the privilege protection, and disclosing privileged communications that did not waive the privilege; "[T]he Court finds that Mr. Weisselberg was the client of Trump Organization for purposes of the 2011 communications, and therefore, the 2011 documents are protected by the attorney-client privilege."; "Defendant has provided a compelling argument that, as CFO of Trump Organization and recipient of a subpoena from the NYAG, Mr. Weisselberg was included in the communications with Trump Organization's in-house counsel for the purpose of obtaining legal advice. The Court finds that Mr. Weisselberg is a proper client representative included in the communications.")

Case Date Jurisdiction State Cite Checked
2015-06-09 Federal CA

Chapter: 6.302
Case Name: Cohen v. Trump, Civ. No. 13-CV-2519-GPC (WVG), 2015 U.S. Dist. LEXIS 74542 (S.D. Cal. June 9, 2015)
August 5, 2015 (PRIVILEGE POINT)

"Court Confirms that Corporations do not Waive Their Privilege by Communicating with Their Affiliates"

The attorney-client privilege provides such a fragile protection that disclosure to nearly any third party waives the protection. Does that general rule apply to communications among corporate affiliates? Surprisingly few decisions have addressed this issue.

In Cohen v. Trump, Civ. No. 13-CV-2519-GPC (WVG), 2015 U.S. Dist. LEXIS 74542 (S.D. Cal. June 9, 2015), the plaintiff claimed that a Trump entity waived its privilege by including in its communication an employee of another Trump entity. The court rejected plaintiff's waiver argument — confirming that "if a corporation with a legal interest in an attorney-client communication relays it to another related corporation, the attorney-client privilege is not thereby waived." Id. At *39. Interestingly, the court primarily relied on a 41-year-old District of South Carolina case. Duplan Corp. v. Deering Milliken, Inc., 397 F. Supp. 1146, 1184-85 (D.S.C. 1974). The most recent case cited by the court was nearly 20 years old. Id. At *39-40. One might have expected the court to rely on more recent case law.

Corporations should take comfort in this latest articulation of a principle that many lawyers think goes without saying.

Case Date Jurisdiction State Cite Checked
2015-06-09 Federal CA
Comment:

key case


Chapter: 6.302
Case Name: Nester v. Textron, Inc., Cause No. A-13-CA-920-LY, 2015 U.S. Dist. LEXIS 28182 (W.D. Tex. March 9, 2015)
("The question governing 10 of the 13 withheld emails is whether Texas law allows attorney client privilege or 'Co-Client/Joint Client Common Interest Privileges' to attach to communications between the in-house counsel of a parent company and managing personnel of a separate corporate entity [described as an 'indirect subsidiary of Textron, Inc.]."; "So long as Mr. Rupp [Textron's in-house counsel] was authorized to represent both RJL [the indirect but ultimately wholly owned subsidiary] and Textron [Parent], it is black letter Texas law that both RJL and Textron's 'communications made to the attorney for the purpose of facilitating the rendition of legal services to the clients are privileged, except in a controversy between the clients.'")

Case Date Jurisdiction State Cite Checked
2015-03-09 Federal TX

Chapter: 6.302
Case Name: United States v. Veolia Env’t N. Am. Operations, Inc., Civ. No. 13-mc-03-LPS, 2014 U.S. Dist. LEXIS 154717, at *22 (D. Del. Oct. 31, 2014)
December 10, 2014 (PRIVILEGE POINT)

“Courts Affirm Privilege Protection for Intracorporate Communications”

In most states (Illinois being the main exception), attorney-client privilege protection extends to communications between a corporation's lawyers and (1) employees with facts the lawyers need, regardless of the employee's place in the hierarchy, and (2) employees with a "need to know" the lawyers' advice about those facts. Most courts also protect ancillary communications that support the corporation's request for and receipt of legal advice.

In Moffatt v. Wazana Brothers International, the court confirmed that the privilege protects "communications relaying legal advice provided by corporate counsel among nonattorney corporate employees who share responsibility 'for the subject matter underlying the consultation.'" Civ. A. No. 14-1881, 2014 U.S. Dist. LEXIS 151326, at *4 (E.D. Pa. Oct. 24, 2014) (citation omitted). Corporations frequently rely on this principle when their adversaries challenge privilege protection for documents whose privilege log entries do not show a lawyer as either the author or a recipient. One week later, the District of Delaware similarly held that the privilege could continue to protect privileged documents "shared within the corporate family, such as those sent to or from" the corporate defendant's French parent -- "[t]o the extent that . . . such involvement was essential to and in futherance of the communications with the attorneys involved." United States v. Veolia Env’t N. Am. Operations, Inc., Civ. No. 13-mc-03-LPS, 2014 U.S. Dist. LEXIS 154717, at *22 (D. Del. Oct. 31, 2014).

Although these justifiable principles provide some comfort, company employees should be warned against intracorporate circulation of privileged communications beyond those with a "need to know."

Case Date Jurisdiction State Cite Checked
2014-10-31 Federal DE
Comment:

key case


Chapter: 6.302
Case Name: Moffatt v. Wazana Brothers International, Civ. A. No. 14-1881, 2014 U.S. Dist. LEXIS 151326, at *4 (E.D. Pa. Oct. 24, 2014)
December 10, 2014 (PRIVILEGE POINT)

“Courts Affirm Privilege Protection for Intracorporate Communications”

In most states (Illinois being the main exception), attorney-client privilege protection extends to communications between a corporation's lawyers and (1) employees with facts the lawyers need, regardless of the employee's place in the hierarchy, and (2) employees with a "need to know" the lawyers' advice about those facts. Most courts also protect ancillary communications that support the corporation's request for and receipt of legal advice.

In Moffatt v. Wazana Brothers International, the court confirmed that the privilege protects "communications relaying legal advice provided by corporate counsel among nonattorney corporate employees who share responsibility 'for the subject matter underlying the consultation.'" Civ. A. No. 14-1881, 2014 U.S. Dist. LEXIS 151326, at *4 (E.D. Pa. Oct. 24, 2014) (citation omitted). Corporations frequently rely on this principle when their adversaries challenge privilege protection for documents whose privilege log entries do not show a lawyer as either the author or a recipient. One week later, the District of Delaware similarly held that the privilege could continue to protect privileged documents "shared within the corporate family, such as those sent to or from" the corporate defendant's French parent -- "[t]o the extent that . . . such involvement was essential to and in futherance of the communications with the attorneys involved." United States v. Veolia Env’t N. Am. Operations, Inc., Civ. No. 13-mc-03-LPS, 2014 U.S. Dist. LEXIS 154717, at *22 (D. Del. Oct. 31, 2014).

Although these justifiable principles provide some comfort, company employees should be warned against intracorporate circulation of privileged communications beyond those with a "need to know."

Case Date Jurisdiction State Cite Checked
2014-10-24 Federal PA
Comment:

key case


Chapter: 6.302
Case Name: In re Fresh and Process Potatoes Antitrust Litig., Case No. 4:10-md-02186-BLW-CWD, 2014 U.S. Dist. LEXIS 74936, at *18 (D. Idaho May 30, 2014)
(discussing the common interest doctrine; "The parties to whom the emails were directed were part of the Offutt organization or an employee of a wholly owned subsidiary of Offutt. The email communications involved legal advice about ongoing litigation. In this case, it would appear that the associational privilege doctrine or the common interest doctrine would be sufficient grounds to maintain the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2014-05-30 Federal ID

Chapter: 6.302
Case Name: SCR-Tech LLC v. Evonik Energy Servs. LLC, 2013 NCBC LEXIS 38 ¶¶ 12, 13, 14, 15 (N.C. Super. Ct. Aug. 13, 2013)
(reviewing the very sparse case law on the issue of privilege protection for communication between corporate affiliates; addressing communications to and from plaintiff SCR-Tech: (1) when the company was partially owned by Ebinger; (2) when the company was then sold to, and wholly owned by, Catalytica, and (3) when the company later entered into a "common interest agreement" with Ebinger, because both faced similar litigation; applying a sort of sliding scale, considering both the percentage of ownership and any "shared legal interest"; concluding that the privilege protected communications during all three situations, because (1) SCR-Tech's shared legal interest with Ebinger meant that the court did not have to determine whether Ebinger's 37.5% ownership (which gave it control) was "too limited" to assure privilege protection by itself; (2) Catalytica's 100% ownership of, and shared legal interest with, SCR-Tech assured privilege protection; and (3) the "common interest" doctrine could protect communications between SCR-Tech and its former controlling shareholder Ebinger even in the absence of any corporate affiliation at that time; "The various authorities often interchangeably refer to the 'joint client' (sometimes referred to as 'single client') privilege and the 'common interest' doctrines without noting the analytical difference between them. The 'joint client' privilege focuses on client identity as defined by the extent of corporate relationship between two entities. The 'common-interest' doctrine depends more on common legal interests between the separate entities, although the fact of corporate affiliation between them can factor into the analysis of that common legal interest. The common-interest doctrine has arisen by expanding the joint-defense doctrine in criminal law, which was not controlled by any ownership relationship."; "In considering the parent-subsidiary extension of the attorney-client privilege, the court considers whether the parent and subsidiary are sufficiently united such that they may properly be considered joint clients. If the degree of common ownership is sufficient to evidence control as to the subject matter of the communications (e.g. one is wholly owned by the other or both are wholly owned by a third party, and share legal counsel), generally, the two corporations will each be considered 'clients' for purposes of the privilege. See generally Teleglobe USA, Inc., 493 F.3d at 370-72 [Teleglobe USA, Inc. v. BCE Inc. (In re Teleglobe Commc'ns Corp.), 493 F.3d 345 (3rd Cir. 2007)]. If this test is met, the court need not further identify an identical legal interest and a joint strategy to pursue that specific legal interest. On the other hand, if the corporate affiliation does not rise to that level, the court still considers the nature of the affiliation, but does so as a part of determining whether a common interest privilege exists because of the commonality of the legal interest represented by the communications. . . . (explaining the differing treatment of wholly-owned and partially-owned subsidiaries)."; "Here, the court notes that there is both a corporate affiliation and, at least before 2004, a shared legal interest, which in combination renders the communications privileged."; "Based on this combination of factors, the court concludes that it need not resolve any issue of whether privilege fails to attach solely because Ebinger's ownership interest in SCR-Tech is too limited.")

Case Date Jurisdiction State Cite Checked
2013-08-13 State NC B 4/14

Chapter: 6.302
Case Name: Clubcom, LLC v. Captive Media. Inc., No. 02: 07-cv-1462, 2009 U.S. Dist. LEXIS 55651 (W.D. Pa. June 30, 2009)
(holding that the attorney-client privilege protected communications between a company's lawyer and employee of its corporate affiliate (although not explaining the nature of the affiliation))

Case Date Jurisdiction State Cite Checked
2009-06-30 Federal PA B 2/14

Chapter: 6.302
Case Name: VEPCO v. Westmoreland-LG&E Partners, 259 Va. 319, 326 (2000)
("Communications between officers and employees of the same entity relayed to corporate counsel for the purpose of obtaining legal advice are entitled to the attorney-client privilege. Owens-Corning Fiberglas Corp. v. Watson, 243 Va. 128, 141, 413 S.E.2d 630, 638 (1992)(citing Upjohn Co. v. United States, 449 U.S. 383, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981)). Under the circumstances of this case, the relationship of Folks, Brown, and Schwenck is tantamount to that of employees of the same entity for purposes of the application of the privilege. WLP is the entity asserting the privilege. Folks and Brown are employed by parent corporations of the WLP partnership. Both Folks and Brown sought to secure legal advice regarding the letter. The Brown letter was prepared in connection with the business of WLP and, as the trial court acknowledged, 'the respective companies were partners on the project sharing a common concern.'" (footnote omitted))

Case Date Jurisdiction State Cite Checked
2000-01-01 State VA

Chapter: 6.302
Case Name: Glidden Co. v. Jandernoa, 173 F.R.D. 459, 472-73 (W.D. Mich. 1997)
("The universal rule of law, expressed in a variety of contexts, is that the parent and subsidiary share a community of interest, such that the parent (as well as the subsidiary) is the 'client' for purposes of the attorney-client privilege. See Crabb v. KFC Nat'l Man. Co., 1992 U.S. App. LEXIS 38268, 1992 WL 1321 (6th Cir. 1992) ('The cases clearly hold that a corporate 'client' includes not only the corporation by whom the attorney is employed or retained, but also parent, subsidiary and affiliate corporations.') (quoting United States v. AT&T, 86 F.R.D. 603, 616 (D.D.C. 1979)). Consequently, disclosure of legal advice to a parent or affiliated corporation does not work a waiver of the confidentiality of the document, because of the complete community of interest between parent and subsidiary. Id. at *2. Numerous courts have recognized that, for purposes of the attorney-client privilege, the subsidiary and the parent are joint clients, each of whom has an interest in the privileged communications. See, e.g., Polycast Tech. Corp. v. Uniroyal, Inc., 125 F.R.D. 47, 49 (S.D.N.Y. 1989); Medcom Holding Co. v. Baxter Travenol Lab., 689 F. Supp. 841, 842 (N.D. Ill. 1988). Simply put, a sole shareholder has a right to complete disclosure about the legal affairs of its wholly owned subsidiary.")

Case Date Jurisdiction State Cite Checked
1997-01-01 Federal MI B 6/13

Chapter: 6.302
Case Name: Crabb v. KFC Nat'l Mgmt. Co., No 91-5474, 1992 U.S. App. LEXIS 38268, at *7-8 (6th Cir. Jan. 6, 1992)
("It is well settled that attorney-client privilege is not waived merely because the communications involved extend across corporate structures to encompass parent corporations, subsidiary corporations, and affiliated corporations.")

Case Date Jurisdiction State Cite Checked
1992-01-06 Federal B 8/13

Chapter: 6.302
Case Name: United States v. Under Seal (In re Grand Jury Subpoenas 89-3 & 89-4, John Doe 89-129), 902 F.2d 244, 247, 247-48, 248, 249, 250 (4th Cir. 1990)
(holding that a parent and subsidiary corporation could enter into a valid common interest agreement although the subsidiary was not a named party -- because the subsidiary was the "real party in interest"; concluding that the valid common interest agreement prevented the subsidiary from unilaterally waiving the attorney-client privilege and protected documents relating to the common interest participants' prosecution of a claim against the Army and defense of the Army's counterclaim; agreeing with the district court that the subsidiary could unilaterally control its own privilege once it had been sold to another company, and that the parent had no control over documents created by the subsidiary after it was sold; assessing a situation described more fully in the district court's opinion (In re Grand Jury Subpoenas 89-3, 89-4 & 89-129, 734 F. Supp. 1207 (E.D. Va. 1990)) in which a government grand jury subpoenaed documents relating to possible fraud in connection with a government contract; explaining a company ["Movant"] objected to the grand jury subpoena on attorney-client privilege and work product grounds; explaining that the district court had divided the subpoenaed documents into three categories: (1) documents created by one of Movant's divisions while it was undertaking the contractual work; (2) documents created by the division after it had become a Subsidiary of Movant; and (3) documents created by Subsidiary after Movant had sold controlling interest in Subsidiary to independent investors; noting that the Subsidiary had advised Movant and the government that it wished to cooperate with the grand jury and to produce the responsive documents; [Although not described fully in the Fourth Circuit opinion, the district court found that: (1) as to the Category 1 documents, generated by the division that was then part of Movant, it was "unclear" whether the Subsidiary gained ownership of any privilege covering those documents when the division became a subsidiary, but that it was unnecessary to resolve "this somewhat metaphysical issue" because Movant "permitted at least some of these documents to remain in the Subsidiary's custody and control" after selling the Subsidiary, and therefore "effectively waived its privilege with respect to these documents" meaning that the now-independent Subsidiary could waive the privilege and work product protections as to those documents (734 F. Supp. at 1213); (2) as to the Category 2 documents, generated by Subsidiary when it was owned by Movant, Movant could not block Subsidiary's waiver of those documents in its possession because the "joint defense privilege" did not give both Movant and Subsidiary veto power over the other's waiver the joint defense doctrine did not cover documents created while Movant and Subsidiary were merely "cooperating to assert [Movant's] claim" against the Army in seeking to recover under the underlying government contract; acknowledging that Subsidiary would have received a portion of whatever amount was ultimately recovered from the Army in connection with that claim, but that "[t]o extend the joint defense privilege to non-parties simply because they are financially interested in the litigation stretches the rationale for the privilege beyond its reach" (734 F. Supp. at 1212); and (3) as to the Group 3 documents, created by the newly-independent Subsidiary, finding that Movant had no control over those documents, and Subsidiary could produce them to the government.]; affirming the district court's analysis as to any document not related to what the Fourth Circuit described as "prosecution of the claim against the Army for an equitable adjustment and those prepared for the defense of the counter-claim" which involved "joint efforts on the part of Movant and Subsidiary"; agreeing with Movant that such "claim-related documents are subject to a joint defense privilege that Subsidiary cannot waive without Movant's consent"; acknowledging that Subsidiary "was not named as party in either the civil claim against the Army or in the Army's counter-claim," but finding that "persons who share a common interest in litigation should be able to communicate with their respective attorneys and with each other to more effectively prosecute or defend their claims," and thus the common interest doctrine applied to Movant's and Subsidiary's "joint prosecution of a claim against the Army, as well as in the joint defense of the Army's counterclaim. Although Subsidiary was not a named party, it was the real party in interest. Recovery would inure to it."; holding that the district court's ruling was in error because it was "apparently based on the notion that the joint defense privilege is limited to codefendants" [although the district court's opinion instead was based on the fact that Subsidiary was not a party to any litigation, not on the fact that the Subsidiary was not a co-defendant]; in analyzing the Category 1 documents, rejecting the government's argument that the joint defense privilege could not apply because the creating entity was then a division of Movant rather than a separate entity; holding that "[t]he rationale underlying the joint defense privilege focuses not on when documents were generated, but on the circumstances surrounding the disclosure of privileged documents to a jointly interested third party"; explaining that here the disclosure "occurred on the day Movant incorporated Subsidiary as a separate entity," and was made to allow Subsidiary "to continue to participate in the ongoing litigation"; ultimately holding that "all documents that relate to the prosecution of the claim against the Army or to the defense of the Army's counterclaim, and which are subject to the attorney-client or work-product privilege, are subject to a joint defense privilege that Subsidiary may not waive unilaterally"; reversing the district court's opinion to that extent)

Case Date Jurisdiction State Cite Checked
1990-01-01 Federal

Chapter: 6.302
Case Name: United States v. AT&T, 86 F.R.D. 603, 616 (D.D.C. 1979)
("The cases clearly hold that a corporate 'client' includes not only the corporation by whom the attorney is employed or retained, but also parent, subsidiary, and affiliate corporations. We found no cases in which there was a consideration of the degree of ownership required to give rise to the parent, subsidiary, or affiliate relationship. The cases in which the issue has arisen as to the identity of the client also involved facts in which the two related corporations had a substantial identity of legal interest in the matter in controversy. In such circumstances, notwithstanding that the corporations were distinct, the representation by the attorney was common or joint representation and hence the communications among them were still covered by the attorney-client privilege. If the claimant of the privilege can show a substantial identity of legal interest in the specific matter, it therefore makes no difference whether the two corporations were so affiliated as to be a single 'client.' But if there is no such community of interest in seeking advice, for example when the matter is transmitted simply for information, the question of closeness of affiliation may arise.")

Case Date Jurisdiction State Cite Checked
1979-01-01 Federal DC B 6/13

Chapter: 6.303
Case Name: Margulis v. The Hertz Corporation, Civ. A. No. 14-1209 (JMV), 2017 U.S. Dist. LEXIS 28311 (D.N.J. Feb. 28, 2017)
(holding that a corporate family was not "one" client, but that a United States law firm jointly represented a U.S. company and an overseas affiliate; "This raises the question of, in the context of the attorney-client privilege, who exactly is the attorney and who exactly is the client when considering privilege questions in the context of multiple-related companies with a centralized in-house legal department."; "Of course, the particular facts and circumstances of the corporate structures and relationships must be such that there is an actual joint attorney-client relationship between the in-house counsel and the corporation that the attorney represents. A joint representation -- that is, that a given lawyer actually has as separate clients the individual members of a larger corporate family -- will always be a fact specific inquiry. Simply stating it does not make it so.")

Case Date Jurisdiction State Cite Checked
2017-02-28 Federal NJ
Comment:

key case


Chapter: 6.303
Case Name: Au New Haven, LLC v. YKK Corp., No. 15-CV-03411 (GHW)(SN), 2016 U.S. Dist. LEXIS 160602, at *20 (S.D.N.Y. Nov. 18, 2016)
January 18, 2017 (PRIVILEGE POINT)

"Southern District of New York Issues a Troublesome Corporate Privilege Case"

Most courts applying privilege principles automatically treat wholly-owned subsidiaries' employees as if they were the parent's employees. However, occasionally courts take a narrower view.

In Au New Haven, LLC v. YKK Corp., Judge Netburn rejected defendants' argument that "entities under common ownership sharing privileged information are always considered to be a single entity for the purpose of attorney-client privilege" protection. No. 15-CV-03411 (GHW)(SN), 2016 U.S. Dist. LEXIS 160602, at *20 (S.D.N.Y. Nov. 18, 2016). Instead, the court surprisingly held that "[e]ntities that are under common ownership must still demonstrate that [the common interest doctrine] applies, such as by making a showing that a common attorney was representing both corporate entities or that they otherwise shared a common legal interest." Id. at *10. The court ultimately found the privilege applicable.

Although almost by definition a wholly-owned subsidiary's legal interest must align with its parent's legal interest, it is unsettling that a prestigious court would apply the common interest doctrine in such a setting.

Case Date Jurisdiction State Cite Checked
2016-11-18 Federal NY
Comment:

key case


Chapter: 6.303
Case Name: Au New Haven, LLC v. YKK Corp., 15-CV-03411 (GHW) (SN), 2016 U.S. Dist. LEXIS 160602 (S.D.N.Y. Nov. 18, 2016)
(holding that certain corporate affiliates must satisfy the common interest agreement to successfully assert privilege and avoid waiver for their communications with each other; "Plaintiffs argue that Document 3 should nevertheless be revealed because YKK Corporation and its wholly owned subsidiary YKK Corporation of America (YCA) do not share a common legal interest. Because Attorney John Castellano was Chief Legal Counsel of YCA, Plaintiffs contend that any communications he had with YKK Corporation and any communications incorporating his advice forwarded by employees of YKK Corporation would lose their privilege by virtue of having been disseminated to a third party. They further argue that the common interest rule does not apply because (1) only YKK Corporation, and not YCA, admitted that they were party to the License Agreement at issue in this case pursuant to plaintiffs' Requests for Admissions and (2) YCA and other YKK affiliates denied that they were jointly and severally liable for the actions of YKK Corporation. Defendants, for their part, counter that entities under common ownership sharing privileged information are always considered to be a single entity for the purpose of attorney-client privilege. Music Sales, 1999 U.S. Dist. LEXIS 16433, 1999 WL 974025, at *7 (holding that corporations related through ownership or control need not prove common legal interest)."; "The Court does not adopt the per se standard that Defendants urge; in certain circumstances, commonly owned subsidiaries simply do not have the common purpose in litigation necessary for the invocation of the doctrine. . . . For example, in Gulf Lands Leasing v. Bombardier Capital, Inc., 215 F.R.D. 466 (S.D.N.Y. 2003), the court considered the case of two defendant subsidiaries that were wholly owned by the same corporation. Although the corporations shared a common commercial interest in the success of the litigation, they had two different agreements with the plaintiff, separate legal counsel, and showed no indicia of coordinating a legal strategy beyond occasional discussions between co-counsel. Id. at 473. On this record, the court found that communications between the two companies were not privileged. This approach, which considers the real relationship between companies and their counsel, is preferable considering the great diversity of legal and factual scenarios that corporate litigation presents."; "Nevertheless, in this case, Defendants have amply proven that YKK Corporation and YCA may invoke the common interest doctrine to maintain their communications privileged.")

Case Date Jurisdiction State Cite Checked
2016-11-18 Federal NY
Comment:

key case


Chapter: 6.303
Case Name: Au New Haven, LLC v. YKK Corp., 15-CV-03411 (GHW) (SN), 2016 U.S. Dist. LEXIS 160602 (S.D.N.Y. Nov. 18, 2016)
(holding that certain corporate affiliates must satisfy the common interest agreement to successfully assert privilege and avoid waiver for their communications with each other; "Entities that are under common ownership must still demonstrate that this rule applies, such as by making a showing that a common attorney was representing both corporate entities or that they otherwise shared a common legal interest. Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D. 466, 473 (S.D.N.Y. 2003) ('Proponent[s] of the privilege may not rely solely on the fact that the entities at issue are affiliated with each other.'); but see Music Sales Corp. v. Morris, No. 98-CV-9002 (SAS)(FM), 1999 U.S. Dist. LEXIS 16433, 1999 WL 974025, at *7 (S.D.N.Y. Oct. 26, 1999) (finding that communications from '[c]orporations which are related through common ownership or control . . . . are treated in the same way as intra-corporate communications' without demonstrating that they have a common legal interest).")

Case Date Jurisdiction State Cite Checked
2016-11-18 Federal NY
Comment:

key case


Chapter: 6.303
Case Name: Au New Haven, LLC v. YKK Corp., No. 15-CV-03411 (GHW)(SN), 2016 U.S. Dist. LEXIS 160602, at *20 (S.D.N.Y. Nov. 18, 2016)
January 18, 2017 (PRIVILEGE POINT)

"Southern District of New York Issues a Troublesome Corporate Privilege Case"

Most courts applying privilege principles automatically treat wholly-owned subsidiaries' employees as if they were the parent's employees. However, occasionally courts take a narrower view.

In Au New Haven, LLC v. YKK Corp., Judge Netburn rejected defendants' argument that "entities under common ownership sharing privileged information are always considered to be a single entity for the purpose of attorney-client privilege" protection. No. 15-CV-03411 (GHW)(SN), 2016 U.S. Dist. LEXIS 160602, at *20 (S.D.N.Y. Nov. 18, 2016). Instead, the court surprisingly held that "[e]ntities that are under common ownership must still demonstrate that [the common interest doctrine] applies, such as by making a showing that a common attorney was representing both corporate entities or that they otherwise shared a common legal interest." Id. at *10. The court ultimately found the privilege applicable.

Although almost by definition a wholly-owned subsidiary's legal interest must align with its parent's legal interest, it is unsettling that a prestigious court would apply the common interest doctrine in such a setting.

Case Date Jurisdiction State Cite Checked
2016-11-18 Federal NY
Comment:

key case


Chapter: 6.303
Case Name: IFG Port Holdings, LLC v. Lake Charles Harbor & Terminal District, No. 16-cv-00146, 2016 U.S. Dist. LEXIS 42223, at *4 (W.D. La. Mar. 29, 2016)
May 18, 2016 (PRIVILEGE POINT)

"Court Issues a Surprising Common Interest Doctrine Decision"

The common interest doctrine can sometimes allow separately represented clients to avoid the normal waiver implications of disclosing privileged communications to each other. However, courts take widely varying views of the doctrine's reach, and reject its applicability in about half of the reported cases — after the participants have already shared privileged communications, and therefore waived their respective privileges.

In IFG Port Holdings, LLC v. Lake Charles Harbor & Terminal District, plaintiff claimed that defendant's in-house lawyer (who jointly represented the defendant and its "direct subsidiary") waived privilege protection by sending an email to several of defendants employees — and one subsidiary employee. No. 16-cv-00146, 2016 U.S. Dist. LEXIS 42223, at *4 (W.D. La. Mar. 29, 2016). Defendant argued that such disclosure did not waive defendant's privilege, because the defendant shared a common interest with its own subsidiary. The court found the common interest doctrine inapplicable — because the subsidiary did not face any litigation threat. The court quoted plaintiff, which indicated that "it has no intention of ever making [the subsidiary] a party to this litigation." Id. At *5. Thus, the court held that defendant waived its privilege by disclosing the communication "to an employee of a non-party" — its own subsidiary. Id. Fortunately for defendant, the court also found the work product doctrine applicable, and held that disclosing the email to the subsidiary did not waive that separate protection.

This is a remarkable decision. The common interest doctrine should never have become an issue, because the in-house lawyer jointly represented the parent and its subsidiary. And the court's apparent insistence that every common interest participant must itself anticipate litigation could reward some obvious mischief — plaintiffs could threaten a number of possible defendants, but later disclaim any intent to sue one of them. All in all, cases like this highlight the risk of relying on the common interest doctrine.

Case Date Jurisdiction State Cite Checked
2016-03-29 Federal LA
Comment:

key case


Chapter: 6.303
Case Name: United States v. Veolia Environment N.A. Operations, Civ. No. 13-mc-03-LPS, 2014 U.S. Dist. LEXIS 15417 (D. Del. Oct. 31, 2014)
(finding that corporate affiliates had a common interest, and therefore did not waive privilege protection by sharing privileged communications; "[T]he Court is persuaded that 'Taxpayer . . . Had common interests with its parent and other affiliated entities' and there was no waiver of protection by virtue of these documents being shared among members of the VE corporate family.")

Case Date Jurisdiction State Cite Checked
2014-10-31 Federal DE

Chapter: 6.303
Case Name: In re Fundamental Long Term Care, Inc. v. Gen. Elec. Capital Corp., Case No. 8:11-bk-22258-MGW, Chapter 7, Adv. No. 8:13-ap-00893-MGW (consolidated), 2014 Bankr. LEXIS 3927, at *13-14 (M.D. Fla. Sept. 12, 2014)
(in this and a later opinion (In re Fundamental Long Term Care, Inc. v. Gen. Elec. Capital Corp., Chapter 7, Case No. 8:11-bk-22258-MGW, Adv. No. 8:13-ap-00893-MGW (consolidated), 2014 Bankr. LEXIS 4060 (M.D. Fla. Sept. 20, 2014)); analyzing the co-client "exception" to the attorney-client privilege; concluding that Kirkland & Ellis represented in litigation two companies who are now adversaries, and therefore could now obtain and use privileged communications from their joint representation in their current dispute; finding that the law firm did not jointly represent the two companies in a transaction; later taking steps to avoid disclosure to one of the former joint clients' current litigation adversaries in a privileged communication disclosed during the trial of the dispute between the former joint clients; "According to the Third Circuit Court of Appeals' somewhat recent decision in In re Teleglobe Communications, a communication by an attorney to an officer of a parent corporation is privileged even if the officer of the parent also serves as an officer or director for a subsidiary corporation. As the Third Circuit observed, individuals often serve as officers and directors of parent and subsidiary corporations. And courts generally presume that an officer is wearing his or her 'parent hat' -- not the 'subsidiary hat' -- when acting for the parent. Under the Third Circuit's analysis, which this Court agrees with, documents disclosed to Bennett, Fulchino, and Nolan are privileged unless they were disclosed to those individuals in their capacity as THMI employees.")

Case Date Jurisdiction State Cite Checked
2014-09-12 Federal FL

Chapter: 6.303
Case Name: In re Fresh and Process Potatoes Antitrust Litig., Case No. 4:10-md-02186-BLW-CWD, 2014 U.S. Dist. LEXIS 74936, at *41 (D. Idaho May 30, 2014)
(discussing the common interest doctrine; "Common ownership or control may relax the standard somewhat, but to be treated as one entity for attorney-client privilege purposes, the corporation must either be closely affiliated or share an identity of legal interest.")

Case Date Jurisdiction State Cite Checked
2014-05-30 Federal ID

Chapter: 6.303
Case Name: MA Equip. Leasing I, LLC v. Tilton, 980 N.E.2d 1072, 1081, 1086 (Ohio Ct. App. 2012)
(finding that affiliates in a corporate family were not joint clients, and did not share a common interest; "Appellants broadly maintain that, where corporate parents, subsidiaries, and/or affiliates are under common ownership or control, the attorney-client privilege attaches to intra-group communications with counsel, based on the entities' unity of interest. Although courts frequently apply the attorney-client privilege in circumstances involving corporate parents, subsidiaries, and/or affiliates, the relevant case law suggests limitations not allowed by the broad rule appellants propose."; "The question here is whether appellants were clients of Waterworks' attorneys or whether their relationship to Waterworks nevertheless allows them to assert the attorney-client privilege. To demonstrate the availability of the attorney-client privilege as joint clients, the trial court stated that appellants were required to show that Waterworks' counsel performed work for both Waterworks and appellants and that appellants and Waterworks shared a common interest. . . . 'The majority-and more sensible-view is that even in the parent-subsidiary context a joint representation only arises when common attorneys are affirmatively doing legal work for both entities on a matter of common interest.'). Appellants failed to point to any evidence that Waterworks' counsel performed work on appellants' behalf." (citation omitted); "Corporate affiliates are not joint clients as a matter of law.")

Case Date Jurisdiction State Cite Checked
2012-01-01 State OH B 8/13

Chapter: 6.303
Case Name: United States v. Under Seal # 4 (In re Grand Jury Subpoena # 06-1), 274 F. App'x 306, 310-11 (4th Cir. 2008)
("Subsidiary argues that it may assert a joint attorney-client privilege in the communications between Parent and Counsel because of its status as a former subsidiary of Parent. . . . Indeed, a number of courts have held that close corporate affiliation, including that shared by a parent and a subsidiary, suffices to render those entities "joint clients" or "co-clients," such that they may assert joint privilege in communications with an attorney pertaining to matters of common interest. . . . As the Third Circuit has explained in some detail, however, the scope of the joint client or co-client privilege is circumscribed by the 'limited congruence of the clients' interests.' [See] In re Teleglobe Communs. Corp., 493 F.3d at 362-63 [3d Cir. 2007)] ('As the Restatement notes, a co-client relationship is limited by "the extent of the legal matter of common interest.'" (quoting the Restatement (Third) of the Law Governing Lawyers § 75 cmt. c)); see also id. at 366 ('[B]ecause co-clients agree to share all information related to the matter of common interest with each other and to employ the same attorney, their legal interests must be identical (or nearly so) in order that an attorney can represent them all with the candor, vigor, and loyalty that our ethics require.' (emphasis added)). In the present case, the district court held that Subsidiary failed to demonstrate that the withheld communications pertained to a matter in which both Parent and Subsidiary shared a common legal interest, and thus Subsidiary lacked standing to intervene to quash the subpoena. After reviewing Subsidiary's ex parte submissions in support of its claim to the contrary, we conclude that the district court did not err in its determination. Subsidiary has failed to demonstrate that the communications reflected any 'legal matter of common interest.' See Restatement (Third) of the Law Governing Lawyers § 75 cmt. c. Therefore, it has not satisfied its burden of establishing that the joint client or co-client privilege applies, and the district court properly denied its motion to intervene.")

Case Date Jurisdiction State Cite Checked
2008-01-01 Federal B 8/13

Chapter: 6.303
Case Name: Teleglobe Commc'ns Corp. v. BCE Inc. (In re Teleglobe Commc'ns Corp.), 493 F.3d 345, 379 (3d Cir. 2007)
("The majority -- and more sensible -- view is that even in the parent-subsidiary context a joint representation only arises when common attorneys are affirmatively doing legal work for both entities on a matter of common interest. See, e.g., Polycast, 125 F.R.D. at 49 [Polycast Tech. Corp. v. Uniroyal, Inc., 125 F.R.D. 47 (S.D.N.Y. 1989)](finding a joint representation when a parent's officer and general counsel affirmatively advised subsidiary on how to comply with merger agreement to which parent and subsidiary were both parties). A broader rule would wreak havoc because it would essentially mean that in adverse litigation a former subsidiary could access all of its former parent's privileged communications because the subsidiary was, as a matter of law, within the parent entity's community of interest.")

Case Date Jurisdiction State Cite Checked
2007-01-01 Federal B 6/13

Chapter: 6.303
Case Name: United States v. AT&T, 86 F.R.D. 603, 616-17 (D.D.C. 1979)
("As for the companies in which AT&T owns a minority interest, apparently AT&T's interest in no case exceeds 30 percent, a position that has been virtually unchanged for at least 20 years. These companies appear to have an autonomous corporate life of their own and, therefore, should be treated as independent of AT&T.")

Case Date Jurisdiction State Cite Checked
1979-01-01 Federal DC B 6/13

Chapter: 6.401
Case Name: Virtue Global Holdings Ltd. v. Rearden LLC, Case No. 15-cv-00797-JST (SK), 2016 U.S. Dist. LEXIS 53076, at *14 (N.D. Cal. Apr. 5, 2016)
("This issue -- whether Plaintiff or Rearden Mova assumed all assets and liabilities of Original MO2, is the heart of this entire lawsuit. The ruling on this issue is not case dispositive but limited to the narrow question of whether Defendants have met their burden to show that Rearden Mova or some other named Defendant has obtained the ability to assert the attorney-client privilege for Original MO2.")

Case Date Jurisdiction State Cite Checked
2016-04-20 Federal CA B 8/16

Chapter: 6.401
Case Name: In re Fundamental Long Term Care, Inc. v. Gen. Elec. Capital Corp., Case No. 8:11-bk-22258-MGW, Chapter 7, Adv. No. 8:13-ap-00893-MGW (consolidated), 2014 Bankr. LEXIS 3927, at *15-16 (M.D. Fla. Sept. 12, 2014)
(in this and a later opinion (In re Fundamental Long Term Care, Inc. v. Gen. Elec. Capital Corp., Chapter 7, Case No. 8:11-bk-22258-MGW, Adv. No. 8:13-ap-00893-MGW (consolidated), 2014 Bankr. LEXIS 4060 (M.D. Fla. Sept. 20, 2014)); analyzing the co-client "exception" to the attorney-client privilege; concluding that Kirkland & Ellis represented in litigation two companies who are now adversaries, and therefore could now obtain and use privileged communications from their joint representation in their current dispute; finding that the law firm did not jointly represent the two companies in a transaction; later taking steps to avoid disclosure to one of the former joint clients' current litigation adversaries in a privileged communication disclosed during the trial of the dispute between the former joint clients; "Taking into account all of the relevant circumstances, it would not have been reasonable for THMI to infer it was a client of Kirkland & Ellis with respect to the March 2006 transaction. To begin with, the retainer agreement between Kirkland & Ellis and THI specifically provides the attorney-client relationship is between the firm and THI and that no subsidiary of THI -- i.e., THMI -- had the status of a 'client.' On top of that, the March 2006 transaction culminated in a stock purchase agreement that likewise provided that THI 'retained Kirkland & Ellis . . . To act as its counsel in connection with the transactions" and "that none of the other parties has the status of a client of [Kirkland].' And even if THMI somehow could have inferred it was a client, the stock purchase agreement expressly provided that the 'attorney-client privilege and the expectation of client confidence belongs to [THI]' and that it 'shall not pass to or be claimed by [the Debtor] or [THMI].' So the Trustee (standing in the shoes of THMI) is not entitled to invoke the co-client exception to obtain documents relating to the March 2006 transaction.")

Case Date Jurisdiction State Cite Checked
2014-09-12 Federal FL

Chapter: 6.401
Case Name: Newspring Mezzanine Capital II, L.P. v. Hayes, Jr., Civ. A. No. 14-1706, 2014 U.S. Dist. LEXIS 169900 (E.D. Pa. Dec. 9, 2014)
(analyzing protection of privileged transaction-related documents between a law firm which helped a number of owners of a company sell the company stock to the new owners; ultimately finding that the new company management owned the transactional communications; "The most useful point of departure is the contract of representation whereby Wishart Norris [crafted many of the documents necessary to effect the transactions that created 'New' Utilipath, a Delaware corporation, and transferred control of 'Old' Utilipath to the newly created entity Utilipath through Utilipath Holdings] was retained. The retention letter stated that it related to 'this Firm's representation of Utilipath, LLC ('the Company'). The letter also cautioned, 'The advice and communications which we render on the Company's behalf are not intended to be disseminated to or relied upon by any other parties without our written consent' (emphasis added). The signature line identified Utilipath LLC and identified Jarrod Hayes as a 'manager.' Jarrod Hayes did not separately sign as an individual, and neither did his father, Baxter Hayes, Jr., or brother, Baxter Hayes, III. The Baxter Parties seize on the reference to Wishart Norris representing 'your interests in Utilipath' in the letter's opening paragraph as evidence of a broader representation. However, that phrase appears in the introduction of the letter and is followed by repeated clear statements that Wishart Norris was undertaking representation of the 'company,' rather than the individual owners or directors. In fact, the letter was addressed only to Jarrod Hayes, not his father or brother, and he accepted the representation in the capacity of a corporate officer. In fact there is no ambiguity in the scope of representation set forth in the agreement retaining counsel: Utilipath was the sole client."; "I also find nothing in Wishart Norris' actions that indicate it was representing any of the Baxter Parties as individuals in addition to representing the corporations. Further supporting my conclusion is the fact that Baxter, Jarrod, and Lindon Hayes had retained their own personal counsel."; "[I]n the situation before me, Wishart Norris was explicitly retained by Old Utililpath to carry out the Utilipath transaction, and other lawyers were retained to personally represent the parties in the transaction. Under Bevill [In re Bevill, Bresler & Schulman Asset Management Corporation, 805 F.2d 120 (3rd Cir. 1986)], the individuals asserting the privilege have a specific burden, which they have failed to meet.")

Case Date Jurisdiction State Cite Checked
2014-09-09 Federal PA
Comment:

key case


Chapter: 6.401
Case Name: In re Grand Jury Subpoenas, 734 F. Supp. 1207, 1211 n.5 (E.D. Va. 1990)
("Of course, the parties are free to vary this result by contract. The entity selling control may condition the sale on the purchaser's agreement to grant the seller a veto over any future privilege waivers involving documents generated during the period of seller's ownership. In the absence of such a contract provision, the parties are treated as having contracted on the assumption that, after the sale, the management of the divested corporation will control the attorney client privilege as to these documents."), aff'd in part and vacated in part on other grounds, 902 F.2d 244 (4th Cir. 1990).

Case Date Jurisdiction State Cite Checked
1990-01-01 Federal VA B 3/16

Chapter: 6.401
Case Name: In re Grand Jury Subpoenas 89-3 & 89-4 & 89-129, 734 F. Supp. 1207, 1211 n.3 (E.D. Va. 1990)
("A transfer of assets, without more, is not sufficient to effect a transfer of the privileges; control of the entity possessing the privileges must also pass for the privileges to pass."), aff'd in part and vacated in part on other grounds, 902 F.2d 244 (4th Cir. 1990).

Case Date Jurisdiction State Cite Checked
1990-01-01 Federal VA yes
Comment:

key case


Chapter: 6.402
Case Name: Newspring Mezzanine Capital II, L.P. v. Hayes, Jr., Civ. A. No. 14-1706, 2014 U.S. Dist. LEXIS 169900 (E.D. Pa. Dec. 9, 2014)
(holding that a company owned the privilege when it sold the stock of a company, because the law firm assisting the company did not represent the individual selling shareholders as personal clients; "The Baxter Parties insist that they retain the right to assert attorney-client privilege over communications with Wishart Norris pre-merger because they were the sellers of a controlling interest in Old Utilipath. In support of this position, they analogize the current situation to Tekni-Plex v. Meyner and Landis, 89 N.Y.2d 123, 674 N.E.2d 663, 651 N.Y.S.2d 954 (Ct. Ap. N.Y. 1996)."; "The most useful point of departure is the contract of representation whereby Wishart Norris was retained. The retention letter stated that it related to 'this Firm's representation of Utilipath, LLC ('the Company').' The letter also cautioned, 'The advice and communications which we render on the Company's behalf are not intended to be disseminated to or relied upon by any other parties without our written consent' (emphasis added). The signature line identified Utilipath LLC and identified Jarrod Hayes as a 'manager.' Jarrod Hayes did not separately sign as an individual, and neither did his father, Baxter Hayes, Jr., or brother, Baxter Hayes, III."; "I also find nothing in Wishart Norris' actions that indicate it was representing any of the Baxter Parties as individuals in addition to representing the corporations. Further supporting my conclusion is the fact that Baxter, Jarrod, and Lindon Hayes had retained their own personal counsel."; "In contrast, in the situation before me, Wishart Norris was explicitly retained by Old Utilipath to carry out the Utilipath transaction, and other lawyers were retained to personally represent the parties in the transaction. Under Bevill [In re Bevill, Bresler & Schulman Asset Management Corporation, 805 F.2d 120 (3d Cir. 1986)], the individuals asserting the privilege have a specific burden, which they have failed to meet."; "Because Wishart Norris represented the corporation, the corporation's post-merger owners took control of the corporation's attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2014-12-09 Federal PA

Chapter: 6.402
Case Name: In re Fundamental Long Term Care, Inc. v. Gen. Elec. Capital Corp., Case No. 8:11-bk-22258-MGW, Chapter 7, Adv. No. 8:13-ap-00893-MGW (consolidated), 2014 Bankr. LEXIS 3927, at *15-16 (M.D. Fla. Sept. 12, 2014)
(in this and a later opinion (In re Fundamental Long Term Care, Inc. v. Gen. Elec. Capital Corp., Chapter 7, Case No. 8:11-bk-22258-MGW, Adv. No. 8:13-ap-00893-MGW (consolidated), 2014 Bankr. LEXIS 4060 (M.D. Fla. Sept. 20, 2014)); analyzing the co-client "exception" to the attorney-client privilege; concluding that Kirkland & Ellis represented in litigation two companies who are now adversaries, and therefore could now obtain and use privileged communications from their joint representation in their current dispute; finding that the law firm did not jointly represent the two companies in a transaction; later taking steps to avoid disclosure to one of the former joint clients' current litigation adversaries in a privileged communication disclosed during the trial of the dispute between the former joint clients; "Taking into account all of the relevant circumstances, it would not have been reasonable for THMI to infer it was a client of Kirkland & Ellis with respect to the March 2006 transaction. To begin with, the retainer agreement between Kirkland & Ellis and THI specifically provides the attorney-client relationship is between the firm and THI and that no subsidiary of THI -- i.e., THMI -- had the status of a 'client.' On top of that, the March 2006 transaction culminated in a stock purchase agreement that likewise provided that THI 'retained Kirkland & Ellis . . . To act as its counsel in connection with the transactions" and "that none of the other parties has the status of a client of [Kirkland].' And even if THMI somehow could have inferred it was a client, the stock purchase agreement expressly provided that the 'attorney-client privilege and the expectation of client confidence belongs to [THI]' and that it 'shall not pass to or be claimed by [the Debtor] or [THMI].' So the Trustee (standing in the shoes of THMI) is not entitled to invoke the co-client exception to obtain documents relating to the March 2006 transaction.")

Case Date Jurisdiction State Cite Checked
2014-09-12 Federal FL

Chapter: 6.402
Case Name: Newspring Mezzanine Capital II, L.P. v. Hayes, Jr., Civ. A. No. 14-1706, 2014 U.S. Dist. LEXIS 169900 (E.D. Pa. Dec. 9, 2014)
(analyzing protection of privileged transaction-related documents between a law firm which helped a number of owners of a company sell the company stock to the new owners; ultimately finding that the new company management owned the transactional communications; "The most useful point of departure is the contract of representation whereby Wishart Norris [crafted many of the documents necessary to effect the transactions that created 'New' Utilipath, a Delaware corporation, and transferred control of 'Old' Utilipath to the newly created entity Utilipath through Utilipath Holdings] was retained. The retention letter stated that it related to 'this Firm's representation of Utilipath, LLC ('the Company'). The letter also cautioned, 'The advice and communications which we render on the Company's behalf are not intended to be disseminated to or relied upon by any other parties without our written consent' (emphasis added). The signature line identified Utilipath LLC and identified Jarrod Hayes as a 'manager.' Jarrod Hayes did not separately sign as an individual, and neither did his father, Baxter Hayes, Jr., or brother, Baxter Hayes, III. The Baxter Parties seize on the reference to Wishart Norris representing 'your interests in Utilipath' in the letter's opening paragraph as evidence of a broader representation. However, that phrase appears in the introduction of the letter and is followed by repeated clear statements that Wishart Norris was undertaking representation of the 'company,' rather than the individual owners or directors. In fact, the letter was addressed only to Jarrod Hayes, not his father or brother, and he accepted the representation in the capacity of a corporate officer. In fact there is no ambiguity in the scope of representation set forth in the agreement retaining counsel: Utilipath was the sole client."; "I also find nothing in Wishart Norris' actions that indicate it was representing any of the Baxter Parties as individuals in addition to representing the corporations. Further supporting my conclusion is the fact that Baxter, Jarrod, and Lindon Hayes had retained their own personal counsel."; "[I]n the situation before me, Wishart Norris was explicitly retained by Old Utililpath to carry out the Utilipath transaction, and other lawyers were retained to personally represent the parties in the transaction. Under Bevill [In re Bevill, Bresler & Schulman Asset Management Corporation, 805 F.2d 120 (3rd Cir. 1986)], the individuals asserting the privilege have a specific burden, which they have failed to meet.")

Case Date Jurisdiction State Cite Checked
2014-09-09 Federal PA
Comment:

key case


Chapter: 6.403
Case Name: Newspring Mezzanine Capital II, L.P. v. Hayes, Jr., Civ. A. No. 14-1706, 2014 U.S. Dist. LEXIS 169900 (E.D. Pa. Dec. 9, 2014)
(holding that a company owned the privilege when it sold the stock of a company, because the law firm assisting the company did not represent the individual selling shareholders as personal clients; "In general, when the corporation changes its leadership, the new leaders assume control over the privilege.")

Case Date Jurisdiction State Cite Checked
2014-12-09 Federal PA

Chapter: 6.403
Case Name: Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280 (Del. Ch. Nov. 15, 2013)
December 25, 2013 (PRIVILEGE POINT)

"Delaware Court Describes a Frightening Post-Transaction Situation, but Offers a Solution: Part I"

When one company buys another company's stock, it normally acquires all of the seller's assets, including documents in the seller's computer system, file cabinets, etc. Does the buyer also acquire privileged communications between the seller's executives and the seller's lawyers about the just-completed transaction? That outcome seems counterintuitive, because it would give the buyer immediate access to the seller's (the transactional adversary) privileged communications about strategy, possible post-closing disputes or liabilities, etc.

A Delaware court dealt with this issue in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280 (Del. Ch. Nov. 15, 2013) (not released for publication). The buyer claimed that the seller had defrauded it in the purchase transaction. The buyer discovered privileged communications between the seller and its outside counsel Perkins Coie in the company's computer system. The seller had not removed those documents from its computer system before the closing, and had "done nothing to get these computer records back" since the closing a year earlier. Id. At *2. The seller claimed that the attorney-client privilege nevertheless protected those communications "on the ground that it, and not the surviving corporation [buyer], retained control of the attorney-client privilege." Id. At *3. The court rejected seller's privilege claim – relying on the Delaware General Corporation Law's clear statement that after a merger the surviving company (the buyer here) owns "'all'" property, privileges, etc. Id. At *4. Thus, the buyer could read and use the intimate privileged communication between the seller's executives and Perkins Coie about the transaction.

In a refreshing example of judicial helpfulness, the Delaware court then explained how future sellers could avoid this nightmarish situation. Next week's Privilege Point will describe the solution.

Case Date Jurisdiction State Cite Checked
2013-11-15 State DE
Comment:

key case


Chapter: 6.403
Case Name: Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280, at *4 (Del. Ch. Nov. 15, 2013)
January 1, 2014 (PRIVILEGE POINT)

"Delaware Court Describes a Frightening Post-Transaction Situation, but Offers a Solution: Part II"

Last week's Privilege Point described a Delaware decision holding that a company's buyer acquired ownership of "'all'" of the seller's property, privileges, etc. – including even privileged communications between the seller's executives and its outside counsel Perkins Coie about the transaction itself. Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280, at *4 (Del. Ch. Nov. 15, 2013) (not released for publication) (citation omitted).

The Delaware court noted that sellers can "negotiate[] special contractual agreements to protect themselves and prevent certain aspects of the privilege from transferring to the surviving corporation in the merger." Id. At *17. The court pointed to a 2008 Delaware decision approving a purchase transaction provision specifically excluding from a sale "'all rights of the Sellers under this Agreement and all agreements and other documentation relating to the transactions contemplated hereby.'" Id. At *18 n.27 (citing Postorivo v. AG Paintball Holdings, Inc., Consol. Civ. A. Nos. 2911- & 3111-VCP, 2008 Del. Ch. LEXIS 17, at *6 n.5 (Del. Ch. Feb. 7, 2008) (unpublished opinion)). The court then reiterated that "the answer to any parties worried about facing this predicament in the future" is to "exclude from the transferred assets the attorney-client communications they wish to retain as their own." Id. At *20.

Transactional lawyers should remember the potentially disastrous default rule, and how to avoid it.

Case Date Jurisdiction State Cite Checked
2013-11-15 State DE
Comment:

key case


Chapter: 6.403
Case Name: Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155, 156, 158, 159, 160, 161 & n.27 (Del. Ch. 2013)
(holding that the surviving company in a merger had acquired the seller's privileged documents generated during the transaction, which the seller left in the computer system for a year after the merger; "After the Buyer brought this suit in September 2012 -- a full year after the merger -- it notified the Seller that, among the files on the Plimus computer systems that the Buyer acquired in the merger, it had discovered certain communications between the Seller and Plimus's then-legal counsel at Perkins Coie regarding the transaction. During that year, the Seller had done nothing to get these computer records back, and there is no evidence that the Seller took any steps to segregate these communications before the merger or excise them from the Plimus computer systems, the control over which was passing to the Buyer in the merger. It is also undisputed that the merger agreement lacked any provision excluding pre-merger attorney-client communications from the assets of Plimus that were transferred to the Buyer as a matter of law in the merger, and the merger was intended to have the effects set forth in the Delaware General Corporation Law ('DGCL'). Nonetheless, when the Seller was notified that the Buyer had found pre-merger communications on the Plimus computer system, the Seller asserted the attorney-client privilege over those communications on the ground that it, and not the surviving corporation, retained control of the attorney-client privilege that belonged to Plimus for communications regarding the negotiation of the merger agreement. Before the court is a motion by the Buyer seeking to resolve this privilege dispute and determine, among other things, that the surviving corporation owns and controls any pre-merger privilege of Plimus or, alternatively, that the Seller has waived any privilege otherwise attaching to those pre-merger communications." (footnote omitted); "To indulge the Seller's argument would conflict with the only reasonable interpretation of the statute, which is that all means all as to the enumerated categories, and that this includes all privileges, including the attorney-client privilege."; "If the General Assembly had intended to exclude the attorney-client privilege, it could easily have said so. Instead, the statute uses the broadest possible language to set a clear and unambiguous default rule: all privileges of the constituent corporations pass to the surviving corporation in a merger." (footnote omitted); noting that the seller could have of excluded those files and privileged communications from the acquisition; "Of course, parties in commerce can -- and have -- negotiated special contractual agreements to protect themselves and prevent certain aspects of the privilege from transferring to the surviving corporation in the merger."; citing Postorivo v. AG Paintball Holdings, Inc., Consol. Civ. A. Nos. 2991- & 3111-VCP, 2008 Del. Ch. LEXIS 17, at *19 n.25 (Del. Ch. Feb. 7, 2008): "'Section 1.2(h) [of the asset purchase agreement] provides that "'Excluded Assets" from the sale include "all rights of the Sellers under this Agreement and all agreements and other documentation relating to the transactions contemplated hereby."'"; "Thus, the answer to any parties worried about facing this predicament in the future is to use their contractual freedom in the manner shown in prior deals to exclude from the transferred assets the attorney-client communications they wish to retain as their own.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State DE B 5/14

Chapter: 6.403
Case Name: Postorivo v. AG Paintball Holdings, Inc., Consol. Civ. A. Nos. 2911- & 3111-VCP, 2008 Del. Ch. LEXIS 17, at *6 n.5 (Del. Ch. Feb. 7, 2008)
January 1, 2014 (PRIVILEGE POINT)

"Delaware Court Describes a Frightening Post-Transaction Situation, but Offers a Solution: Part II"

Last week's Privilege Point described a Delaware decision holding that a company's buyer acquired ownership of "'all'" of the seller's property, privileges, etc. – including even privileged communications between the seller's executives and its outside counsel Perkins Coie about the transaction itself. Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280, at *4 (Del. Ch. Nov. 15, 2013) (not released for publication) (citation omitted).

The Delaware court noted that sellers can "negotiate[] special contractual agreements to protect themselves and prevent certain aspects of the privilege from transferring to the surviving corporation in the merger." Id. At *17. The court pointed to a 2008 Delaware decision approving a purchase transaction provision specifically excluding from a sale "'all rights of the Sellers under this Agreement and all agreements and other documentation relating to the transactions contemplated hereby.'" Id. At *18 n.27 (citing Postorivo v. AG Paintball Holdings, Inc., Consol. Civ. A. Nos. 2911- & 3111-VCP, 2008 Del. Ch. LEXIS 17, at *6 n.5 (Del. Ch. Feb. 7, 2008) (unpublished opinion)). The court then reiterated that "the answer to any parties worried about facing this predicament in the future" is to "exclude from the transferred assets the attorney-client communications they wish to retain as their own." Id. At *20.

Transactional lawyers should remember the potentially disastrous default rule, and how to avoid it.

Case Date Jurisdiction State Cite Checked
2008-02-07 State DE
Comment:

key case


Chapter: 6.405
Case Name: SCR-Tech LLC v. Evonik Energy Services LLC, 2013 NCBC 42 (N.C. Super. Ct. Aug. 13, 2013)
November 13, 2013 (PRIVILEGE POINT)

"North Carolina State Court Analyzes Privilege Protection for Communications Among Corporate Affiliates"

One surprisingly open question in corporate privilege law involves the legal basis for corporations to claim privilege protection for their lawyers' communications with their corporate affiliates' employees. Various courts have found that: (1) a corporation's lawyer represents the whole corporate family as a single "client"; (2) the lawyer represents the affiliated corporations as "joint clients"; or (3) the privilege rests on a common legal interest among the corporate affiliates.

In SCR-Tech LLC v. Evonik Energy Services LLC, 2013 NCBC 42 (N.C. Super. Ct. Aug. 13, 2013), a North Carolina court reviewed the very sparse case law on this issue. The court dealt with communications to and from plaintiff SCR-Tech: (1) when the company was partially owned by Ebinger; (2) when the company was then sold to, and wholly owned by, Catalytica, and (3) when the company later entered into a "common interest agreement" with Ebinger, because both faced similar litigation. The court applied a sort of sliding scale, considering both the percentage of ownership and any "shared legal interest." Id. ¶ 18. The court concluded that the privilege protected communications during all three situations, because (1) SCR-Tech's shared legal interest with Ebinger meant that the court did not have to determine whether Ebinger's 37.5% ownership (which gave it control) was "too limited" to assure privilege protection by itself; (2) Catalytica's 100% ownership of, and shared legal interest with, SCR-Tech assured privilege protection; (3) the "common interest" doctrine could protect communications between SCR-Tech and its former controlling shareholder Ebinger even in the absence of any corporate affiliation at that time. Id. ¶¶ 15, 19-26.

The court's most significant contribution to the scant jurisprudence involves the recognition that the privilege can protect corporate affiliates' communications based on control rather than 100% ownership. In nearly every situation, corporate affiliates should be able to satisfy the "shared legal interest" part of the equation.

Case Date Jurisdiction State Cite Checked
2013-08-13 State NC
Comment:

key case


Chapter: 6.502
Case Name: UPMC v. CBIZ, Inc., Case No. 3:16-cv-204, 2018 U.S. Dist. LEXIS 52810 (W.D. Pa. March 29, 2018)
("'[W]hen the client is a corporation, the privilege extends to communications between its attorney and agents or employees authorized to act on the corporation's behalf.'")

Case Date Jurisdiction State Cite Checked
2018-03-29 Federal PA

Chapter: 6.502
Case Name: Virtue Global Holdings Limited v. Rearden LLC, Case No. 15-cv-00797-JST, 2016 U.S. Dist. LEXIS 68819 (N.D. Cal. May 24, 2016)
(holding that the sale of a corporation's assets did not automatically transfer privilege ownership; "The transfer of assets alone does not cause a transfer of attorney-client privilege. . . . Instead, the transfer of control over the entity 'result[s] in a transfer of the attorney-client privilege.'. . . On this point, Judge Kim discussed the lack of evidence supporting a transfer of control from Original MO2 to Rearden Mova. She considered that Rearden took no steps to inform LaSalle that he no longer had a managerial role with Original MO2 and that Rearden did not take steps to document changes in LaSalle's managerial status with Original MO2.")

Case Date Jurisdiction State Cite Checked
2016-05-24 Federal CA

Chapter: 6.502
Case Name: In re Grand Jury Subpoenas, 734 F. Supp. 1207, 1211 n.3 (E.D. Va. 1990)
("A transfer of assets, without more, is not sufficient to effect a transfer of the privileges; control of the entity possessing the privileges must also pass for the privileges to pass."), aff'd in part and vacated in part on other grounds, 902 F.2d 244 (4th Cir. 1990).

Case Date Jurisdiction State Cite Checked
1990-01-01 Federal VA B 3/16
Comment:

key case


Chapter: 6.503
Case Name: Utilisave, LLC v. Fox Horan & Camerini, LLP, 2018 NY Slip Op 33320(U), *2 (N.Y. Sup. Ct. Dec. 17, 2018)
February 27, 2019 (PRIVILEGE POINTS)

"Who Owns the Privilege?: Part II"

Last week's Privilege Point described a Colorado state court case holding that absent contrary direction in a decedent's will, the decedent's personal representative owns all the files generated by the decedent's lawyer. Ten days earlier, another court dealt with privilege ownership issues in a corporate context.

In Utilisave, LLC v. Fox Horan & Camerini, LLP, one of Utilisave's two managing members (MHS, which was owned by Michael Steifman) had earlier successfully "pursued both direct and derivative claims against Utilisave and its then-CEO." 2018 NY Slip Op 33320(U), *2 (N.Y. Sup. Ct. Dec. 17, 2018). MHS and Steifman then: (1) purchased Utilisave's assets from a liquidation trustee; (2) caused Utilisave to file a malpractice case against Utilisave's law firm that had lost the earlier action, and (3) sought access to communications between that law firm and Utilisave's then-CEO. The law firm argued that "Utilisave is not entitled to any privileged communications because the company was purchased by Steifman, who was adverse to Utilisave in the Prior Action." Id. at *3. The court acknowledged that "had Steifman or MHS sought privileged communications during the pendency of that [earlier] action, defendants' documents would have been prohibited from disclosure." Id. at *9. But now that MHS and Steifman owned Utilisave, they could rely on what is called the "practical consequences" standard to assert ownership of Utilisave's attorney-client privilege and its former law firm's files. Id. at *8. The court therefore ordered Utilisave's former law firm to describe the files in its possession so some could be produced. Inexplicitly, the court in contrast "note[d] that [Utilisave] has not advanced any argument that it is entitled to [its former law firm's] work product." Id. at *11.

It might seem odd that a corporation's litigation adversary can later buy the corporation and thereby gain access to its law firm's privileged files. But the privilege and privileged documents are assets that can be conveyed by operation of statute, under a will, or in a corporate asset purchase agreement. Corporations and their lawyers must always "keep their eye on the ball," and know who owns the privilege.

Case Date Jurisdiction State Cite Checked
2019-12-17 State NY
Comment:

key case


Chapter: 6.503
Case Name: United States v. Adams, Case No. 0:17-CR-00064-DWF-KMM, 2018 U.S. Dist. LEXIS 41165 (D. Minn. Mar. 12, 2018)
May 16, 2018 (PRIVILEGE POINT)

"Privilege Ownership in High-Stakes Corporate Contexts: Part I"

Under the traditional so-called "bright-line" test: (1) selling or otherwise transferring a corporation's stock transferred its privilege ownership; while (2) selling or otherwise transferring its assets did not. But most if not all courts now apply a more common sense approach, frequently called the "practical consequences" test.

In United States v. Adams, Case No. 0:17-CR-00064-DWF-KMM, 2018 U.S. Dist. LEXIS 41165 (D. Minn. Mar. 12, 2018), the government seized emails between defendant (and lawyer) Adams and his former clients ("Apollo"). Many of the emails deserved privilege protection, but the government argued that the privilege belonged to Scio, a company which earlier had purchased (in the words of the asset purchase agreement) "certain of [Apollo's] property, assets, rights and privileges." Id. at *3. The government noted that Scio was willing to waive its privilege. Adams argued that although defunct, Apollo "retained the authority to waive," and could therefore assert, the privilege. Id. at *5. The court applied the "practical consequence[s]” test, and thus focused on the "practical realities of the Apollo-Scio transactions." Id. at *11. The court noted that: (1) Apollo had sold Scio "all of its intellectual property" (id.); (2) the transactional parties' contemporaneous communications "support the conclusion that [the transactions] effectively constituted the sale of a business that transferred control of the privilege as well" (id. at *14); and (3) there was no evidence that after the transactions "Apollo continued operating in any meaningful way." Id. at *10. The court ultimately concluded that Scio owned and could therefore waive the privilege – even though Apollo continued to exist as a corporate entity.

Courts' adoption of the "practical consequences" test should prompt transactional lawyers to carefully negotiate privileged communications' ownership in any asset transaction. Next week's Privilege Point will address privilege ownership when a corporate board splits into rival camps.

Case Date Jurisdiction State Cite Checked
2018-03-12 Federal MN
Comment:

key case


Chapter: 6.503
Case Name: United States v. Adams, Case No. 0:17-CR-00064-DWF-KMM, 2018 U.S. Dist. LEXIS 41165 (D. Minn. March 12, 2018)
(applying the "practical consequences" test in concluding that the buyer of a company's assets may waive or assert privilege protection; finding that Tekni-Plex did not apply, because that case involved a corporate acquisition; also holding that the defendants had established that an accountant retained by his tax lawyers was inside privilege protection; "In 2011 and 2012, Apollo entered into asset purchase agreements ("APAs") with a Nevada corporation, Scio Diamond Technology Corporation ("Scio"). See generally ADI APA; ADGC APA. The agreements contemplated transfer of 'certain of the property, assets, rights, and privileges of [ADI] related to, used in, or otherwise associated with the assets on the terms and subject to the conditions set forth in this [APA]' and 'certain of the property, inventory, and assets, rights, and privileges of [ADGC] related to, used in, or otherwise associated with the previous operation of [ADGC] on the terms and subject to the conditions set forth in this [APA].' ADI APA at 1; ADGC APA at 1. Each agreement purported to exclude certain tangible and intangible items and each provided for a Scio entity's purchase of Apollo's intellectual property, diamond growing equipment, and inventory. Mem. in Supp. at 6-7. In explaining the arrangement to the Securities and Exchange Commission ("SEC"), Mr. Adams's law partner testified that the Apollo shareholders were most excited about owning a part of a company that would exploit the existing diamond technology 'in a company that was capitalized and had a myopic focus on manufacturing versus [the] kind of research and development that Apollo had done a lot of over the years.' Gov't Ex. 3 at 4, ECF No. 109-3."; "The Court must determine whether the sale of Apollo's assets gave Scio the authority to assert or waive Apollo's attorney-client privilege. Ordinarily, a mere transfer of assets does not pass the privilege to the acquiring corporation except where: (1) the sale also transferred control of the business; and (2) the acquiring corporation's management continues the selling corporation's business. . . . But 'a transfer of the [attorney-client] relationship can occur in situations involving the sale of less than all the organization's assets.'"; "Courts look to the 'practical consequences' of an asset sale rather than formalities of the transaction to determine whether the authority to assert or waive the attorney-client privilege transferred to the acquiring corporation. Am. Intern. Specialty Lines Ins. Co. v. NWI-I, Inc., 240 F.R.D. 401, 403 (N.D. Ill. 2007); Coffin v. Bowater Inc., No. 03-cv-227-P-C, 2005 U.S. Dist. LEXIS 9395, 2005 WL 5885367, at *2 (D. Me. May 13, 2005); Soverain Software LLC v. The Gap, Inc., 340 F. Supp. 2d 760, 762 (E.D. Tex. 2004). In Soverain, for example, although the transfer occurred through a purchase agreement that covered some but not all of the business's assets, the acquiring corporation obtained the authority to assert and waive the sellers' corporate privilege where the buyer purchased a particular software business, sold the acquired software as its principal business, retained the patents for the software, serviced customers who used the software, and took steps to update a new version of the software. 340 F. Supp. 2d at 763-64."; "The language of the APAs themselves specifies that Scio acquired all of Apollo's intellectual property rights, website, equipment, machinery, and inventory, as well as numerous other tangible and intangible assets. ADI APA at 10-11; ADGC APA at 6-7. This constitutes essentially every asset which would be needed for the continuation of Apollo's business. Each APA also includes a clause that suggests transfer of the business. Both the ADI APA and the ADGC APA contain clauses requiring 'preservation of purchased assets and business' by Apollo prior to closing. . . . Such clauses would serve little purpose if Scio had only been interested in the assets themselves and not in continuing the business operations of Apollo."; "There is no evidence before the Court that Apollo continued operating in any meaningful way. For instance, Mr. Adams, who bears the burden of establishing the application of privilege in this matter, has offered no proof that Apollo sold any products after the Scio transaction, continued to pay any employees (perhaps other than Mr. Adams), honored contracts to provide diamonds or related materials to any customers, or otherwise carried on as a viable business enterprise. Indeed, it is difficult to see how Apollo, a company that had developed and attempted to monetize diamond-making technology, could continue in business having sold all of its intellectual property to another company. The practical consequence of the so-called asset acquisition was for Scio to 'continue the pre-existing operation.'"; "Mr. Adams points to several facts which he says indicate that the right to assert attorney-client privilege did not pass to Scio, but his arguments are unpersuasive when viewed against the practical realities of the Apollo-Scio transactions. First Mr. Adams suggests that control did not pass to Scio because the APAs provide that Apollo retained certain 'Excluded Assets.'. . . But this argument improperly elevates the formalities of the transactions as described in the APAs over the functional realities that surrounded the sale."; "Mr. Adams correctly notes that '[t]here is no dispute that the asset purchase agreements excluded all of Apollo's liabilities." Reply at 12, ECF No. 110. But retention of liabilities is not sufficient to defeat the transfer of corporate control and resultant passing of the privilege to Scio."; "In addition to the practical realities of the Apollo-Scio transactions, statements made by the individuals and businesses involved in the transactions further support the conclusion that they effectively constituted the sale of a business that transferred control of the privilege as well. Communications with stockholders describing the transactions do the same."; "Mr. Adams argues that even if the attorney-client privilege passed to Scio in part, Apollo retained the privilege with regard to negotiations surrounding the asset purchase transactions themselves. Mem. in Supp. at 18. He bases this assertion on a New York Court of Appeals case, Tekni-Plex, Inc. v. Meyner & Landis, 89 N.Y.2d 123, 674 N.E.2d 663, 651 N.Y.S.2d 954 (N.Y. Ct. App. 1996). Id. Unfortunately for Mr. Adams, the Tekni-Plex decision has no bearing on the instant case. In Tekni-Plex, 'the agreement between the parties . . . contemplated that, in any dispute arising from the merger transaction, the rights of the acquired corporation . . . relating to the transaction would remain independent from and adverse to the rights of [the acquiring corporation].' 674 N.E.2d at 672. The court there held that the new company could not assert the privilege for communications regarding the merger transaction itself, but did so '[i]n light of the facts of this particular transaction and the structure of the underlying agreement.' Id. In marked contrast, Mr. Adams has not identified any language in either APA similar in any way to the very specific language in Tekni-Plex. The Court finds the reasoning of the New York Court of Appeals inapplicable here.")

Case Date Jurisdiction State Cite Checked
2018-03-12 Federal MN
Comment:

key case


Chapter: 6.503
Case Name: Cooper v. Meritor, Inc., Civ. A. No. 4:16-cv-052 DMB-JMV Consolidated with Civ. A. No. 4:16-cv-053 DMB-JMV, Civ. A. No. 4:16-cv-054 DMB-JMV, CIV. A. No. 4:16-cv-055-DMB-JMV, CIV. A. No. 4:16-cv-056-DMB-JMV, 2017 U.S. Dist. LEXIS 4727 (N.D. Miss. 1/12/17)
(analyzing the waiver impact of fifteen documents Textron created when it owned a Mississippi facility from 1989 to 1996; explaining that Textron sold assets of the company in 1999; disagreeing with Textron's assertion that the asset purchase agreement excluded the privileged environmental documents; noting that Textron left the documents at the facility without any restrictions on access, and did not object when the asset purchaser went bankrupt in 2004 and all of its assets were sold to another company out of bankruptcy; finding that Textron waived privilege protection for the fifteen documents, even though Textron claims to have forgotten that the documents were left at the facility; "In the instant case, Textron asserts a privilege over fifteen (15) documents created from 1989 to 1996 during a period of time it owned and operated a wheel cover manufacturing facility in Grenada, Mississippi. In 1999, Textron entered and subsequently consummated an asset sale agreement with Grenada Manufacturing, LLC (hereinafter sometimes 'the APA'). According to Textron, it did not transfer ownership of documents related to environmental matters, including the subject 15 documents, to Grenada Manufacturing, LLC as part of that sale. It is Textron's positon that it retains ownership of all such documents and any affiliated privilege with respect thereto."; "According to an affidavit supplied by Textron, boxes of these environmental documents, together with other business records of Textron's operations prior to the 1999 sale, were left by Textron at the Grenada facility after the sale. Indeed, Textron contracted for a right to access the documents for a period of time following the sale. APA 14.1. In the court's view, Textron's claim of retained ownership of the documents, even if it were convincing, does not satisfactorily answer whether its treatment of those assets waived any privilege that might be claimed with regard to any of them."; "Textron is faced with the fact that it intentionally left documents that it must acknowledge (because it is material to its claim of retained ownership of the documents in the first instance) it knew concerned environmental matters related to releases from the business prior to 1999. These documents were intentionally left unattended and unrestricted in the hands of yet another party -- this time, Ice Industries, Inc. Though Textron was given notice of the asset transfer to Ice Industries, Inc., it made no effort to retrieve the environmental documents or to even review them for privilege."; "In other words, Textron plainly waived any privilege that would have otherwise been retained if the documents had, in fact, been excluded from the purchase and asset sale."; "Textron argues that unless it realized that the documents concerning environmental matters that it freely gave possession of to others for decades did in fact contain privileged documents, that disclosure could not waive any privilege attendant to the document(s)."; "The court is unpersuaded."; "[T]here is nothing about the 'practical consequences doctrine' that dictates a different outcome. The practical outcome of leaving -- for decades -- documents a company contends it owns in possession of another, with no provision for protection of any privileged communications therein, not to mention permitting the subsequent transfer of possession to others on additional occasions, all without any effort to retrieve them prior to the instant litigation, or to otherwise review them to remove privileged materials has the obvious practical and legal consequence of waiver of any associated privileges.")

Case Date Jurisdiction State Cite Checked
2017-01-12 Federal MS
Comment:

key case


Chapter: 6.503
Case Name: Chemeon Surface Technology, LLC v. Metalast International, Inc., Case No. 3:15-CV-0294-MMD (VPC), 2016 U.S. Dist. LEXIS 125610 (D. Nev. Sept. 15, 2016)
(holding that the purchaser of an LLC from a receiver purchased all privileged documents in LLC's position; inexplicably seeming to hold that the waiver occurred when the plaintiff purchased the LLC; "When plaintiff acquired the LLC's assets, it acquired all of the LLC and INC legal files, which were intermingled and contained in the LLC's database . . . . There were voluminous legal files, including attorney correspondence, draft and final legal documents, and there was no segregation of the documents on the basis of the LLC or the INC. . . . The documents ranged from hard copy documents to electronic files, and the legal files in electronic format were all stored in LLC's document database, which the LLC created, paid for and maintained. . . . The legal files include numerous communications to and from Mr. Burns, and, as a result, many communications to and from Mr. Burns were included in the legal documents which are in plaintiff's possession."; "It is undisputed that at no time has INC, or any of its former or current principals, stated that plaintiff should not be in possession of the legal documents that plaintiff obtained in connection with LLC acquisition, nor has INC or it its current or former principals requested that any legal documents be returned. . . . During discovery, plaintiff produced responsive legal documents in its possession, which included many attorney-client communications involving Mr. Burns . . . . Neither INC nor its former or current principals objected to this production, sought to claw back the materials on the basis of attorney-client privilege or attorney work product, or made any other complaints about this production."; "The analysis in In-Store [In re In-Store Advertising Sec. Litig., 163 F.R.D. 452 (S.D.N.Y. 1995)] is persuasive in this case. Here, when plaintiff purchased the Metalast assets out of receivership, the co-mingled legal files of the LLC and the INC were included. Plaintiff admits that it has many LLC and INC legal documents in its possession, yet defendants never sought return of the documents, nor did they attempt to claw back materials based on attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2016-09-15 Federal NV
Comment:

key case


Chapter: 6.503
Case Name: HunterHeart Inc. v. Bio-Reference Laboratories Inc., Case No. 5:14-cv-04078-LHK, 2015 U.S. Dist. LEXIS 123921, at *2 (N.D. Cal. Sept. 16, 2015)
November 4, 2015 (PRIVILEGE POINT)

"Another Court Deals with Privileged Communications' Ownership after a Corporate Transaction"

Most if not all courts recognize that selling a corporation's stock transfers ownership of the corporation's privileged communications. These can include even communications about the sale transaction. Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155 (Del. Ch. 2013). Asset sales present a more subtle analysis.

In HunterHeart Inc. v. Bio-Reference Laboratories, Inc., Case No. 5:14-cv-04078-LHK, 2015 U.S. Dist. LEXIS 123921, at *2 (N.D. Cal. Sept. 16, 2015), Hunter Laboratories sold "the bulk of its assets" to defendant. The asset purchase agreement explicitly identified the transferred assets as including Hunter's "computer equipment," software, e-mail addresses and "other records, data and communications . . . In the cloud." Id. (internal citation omitted). Hunter's owner used the company email system both before and after the asset sale. Hunter's remaining business (now called HunterHeart) later sued defendant, and sought a protective order preventing defendant from using privileged communications on the servers and other systems the defendant had purchased. The court denied the protective order, finding that as for the pre-transaction privileged communications: (1) Hunter waived its privilege "when it agreed to hand over all of its servers, files and communications"; and, if not, (2) the "[privilege] passed from Hunter to [Defendant] by virtue of the [asset purchase agreement]'s transfer of the other company assets." Id. At *5, *6. The court then held that post-transaction communications never deserved privilege protection, because Hunter's owner who continued to use the email system "could not have expected these emails to remain confidential." Id . At *7.

Many lawyers remember from law school that selling a company's stock transfers the privilege, but selling its assets does not. Courts increasingly apply what is called the "practical consequences test" when analyzing privilege ownership, under which selling assets can also convey privileged communications.

Case Date Jurisdiction State Cite Checked
2015-09-16 Federal CA
Comment:

key case


Chapter: 6.503
Case Name: HunterHeart Inc. v. Bio-Reference Labroatories, Inc., Case No. 5:14-cv-04078-LHK, 2015 U.S. Dist. LEXIS 123921 (N.D. Cal. Sept. 16, 2015)
HunterHeart Inc. v. Bio-Reference Laboratories, Inc., Case No. 5:14-cv-04078-LHK, 2015 U.S. Dist. LEXIS 123921 (N.D. Cal. Sept. 16, 2015) (finding that the purchaser of the "bulk" of a company's assets gain ownership of the privileged communications between the company's founder/executive and the company's lawyer which occurred before and after the transaction; "In 2003, Riedel and his wife Marcia founded Hunter Laboratories, a clinical laboratory testing business. On August 7, 2013, Hunter and BRLI entered into an Asset Purchase Agreement by which BRLI bought Hunter's clinical testing laboratory and the bulk of its assets. Among these assets, and explicitly identified in the APA, were all of Hunter's 'computer equipment'; 'all electronic files, codes, and software stored on said computer equipment'; Hunter's 'e-mail addresses' and 'other records, data and communications . . . in the cloud.' The APA enumerated the email addresses that BRLI had purchased, one of which was Chris Riedel's Hunter email address, 'criedel@hunterlabs.com.' The agreement permitted Riedel 'to have access' to this email address for one year after the closing date. The APA excluded, however, the HunterHeart program, a panel of tests and associated protocols to prevent and manage cardiovascular disease. Hunter renamed itself HunterHeart Inc. and continued to offer the HunterHeart program."; "Riedel had used his Hunter email address to communicate with counsel before the sale. Even afterwards, although Hunter had sold BRLI the email address and the server on which the emails were stored, Riedel continued to use that email address to communicate with HunterHeart counsel.").

Case Date Jurisdiction State Cite Checked
2015-09-16 Federal CA
Comment:

key case


Chapter: 6.503
Case Name: HunterHeart Inc. v. Bio-Reference Laboratories, Inc., Case No. 5:14-cv-04078-LHK, 2015 U.S. Dist. LEXIS 123921 (N.D. Cal. Sept. 16, 2015)
(finding that the purchaser of the "bulk" of a company's assets gain ownership of the privileged communications between the company's founder/executive and the company's lawyer which occurred before and after the transaction; "Even if Hunter had not waived its privilege in the APA by express transfer of the disputed communications, it passed from Hunter to BRLI by virtue of the APA's transfer of the other company assets. BRLI cites the instructive case City of Rialto v. U.S. Dep't of Def. [492 F. Supp. 2d 1193, 1201 (C.D. Cal. 2007)], where the court held that a purchaser acquiring 'substantially all' of a company's assets also acquired the company's attorney-client privilege. Unlike the purchaser in City of Rialto, BRLI did not purchase literally all of Hunter's assets -- HunterHeart reserved a portion of the business in the form of the HunterHeart program. But the burden of preserving the privilege lies with HunterHeart, and HunterHeart offers insufficient evidence that its sale of all of its tangible assets and nearly all of its intangible ones constituted less than a sale of substantially all of them."; "HunterHeart has failed to show that the attorney-client privilege protects Riedel's [CEO] communications with counsel after the APA was executed. The privilege never applied in the first instance because Riedel could not have expected these emails to remain confidential. The APA expressly had transferred ownership of Riedel's email accoimt [sic] and the server where its contents were stored, and he could continue to use the account only because the APA permitted it. Riedel was aware that BRLI controlled his email accoimt [sic], as evidenced by the fact that he contacted BRLI to restore his access. Also, as above, HunterHeart waived any privilege that may have applied when it agreed to the APA. Like the pre-APA emails, these communications were stored on BRLI servers, and neither Riedel nor HunterHeart ever showed any intention of moving them from that non-confidential location until now.").

Case Date Jurisdiction State Cite Checked
2015-09-16 Federal CA
Comment:

key case


Chapter: 6.503
Case Name: USI Ins. Servs., LLC v. Ryan and WDCK, LLC, Case No. 1:14-cv-151, 2014 U.S. Dist. LEXIS 91591, at *9, *9-10, *13 (N.D. Ind. July 7, 2014)
(applying the "practical consequences" standard for the ownership of privilege after the plaintiff purchased assets from Wells Fargo; "Some courts, however, have concluded that this 'bright-line rule cannot capture "the myriad ways control of a corporation or a portion of a corporation can change hands . . . ."'"; "'In determining whether the "practical consequences" of a given transaction result in the "transfer of control," courts consider such factors as the extent of the assets acquired, including whether stock was sold, whether the purchasing entity continues to sell the same product or service, [and] whether the old customers and employees are retained . . . .'"; "Applying this legal standard, the Court is not persuaded that Wells Fargo's transfer of the Fort Wayne Business (together with its forty-one other locations) to USI amounted to a mere transfer of assets. As a result of the transfer, USI now conducts the same type of insurance business, from the same location, led by the same leader Niezer, employing most of the same employees, and serving the same clients."; "In short, the practical consequences of the transaction is that the Fort Wayne Business has simply continued under new management. As stated earlier, courts have held under similar circumstances that the attorney-client privilege passed even though only a portion of the company's assets were transferred.")

Case Date Jurisdiction State Cite Checked
2014-07-07 Federal IN

Chapter: 6.503
Case Name: German Am. Capital Corp v. Lyons (In re Lyons), Ch. 7 No. 12-01006, Adv. No. 12-9113, 2013 Bankr. LEXIS 440, at *8-9 (N.D. Iowa Oct. 21, 2013)
(finding that the sale of a loan did not transfer privilege ownership; "Applying this rule to the facts currently before the Court, the Court concludes that the transfer of assets in this case was an asset purchase agreement that did not transfer any control of the business or give German American any management rights. Thus, the LSA [loan sale agreement] did not transfer the attorney-client privilege. As such, the Court finds that the attorney-client privilege does not apply and document one should be produced.")

Case Date Jurisdiction State Cite Checked
2013-10-21 Federal IA B 5/14

Chapter: 6.503
Case Name: SimpleAir, Inc. v. Microsoft Corp., Civ. A. No. 2:11-cv-416-JRG, 2013 U.S. Dist. LEXIS 121545, at *11-12, *12-13 (E.D. Tex. Aug. 26, 2013)
("This Court believes that bankruptcy liquidation sales in general could be severly hindered if potential buyers are forced to choose between continuing the failed model of the bankrupt business or forfeiting claims of vital privileges such as those at issue here. Such as Hobson's choice, if forced upon prospective purchasers of intellectual property (where attorney-client communications are often significant), might effectively leave future bankruptcy liquidation sales in shambles."; "In sum, the Court finds that control of a business cannot be divorced from ownership of substantially all of the business assets, even if the nature of such business changes direction over time. Control follows ownership and not the other way around. The Court is not persuaded that the transfer of the Asserted Patents from Airmedia to WI [company that bought some of AirMedia's patents, then later went bankrupt}, from WI to Verus [creditor] , and from Verus to SimpleAir, when evaluated in light of the totality of the circumstances, amounted to only a mere transfer of some assets through which the privilege failed to survive. Accordingly, this Court concludes that AirMedia's attorney-client privilege as relates to Withheld Documents has survived the transfers discussed above and is now properly vested in SimpleAir.")

Case Date Jurisdiction State Cite Checked
2013-08-26 Federal TX B 5/14

Chapter: 6.503
Case Name: SimpleAir, Inc. v. Microsoft Corp., Civ. A. No. 2:11-cv-416-JRG, 2013 U.S. Dist. LEXIS 121545, at *6-7 (E.D. Tex. Aug. 26, 2013)
("[T]his Court concludes that whether a transfer of assets preserves a claim of privilege is a question of fact that should be answered based upon the totality of the circumstances and examined on a case-by-case basis.")

Case Date Jurisdiction State Cite Checked
2013-08-26 Federal TX B 5/14

Chapter: 6.505
Case Name: Blattman v. Scaramellino, No. 17-1589, 2018 U.S. App. LEXIS 14252 (1st Cir. App. May 17, 2018)
("Because 'all parties indicate, at least implicitly, that federal law controls,' we apply the federal common law of privilege.")

Case Date Jurisdiction State Cite Checked
2018-05-17 Federal

Chapter: 6.507
Case Name: Cooper v. Meritor, Inc., Civ. A. No. 4:16-cv-052 DMB-JMV Consolidated with Civ. A. No. 4:16-cv-053 DMB-JMV, Civ. A. No. 4:16-cv-054 DMB-JMV, CIV. A. No. 4:16-cv-055-DMB-JMV, CIV. A. No. 4:16-cv-056-DMB-JMV, 2017 U.S. Dist. LEXIS 4727 (N.D. Miss. 1/12/17)
(analyzing the waiver impact of fifteen documents Textron created when it owned a Mississippi facility from 1989 to 1996; explaining that Textron sold assets of the company in 1999; disagreeing with Textron's assertion that the asset purchase agreement excluded the privileged environmental documents; noting that Textron left the documents at the facility without any restrictions on access, and did not object when the asset purchaser went bankrupt in 2004 and all of its assets were sold to another company out of bankruptcy; finding that Textron waived privilege protection for the fifteen documents, even though Textron claims to have forgotten that the documents were left at the facility; "In the instant case, Textron asserts a privilege over fifteen (15) documents created from 1989 to 1996 during a period of time it owned and operated a wheel cover manufacturing facility in Grenada, Mississippi. In 1999, Textron entered and subsequently consummated an asset sale agreement with Grenada Manufacturing, LLC (hereinafter sometimes 'the APA'). According to Textron, it did not transfer ownership of documents related to environmental matters, including the subject 15 documents, to Grenada Manufacturing, LLC as part of that sale. It is Textron's positon that it retains ownership of all such documents and any affiliated privilege with respect thereto."; "According to an affidavit supplied by Textron, boxes of these environmental documents, together with other business records of Textron's operations prior to the 1999 sale, were left by Textron at the Grenada facility after the sale. Indeed, Textron contracted for a right to access the documents for a period of time following the sale. APA 14.1. In the court's view, Textron's claim of retained ownership of the documents, even if it were convincing, does not satisfactorily answer whether its treatment of those assets waived any privilege that might be claimed with regard to any of them."; "Textron is faced with the fact that it intentionally left documents that it must acknowledge (because it is material to its claim of retained ownership of the documents in the first instance) it knew concerned environmental matters related to releases from the business prior to 1999. These documents were intentionally left unattended and unrestricted in the hands of yet another party -- this time, Ice Industries, Inc. Though Textron was given notice of the asset transfer to Ice Industries, Inc., it made no effort to retrieve the environmental documents or to even review them for privilege."; "In other words, Textron plainly waived any privilege that would have otherwise been retained if the documents had, in fact, been excluded from the purchase and asset sale."; "Textron argues that unless it realized that the documents concerning environmental matters that it freely gave possession of to others for decades did in fact contain privileged documents, that disclosure could not waive any privilege attendant to the document(s)."; "The court is unpersuaded."; "[T]here is nothing about the 'practical consequences doctrine' that dictates a different outcome. The practical outcome of leaving -- for decades -- documents a company contends it owns in possession of another, with no provision for protection of any privileged communications therein, not to mention permitting the subsequent transfer of possession to others on additional occasions, all without any effort to retrieve them prior to the instant litigation, or to otherwise review them to remove privileged materials has the obvious practical and legal consequence of waiver of any associated privileges.")

Case Date Jurisdiction State Cite Checked
2017-01-12 Federal MS
Comment:

key case


Chapter: 6.602
Case Name: Newsome v. Lawson, Civ. No. 14-842-RGA-MPT, 2017 U.S. Dist. LEXIS 203691 (D. Del. Dec. 12, 2017)
(applying the Teleglobe standard, and finding that a liquidating trustee could obtain privileged documents from a lawyer that jointly represented the bankrupt company and its parent; also finding that the Eureka case did not change that result; also finding that the "breach of duty exception" allowed the lawyer for a joint client to obtain privileged communications between either of the joint client and their lawyer; "Several courts have relied on the breach of duty exception to compel disclosure of privileged communications in a lawsuit between a joint client and the joint attorney. . . . The breach of duty exception provides that, '[i]n a lawsuit between an attorney and a client based on an alleged breach of a duty arising from the attorney-client relationship, attorney-client communications relevant to the breach are not protected by the attorney-client privilege.'. . . Delaware has adopted a breach of duty exception in substantially the same form. See Del. R. Evid. 502(d)(3) (stating that there is no privilege '[a]s to a communication relevant to an issue of breach of duty by the lawyer to the client or by the client to the lawyer.'"; ". . . the court finds that the magistrate judge erred in concluding that the breach of duty exception does not apply to cases involving a joint representation.")

Case Date Jurisdiction State Cite Checked
2017-12-12 Federal DE
Comment:

key case


Chapter: 6.602
Case Name: Newsome v. Lawson, Civ. No. 14-842-RGA-MPT, 2017 U.S. Dist. LEXIS 203691 (D. Del. Dec. 12, 2017)
(applying the Teleglobe standard, and finding that a liquidating trustee could obtain privileged documents from a lawyer that jointly represented the bankrupt company and its parent; also finding that the Eureka case did not change that result; also finding that the "breach of duty exception" allowed the lawyer for a joint client to obtain privileged communications between either of the joint client and their lawyer; "Neither Teleglobe [In re Teleglobe Communications Corp., 493 F.3d 345 (3d Cir. 2007)] nor Eureka [Eureka Inv. Corp., NV. v. Chicago Title Ins. Co., 743 F.2d 932, 240 U.S. App. D.C. 88 (D.C. Cir. 1984)] held that privileged communications from the joint representation can be withheld from a joint client when the joint attorney develops a conflict of interest due to diverging interests of the joint clients."; "Taking Eureka and Bolton together, the touchstone for compelling disclosure is whether the communications are relevant to the matter of common interest that is the subject of the joint representation. The Defendants cannot maintain a claim of privilege over communications relevant to the matter of common interest for which they were retained as joint attorneys by claiming that they had a conflict of interest within that joint representation. Instead, Defendants must demonstrate that the communications are related to an individual matter for which they were separately retained.")

Case Date Jurisdiction State Cite Checked
2017-12-12 Federal DE
Comment:

key case


Chapter: 6.602
Case Name: Newsome v. Lawson, Civ. No. 14-842-RGA-MPT, 2017 U.S. Dist. LEXIS 203691 (D. Del. Dec. 12, 2017)
(applying the Teleglobe standard, and finding that a liquidating trustee could obtain privileged documents from a lawyer that jointly represented the bankrupt company and its parent; also finding that the Eureka case did not change that result; also finding that the "breach of duty exception" allowed the lawyer for a joint client to obtain privileged communications between either of the joint client and their lawyer; "The magistrate judge relied on Teleglobe [In re Teleglobe Communications Corp., 493 F.3d 345 (3d Cir. 2007)] to hold that neither the adverse-litigation exception nor the breach of duty exception were proper grounds to compel Defendants' production of privileged documents from the joint representation of Mahalo USA and Mahalo Canada. . . . Other courts addressing the same factual scenario have uniformly reached a different conclusion: A joint client suing only the joint attorney may compel disclosure of privileged documents from the joint representation."; "In a lawsuit between a joint client and the joint attorney, all of the courts found to have addressed the issue relied on the adverse-litigation exception to compel disclosure of the privileged communications from the joint representation."; ". . . a joint attorney may not withhold from one joint client privileged communications from the joint representation, even if the other (non-party) joint client refuses to consent to the disclosure."; "Ultimately, the documents Plaintiff seeks would not be disclosed to a third party, but would remain among the joint clients and the joint attorney that participated in the joint representation. Accordingly, it is not enough that Mahalo Canada, a non-party joint client, objects to the disclosure of privileged documents from the joint representation. The court finds that the magistrate judge erred in holding that the adverse-litigation exception was not a proper legal basis for compelling disclosure of privileged documents from the joint representation."; "The adverse-litigation exception does not entitle Plaintiff to unbounded discovery. A joint client is entitled to only those communications relevant to the matter of common interest that was the subject of the joint representation."; "Although the parties do not dispute that there was a joint representation, they have not identified the matter of common interest that was the subject of the joint representation. It is possible that Mahalo Canada has some privileged documents which reference Mahalo USA, but which are not the subject of the joint representation. Because the parties did not identify the matter of common interest, it is difficult to determine where exactly that line would be drawn. Nevertheless, once the parties have agreed on the matter of common interest, Plaintiff is entitled to all communications that fall within the scope of the joint representation, including communications where one joint client is not present.")

Case Date Jurisdiction State Cite Checked
2017-12-12 Federal DE
Comment:

key case


Chapter: 6.602
Case Name: In re Crescent Resources, LLC, 457 B.R. 506, 516, 518, 524, 528, 530 (Bankr. W.D. Tex. 2011)
(holding that the North Carolina firm of Robinson Bradshaw jointly represented Duke and its wholly-owned subsidiary Crescent resources in connection with a transaction (Project Galaxy) that resulted in Crescent's bankruptcy; holding that the bankruptcy trustee could therefore obtain Robinson Bradshaw's files; acknowledging that both Duke and Robinson Bradshaw indicated under oath that the law firm only represented Duke and did not jointly represent Crescent, but pointing (among other things) to Robinson Bradshaw lawyers' website bios claiming that they did represent Crescent in the transaction; explaining that "'The major issue before the Court is whether the Trust [the bankruptcy Crescent Resources entity] is to be considered a joint or sole client, or no client at all, of RBH [Robinson, Bradshaw & Hinson] with respect to the Project Galaxy files.'"; articulating the trustee's position and the opposing position of Duke and Robinson Bradshaw; "'The Trust argues that RBH did represent Crescent Resources, while Duke would have the Court believe that RBH jointly represented Crescent Resources before the 2006 Duke Transaction and after the 2006 Duke Transaction, but not during the 2006 Duke Transaction. Duke further alleges that Crescent Resources was not represented by counsel at all during the 2006 Duke Transaction. Duke is arguing, essentially, that for the purposes of the 2006 Duke Transaction only, RBH did not represent Crescent Resources. So the issue to be resolved is whether RBH represented Crescent Resources with respect to the 2006 Duke Transaction.'"; noting that Duke and Robinson Bradshaw "'provided sworn testimony that Duke was RBH's sole client for Project Galaxy. Mr. Torning ["Duke's in house attorney responsible for Project Galaxy and attorney in charge of outside counsel for Duke for Project Galaxy"] testified that it was his understanding 'that at all times during Project Galaxy, RBH represented Duke, not Crescent.'"; examining possible indicia of a joint representation, noting that: (1) the Duke-Robinson Bradshaw retainer letter was someway ambiguous; (2) Duke paid Robinson Bradshaw's invoices, which was not dispositive; (3) Robinson Bradshaw lawyers interacted with Crescent Resources but took their direction from Duke, which was also not dispositive; relying on several factors in concluding that Robinson Bradshaw had jointly represented Duke and Crescent Resources in the pertinent Project Galaxy transaction: (1) Robinson Bradshaw had long represented Crescent Resources before the transaction, and represented Crescent Resources after the transaction; (2) Crescent Resources did not have any other law firms representing it in connection with Project Galaxy; and (3) "'The Trust also discussed statements made by various RBH lawyers on RBH's website. Stephan J. Willen's page, under "Representative Experience" includes "Representing a real estate developer, as borrower, in connection with a $1.5 billion revolving and term loan letter of credit facility used to recapitalize the developer." The Trust stated that this represents the 2006 Duke Transaction and shows Mr. Willen's understanding that Crescent Resources was RBH's client with respect to the 2006 Duke Transaction. Additionally, William K. Packard's page, under "Representative Experience" states "Representation of Crescent Resources, as borrower, in connection with a $1.5 billion revolving and term loan letter of credit facility."; pointing to the Third Circuit's analysis in Teleglobe [In re Teleglobe Communications Corp., 493 F.3d 345 (3d Cir. 2007)]; "'Teleglobe, relied on by both parties, reads almost as an instructional manual to in-house counsel on how to avoid tangled joint-client issues. Teleglobe instructs that a court should consider the testimony from the parties and their attorneys on the areas of contention.'"; "RBH and in-house counsel for Duke should have heeded the warnings in Teleglobe and taken greater care to have in place an information shielding agreement or ensured that Crescent was represented by outside counsel."; after concluding that Robinson Bradshaw jointly represented Duke and Crescent Resources; explaining the implications: "(1) Duke cannot invoke an attorney-client privilege to stop the Trust from using the joint-client files in adversary proceedings between Duke and the Trust."; (2) "[T]he Trust may not unilaterally waive the joint-client privilege and use jointly privileged information in proceedings involving third parties, absent a waiver from Duke.")

Case Date Jurisdiction State Cite Checked
2011-01-01 Federal TX
Comment:

key case


Chapter: 6.602
Case Name: United States v. Under Seal # 4 (In re Grand Jury Subpoena # 06-1), 274 F. App'x 306, 310-11 (4th Cir. 2008)
("Subsidiary argues that it may assert a joint attorney-client privilege in the communications between Parent and Counsel because of its status as a former subsidiary of Parent. . . . Indeed, a number of courts have held that close corporate affiliation, including that shared by a parent and a subsidiary, suffices to render those entities "joint clients" or "co-clients," such that they may assert joint privilege in communications with an attorney pertaining to matters of common interest. . . . As the Third Circuit has explained in some detail, however, the scope of the joint client or co-client privilege is circumscribed by the 'limited congruence of the clients' interests.' [See] In re Teleglobe Communs. Corp., 493 F.3d at 362-63 [3d Cir. 2007)] ('As the Restatement notes, a co-client relationship is limited by "the extent of the legal matter of common interest.'" (quoting the Restatement (Third) of the Law Governing Lawyers § 75 cmt. c)); see also id. at 366 ('[B]ecause co-clients agree to share all information related to the matter of common interest with each other and to employ the same attorney, their legal interests must be identical (or nearly so) in order that an attorney can represent them all with the candor, vigor, and loyalty that our ethics require.' (emphasis added)). In the present case, the district court held that Subsidiary failed to demonstrate that the withheld communications pertained to a matter in which both Parent and Subsidiary shared a common legal interest, and thus Subsidiary lacked standing to intervene to quash the subpoena. After reviewing Subsidiary's ex parte submissions in support of its claim to the contrary, we conclude that the district court did not err in its determination. Subsidiary has failed to demonstrate that the communications reflected any 'legal matter of common interest.' See Restatement (Third) of the Law Governing Lawyers § 75 cmt. c. Therefore, it has not satisfied its burden of establishing that the joint client or co-client privilege applies, and the district court properly denied its motion to intervene.")

Case Date Jurisdiction State Cite Checked
2008-01-01 Federal B 8/13

Chapter: 6.602
Case Name: United States v. Under Seal # 4 (In re Grand Jury Subpoena # 06-1), 274 F. App'x 306, 310, 311 (4th Cir. 2008) (unpublished opinion)
(assessing the crime-fraud exception; rejecting a corporate subsidiary's motion to intervene to assert privilege; noting that "[a] third party has standing to intervene in grand jury proceedings and challenge the validity of a subpoena directed to another person or entity when the third party has a legally cognizable interest in the materials sought."; rejecting the subsidiary's argument that it had its own attorney client privilege protection; "Subsidiary has failed to put forth sufficient evidence to support its claim that the communications at issue in any way pertained to Counsel's representation of Subsidiary. Therefore, Subsidiary may not assert its own attorney client privilege independent of any joint privilege it may share with Parent in the communications."; also rejecting the subsidiary's argument that it had a joint attorney client relationship with its parent; "Second, Subsidiary argues that it may assert a joint attorney client privilege in the communications between Parent and Counsel because of its status as a former subsidiary of Parent."; "In the present case, the district court held that Subsidiary failed to demonstrate that the withheld communications pertained to a matter in which both Parent and Subsidiary shared a common legal interest, and thus Subsidiary lacked standing to intervene to quash the subpoena. After reviewing Subsidiary's ex parte submissions in support of its claim to the contrary, we conclude that the district court did not err in its determination. Subsidiary has failed to demonstrate that the communications reflected any 'legal matter of common interest.' See Restatement (Third) of the Law Governing Lawyers § 75 cmt. c. Therefore, it has not satisfied its burden of establishing that the joint client or co client privilege applies, and the district court properly denied its motion to intervene.")

Case Date Jurisdiction State Cite Checked
2008-01-01 Federal B 5/09; n

Chapter: 6.602
Case Name: Teleglobe Commc'ns Corp. v. BCE Inc. (In re Teleglobe Commc'ns Corp.), 493 F.3d 345, 379 (3d Cir. 2007)
("The majority -- and more sensible -- view is that even in the parent-subsidiary context a joint representation only arises when common attorneys are affirmatively doing legal work for both entities on a matter of common interest. See, e.g., Polycast, 125 F.R.D. at 49 [Polycast Tech. Corp. v. Uniroyal, Inc., 125 F.R.D. 47 (S.D.N.Y. 1989)](finding a joint representation when a parent's officer and general counsel affirmatively advised subsidiary on how to comply with merger agreement to which parent and subsidiary were both parties). A broader rule would wreak havoc because it would essentially mean that in adverse litigation a former subsidiary could access all of its former parent's privileged communications because the subsidiary was, as a matter of law, within the parent entity's community of interest.")

Case Date Jurisdiction State Cite Checked
2007-01-01 Federal B 6/13

Chapter: 6.602
Case Name: Glidden Co. v. Jandernoa, 173 F.R.D. 459, 472-73 (W.D. Mich. 1997)
("The universal rule of law, expressed in a variety of contexts, is that the parent and subsidiary share a community of interest, such that the parent (as well as the subsidiary) is the 'client' for purposes of the attorney-client privilege. See Crabb v. KFC Nat'l Man. Co., 1992 U.S. App. LEXIS 38268, 1992 WL 1321 (6th Cir. 1992) ('The cases clearly hold that a corporate 'client' includes not only the corporation by whom the attorney is employed or retained, but also parent, subsidiary and affiliate corporations.') (quoting United States v. AT&T, 86 F.R.D. 603, 616 (D.D.C. 1979)). Consequently, disclosure of legal advice to a parent or affiliated corporation does not work a waiver of the confidentiality of the document, because of the complete community of interest between parent and subsidiary. Id. at *2. Numerous courts have recognized that, for purposes of the attorney-client privilege, the subsidiary and the parent are joint clients, each of whom has an interest in the privileged communications. See, e.g., Polycast Tech. Corp. v. Uniroyal, Inc., 125 F.R.D. 47, 49 (S.D.N.Y. 1989); Medcom Holding Co. v. Baxter Travenol Lab., 689 F. Supp. 841, 842 (N.D. Ill. 1988). Simply put, a sole shareholder has a right to complete disclosure about the legal affairs of its wholly owned subsidiary.")

Case Date Jurisdiction State Cite Checked
1997-01-01 Federal MI B 6/13

Chapter: 6.702
Case Name: Cooper v. Meritor, Inc., Civ. A. No. 4:16-cv-052 DMB-JMV Consolidated with Civ. A. No. 4:16-cv-053 DMB-JMV, Civ. A. No. 4:16-cv-054 DMB-JMV, CIV. A. No. 4:16-cv-055-DMB-JMV, CIV. A. No. 4:16-cv-056-DMB-JMV, 2017 U.S. Dist. LEXIS 4727 (N.D. Miss. 1/12/17)
(analyzing the waiver impact of fifteen documents Textron created when it owned a Mississippi facility from 1989 to 1996; explaining that Textron sold assets of the company in 1999; disagreeing with Textron's assertion that the asset purchase agreement excluded the privileged environmental documents; noting that Textron left the documents at the facility without any restrictions on access, and did not object when the asset purchaser went bankrupt in 2004 and all of its assets were sold to another company out of bankruptcy; finding that Textron waived privilege protection for the fifteen documents, even though Textron claims to have forgotten that the documents were left at the facility; "In the instant case, Textron asserts a privilege over fifteen (15) documents created from 1989 to 1996 during a period of time it owned and operated a wheel cover manufacturing facility in Grenada, Mississippi. In 1999, Textron entered and subsequently consummated an asset sale agreement with Grenada Manufacturing, LLC (hereinafter sometimes 'the APA'). According to Textron, it did not transfer ownership of documents related to environmental matters, including the subject 15 documents, to Grenada Manufacturing, LLC as part of that sale. It is Textron's positon that it retains ownership of all such documents and any affiliated privilege with respect thereto."; "According to an affidavit supplied by Textron, boxes of these environmental documents, together with other business records of Textron's operations prior to the 1999 sale, were left by Textron at the Grenada facility after the sale. Indeed, Textron contracted for a right to access the documents for a period of time following the sale. APA 14.1. In the court's view, Textron's claim of retained ownership of the documents, even if it were convincing, does not satisfactorily answer whether its treatment of those assets waived any privilege that might be claimed with regard to any of them."; "Textron is faced with the fact that it intentionally left documents that it must acknowledge (because it is material to its claim of retained ownership of the documents in the first instance) it knew concerned environmental matters related to releases from the business prior to 1999. These documents were intentionally left unattended and unrestricted in the hands of yet another party -- this time, Ice Industries, Inc. Though Textron was given notice of the asset transfer to Ice Industries, Inc., it made no effort to retrieve the environmental documents or to even review them for privilege."; "In other words, Textron plainly waived any privilege that would have otherwise been retained if the documents had, in fact, been excluded from the purchase and asset sale."; "Textron argues that unless it realized that the documents concerning environmental matters that it freely gave possession of to others for decades did in fact contain privileged documents, that disclosure could not waive any privilege attendant to the document(s)."; "The court is unpersuaded."; "[T]here is nothing about the 'practical consequences doctrine' that dictates a different outcome. The practical outcome of leaving -- for decades -- documents a company contends it owns in possession of another, with no provision for protection of any privileged communications therein, not to mention permitting the subsequent transfer of possession to others on additional occasions, all without any effort to retrieve them prior to the instant litigation, or to otherwise review them to remove privileged materials has the obvious practical and legal consequence of waiver of any associated privileges.")

Case Date Jurisdiction State Cite Checked
2017-01-12 Federal MS
Comment:

key case


Chapter: 6.702
Case Name: Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280 (Del. Ch. Nov. 15, 2013)
December 25, 2013 (PRIVILEGE POINT)

"Delaware Court Describes a Frightening Post-Transaction Situation, but Offers a Solution: Part I"

When one company buys another company's stock, it normally acquires all of the seller's assets, including documents in the seller's computer system, file cabinets, etc. Does the buyer also acquire privileged communications between the seller's executives and the seller's lawyers about the just-completed transaction? That outcome seems counterintuitive, because it would give the buyer immediate access to the seller's (the transactional adversary) privileged communications about strategy, possible post-closing disputes or liabilities, etc.

A Delaware court dealt with this issue in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280 (Del. Ch. Nov. 15, 2013) (not released for publication). The buyer claimed that the seller had defrauded it in the purchase transaction. The buyer discovered privileged communications between the seller and its outside counsel Perkins Coie in the company's computer system. The seller had not removed those documents from its computer system before the closing, and had "done nothing to get these computer records back" since the closing a year earlier. Id. At *2. The seller claimed that the attorney-client privilege nevertheless protected those communications "on the ground that it, and not the surviving corporation [buyer], retained control of the attorney-client privilege." Id. At *3. The court rejected seller's privilege claim – relying on the Delaware General Corporation Law's clear statement that after a merger the surviving company (the buyer here) owns "'all'" property, privileges, etc. Id. At *4. Thus, the buyer could read and use the intimate privileged communication between the seller's executives and Perkins Coie about the transaction.

In a refreshing example of judicial helpfulness, the Delaware court then explained how future sellers could avoid this nightmarish situation. Next week's Privilege Point will describe the solution.

Case Date Jurisdiction State Cite Checked
2013-11-15 State DE
Comment:

key case


Chapter: 6.702
Case Name: Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280, at *4 (Del. Ch. Nov. 15, 2013)
January 1, 2014 (PRIVILEGE POINT)

"Delaware Court Describes a Frightening Post-Transaction Situation, but Offers a Solution: Part II"

Last week's Privilege Point described a Delaware decision holding that a company's buyer acquired ownership of "'all'" of the seller's property, privileges, etc. – including even privileged communications between the seller's executives and its outside counsel Perkins Coie about the transaction itself. Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280, at *4 (Del. Ch. Nov. 15, 2013) (not released for publication) (citation omitted).

The Delaware court noted that sellers can "negotiate[] special contractual agreements to protect themselves and prevent certain aspects of the privilege from transferring to the surviving corporation in the merger." Id. At *17. The court pointed to a 2008 Delaware decision approving a purchase transaction provision specifically excluding from a sale "'all rights of the Sellers under this Agreement and all agreements and other documentation relating to the transactions contemplated hereby.'" Id. At *18 n.27 (citing Postorivo v. AG Paintball Holdings, Inc., Consol. Civ. A. Nos. 2911- & 3111-VCP, 2008 Del. Ch. LEXIS 17, at *6 n.5 (Del. Ch. Feb. 7, 2008) (unpublished opinion)). The court then reiterated that "the answer to any parties worried about facing this predicament in the future" is to "exclude from the transferred assets the attorney-client communications they wish to retain as their own." Id. At *20.

Transactional lawyers should remember the potentially disastrous default rule, and how to avoid it.

Case Date Jurisdiction State Cite Checked
2013-11-15 State DE
Comment:

key case


Chapter: 6.702
Case Name: SCR-Tech LLC v. Evonik Energy Services LLC, 2013 NCBC 42 (N.C. Super. Ct. Aug. 13, 2013)
November 13, 2013 (PRIVILEGE POINT)

"North Carolina State Court Analyzes Privilege Protection for Communications Among Corporate Affiliates"

One surprisingly open question in corporate privilege law involves the legal basis for corporations to claim privilege protection for their lawyers' communications with their corporate affiliates' employees. Various courts have found that: (1) a corporation's lawyer represents the whole corporate family as a single "client"; (2) the lawyer represents the affiliated corporations as "joint clients"; or (3) the privilege rests on a common legal interest among the corporate affiliates.

In SCR-Tech LLC v. Evonik Energy Services LLC, 2013 NCBC 42 (N.C. Super. Ct. Aug. 13, 2013), a North Carolina court reviewed the very sparse case law on this issue. The court dealt with communications to and from plaintiff SCR-Tech: (1) when the company was partially owned by Ebinger; (2) when the company was then sold to, and wholly owned by, Catalytica, and (3) when the company later entered into a "common interest agreement" with Ebinger, because both faced similar litigation. The court applied a sort of sliding scale, considering both the percentage of ownership and any "shared legal interest." Id. ¶ 18. The court concluded that the privilege protected communications during all three situations, because (1) SCR-Tech's shared legal interest with Ebinger meant that the court did not have to determine whether Ebinger's 37.5% ownership (which gave it control) was "too limited" to assure privilege protection by itself; (2) Catalytica's 100% ownership of, and shared legal interest with, SCR-Tech assured privilege protection; (3) the "common interest" doctrine could protect communications between SCR-Tech and its former controlling shareholder Ebinger even in the absence of any corporate affiliation at that time. Id. ¶¶ 15, 19-26.

The court's most significant contribution to the scant jurisprudence involves the recognition that the privilege can protect corporate affiliates' communications based on control rather than 100% ownership. In nearly every situation, corporate affiliates should be able to satisfy the "shared legal interest" part of the equation.

Case Date Jurisdiction State Cite Checked
2013-08-13 State NC
Comment:

key case


Chapter: 6.702
Case Name: Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155, 156, 158, 159, 160, 161 & n.27 (Del. Ch. 2013)
(holding that the surviving company in a merger had acquired the seller's privileged documents generated during the transaction, which the seller left in the computer system for a year after the merger; "After the Buyer brought this suit in September 2012 -- a full year after the merger -- it notified the Seller that, among the files on the Plimus computer systems that the Buyer acquired in the merger, it had discovered certain communications between the Seller and Plimus's then-legal counsel at Perkins Coie regarding the transaction. During that year, the Seller had done nothing to get these computer records back, and there is no evidence that the Seller took any steps to segregate these communications before the merger or excise them from the Plimus computer systems, the control over which was passing to the Buyer in the merger. It is also undisputed that the merger agreement lacked any provision excluding pre-merger attorney-client communications from the assets of Plimus that were transferred to the Buyer as a matter of law in the merger, and the merger was intended to have the effects set forth in the Delaware General Corporation Law ('DGCL'). Nonetheless, when the Seller was notified that the Buyer had found pre-merger communications on the Plimus computer system, the Seller asserted the attorney-client privilege over those communications on the ground that it, and not the surviving corporation, retained control of the attorney-client privilege that belonged to Plimus for communications regarding the negotiation of the merger agreement. Before the court is a motion by the Buyer seeking to resolve this privilege dispute and determine, among other things, that the surviving corporation owns and controls any pre-merger privilege of Plimus or, alternatively, that the Seller has waived any privilege otherwise attaching to those pre-merger communications." (footnote omitted); "To indulge the Seller's argument would conflict with the only reasonable interpretation of the statute, which is that all means all as to the enumerated categories, and that this includes all privileges, including the attorney-client privilege."; "If the General Assembly had intended to exclude the attorney-client privilege, it could easily have said so. Instead, the statute uses the broadest possible language to set a clear and unambiguous default rule: all privileges of the constituent corporations pass to the surviving corporation in a merger." (footnote omitted); noting that the seller could have of excluded those files and privileged communications from the acquisition; "Of course, parties in commerce can -- and have -- negotiated special contractual agreements to protect themselves and prevent certain aspects of the privilege from transferring to the surviving corporation in the merger."; citing Postorivo v. AG Paintball Holdings, Inc., Consol. Civ. A. Nos. 2991- & 3111-VCP, 2008 Del. Ch. LEXIS 17, at *19 n.25 (Del. Ch. Feb. 7, 2008): "'Section 1.2(h) [of the asset purchase agreement] provides that "'Excluded Assets" from the sale include "all rights of the Sellers under this Agreement and all agreements and other documentation relating to the transactions contemplated hereby."'"; "Thus, the answer to any parties worried about facing this predicament in the future is to use their contractual freedom in the manner shown in prior deals to exclude from the transferred assets the attorney-client communications they wish to retain as their own.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State DE B 5/14

Chapter: 6.702
Case Name: Postorivo v. AG Paintball Holdings, Inc., Consol. Civ. A. Nos. 2911- & 3111-VCP, 2008 Del. Ch. LEXIS 17, at *6 n.5 (Del. Ch. Feb. 7, 2008)
January 1, 2014 (PRIVILEGE POINT)

"Delaware Court Describes a Frightening Post-Transaction Situation, but Offers a Solution: Part II"

Last week's Privilege Point described a Delaware decision holding that a company's buyer acquired ownership of "'all'" of the seller's property, privileges, etc. – including even privileged communications between the seller's executives and its outside counsel Perkins Coie about the transaction itself. Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906-CS, 2013 Del. Ch. LEXIS 280, at *4 (Del. Ch. Nov. 15, 2013) (not released for publication) (citation omitted).

The Delaware court noted that sellers can "negotiate[] special contractual agreements to protect themselves and prevent certain aspects of the privilege from transferring to the surviving corporation in the merger." Id. At *17. The court pointed to a 2008 Delaware decision approving a purchase transaction provision specifically excluding from a sale "'all rights of the Sellers under this Agreement and all agreements and other documentation relating to the transactions contemplated hereby.'" Id. At *18 n.27 (citing Postorivo v. AG Paintball Holdings, Inc., Consol. Civ. A. Nos. 2911- & 3111-VCP, 2008 Del. Ch. LEXIS 17, at *6 n.5 (Del. Ch. Feb. 7, 2008) (unpublished opinion)). The court then reiterated that "the answer to any parties worried about facing this predicament in the future" is to "exclude from the transferred assets the attorney-client communications they wish to retain as their own." Id. At *20.

Transactional lawyers should remember the potentially disastrous default rule, and how to avoid it.

Case Date Jurisdiction State Cite Checked
2008-02-07 State DE
Comment:

key case


Chapter: 6.702
Case Name: In re Grand Jury Subpoenas, 734 F. Supp. 1207, 1211 n.5 (E.D. Va. 1990)
("Of course, the parties are free to vary this result by contract. The entity selling control may condition the sale on the purchaser's agreement to grant the seller a veto over any future privilege waivers involving documents generated during the period of seller's ownership. In the absence of such a contract provision, the parties are treated as having contracted on the assumption that, after the sale, the management of the divested corporation will control the attorney client privilege as to these documents."), aff'd in part and vacated in part on other grounds, 902 F.2d 244 (4th Cir. 1990).

Case Date Jurisdiction State Cite Checked
1990-01-01 Federal VA B 3/16
Comment:

key case


Chapter: 6.704
Case Name: Newspring Mezzanine Capital II, L.P. v. Hayes, Jr., Civ. A. No. 14-1706, 2014 U.S. Dist. LEXIS 169900 (E.D. Pa. Dec. 9, 2014)
("In reaching this conclusion, I do not decide whether the Baxter Parties waived their attorney client privilege with respect to documents left on Utilipath servers after the Sale of Control.")

Case Date Jurisdiction State Cite Checked
2014-12-09 Federal PA

Chapter: 6.704
Case Name: In re Grand Jury Subpoenas 89-3 & 89-4 & 89-129, 734 F. Supp. 1207, 1211 n.5 (E.D. Va. 1990)
(suggesting that a corporate parent might be able to obtain the right to veto a spun subsidiaries waiver of the attorney client privilege)

Case Date Jurisdiction State Cite Checked
1990-01-01 Federal VA

Chapter: 6.705
Case Name: Cooper v. Meritor, Inc., Civ. A. No. 4:16-cv-052 DMB-JMV Consolidated with Civ. A. No. 4:16-cv-053 DMB-JMV, Civ. A. No. 4:16-cv-054 DMB-JMV, CIV. A. No. 4:16-cv-055-DMB-JMV, CIV. A. No. 4:16-cv-056-DMB-JMV, 2017 U.S. Dist. LEXIS 4727 (N.D. Miss. 1/12/17)
(analyzing the waiver impact of fifteen documents Textron created when it owned a Mississippi facility from 1989 to 1996; explaining that Textron sold assets of the company in 1999; disagreeing with Textron's assertion that the asset purchase agreement excluded the privileged environmental documents; noting that Textron left the documents at the facility without any restrictions on access, and did not object when the asset purchaser went bankrupt in 2004 and all of its assets were sold to another company out of bankruptcy; finding that Textron waived privilege protection for the fifteen documents, even though Textron claims to have forgotten that the documents were left at the facility; "In the instant case, Textron asserts a privilege over fifteen (15) documents created from 1989 to 1996 during a period of time it owned and operated a wheel cover manufacturing facility in Grenada, Mississippi. In 1999, Textron entered and subsequently consummated an asset sale agreement with Grenada Manufacturing, LLC (hereinafter sometimes 'the APA'). According to Textron, it did not transfer ownership of documents related to environmental matters, including the subject 15 documents, to Grenada Manufacturing, LLC as part of that sale. It is Textron's positon that it retains ownership of all such documents and any affiliated privilege with respect thereto."; "According to an affidavit supplied by Textron, boxes of these environmental documents, together with other business records of Textron's operations prior to the 1999 sale, were left by Textron at the Grenada facility after the sale. Indeed, Textron contracted for a right to access the documents for a period of time following the sale. APA 14.1. In the court's view, Textron's claim of retained ownership of the documents, even if it were convincing, does not satisfactorily answer whether its treatment of those assets waived any privilege that might be claimed with regard to any of them."; "Textron is faced with the fact that it intentionally left documents that it must acknowledge (because it is material to its claim of retained ownership of the documents in the first instance) it knew concerned environmental matters related to releases from the business prior to 1999. These documents were intentionally left unattended and unrestricted in the hands of yet another party -- this time, Ice Industries, Inc. Though Textron was given notice of the asset transfer to Ice Industries, Inc., it made no effort to retrieve the environmental documents or to even review them for privilege."; "In other words, Textron plainly waived any privilege that would have otherwise been retained if the documents had, in fact, been excluded from the purchase and asset sale."; "Textron argues that unless it realized that the documents concerning environmental matters that it freely gave possession of to others for decades did in fact contain privileged documents, that disclosure could not waive any privilege attendant to the document(s)."; "The court is unpersuaded."; "[T]here is nothing about the 'practical consequences doctrine' that dictates a different outcome. The practical outcome of leaving -- for decades -- documents a company contends it owns in possession of another, with no provision for protection of any privileged communications therein, not to mention permitting the subsequent transfer of possession to others on additional occasions, all without any effort to retrieve them prior to the instant litigation, or to otherwise review them to remove privileged materials has the obvious practical and legal consequence of waiver of any associated privileges.")

Case Date Jurisdiction State Cite Checked
2017-01-12 Federal MS
Comment:

key case


Chapter: 6.705
Case Name: Newspring Mezzanine Capital II, L.P. v. Hayes, Jr., Civ. A. No. 14-1706, 2014 U.S. Dist. LEXIS 169900 (E.D. Pa. Dec. 9, 2014)
("In reaching this conclusion, I do not decide whether the Baxter Parties waived their attorney client privilege with respect to documents left on Utilipath servers after the Sale of Control.")

Case Date Jurisdiction State Cite Checked
2014-12-09 Federal PA

Chapter: 6.705
Case Name: Newspring Mezzanine Capital II, L.P. v. Hayes, Jr., Civ. A. No. 14-1706, 2014 U.S. Dist. LEXIS 169900 (E.D. Pa. Dec. 9, 2014)
(holding that a company owned the privilege when it sold the stock of a company, because the law firm assisting the company did not represent the individual selling shareholders as personal clients; "The Baxter Parties insist that they retain the right to assert attorney-client privilege over communications with Wishart Norris pre-merger because they were the sellers of a controlling interest in Old Utilipath. In support of this position, they analogize the current situation to Tekni-Plex v. Meyner and Landis, 89 N.Y.2d 123, 674 N.E.2d 663, 651 N.Y.S.2d 954 (Ct. Ap. N.Y. 1996)."; "The most useful point of departure is the contract of representation whereby Wishart Norris was retained. The retention letter stated that it related to 'this Firm's representation of Utilipath, LLC ('the Company').' The letter also cautioned, 'The advice and communications which we render on the Company's behalf are not intended to be disseminated to or relied upon by any other parties without our written consent' (emphasis added). The signature line identified Utilipath LLC and identified Jarrod Hayes as a 'manager.' Jarrod Hayes did not separately sign as an individual, and neither did his father, Baxter Hayes, Jr., or brother, Baxter Hayes, III."; "I also find nothing in Wishart Norris' actions that indicate it was representing any of the Baxter Parties as individuals in addition to representing the corporations. Further supporting my conclusion is the fact that Baxter, Jarrod, and Lindon Hayes had retained their own personal counsel."; "In contrast, in the situation before me, Wishart Norris was explicitly retained by Old Utilipath to carry out the Utilipath transaction, and other lawyers were retained to personally represent the parties in the transaction. Under Bevill [In re Bevill, Bresler & Schulman Asset Management Corporation, 805 F.2d 120 (3d Cir. 1986)], the individuals asserting the privilege have a specific burden, which they have failed to meet."; "Because Wishart Norris represented the corporation, the corporation's post-merger owners took control of the corporation's attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2014-12-09 Federal PA

Chapter: 6.801
Case Name: Atl. Nat'l Trust, LLC v. JAB Realty Trust, No. HHDCV106015851S, 2013 Conn. Super. LEXIS 1362, at *7, *8-9, *17-18, *26 (Conn. Super. Ct. June 3, 2013)
(analyzing a failed bank's assignee's effort to assert privilege and work product protection; ultimately holding that the assignee could not; "Some courts have held that the FDIC in its corporate capacity may not assert the attorney-client privilege that once existed between the failed bank, as a client, and its attorney."; "On the other end of the spectrum, some courts have held that the FDIC acting in its corporate capacity steps into the shoes of the FDIC in its capacity as receiver, thereby assuming all of the rights, powers and privileges, including the attorney-client privilege, that the FDIC in its capacity as receiver once enjoyed."; "Since the attorney-client privilege is personal, then this privilege would not transfer to the plaintiff in the present case by virtue of the assignment."; "[T]he court concludes that the plaintiff, as an assignee of a failed bank's financial instruments, may not assert the attorney-client and attorney work product privilege of the failed bank in connection with the defendant's requests for discovery.")

Case Date Jurisdiction State Cite Checked
2013-06-03 State CT B 4/14

Chapter: 6.802
Case Name: Newsome v. Lawson, Civ. No. 14-842-RGA-MPT, 2017 U.S. Dist. LEXIS 203691 (D. Del. Dec. 12, 2017)
(applying the Teleglobe standard, and finding that a liquidating trustee could obtain privileged documents from a lawyer that jointly represented the bankrupt company and its parent; also finding that the Eureka case did not change that result; also finding that the "breach of duty exception" allowed the lawyer for a joint client to obtain privileged communications between either of the joint client and their lawyer; "Neither Teleglobe [In re Teleglobe Communications Corp., 493 F.3d 345 (3d Cir. 2007)] nor Eureka [Eureka Inv. Corp., NV. v. Chicago Title Ins. Co., 743 F.2d 932, 240 U.S. App. D.C. 88 (D.C. Cir. 1984)] held that privileged communications from the joint representation can be withheld from a joint client when the joint attorney develops a conflict of interest due to diverging interests of the joint clients."; "Taking Eureka and Bolton together, the touchstone for compelling disclosure is whether the communications are relevant to the matter of common interest that is the subject of the joint representation. The Defendants cannot maintain a claim of privilege over communications relevant to the matter of common interest for which they were retained as joint attorneys by claiming that they had a conflict of interest within that joint representation. Instead, Defendants must demonstrate that the communications are related to an individual matter for which they were separately retained.")

Case Date Jurisdiction State Cite Checked
2017-12-12 Federal DE
Comment:

key case


Chapter: 6.802
Case Name: Newsome v. Lawson, Civ. No. 14-842-RGA-MPT, 2017 U.S. Dist. LEXIS 203691 (D. Del. Dec. 12, 2017)
(applying the Teleglobe standard, and finding that a liquidating trustee could obtain privileged documents from a lawyer that jointly represented the bankrupt company and its parent; also finding that the Eureka case did not change that result; also finding that the "breach of duty exception" allowed the lawyer for a joint client to obtain privileged communications between either of the joint client and their lawyer; "The magistrate judge relied on Teleglobe [In re Teleglobe Communications Corp., 493 F.3d 345 (3d Cir. 2007)] to hold that neither the adverse-litigation exception nor the breach of duty exception were proper grounds to compel Defendants' production of privileged documents from the joint representation of Mahalo USA and Mahalo Canada. . . . Other courts addressing the same factual scenario have uniformly reached a different conclusion: A joint client suing only the joint attorney may compel disclosure of privileged documents from the joint representation."; "In a lawsuit between a joint client and the joint attorney, all of the courts found to have addressed the issue relied on the adverse-litigation exception to compel disclosure of the privileged communications from the joint representation."; ". . . a joint attorney may not withhold from one joint client privileged communications from the joint representation, even if the other (non-party) joint client refuses to consent to the disclosure."; "Ultimately, the documents Plaintiff seeks would not be disclosed to a third party, but would remain among the joint clients and the joint attorney that participated in the joint representation. Accordingly, it is not enough that Mahalo Canada, a non-party joint client, objects to the disclosure of privileged documents from the joint representation. The court finds that the magistrate judge erred in holding that the adverse-litigation exception was not a proper legal basis for compelling disclosure of privileged documents from the joint representation."; "The adverse-litigation exception does not entitle Plaintiff to unbounded discovery. A joint client is entitled to only those communications relevant to the matter of common interest that was the subject of the joint representation."; "Although the parties do not dispute that there was a joint representation, they have not identified the matter of common interest that was the subject of the joint representation. It is possible that Mahalo Canada has some privileged documents which reference Mahalo USA, but which are not the subject of the joint representation. Because the parties did not identify the matter of common interest, it is difficult to determine where exactly that line would be drawn. Nevertheless, once the parties have agreed on the matter of common interest, Plaintiff is entitled to all communications that fall within the scope of the joint representation, including communications where one joint client is not present.")

Case Date Jurisdiction State Cite Checked
2017-12-12 Federal DE
Comment:

key case


Chapter: 6.802
Case Name: Newsome v. Lawson, Civ. No. 14-842-RGA-MPT, 2017 U.S. Dist. LEXIS 203691 (D. Del. Dec. 12, 2017)
(applying the Teleglobe standard, and finding that a liquidating trustee could obtain privileged documents from a lawyer that jointly represented the bankrupt company and its parent; also finding that the Eureka case did not change that result; also finding that the "breach of duty exception" allowed the lawyer for a joint client to obtain privileged communications between either of the joint client and their lawyer; "Several courts have relied on the breach of duty exception to compel disclosure of privileged communications in a lawsuit between a joint client and the joint attorney. . . . The breach of duty exception provides that, '[i]n a lawsuit between an attorney and a client based on an alleged breach of a duty arising from the attorney-client relationship, attorney-client communications relevant to the breach are not protected by the attorney-client privilege.'. . . Delaware has adopted a breach of duty exception in substantially the same form. See Del. R. Evid. 502(d)(3) (stating that there is no privilege '[a]s to a communication relevant to an issue of breach of duty by the lawyer to the client or by the client to the lawyer.'"; ". . . the court finds that the magistrate judge erred in concluding that the breach of duty exception does not apply to cases involving a joint representation.")

Case Date Jurisdiction State Cite Checked
2017-12-12 Federal DE
Comment:

key case


Chapter: 6.802
Case Name: In re HH Liquidation, LLC v. Comvest Group Holdings, LLC, Ch. 11, Case No. 15-11874 (KG), (Jointly Administered), Adv. No. 16-51204 (KG), 2017 Bankr. LEXIS 1258 (D. Del. May 8, 2017)
(holding that an unsecured creditors committee was not entitled to access debtors privileged documents; "The decision is not an easy one. The Committee has brought the adversary proceeding on behalf of the Debtors, and the Debtors are not parties. The question then becomes, why shouldn't the Committee have access to the documents that are in the Debtors' possession and, as well, the Defendants' possession? If the Debtors were not conflicted and had brought the adversary proceeding, they would have the use in the litigation of the documents the Committee seeks. These are documents that the Debtors are withholding."; "What is clear from the cases is that the Committee, suing on behalf of the Debtors, does not have access to privileged documents. The foregoing is true even though the Debtors are not operating and the Committee's recovery, if any, may be on behalf of the estate as a whole. Weintraub therefore applies to chapter 7 trustees but not to Committees. The Court therefore holds that Weintraub [Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 105 S. Ct. 1986, 85 L. Ed. 2d 372 (1985)] does not help the Committee in gaining access to Debtors' privileged documents."; "[T]he Third Circuit [Teleglobe] added to the joint representation issue this: were the debtors insolvent or in the zone of insolvency when the privileged communication occurred? If not, then there was not a breach of fiduciary duties to creditors because neither the Debtors nor the Defendants owed fiduciary duties to creditors of a solvent corporation.")

Case Date Jurisdiction State Cite Checked
2017-05-08 Federal DE
Comment:

key case


Chapter: 6.802
Case Name: Krys v. Paul, Weiss, Rifkind, Wharton, & Garrison LLP (In re China Med. Techs., Inc.), 539 B.R. 643 (S.D.N.Y. 2015)
December 9, 2015 (PRIVILEGE POINT)

"Who Controls an Audit Committee's Privilege and Work Product Protection if the Company Declares Bankruptcy?"

Many courts recognize that a corporation's constituent (such as an audit committee or a group of independent directors) can own the privilege and work product protection covering the constituent's internal corporate investigation. Under this approach, the company's bankruptcy trustee cannot access or waive that privilege or work product protection. See, e.g., Ex parte Smith, 942 So. 2d 356 (Ala. 2006) (denying a bankruptcy trustee's attempt to access pre-bankruptcy communications between the company's independent directors and its Skadden Arps lawyers).

In Krys v. Paul, Weiss, Rifkind, Wharton, & Garrison LLP (In re China Medical Technologies, Inc.), 539 B.R. 643 (S.D.N.Y. 2015), Judge Abrams dealt with privilege and work product protection covering an internal corporate investigation conducted by China Medical's Audit Committee lawyers at Paul Weiss. The court acknowledged "that the Audit Committee was 'independent' in some sense"— "[i]t could retain counsel, and it legitimately expected that its communications with counsel would be protected against intrusion by management." Id. At 655. But the court held that the company's bankruptcy changed the analysis — because depriving the bankruptcy liquidator of the privilege protection's ownership would "thwart the statutory obligation of a trustee in bankruptcy to maximize the value of the estate by conducting investigations into a corporation's prebankruptcy affairs." Id. At 654. The court thus held that the company's liquidator "now owns and can thus waive the Audit Committee's attorney-client privilege, regardless of the Committee's prebankruptcy independence." Id. At 658. In contrast, the court held that the liquidator could not unilaterally waive any work product protection — because Paul Weiss either solely or jointly owned that separate protection. Id.

Constituents of a company's board (such as an audit committee or group of independent directors) should bear in mind the possible post-bankruptcy ownership of their protected communications — remembering that the answer might be different for privileged communications and work product.

Case Date Jurisdiction State Cite Checked
2015-01-01 Federal NY
Comment:

key case


Chapter: 6.802
Case Name: In re: AmeriLink, Ltd., No. 5:14-CV-236-F, 2014 U.S. Dist. LEXIS 69806 (E.D.N.C. May 21, 2014)
(analyzing privilege protection for privileged communications in the personal possession of an officer formerly employed by a company that had declared bankruptcy; ultimately finding that the bankruptcy trustee could waive the bankrupt company's privilege protection; explaining the context: "Spoor, previously employed as a corporate officer at AmeriLink, retains possession of a computer and various electronic files that belong to AmeriLink. In connection with a state court civil case that Spoor filed against Barth and other individuals, John Barth Sr. has requested the computer and the files. Spoor refused to turn over the documents in discovery in the state court action, asserting that the documents in his possession are protected by AmeriLink's attorney-client privilege. In response, Barth requested that the bankruptcy trustee waive AmeriLink's attorney-client privilege, which would have the effect of forcing Spoor to turn over the documents in response to the discovery requests. Because Spoor noted his objection to the waiver, the trustee requested that Barth seek approval to waive the privilege from the Bankruptcy Court. The Bankruptcy Court ruled that the trustee has broad authority to waive the attorney-client privilege of a corporate debtor and that waiver was entirely justified in the present circumstances."; "Nearly thirty years ago, the United States Supreme Court held that a bankruptcy trustee has authority to waive a corporate debtor's attorney-client privilege."; "[T]he trustee may waive the privilege and then an objecting party may challenge the waiver as contrary to the fiduciary duties of the trustee. Spoor makes no attempt to show how the waiver in this particular case contravened the trustee's fiduciary duties."; "To the extent Spoor seeks to distinguish the waiver upheld in Weintraub [Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 105 S. Ct. 1986, 85 L. Ed. 2d 372 (1985).] on the basis of the identity of the third-party requesting the waiver, this is a distinction without significance. Nothing in the Weintraub opinion suggests that the identity of the third-party requesting the waiver has any bearing on whether the trustee has the power to waive the privilege."; "As the court explained above, the trustee's waiver of the corporation's attorney-client privilege remains subject to challenges based on violations of the trustee's fiduciary duties.")

Case Date Jurisdiction State Cite Checked
2014-05-21 Federal NC

Chapter: 6.802
Case Name: In re Taproot Systems, Inc., Case No. 11-05255-8-JRL, Ch. 7, 2013 Bankr. LEXIS 2784, at *11 (E.D.N.C. July 11, 2013)
(analyzing the following situation: represented by the Silicon Valley Law Group ("SVLG"), Hina is pursuing litigation in California state court against two defendants (Taproot and Venture Funds) which had entered into a common defense agreement; when Taproot declared bankruptcy, its trustee retained as special counsel SVLG, and arranged for Hina to finance and manage the prosecution of potential claims against Venture Funds; relying on Taproot's status as a former client, the trustee sought the files of the two law firms which had been representing Taproot in the California suit before its bankruptcy; Venture Funds sought a protective order, arguing that those law firms also possessed its protected documents and communications, exchanged pursuant to the common interest agreement; ultimately concluding after an in camera review that the law firms' files contained protected documents, but allowing the trustee to turn the files over to SVLG; holding that SVLG (1) could use the documents "solely" against Venture Funds in the bankruptcy litigation and (2) may not turn the documents over to Hina or use them in the California lawsuit Hina apparently was still pursuing against Venture Funds)

Case Date Jurisdiction State Cite Checked
2013-07-11 Federal NC B 4/14

Chapter: 6.802
Case Name: Atl. Nat'l Trust, LLC v. JAB Realty Trust, No. HHDCV106015851S, 2013 Conn. Super. LEXIS 1362, at *7, *8-9, *17-18, *26 (Conn. Super. Ct. June 3, 2013)
(analyzing a failed bank's assignee's effort to assert privilege and work product protection; ultimately holding that the assignee could not; "Some courts have held that the FDIC in its corporate capacity may not assert the attorney-client privilege that once existed between the failed bank, as a client, and its attorney."; "On the other end of the spectrum, some courts have held that the FDIC acting in its corporate capacity steps into the shoes of the FDIC in its capacity as receiver, thereby assuming all of the rights, powers and privileges, including the attorney-client privilege, that the FDIC in its capacity as receiver once enjoyed."; "Since the attorney-client privilege is personal, then this privilege would not transfer to the plaintiff in the present case by virtue of the assignment."; "[T]he court concludes that the plaintiff, as an assignee of a failed bank's financial instruments, may not assert the attorney-client and attorney work product privilege of the failed bank in connection with the defendant's requests for discovery.")

Case Date Jurisdiction State Cite Checked
2013-06-03 State CT B 4/14

Chapter: 6.802
Case Name: In re Cardinal Fastener & Specialty Co., Ch. 7 Case No. 11-15719, 2013 Bankr. LEXIS 452, at *16 (N.D. Ohio Feb. 4, 2013)
("Clearly, an attorney client privilege existed between the debtor and the firm; it is equally clear that the trustee now controls the privilege that formerly belonged to the corporate debtor.")

Case Date Jurisdiction State Cite Checked
2013-02-04 Federal OH B 2/14

Chapter: 6.802
Case Name: In re Crescent Resources, LLC, 457 B.R. 506, 516, 518, 524, 528, 530 (Bankr. W.D. Tex. 2011)
(holding that the North Carolina firm of Robinson Bradshaw jointly represented Duke and its wholly-owned subsidiary Crescent resources in connection with a transaction (Project Galaxy) that resulted in Crescent's bankruptcy; holding that the bankruptcy trustee could therefore obtain Robinson Bradshaw's files; acknowledging that both Duke and Robinson Bradshaw indicated under oath that the law firm only represented Duke and did not jointly represent Crescent, but pointing (among other things) to Robinson Bradshaw lawyers' website bios claiming that they did represent Crescent in the transaction; explaining that "'The major issue before the Court is whether the Trust [the bankruptcy Crescent Resources entity] is to be considered a joint or sole client, or no client at all, of RBH [Robinson, Bradshaw & Hinson] with respect to the Project Galaxy files.'"; articulating the trustee's position and the opposing position of Duke and Robinson Bradshaw; "'The Trust argues that RBH did represent Crescent Resources, while Duke would have the Court believe that RBH jointly represented Crescent Resources before the 2006 Duke Transaction and after the 2006 Duke Transaction, but not during the 2006 Duke Transaction. Duke further alleges that Crescent Resources was not represented by counsel at all during the 2006 Duke Transaction. Duke is arguing, essentially, that for the purposes of the 2006 Duke Transaction only, RBH did not represent Crescent Resources. So the issue to be resolved is whether RBH represented Crescent Resources with respect to the 2006 Duke Transaction.'"; noting that Duke and Robinson Bradshaw "'provided sworn testimony that Duke was RBH's sole client for Project Galaxy. Mr. Torning ["Duke's in house attorney responsible for Project Galaxy and attorney in charge of outside counsel for Duke for Project Galaxy"] testified that it was his understanding 'that at all times during Project Galaxy, RBH represented Duke, not Crescent.'"; examining possible indicia of a joint representation, noting that: (1) the Duke-Robinson Bradshaw retainer letter was someway ambiguous; (2) Duke paid Robinson Bradshaw's invoices, which was not dispositive; (3) Robinson Bradshaw lawyers interacted with Crescent Resources but took their direction from Duke, which was also not dispositive; relying on several factors in concluding that Robinson Bradshaw had jointly represented Duke and Crescent Resources in the pertinent Project Galaxy transaction: (1) Robinson Bradshaw had long represented Crescent Resources before the transaction, and represented Crescent Resources after the transaction; (2) Crescent Resources did not have any other law firms representing it in connection with Project Galaxy; and (3) "'The Trust also discussed statements made by various RBH lawyers on RBH's website. Stephan J. Willen's page, under "Representative Experience" includes "Representing a real estate developer, as borrower, in connection with a $1.5 billion revolving and term loan letter of credit facility used to recapitalize the developer." The Trust stated that this represents the 2006 Duke Transaction and shows Mr. Willen's understanding that Crescent Resources was RBH's client with respect to the 2006 Duke Transaction. Additionally, William K. Packard's page, under "Representative Experience" states "Representation of Crescent Resources, as borrower, in connection with a $1.5 billion revolving and term loan letter of credit facility."; pointing to the Third Circuit's analysis in Teleglobe [In re Teleglobe Communications Corp., 493 F.3d 345 (3d Cir. 2007)]; "'Teleglobe, relied on by both parties, reads almost as an instructional manual to in-house counsel on how to avoid tangled joint-client issues. Teleglobe instructs that a court should consider the testimony from the parties and their attorneys on the areas of contention.'"; "RBH and in-house counsel for Duke should have heeded the warnings in Teleglobe and taken greater care to have in place an information shielding agreement or ensured that Crescent was represented by outside counsel."; after concluding that Robinson Bradshaw jointly represented Duke and Crescent Resources; explaining the implications: "(1) Duke cannot invoke an attorney-client privilege to stop the Trust from using the joint-client files in adversary proceedings between Duke and the Trust."; (2) "[T]he Trust may not unilaterally waive the joint-client privilege and use jointly privileged information in proceedings involving third parties, absent a waiver from Duke.")

Case Date Jurisdiction State Cite Checked
2011-01-01 Federal TX
Comment:

key case


Chapter: 6.803
Case Name: Virtue Global Holdings Ltd. v. Rearden LLC, Case No. 15-cv-00797-JST (SK), 2016 U.S. Dist. LEXIS 53076, at *14-15 (N.D. Cal. Apr. 5, 2016)
("Original MO2 falls into the third category of a dissolved corporation that no longer exists. When a corporation ceases to exist, 'the corporate powers, rights and privileges of the corporation shall cease.' Cal. Corp. Code §1905(b). In that case, no entity holds the attorney-client privilege for Original MO2. . . . Given that Defendants cannot meet their burden to show that they (or Rearden Mova, specifically) hold the attorney-client privilege for Original MO2, Plaintiff's motion to compel documents listed on the privilege log (Exhibit A to the letter brief submitted to the Court) is GRANTED.")

Case Date Jurisdiction State Cite Checked
2016-04-20 Federal CA B 8/16

Chapter: 6.803
Case Name: SEC v. Carrillo Huettel LLP, 13 Civ. 1735 (GBD) (JCF), 2015 U.S. Dist. LEXIS 45988 (S.D.N.Y. April 8, 2015)
(finding that a defunct corporation privilege, and therefore ordering the former corporation's law firm to produce documents; "The weight of authority, however, holds that a dissolved or defunct corporation retains no privilege."; "Several rationales support this conclusion. First, the interests that are furthered by the extension of the privilege beyond the death of a natural person simply do not apply in the context of a corporate entity."; "Next, as a practical matter, there is no one who can speak for a defunct corporation in order to assert the privilege. While a corporate entity is still in the process of dissolution, there may be a trustee or someone serving a similar function who represents the corporation."; "Finally, limiting the duration of the attorney-client privilege to the life of a corporation is consistent with the principle that the privilege is to be construed narrowly because it withholds relevant information from the judicial process."; "Cases that hold that the privilege survives the dissolution of a corporation generally do so on the basis of state law. . . . These cases do not undermine the principle that where federal law supplies the rule of decision, as it does here, the question of whether the corporate attorney-client privilege survives the demise of the corporation is answered by reference to federal common law.")

Case Date Jurisdiction State Cite Checked
2015-04-08 Federal NY

Chapter: 6.803
Case Name: SEC v. Carrillo Huettel LLP, 13 Civ. 1735 (GBD) (JCF), 2015 U.S. Dist. LEXIS 45988 (S.D.N.Y. April 8, 2015)
(finding that a defunct corporation privilege, and therefore ordering the former corporation's law firm to produce documents; finding that state law defines "whether a corporation is, in fact, defunct")

Case Date Jurisdiction State Cite Checked
2015-04-08 Federal NY

Chapter: 6.803
Case Name: Red Vision Sys., Inc. v. National Real Estate Info. Svcs, L.P., No. 416 WDA 2014, 2015 Pa. Super. LEXIS 7 (Pa. Super. Jan. 13, 2015)
(holding that a defunct corporation could not assert privilege protection, so that its former in-house lawyer could not claim in response to a subpoena for documents; "[W]e hold that the communications between a corporation or other business entity and its attorney remain subject to the attorney-client privilege after the company dissolves and/or ceases normal business operations so long as the company retains some form of continued existence evidenced by having someone with the authority to speak for the 'client.' That person may be a bankruptcy trustee . . . A statutory liquidator . . . ; a successor-in-interest . . . ; a person managing the corporation during the windup process . . . ; or some other person or group who succeeds to the defunct company's management . . . ."; "However, if a business is dissolved and/or has ceased to operate, and has neither a legal successor nor some remaining management with authority to handle the company's post-dissolution windup, then there is no longer any 'client' to raise or waive the privilege. Without such a client, it is impossible to satisfy the burden of one invoking the privilege to show that '[t]he privilege has been claimed and is not waived by the client.'"; "Because the burden is upon the person asserting the privilege to establish that it has been invoked properly, it is clear that Lammert's claim of privilege cannot be sustained on the record before us. Lammert points to no person who presently has the authority to claim or waive the privilege on behalf of Defendants.")

Case Date Jurisdiction State Cite Checked
2015-01-13 State PA

Chapter: 6.803
Case Name: Red Vision Sys., Inc. v. Nat'l Real Estate Info. Servs., L.P., 108 A. 3d 54, 57, 65, 68, 69 70 (Pa. Super. Ct. 2015)
("Plaintiffs subsequently learned that each defendant corporation was defunct and/or dissolved."; "Believing that Defendants transferred substantial assets to other entities in order to avoid paying creditors such as Plaintiffs, Plaintiffs sought 'to obtain information relating to the disposition of [D]efendants' assets and to identify possible sources of recovery.' . . . Such information might enable Plaintiffs 'to amend their Complaint to raise causes of action based on the law governing fraudulent transfers.' . . . The only source of such information of which Plaintiffs are aware is Lammert, who had been in-house counsel to each of Defendants, was an officer of NREIS, Inc. prior to its interests in NREIS, L.P., being sold, and a manager of NREIS Texas, which was a subsidiary of NREIS, L.P. and NREIS, LLC."; "The key fact is whether the corporation is 'dead' as opposed to being in some other state, such as a windup phase, bankruptcy or liquidation, or having merged into or been acquired by a successor. In the latter cases, there was a person or entity which succeeded to the defunct company's interests and authority to assert the privilege; in the former, no such person or entity existed."; "Therefore, we hold that the communications between a corporation or other business entity and its attorney remain subject to the attorney-client privilege after the company dissolves and/or ceases normal business operations so long as the company retains some form of continued existence evidenced by having someone with the authority to speak for the 'client.' That person may be a bankruptcy trustee as in Weintraub [Commodity Futures Trading Com'n v. Weintraub, 471 U.S. 343, (1985)]; a statutory liquidator as in Maleski [Maleski v. Corporate Life Ins. Co., 641 A.2d 1, 3 (Pa. 1994)]; a successor-in-interest as in County of Santa Clara [Cty. of Santa Clara v. Myers Indus., Inc., No. 95-298, 1996 WL 53800 (E.D. Pa. Feb. 9, 1996] and City of Rialto [City of Rialto v. United States Dep't of Defense, 492 F. Supp. 2d 1993 (C.D. Cal 2007)]; a person managing the corporation during the windup process as in Reilly [Reilly v. Greenwald & Hoffman, LLP, 127 Cal. Rptr. 3d 317 (Cal. Ct. App. 2011)]; or some other person or group who succeeds to the defunct company's management as in Melendrez [Melendrez v. Superior Court, 156 Cal. Rptr. 3d 335 (Cal. Ct. App. 2013)]"; "However, if a business is dissolved and/or has ceased to operate, and has neither a legal successor nor some remaining management with authority to handle the company's post-dissolution windup, then there is no longer any 'client' to raise or waive the privilege. Without such a client, it is impossible to satisfy the burden of one invoking he privilege to show that '[t]he privilege has been claimed and is not waived by the client.'" (citation omitted); "Because the burden is upon the person asserting the privilege to establish that it has been invoked properly, it is clear that Lammert's claim of privilege cannot be sustained on the record before us. Lammert points to no person who presently has the authority to claim or waive the privilege on behalf of Defendants.")

Case Date Jurisdiction State Cite Checked
2015-01-13 State PA B 8/16
Comment:

key case


Chapter: 6.803
Case Name: In re Fresh and Process Potatoes Antitrust Litig., Case No. 4:10-md-02186-BLW-CWD, 2014 U.S. Dist. LEXIS 74936, at *26 (D. Idaho May 30, 2014)
("A dissolved corporation, or in this case, association, has less need for the protections provided by the privilege than a natural person would need. . . . Here, IFC has dissolved, and Ms. Driscoll is no longer its President. It is not clear how Ms. Driscoll, as an owner of Orrick Defendant Driscoll, can assert the privilege on behalf of Mr. Wilson's client, IFC, which no longer exists.")

Case Date Jurisdiction State Cite Checked
2014-05-30 Federal ID

Chapter: 6.803
Case Name: Red Vision Sys., Inc. v. Nat'l Real Estate Info. Servs., L.P., No. GD-13-008572, 2014 Pa. Dist. & Cnty Dec. LEXIS 45, at *4, *4-5 (Pa. C.P. Allegheny Cnty. Feb. 26, 2014)
(analyzing the affect of a subpoena given to a former in-house general counsel; finding the general counsel could file a privilege objection on behalf of defunct companies; "This justification for allowing the attorney-client privilege to survive the death of a client does not apply to a corporate entity that no longer conducts business. In a corporate setting, corporate officers are not going to be reluctant to talk to counsel because the possibility that the information could be communicated when the corporation is dissolved. This is so because the client's communications can be disclosed by new management or a trustee in bankruptcy. Thus, a corporate official does not have the same expectations as the client who is an individual."; "Furthermore, a corporation that has ceased to exist is not concerned about reputation, civil liability, or harm to friends or family."; "Moreover, see Comment k to § 73 of the Restatement (Third) of the Law Governing Lawyers which states: 'When a corporation or other organization has ceased to have a legal existence such that no person can act in its behalf, ordinarily the attorney-client privilege terminates.'")

Case Date Jurisdiction State Cite Checked
2014-02-26 State PA B 7/14

Chapter: 6.803
Case Name: Wallis v. Centennial Ins. Co., No. 2:08-cv-2558 WBS AC, 2013 U.S. Dist. LEXIS 14181, at *19, *20, *21, *23, *24 (E.D. Cal. Jan. 31, 2013)
("Review of the decisions of federal courts across the country reveals a split as to whether a defunct corporation may assert the attorney-client privilege."; "Some courts apply this exception only to those entities that have completely dissolved -- i.e., completed liquidation proceedings."; "Other courts, however, see no distinction between an entity in liquidation proceedings and an entity that has simply stopped functioning (even though not yet dissolved), since in all instances the entity "is, for all intents and purposes, 'dead.'"; "Having considered these cases and the arguments of the parties, the court concludes that defendants do retain the attorney-client privilege despite their status in liquidation proceedings. The record demonstrates that, unlike the companies at issue in Gilliland [Gilliland v. Geramita, 2006 U.S. Dist. LEXIS 65546, at *10-11 (W.D. Pa. Sept. 14, 2006)] and City of Rialto [City of Rialto v. United States DOD, 492 F. Supp. 2d 1193, 1197 (C.D. Cal. 2007)], defendants are neither formally dissolved nor so completely non-functioning that their attorney-client privilege is extinguished."; "Accordingly, the court finds that the attorney-client privilege continues to exist for defendants. Furthermore, at the January 30, 2013 hearing on this matter, counsel for defendants represented to the court that the New York Liquidation Bureau specifically authorized him to assert this privilege in this case.")

Case Date Jurisdiction State Cite Checked
2013-01-31 Federal CA B 1/14

Chapter: 6.803
Case Name: Melendrez v. Superior Court, 156 Cal. Rptr. 3d 335, 345 (Cal. Ct. App. 2013)
(holding that an insurance company can be the successor of a defunct corporation; "What is unclear, however, is whether SECO is, at present, no longer in existence in any real sense. If SECO [Special Electric Co., bankrupt subject of the underlying suit] is no longer in existence, Evidence Code section 953, subdivision (d) governs, and provides that the privilege would be held by SECO's 'successor, assign, trustee in dissolution, or any similar representative.' Assuming that SECO's unsecured creditors trust has been dissolved and the assets therein disposed, SECO's only remaining asset would be its insurance policies. While SECO exists in name only -- to pass the claims on to the insurance companies for resolution of the claims pursuant to the policies -- the practical effect of this arrangement is that SECO's insurance policy assets have been assigned to the insurance companies, as have been the claims against those assets. As SECO's de facto assignee, the insurers would hold SECO's attorney-client privilege, and have the authority to waive it, with respect to the asbestos actions against SECO's policies.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State CA B 7/13

Chapter: 6.803
Case Name: In re Fundamental Long Term Care, Inc., Case No. 8:11 bk 22258 MGW, Ch. 7, 2012 Bankr. LEXIS 4843, at *3, *27, *27-28, *28, *31 (M.D. Fla. Oct. 9, 2012)
("[T]he Trustee -- as the sole shareholder of the Debtor's wholly owned subsidiary -- should have access to the books and records of the Debtor and its subsidiary (including any litigation files) and the right to control the subsidiary's attorney-client privilege, to the extent it exists."; "[S]everal courts have held that a dissolved corporation does not have the right to assert the attorney-client privilege. The same is true for companies that -- while not formally dissolved -- have ceased operating. Courts holding that a dissolved or defunct corporation cannot assert the attorney-client privilege have generally relied on two rationale [sic]." (footnotes omitted); "First, when a company is dissolved or defunct, there is no one left to assert (or waive) the privilege."; "Second, and perhaps more important, the rationale for extending the attorney-client privilege to corporations does not apply to dissolved corporations."; "[T]he Court concludes that THMI does not have an attorney-client privilege to assert.")

Case Date Jurisdiction State Cite Checked
2012-10-09 Federal FL B 12/13

Chapter: 6.803
Case Name: United States v. Under Seal (In re Grand Jury Investigation), 352 F. App'x 805, 806-07 (4th Cir. 2009)
("The district court granted the Government's motion to compel finding that the attorney-client privilege does not protect the communications of a dissolved corporation when there is no authorized officer available to validly assert the privilege. Counsel timely appealed this decision (No. 07-2024). In ruling on this initial appeal by Counsel, this court vacated the district court's decision and remanded the case, instructing the district court to consider the Government's argument that the crime-fraud exception to the attorney-client privilege applies to the withheld documents. See In re Grand Jury Subpoena # 06-1, 274 F. App'x 306, 309 (4th Cir. 2008).")

Case Date Jurisdiction State Cite Checked
2009-01-01 Federal

Chapter: 6.803
Case Name: City of Rialto v. U.S. Dep't of Defense, 492 F. Supp. 2d 1193, 1200-01, 1201, 1201-02 (C.D. Cal. 2007)
("This Court agrees with the reasoning of the Gilliland [Gilliland v. Geramita, No. 2:05-cv-9509, 2006 U.S. Dist. LEXIS 65546 (W.D. Pa. Sept. 14, 2006)] and Lewis [Lewis v. United States, No. 02-2958 B/An, 2004 U.S. Dist. LEXIS 26680 (W.D. Tenn. Dec. 6, 2004)] decisions. A dissolved corporation does not have the same concerns as a deceased natural person and therefore has less need for the privilege after dissolution is complete. As there are usually no assets left and no directors, the protections of the attorney-client privilege are less meaningful to the typical dissolved corporation. Moreover, because the attorney-client privilege has the effect of withholding relevant information from the factfinder, it should be applied only when necessary to achieve its limited purpose of encouraging full and frank disclosure by the client to his or her attorney. . . . The privilege is to be strictly construed. . . . Here, strictly construing the privilege, the Court finds that Kwikset, a dissolved corporation, has less need for the protections provided by the privilege than a natural person would. The Court and the litigants' need for the full disclosure of information outweighs Kwikset's need for protection of its pre-dissolution attorney-client communications. As such, this Court agrees with the Special Master and finds that Kwikset lost its right to assert the attorney-client privilege when its dissolution was complete in 1958."; "[A]t the time of Kwikset's dissolution; AHC became the sole shareholder of Kwikset and acquired all of Kwikset's assets. Control over the documents at issue passed to AHC's management. . . . Normally, the transfer of control over the corporation would also result in a transfer of the attorney-client privilege. . . . However, the mere transfer of assets from one entity to another does not necessarily transfer the attorney-client privilege."; "The evidence before the Court suggests that when AHC acquired the assets of Kwikset, it acquired 'substantially all' of the corporation's assets. (. . . 'Everything that Kwikset had owned -- owed or what [sic], went to American Hardware . . . lock, stock and barrel.'). At the time of dissolution, AHC was the sole shareholder of Kwikset. . . . AHC apparently continued operations under the 'Kwikset Division' title. (Jt. Stip. at 2). There is no evidence before the Court that additional assets remained or were sold or distributed to other entities. There is no evidence to demonstrate that AHC did not assume control over the management of Kwikset. Under the authorities cited above, therefore, AHC acquired the attorney-client privilege from Kwikset and later, when AHC became Emhart, Emhart acquired the privilege." (footnote omitted); finding that "Emhart's failure to timely assert the privilege waived its right to do so. . . . As Emhart has never itself asserted the attorney-client privilege over the documents in question, but instead clearly stated that only Kwikset was asserting the privilege (Exh. DD), Emhart has waived its right to assert the privilege.")

Case Date Jurisdiction State Cite Checked
2007-01-01 Federal CA B 10/10

Chapter: 6.902
Case Name: Speeney v. Rutgers, The State University, No. 15-3793, 2016 U.S. App. LEXIS 21842 (3rd Cir. Dec. 8, 2016)
(holding that a University's outside lawyer did not represent individual plaintiffs, so they could not assert a malpractice case against the lawyer; "Plaintiffs participated as witnesses in the proceedings and met with CBM beforehand to discuss their testimony. Plaintiffs did not enter into any written agreement with CBM, pay CBM, or receive any bills from CBM, and received no express advice that CBM represented them. Celauro, the lead attorney, however, told them that she was 'available to answer any questions that [they] may have regarding the hearings,' J.A. 310, 1747, and Jean Ambrose, Rutgers's Assistant Vice President for Faculty Affairs, told Plaintiffs that they did not need their own lawyers. Oestreicher nevertheless consulted his father, an attorney, for advice regarding his testimony at the proceedings and the possibility of a lawsuit against Rutgers and/or Powers. Green consulted attorney Emily Alman for similar advice and also retained Alman to represent her in connection with related litigation involving Powers. Both Oestreicher's father and Alman were frequently present during the proceedings, which lasted several weeks, and they informed the faculty panel that they represented Oestreicher and Green, respectively. During the proceedings, Celauro explicitly stated that she did not represent Plaintiffs, and multiple times referred to CBM as representing the University's President.")

Case Date Jurisdiction State Cite Checked
2016-12-08 Federal
Comment:

key case


Chapter: 6.902
Case Name: United States v. Beckman, No. 13-1162, No. 13-1163, No. 13-2603, 2015 U.S. App. LEXIS 7805 (8th Cir. App. May 12, 2015)
(holding that Morgan Lewis and Willkie Farr represented the entity and not any individuals, which meant that the entity's receiver could waive the privilege; "Beckman now proposes the district court erred by admitting attorney-client privileged evidence because Beckman sought legal advice from Morgan Lewis and Willkie Farr for himself personally, as well as on behalf of Oxford entities, and the personal relationship cannot be separated from the corporate relationship. 'The attorney-client privilege protects confidential communications between a client and his attorney made for the purpose of facilitating the rendering of legal services to the client.". . . While Beckman may have been the 'face of' the client, he was not the client itself. The May 2008 Briggs letter clearly advised that the separation of representation of Beckman personally and the Oxford entities was of paramount importance, and the purpose of retaining Morgan Lewis, and then Willkie Farr, ostensibly was to accomplish that separation. The district court properly found, based on the correspondence introduced, that Morgan Lewis and Willkie Farr represented Oxford entities, not Beckman.")

Case Date Jurisdiction State Cite Checked
2015-05-12 Federal

Chapter: 6.902
Case Name: In re Baugher, No. 353909/P, 2013 N.Y. Slip Op. 51622(U), at 5 (N.Y. Sur. Ct. Sept. 30, 2013)
(analyzing the fiduciary exception; "As a matter of law, a person can receive information in one legal capacity and not another. Attorney-client communications are received in the capacity as to which the recipient has an attorney-client relationship . . . . Here, the president and/or board of directors obtained legal advice on behalf of the corporation. The fact that they had a legal interest in the subject matter, in a non-client capacity, does not destroy the privilege . . . . The privilege may still be asserted against the estate.")

Case Date Jurisdiction State Cite Checked
2013-09-30 State NY B 5/14

Chapter: 6.902
Case Name: DCG Sys., Inc. v. Checkpoint Techs., LLC, Case No. C 11 03792 PSG, 2012 U.S. Dist. LEXIS 149707, at *3-4 (N.D. Cal. Oct. 17, 2012)
(analyzing a plaintiff's insistence that a defendant company's interrogatory answers include information from former employees; noting that the company asserted that the former employees' communications with outside lawyers hired by the company to represent the former employees in deposition were privileged and therefore did not have to be included in the interrogatory answers; "'In situations such as this where a former employee is represented by counsel for a defendant corporation for the purpose of testifying at a deposition at no cost to him, courts have not treated the former employee as having an independent right to the privilege, even where that employee believes that he is being represented by that counsel.' [quoting Gary Friedrich Enters., LLC v. Marvel Enters., Inc., No. 08 Civ. 1533 (BSJ)(JCF), 2011 U.S. Dist. LEXIS 54154, at *11-12 (S.D.N.Y. May 20, 2011)] To the extent that counsel's communications with a former employee are protected by the attorney-client privilege, the privilege thus belongs to the corporation.")

Case Date Jurisdiction State Cite Checked
2012-10-17 Federal CA B 12/13

Chapter: 6.902
Case Name: In re Equaphor Inc., Ch. 7 Case No. 10 20490 BFK, 2012 Bankr. LEXIS 2129, at *10-11, *12, *12-13 (Bankr. E.D. Va. May 11, 2012)
("In Bevill, Bresler [In re Bevill, Bresler & Schulman Asset Management Corp., 805 F.2d 120 (3d Cir. 1986)], the Third Circuit approved of a five-part test for the assertion of a personal claim of attorney-client privilege as to communications with corporate counsel"; "[T]he Court finds that the Individual Defendants failed to meet the fifth factor, that 'the substance of their conversations with counsel did not concern matters within the company or the general affairs of the company.'" (citation omitted); "WTP's defense of the officers in this case was directly related to the affairs of the corporation; indeed, the only reason that the Individual Defendants were sued (or at least the sine qua non of their having been named defendants) was that they occupied positions as officers and directors of the company. There has been no showing that any of the advice sought from WTP was personal in nature, and not related to the Individual Defendants' positions as officers and directors of the company. The Court finds that the Individual Defendants have not met their burden that WTP's advice to them was personal in nature and unrelated to their duties as officers and directors of the corporation. For these reasons, the Court will order the turnover of all of the WTP files to the Trustee or his counsel.")

Case Date Jurisdiction State Cite Checked
2012-05-11 Federal VA

Chapter: 6.902
Case Name: Under Seal v. United States (In re Grand Jury Subpoena: Under Seal), 415 F.3d 333, 340 (4th Cir. 2005)
(holding that AOL in-house and outside lawyers had provided a "watered down" Upjohn warning when interviewing three executives during an investigation, which was sufficient to give AOL power to waive any privilege that protected the interview notes and communications, presumably over the three – now former executives' objection; quoting the statements that AOL's lawyers gave to the three executives before the interviews; (1) "'[T]hey represented [the company] but that they 'could' represent him as well, 'as long as no conflict appeared.'"; (2) "'We can represent [you] until such time as there appears to be a conflict of interest.'"; and (3) "We represent [the company], and can represent [you] too if there is not a conflict.")

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal
Comment:

key case


Chapter: 6.903
Case Name: Gary Miller Imports, Inc. v. Doolittle, Civ. No. 11-178 Erie, 2014 U.S. Dist. LEXIS 108772 (W.D. Pa. Aug. 7, 2014)
(holding that a law firm had represented minority shareholders rather than the company, even though the company paid the bills; "Of course a minority shareholder seeking to protect his personal rights and interests is going to communicate to counsel about the corporation. As a matter of substance, talking about the corporation in relation to protecting a minority shareholder's rights and interests is entirely different from communicating with counsel about matters within the company or the general affairs of the company. To be more specific, with respect to the withheld documents, it appears that the substance of the Doolittles conversations with counsel concerned matters related to the Doolittles personal rights and interest as minority shareholders and did not concern matters within the company or the general affairs of the company.")

Case Date Jurisdiction State Cite Checked
2014-08-07 Federal PA

Chapter: 6.903
Case Name: Yanez v. Plummer, 164 Cal. Rptr. 3d 309, 311, 313, 314, 315 (Cal. Ct. App. 2013)
("Yanez [Plaintiff] expressed concern about his job because his deposition testimony was likely to be unfavorable to Union Pacific, and asked Plummer [Union Pacific's in-house counsel] who would 'protect' him at the deposition. Plummer responded that Yanez was a Union Pacific employee and Plummer was his attorney for the deposition; as long as Yanez told the truth in the deposition, Yanez's job would not be affected. Plummer never told Yanez about any conflict of interest involving Plummer representing Union Pacific and Yanez at the deposition."; "Yanez and Union Pacific occupied adverse positions regarding Garcia's FELA lawsuit against Union Pacific. Yanez -- working with Garcia when Garcia was injured, and the only percipient witnesses to Garcia's accident -- was aware of several unsafe work conditions that may have contributed to Garcia's injury."; "Despite these conflicting interests, Union Pacific's in-house counsel, Plummer, represented both Union Pacific and Yanez at Yanez's deposition in Garcia's lawsuit."; "Yanez presented evidence in his summary judgment papers that Plummer neither informed him about conflicts with Union Pacific nor obtained his written consent to represent him despite such conflicts."; "As for Plummer's conduct, it is true Yanez wrote in his second statement that he 'saw' Garcia slip and fall, and it is true Yanez first admitted to Garcia's counsel in the deposition that he did not 'witness' Garcia's 'accident.' But it was Plummer who highlighted Yanez's deposition testimony that he did not 'see' Garcia slip; it was Plummer who presented the second statement at the deposition; it was Plummer who got Yanez, under oath at the deposition, to effectively admit that his deposition testimony conflicted with the second statement; it was Plummer who did not offer Yanez a chance to explain this discrepancy; and it was Plummer who failed to present the first statement as an exhibit at Yanez's deposition.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State CA B 7/14

Chapter: 6.904
Case Name: In re Baugher, No. 353909/P, 2013 N.Y. Slip Op. 51622(U), at 5 (N.Y. Sur. Ct. Sept. 30, 2013)
(analyzing the fiduciary exception; "As a matter of law, a person can receive information in one legal capacity and not another. Attorney-client communications are received in the capacity as to which the recipient has an attorney-client relationship . . . . Here, the president and/or board of directors obtained legal advice on behalf of the corporation. The fact that they had a legal interest in the subject matter, in a non-client capacity, does not destroy the privilege . . . . The privilege may still be asserted against the estate.")

Case Date Jurisdiction State Cite Checked
2013-09-30 State NY B 5/14

Chapter: 6.904
Case Name: DCG Sys., Inc. v. Checkpoint Techs., LLC, Case No. C 11 03792 PSG, 2012 U.S. Dist. LEXIS 149707, at *3-4 (N.D. Cal. Oct. 17, 2012)
(analyzing a plaintiff's insistence that a defendant company's interrogatory answers include information from former employees; noting that the company asserted that the former employees' communications with outside lawyers hired by the company to represent the former employees in deposition were privileged and therefore did not have to be included in the interrogatory answers; "'In situations such as this where a former employee is represented by counsel for a defendant corporation for the purpose of testifying at a deposition at no cost to him, courts have not treated the former employee as having an independent right to the privilege, even where that employee believes that he is being represented by that counsel.' [quoting Gary Friedrich Enters., LLC v. Marvel Enters., Inc., No. 08 Civ. 1533 (BSJ)(JCF), 2011 U.S. Dist. LEXIS 54154, at *11-12 (S.D.N.Y. May 20, 2011)] To the extent that counsel's communications with a former employee are protected by the attorney-client privilege, the privilege thus belongs to the corporation.")

Case Date Jurisdiction State Cite Checked
2012-10-17 Federal CA B 12/13

Chapter: 6.904
Case Name: Under Seal v. United States (In re Grand Jury Subpoena Under Seal), 415 F.3d 333, 336-37 (4th Cir. 2005)
(addressing a corporate employee's claim that he subjectively believed that the company's in house and outside lawyers jointly represented him and the company; ultimately rejecting his claim; noting but not working into the analysis the fact that company's in house and outside lawyers represented the executive during an interview before the SEC; explaining that both lawyers "stated that they represented [the executive] 'for purposes of [the] deposition.'")

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal

Chapter: 6.904
Case Name: Wade Williams Distribution, Inc. v. Am. Broad. Companies, Inc., No. 00-5002, 2004 U.S. Dist. LEXIS 12152 (S.D.N.Y. June 30, 2004)
("Here, . . . , Mr. Siegel [corporations' lawyer] asserts his representation of the witness [former employee] as well as of the defendant [company]. That assertion -- even supported, as it is, by the witness' understanding that he is being represented by Mr. Siegel -- should, in this Court's view, make no difference to the application of Peralta [Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999)]. The mere volunteered representation by corporate counsel of a former employee should not be allowed to shield information which there is no independent basis for including within the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2004-06-30 Federal NY

Chapter: 6.904
Case Name: United States v. Aramony, 88 F.3d 1369, 1390 (4th Cir. 1996)
(finding that the corporation's employee had no personal attorney-client relationship with the company's lawyer), cert. denied, 520 U.S. 1239 (1997)

Case Date Jurisdiction State Cite Checked
1996-01-01 Federal

Chapter: 6.905
Case Name: Speeney v. Rutgers, The State University, No. 15-3793, 2016 U.S. App. LEXIS 21842 (3rd Cir. Dec. 8, 2016)
(holding that a University's outside lawyer did not represent individual plaintiffs, so they could not assert a malpractice case against the lawyer; "Plaintiffs participated as witnesses in the proceedings and met with CBM beforehand to discuss their testimony. Plaintiffs did not enter into any written agreement with CBM, pay CBM, or receive any bills from CBM, and received no express advice that CBM represented them. Celauro, the lead attorney, however, told them that she was 'available to answer any questions that [they] may have regarding the hearings,' J.A. 310, 1747, and Jean Ambrose, Rutgers's Assistant Vice President for Faculty Affairs, told Plaintiffs that they did not need their own lawyers. Oestreicher nevertheless consulted his father, an attorney, for advice regarding his testimony at the proceedings and the possibility of a lawsuit against Rutgers and/or Powers. Green consulted attorney Emily Alman for similar advice and also retained Alman to represent her in connection with related litigation involving Powers. Both Oestreicher's father and Alman were frequently present during the proceedings, which lasted several weeks, and they informed the faculty panel that they represented Oestreicher and Green, respectively. During the proceedings, Celauro explicitly stated that she did not represent Plaintiffs, and multiple times referred to CBM as representing the University's President.")

Case Date Jurisdiction State Cite Checked
2016-12-08 Federal
Comment:

key case


Chapter: 6.905
Case Name: In re Equaphor Inc., Ch. 7 Case No. 10 20490 BFK, 2012 Bankr. LEXIS 2129, at *10-11, *12, *12-13 (Bankr. E.D. Va. May 11, 2012)
("In Bevill, Bresler [In re Bevill, Bresler & Schulman Asset Management Corp., 805 F.2d 120 (3d Cir. 1986)], the Third Circuit approved of a five-part test for the assertion of a personal claim of attorney-client privilege as to communications with corporate counsel"; "[T]he Court finds that the Individual Defendants failed to meet the fifth factor, that 'the substance of their conversations with counsel did not concern matters within the company or the general affairs of the company.'" Citation omitted); "WTP's defense of the officers in this case was directly related to the affairs of the corporation; indeed, the only reason that the Individual Defendants were sued (or at least the sine qua non of their having been named defendants) was that they occupied positions as officers and directors of the company. There has been no showing that any of the advice sought from WTP was personal in nature, and not related to the Individual Defendants' positions as officers and directors of the company. The Court finds that the Individual Defendants have not met their burden that WTP's advice to them was personal in nature and unrelated to their duties as officers and directors of the corporation. For these reasons, the Court will order the turnover of all of the WTP files to the Trustee or his counsel.")

Case Date Jurisdiction State Cite Checked
2012-05-11 Federal VA

Chapter: 6.905
Case Name: Under Seal v. United States (In re Grand Jury Subpoena Under Seal), 415 F.3d 333, 336 (4th Cir. 2005)
("The investigating attorneys interviewed John Doe 1 three times. Before the first interview, Boe told him, 'We represent the company. These conversations are privileged, but the privilege belongs to the company and the company decides whether to waive it. You are free to consult with your own lawyer at any time.' Memoranda from that interview indicate that the attorneys also told him, 'We can represent [you] until such time as there appears to be a conflict of interest, [but] . . . the attorney-client privilege belongs to AOL and AOL can decide whether to keep it or waive it." . . . AOL's attorneys interviewed John Doe 2 twice and followed essentially the same protocol they had followed with the other appellants. They noted, 'We represent AOL, and can represent [you] too if there is not a conflict.' In addition, the attorneys told him that, 'the attorney-client privilege is AOL's and AOL can choose to waive it.'"), cert. denied, 126 S. Ct. 1114 (2006)

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal

Chapter: 6.905
Case Name: Under Seal v. United States (In re Grand Jury Subpoena: Under Seal), 415 F.3d 333, 340 (4th Cir. 2005)
(holding that AOL in-house and outside lawyers had provided a "watered down" Upjohn warning when interviewing three executives during an investigation, which was sufficient to give AOL power to waive any privilege that protected the interview notes and communications, presumably over the three – now former executives' objection; quoting the statements that AOL's lawyers gave to the three executives before the interviews; (1) "'[T]hey represented [the company] but that they 'could' represent him as well, 'as long as no conflict appeared.'"; (2) "'We can represent [you] until such time as there appears to be a conflict of interest.'"; and (3) "We represent [the company], and can represent [you] too if there is not a conflict.")

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal
Comment:

key case


Chapter: 6.906
Case Name: Pallies v. The Boeing Company, Case No. C16-01437RSL, 2017 U.S. Dist. LEXIS 144431 (W.D. Wash. Sept. 6, 2017)
(holding that the attorney-client privilege applied to a pre-deposition meeting among defendant's lawyer and several former defendant employees; holding that defendant Boeing's lawyer represented all of the former employee; "[T]here is no evidence that any communications between employees happened during group deposition preparations that were not part of their attempts to seek legal advice from Defendant's counsel. Each of the deposed witnesses signed declarations stating that they sought out Boeing's counsel for the purpose of being represented by counsel and receiving legal advice regarding depositions, advice considered confidential. . . . Defendant's attorney, Jennifer Svanfeldt, also signed a declaration stating that she represented each of the various employees to prepare them for deposition and extended the attorney-client privilege to them to the extent necessary to give them legal advice. . . . The eight-factor test necessary to establish the attorney-client privilege has been met here because all the witnesses (1) sought legal advice (2) from Ms. Svanfeldt and (3) communicated with her (4-5) for that purpose in confidence with an expectation of the attorney-client privilege and therefore (6) are permanently protected (7) from disclosure by anyone since (8) they have not waived their protection. . . . Therefore, it can be clearly established that the Defendant has proved that the attorney-client privilege applies to these deposition preparation meetings.")

Case Date Jurisdiction State Cite Checked
2017-09-06 Federal WA
Comment:

key case


Chapter: 6.906
Case Name: Transcontinental Refrigerated Lines, Inc. v. New Prime, Inc., Civ. No. 1:13-CV-2163, 2014 U.S. Dist. LEXIS 75320, at *15 (M.D. Pa. June 3, 2014)
(addressing a situation in which a liquidation trustee sought documents from a law firm, which argued that it had represented the CEO personally rather than a company; concluding that the required analysis involved a document-by-document analysis; ultimately concluding that the representation had started as a personal representation but then became a representation of the company -- which had the only interest in asset transaction the law firm handled; "Although HTD initially engaged itself solely as Hrobuchak's personal counsel, its substantial involvement in drafting and modifying the asset purchase agreement -- which impacted only Transcontinental's interests -- resulted in a limited representation of Transcontinental, by implication, as to the asset purchase agreement transaction.")

Case Date Jurisdiction State Cite Checked
2014-06-03 Federal PA

Chapter: 6.906
Case Name: Transcontinental Refrigerated Lines, Inc. v. New Prime, Inc., Civ. No. 1:13-CV-2163, 2014 U.S. Dist. LEXIS 75320, at *20, *22-23, *24, *25 (M.D. Pa. June 3, 2014)
(addressing a situation in which a liquidation trustee sought documents from a law firm, which argued that it had represented the CEO personally rather than a company; concluding that the required analysis involved a document-by-document analysis; ultimately concluding that the representation had started as a personal representation but then became a representation of the company which had the only interest in asset transaction the law firm handled; "[D]ocuments thus far produced reveal that the scope of services provided by HTD extended beyond representation of Hrobuchak personally. HTD has produced copious email communications which squarely reflect that it played a significant role in drafting Transcontinental's asset sale agreement. . . . HTD contends that it did not represent or act on behalf of Transcontinental in connection with the asset sale, but the record evidence establishes that the only interests transferred in the sale were corporate, not personal. . . . The totality of record evidence defeats HTD's ipse dixit position that it did not represent Transcontinental's corporate interests or act on its behalf. When an attorney provides professional services both to a corporate officer, personally, and to a corporation, the corporation's privilege prevails to the extent the privileged communications derive from discussions of corporate matters. . . . [N]either Hrobuchak nor HTD may invoke the attorney-client privilege with respect to any communication that either impacted or implicated Transcontinental's corporate interests. . . . Hrobuchak may only assert the privilege to the extent that his communications with HTD involved purely personal interests.")

Case Date Jurisdiction State Cite Checked
2014-06-03 Federal PA

Chapter: 6.906
Case Name: Gary Friedrich Enters., LLC v. Marvel Enters., Inc., No. 08 Civ. 1533 (BSJ) (JCF), 2011 U.S. Dist. LEXIS 54154, at *12-13 (S.D.N.Y. May 20, 2011)
(holding the company owned any attorney-client privilege protection for communications between a company's lawyer and a former employee the lawyer represented for the limited purposes of a deposition; "In situations such as this where a former employee is represented by counsel for a defendant corporation for the purpose of testifying at a deposition at no cost to him, courts have not treated the former employee as having an independent right to the privilege, even where that employee believes that he is being represented by counsel. . . . Therefore, to the extent that counsel's communications with Mr. Thomas are protected by the attorney-client privilege, that privilege belongs to Marvel.")

Case Date Jurisdiction State Cite Checked
2011-05-20 Federal NY B 7/16
Comment:

key case


Chapter: 6.906
Case Name: United States v. Okun, 281 F. App'x 228, 231-32 (4th Cir. 2008) (unpublished opinion)
(holding that a company's sole shareholder and CEO could not quash a subpoena directed at the company, after the company waived any privilege; concluding that the individual could not reasonably have believed that he was also represented by the company's lawyer; also rejecting the individual's common interest doctrine argument because he "failed to establish that he and IPA [company] were represented by separate legal counsel engaged in a joint strategy. Moreover, '[a]n employee's cooperation in an internal investigation alone is not sufficient to establish a common interest; rather some form of joint strategy is necessary.'" (citation omitted))

Case Date Jurisdiction State Cite Checked
2008-01-01 Federal

Chapter: 6.906
Case Name: Under Seal v. United States (In re Grand Jury Subpoena Under Seal), 415 F.3d 333, 336, 339-40 (4th Cir. 2005)
(assessing warnings given by a company's in-house lawyer and outside lawyer to executives being interviewed for possible wrongdoing; noting that the warnings indicated that the lawyer "could" represent one individual executive as well as the company; "The investigating attorneys interviewed Wakeford, a manager in the company's Business Affairs division, on six occasions. At their third interview, and the first one in which Wilmer Cutler attorneys were present, Randall Boe, AOL's General Counsel, informed Wakeford, 'We represent the company. These conversations are privileged, but the privilege belongs to the company and the company decides whether to waive it. If there is a conflict, the attorney-client privilege belongs to the company.' Memoranda from that meeting also indicate that the attorneys explained to Wakeford that they represented AOL but that they 'could' represent him as well, 'as long as no conflict appeared'"; noting that the lawyers told another executive that "[w]e can represent [you] until such time as there appears to be a conflict of interest [with the company]"; noting that all of the executives were told that the privilege belongs to the company and not to him, and that the company "can decide whether to keep it or waive it"; finding that the privilege belonged to the company alone; "[W]e conclude that appellants could not have reasonably believed that the investigating attorneys represented them personally during the time frame covered by the subpoena. First, there is no evidence that the investigating attorneys told the appellants that they represented them, nor is there evidence that the appellants asked the investigating attorneys to represent them. To the contrary, there is evidence that the investigating attorneys relayed to Wakeford the company's offer to retain personal counsel for him at the company's expense, and that they told John Doe 1 that he was free to retain personal counsel. Second, there is no evidence that the appellants ever sought personal legal advice from the investigating attorneys, nor is there any evidence that the investigating attorneys rendered personal legal advice Third, when the appellants spoke with the investigating attorneys, they were fully apprised that the information they were giving could be disclosed at the company's discretion. Under these circumstances, appellants could not have reasonably believed that the investigating attorneys represented them personally. . . . Therefore, the district court's finding that appellants had no attorney-client relationship with the investigating attorneys is not clearly erroneous."; "We note, however, that our opinion should not be read as an implicit acceptance of the watered-down 'Upjohn warnings' the investigating attorneys gave the appellants. It is a potential legal and ethical mine field. Had the investigating attorneys, in fact, entered into an attorney-client relationship with appellants, as their statements to the appellants professed they could, they would not have been free to waive the appellants' privilege when a conflict arose. It should have seemed obvious that they could not have jettisoned one client in favor of another. Rather, they would have had to withdraw from all representation and to maintain all confidences. Indeed, the court would be hard pressed to identify how investigating counsel could robustly investigate and report to management or the board of directors of a publicly-traded corporation with the necessary candor if counsel were constrained by ethical obligations to individual employees. However, because we agree with the district court that the appellants never entered into an attorney-client relationship with the investigating attorneys, they averted these troubling issues."), cert. denied, 126 S. Ct. 1114 (2006)

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal

Chapter: 6.907
Case Name: Under Seal v. United States (In re Grand Jury Subpoena: Under Seal), 415 F.3d 333, 340 (4th Cir. 2005)
(holding that AOL in-house and outside lawyers had provided a "watered down" Upjohn warning when interviewing three executives during an investigation, which was sufficient to give AOL power to waive any privilege that protected the interview notes and communications, presumably over the three – now former executives' objection; quoting the statements that AOL's lawyers gave to the three executives before the interviews; (1) "'[T]hey represented [the company] but that they 'could' represent him as well, 'as long as no conflict appeared.'"; (2) "'We can represent [you] until such time as there appears to be a conflict of interest.'"; and (3) "We represent [the company], and can represent [you] too if there is not a conflict.")

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal
Comment:

key case


Chapter: 6.908
Case Name: Erickson v. Hocking Technical College, Case No. 2:17-cv-360, 2018 U.S. Dist. LEXIS 50075 (S.D. Ohio Mar. 27, 2018)
May 30, 2018 (PRIVILEGE POINT)

"Federal Court Applies Privilege Axioms That Many Clients Misunderstand"

Some clients who have not been adequately advised by their lawyers think that writing "privileged" on a document makes it so, or that copying a lawyer will assure privilege protection. These and other similar misunderstandings can doom protection for damaging documents whose authors have jumped to conclusions, needlessly self-criticized or engaged in harmful hyperbole – because they erroneously thought the privilege would protect those documents' from adversaries' access.

In Erickson v. Hocking Technical College, Case No. 2:17-cv-360, 2018 U.S. Dist. LEXIS 50075 (S.D. Ohio Mar. 27, 2018), plaintiff sought to depose a lawyer who had acted as defendant's General Counsel, HR Director and Risk Management Vice President. Among other things, defendant claimed that the privilege protected communications during meetings that the lawyer attended. The court rejected defendant's privilege claim, noting that the privilege did not protect the communications simply because the lawyer "subjectively believed that she was at the meeting in her capacity as counsel to gather information." Id. at *7. The court bluntly concluded that "the record contains no evidence reflecting that [the lawyer] was asked to attend in her capacity as a legal advisor rather than in her [other capacities]" (id. at *9); or that she provided or "was asked to provide legal advice" at the key meeting. Id. at *10. The court also held that a meeting participant's "Attorney-Client Privileged Information" label on an email "drafted three days after the at-issue meeting . . . does not operate to retroactively render the earlier, otherwise-unprivileged discussions subject to the attorney-client privilege." Id. at *6, *8.

As with other widely held but erroneous misconceptions, lawyers should advise their clients that asking a lawyer to participate in meetings does not assure privilege protection. If such lawyers provide legal advice, all the related documents should clearly reflect that – in their substantive content, not merely with a header or label.

Case Date Jurisdiction State Cite Checked
2018-03-27 Federal OH
Comment:

key case


Chapter: 6.908
Case Name: United States v. Blumberg, Crim. A. No. 14-458 (JLL), 2017 U.S. Dist. LEXIS 47298 (D.N.J. March 27, 2017)
(applying the Bevill doctrine in finding that an individual employee did not jointly own the privilege protecting his communictions with lawyers from the Bracewell law firm; "According to ConvergEx, the Court need not engage in the Bevill analysis 'because the overwhelming weight of the evidence shows that Defendant was given proper Upjohn warnings.'. . . ConvergEx has submitted, among other supporting exhibits, declarations of three Bracewell attorneys who participated in Defendant's interviews and the attorneys' contemporaneous notes and formal interview memoranda -- all of which reflect that Defendant was given proper Upjohn warnings."; "The Court notes, however, that Mr. Blumberg denies ever having been given the standard Upjohn warnings. Mr. Blumberg has submitted competing declarations and exhibits in support of his position with respect to these warnings. Because the Court declines to issue a credibility determination as to whether Bracewell attorneys in fact provided Defendant with Upjohn warnings, the Court will not sidestep Bevill on these grounds.")

Case Date Jurisdiction State Cite Checked
2017-03-27 Federal NJ
Comment:

key case


Chapter: 6.908
Case Name: United States v. Blumberg, Crim. A. No. 14-458 (JLL), 2017 U.S. Dist. LEXIS 47298 (D.N.J. March 27, 2017)
(applying the Bevill doctrine in finding that an individual employee did not jointly own the privilege protecting his communictions with lawyers from the Bracewell law firm; "The Bevill test applies once counsel has been retained to represent the company."; "Bracewell represented in an August 9, 2011 e-mail to the Government that it 'represent[ed] BNY Convergex Group, LLC, its officers, directors, employees, subsidiaries and affiliates and any employees of its subsidiaries and affiliates.'. . . Therefore, it is undisputed that, at the time of the Bracewell Meetings, Bracewell was, at a minimum, representing ConvergEx. . . . Accordingly, to determine whether Mr. Blumberg holds a personal privilege over any statements that he made to corporate counsel (i.e., Bracewell), the Court must apply the five-factor Bevill analysis."; "The Bevill factors are conjunctive. Therefore, if an individual fails to meet any one of the five factors, he cannot assert a claim of privilege. . . . regardless of Defendant's ability to succeed on the first four factors, the Court finds that Mr. Blumberg cannot make a showing as to the fifth factor of the Bevill analysis -- specifically, he cannot show 'that the substance of [his] conversations with [counsel] did not concern matters within the [C]ompany or the general affairs of the [C]ompany.'"; "As to the fifth factor, Defendant states that he 'consulted with counsel for the purpose of assessing his personal obligations and potential for liability following his encounter with the FBI and the FBI's direction to him that he would be receiving a personal subpoena.'. . . The pertinent question with respect to the fifth factor, however, is not why Defendant consulted with corporate counsel, but rather the substance of those communications."; "Defendant further argues that he satisfies the fifth factor because 'Mr. Blumberg and Bracewell discussed Mr. Blumberg's potential for criminal exposure.'. . . Mr. Blumberg is specifically referencing counsel's statement to him that he was a 'fact witness,' a label which Defendant understands to be associated with a lack of personal criminal liability. . . . However, the fact that Bracewell made one statement sounding in personal legal advice does not give Defendant the authority to assert a blanket claim of privilege over all statements made during the Bracewell Meetings, particularly where the evidence before the Court strongly indicates that the substance of the Bracewell Meetings pertained to the general affairs of the corporation."; "Because Defendant cannot meet the fifth factor of the Bevill analysis, the Court finds that it is ConvergEx, rather than Defendant, who holds the attorney-client privilege over communications made during the Bracewell Meetings. As such, the Company, and not Defendant, may waive that privilege.")

Case Date Jurisdiction State Cite Checked
2017-03-27 Federal NJ
Comment:

key case


Chapter: 6.908
Case Name: United States v. Blumberg, Crim. A. No. 14-458 (JLL), 2017 U.S. Dist. LEXIS 47298 (D.N.J. Mar. 27, 2017)
May 24, 2017 (PRIVILEGE POINT)

"Court Affirms the Comforting Bevill Backstop"

Lawyers representing corporations should in nearly every circumstance provide an Upjohn warning to avoid accidentally creating attorney-client relationships with company employees. Upjohn v. United States, 449 US 383 (1981). Fortunately, lawyers who do not provide such warnings (or who cannot prove that they did so) can usually also rely on what is called the Bevill doctrine. In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986).

In United States v. Blumberg, Crim. A. No. 14-458 (JLL), 2017 U.S. Dist. LEXIS 47298 (D.N.J. Mar. 27, 2017), defendant Blumberg claimed that the Bracewell law firm represented both his employer and him individually – meaning that he co-owned the privilege protecting his communications with Bracewell lawyers. The court noted competing affidavits about whether Bracewell lawyers gave an Upjohn warning. The court therefore applied "the five-factor Bevill analysis." Id. at *12. The Bevill doctrine requires employees seeking to claim personal privilege protection for communications with the company's lawyer to prove on a communication-by-communication basis that: (1) they sought legal advice from the lawyer; (2) if so, they "'made it clear that they were seeking legal advice in their individual rather than in their representative capacities'"; (3) the company lawyer agreed to provide such individual advice regardless of possible conflicts; (4) such communications were confidential; and (5) the communications' substance "'did not concern matters within the company or the general affairs of the company.'" Id. at *7 (citation omitted). In assessing the fifth factor, the court acknowledged Blumberg's claim that he and Bracewell lawyers discussed his "'potential for criminal exposure'" – and that the lawyers said he was a "'fact witness.'" Id. at *14 (internal citation omitted). The court concluded that this one possible exchange did not allow Blumberg to assert a blanket claim of "privilege over all statements made during the Bracewell meetings." Id. at *14-15. The court ultimately held that the company rather than Blumberg owned the privilege covering his communications with the Bracewell lawyers, and thus could waive it (presumably over his objection).

Corporations' lawyers should carefully provide Upjohn warnings, but can also rely on the Bevill backstop.

Case Date Jurisdiction State Cite Checked
2017-03-27 Federal NJ
Comment:

key case


Chapter: 6.908
Case Name: Gary Miller Imports, Inc. v. Doolittle, Civ. No. 11-178 Erie, 2014 U.S. Dist. LEXIS 108772 (W.D. Pa. Aug. 7, 2014)
(holding that a law firm had represented minority shareholders rather than the company, even though the company paid the bills; "Of course a minority shareholder seeking to protect his personal rights and interests is going to communicate to counsel about the corporation. As a matter of substance, talking about the corporation in relation to protecting a minority shareholder's rights and interests is entirely different from communicating with counsel about matters within the company or the general affairs of the company. To be more specific, with respect to the withheld documents, it appears that the substance of the Doolittles conversations with counsel concerned matters related to the Doolittles personal rights and interest as minority shareholders and did not concern matters within the company or the general affairs of the company.")

Case Date Jurisdiction State Cite Checked
2014-08-07 Federal PA

Chapter: 6.908
Case Name: In re Baugher, No. 353909/P, 2013 N.Y. Slip Op. 51622(U), at 5 (N.Y. Sur. Ct. Sept. 30, 2013)
(analyzing the fiduciary exception; "As a matter of law, a person can receive information in one legal capacity and not another. Attorney-client communications are received in the capacity as to which the recipient has an attorney-client relationship . . . . Here, the president and/or board of directors obtained legal advice on behalf of the corporation. The fact that they had a legal interest in the subject matter, in a non-client capacity, does not destroy the privilege . . . . The privilege may still be asserted against the estate.")

Case Date Jurisdiction State Cite Checked
2013-09-30 State NY B 5/14

Chapter: 6.908
Case Name: In re Grand Jury Subpoena 2009R00030, Case No. 1:13-cr-12 (WLS), 2013 U.S. Dist. LEXIS 108624, at *7-8, *9-10, *10 (M.D. Ga. Aug. 2, 2013)
(applying the Bevill doctrine; holding that individual executives had not established the existence of an attorney-client relationship with the company's lawyer; "This Court finds the Bevill [In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)] approach persuasive. It is sound because it divides the officer's corporate and individual selves and ensures that the officer's personal interests do not hamstring the corporation's control of its privileges. The corporation, after all, can speak only through its officers . . . and past officers should not to be able to prevent future management from accessing or releasing information pertinent to the company's well-being. Therefore, when the officer seeks counsel on matters related to 'general affairs of the company,' she is acting on behalf of the corporation, not herself."; "Har[t]ford [insurance company] nevertheless argues this situation is different from Bevill line of cases because the insurance contract also covered Parnell and Kilgore [former officers of PCA, target of grand jury hearing], so 'they are entitled to individual legal representation' and, because of that, ought to have personal privileges. . . . This is unpersuasive. The insurance contract again reinforces the Court's conclusion. It specifically states that executive officers and directors are insured 'only with respect to their duties as . . . officers or directors.' . . . In other words, the contract insured them only as the corporation's representatives. As far as the insurer was concerned, Parnell's and Kilgore's problems regarding the Lovin Oven [customer that sued PCA] claim were identical to the corporation's."; "[A]llowing corporate officers to veto the corporation's waiver of privilege simply because a plaintiff could name them in the suit as the corporation's agent would gut the Weintraub [Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343 (1985)] doctrine. The corporation could never control its privileges because it can act only through an officer. That officer in turn would always claim she had a personal interest in the corporation's litigation.")

Case Date Jurisdiction State Cite Checked
2013-08-02 Federal GA B 4/14

Chapter: 6.908
Case Name: Szulik v. Tag V.I., Inc., No. 12 Civ. 1827 (PKC), 2013 U.S. Dist. LEXIS 110625, at *10 n.3 (S.D.N.Y. Aug. 1, 2013)
(applying the Bevill (In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)) doctrine; and holding that a CEO had not established the existence of an attorney-client relationship with the company's lawyer; "If for no other reason than to protect against a conflict of interest between the entity and an officer of the entity, Feiner [defendant and former lawyer for defendant Tag. V.I.], whose office is in Connecticut, had an obligation to know the identity of his client.")

Case Date Jurisdiction State Cite Checked
2013-08-01 Federal NY B 4/14

Chapter: 6.908
Case Name: Szulik v. Tag V.I., Inc., No. 12 Civ. 1827 (PKC), 2013 U.S. Dist. LEXIS 110625, at *6-7 (S.D.N.Y. Aug. 1, 2013)
(applying the Bevill (In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)) doctrine; and holding that a CEO had not established the existence of an attorney-client relationship with the company's lawyer; "[T]his Court assumes without deciding that 'personal matters' are not limited to matters unrelated to the corporate entity and are broad enough to include an individual's explicit request for legal advice concerning his personal liability for the actions of the corporation.")

Case Date Jurisdiction State Cite Checked
2013-08-01 Federal NY B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387, at *27 (E.D. Wis. July 10, 2013)
("[B]ased on this case law, especially that regarding element five of the Bevill [In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)] test, the privilege must be assessed as to each communication.")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387, at *24, *25, *26 27 (E.D. Wis. July 10, 2013)
("This court reads Keplinger [United States v. Keplinger, 776 F.2d 678 (7th Cir. 1985)], Westinghouse [Westinghouse Corp. v. Kerr-McGee Corp., 580 F.2d 1311, 1319 (7th Cir. 1978)] and Evans [United States v. Evans, 113 F.3d 1457, 1465 (7th Cir. 1997)], in light of this Fourth Circuit decision and the several courts' adoption of Bevill [In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)], to require some manifest, outward evidence --in addition to any subjective belief of the individual --to establish a 'minimally' --meaning 'objectively' -- reasonable belief of the personal nature of the legal representation."; "[T]o claim personal attorney-client privilege regarding communications with Scott Hulse attorneys who represented the company too, the defendants here must present objective evidence that reasonably supports their current attestations about their intent."; "[I]f ambiguity exists regarding whether the representation provided by an attorney was personal or on behalf of the company, or if communication with an attorney is an intertwined combination of corporate and personal representation, the communication will be deemed corporate and the documents at issue must be disclosed based on IOS's [company where the criminal defendants worked] waiver. . . . 'Dual' communications in which the personal and corporate capacities of the individual cannot be distinguished are not jointly privileged for the individual as well as the corporation. . . . [T]he individual privilege did not exist when the communication involved both corporate and individual liability.")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387, at *29-30 (E.D. Wis. July 10, 2013)
("Magistrate Judge Gorence's holding was clearly erroneous because whether the Scott Hulse law firm was Balsiger's personal law firm in addition to IOS's [company where the criminal defendants worked] law firm is not dispositive. The particular communications at issue must concern personal representation. No blanket privilege exists for all documents because Scott Hulse did some work for Balsiger personally. The privilege must be considered on a document-by-document basis.")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387, at *9 (E.D. Wis. July 10, 2013)
("Flynn and Perry appear to have been employees of IOS [company where the criminal defendants worked] at the time of the communications at issue, and the Furr defendants include them on their joint defense list . . . . But the Furr defendants have not shown that they were part of any joint defense group. An employee's cooperation in an internal investigation conducted by the company's attorney is not equivalent to the employee seeking personal representation. . . . [I]t appears that Perry and Flynn were IOS employees responding to their company's internal inquiries. The burden is on the defendants to demonstrate the existence of a joint defense agreement that precludes disclosure of documents and communications.")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387, at *17-18 (E.D. Wis. July 10, 2013)
("IOS [company where the criminal defendants worked] waived all attorney-client privilege and work-product protection for its documents. The company's law firms, Greenberg Traurig and Scott Hulse, waived any work product protection in their work for IOS. Of course, limited liability companies must act through their officers and employees. . . . Balsiger, the former Chief Executive Officer of IOS, corresponded with Greenberg Traurig and Scott Hulse often regarding the government's investigation. He contends that he maintains a personal privilege regarding certain documents involving his communications with the company's law firms because the firms, especially the Scott Hulse firm, represented him individually in addition to representing IOS.")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387 (E.D. Wis. July 10, 2013)
("The Fourth Circuit in In re Grand Jury Subpoena: Under Seal declined to adopt the Bevill [In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)] test, leaving for another day the question whether Bevill matched the Fourth Circuit's views. 415 F.3d 333, 340 n.6 (4th Cir. 2005).")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387, at *21 (E.D. Wis. July 10, 2013)
("Magistrate Judge Gorence was not wrong in refraining from using the Bevill [In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)] test. As she discussed, it has not been adopted by the Seventh Circuit. Moreover, the test is stricter than that described in Keplinger [United States v. Keplinger, 776 F.2d 678 (7th Cir. 1985)], requiring clarity and precognition that may not be possible or within the individual's control.")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387, at *28-29 (E.D. Wis. July 10, 2013)
("Of note, while ambiguous or intertwined communications by Balsiger or Currey [defendant] to the corporate attorneys are presumed to be corporate, the same does not apply to communications to their personal defense attorneys. The court has treated Balsiger's and Currey's communications with their personal defense attorneys as privileged even if the communications concern conduct based on their corporate roles. Of course the defendants' personal defense in this case will relate in some way to their corporate roles and conduct while at IOS [company where the criminal defendants worked]. Thus, communications involving Balsiger's or Currey's personal defense attorneys differ from those involving only attorneys at Scott Hulse or Greenberg Traurig [company's outside law firms].")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387, at *19 (E.D. Wis. July 10, 2013)
("The First, Second, Ninth, and Tenth Circuits have adopted the Bevill [In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)] test.")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Balsiger, Case No. 07-CR-57, 2013 U.S. Dist. LEXIS 96387, at *27-28 (E.D. Wis. July 10, 2013)
("No blanket privilege exists merely because an attorney or firm worked on personal matters previous to the communications at issue.")

Case Date Jurisdiction State Cite Checked
2013-07-10 Federal WI B 4/14

Chapter: 6.908
Case Name: United States v. Finazzo, No. 10-CR-457 (RRM) (RML), 2013 U.S. Dist. LEXIS 22479, at *46-47 (E.D.N.Y. Feb. 19, 2013)
(holding that the privilege did not protect communications between a company executive and his personal lawyer conveyed on company's equipment, which meant that the government could obtain the communications in its criminal action against the executive; "Finazzo's suggestion that he did not waive privilege because he was under the impression that he had some sort of joint interest with Aéropostale in correcting its SEC disclosures is absurd. In his motion, Finazzo repeatedly tip-toes around, without actually asserting, the idea that he thought Slezak, as Aéropostale's general counsel, was acting as his lawyer. . . . From the Court's review of the transcript, it is crystal clear that the meeting was not about Aéropostale collecting information or Aéropostale seeking Finazzo's help in any way. Rather the purpose of the meeting was to confront Finazzo and fire him. . . . Although the meeting was friendly in tone and Geiger did give Finazzo some advice for his future after Aéropostale, Finazzo could not have reasonably thought Slezak was present at the meeting as his lawyer or that his interests and Aéropostale's were aligned.")

Case Date Jurisdiction State Cite Checked
2013-02-19 Federal NY B 2/14

Chapter: 6.908
Case Name: Maplewood Partners, L.P. v. Indian Harbor Ins. Co., 295 F.R.D. 550, 586 n.147 (S.D. Fla. 2013)
(in a first party insurance setting, finding that an insurance company and its insured had a common interest that acted much like a joint representation, so there was no privilege when they later litigated against each other about coverage; "If an individual desires to assert a privilege as to communications with a corporate entity's attorney, the individual must clearly identify the basis, either corporate or individual, for asserting that privilege.")

Case Date Jurisdiction State Cite Checked
2013-01-01 Federal FL B 4/14

Chapter: 6.908
Case Name: Maplewood Partners, L.P. v. Indian Harbor Ins. Co., 295 F.R.D. 550, 586 (S.D. Fla. 2013)
(in a first party insurance setting, finding that an insurance company and its insured had a common interest that acted much like a joint representation, so there was no privilege when they later litigated against each other about coverage; "[T]he Court rejects the Intervenors' implied argument that they are entitled to assert an individual attorney-client privilege as to communications between MapleWood Partners and its counsel. Intervenors have described themselves as 'actual joint clients' of Miller, but they have not established that they obtained legal advice as to the Underlying Matters in a distinctly individual, rather than representative, capacity, or that their communications with Miller related to something other than their duties with respect to the MapleWood entities and, thus, any privilege they may have is within the same community of interest as the attorney-client privilege possessed by Plaintiffs." (footnote omitted))

Case Date Jurisdiction State Cite Checked
2013-01-01 Federal FL B 4/14

Chapter: 6.908
Case Name: Humphries v. Chicarelli, Case No. 1:10 cv 749, 2012 U.S. Dist. LEXIS 168038, at *14 (S.D. Ohio Nov. 27, 2012)
("The individual officer can only claim the privilege personally if he had first clearly indicated to the lawyer that he sought legal advice in his individual capacity.")

Case Date Jurisdiction State Cite Checked
2012-11-27 Federal OH B 8/13

Chapter: 6.908
Case Name: In re Equaphor Inc., Ch. 7 Case No. 10 20490 BFK, 2012 Bankr. LEXIS 2129, at *10-11, *12, *12-13 (Bankr. E.D. Va. May 11, 2012)
("In Bevill, Bresler [In re Bevill, Bresler & Schulman Asset Management Corp., 805 F.2d 120 (3d Cir. 1986)], the Third Circuit approved of a five-part test for the assertion of a personal claim of attorney-client privilege as to communications with corporate counsel"; "[T]he Court finds that the Individual Defendants failed to meet the fifth factor, that 'the substance of their conversations with counsel did not concern matters within the company or the general affairs of the company.'" (citation omitted); "WTP's defense of the officers in this case was directly related to the affairs of the corporation; indeed, the only reason that the Individual Defendants were sued (or at least the sine qua non of their having been named defendants) was that they occupied positions as officers and directors of the company. There has been no showing that any of the advice sought from WTP was personal in nature, and not related to the Individual Defendants' positions as officers and directors of the company. The Court finds that the Individual Defendants have not met their burden that WTP's advice to them was personal in nature and unrelated to their duties as officers and directors of the corporation. For these reasons, the Court will order the turnover of all of the WTP files to the Trustee or his counsel.")

Case Date Jurisdiction State Cite Checked
2012-05-11 Federal VA B 3/16

Chapter: 6.908
Case Name: Under Seal v. United States (In re Grand Jury Subpoena Under Seal), 415 F.3d 333, 336-37 (4th Cir. 2005)
(addressing a corporate employee's claim that he subjectively believed that the company's in house and outside lawyers jointly represented him and the company; ultimately rejecting his claim; noting but not working into the analysis the fact that company's in house and outside lawyers represented the executive during an interview before the SEC; explaining that both lawyers "stated that they represented [the executive] 'for purposes of [the] deposition.'")

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal

Chapter: 6.908
Case Name: Intervenor v. United States (In re Grand Jury Subpoenas), 144 F.3d 653, 659 (10th Cir.)
(applying the Bevill standard, and concluding that a hospital's president and CEO had established the existence of a separate attorney-client relationship with the hospital's lawyers; "[A]dopting and applying the test employed by the Second and Third Circuits, we conclude that a limited attorney-client privilege exists between Intervenor and Roe and Doe. Our holding is an extremely limited one and does not extend to communications made while third parties were present nor does it extend to communications in which both corporate and individual liability were discussed. It includes only that very small portion of communications in which Intervenor sought legal advice as to his personal liability without regard to any corporate considerations."), cert. denied, 525 U.S. 966 (1998)

Case Date Jurisdiction State Cite Checked
1998-01-01 Federal B 6/13

Chapter: 6.908
Case Name: Grand Jury Proceedings v. United States, 156 F.3d 1038, 1041 (10th Cir. 1998)
(in applying Bevill, focusing on each pertinent communication; "However, if the communication between a corporate officer and corporate counsel specifically focuses upon the individual officer's personal rights and liabilities, then the fifth prong of In re Bevill [In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)] can be satisfied even though the general subject matter of the conversation pertains to matters within the general affairs of the company. For example, a corporate officer's discussion with his corporation's counsel may still be protected by a personal, individual attorney-client privilege when the conversation specifically concerns the officer's personal liability for jail time based on conduct interrelated with corporate affairs. Such a conversation would satisfy the fifth prong of In re Bevill test because the officer's potential prison sentence is outside the scope of the corporation's concerns and affairs.")

Case Date Jurisdiction State Cite Checked
1998-01-01 Federal B 8/13

Chapter: 6.908
Case Name: United States v. Aramony, 88 F.3d 1369, 1390 (4th Cir. 1996)
(finding that the corporation's employee had no personal attorney-client relationship with the company's lawyer), cert. denied, 520 U.S. 1239 (1997)

Case Date Jurisdiction State Cite Checked
1996-01-01 Federal

Chapter: 6.908
Case Name: In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986)
May 24, 2017 (PRIVILEGE POINT)

"Court Affirms the Comforting Bevill Backstop"

Lawyers representing corporations should in nearly every circumstance provide an Upjohn warning to avoid accidentally creating attorney-client relationships with company employees. Upjohn v. United States, 449 US 383 (1981). Fortunately, lawyers who do not provide such warnings (or who cannot prove that they did so) can usually also rely on what is called the Bevill doctrine. In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986).

In United States v. Blumberg, Crim. A. No. 14-458 (JLL), 2017 U.S. Dist. LEXIS 47298 (D.N.J. Mar. 27, 2017), defendant Blumberg claimed that the Bracewell law firm represented both his employer and him individually – meaning that he co-owned the privilege protecting his communications with Bracewell lawyers. The court noted competing affidavits about whether Bracewell lawyers gave an Upjohn warning. The court therefore applied "the five-factor Bevill analysis." Id. at *12. The Bevill doctrine requires employees seeking to claim personal privilege protection for communications with the company's lawyer to prove on a communication-by-communication basis that: (1) they sought legal advice from the lawyer; (2) if so, they "'made it clear that they were seeking legal advice in their individual rather than in their representative capacities'"; (3) the company lawyer agreed to provide such individual advice regardless of possible conflicts; (4) such communications were confidential; and (5) the communications' substance "'did not concern matters within the company or the general affairs of the company.'" Id. at *7 (citation omitted). In assessing the fifth factor, the court acknowledged Blumberg's claim that he and Bracewell lawyers discussed his "'potential for criminal exposure'" – and that the lawyers said he was a "'fact witness.'" Id. at *14 (internal citation omitted). The court concluded that this one possible exchange did not allow Blumberg to assert a blanket claim of "privilege over all statements made during the Bracewell meetings." Id. at *14-15. The court ultimately held that the company rather than Blumberg owned the privilege covering his communications with the Bracewell lawyers, and thus could waive it (presumably over his objection).

Corporations' lawyers should carefully provide Upjohn warnings, but can also rely on the Bevill backstop

Case Date Jurisdiction State Cite Checked
1986-01-01 Federal
Comment:

key case


Chapter: 6.908
Case Name: In re Bevill, Bresler & Schulman Asset Management Corp., 805 F.2d 120, 123 (3d Cir. 1986)
September 28 2016 (PRIVILEGE POINT)

"Tenth Circuit Applies the Bevill Standard"

Although corporations' in-house and outside lawyers should scrupulously avoid accidentally creating an attorney-client relationship with employees, they can also rely on what amounts to a favorable default rule — articulated in In re Bevill, Bresler & Schulman Asset Management Corp., 805 F.2d 120, 123 (3d Cir. 1986).

In United States v. Merida, No. 15-7043, 2016 U.S. App. LEXIS 12786 (10th Cir. July 12, 2016), the Tenth Circuit dealt with a familiar scenario – an executive (of the Choctaw Nation) claimed that the Nation's lawyer also represented him personally. The executive sought to overturn his criminal conviction for embezzlement — based in part on the Nation's lawyer's testimony about the executive's statements during a related interview. The Nation's lawyer told the executive during the interview that "the Nation asserts any . . . attorney/client privilege in connection with this statement" — but apparently did not provide an Upjohn warning. Id. at *6-7. The court nevertheless relied on the four Bevill factors in determining that the Nation owned and could therefore waive the privilege: (1) the executive spoke with the lawyer "because the Nation had instructed him to do so, not on his own initiative to seek legal advice"; (2) the executive had not been clear that he was seeking individual advice during the interview; (3) the executive failed to demonstrate that the Nation's lawyer "agreed to communicate with [him] in his individual capacity"; and (4) the executive "cannot establish the final requirement that 'the substance of [his] conversations with [counsel] did not concern matters within the [Nation] or the general affairs of the [Nation].'" Id. at *17-18 (alteration in original) (citation omitted).

Although corporations' lawyers should give the Upjohn warning explicitly disclaiming individual attorney-client relationships with interviewed employees, the Bevill standard provides a helpful backstop.

Case Date Jurisdiction State Cite Checked
1986-01-01 Federal
Comment:

key case


Chapter: 6.908
Case Name: Upjohn v. United States, 449 US 383 (1981)
May 24, 2017 (PRIVILEGE POINT)

"Court Affirms the Comforting Bevill Backstop"

Lawyers representing corporations should in nearly every circumstance provide an Upjohn warning to avoid accidentally creating attorney-client relationships with company employees. Upjohn v. United States, 449 US 383 (1981). Fortunately, lawyers who do not provide such warnings (or who cannot prove that they did so) can usually also rely on what is called the Bevill doctrine. In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986).

In United States v. Blumberg, Crim. A. No. 14-458 (JLL), 2017 U.S. Dist. LEXIS 47298 (D.N.J. Mar. 27, 2017), defendant Blumberg claimed that the Bracewell law firm represented both his employer and him individually – meaning that he co-owned the privilege protecting his communications with Bracewell lawyers. The court noted competing affidavits about whether Bracewell lawyers gave an Upjohn warning. The court therefore applied "the five-factor Bevill analysis." Id. at *12. The Bevill doctrine requires employees seeking to claim personal privilege protection for communications with the company's lawyer to prove on a communication-by-communication basis that: (1) they sought legal advice from the lawyer; (2) if so, they "'made it clear that they were seeking legal advice in their individual rather than in their representative capacities'"; (3) the company lawyer agreed to provide such individual advice regardless of possible conflicts; (4) such communications were confidential; and (5) the communications' substance "'did not concern matters within the company or the general affairs of the company.'" Id. at *7 (citation omitted). In assessing the fifth factor, the court acknowledged Blumberg's claim that he and Bracewell lawyers discussed his "'potential for criminal exposure'" – and that the lawyers said he was a "'fact witness.'" Id. at *14 (internal citation omitted). The court concluded that this one possible exchange did not allow Blumberg to assert a blanket claim of "privilege over all statements made during the Bracewell meetings." Id. at *14-15. The court ultimately held that the company rather than Blumberg owned the privilege covering his communications with the Bracewell lawyers, and thus could waive it (presumably over his objection).

Corporations' lawyers should carefully provide Upjohn warnings, but can also rely on the Bevill backstop.

Case Date Jurisdiction State Cite Checked
1981-01-01 Federal
Comment:

key case


Chapter: 6.1002
Case Name: Huntington Chase Condominium Assoc. v. Mid-Century Ins. Co., No. 16 C 4877, 2017 U.S. Dist. LEXIS 14082 (N.D. Ill. Feb. 1, 2017)
(inexplicably finding that roofing contractor's principal was within the control group of a condo association; "Mr. Argento, as a non-employee agent, served as an advisor to plaintiff's top management. The consulting agreement between plaintiff and Mr. Argento, dated October 31, 2014, was signed by plaintiff's president and states in relevant part that plaintiff 'authorize[d] and retain[ed]' Mr. Argento to [d]etermine the availability of proceeds payable for construction services . . . arising from the damage at the Property'. . . . The agreement further authorizes its insurer to communicate with Mr. Argento 'on matters related to the damage to the Property and repair services.'"; "[I]t is clear from the entire agreement that plaintiff's top management would not normally have made a decision regarding the scope of available coverage or amount of repairs to be made without Mr. Argento's opinion or advice.")

Case Date Jurisdiction State Cite Checked
2017-02-01 Federal IL

Chapter: 6.1002
Case Name: Huntington Chase Condominium Assoc. v. Mid-Century Ins. Co., No. 16 C 4877, 2017 U.S. Dist. LEXIS 14082 (N.D. Ill. Feb. 1, 2017)
(inexplicably finding that roofing contractor's principal was within the control group of a condo association; "Mr. Argento is not an attorney or member of plaintiff's control group. Plaintiff responds that its relationship with Mr. Argento was formalized through a written consulting agreement that provided Mr. Argento acted as plaintiff's representative during communications with defendant and that Mr. Argento thus is within plaintiff's control group."; "Under the Consolidation Coal [Consolidation Coal Co. v. Bucyrus-Erie Co., 89 Ill. 2d 103, 432 N.E.2d 250, 257, 59 Ill. Dec. 666 (Ill. 1982) (citation omitted)] analysis as adapted for non-employee agents, the Court finds Mr. Argento was part of plaintiff's control-group for purposes of the application of the attorney-client privilege to the discovery at issue.")

Case Date Jurisdiction State Cite Checked
2017-02-01 Federal IL

Chapter: 6.1002
Case Name: Huntington Chase Condominium Assoc. v. Mid-Century Ins. Co., No. 16 C 4877, 2017 U.S. Dist. LEXIS 14082 (N.D. Ill. Feb. 1, 2017)
("Mid-Century pointed out that HCCA did not disclose Mr. Rutenbar in its disclosures pursuant to Federal Rule of Civil Procedure 26(a)(1) as an individual with discoverable information; nor did it identify him in its answers to Mid-Century's interrogatories."; "Because the party asserting the privilege must prove that the privilege exists, plaintiff was required to inform this Court why the privilege applied to communications involving Mr. Rutenbar. . . . Plaintiff's failure of proof leaves us with no basis to treat Mr. Rutenbar as anything other than a person outside the control group, which is fatal to plaintiff's assertion of privilege.")

Case Date Jurisdiction State Cite Checked
2017-02-01 Federal IL

Chapter: 6.1002
Case Name: Huntington Chase Condominium Assoc. v. Mid-Century Ins. Co., No. 16 C 4877, 2017 U.S. Dist. LEXIS 14082 (N.D. Ill. Feb. 1, 2017)
("However, if a control group member communicates with someone outside of the control group, the privilege is lost.")

Case Date Jurisdiction State Cite Checked
2017-02-01 Federal IL

Chapter: 6.1002
Case Name: Harris Mgmt, Inc. v. Coulombe, Dkt. BCD-15-363, 2016 ME 166, 2016 Me. LEXIS 185 (Me. Nov. 8, 2016)
(Maine following the "control group" test; "The still-applicable control group test therefore includes as corporate representatives only 'those officers, usually top management, who play a substantial role in deciding and directing the corporation's response to the legal advice given'. . . and other individuals who have 'sufficient authority to make decisions for the client.")

Case Date Jurisdiction State Cite Checked
2016-11-08 State ME
Comment:

key case


Chapter: 6.1002
Case Name: Harris Management, Inc. v. Coulombe, 2016 ME 166, ¶ 15, A.3d (11/8/2016)
January 4, 2017 (PRIVILEGE POINT)

"Two Decisions Issued the Same Day Highlight Choice of Laws Issues: Part I"

Every privilege analysis should start with determining the applicable law. In the corporate context, federal courts handling federal question cases and nearly every state follow the Upjohn standard. Upjohn v. United States, 449 U.S. 383 (1981). Under this standard, the privilege can protect a corporation's lawyer's communications with any corporate employee possessing information the lawyer needs. A handful of states continue to follow the pre-Upjohn "control group" standard – under which the privilege generally protects only communications with upper-level corporate management.

In Harris Management, Inc. v. Coulombe, 2016 ME 166, ¶ 15, ---A.3d ---, Maine's highest court reaffirmed Maine's reliance on the old "control group" standard – extending privilege protection only to employees (usually officers) who direct the corporation's response to its lawyers' legal advice, and other individuals with authority to make corporate decisions. Although Maine corporations feel the main brunt of this narrow approach, corporations from Upjohn states might also lose their privilege if they are sued in Maine.

In some cases, a choice of law analysis will result in application of the narrow "control group" corporate privilege standard. In other cases, courts applying other states' privilege law relieve corporations of that troublesome standard. Next week's Privilege Point will describe such a decision from another "control group" hold-out state – Illinois. Decided on the same day as Harris Management, the decision looked outside Illinois for applicable privilege law.

Case Date Jurisdiction State Cite Checked
2016-11-08 Federal ME
Comment:

key case


Chapter: 6.1002
Case Name: The Manitowoc Co., Inc. v. Kachmer, Case No. 14-cv-9271, 2016 U.S. Dist. LEXIS 61503 (N.D. Ill. May 10, 2016)
(analyzing privilege and work product protection for recorded interviews by the plaintiff company's lawyer of employees who later left the company; holding that the privilege did not apply because the employees were not then in the control group under Illinois law; holding that the work product doctrine did not apply because the court concluded after an in camera review that the interviews did not reflect the lawyer's opinions or strategy; ordering production of the audio recordings after allowing a lawyer to redact later-added notes and impressions; inexplicably not considering the audio recordings to be fact work product; "Since this is a diversity case, Plaintiff's assertion of the attorney-client privilege is governed by Illinois law. . . . Illinois has adopted the control-group test in the corporate client context, where the party asserting the privilege has the burden of showing that: (1) the communication in question was made by corporate employees 'who are the decisionmakers or who substantially influence corporate decisions;' and (2) that 'the communication originated in a confidence that it would not be disclosed, was made to an attorney acting in his legal capacity for the purpose of securing legal advice or services, and remained confidential.'"; "Plaintiff here has not met that burden. There has been no showing in either Plaintiff's memorandum or the transcripts of the interviews that any of the five Employees were decisionmakers or that they substantially influenced the company's decisions, such that they can be considered part of the control group. Plaintiff contends that the fact that the five Employees had access to the confidential or proprietary information and the fact that Defendants named the Employees in their Rule 26 disclosures shows that the Employees were part of Plaintiff's control group. . . . This argument is unpersuasive. The fact that an employee is able to access his employer's confidential or proprietary information does not show that he is such an important manager or adviser that the company would not normally make a decision without the employee's advice or opinion. . . . It simply shows that the information in the employee's possession is important to the company's work, and that the employee will need access to that information in the normal course of business."; "The fact that an employee was identified in an opposing party's Rule 26 disclosures is similarly inconsequential to the control-group analysis. Possessing discoverable information about a party's claim or defense does not show that an employee is a decisionmaker or a top adviser. Of course, control-group employees are very likely to have discoverable information, but that by itself does not make an employee a member of the control group. Plaintiff has not offered any facts to show that the Employees were part of the control group, and so we hold that the attorney-client privilege does not apply.")

Case Date Jurisdiction State Cite Checked
2016-05-10 Federal IL

Chapter: 6.1002
Case Name: Vaughn v. Amerigas Propane, L.P., No. 5-15-0205, 2016 Ill. App. Unpub. LEXIS 704, at *17, *17-18 (Ill. App. Ct. Apr. 6, 2016)
("In order to determine which employees of a corporation enjoy the attorney-client privilege when communicating with an attorney on behalf of the corporation, Illinois applies the control-group test."; "The Downs affidavit identifies the Companion [defendant insurance company] claims adjusters and subrogation agents whose communications with Companion's attorneys are claimed to be privileged. As outlined above, the Downs affidavit makes it clear that these adjusters had decision-making authority with respect to the workers' compensation and subrogation claims for which Companion hired attorneys Javoronok and Vedral. Furthermore, our in camera review of all claim entries which reflect communications between Companion's claims adjusters or subrogation agents and these attorneys make clear that these entries do reflect communications made for the purpose of securing legal advice regarding defense of the workers' compensation and/or subrogation claims and/or contain the mental impressions or strategies of the attorney. For these reasons, we find these entries are protected by the attorney-client privilege and/or work product doctrine, and the circuit court erred in requiring Companion to produce them in response to the Amerigas subpoena in the instant lawsuit.")

Case Date Jurisdiction State Cite Checked
2016-04-06 Federal IL

Chapter: 6.1002
Case Name: Whitney v. Tallgrass Beef Company LLC, Case No. 13 C 7322, 2015 U.S. Dist. LEXIS 78956 (N.D. Ill. June 18, 2015)
(finding that a company president fell within the Illinois control group, but that the company's controller did not; "Illinois applies the control group test to determine if communications between a corporation and its counsel are protected. . . . The Court is satisfied that Bloom meets this test by virtue of his position as the Agency's President."; "Corporate employees qualify as the 'client' for purposes of the attorney-client privilege under Illinois law only when they satisfy the control group test. . . . Plaintiffs must show that Ms. Whitney [Company's controller] is part of the Agency's 'top management who have the ability to make a final decision' rather than only advisory decisions."; "Plaintiffs do not rely on her position as the Agency's controller to support their claim. They appear to assume that Whitney's employee status confers a common legal interest per se. If that were the case, corporations could routinely disseminate privileged communications with all of their employees and hide beneath the broad cloak of the common interest doctrine. Clearly, that is not the case. Thus Plaintiffs have failed to carry their burden of showing that emails that included her did not waive the attorney-client privilege. Assertions of the work product doctrine are waived for the same reasons.").

Case Date Jurisdiction State Cite Checked
2015-06-18 Federal IL

Chapter: 6.1002
Case Name: Doe v. Township High School Dist. 211, No. 1-14-0857, 2015 Ill. App. LEXIS 432 (Ill. App. 1d 5th Div. June 5, 2015)
(analyzing protection for an internal investigation of possible sexual misconduct at a high school; "Two tiers of employees qualify as the control group: (1) 'top management who have the ability to make a final decision'; and (2) employees who advise top management in a particular area such that a decision would not normally be made without their 'advice or opinion,' and whose 'opinion' forms the basis of any final decision made by those with actual authority. . . . With respect to the second tier, our supreme court drew a distinction between 'opinion' and 'information.'"; "[I]n the case at bar, Cates submitted an affidavit in which he stated (1) that he attended one meeting which an attorney also attended; and (2) that he was assigned a fact-finding mission by his supervisor. Thus, defendants have failed to satisfy their burden of showing that Cates was a member of the control group.")

Case Date Jurisdiction State Cite Checked
2015-06-05 State IL

Chapter: 6.1002
Case Name: Doe v. Township High School District 211, No. 1-14-0857, 2015 Ill. App. LEXIS 432 (Ill. App. 1d 5d June 5, 2015)
("[I]n the case at bar, Cates submitted an affidavit in which he stated (1) that he attended one meeting which an attorney also attended; and (2) that he was assigned a fact-finding mission by his supervisor. Thus, defendants have failed to satisfy their burden of showing that Cates was a member of the control group."; "Two tiers of employees qualify as the control group: (1) 'top management who have the ability to make final decision'; and (2) employees who advise top management in a particular area such that a decision would not normally be made without their 'advice or opinion,' and whose 'opinion' forms the basis of any final decision made by those with actual authority. Consolidation Coal, 89 Ill. 2d at 120; Mlynarski, 213 Ill. App. 3d at 431 (discussing the 'two tiers'). With respect to the second tier, our supreme court drew a distinction between 'opinion' and 'information.' Consolidation Coal, 89 Ill. 2d at 120; Mlynarski, 213 Ill. App. 3d at 431 ('opinions and advice' distinguishes the control group) Thus, while employees whose 'opinion' forms the basis of a decision are part of the control group, 'individuals upon whom [top management] may rely for supplying information are not members of the control group.' Consolidation Coal, 89 Ill. 2d at 120."; "In Mlynarski, this court held that defendant had satisfied its burden of proving that an employee was a member of the control group, where defendant submitted an affidavit from the employer’s supervisor which stated that '[a]ll settlement decisions made with respect to litigated and non-litigated claims *** are made jointly' with this employee; that this employee is 'consulted from time to time' by counsel 'to determine what legal action' to pursue; and that his 'advice and opinions' form 'part of the basis for any decision to settle or litigate the matter.' Mlynarski, 213 Ill. App. 3d at 431.")

Case Date Jurisdiction State Cite Checked
2015-06-05 Federal IL

Chapter: 6.1002
Case Name: Doe v. Twp. High School Dist. 211,34 N.E.3d 652, 656, 673 (Ill. App. Ct. 2015)
(applying the Illinois control group standard, and ultimately concluding that a school's "special education director" was not within the control group when preparing documents "he made while investigating claims of inappropriate sexual conduct at the school"; explaining the Illinois control group standard; "Two tiers of employees qualify as the control group: (1) 'top management who have the ability to make a final decision'; and (2) employees who advise top management in a particular area such that a decision would not normally be made without their 'advice or opinion,' and whose 'opinion' forms the basis of any final decision made by those with actual authority. Consolidation Coal [Co. v. Bucyrus-Erie Co], 89 Ill. 2d [103,] 120 [(Ill 1982)]; Mlynarski [v. Rush Presbyterian-St. Luke's Med. Ctr.], 213 Ill. App. 3d [427,] 431 [(Ill. App. Ct. 1991)] (discussing the 'two tiers'). With respect to the second tier, our supreme court drew a distinction between 'opinions' and 'information.' Consolidation Coal, 89 Ill. 2d at 120; Mlynarski, 213 Ill. App. 3d at 431 ('opinions and advice' distinguishes the control group)[.] Thus, while employees whose 'opinion' forms the basis of a decision are part of the control group 'individuals upon whom [top management] may rely for supplying information are not members of the control group.' Consolidation Coal, 89 Ill. 2d at 120."; "In Mlynarski, this court held that defendant had satisfied its burden of proving that an employee was a member of the control group, where defendant submitted an affidavit from the employee's supervisor which stated that '[a]ll settlement decisions made with respect to litigated and non-litigated claims *** are made jointly' with this employee; that this employee is 'consulted from time to time' by counsel 'to determine what legal action' to pursue; and that his 'advice and opinions' form 'part of the basis for any decision to settle or litigate the matter.' Mlynarski, 213 Ill. App. 3d at 431."; "[I]n the case at bar, Cates [special education director] submitted an affidavit in which he stated (1) that he attended one meeting in which an attorney also attended; and (2) that he was assigned a fact-finding mission by his supervisor. Thus, defendants have failed to satisfy their burden of showing that Cates was a member of the control group.")

Case Date Jurisdiction State Cite Checked
2015-06-05 Federal IL

Chapter: 6.1002
Case Name: AU Electronics, Inc. v. Harleysville Group, Inc., Case No. 13 C 5947, 2014 U.S. Dist. LEXIS 72862 (N.D. Ill. May 28, 2014)
(explaining that disclosing privileged communications under the control group standard to those outside the control group waived attorney-client privilege protection; "Under Illinois law, privileged communications lose their privileged status if disseminated to person not in the control group.").

Case Date Jurisdiction State Cite Checked
2014-05-28 Federal IL

Chapter: 6.1002
Case Name: Sullivan v. Alcatel-Lucent USA, Inc., Case No. 12 C 7528, 2013 U.S. Dist. LEXIS 82407 (N.D. Ill. June 12, 2013)
(analyzing the control group standard in connection with a former lawyer's lawsuit for a contingent fee; carefully analyzing several employees' status in connection with plaintiff's argument that disclosing privileged communications to the employees waived the privilege; finding that some employees were inside the control group and some were outside the control group; citing an affidavit that established the control group membership to an employee; holding that the defendant's Asset Manager in the defendant's real estate organization was inside the control group; "Colin Cameron is a former Asset Manager in Defendant's Real Estate organization. In his affidavit, Mr. Cameron states '[i]t was [his] job' during the 2010 tax appeal to provide his opinion and advise both Patrick Morrison and Lewis Lefkowitz. . . . Mr. Mendoza, who attests that he is 'personally familiar with the key employees involved with the decision-making process' regarding the tax appeal states that Mr. Cameron was the 'primary contact/client for the 2010 tax appeal' and that 'his analysis and recommendation were part of ALU's decision to settle the appeal. . . . Plaintiffs do not contest the factual allegations underlying these contentions. Thus, Defendant has sufficiently shown that Mr. Cameron was an employee for the period in question 'whose advisory role on top management in particular area is such that a decision would not normally be made without [his] advice or opinion' and thus was a member of Defendant's control group."; also finding that the head of the defendant's real estate was within the control group; "Mr. Morrison states that he is the head of the ALU Real Estate organization for the Americas, and according to Mr. Mendoza was Mr. Cameron's former manager. . . . Mr. Morrison further states that he 'had the authority to make the final decisions with respect to the 2010 tax appeal and settlement thereof' and made such decisions. . . . Mr. Mendoza corroborates this information in his affidavit. . . . In addition, in their Supplemental Memorandum in support of the Motion, Plaintiffs have noted their willingness to consider that Mr. Morrison qualifies as a control group member. . . . Thus, Defendant has made a sufficient showing that Mr. Morrison qualifies as a 'top management person[] who ha[s] the responsibility of making final decisions' such that he falls within Defendant's control group."; finding that two other employees were outside the control group; "Defendant did not submit affidavits from Mr. Hullings or Mr. Viollt, but contends that they too are members of the control group. With respect to Mr. Hullings, Mr. Cameron described Mr. Hullings as an "Economic Analysis Manager' who along with Mr. Cameron, 'created various correspondence and documents' in order 'to seek legal advice from Mr. Lefkowitz and to illustrate [his] opinions and advice for Mr. Morrison.'. . . Specifically, Mr. Mendoza identifies Mr. Hullings as an individual who 'Mr. Cameron relied in part' upon for 'information and input . . . In order to make a recommendation on the settlement of the 2010 tax appeal.'. . . Similarly, with respect to Mr. Viollt, Mr. Cameron avers that Mr. Viollt is an 'Area Master Planner/Manager in ALU's real estate organization' who reported directly to Mr. Cameron and created documents in order to seek legal advice from Mr. Lefkowitz."; "Defendant has not satisfied its burden of showing that Mr. Viollt and Mr. Hullings are control group members. Specifically, Defendant has not made a sufficient factual showing that Mr. Viollt and Mr. Hullings are individual whom 'top management would normally consult in making decisions' as opposed to those who merely supply information to top management. Although Mr. Morrison states in his affidavit that he 'would not have made a decision with respect to the 2010 tax appeal . . . Without seeking the advice and opinions of Mr. Cameron and his team,' which presumably includes Mr. Viollt and Mr. Hullings, Defendant fails to provide sufficient factual detail in its affidavits to bear out this determination with respect to Mr. Viollt and Mr. Hullings. Trustmark Ins. Co., 2000 U.S. Dist. LEXIS 18917, 2000 WL 1898518, at *6 (focus of the control group inquiry is 'on individual people who substantially influenced decisions, not on facts that substantially influenced decisions'). As such, any distribution of documents to Mr. Hullings and Mr. Viollt as non-control group members destroys the privilege. See Sterling Fin. Mgmt., 336 Ill. App. 3d at 448; see also Trustmark Ins. Co., 2000 U.S. Dist. LEXIS 18917, 2000 WL 1898518, at *4. Consequently, the attorney-client privilege does not protect the following documents listed in Defendant's Second Revised Privilege Log that members of the control group distributed to non-control group members . . . .").

Case Date Jurisdiction State Cite Checked
2013-06-12 Federal IL B 4/14

Chapter: 6.1002
Case Name: Maxtena, Inc. v. Marks, Civ. A. No. DKC 11-0945, 2013 U.S. Dist. LEXIS 42332, at *17-18, *18 (D. Md. Mar. 26, 2013)
(holding that Maryland had not yet decided whether to follow the control group or the Upjohn test; "The Maryland Court of Appeals has not yet delineated a precise test for determining the applicability of the attorney-client privilege 'in the corporate context.' See E.I. du Pont, 351 Md. at 418-21 [E.I. du Pont de Nemours & Co. v. Forma-Pack, Inc., 351 Md. 396 (D. Md. 1998)] (discussing the 'control group' test, the 'subject matter' test, and hybrids of the two tests without deciding which presents the soundest approach). . . . "Under the control group test, a corporation's attorney-client privilege protects 'communications directed to or from employees in the control group, which is comprised of those who play a substantial role in corporate decision-making.' Id. [at 418-19]."; "As a director of Maxtena -- a corporation organized under Delaware law -- Mr. Dann clearly played a substantial role in corporate decision-making as of October 3, 2012, the date of his appointment.")

Case Date Jurisdiction State Cite Checked
2013-03-26 Federal MD B 3/14

Chapter: 6.1002
Case Name: Maxtena, Inc. v. Marks, Civ. A. No. DKC 11-0945, 2013 U.S. Dist. LEXIS 42332, at *17 (D. Md. Mar. 26, 2013)
May 22, 2013 (PRIVILEGE POINT)

"Some States Still Haven't Decided Between the "Control Group" Standard and the Upjohn Standard"

Before 1981, most states applied what is called the "control group" privilege standard for corporate communications -- extending privilege protection only to communications between the company's lawyer and members of upper management who act on the lawyer's advice. In that year, the United States Supreme Court took a totally different approach. In Upjohn Co. v. United States, 449 U.S. 383 (1981), the court interpreted federal common law as extending privilege protection to communications between a company's lawyer and any level of employee, if that employee has facts the lawyer needs when advising the corporate client.

Most states have moved to the Upjohn standard. Illinois is the chief remaining proponent of the "control group" standard. Remarkably, some states have still not decided which approach to take. In Maxtena, Inc. v. Marks, the federal district court explained that "[t]he Maryland Court of Appeals has not yet delineated a precise test for determining the applicability of the attorney-client privilege 'in the corporate context.'" Civ. A. No. DKC 11-0945, 2013 U.S. Dist. LEXIS 42332, at *17 (D. Md. Mar. 26, 2013) (citation omitted). The court found it unnecessary to predict which standard Maryland's highest court would chose.

Ironically, the Upjohn case itself recognized that "[a]n uncertain privilege . . . Is little better than no privilege at all." 449 U.S. at 393. Some states' continuing uncertainty about the privilege's applicability in the corporate setting highlights the wisdom of this principle.

Case Date Jurisdiction State Cite Checked
2013-03-26 Federal MD
Comment:

key case


Chapter: 6.1002
Case Name: One Place Condominium LLC v. Travelers Property Casualty Co. of Am., No. 11 C 2520, 2013 U.S. Dist. LEXIS 28257, at *5 (N.D. Ill. Mar. 1, 2013)
(relying on an affidavit to find that an insurance company's general adjuster was within the control group; "The descriptions set forth on Defendant's revised privilege log, together with the affidavits from Mr. Sacks and Mr. Sarff [General Adjuster with the Travelers Business Insurance Property Major Case Unit], fairly support upholding the assertion of privilege in this case. All of the communications involve matters that could give rise to the need for legal analysis and advice, and both Mr. Sacks and Mr. Sarff have certified that the purpose of the communications was in fact to secure legal counsel: Mr. Sacks served only in his capacity as an attorney; Mr. Sarff alone performed any general claims handling functions. Mr. Sarff has also affirmed facts indicating that he is within Travelers' control group. Specifically, he has the authority to make final decisions as to coverage and amounts due under One Place's policy 'based on my review and analysis of the facts, investigations of the claim, review of the policy provisions, my review of the opinion provided by the experts I retained, and consultation with my managers.' (Sarff Aff. 1 ¶ 5).").

Case Date Jurisdiction State Cite Checked
2013-03-01 Federal IL B 3/14

Chapter: 6.1002
Case Name: Zuniga v. Sw. Airlines, No. 11 CV 939, 2013 U.S. Dist. LEXIS 8524, at *9-10 (N.D. Ill. Jan. 22, 2013)
("Within the corporate context, Illinois requires corporations asserting the attorney-client privilege to show that the contested communication was made by someone within the "'corporate 'control group.'" . . . An employee falls within the 'control group' when that person's 'advisory role to top management in a particular area is such that a decision would not normally be made without his advice or opinion, and whose opinion in fact forms the basis of any final decision by those with actual authority.'" (citation omitted))

Case Date Jurisdiction State Cite Checked
2013-01-22 Federal IL B 7/13

Chapter: 6.1002
Case Name: Jentz v. ConAgra Foods, Case No. 10-cv-0474-MJR-PMF, Case No. 10-cv-0952-MJR-PMF, 2011 U.S. Dist. LEXIS 127546 (S.D. Ill. Nov. 3, 2011)
(listing ConAgra employees within the control group, but without explaining the evidence underlying the court's conclusion; "Additionally, because ConAgra is a corporation, under Illinois law, the attorney-client privilege extends only to communications between counsel and the corporate 'control group,' which consists of final decision makers and top advisers whose opinions form the basis for a final decision. . . . Judge Frazier identified 21 individuals who constitute ConAgra's control group, a finding which ConAgra has not disputed."; "'The control group identified by Judge Frazier consists of: Brad Allen -- operations of commercial mills facilities; Brad Berentson -- financial operations, personnel; Alan Bindel -- employee operations, equipment and machinery at Chester facility; Paige Buffington -- worker's compensation claims; Tom Culross -- environment, health and safety; Brian Dunekacke -- production/operations at the Chester facility; Godfrey Friedt -- operation, maintenance, and servicing of elevators and bins; Rick Gregory, Jr. -- environment, health and safety; Elaine Hernandez -- financial and risk management; Dean Hoerning -- engineering and structural changes; James Lime -- environment, health and safety; Paul Maass -- commercial foods; Glen Macziewski -- insurance needs & coverage; Scott Martin -- technical milling; Samantha Tran -- finance; Scott Solberg -- property insurance; Damir Stupar -- finance; Kent Ties -- finance/insurance; Leonard Weaver, III -- mediation/litigation; Anthony Yount -- environment, health and safety; Mark Zimitsch -- plant operations in New Prague, Minnesota and Alton, Illinois.").

Case Date Jurisdiction State Cite Checked
2011-11-03 Federal IL

Chapter: 6.1002
Case Name: Jentz v. ConAgra Foods, Case No. 10-cv-0474-MJR-PMF, Case No. 10-cv-0952-MJR-PMF, 2011 U.S. Dist. LEXIS 127546 (S.D. Ill. Nov. 3, 2011)
(listing ConAgra employees within the control group, but without explaining the evidence underlying the court's conclusion; "Additionally, because ConAgra is a corporation, under Illinois law, the attorney-client privilege extends only to communications between counsel and the corporate 'control group,' which consists of final decision makers and top advisers whose opinions form the basis for a final decision. . . . Judge Frazier identified 21 individuals who constitute ConAgra's control group, a finding which ConAgra has not disputed."; "'The control group identified by Judge Frazier consists of: Brad Allen -- operations of commercial mills facilities; Brad Berentson -- financial operations, personnel; Alan Bindel -- employee operations, equipment and machinery at Chester facility; Paige Buffington -- worker's compensation claims; Tom Culross -- environment, health and safety; Brian Dunekacke -- production/operations at the Chester facility; Godfrey Friedt -- operation, maintenance, and servicing of elevators and bins; Rick Gregory, Jr. -- environment, health and safety; Elaine Hernandez -- financial and risk management; Dean Hoerning -- engineering and structural changes; James Lime -- environment, health and safety; Paul Maass -- commercial foods; Glen Macziewski -- insurance needs & coverage; Scott Martin -- technical milling; Samantha Tran -- finance; Scott Solberg -- property insurance; Damir Stupar -- finance; Kent Ties -- finance/insurance; Leonard Weaver, III -- mediation/litigation; Anthony Yount -- environment, health and safety; Mark Zimitsch -- plant operations in New Prague, Minnesota and Alton, Illinois.")

Case Date Jurisdiction State Cite Checked
2011-11-03 Federal IL

Chapter: 6.1002
Case Name: Becker v. ConAgra Foods, Inc., Case No. 10-cv-952-MJR-PMF, 2011 U.S. Dist. LEXIS 101187 (S.D. Ill. Sept. 8, 2011)
(listing ConAgra employees within the control group, without explaining the evidence supporting the court's conclusion; "Because ConAgra is a corporation, the Court must evaluate the status of the communicating employee within the corporate hierarchy. The privilege extends to a control group made up of those who act as decision-makers and those whose advisory role is such that a decision would not normally be made without his or her input, and whose opinion in fact forms the basis of any final decision by those with authority."; "ConAgra's control group includes the following individuals only to the extent their communications fall within their specific area of corporate responsibility during their employment with ConAgra, summarized below: Brad Allen -- operations of commercial mills facilities; Brad Berentson -- financial operations, personnel; Alan Bindel -- employee operations, equipment, and machinery at Chester facility; Paige Buffington -- worker's compensation claims; Tom Culross -- environment, health and safety; Brian Dunekacke -- production/operations at the Chester facility; Godfrey Friedt -- operation, maintenance, and serving of elevators and bins; Rick Gregory, Jr. -- environment, health and safety; Elaine Hernandez -- financial and risk management; Dean Hoerning -- engineering and structural changes; James Lime -- environment, health and safety; Paul Maass -- commercial foods; Glen Macziewski -- insurance needs & coverage; Scott Martin -- technical milling; Samantha Tran -- finance; Scott Solberg -- property insurance; Damir Stupar -- finance; Kent Ties -- finance/insurance; Leonard Weaver, III -- mediation/litigation; Anthony Yount -- environment, health and safety; Mark Zimitsch -- plant operations in New Prague, Minnesota and Alton, Illinois")

Case Date Jurisdiction State Cite Checked
2011-09-08 Federal IL

Chapter: 6.1002
Case Name: Becker v. ConAgra Foods, Inc., Case No. 10-cv-952-MJR-PMF, 2011 U.S. Dist. LEXIS 101187 (S.D. Ill. Sept. 8, 2011)
(listing ConAgra employees within the control group, without explaining the evidence supporting the court's conclusion; "Because ConAgra is a corporation, the Court must evaluate the status of the communicating employee within the corporate hierarchy. The privilege extends to a control group made up of those who act as decision-makers and those whose advisory role is such that a decision would not normally be made without his or her input, and whose opinion in fact forms the basis of any final decision by those with authority."; "ConAgra's control group includes the following individuals only to the extent their communications fall within their specific area of corporate responsibility during their employment with ConAgra, summarized below: Brad Allen -- operations of commercial mills facilities; Brad Berentson -- financial operations, personnel; Alan Bindel -- employee operations, equipment, and machinery at Chester facility; Paige Buffington -- worker's compensation claims; Tom Culross -- environment, health and safety; Brian Dunekacke -- production/operations at the Chester facility; Godfrey Friedt -- operation, maintenance, and serving of elevators and bins; Rick Gregory, Jr. -- environment, health and safety; Elaine Hernandez -- financial and risk management; Dean Hoerning -- engineering and structural changes; James Lime -- environment, health and safety; Paul Maass -- commercial foods; Glen Macziewski -- insurance needs & coverage; Scott Martin -- technical milling; Samantha Tran -- finance; Scott Solberg -- property insurance; Damir Stupar -- finance; Kent Ties -- finance/insurance; Leonard Weaver, III -- mediation/litigation; Anthony Yount -- environment, health and safety; Mark Zimitsch -- plant operations in New Prague, Minnesota and Alton, Illinois").

Case Date Jurisdiction State Cite Checked
2011-09-08 Federal IL

Chapter: 6.1002
Case Name: Wychocki v. Franciscan Sisters of Chicago, No. 10 C 2954, 2011 U.S. Dist. LEXIS 63223 (N.D. Ill. June 15, 2011)
(holding that defendant's Vice President of Human Resources Secvir was within the control group, but that she could not access privileged documents when she left the defendant; "Although Secviar may have been in the control group when the communications with counsel (DeJong) were made, once she left the Franciscan Sisters' employ, the privilege did not leave with her. Attorney-client privilege does not belong to the individual control-group member; it belongs to the corporation because the corporation is the client. . . . Thus, once Secviar's control group status terminated, so did her right to access to Franciscan Sisters' privileged documents. . . . Consequently, Secviar's status as a former control-group member of Franciscan Sisters does not entitle her to see privileged documents that she saw, or to which she had access, during the time she was employed by Franciscan Sisters."; "'While the Illinois Supreme Court has not weighed in on this issue, the Court agrees with Dexia [Dexia Credit Local v. Rogan, 231 F.R.D. 268, 277 (N.D. Ill. 2004)] that not allowing a former control group member access to privileged documents is consistent with the Illinois rule that, 'in a corporate setting, the privilege resides with the corporation, as the client, and not in the individuals who are in the control group at any given time.'").

Case Date Jurisdiction State Cite Checked
2011-06-15 Federal IL

Chapter: 6.1002
Case Name: Wychocki v. Franciscan Sisters of Chicago, No. 10 C 2954, 2011 U.S. Dist. LEXIS 63223 (N.D. Ill. June 15, 2011)
(holding that defendant's Vice President of Human Resources Secvir was within the control group, but that she could not access privileged documents when she left the defendant; "Although Secviar may have been in the control group when the communications with counsel (DeJong) were made, once she left the Franciscan Sisters' employ, the privilege did not leave with her. Attorney-client privilege does not belong to the individual control-group member; it belongs to the corporation because the corporation is the client. . . . Thus, once Secviar's control group status terminated, so did her right to access to Franciscan Sisters' privileged documents. . . . Consequently, Secviar's status as a former control-group member of Franciscan Sisters does not entitle her to see privileged documents that she saw, or to which she had access, during the time she was employed by Franciscan Sisters."; "'While the Illinois Supreme Court has not weighed in on this issue, the Court agrees with Dexia [Dexia Credit Local v. Rogan, 231 F.R.D. 268, 277 (N.D. Ill. 2004)] that not allowing a former control group member access to privileged documents is consistent with the Illinois rule that, 'in a corporate setting, the privilege resides with the corporation, as the client, and not in the individuals who are in the control group at any given time.'").

Case Date Jurisdiction State Cite Checked
2011-06-15 Federal IL

Chapter: 6.1002
Case Name: Lewis v. Keen Transport, Inc., No. 09 C 3912, 2011 U.S. Dist. LEXIS 19787 (N.D. Ill. Feb. 28, 2011)
(implying that the presence of a non-control group employee during an otherwise privileged communication would abort privilege protection; "Defendants argue, however, that Keen contacted its attorney and that its attorney-client relationship should, somehow, extend to its employee, Craig [Defendant employee accused of negligence that resulted in a personal injury to plaintiff], and the statement. The only way that the attorney-client privilege could extend in such a situation would be, however, to apply what Illinois has termed the 'control group' test. This test provides that a corporation's attorney-client privilege covers its corporate representatives where there are discussions between an attorney and only members of the corporation's 'control group,' which are typically employees in top management positions. We must emphasize, however, that defendants have not argued the application of this test or cited to it in their brief."; "Even so, if we apply this 'control group' test here, the privilege can only extend if Craig communicated directly with counsel, Krkljes [Defense lawyer] (or directed the statement to him). The privilege applies only if 'the communication originated in a confidence that would not be disclosed, was made to an attorney acting in his legal capacity for the purpose of securing legal advice or services, and remained confidential.' The attorney-client privilege, then, would not extend even under this test.").

Case Date Jurisdiction State Cite Checked
2011-02-28 Federal IL

Chapter: 6.1002
Case Name: MSTG, Inc. v. AT&T Mobility LLC, Case No. 08 C 7411, 2011 U.S. Dist. LEXIS 5533 (N.D. Ill. Jan. 20, 2011)
(holding that a patent privilege issue was governed by Upjohn rather than the Illinois control group test).

Case Date Jurisdiction State Cite Checked
2011-01-20 Federal IL

Chapter: 6.1002
Case Name: MSTG, Inc. v. AT&T Mobility LLC, Case No. 08 C 7411, 2011 U.S. Dist. LEXIS 5533 (N.D. Ill. Jan. 20, 2011)
(holding that a patent privilege issue was governed by Upjohn rather than the Illinois control group test).

Case Date Jurisdiction State Cite Checked
2011-01-20 Federal IL

Chapter: 6.1002
Case Name: Motorola, Inc. v. Lemko Corp., Case No. 08 C 5427, 2010 U.S. Dist. LEXIS 53630 (N.D. Ill. June 1, 2010)
(applying the Illinois control group standard, and explaining that plaintiff Motorola must establish the control group's application on a document-by-document analysis; "Illinois law confines attorney-client protection in the corporate environment to communications involving the corporation's 'control group.' The control group includes top management as well as employees 'whose advisory role to top management in a particular area is such that a decision would not normally be made without his advice or opinion, and whose opinion in fact forms the basis of any final decision by those with actual authority.'. . ."; "Motorola, which has the burden of showing the privilege applies on a document-by-document basis, has made no attempt to show that the communications in question involved members of its 'control group' thus defined. As a result, it has failed to show the documents are protected by the attorney-client privilege under Illinois law.")

Case Date Jurisdiction State Cite Checked
2010-06-01 Federal IL

Chapter: 6.1002
Case Name: Motorola, Inc. v. Lemko Corp., Case No. 08 C 5427, 2010 U.S. Dist. LEXIS 53630 (N.D. Ill. June 1, 2010)
(applying the Illinois control group standard, and explaining that plaintiff Motorola must establish the control group's application on a document-by-document analysis; "Illinois law confines attorney-client protection in the corporate environment to communications involving the corporation's 'control group.' The control group includes top management as well as employees 'whose advisory role to top management in a particular area is such that a decision would not normally be made without his advice or opinion, and whose opinion in fact forms the basis of any final decision by those with actual authority.'. . ."; "Motorola, which has the burden of showing the privilege applies on a document-by-document basis, has made no attempt to show that the communications in question involved members of its 'control group' thus defined. As a result, it has failed to show the documents are protected by the attorney-client privilege under Illinois law.").

Case Date Jurisdiction State Cite Checked
2010-06-01 Federal IL

Chapter: 6.1002
Case Name: Rawat v. Navistar Int'l Corp., Case No. 08 C 4305, 2010 U.S. Dist. LEXIS 34868 (N.D. Ill. April 7, 2010)
(applying the Illinois control group standard rather than the Delaware privilege standard, and finding that a records manager was outside the control group; "The first question raises issues as to Kuppler, who Plaintiffs contend is not part of the control group and thus subject to the attorney-client privilege. The Court finds that, under Illinois law, Kuppler is not a member of the control group. Kuppler stated that he oversaw 'the records management program,' which entailed 'provid[ing] guidance to the employees on how they need to manage corporate records that they're in possession of.'. . . In other words, he was there to provide 'general guidance' to employees on how to handle their records. . . . He testified that he could not recall anything more than 'limited' discussions with members of the compensation department . . . And that he was involved only in helping employees redeem their stock options after the Board granted them . . . . He admitted he did not make, and was not involved in making, recommendations to the Board. . . . Although he provided some factual information to certain individuals, he testified his only involvement with respect to the Board came after the Board made its decision; at this point, someone 'might have called [him] or stopped by to let [him] know what the [Board's] decision was.'. . . Kuppler never made any presentations to Navistar's compensation committee . . . And acknowledged that, although some information was provided by management to the Board, the Board made all the decisions . . . . Thus, the documents that Kuppler received or sent are not subject to the attorney-client privilege under Illinois law."; "'In view of these facts, the Court is not convinced by Kuppler's conclusory statement that the information he provided to Navistar Management 'was essential to their decisionmaking process.'").

Case Date Jurisdiction State Cite Checked
2010-04-07 Federal IL

Chapter: 6.1002
Case Name: Rawat v. Navistar Int'l Corp., Case No. 08 C 4305, 2010 U.S. Dist. LEXIS 34868 (N.D. Ill. April 7, 2010)
(applying the Illinois control group standard rather than the Delaware privilege standard, and finding that a records manager was outside the control group; "[T]he Court can now focus on whether the privilege applies under the Restatement. Assuming that Delaware is the state with the most significant relationship with the communications, the Court finds that the attorney-client privilege does not apply. If Delaware is the state with the most significant relationship with the communications, § 139(2) of the Restatement governs. That section states that communications, although protected by Delaware law, 'will be admitted [if they are not privileged under Illinois law,] unless there is some special reason why [Illinois] policy favoring admission should not be given effect.' Restatement (Second) of Conflict of Laws § 139(2) (emphasis added). Thus, the relevant questions are twofold: Would, under Illinois law, the communications be privileged? Second, if the answer is 'yes,' has the party asserting the privilege shown any 'special reason' for non-disclosure?"; "Unless Navistar can show a 'special reason' for non-disclosure, the law compels disclosure. Allianz, 869 N.E. 2d at 1058; Restatement (Second) of Conflict of Laws § 139(2). Here, Navistar has not offered any 'special reason' or even examined the factors necessary for determining whether such a reason exists. As a result, the Court finds that Navistar has failed to show a special reason exists and, therefore, under § 139(b), the communications involving Kuppler are not privileged and should be disclosed.").

Case Date Jurisdiction State Cite Checked
2010-04-07 Federal IL

Chapter: 6.1002
Case Name: Upjohn Co. v. United States, 449 U.S. 383 (1981)
May 22, 2013 (PRIVILEGE POINT)

"Some States Still Haven't Decided Between the "Control Group" Standard and the Upjohn Standard"

Before 1981, most states applied what is called the "control group" privilege standard for corporate communications -- extending privilege protection only to communications between the company's lawyer and members of upper management who act on the lawyer's advice. In that year, the United States Supreme Court took a totally different approach. In Upjohn Co. v. United States, 449 U.S. 383 (1981), the court interpreted federal common law as extending privilege protection to communications between a company's lawyer and any level of employee, if that employee has facts the lawyer needs when advising the corporate client.

Most states have moved to the Upjohn standard. Illinois is the chief remaining proponent of the "control group" standard. Remarkably, some states have still not decided which approach to take. In Maxtena, Inc. v. Marks, the federal district court explained that "[t]he Maryland Court of Appeals has not yet delineated a precise test for determining the applicability of the attorney-client privilege 'in the corporate context.'" Civ. A. No. DKC 11-0945, 2013 U.S. Dist. LEXIS 42332, at *17 (D. Md. Mar. 26, 2013) (citation omitted). The court found it unnecessary to predict which standard Maryland's highest court would chose.

Ironically, the Upjohn case itself recognized that "[a]n uncertain privilege . . . Is little better than no privilege at all." 449 U.S. at 393. Some states' continuing uncertainty about the privilege's applicability in the corporate setting highlights the wisdom of this principle.

Case Date Jurisdiction State Cite Checked
1981-01-01 Federal
Comment:

key case


Chapter: 6.1002
Case Name: Upjohn v. United States, 449 U.S. 383 (1981)
January 4, 2017 (PRIVILEGE POINT)

"Two Decisions Issued the Same Day Highlight Choice of Laws Issues: Part I"

Every privilege analysis should start with determining the applicable law. In the corporate context, federal courts handling federal question cases and nearly every state follow the Upjohn standard. Upjohn v. United States, 449 U.S. 383 (1981). Under this standard, the privilege can protect a corporation's lawyer's communications with any corporate employee possessing information the lawyer needs. A handful of states continue to follow the pre-Upjohn "control group" standard – under which the privilege generally protects only communications with upper-level corporate management.

In Harris Management, Inc. v. Coulombe, 2016 ME 166, ¶ 15, ---A.3d ---, Maine's highest court reaffirmed Maine's reliance on the old "control group" standard – extending privilege protection only to employees (usually officers) who direct the corporation's response to its lawyers' legal advice, and other individuals with authority to make corporate decisions. Although Maine corporations feel the main brunt of this narrow approach, corporations from Upjohn states might also lose their privilege if they are sued in Maine.

In some cases, a choice of law analysis will result in application of the narrow "control group" corporate privilege standard. In other cases, courts applying other states' privilege law relieve corporations of that troublesome standard. Next week's Privilege Point will describe such a decision from another "control group" hold-out state – Illinois. Decided on the same day as Harris Management, the decision looked outside Illinois for applicable privilege law.

Case Date Jurisdiction State Cite Checked
1981-01-01 Federal
Comment:

key case


Chapter: 6.1002
Case Name: Upjohn v. United States, 449 U.S. 383 (1981)
January 4, 2017 (PRIVILEGE POINT)

"Two Decisions Issued the Same Day Highlight Choice of Laws Issues: Part I"

Every privilege analysis should start with determining the applicable law. In the corporate context, federal courts handling federal question cases and nearly every state follow the Upjohn standard. Upjohn v. United States, 449 U.S. 383 (1981). Under this standard, the privilege can protect a corporation's lawyer's communications with any corporate employee possessing information the lawyer needs. A handful of states continue to follow the pre-Upjohn "control group" standard – under which the privilege generally protects only communications with upper-level corporate management.

In Harris Management, Inc. v. Coulombe, 2016 ME 166, ¶ 15, ---A.3d ---, Maine's highest court reaffirmed Maine's reliance on the old "control group" standard – extending privilege protection only to employees (usually officers) who direct the corporation's response to its lawyers' legal advice, and other individuals with authority to make corporate decisions. Although Maine corporations feel the main brunt of this narrow approach, corporations from Upjohn states might also lose their privilege if they are sued in Maine.

In some cases, a choice of law analysis will result in application of the narrow "control group" corporate privilege standard. In other cases, courts applying other states' privilege law relieve corporations of that troublesome standard. Next week's Privilege Point will describe such a decision from another "control group" hold-out state – Illinois. Decided on the same day as Harris Management, the decision looked outside Illinois for applicable privilege law.

Case Date Jurisdiction State Cite Checked
1981-01-01 Federal
Comment:

key case


Chapter: 6.1002
Case Name:


Case Date Jurisdiction State Cite Checked

Chapter: 6.1003
Case Name: The William Powell Co. v. National Indemnity Co., Case No. 1:14-cv-00807, 2017 U.S. Dist. LEXIS 55148 (S.D. Ohio April 11, 2017)
("In the corporate context, the attorney-client privilege extends to communications between attorneys and corporate employees regardless of their position within the corporation where the communications concern matters within the scope of the employees' corporate duties, and the employees are aware that the communication was for purposes of obtaining legal advice.")

Case Date Jurisdiction State Cite Checked
2017-04-11 Federal OH

Chapter: 6.1003
Case Name: United States v. Blumberg, Crim. A. No. 14-458 (JLL), 2017 U.S. Dist. LEXIS 47298 (D.N.J. March 27, 2017)
(applying the Bevill doctrine in finding that an individual employee did not jointly own the privilege protecting his communictions with lawyers from the Bracewell law firm; "According to ConvergEx, the Court need not engage in the Bevill analysis 'because the overwhelming weight of the evidence shows that Defendant was given proper Upjohn warnings.'. . . ConvergEx has submitted, among other supporting exhibits, declarations of three Bracewell attorneys who participated in Defendant's interviews and the attorneys' contemporaneous notes and formal interview memoranda -- all of which reflect that Defendant was given proper Upjohn warnings."; "The Court notes, however, that Mr. Blumberg denies ever having been given the standard Upjohn warnings. Mr. Blumberg has submitted competing declarations and exhibits in support of his position with respect to these warnings. Because the Court declines to issue a credibility determination as to whether Bracewell attorneys in fact provided Defendant with Upjohn warnings, the Court will not sidestep Bevill on these grounds.")

Case Date Jurisdiction State Cite Checked
2017-03-27 Federal NJ
Comment:

key case


Chapter: 6.1003
Case Name: Cohen v. Trump, Civ. No. 13-CV-2519-GPC (WVG), 2015 U.S. Dist. LEXIS 74542 (S.D. Cal. June 9, 2015)
(holding that an executive of a corporate affiliate was within the privilege, so his presence did not destroy the privilege protection, and disclosing privileged communications that did not waive the privilege; "It is well established that the privilege applies to communications between corporate counsel and a corporation's employees, made 'at the direction of corporate superiors in order to secure legal advice from counsel.'")

Case Date Jurisdiction State Cite Checked
2015-06-09 Federal CA

Chapter: 6.1003
Case Name: Vidal v. Metro-N. Commuter Ry.Co., No. 3:12cv0248 (MPS) (WIG), 2014 U.S. Dist. LEXIS 13500, at *17-18 (D. Conn. Feb. 4, 2014)
(analyzing an investigation of railroad policies and practices conducted by a lawyer who was not providing legal advice; using the "assist" test, and declining to apply the work product doctrine; "Where the client is a corporation or organization, the prevailing rule is that the attorney-client privilege extends to communications between attorneys and all agents or employees of the organization who are authorized to act or speak for the corporation in relation to the subject matter of the communication.")

Case Date Jurisdiction State Cite Checked
2014-02-04 Federal CT B 6/14

Chapter: 6.1003
Case Name: OneBeacon Ins. Co. v. T. Wade Welch & Assocs., Civ. A. H-11-3061, 2013 U.S. Dist. LEXIS 161083, at *7 (S.D. Tex. Nov. 12, 2013)
("In a corporate setting, the privilege extends to any employee of the corporation who, on instructions from a superior, communicates with counsel -- inside or outside of the corporation.")

Case Date Jurisdiction State Cite Checked
2013-11-12 Federal TX B 5/14

Chapter: 6.1003
Case Name: Freescale Semiconductor, Inc. v. Maxim Integrated Prods., Inc., A-13-CV-075-LY, 2013 U.S. Dist. LEXIS 155391, at *11-12, *12-13 (W.D. Tex. Oct. 30, 2013)
(concluding that a company could not claim privilege protection for the first call it received from a whistleblowing employee about possible misconduct within the corporation, but that the privilege could protect later communications between the anonyomous whistleblower and the company's lawyer; "[T]he anonymous whistleblower made three submissions via the EthicsPoint portal used by Maxim. An initial submission was made on December 14, 2011, and two follow-up communications were submitted on December 20, 2011, and February 24, 2012. Maxim's Chief Compliance Officer and General Counsel, Ed Medlin, communicated with the anonymous whistleblower twice via EthicsPoint -- once on December 14, 2011, in response to the initial submission and again on February 27, 2012, in response to the whistleblower's submission on February 24, 2012. Upon review of the documents containing these discussions, the Court determines that the initial submission made by the anonymous whistleblower on December 14, 2011, is not protected by the attorney-client privilege and should be produced. The initial submission is distinguishable from the questionnaires at issue in Upjohn [Upjohn Co. v. United States, 449 U.S. 383 (1981)] because it was made prior to the start of any investigation by Maxim into the specific allegations that Freescale's software was being improperly used at Maxim. There is also insufficient evidence to demonstrate that the anonymous whistleblower was seeking legal advice or that this information was somehow solicited by Maxim in order for Maxim's legal counsel to render legal advice to the company. Consequently, the Court concludes that the initial submission by the anonymous whistleblower is not protected by the attorney-client privilege and must be produced."; "However, the subsequent communications between Ed Medlin and the anonymous whistleblower via EthicsPoint are protected by the attorney-client privilege. . . . In the initial communication the whistleblower identifies him or herself as a Maxim employee. The content of the subsequent communications show that more specific information was being solicited from the anonymous whistleblower -- a Maxim employee -- in order for Maxim's General Counsel, Ed Medlin, to investigate the allegations and render legal advice to Maxim. Additionally, the content of the follow-up communications also clarifies that the messages were exchanged after Maxim had started its investigation into the anonymous whistleblower's claims.")

Case Date Jurisdiction State Cite Checked
2013-10-30 Federal TX B 5/14

Chapter: 6.1003
Case Name: Thomas v. Rockin D Marine Servs., LLC, Civ. A. No. 12-1315 SECTION: "A" (4), 2013 U.S. Dist. LEXIS 79683, at *28 (E.D. La. June 6, 2013)
("In a corporate environment, the privilege extends even to lower-level employees who nonetheless provide the attorney with information which assists him or her to render legal assistance to the client corporation.")

Case Date Jurisdiction State Cite Checked
2013-06-06 Federal LA B 4/14

Chapter: 6.1003
Case Name: Wells Fargo & Co. v. United States, Misc. Nos. 10-57 & 10-95 (JRT/JJG), 2013 U.S. Dist. LEXIS 79814, at *132 (D. Minn. June 4, 2013))
("The attorney-client privilege applies to communications made by corporate employees to counsel to secure legal advice and to legal advice from corporate counsel to their clients. . . . The privilege is limited to circumstances in which communications are made for the purpose of legal advice.")

Case Date Jurisdiction State Cite Checked
2013-06-04 Federal MN B 4/14

Chapter: 6.1003
Case Name: Random Ventures, Inc. v. Advanced Armament Corp., No. 12 Civ. 6792 (KBF), 2013 U.S. Dist. LEXIS 20513, at *4-5 (S.D.N.Y. Feb. 5, 2013)
("As an initial matter, the Court notes that the transcription of the recording begins with outside counsel, Rust [defendant's outside counsel], stating in words that could not be more clear, that the interview is covered by the attorney-client privilege, including the recording of the interview. He asks 'Okay?' and Thompson [plaintiff] states 'Of course. Yeah. Yeah.' Rust also states clearly that the privilege is owned by the Freedom Group and is not Thompson's to waive; he asks that before they begin, she state whether she is comfortable with that-she agrees 'Of course, yeah.' The interview ends with Rust repeating that the recording is privileged and that Thompson cannot share it with anyone. She again agrees: 'Yep.' The interview is otherwise fact gathering by an attorney.")

Case Date Jurisdiction State Cite Checked
2013-02-05 Federal NY B 2/14

Chapter: 6.1003
Case Name: In re Plasma Derivative Protein Therapies Antitrust Litig., Nos. 09 C 7666 & 11 C 1468, 2012 U.S. Dist. LEXIS 159368, at *9 (N.D. Ill. Nov. 7, 2012)
("Because Baxter is a corporation, the privilege applies to communications: (a) made by employees to counsel at the direction of corporate superiors; (b) in order to secure legal advice; (c) concerning matters within the scope of the employees' corporate duties; (d) where the employees themselves were aware they were being questioned in order that the corporation could obtain legal advice; and (e) the communications were kept confidential since the time they were made.")

Case Date Jurisdiction State Cite Checked
2012-11-07 Federal IL B 5/12

Chapter: 6.1003
Case Name: Adair v. EQT Prod. Co., 285 F.R.D. 376 (W.D. Va. 2012)
("While the attorney-client privilege is available to corporations, see Owens-Corning Fiberglas Corp. v. Watson, 243 Va. 128, 413 S.E.2d 630, 638, 8 Va. Law Rep. 1829 (Va. 1992) (citing Upjohn Co. v. United States, 449 U.S. 383, 389-90, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981)), the determination of whether the attorney-client privilege applies to protect a document from production becomes more difficult when the sender or recipient of that document is in-house counsel for a corporate entity. See, e.g., United States v. United Shoe Mach. Corp., 89 F. Supp. 357 (D. Mass. 1950); ABB Kent-Taylor, Inc. v. Stallings & Co., Inc., 172 F.R.D. 53, 55 (W.D.N.Y. 1996).")

Case Date Jurisdiction State Cite Checked
2012-01-01 Federal VA

Chapter: 6.1003
Case Name: Scott & Stringfellow, LLC v. AIG Commercial Equip. Fin., Inc., Civ. No. 3:10cv825-HEH-DWD, 2011 U.S. Dist. LEXIS 51028, at *7 (E.D. Va. May 12, 2011)
("There is no dispute that attorney-client privilege applies to corporations or that attorney-client privilege may protect communications between in-house counsel and corporation employees of all levels. Jonathan Corp. v. Prime Computer, Inc., 114 F.R.D. 693, 696 (E.D. Va. 1987).")

Case Date Jurisdiction State Cite Checked
2011-05-12 Federal VA B 3/16

Chapter: 6.1003
Case Name: Lewis v. Wells Fargo & Co., No. C-09-02670 CW (JCS), 2010 U.S. Dist. LEXIS 23195, at *36 (N.D. Cal. Mar. 11, 2010
(holding that communications relating to a Wells Fargo job classification audit did not deserve attorney-client privilege protection, because Wells Fargo did not produce any evidence that the interviewed employees understood "that the audit was being conducted on behalf of counsel in order to obtain legal advice.")

Case Date Jurisdiction State Cite Checked
2010-03-11 Federal CA
Comment:

key case


Chapter: 6.1003
Case Name: Lewis v. Wells Fargo & Co., No. C-09-02670 CW (JCS), 2010 U.S. Dist. LEXIS 23195, at *36 (N.D. Cal. Mar. 11, 2010)
(holding that communications relating to a Wells Fargo job classification audit did not deserve attorney-client privilege protection, because Wells Fargo did not produce any evidence that the interviewed employees understood "that the audit was being conducted on behalf of counsel in order to obtain legal advice.")

Case Date Jurisdiction State Cite Checked
2010-03-11 Federal CA
Comment:

key case


Chapter: 6.1003
Case Name: Rein v. United States Patent & Trademark Office, 553 F.3d 353, 376 (4th Cir. 2009)
("'[A]n agency can be a "client" and agency lawyers can function as "attorneys" within the relationship contemplated by the privilege.' Coastal States Gas Corp., 617 F.2d at 863; see also Mead Data Cent., Inc., 566 F.2d at 252 ('[T]he attorney-client privilege assures [the client] that confidential communications to his attorney will not be disclosed without his consent. We see no reason why this same protection should not be extended to an agency's communications with its attorneys under [Exemption 5].'). 'Where the client is an organization, the privilege extends to those communications between attorneys and all agents or employees of the organization who are authorized to act or speak for the organization in relation to the subject matter of the communication.' Mead Data Central, Inc., 566 F.2d at 253 n.24.")

Case Date Jurisdiction State Cite Checked
2009-01-01 Federal

Chapter: 6.1003
Case Name: Deel v. Bank of Am., N.A., 227 F.R.D. 456 (W.D. Va. 2005)
(finding that the privilege did not protect questionnaires that a bank asked bank employees to complete; "Here, BOA found itself in a similar position as Upjohn [Upjohn Co. v. United States, 449 U.S. 393, 389, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981)], but it did not respond in the same manner. Like Upjohn, BOA realized that it may have been in violation of federal law. It also realized that upper-echleon management did not possess the information it needed to obtain legal advice. It concluded, therefore, that it needed to question those employees who had the information it needed to obtain a legal opinion. It then sent a questionnaire to those employees who, as a function of their duties, possessed that information."; "The defendant's fatal flaw, however, was that it did not clarify to the employees completing the questionnaire that it needed the information to obtain legal advice. In Upjohn, the company's Chairman explained in a letter accompanying the questionnaire that he asked the company's general counsel to conduct an investigation to determine the nature and magnitude of possible illegal activities. . . . This section suggests the questionnaire was part of a routine review, not as an effort to obtain legal advice. Further, it says that it will use the information to remain competitive and reward its employees. These statements fail to indicate that the bank needed the information to obtain a legal opinion. . . . Additionally, it tells its employees that business leaders (not its general counsel or outside lawyers) would review the information gleaned from the questionnaires. . . . Such a statement suggests the information would facilitate the Bank in making a business decision not obtaining legal advice. . . . These references simply could not have put BOA employees on notice that the questionnaires would facilitate the company in obtaining legal advice. . . . Here, BOA's notice remains silent on the level of discretion it expected of its employees. Without more, the Court must conclude the Bank did not maintain the level of confidentiality the Supreme Court approved in Upjohn.") (emphases added)

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal VA
Comment:

key case


Chapter: 6.1003
Case Name: Under Seal v. United States (In re Grand Jury Subpoena: Under Seal), 415 F.3d 333, 340 (4th Cir. 2005)
(holding that AOL in-house and outside lawyers had provided a "watered down" Upjohn warning when interviewing three executives during an investigation, which was sufficient to give AOL power to waive any privilege that protected the interview notes and communications, presumably over the three – now former executives' objection; quoting the statements that AOL's lawyers gave to the three executives before the interviews; (1) "'[T]hey represented [the company] but that they 'could' represent him as well, 'as long as no conflict appeared.'"; (2) "'We can represent [you] until such time as there appears to be a conflict of interest.'"; and (3) "We represent [the company], and can represent [you] too if there is not a conflict.")

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal
Comment:

key case


Chapter: 6.1004
Case Name: In re Abilify Aripiprazole Prods. Liab. Litig., Case No. 3:16-md-2734, 2017 U.S. Dist. LEXIS 213493 (N.D. Fla. Dec. 29, 2017)
("With regard to those instances where a specific name is not identified, this is not fatal to the assertion of privilege so long as it is evident that the information being compiled or discussed by corporate employees was information requested by or generated by an attorney. Indeed, it is not uncommon within a complex organization that when a request for information is made by outside counsel communications among corporate employees transmitting the request for information frequently will simply refer to the request as coming from outside counsel as opposed to a specific attorney or law firm. The important inquiry from a privilege perspective is the nature of the communication and the context in which it is made and not necessarily the precise identification of the source of the request for information. In any event, because the Court has conducted an in camera inspection of each of the documents, the Court has been able to examine the context of those documents where the source of the legal request or legal advice is identified as legal department or outside counsel and make a determination as to whether the document is privileged under the attorney client privilege because the document transmits or requests legal advice or the document contains a request by an attorney for information to be used in threatened litigation or ongoing litigation.")

Case Date Jurisdiction State Cite Checked
2017-12-29 Federal FL
Comment:

key case


Chapter: 6.1004
Case Name: The William Powell Co. v. National Indemnity Co., Case No. 1:14-cv-00807, 2017 U.S. Dist. LEXIS 55148 (S.D. Ohio April 11, 2017)
("In the corporate context, the attorney-client privilege extends to communications between attorneys and corporate employees regardless of their position within the corporation where the communications concern matters within the scope of the employees' corporate duties, and the employees are aware that the communication was for purposes of obtaining legal advice.")

Case Date Jurisdiction State Cite Checked
2017-04-11 Federal OH

Chapter: 6.1004
Case Name: United States v. Blumberg, Crim. A. No. 14-458 (JLL), 2017 U.S. Dist. LEXIS 47298 (D.N.J. March 27, 2017)
(applying the Bevill doctrine in finding that an individual employee did not jointly own the privilege protecting his communictions with lawyers from the Bracewell law firm; "According to ConvergEx, the Court need not engage in the Bevill analysis 'because the overwhelming weight of the evidence shows that Defendant was given proper Upjohn warnings.'. . . ConvergEx has submitted, among other supporting exhibits, declarations of three Bracewell attorneys who participated in Defendant's interviews and the attorneys' contemporaneous notes and formal interview memoranda -- all of which reflect that Defendant was given proper Upjohn warnings."; "The Court notes, however, that Mr. Blumberg denies ever having been given the standard Upjohn warnings. Mr. Blumberg has submitted competing declarations and exhibits in support of his position with respect to these warnings. Because the Court declines to issue a credibility determination as to whether Bracewell attorneys in fact provided Defendant with Upjohn warnings, the Court will not sidestep Bevill on these grounds.")

Case Date Jurisdiction State Cite Checked
2017-03-27 Federal NJ
Comment:

key case


Chapter: 6.1004
Case Name: United States v. Blumberg, Crim. A. No. 14-458 (JLL), 2017 U.S. Dist. LEXIS 47298 (D.N.J. March 27, 2017)
(applying the Bevill doctrine in finding that an individual employee did not jointly own the privilege protecting his communictions with lawyers from the Bracewell law firm; "The Bevill test applies once counsel has been retained to represent the company."; "Bracewell represented in an August 9, 2011 e-mail to the Government that it 'represent[ed] BNY Convergex Group, LLC, its officers, directors, employees, subsidiaries and affiliates and any employees of its subsidiaries and affiliates.'. . . Therefore, it is undisputed that, at the time of the Bracewell Meetings, Bracewell was, at a minimum, representing ConvergEx. . . . Accordingly, to determine whether Mr. Blumberg holds a personal privilege over any statements that he made to corporate counsel (i.e., Bracewell), the Court must apply the five-factor Bevill analysis."; "The Bevill factors are conjunctive. Therefore, if an individual fails to meet any one of the five factors, he cannot assert a claim of privilege. . . . regardless of Defendant's ability to succeed on the first four factors, the Court finds that Mr. Blumberg cannot make a showing as to the fifth factor of the Bevill analysis -- specifically, he cannot show 'that the substance of [his] conversations with [counsel] did not concern matters within the [C]ompany or the general affairs of the [C]ompany.'"; "As to the fifth factor, Defendant states that he 'consulted with counsel for the purpose of assessing his personal obligations and potential for liability following his encounter with the FBI and the FBI's direction to him that he would be receiving a personal subpoena.'. . . The pertinent question with respect to the fifth factor, however, is not why Defendant consulted with corporate counsel, but rather the substance of those communications."; "Defendant further argues that he satisfies the fifth factor because 'Mr. Blumberg and Bracewell discussed Mr. Blumberg's potential for criminal exposure.'. . . Mr. Blumberg is specifically referencing counsel's statement to him that he was a 'fact witness,' a label which Defendant understands to be associated with a lack of personal criminal liability. . . . However, the fact that Bracewell made one statement sounding in personal legal advice does not give Defendant the authority to assert a blanket claim of privilege over all statements made during the Bracewell Meetings, particularly where the evidence before the Court strongly indicates that the substance of the Bracewell Meetings pertained to the general affairs of the corporation."; "Because Defendant cannot meet the fifth factor of the Bevill analysis, the Court finds that it is ConvergEx, rather than Defendant, who holds the attorney-client privilege over communications made during the Bracewell Meetings. As such, the Company, and not Defendant, may waive that privilege.")

Case Date Jurisdiction State Cite Checked
2017-03-27 Federal NJ
Comment:

key case


Chapter: 6.1004
Case Name: Indergit v. Rite Aid Corp., 08 Civ. 9361 (JPO) (HBP), 2016 U.S. Dist. LEXIS 150565 (S.D.N.Y. Oct. 31, 2016)
(holding that a lawyer for a defendant Rite Aid (who is not involved in defending the class action for the court) may interview ex parte class members about their role as regional managers (after they had been promoted from being store managers, who were members of the class); but also holding that these lawyers could not advise the lawyers representing defendant in the class action what the regional managers had said; "To the extent that Rite Aid seeks to interview Lock-hart, Gauger and Jens with respect to their supervision of the plaintiffs in the California actions, Rite Aid's counsel may contact these individuals directly because communications limited to these individuals' work as District Managers does not relate to the subject of collective counsel's representation. Rite Aid has represented that it seeks to speak with these three individuals solely about what they did as District Managers, supervising the plaintiffs in the California action. As noted above, the plaintiffs in the California actions are not parties in this action, and the extent of their discretion is, therefore, not a subject of collective counsel's representation. To the extent Lockhart, Gauger and Jens worked as District Managers, they were working in the precise position that plaintiffs claim possessed true managerial control. Thus, collective counsel cannot be representing them with respect to their work as District Managers. Rite Aid's representations that contact with these individuals will be through counsel other than its counsel in this action and that any information provided by these individuals will not be shared with Rite Aid's counsel in this action provide further protection against any possible overreaching by Rite Aid."; "In addition, Rite Aid has the right to preclude collective counsel from attending its interviews with Lockhart, Gauger and Jens. To the extent Rite Aid's counsel seeks to speak with Lockhart -- a current Rite Aid employee -- to prepare Rite Aid's defense in the California actions, the conversation is shielded by Rite Aid's attorney-client privilege. . . . Although neither the Supreme Court nor the Court of Appeals have reached the issue, it also appears that the privilege extends to conversations between 'corporate counsel and former employees of the corporation, so long as the discussion related to the former employee's conduct and knowledge gained during employment.'. . . Thus, Rite Aid's counsel's conversations with Gauger and Jens -- former District Managers -- concerning their conduct and duties while employed by Rite Aid would also be within the attorney-client privilege. Because the privilege is Rite Aid's and not the personal privilege of Lockhart, Gauger or Jens, none of these individuals has the ability to waive the privilege; only Rite Aid can waive the privilege."; "'(1) Counsel for Rite Aid, other than Rite Aid's counsel in this action, may contact Lockhart, Gauger and Jens directly and interview them, limited to their supervision of plaintiffs in the California actions who are not parties in this action.'"; "'(2) Any statements made to Rite Aid's counsel by Lockhart, Gauger or Jens shall not be communicated, either directly or indirectly, to Rite Aid's counsel in this action.'"; "'(3) Counsel for the plaintiffs in this action are prohibited from contacting Lockhart directly concerning his employment by Rite Aid as a District Manager and from questioning Lockhart concerning any conversation he may have with Rite Aid's counsel concerning his work as a District Manager.'"; "'(4) Counsel for the plaintiffs in this action are prohibited from questioning Gauger and Jens concerning any conversations they may have with Rite Aid's counsel concerning their work as District Managers.'")

Case Date Jurisdiction State Cite Checked
2016-10-31 Federal NY

Chapter: 6.1004
Case Name: Greyhound Lines Incorporated v. Viad Corporation, No. CV-15-01820-PHX-DGC, 2016 U.S. Dist. LEXIS 121483 (D. Ariz. Sept. 8, 2016)
("The affidavits of Dr. Ries [a non-lawyer member of Viad's legal department from 1987 to 2001] and one of Viad's in-house lawyers establish that the reports were prepared at the direction of lawyers in Viad's law department, to enable the lawyers to provide legal advice to the company. . . . This is reinforced by the reports themselves, which address a wide range of topics on which lawyers typically advise clients, including ongoing and threatened litigation, settlement discussions and offers, general legal exposure, and regulatory action. The fact that these reports contained factual information . . . or documented Dr. Ries's monthly activities . . . does not refute Viad's evidence that they were created to enable lawyers to provide legal advice."; "Greyhound argues that the reports are not privileged because Dr. Ries did not label them as privileged. . . . But some of the reports are labeled as privileged. And even for those that are not, the Arizona statute does not require that communications be labeled to be privileged. The statute instead looks to the nature and content of the communication and protects those made '[f]or the purpose of obtaining information in order to provide legal advice.' See A.R.S. § 12-2234(B)(2).")

Case Date Jurisdiction State Cite Checked
2016-09-08 Federal AZ

Chapter: 6.1004
Case Name: Obeid v. La Mack, 14 cv. 6498 (LTS) (MHD), 2015 U.S. Dist. LEXIS 127327 (S.D.N.Y. Sept. 16, 2015)
("[I]n the ordinary course a member of the Board of Directors or of company management would typically be entitled to access to the privileged communications of the company, if for no other reason, to allow him to conduct the affairs of the entity.").

Case Date Jurisdiction State Cite Checked
2015-09-16 Federal NY

Chapter: 6.1004
Case Name: Alomari v. Ohio Dept. of Public Safety, 15a0630n.06, No. 14-3922, 2015 U.S. App. LEXIS 16237 (6th Cir. App. Sept. 9, 2015)
("In order for the privilege to attach to communications between in-house counsel and an organization's employee, the employee must be 'sufficiently aware' that he or she is being questioned in order to provide the organization with legal advice. . . . As explained above, however, Plaintiff's own deposition testimony indicates that he was aware Reed-Frient [Lawyer], a lawyer, was present to gather information in order to advise ODPS on how to respond to the media inquiries, an act with great legal ramifications.").

Case Date Jurisdiction State Cite Checked
2015-09-09 Federal OH

Chapter: 6.1004
Case Name: Yocabet v. UPMC Presbyterian and University of Pittsburgh Physicians, No. 569 WDA 2014, No. 1230 WDA 2014, 2015 Pa. Super. LEXIS 325 (Pa. June 5, 2015)
(holding that the attorney-client privilege can protect communications during a meeting of an institution's governing board; "We reject the postulation that a corporate entity can obtain legal advice only when one of its high-ranking officials meets privately with counsel for advice on behalf of the corporation. . . . Thus, the board of directors of a corporation, in addition to tis officers, can act on its behalf for purposes of application of the attorney-client privilege.").

Case Date Jurisdiction State Cite Checked
2015-06-05 State PA

Chapter: 6.1004
Case Name: Garvey v. Hulu, LLC, Case No. 11-cv-03764-LB, 2015 U.S. Dist. LEXIS 7042 (N.D. Cal. Jan. 21, 2015)
("The character of the redacted content in both tickets falls within the privilege. The redactions from both tickets are, or discuss, communications with a lawyer made to secure legal advice. Ticket 4328 has Hulu employees directly asking their in-house attorney for, and receiving, legal advice concerning the task that they were working on. Hulu correctly writes that the 'sole purpose' of the redacted material in 4328 was to secure legal advice. That is the dead center of what the attorney-client privilege covers.")

Case Date Jurisdiction State Cite Checked
2015-01-21 Federal CA

Chapter: 6.1004
Case Name: In re General Motors LLC Ignition Switch Litigation, No. 14-MD-2543 (JMF), 2015 U.S. Dist. LEXIS 5199, at *220 (S.D.N.Y. Jan. 15, 2015)
February 4, 2015 (PRIVILEGE POINT)

“Game Changer? The S.D.N.Y. Endorses a Company-Friendly Privilege Standard”

In In re General Motors LLC Ignition Switch Litigation, No. 14-MD-2543 (JMF), 2015 U.S. Dist. LEXIS 5199, at *220 (S.D.N.Y. Jan. 15, 2015), Judge Furman upheld General Motors' claim of privilege and work product protection for "notes and memoranda relating to the witness interviews" Jenner & Block conducted while investigating GM's ignition switch issue. The opinion naturally has received extensive media coverage, given the high profile. But many reports do not focus on the court's ground-breaking adoption of a company-friendly privilege standard.

Most courts provide privilege protection only to communications whose "primary purpose" relates to legal rather than business advice. Last year, the D.C. Circuit rejected that rule, and extended privilege protection to investigation-related documents if "legal advice was one of the significant purposes." In re Kellogg Brown & Root, Inc., 756 F.3d 754, 758-59 (D.C. Cir. 2014) (emphasis added) (also known as the Barko decision). Although acknowledging that the D.C. Circuit's decision did not bind it, the General Motors court adopted that standard. This appears to represent the first time another court has adopted the D.C. Circuit's favorable privilege standard. Most significantly, the court held that "the D.C. Circuit's holding is consistent with - if not compelled by - the Supreme Court's logic" in the seminal Upjohn decision. Gen. Motors, 2015 U.S. Dist. LEXIS 5199, at *240 (citing Upjohn v. United States, 449 U.S. 383, 394 (1981)).

The General Motors court's rejection of the "primary purpose" test and powerful endorsement of a "one of the significant purposes" standard could extend privilege protection in other contexts, such as with compliance-related communications.

Case Date Jurisdiction State Cite Checked
2015-01-15 Federal NY
Comment:

key case


Chapter: 6.1004
Case Name: United States v. Halliburton Co., Case No. 1:05-CV-1276, 2014 U.S. Dist. LEXIS 162680 (D.D.C. Nov. 20, 2014)
("[N]one of the other employees involved in the communications were acting as agents of attorneys for the purposes of providing legal advice or gathering information to allow the attorneys to provide legal advice. The communications are thus outside the scope of the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2014-11-20 Federal DC

Chapter: 6.1004
Case Name: Williams v. Duke Energy Corp., Civ. A. 1:08-cv-00046, 2014 U.S. Dist. LEXIS 109835 (S.D. Ohio Aug. 8, 2014)
("[A] corporation asserting attorney client privilege does not have to show as a factual predicate that lower level employees subjectively believed that the communication was an attorney-client communication. The Upjohn decision applied an objective test. The question is whether corporate management is communicating with in-house counsel and causing lower lever employees to participate in the communications for the primary purpose of getting legal advice. This is an objective inquiry. Of course, if a lower level employee subjectively believed that the primary purpose of the communication was to make a business decision and that in-house counsel are being kept in the loop so that they are knowledgeable about the status of the business decision and that understanding is consistent with the substance of the communication, that would weigh heavily toward a finding that the communication was not privileged.")

Case Date Jurisdiction State Cite Checked
2014-08-08 Federal OH

Chapter: 6.1004
Case Name: In re Kellogg Brown & Root, Inc., No. 14-5055, 2014 U.S. App. LEXIS 12115 (D.C. Cir. June 27, 2014)
July 16, 2014 (PRIVILEGE POINT)

"District of Columbia Circuit Court Dramatically Expands Privilege Protection for Internal Corporate Investigations: Part II"

Last week's Privilege Point described the legal standard and some of the factual bases for the District of Columbia District Court's denial of privilege protection for Kellogg Brown & Root's (KBR) internal corporate investigation. This week’s privilege point tells the good news -- when about three months later, the D.C. Circuit Court of Appeals issued a writ of mandamus reversing the District Court's holding. In re Kellogg Brown & Root, Inc., No. 14-5055, 2014 U.S. App. LEXIS 12115 (D.C. Cir. June 27, 2014).

The District of Columbia federal appellate court first rejected the district court's legal standard, holding that the privilege could protect a company's investigation if its need for legal advice was one of the "primary" or "significant" motivating purposes – even if not the only purpose, or the primary purpose. Id. at *13-14. The appeals court also explicitly addressed several factual indicia the district court relied on, holding that (1) KBR's requirement under government regulations to investigate alleged fraud did not preclude KBR's argument that another "significant purpose[]" was seeking legal advice; (2) nonlawyers could conduct privileged employee interviews while "serving as agents of attorneys"; (3) the absence of Upjohn warnings did not prevent privilege protection, because "nothing in Upjohn requires a company to use magic words"; and (4) although the employees' confidentiality agreements did not "expressly" mention KBR's need for legal advice, employees knew the law department was conducting a "sensitive" investigation and were warned not to discuss their interviews without KBR's General Counsel's authorization. Id. at *8-10.

The appeals court's legal standard represents a much more privilege-friendly approach than most courts apply. The standard permits companies to claim privilege protection even for investigations they must undertake pursuant to external requirements -- rather than having to initiate parallel or successive investigations to gain the protection. And the court's analysis of the factual issues provides a much more lenient standard for claiming privilege than most courts would apply. Next week's Privilege Point will discuss what the D.C. Circuit Court of Appeals' decision did not address.

Case Date Jurisdiction State Cite Checked
2014-07-16 Federal
Comment:

key case


Chapter: 6.1004
Case Name: In re Kellogg Brown & Root, Inc., No. 14-5055, 2014 U.S. App. LEXIS 12115, at *8-9 (D.C. Cir. June 27, 2014)
(granting a petition for writ of mandamus and vacating a lower court's holding that the privilege did not protect documents created during an internal corporate investigation of possible foreign wrongdoing; holding among other things that a privilege applied to an investigation if one "significant purpose" was the collection of facts lawyers required to give legal advice; "[T]he District Court pointed out that in Upjohn the interviewed employees were expressly informed that the purpose of the interview was to assist the company in obtaining legal advice, whereas here they were not. The District Court further stated that the confidentiality agreements signed by KBR employees did not mention that the purpose of KBR's investigation was to obtain legal advice. Yet nothing in Upjohn requires a company to use magic words to its employees in order to gain the benefit of the privilege for an internal investigation. And in any event, here as in Upjohn employees knew that the company's legal department was conducting an investigation of a sensitive nature and that the information they disclosed would be protected. . . . KBR employees were also told not to discuss their interviews 'without the specific advance authorization of KBR General Counsel.'")

Case Date Jurisdiction State Cite Checked
2014-06-27 Federal

Chapter: 6.1004
Case Name: Carpenters Pension Trust v. Lindquist Family, LLC, No. C-13-01063 DMR, 2014 U.S. Dist. LEXIS 54335 (N.D. Cal. April 18, 2014)
(treating an LLC the same way as a corporation for privilege purposes; "The court will follow Montgomery [Montgomery v. eTreppid Technologies, LLC, 548 F. Supp. 2d 1175, 1180 (D. Nev. 2008)] and apply corporations law to determine whether disclosure of attorney-client communications to other members of the LLC besides Elsie Lindquist defeats the assertion of privilege. In doing so, the court must consider the scope of the LLC member's duties and whether that member was aware that the information was furnished to enable the attorney to provide legal advice to the LLC.")

Case Date Jurisdiction State Cite Checked
2014-04-18 Federal CA

Chapter: 6.1004
Case Name: United States ex rel. Barko v. Halliburton Co, Case No. 1:05-CV-1276, 2014 U.S. Dist. LEXIS 30866 (D.D.C. Mar. 11, 2014)
July 9, 2014 (PRIVILEGE POINT)

"District of Columbia Circuit Court Dramatically Expands Privilege Protection for Internal Corporate Investigations: Part I"

After a decade or more of generally bad news for corporations seeking privilege protection for their internal corporate investigations, the District of Columbia Circuit has issued an opinion containing good news on all fronts.

In March 2014, the District of Columbia District Court denied attorney-client privilege and work product doctrine protection for documents Kellogg Brown & Root (KBR) (and affiliates) created during an internal corporate investigation. United States ex rel. Barko v. Halliburton Co., Case No. 1:05-CV-1276, 2014 U.S. Dist. LEXIS 36490 (D.D.C. Mar. 6, 2014). Five days later, the court denied a stay. United States ex rel. Barko v. Halliburton Co, Case No. 1:05-CV-1276, 2014 U.S. Dist. LEXIS 30866 (D.D.C. Mar. 11, 2014). The District Court used a narrow version of the "primary purpose" test for privilege protection -- holding that "[t]he party invoking the privilege must show the 'communication would not have been made "but for" the fact that the legal advice was sought.'" Halliburton, 2014 U.S. Dist. LEXIS 36490, at *7-8 (citation omitted). In applying this standard, the District Court pointed to a number of facts, including (1) the investigation "resulted from the Defendants [sic] need to comply with government regulations"; (2) nonlawyers conducted the interviews; (3) those nonlawyers did not give Upjohn warnings informing the interviewed employees "that the purpose of the interview was to assist KBR in obtaining legal advice"; and (4) the interviewed employees signed confidentiality agreements that did not mention the investigation's legal purpose. Id. at *9-10. In most courts, these factors would probably have doomed KBR's privilege claim even under a more favorable "primary purpose" test.

The next two Privilege Points will describe the District of Columbia Circuit Court's reversal of this ruling.

Case Date Jurisdiction State Cite Checked
2014-03-11 Federal DC
Comment:

key case


Chapter: 6.1004
Case Name: United States ex rel. Barko v. Halliburton Co., Case No. 1:05-CV-1276, 2014 U.S. Dist. LEXIS 36490 (D.D.C. Mar. 6, 2014)
July 9, 2014 (PRIVILEGE POINT)

"District of Columbia Circuit Court Dramatically Expands Privilege Protection for Internal Corporate Investigations: Part I"

After a decade or more of generally bad news for corporations seeking privilege protection for their internal corporate investigations, the District of Columbia Circuit has issued an opinion containing good news on all fronts.

In March 2014, the District of Columbia District Court denied attorney-client privilege and work product doctrine protection for documents Kellogg Brown & Root (KBR) (and affiliates) created during an internal corporate investigation. United States ex rel. Barko v. Halliburton Co., Case No. 1:05-CV-1276, 2014 U.S. Dist. LEXIS 36490 (D.D.C. Mar. 6, 2014). Five days later, the court denied a stay. United States ex rel. Barko v. Halliburton Co, Case No. 1:05-CV-1276, 2014 U.S. Dist. LEXIS 30866 (D.D.C. Mar. 11, 2014). The District Court used a narrow version of the "primary purpose" test for privilege protection -- holding that "[t]he party invoking the privilege must show the 'communication would not have been made "but for" the fact that the legal advice was sought.'" Halliburton, 2014 U.S. Dist. LEXIS 36490, at *7-8 (citation omitted). In applying this standard, the District Court pointed to a number of facts, including (1) the investigation "resulted from the Defendants [sic] need to comply with government regulations"; (2) nonlawyers conducted the interviews; (3) those nonlawyers did not give Upjohn warnings informing the interviewed employees "that the purpose of the interview was to assist KBR in obtaining legal advice"; and (4) the interviewed employees signed confidentiality agreements that did not mention the investigation's legal purpose. Id. at *9-10. In most courts, these factors would probably have doomed KBR's privilege claim even under a more favorable "primary purpose" test.

The next two Privilege Points will describe the District of Columbia Circuit Court's reversal of this ruling.

Case Date Jurisdiction State Cite Checked
2014-03-06 Federal DC
Comment:

key case


Chapter: 6.1004
Case Name: In re Kellogg Brown & Root, Inc., 756 F.3d 754, 758-59 (D.C. Cir. 2014)
February 4, 2015 (PRIVILEGE POINT)

“Game Changer? The S.D.N.Y. Endorses a Company-Friendly Privilege Standard”

In In re General Motors LLC Ignition Switch Litigation, No. 14-MD-2543 (JMF), 2015 U.S. Dist. LEXIS 5199, at *220 (S.D.N.Y. Jan. 15, 2015), Judge Furman upheld General Motors' claim of privilege and work product protection for "notes and memoranda relating to the witness interviews" Jenner & Block conducted while investigating GM's ignition switch issue. The opinion naturally has received extensive media coverage, given the high profile. But many reports do not focus on the court's ground-breaking adoption of a company-friendly privilege standard.

Most courts provide privilege protection only to communications whose "primary purpose" relates to legal rather than business advice. Last year, the D.C. Circuit rejected that rule, and extended privilege protection to investigation-related documents if "legal advice was one of the significant purposes." In re Kellogg Brown & Root, Inc., 756 F.3d 754, 758-59 (D.C. Cir. 2014) (emphasis added) (also known as the Barko decision). Although acknowledging that the D.C. Circuit's decision did not bind it, the General Motors court adopted that standard. This appears to represent the first time another court has adopted the D.C. Circuit's favorable privilege standard. Most significantly, the court held that "the D.C. Circuit's holding is consistent with - if not compelled by - the Supreme Court's logic" in the seminal Upjohn decision. Gen. Motors, 2015 U.S. Dist. LEXIS 5199, at *240 (citing Upjohn v. United States, 449 U.S. 383, 394 (1981)).

The General Motors court's rejection of the "primary purpose" test and powerful endorsement of a "one of the significant purposes" standard could extend privilege protection in other contexts, such as with compliance-related communications.

Case Date Jurisdiction State Cite Checked
2014-01-01 Federal
Comment:

key case


Chapter: 6.1004
Case Name: Freescale Semiconductor, Inc. v. Maxim Integrated Prods., Inc., A-13-CV-075-LY, 2013 U.S. Dist. LEXIS 155391, at *11-12, *12-13 (W.D. Tex. Oct. 30, 2013)
(concluding that a company could not claim privilege protection for the first call it received from a whistleblowing employee about possible misconduct within the corporation, but that the privilege could protect later communications between the anonyomous whistleblower and the company's lawyer; "[T]he anonymous whistleblower made three submissions via the EthicsPoint portal used by Maxim. An initial submission was made on December 14, 2011, and two follow-up communications were submitted on December 20, 2011, and February 24, 2012. Maxim's Chief Compliance Officer and General Counsel, Ed Medlin, communicated with the anonymous whistleblower twice via EthicsPoint -- once on December 14, 2011, in response to the initial submission and again on February 27, 2012, in response to the whistleblower's submission on February 24, 2012. Upon review of the documents containing these discussions, the Court determines that the initial submission made by the anonymous whistleblower on December 14, 2011, is not protected by the attorney-client privilege and should be produced. The initial submission is distinguishable from the questionnaires at issue in Upjohn [Upjohn Co. v. United States, 449 U.S. 383 (1981)] because it was made prior to the start of any investigation by Maxim into the specific allegations that Freescale's software was being improperly used at Maxim. There is also insufficient evidence to demonstrate that the anonymous whistleblower was seeking legal advice or that this information was somehow solicited by Maxim in order for Maxim's legal counsel to render legal advice to the company. Consequently, the Court concludes that the initial submission by the anonymous whistleblower is not protected by the attorney-client privilege and must be produced."; "However, the subsequent communications between Ed Medlin and the anonymous whistleblower via EthicsPoint are protected by the attorney-client privilege. . . . In the initial communication the whistleblower identifies him or herself as a Maxim employee. The content of the subsequent communications show that more specific information was being solicited from the anonymous whistleblower -- a Maxim employee -- in order for Maxim's General Counsel, Ed Medlin, to investigate the allegations and render legal advice to Maxim. Additionally, the content of the follow-up communications also clarifies that the messages were exchanged after Maxim had started its investigation into the anonymous whistleblower's claims.")

Case Date Jurisdiction State Cite Checked
2013-10-30 Federal TX B 5/14

Chapter: 6.1004
Case Name: Random Ventures, Inc. v. Advanced Armament Corp., No. 12 Civ. 6792 (KBF), 2013 U.S. Dist. LEXIS 20513, at *4-5 (S.D.N.Y. Feb. 5, 2013)
("As an initial matter, the Court notes that the transcription of the recording begins with outside counsel, Rust [defendant's outside counsel], stating in words that could not be more clear, that the interview is covered by the attorney-client privilege, including the recording of the interview. He asks 'Okay?' and Thompson [plaintiff] states 'Of course. Yeah. Yeah.' Rust also states clearly that the privilege is owned by the Freedom Group and is not Thompson's to waive; he asks that before they begin, she state whether she is comfortable with that-she agrees 'Of course, yeah.' The interview ends with Rust repeating that the recording is privileged and that Thompson cannot share it with anyone. She again agrees: 'Yep.' The interview is otherwise fact gathering by an attorney.")

Case Date Jurisdiction State Cite Checked
2013-02-05 Federal NY B 2/14

Chapter: 6.1004
Case Name: RFF Family P'ship, LP v. Burns & Levinson, LLP, 991 N.E.2d 1066, 1067-68, 1071 (Mass. 2013)
(finding that a plaintiff suing a law firm for malpractice could not obtain access to communications during a five-day period before the firm withdrew from representing the client; "When a corporation employs an attorney to serve as its in-house counsel, the corporation is the attorney's client, but confidential communications between the in-house counsel and the corporation's employees that are intended to help counsel to provide the corporation with sound legal advice are protected by the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State MA B 4/14

Chapter: 6.1004
Case Name: United States v. ISS Marine Servs., 905 F. Supp. 2d 121, 130-31, 131 (D.D.C. 2012)
(analyzing privilege and work product protection for an audit; noting that the company had specifically indicated that it did not need the assistance of Arnold & Porter in connection with the audit; "The respondent has offered no evidence to demonstrate that the employees who were interviewed had any idea that their responses were going to be conveyed to an attorney for the purpose of obtaining legal advice. Indeed, it appears that Inchcape [affiliate of defendant] affirmatively did not want its employees to know that the investigation related to legal concerns . . . . The employees certainly would not have been able to infer the legal nature of the inquiry by virtue of the interviewer, who was a non-attorney."; "[T]he employees were communicating to a non-attorney who was not accompanied or assisted by attorneys, and the communicators did not know that the information they were conveying would be transmitted to counsel for the purpose of seeking legal advice.")

Case Date Jurisdiction State Cite Checked
2012-01-01 Federal DC B 7/13

Chapter: 6.1004
Case Name: Collins v. Braden, 384 S.W.3d 154, 162 (Ky. 2012)
(holding that the attorney-client privilege might protect documents created during an internal corporate investigation about a plaintiff's suicide; remanding for further evidence; "The limitation under KRE 503(a)(2)(B)(ii) is even more important. It distinguishes between employees who are 'mere eyewitnesses' to an alleged tort by happenstance . . . and those who are witnesses because of their employment (and, more often than not, are alleged to have been involved in the tortious conduct).")

Case Date Jurisdiction State Cite Checked
2012-01-01 State KY B 9/13

Chapter: 6.1004
Case Name: Zimmerman v. Poly Prep Country Day Sch., 09 CV 4586 (FB), 2011 U.S. Dist. LEXIS 40704 (E.D.N.Y. April 13, 2011)
(analyzing privilege protection and an investigation into alleged sexual abuse at a college preparatory school; addressing plaintiffs' spoliation claim based on the destruction of documents related to an investigation – and therefore necessarily addressing possible privilege protection for the documents that had been destroyed; finding that a lawyer had acted as an investigator and not as a legal advisory during the investigation, which meant that privilege did not apply to his documents; "In 2002, after receiving Paggioli's settlement demand, Poly Prep consulted with their outside counsel Menaker & Herrmann LLP, and also hired Peter T. Sheridan, Esq., a sole practitioner, to conduct what they claim was a privileged and confidential investigation regarding Foglietta's alleged conduct, to be performed 'in collaboration with Poly Prep's counsel, Menaker & Herrmann LLP.'. . . Sheridan interviewed faculty and staff, including: Williams, Parker, Ruck, Andersen, Petchesky, Ralph Dupree, a former faculty member and coach, and Joan Wright, a former Dean and Assistant Head of School. . . . Sheridan claims to have determined during his investigation that there was no firsthand or secondhand knowledge of alleged sexual abuse at Poly Prep, other than the accusations made by Hiltbrand and Paggioli. . . . However, Sheridan's notes from his investigation have since been destroyed, resulting in the current motion for spoliation sanctions."; "Sheridan admits that he asked benign questions of each interviewee, 'about his or her background and role(s) at the school, and the nature, extent, and duration of his or her relationship with Mr. Foglietta.' . . . The purpose of Sheridan's retention by Poly Prep was to investigate and learn 'the extent, if any, to which members of the school's faculty or administration knew of sexual misconduct or sexual abuse by Mr. Foglietta,' not to advise Poly Prep on how to proceed. . . . Indeed, although Sheridan was engaged in September 2002 to conduct the investigation, a month later, in October 2002, Poly Prep engaged Greenberg Traurig to advise the school regarding its response to the allegations. . . . Plaintiffs' counsel also notes that 'according to th[e] documentation, [Sheridan] did not tell any of the people he interviewed that he was an attorney. He did not tell them that he was there for the purpose of trying to defend Poly Prep in a potential litigation. He did not tell them anything of that nature. So, the attorney-client privilege, burden, the initial threshold burden is not met.'"; finding in contrast that work product doctrine probably applied to the documents; but not really finding spoliation)

Case Date Jurisdiction State Cite Checked
2011-04-13 Federal NY
Comment:

key case


Chapter: 6.1004
Case Name: Lewis v. Wells Fargo & Co., No. C-09-02670 CW (JCS), 2010 U.S. Dist. LEXIS 23195, at *36 (N.D. Cal. Mar. 11, 2010)
(holding that communications relating to a Wells Fargo job classification audit did not deserve attorney-client privilege protection, because Wells Fargo did not produce any evidence that the interviewed employees understood "that the audit was being conducted on behalf of counsel in order to obtain legal advice.")

Case Date Jurisdiction State Cite Checked
2010-03-11 Federal CA
Comment:

key case


Chapter: 6.1004
Case Name: Under Seal v. United States (In re Grand Jury Subpoena: Under Seal), 415 F.3d 333, 340 (4th Cir. 2005)
(holding that AOL in-house and outside lawyers had provided a "watered down" Upjohn warning when interviewing three executives during an investigation, which was sufficient to give AOL power to waive any privilege that protected the interview notes and communications, presumably over the three – now former executives' objection; quoting the statements that AOL's lawyers gave to the three executives before the interviews; (1) "'[T]hey represented [the company] but that they 'could' represent him as well, 'as long as no conflict appeared.'"; (2) "'We can represent [you] until such time as there appears to be a conflict of interest.'"; and (3) "We represent [the company], and can represent [you] too if there is not a conflict.")

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal
Comment:

key case


Chapter: 6.1004
Case Name: Deel v. Bank of Am., N.A., 227 F.R.D. 456 (W.D. Va. 2005)
(finding that the privilege did not protect questionnaires that a bank asked bank employees to complete; "Here, BOA found itself in a similar position as Upjohn [Upjohn Co. v. United States, 449 U.S. 393, 389, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981)], but it did not respond in the same manner. Like Upjohn, BOA realized that it may have been in violation of federal law. It also realized that upper-echleon management did not possess the information it needed to obtain legal advice. It concluded, therefore, that it needed to question those employees who had the information it needed to obtain a legal opinion. It then sent a questionnaire to those employees who, as a function of their duties, possessed that information."; "The defendant's fatal flaw, however, was that it did not clarify to the employees completing the questionnaire that it needed the information to obtain legal advice. In Upjohn, the company's Chairman explained in a letter accompanying the questionnaire that he asked the company's general counsel to conduct an investigation to determine the nature and magnitude of possible illegal activities. . . . This section suggests the questionnaire was part of a routine review, not as an effort to obtain legal advice. Further, it says that it will use the information to remain competitive and reward its employees. These statements fail to indicate that the bank needed the information to obtain a legal opinion. . . . Additionally, it tells its employees that business leaders (not its general counsel or outside lawyers) would review the information gleaned from the questionnaires. . . . Such a statement suggests the information would facilitate the Bank in making a business decision not obtaining legal advice. . . . These references simply could not have put BOA employees on notice that the questionnaires would facilitate the company in obtaining legal advice. . . . Here, BOA's notice remains silent on the level of discretion it expected of its employees. Without more, the Court must conclude the Bank did not maintain the level of confidentiality the Supreme Court approved in Upjohn.") (emphases added)

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal VA
Comment:

key case


Chapter: 6.1004
Case Name: Deel v. Bank of Am., N.A., 227 F.R.D. 456, 461-62 (W.D. Va. 2005)
("Like Upjohn, BOA realized that it may have been in violation of federal law. It also realized that upper-echelon management did not possess the information it needed to obtain legal advice. It concluded, therefore, that it needed to question those employees who had the information it needed to obtain a legal opinion. It then sent a questionnaire to those employees who, as a function of their duties, possessed that information. The defendant's fatal flaw, however, was that it did not clarify to the employees completing the questionnaire that it needed the information to obtain legal advice. In Upjohn, the company's Chairman explained in a letter accompanying the questionnaire that he asked the company's general counsel to conduct an investigation to determine the nature and magnitude of possible illegal activities. . . . This section suggests the questionnaire was part of a routine review, not as an effort to obtain legal advice. Further, it says that it will use the information to remain competitive and reward its employees. These statements fail to indicate that the bank needed the information to obtain a legal opinion. . . . Additionally, it tells its employees that business leaders (not its general counsel or outside lawyers) would review the information gleaned from the questionnaires. . . . Such a statement suggests the information would facilitate the Bank in making a business decision not obtaining legal advice. See Henson By and Through Mawyer v. Wyeth Laboratories, Inc., 118 F.R.D. 584, 587 (W.D.Va. 1987). . . . These references simply could not have put BOA employees on notice that the questionnaires would facilitate the company in obtaining legal advice. Finally, Upjohn made certain that its employees knew the investigation was 'highly confidential' and discouraged discussion of the matter with non-Upjohn employees. Upjohn, 449 U.S. at 387. Here, BOA's notice remains silent on the level of discretion it expected of its employees. Without more, the Court must conclude the Bank did not maintain the level of confidentiality the Supreme Court approved in Upjohn.")

Case Date Jurisdiction State Cite Checked
2005-01-01 Federal VA B 3/16
Comment:

key case


Chapter: 6.1004
Case Name: Head v. Inova Health Care Servs., 55 Va. Cir. 43, 45 (Va. Cir. Ct. 2001)
(holding that the attorney-client privilege and the work product doctrine protected correspondence between the hospital's lawyer and a risk management analyst about an investigation of an incident that ultimately resulted in the litigation, including memoranda from the analyst to the hospital's lawyer "summarizing interviews with treating nurses"; not explaining if the analyst was an employee or consultant)

Case Date Jurisdiction State Cite Checked
2001-01-01 State VA nsvb 2/23/04

Chapter: 6.1004
Case Name: Gordon v. Newspaper Ass'n of Am., 51 Va. Cir. 183, 186 (Va. Cir. Ct. 2000)
("Clearly, the privilege exists for communications between Mahoney, in-house counsel for Media General, and McDonald, an employee of Media General. Of course, the protection from disclosure extends to communications between Mahoney and either McDonald or other Media General employees, where such communications assisted Mahoney in rendering legal advice and other services to Media General concerning the complaint of harassment and plaintiff's termination.")

Case Date Jurisdiction State Cite Checked
2000-01-01 State VA B 3/16

Chapter: 6.1004
Case Name: Gordon v. Newspaper Ass'n of Am., 51 Va. Cir. 183, 186 (Va. Cir. Ct. 2000)
("'[T]he privilege exists between a corporation and its in-house attorney.' . . . The communications protected are those between employees and in-house counsel which aid counsel in providing legal services to the corporation.")

Case Date Jurisdiction State Cite Checked
2000-01-01 State VA B 3/16
Comment:

key case


Chapter: 6.1004
Case Name: Upjohn v. United States, 449 U.S. 383, 394 (1981)
February 4, 2015 (PRIVILEGE POINT)

“Game Changer? The S.D.N.Y. Endorses a Company-Friendly Privilege Standard”

In In re General Motors LLC Ignition Switch Litigation, No. 14-MD-2543 (JMF), 2015 U.S. Dist. LEXIS 5199, at *220 (S.D.N.Y. Jan. 15, 2015), Judge Furman upheld General Motors' claim of privilege and work product protection for "notes and memoranda relating to the witness interviews" Jenner & Block conducted while investigating GM's ignition switch issue. The opinion naturally has received extensive media coverage, given the high profile. But many reports do not focus on the court's ground-breaking adoption of a company-friendly privilege standard.

Most courts provide privilege protection only to communications whose "primary purpose" relates to legal rather than business advice. Last year, the D.C. Circuit rejected that rule, and extended privilege protection to investigation-related documents if "legal advice was one of the significant purposes." In re Kellogg Brown & Root, Inc., 756 F.3d 754, 758-59 (D.C. Cir. 2014) (emphasis added) (also known as the Barko decision). Although acknowledging that the D.C. Circuit's decision did not bind it, the General Motors court adopted that standard. This appears to represent the first time another court has adopted the D.C. Circuit's favorable privilege standard. Most significantly, the court held that "the D.C. Circuit's holding is consistent with - if not compelled by - the Supreme Court's logic" in the seminal Upjohn decision. Gen. Motors, 2015 U.S. Dist. LEXIS 5199, at *240 (citing Upjohn v. United States, 449 U.S. 383, 394 (1981)).

The General Motors court's rejection of the "primary purpose" test and powerful endorsement of a "one of the significant purposes" standard could extend privilege protection in other contexts, such as with compliance-related communications.

Case Date Jurisdiction State Cite Checked
1981-01-01 Federal
Comment:

key case


Chapter: 6.1102
Case Name: Norton v. Town of Islip, CV 04-3079 (PKC) (SIL), 2018 U.S. Dist. LEXIS 177811, at *24 (E.D.N.Y. Oct. 16, 2018)
November 21, 2018 (PRIVILEGE POINT)

Court Demands That Defendant Identify Those With Access to Privileged Documents

In 2015, the court handling a malicious prosecution case against the Town of Islip held that the Town had waived privilege protection for documents that "were apparently accessible by all Town employees, " even those without a need to know, and that might also have been accessed by members of the public "in days past." Norton v. Town of Islip, No. CV 04-3079 (PKC) (SIL), 2015 U.S. Dist. LEXIS 125114, at *11, *14 (E.D.N.Y. Sept. 18, 2015).

The parties' privilege fights have continued, and plaintiff recently challenged the Town's declaration that "'[t]here is no reason to believe' that the privileged documents were accessed by anyone other than those individuals and offices to whom they were addressed." Norton v. Town of Islip, CV 04-3079 (PKC) (SIL), 2018 U.S. Dist. LEXIS 177811, at *24 (E.D.N.Y. Oct. 16, 2018). The court again addressed the access issue. After explaining that it was "unable to credit the Town Defendants' conclusion about access of the subject documents," the court ordered the Town to provide "affidavits from an individual or individuals with knowledge setting forth where each document was kept, including all individuals who had access to the documents and when that access was provided." Id. at *25, *28. And the court then doubled down, emphasizing that "[f]or the sake of clarity, the Court is directing the Town Defendants to explain who had access, not just who actually accessed the documents at issue and what was done to maintain confidentiality." Id. at *28.

It is difficult to imagine any institutional client (governmental or corporate) being able to comply with such a remarkable requirement.

Case Date Jurisdiction State Cite Checked
2018-10-16 Federal

Chapter: 6.1102
Case Name: FTC v. Adept Management, Civ. No. 1:16-cv-00720-CL, 2018 U.S. Dist. LEXIS 111673 (D. Ore. July 3, 2018)
("It is beyond dispute that the attorney-client privilege may apply when the client is a corporation, organization, or entity rather than a natural person.")

Case Date Jurisdiction State Cite Checked
2018-07-03 Federal OR

Chapter: 6.1102
Case Name: Peerless Indemnity Insurance Co. v. Sushi Avenue, Inc., Civ. No. 15-4112 ADM/LIB, 2017 U.S. Dist. LEXIS 22436, at *10 (D. Minn. Feb. 15, 2017)
April 12, 2017 (PRIVILEGE POINT)

"Illogical and Frightening 'Need to Know' Doctrine'"

Corporations face two possible impediments when claiming privilege protection for purely internal communications. First, some courts see widespread intra-corporate circulation as tending to show that the communications primarily dealt with business rather than legal matters. This approach makes some sense, although a few courts take it to an unjustifiable extreme – applying a per se rule that the privilege cannot protect communications an employee sends both to a lawyer and to a non-lawyer requesting their input.

Second, the more frightening doctrine involves the "need to know" standard. In Peerless Indemnity Insurance Co. v. Sushi Avenue, Inc., the court rejected plaintiff’s privilege claim for several internal documents – because it had not established with evidence that the documents "were not disseminated beyond those persons who needed to know their contents." Civ. No. 15-4112 ADM/LIB, 2017 U.S. Dist. LEXIS 22436, at *10 (D. Minn. Feb. 15, 2017).

Many courts follow this troubling waiver approach – which can force corporations to turn over to litigation adversaries purely internal communications simply because they were shared with a few employees who did not need them. Because this doctrine focuses mostly on lawyers' communication to their corporate clients' employees, we have the primary responsibility to limit internal circulation and re-circulation of our advice.

Case Date Jurisdiction State Cite Checked
2017-02-15 Federal MN
Comment:

key case


Chapter: 6.1102
Case Name: Thomas v. Kellogg Company, Case No. C13-5136-RBL, 2016 U.S. Dist. LEXIS 66881 (W.D. Wash. May 20, 2016)
("Documents disseminated beyond those with a 'need to know' for legal advice purposes are not privileged.")

Case Date Jurisdiction State Cite Checked
2016-05-20 Federal WA

Chapter: 6.1102
Case Name: EEOC v. Texas Roadhouse, Inc., Civ. A. No. 11-cv-11732-DJC, 2015 U.S. Dist. LEXIS 161929, at *5-6 (D. Mass. Dec. 2, 2015)
February 3, 2016 (PRIVILEGE POINT)

"What is the "Need to Know" Standard?"

Under the majority Upjohn approach, the attorney-client privilege can protect lawyers' communications with any level of corporate client employee — if the lawyers need the employees' factual information before giving their corporate clients legal advice. Upjohn Co. v. United States, 449 U.S. 383 (1981). Upjohn focuses on clients' communications of facts to lawyers, not lawyers' communications of legal advice to clients. The latter communications implicate the "need to know" standard. The Upjohn standard expands corporations' privilege protection, while the "need to know" standard constricts it.

In EEOC v. Texas Roadhouse, Inc., the court articulated the unfortunate but widely accepted principle that privileged intra-corporate "[c]ommunications retain their privileged status if relayed to other employees or officers of the corporation who need to know the information. When the communications are repeated to employees who do not need the information to carry out their work or make decisions, the privilege is lost." Civ. A. No. 11-cv-11732-DJC, 2015 U.S. Dist. LEXIS 161929, at *5-6 (D. Mass. Dec. 2, 2015).

At first blush, this "need to know" standard seems inconsistent with Upjohn. An example might explain the difference. A company's lawyer can have an Upjohn-protected interview with a company's employee who happened to see a visitor fall in the lobby. But that employee does not "need to know" the lawyer's legal advice about the company's possible liability or defenses. The "need to know" standard does not make much sense — it can force a corporation to provide a litigation adversary purely internal privileged communications simply because a few extra employees (bound by their own confidentiality duty) happened to also receive those communications.

Case Date Jurisdiction State Cite Checked
2015-12-02 Federal MA
Comment:

key case


Chapter: 6.1102
Case Name: Cohen v. Trump, Civ. No. 13-CV-2519-GPC (WVG), 2015 U.S. Dist. LEXIS 74542 (S.D. Cal. June 9, 2015)
(holding that an executive of a corporate affiliate was within the privilege, so his presence did not destroy the privilege protection, and disclosing privileged communications that did not waive the privilege; "The privilege may also be waived in the corporate context 'if the communications are disclosed to employees who did not need access to them.'. . . This waiver applies only 'when the communications are relayed to those who do not need the information to carry out their work or make effective decisions on the part of the company.'"; "Because the attorney-client privilege only applies to communications made in confidence, a communication loses its protection if made in the presence of third parties, or disseminated beyond the group of corporate employees who have a need to know in the scope of their corporate responsibilities.")

Case Date Jurisdiction State Cite Checked
2015-06-09 Federal CA

Chapter: 6.1102
Case Name: United States v. Halliburton Co., Case No. 1:05-CV-1276, 2014 U.S. Dist. LEXIS 162680 (D.D.C. Nov. 20, 2014)
("[N]one of the other employees involved in the communications were acting as agents of attorneys for the purposes of providing legal advice or gathering information to allow the attorneys to provide legal advice. The communications are thus outside the scope of the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2014-11-20 Federal DC

Chapter: 6.1102
Case Name: Moffatt v. Wazana Bros. Int'l, Civ. A. No. 14-1881, 2014 U.S. Dist. LEXIS 151326 (E.D. Pa. Oct. 24, 2014)
(analyzing intra-corporate communications about an employment discrimination matter; "In this case, just as in In re Grand Jury 90-1, corporate counsel gave legal advice to high ranking members of her corporate client, Wazana Brothers International. Those members proceeded to disclose that legal advice to the company CEO and President. Based on a review of the unredacted email, the Court concludes that the recipients 'needed to know' the content of the communication in order to 'make informed decisions concerning . . . The subject matter of the communication[,]' the termination and severance of plaintiff.")

Case Date Jurisdiction State Cite Checked
2014-10-24 Federal PA

Chapter: 6.1102
Case Name: Moffatt v. Wazana Bros. Int'l, Civ. A. No. 14-1881, 2014 U.S. Dist. LEXIS 151326 (E.D. Pa. Oct. 24, 2014)
(analyzing intra-corporate communications about an employment discrimination matter; "Courts have consistently held that communications relaying legal advice provided by corporate counsel among nonattorney corporate employees who share responsibility 'for the subject matter underlying the consultation' are privileged.")

Case Date Jurisdiction State Cite Checked
2014-10-24 Federal PA

Chapter: 6.1102
Case Name: Williams v. Duke Energy Corp., Civ. A. 1:08-cv-00046, 2014 U.S. Dist. LEXIS 109835 (S.D. Ohio Aug. 8, 2014)
("[A] corporation asserting attorney client privilege does not have to show as a factual predicate that lower level employees subjectively believed that the communication was an attorney-client communication. The Upjohn decision applied an objective test. The question is whether corporate management is communicating with in-house counsel and causing lower lever employees to participate in the communications for the primary purpose of getting legal advice. This is an objective inquiry. Of course, if a lower level employee subjectively believed that the primary purpose of the communication was to make a business decision and that in-house counsel are being kept in the loop so that they are knowledgeable about the status of the business decision and that understanding is consistent with the substance of the communication, that would weigh heavily toward a finding that the communication was not privileged.")

Case Date Jurisdiction State Cite Checked
2014-08-08 Federal OH

Chapter: 6.1102
Case Name: ePlus, Inc. v. Lawson Software, Inc., 280 F.R.D. 247, 252-53, 253 & n.2 (E.D. Va. 2012)
("Third, 290 entries concern communications to ten or more non attorneys. Lawson does not deny this, but claims that it was required to widely disseminate information because of the injunction, which applied to a broad group of people. Communications within a corporation are only protected if the party claiming privilege can demonstrate that the persons to whom the communications were made had the 'need to know' the information communicated. Deel v. Bank of America, N.A., 227 F.R.D. 456, 460 (W.D. Va. 2005)."; "Here, Lawson has not argued that the individuals listed in any of the 290 entries had a need to know as defined by Deel or that they should enjoy the protection provided by Upjohn. It has not even established that the listed individuals are employees or that they needed to know the information communicated. Nor has Lawson asserted that the communications were made at the direction of supervisors. Quite simply, Lawson has not satisfied its burden to establish that a privilege applies. Thus, it has waived the privilege with respect to these entries."; "This is true also of the 39 entries in which Lawson identifies the recipient as an unidentified distribution list. Whether the persons on those lists have a 'need to know' the information communicated and whether those persons are employees who knew they were being communicated with by Lawson's counsel in its capacity as legal counsel is unclear. Lawson has waived its privilege with respect to these entries.")

Case Date Jurisdiction State Cite Checked
2012-01-01 Federal VA B 3/16
Comment:

key case


Chapter: 6.1103
Case Name: Crane Security Technologies, Inc. v. Rolling Optics, AB, Civ. A. No. 14-124280-LTS, 2017 U.S. Dist. 15529 (D. Mass. Feb. 3, 2017)
("The court also finds that the communications in question were limited to those in a 'need to know' position regarding attorneys' advice.")

Case Date Jurisdiction State Cite Checked
2017-02-03 Federal MA

Chapter: 6.1103
Case Name: Scott v. Chipotle Mexican Grill, Inc., 12-CV-08333 (ALC) (SN), 2015 U.S. Dist. LEXIS 40176 (S.D.N.Y. March 27, 2015)
("The content of the messages is clearly related to implementing the advice Chipotle received from Messner Reeves [Law firm], and as a large corporation, Chipotle could not realistically have acted on that advice without communicating it to its own employees. Accordingly, to the extent that it is correct that all recipients were able to act upon or implement the information or advice they received (and given their titles the Court assumes that is the case), the e-mails and the attachments are privileged. To hold otherwise would disable corporations from implementing legal advice, exactly what Upjohn seeks to avoid.")

Case Date Jurisdiction State Cite Checked
2015-03-27 Federal NY
Comment:

key case


Chapter: 6.1103
Case Name: Williams v. Duke Energy Corp., Civ. A. 1:08-cv-00046, 2014 U.S. Dist. LEXIS 109835 (S.D. Ohio Aug. 8, 2014)
("[A] corporation asserting attorney client privilege does not have to show as a factual predicate that lower level employees subjectively believed that the communication was an attorney-client communication. The Upjohn decision applied an objective test. The question is whether corporate management is communicating with in-house counsel and causing lower lever employees to participate in the communications for the primary purpose of getting legal advice. This is an objective inquiry. Of course, if a lower level employee subjectively believed that the primary purpose of the communication was to make a business decision and that in-house counsel are being kept in the loop so that they are knowledgeable about the status of the business decision and that understanding is consistent with the substance of the communication, that would weigh heavily toward a finding that the communication was not privileged.")

Case Date Jurisdiction State Cite Checked
2014-08-08 Federal OH

Chapter: 6.1105
Case Name: Nalco Co., Inc. v. Baker Hughes Inc., Civ. A. No. 4:09-CV-1885, 2017 U.S. Dist. LEXIS 111127 (S.D. Tex. July 18, 2017)
(holding that the attorney-client privilege can protect employee-to-employee communications under certain circumstances; examining the withheld emails in deciding privilege protection; "Communications that reflect counsel's advice to the corporation do not lose their privileged status when shared among corporate employees who share responsibility for the subject matter of the communication.")

Case Date Jurisdiction State Cite Checked
2017-07-18 Federal TX

Chapter: 6.1105
Case Name: United States v. Owensboro Dermatology Assoc., P.S.C., Civ. A. No. 4:16-mc-00003-JHM, Civ. A. No. 4:16-mc-00004-JHM, Civ. A. No. 4:16-mc-00005-JHM, 2017 U.S. Dist. LEXIS 105099 (D. Ky. July 7, 2017)
("[T]he undersigned finds that each document predominantly involves legal advice within the retention of the counsel involved and is properly restricted to persons within the privilege sphere.")

Case Date Jurisdiction State Cite Checked
2017-07-07 Federal KY

Chapter: 6.1105
Case Name: In re Syngenta AG MIR 162 Corn Litig., MDL No. 2591, Case No. 14-md-2591-JWL, 2017 U.S. Dist. LEXIS 44192 (D. Kansas March 24, 2017)
In re Syngenta AG MIR 162 Corn Litig., MDL No. 2591, Case No. 14-md-2591-JWL, 2017 U.S. Dist. LEXIS 44192 (D. Kansas March 24, 2017) (in an opinion by Special Master, finding that a former Monsanto lawyer and business person did not resist discovery after being designated by defendant as a testifying expert; "[W]ith very few exceptions, Monsanto's privilege log lists the recipients of the various documents as simply 'Monsanto Company,' without delineating the individual recipients (or their corresponding professional titles or job positions). By this description, Monsanto has chosen to leave the undersigned in the dark as to whether the documents were shared only with key Monsanto managers needing legal advice, or whether they also were shared widely with lower-level employees. In other words, the undersigned have no way of determining whether the multitudes of persons who were sent particular documents were attorneys or business persons, and with respect to the latter category, whether they had a need to know the contents of those documents.")

Case Date Jurisdiction State Cite Checked
2017-03-24 Federal KS
Comment:

key case


Chapter: 6.1105
Case Name: Margulis v. The Hertz Corporation, Civ. A. No. 14-1209 (JMV), 2017 U.S. Dist. LEXIS 28311 (D.N.J. Feb. 28, 2017)
(holding that a corporate family was not "one" client, but that a United States law firm jointly represented a U.S. company and an overseas affiliate; "This document is not privileged."; "First, the document includes as a carbon copy a Xerox employee, Ms. Weston. Ms. Weston is not an attorney or client in any way relating to Hertz, nor has Defendant established that she is an 'agent' for purposes of expanding the attorney-client privilege."; "Second, the document itself is a training document that is not 'legal' but part of the Hertz 'business.' Thus, any attorney included in the email is acting in a business capacity, not in the capacity of an attorney providing legal advice. Thus, there is no privilege that applies."; "Third, apart from Ms. Weston, there are numerous recipients of the email (direct and cc'd) that Defendant has not established are necessary intermediaries for Hertz's counsel to provide legal advice. Only those employees that 'need to know' are permitted to be included in privileged communications and Defendant has failed to establish that each and every recipient involved 'needed to know' attorney-client privileged communications.")

Case Date Jurisdiction State Cite Checked
2017-02-28 Federal NJ
Comment:

key case


Chapter: 6.1105
Case Name: Scott v. Chipotle Mexican Grill, Inc., 12-CV-08333 (ALC) (SN), 2015 U.S. Dist. LEXIS 40176 (S.D.N.Y. March 27, 2015)
("The content of the messages is clearly related to implementing the advice Chipotle received from Messner Reeves [Law firm], and as a large corporation, Chipotle could not realistically have acted on that advice without communicating it to its own employees. Accordingly, to the extent that it is correct that all recipients were able to act upon or implement the information or advice they received (and given their titles the Court assumes that is the case), the e-mails and the attachments are privileged. To hold otherwise would disable corporations from implementing legal advice, exactly what Upjohn seeks to avoid.")

Case Date Jurisdiction State Cite Checked
2015-03-27 Federal NY
Comment:

key case


Chapter: 6.1105
Case Name: Smith v. Unilife Corp., Civ. A. No. 13-5101, 2015 U.S. Dist. LEXIS 18755 (E.D. Pa. Feb. 13, 2015)
(finding that the attorney-client privilege protected draft 10-K filings, and that the nonlawyer consultants were the functional equivalent of employees; "A trial judge is not in a good position to second-guess a corporate decision to rely on an independent consultant or an employee to accomplish a specific task and/or to make recommendations to the CEO or general counsel. A review of the documents demonstrated that the communications were with counsel and were made for the purpose of assisting the corporation in securing legal advice or making legal decisions.")

Case Date Jurisdiction State Cite Checked
2015-02-13 Federal PA
Comment:

key case


Chapter: 6.1105
Case Name: Garvey v. Hulu, LLC, Case No. 11-cv-03764-LB, 2015 U.S. Dist. LEXIS 7042 (N.D. Cal. Jan. 21, 2015)
(finding that defendant Hulu did not waive its privilege by allowing employees not involved in the pertinent situation access to privileged documents; "Communications within a corporation are often distributed in ways that draw additional rules from the privilege doctrine. The plaintiffs rightly note that a 'need to know' standard generally governs whether the privilege shields communications that are disseminated to corporate employees. E.g., Scholtisek v. Eldre Corp., 441 F. Supp. 2d 459, 463-64 (W.D.N.Y. 2006). The test is straightforward: '[D]id the recipient need to know the content of the communication in order to perform her job effectively or to make informed decisions concerning, or affected by, the subject matter of the communication?' Id. (citing cases). 'Only when the communications are relayed to those who do not need the information to carry out their work or make effective decisions on the part of the company is the privilege lost.'"; "In neither case was the contested information disseminated too widely to maintain confidentiality. The JIRA system is not public. Only Hulu employees may access it. Both tickets, moreover, involved only those employees who were working on the given issues and who, again, sought or discussed the legal advice they needed to effectively address the problems before them. Confidentiality is not destroyed by the possibility that other Hulu employees, not directly participating in the 4328 and 1130 tickets, could have accessed those documents over the JIRA system. James Julian, Inc. v. Raytheon Co., 93 F.R.D. 138, 142 (D. Del. 1982) ('[T]hat some unauthorized personnel may purposely or inadvertently read a privileged document does not render that document nonconfidential.'). Material need not be 'kept under lock and key to remain confidential' for purposes of the attorney-client privilege. See Dish Network, 283 F.R.D. at 425 [United States v. Dish Network, L.L.C., 283 F.R.D. 420, 423 (C.D. Ill. 2012)]. 'The privileged communications were properly limited to employees who reasonably needed the information to perform their duties for the corporation.' Id. The material was kept sufficiently confidential and is privileged.")

Case Date Jurisdiction State Cite Checked
2015-01-21 Federal CA
Comment:

key case


Chapter: 6.1105
Case Name: United States v. Halliburton Co., Case No. 1:05-CV-1276, 2014 U.S. Dist. LEXIS 162680 (D.D.C. Nov. 20, 2014)
("The cornerstone requirement of the attorney-client privilege is intent to keep the communication confidential. That is, '[t]he circumstances must indicate that the communicating persons reasonably believed that the communication would be confidential.' In the corporate context, this requires that internal corporate communications be shared no more widely than necessary to implement the lawyer's advice. Typically, this means that the attorney-client privilege only covers a lawyer's communications with officers and employees with the responsibility for acting on the lawyer's advice. Sharing of otherwise confidential information within a corporation even if the sharing is only with employees can result in loss of the privilege if the sharing goes beyond this 'need-to-know limitation.'"; "Crucially, the litigation hold notices at issue here were sent to large groups such as 'all KBR employees.' Furthermore, follow-up emails encouraged employees to share some of the litigation hold notices with other employees who may not have received or read the first notice. No warning was given that these notices should be disseminated no more widely than necessary. No directive was issued telling employees not to discuss the litigation hold notices outside the company. KBR has thus failed to demonstrate its intent to keep these communications confidential, and the attorneyclient privilege does not apply."; "'The notices did contain a header describing them as 'Privileged & Confidential.' This designation is not, however, controlling. This type of boilerplate labeling, without any more detailed instruction about the scope of the confidentiality, is not a concrete direction to employees to avoid disclosing the substance of the document. Moreover, follow-up emails encouraging employees to share the notice amongst themselves would destroy whatever confidentiality may have existed.'")

Case Date Jurisdiction State Cite Checked
2014-11-20 Federal DC

Chapter: 6.1105
Case Name: Moffatt v. Wazana Bros. Int'l, Civ. A. No. 14-1881, 2014 U.S. Dist. LEXIS 151326 (E.D. Pa. Oct. 24, 2014)
(analyzing intra-corporate communications about an employment discrimination matter; "Courts have consistently held that communications relaying legal advice provided by corporate counsel among nonattorney corporate employees who share responsibility 'for the subject matter underlying the consultation' are privileged.")

Case Date Jurisdiction State Cite Checked
2014-10-24 Federal PA

Chapter: 6.1105
Case Name: Moffatt v. Wazana Bros. Int'l, Civ. A. No. 14-1881, 2014 U.S. Dist. LEXIS 151326 (E.D. Pa. Oct. 24, 2014)
(analyzing intra-corporate communications about an employment discrimination matter; "In this case, just as in In re Grand Jury 90-1, corporate counsel gave legal advice to high ranking members of her corporate client, Wazana Brothers International. Those members proceeded to disclose that legal advice to the company CEO and President. Based on a review of the unredacted email, the Court concludes that the recipients 'needed to know' the content of the communication in order to 'make informed decisions concerning . . . The subject matter of the communication[,]' the termination and severance of plaintiff.")

Case Date Jurisdiction State Cite Checked
2014-10-24 Federal PA

Chapter: 6.1105
Case Name: McAirlaids, Inc. v. Kimberly-Clark Corp., No. 7:12-CV-00578, slip op. at 6, 7 (W.D. Va. May 31, 2013)
("McAirlaids further further argues that even if the redacted statements were privileged, the privilege was waived because the IAS document was disseminated to K-C employees beyond a 'need to know' basis."; "K-C asserts that the IAS document was treated as a confidential and highly sensitive business document, that it was disseminated only within K-C, and that it was shared with a limited number of people with a need to know the information contained in the redacted sections. . . . Specifically, based upon Mr. Rooyakkers current recollection, the IAS document was shared with the Director of Research and Engineering, the Product Technical Leader, a Research and Engineering Specialist, a Patent Strategist and a Research and Engineering Senior Manager. . . . Based upon the declaration of Mr. Rooyakkers, I find that the IAS document was disseminated only to those K-C employees with a 'need to know' the information, and thus that the privilege has not been waived.")

Case Date Jurisdiction State Cite Checked
2013-05-31 Federal VA B 9/13

Chapter: 6.1105
Case Name: Digital Vending Servs. Intl, Inc. v. Univ. of Phoenix, A. No. 2:09cv555, 2013 U.S. Dist. LEXIS 53108, at *25-26, *27, *28, *28-29, *29-30 (E.D. Va. Apr. 22, 2013)
(analyzing the privilege impact of communications to and from General McKnight, who is described as a "member" of plaintiff corporation but not a board member; "This case presents a different question than classic corporate attorney-privilege cases like Upjohn [Upjohn v. United States, 449 U.S. 383 (1981)], Allen [In re Allen, 106 F.3d 582 (4th Cir. 1997)], and Bieter [In re Bieter Co., 16 F.3d 929 (8th Cir. 1994)]. Those cases dealt with communications from the client's agent or former agent to the client's counsel, thereby giving counsel information that is pertinent to prepare the case. In this case, the question is whether the privilege applies when the reverse occurs, where counsel gives information and advice to the client and the client's agent or former agent."; "These cases counsel the Court to ask whether General McKnight had a need to know the information included in counsel's communications with the DVSI Board. The Court finds it appropriate to apply the functional equivalence test in this situation. The test, however, is not whether General McKnight is the functional equivalent of an employee, but of a member of the board of directors."; "Similar to communications between counsel and employees, communications between counsel and current members of a Board of Directors are generally protected. . . . This protection stems from a Board of Director's need to know counsel's advice given that it must make strategic decisions for the company."; "[T]he facts show that General McKnight was a trusted advisor with an on-going role with the Board of Directors. General McKnight had been part of DVSI since its inception and held key knowledge of the enterprise. Although General McKnight resigned from DVSI's Board of Directors sometime before the present litigation commenced, he did so to avoid a conflict of interest and remained involved in DVSI. The email communications reviewed by the Court, appear to support Plaintiff's counsel's representation that General McKnight was a sort of 'ex-officio' member of the Board of Directors. He was included in a number of discussions and strategic decisions regarding this litigation. For example, some of the email communications asked that he be part of strategy conference calls. General McKnight was a person who the Board of Directors frequently called upon for advice."; "The facts demonstrate that General McKnight was the functional equivalent of a member of the Board of Directors. He had a need to know counsel's advice as he was part of the strategic decision making for DVSI.")

Case Date Jurisdiction State Cite Checked
2013-04-22 Federal VA B 3/14

Chapter: 6.1105
Case Name: Hedden v. Kean Univ., 82 A.3d 238, 246 (N.J. Super. Ct. App. Div. 2013)
(analyzing a situation in which a university coach disclosed a privileged draft letter to the NCAA during an investigation; "Contrary to the dissent's view, the fact that another University employee may have been copied on the email does not defeat its confidential nature because as a fellow employee with an interest in the matter, he shared Sharp's [Coach] interest in protecting the University from liability.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State NJ B 5/14

Chapter: 6.1105
Case Name: Lewis v. Capital One Servs., Inc., Civ. A. No. 3:04CV186, 2004 U.S. Dist. LEXIS 26978, at *20-21 (E.D. Va. June 10, 2004)
("Item 15 is an e-mail with a two-page spreadsheet attached. The spreadsheets are marked 'Confidential Not for Distribution Protected by Attorney-Client Privilege.' The spreadsheets outline male/female ratios, transfers, and voluntary attrition in a particular group. Defendant has attached the declaration of Katrina C. Randolph, which shows that Item 15 was created at the direction of the assistant general counsel for the purpose of providing confidential legal advice to a business client about employment issues related to anticipated litigation. The document was intended to be confidential communication between corporate counsel and a business client, and was not distributed to individuals other than those who had a 'need to know' in connection with the data.")

Case Date Jurisdiction State Cite Checked
2004-06-10 Federal VA

Chapter: 6.1106
Case Name: In re Syngenta AG MIR 162 Corn Litig., MDL No. 2591, Case No. 14-md-2591-JWL, 2017 U.S. Dist. LEXIS 44192 (D. Kansas March 24, 2017)
(in an opinion by Special Master, finding that a former Monsanto lawyer and business person did not resist discovery after being designated by defendant as a testifying expert; "[W]ith very few exceptions, Monsanto's privilege log lists the recipients of the various documents as simply 'Monsanto Company,' without delineating the individual recipients (or their corresponding professional titles or job positions). By this description, Monsanto has chosen to leave the undersigned in the dark as to whether the documents were shared only with key Monsanto managers needing legal advice, or whether they also were shared widely with lower-level employees. In other words, the undersigned have no way of determining whether the multitudes of persons who were sent particular documents were attorneys or business persons, and with respect to the latter category, whether they had a need to know the contents of those documents.")

Case Date Jurisdiction State Cite Checked
2017-03-24 Federal KS
Comment:

key case


Chapter: 6.1106
Case Name: Margulis v. The Hertz Corporation, Civ. A. No. 14-1209 (JMV), 2017 U.S. Dist. LEXIS 28311 (D.N.J. Feb. 28, 2017)
(holding that a corporate family was not "one" client, but that a United States law firm jointly represented a U.S. company and an overseas affiliate; "It is clear that there is no privilege if the communication includes lower-level employees that are not vital to the provision of legal advice. . . . the privilege protects communications with those that must be consulted in order for a lawyer to provide legal advice -- i.e., those that 'need to know' or have information necessary to assist the lawyer in providing legal advice.")

Case Date Jurisdiction State Cite Checked
2017-02-28 Federal NJ
Comment:

key case


Chapter: 6.1106
Case Name: Margulis v. The Hertz Corporation, Civ. A. No. 14-1209 (JMV), 2017 U.S. Dist. LEXIS 28311 (D.N.J. Feb. 28, 2017)
(holding that a corporate family was not "one" client, but that a United States law firm jointly represented a U.S. company and an overseas affiliate; "This document is not privileged."; "First, the document includes as a carbon copy a Xerox employee, Ms. Weston. Ms. Weston is not an attorney or client in any way relating to Hertz, nor has Defendant established that she is an 'agent' for purposes of expanding the attorney-client privilege."; "Second, the document itself is a training document that is not 'legal' but part of the Hertz 'business.' Thus, any attorney included in the email is acting in a business capacity, not in the capacity of an attorney providing legal advice. Thus, there is no privilege that applies."; "Third, apart from Ms. Weston, there are numerous recipients of the email (direct and cc'd) that Defendant has not established are necessary intermediaries for Hertz's counsel to provide legal advice. Only those employees that 'need to know' are permitted to be included in privileged communications and Defendant has failed to establish that each and every recipient involved 'needed to know' attorney-client privileged communications.")

Case Date Jurisdiction State Cite Checked
2017-02-28 Federal NJ
Comment:

key case


Chapter: 6.1106
Case Name: Peerless Indemnity Ins. Co. v. Sushi Avenue, Inc., Civ. No. 15-4112 ADM/LIB, 2017 U.S. Dist. LEXIS 22436 (D. Minn. Feb. 15, 2017)
("Peerless thus recognized that in establishing privilege, it had the burden to convince Judge Brisbois that the communications at issue were not disseminated beyond those persons who needed to know their contents. Peerless did not explain the corporate role of any individuals other than the four identified for purposes of the second element, electing instead to broadly assert the conclusion that the communications were not shared beyond those who needed to know their contents."; "In viewing the disputed communications in camera, Judge Brisbois discovered that many of the communications were copied to individuals whose identity and role Peerless did not explain.")

Case Date Jurisdiction State Cite Checked
2017-02-15 Federal MN
Comment:

key case


Chapter: 6.1106
Case Name: In Peerless Indemnity Insurance Co. v. Sushi Avenue, Inc., Civ. No. 15-4112 ADM/LIB, 2017 U.S. Dist. LEXIS 22436, at *10 (D. Minn. Feb. 15, 2017)
April 12, 2017 (PRIVILEGE POINT)

"Illogical and Frightening 'Need to Know' Doctrine'"

Corporations face two possible impediments when claiming privilege protection for purely internal communications. First, some courts see widespread intra-corporate circulation as tending to show that the communications primarily dealt with business rather than legal matters. This approach makes some sense, although a few courts take it to an unjustifiable extreme – applying a per se rule that the privilege cannot protect communications an employee sends both to a lawyer and to a non-lawyer requesting their input.

Second, the more frightening doctrine involves the "need to know" standard. In Peerless Indemnity Insurance Co. v. Sushi Avenue, Inc., the court rejected plaintiff’s privilege claim for several internal documents – because it had not established with evidence that the documents "were not disseminated beyond those persons who needed to know their contents." Civ. No. 15-4112 ADM/LIB, 2017 U.S. Dist. LEXIS 22436, at *10 (D. Minn. Feb. 15, 2017).

Many courts follow this troubling waiver approach – which can force corporations to turn over to litigation adversaries purely internal communications simply because they were shared with a few employees who did not need them. Because this doctrine focuses mostly on lawyers' communication to their corporate clients' employees, we have the primary responsibility to limit internal circulation and re-circulation of our advice.

Case Date Jurisdiction State Cite Checked
2017-02-15 Federal MN
Comment:

key case


Chapter: 6.1106
Case Name: Smith v. Unilife Corp., Civ. A. No. 13-5101, 2015 U.S. Dist. LEXIS 18755 (E.D. Pa. Feb. 13, 2015)
(finding that the attorney-client privilege protected draft 10-K filings, and that the nonlawyer consultants were the functional equivalent of employees; "A trial judge is not in a good position to second-guess a corporate decision to rely on an independent consultant or an employee to accomplish a specific task and/or to make recommendations to the CEO or general counsel. A review of the documents demonstrated that the communications were with counsel and were made for the purpose of assisting the corporation in securing legal advice or making legal decisions.")

Case Date Jurisdiction State Cite Checked
2015-02-13 Federal PA
Comment:

key case


Chapter: 6.1106
Case Name: Digital Vending Servs. Intl, Inc. v. Univ. of Phoenix, A. No. 2:09cv555, 2013 U.S. Dist. LEXIS 53108, at *25-26, *27, *28, *28-29, *29-30 (E.D. Va. Apr. 22, 2013)
(analyzing the privilege impact of communications to and from General McKnight, who is described as a "member" of plaintiff corporation but not a board member; "This case presents a different question than classic corporate attorney-privilege cases like Upjohn [Upjohn v. United States, 449 U.S. 383 (1981)], Allen [In re Allen, 106 F.3d 582 (4th Cir. 1997)], and Bieter [In re Bieter Co., 16 F.3d 929 (8th Cir. 1994)]. Those cases dealt with communications from the client's agent or former agent to the client's counsel, thereby giving counsel information that is pertinent to prepare the case. In this case, the question is whether the privilege applies when the reverse occurs, where counsel gives information and advice to the client and the client's agent or former agent."; "These cases counsel the Court to ask whether General McKnight had a need to know the information included in counsel's communications with the DVSI Board. The Court finds it appropriate to apply the functional equivalence test in this situation. The test, however, is not whether General McKnight is the functional equivalent of an employee, but of a member of the board of directors."; "Similar to communications between counsel and employees, communications between counsel and current members of a Board of Directors are generally protected. . . . This protection stems from a Board of Director's need to know counsel's advice given that it must make strategic decisions for the company."; "[T]he facts show that General McKnight was a trusted advisor with an on-going role with the Board of Directors. General McKnight had been part of DVSI since its inception and held key knowledge of the enterprise. Although General McKnight resigned from DVSI's Board of Directors sometime before the present litigation commenced, he did so to avoid a conflict of interest and remained involved in DVSI. The email communications reviewed by the Court, appear to support Plaintiff's counsel's representation that General McKnight was a sort of 'ex-officio' member of the Board of Directors. He was included in a number of discussions and strategic decisions regarding this litigation. For example, some of the email communications asked that he be part of strategy conference calls. General McKnight was a person who the Board of Directors frequently called upon for advice."; "The facts demonstrate that General McKnight was the functional equivalent of a member of the Board of Directors. He had a need to know counsel's advice as he was part of the strategic decision making for DVSI.")

Case Date Jurisdiction State Cite Checked
2013-04-22 Federal VA B 3/14

Chapter: 6.1106
Case Name: ePlus, Inc. v. Lawson Software, Inc., 280 F.R.D. 247, 252-53, 253 & n.2 (E.D. Va. 2012)
("Third, 290 entries concern communications to ten or more non attorneys. Lawson does not deny this, but claims that it was required to widely disseminate information because of the injunction, which applied to a broad group of people. Communications within a corporation are only protected if the party claiming privilege can demonstrate that the persons to whom the communications were made had the 'need to know' the information communicated. Deel v. Bank of America, N.A., 227 F.R.D. 456, 460 (W.D. Va. 2005)."; "Here, Lawson has not argued that the individuals listed in any of the 290 entries had a need to know as defined by Deel or that they should enjoy the protection provided by Upjohn. It has not even established that the listed individuals are employees or that they needed to know the information communicated. Nor has Lawson asserted that the communications were made at the direction of supervisors. Quite simply, Lawson has not satisfied its burden to establish that a privilege applies. Thus, it has waived the privilege with respect to these entries."; "This is true also of the 39 entries in which Lawson identifies the recipient as an unidentified distribution list. Whether the persons on those lists have a 'need to know' the information communicated and whether those persons are employees who knew they were being communicated with by Lawson's counsel in its capacity as legal counsel is unclear. Lawson has waived its privilege with respect to these entries.")

Case Date Jurisdiction State Cite Checked
2012-01-01 Federal VA

Chapter: 6.1106
Case Name: Jonathan Corp. v. Prime Computer, Inc., 114 F.R.D. 693, 696 n.6, 698-99 (E.D. Va. 1987)
(a company's employee's sharing of a privileged document with another company was claimed by an adversary to have waived the privilege; the company argued that its employee was not an officer or director and therefore "did not have the power or authority to waive the corporation's attorney-client privilege;" the company also pointed to an agreement in which the employee promised not to waive the privilege; finding a waiver; citing the expansive attorney-client view of Upjohn Co. v. United States, 449 U.S. 383 (1981); holding that "[l]ogically, a corporation cannot enjoy the benefits of an expanded attorney-client privilege without likewise accepting the consequences that the privilege may well be waived by an employee who is outside of the 'control group.' Such is the case at bar;" rejecting the argument based on the anti-disclosure agreement and explaining "a corporation simply cannot use a blanket Disclosure Agreement to shield it from the consequences of its employees' actions with third parties, where the corporation places the employee in the position to make the disclosure and provides the employee with the information to disclose within the scope of his employment. The corporation must be held responsible for the actions of its agent in this context."; noting that, because of the "failure to indicate on the face of the memorandum that the document was confidential or contained attorney-client privileged information, coupled with the fact that the memorandum was distributed to six (6) employees, this court has serious doubts as to whether [the party] has met its burden of demonstrating that the document was intended to be confidential.")

Case Date Jurisdiction State Cite Checked
1987-01-01 Federal VA

Chapter: 6.1202
Case Name: Pallies v. The Boeing Company, Case No. C16-01437RSL, 2017 U.S. Dist. LEXIS 144431 (W.D. Wash. Sept. 6, 2017)
(holding that the attorney-client privilege applied to a pre-deposition meeting among defendant's lawyer and several former defendant employees; holding that defendant Boeing's lawyer represented all of the former employee; "As a former Boeing employee, Glenda Hubbard is entitled to the attorney-client privilege with the corporation's counsel so long as she gave information that is relevant to the case.")

Case Date Jurisdiction State Cite Checked
2017-09-06 Federal WA

Chapter: 6.1202
Case Name: Hobart Corporation v. The Dayton Power & Light Co., Case No. 3:13-cv-115, 2017 U.S. Dist. LEXIS 136682 (S.D. Ohio Aug. 24, 2017)
("Larry Strayer was a paralegal in NCR's Legal Department. At the request of NCR's legal counsel, he interviewed four then-current NCR employees and two retired NCR employees concerning NCR's waste disposal at the Cardington Road Landfill in the 1950s and 1960s. After those interviews, he drafted two confidential memos to the file. One is dated August 15, 1989; the other is dated August 18, 1989. There are also certain maps attached to the August 18, 1989, memo, on which the interviewees marked the locations of the dumping sites they discussed in their interviews."; "Based on the holding in Upjohn, the Court finds that NCR's interview summaries are protected in their entirety by the attorney-client privilege and the work product doctrine. To the extent that the summaries record communications between the NCR employees and Strayer, made in confidence at the direction of corporate counsel in order to secure legal advice, the responses to Strayer's questions are protected from disclosure by the attorney-client privilege, regardless of Defendants' need for this information."; "In addition, to the extent that the interview summaries also contain Strayer's mental impressions, opinions and conclusions concerning the responses to his questions, these statements are protected as core work product and 'cannot be disclosed simply on a showing of substantial need and inability to obtain the equivalent without undue hardship.'. . . This is true even though the summaries were prepared in anticipation of different litigation involving the Cardington Road Landfill.")

Case Date Jurisdiction State Cite Checked
2017-08-24 Federal OH

Chapter: 6.1202
Case Name: Hobart Corporation v. The Dayton Power & Light Co., Case No. 3:13-cv-115, 2017 U.S. Dist. LEXIS 136682 (S.D. Ohio Aug. 24, 2017)
("Given that Lowe [former NCR employee] and Trimbach [former NCR employee] are both now deceased, Defendants argue that they have a substantial need for the factual information contained in the interview summaries."; "Citing Upjohn, Plaintiffs again argue that these memoranda are protected in their entirety by the attorney-client privilege, regardless of need. In the alternative, they argue that portions of the memoranda are core work product and are protected because they contain the attorneys' mental impressions. For the reasons cited above, the Court agrees."; "To the extent that these interview summaries reflect responses of former NCR employees to the attorneys' interview questions, and the communications were made for the purpose of securing legal advice, they are protected by the attorney-client privilege. In addition, to the extent that the interview summaries also contain the attorney's mental impressions of the interviewees' statements, they are protected as core work product. Accordingly, Plaintiffs need not produce these documents.")

Case Date Jurisdiction State Cite Checked
2017-08-24 Federal OH

Chapter: 6.1202
Case Name: MacFarlane v. Fivespice LLC, No. 3:16-cv-01721-HZ, 2017 U.S. Dist. LEXIS 68184 (D. Ore. May 4, 2017)
(holding that the privilege protected communications between defendant café's lawyer and a former employee, even though the former employee might have been adverse to the former employer café, and even though they met at the café; "Virgen [Former executive chef] had information critical to Defendant's case regarding Plaintiff's complaints and employment. In particular, he received Plaintiff's complaints regarding Ayala's alleged harassment and he was present when Plaintiff's employment was terminated. That information is highly pertinent to any defense regarding Plaintiff's employment discrimination claims based on sexual harassment and retaliation. Further, Virgen's communications concerned the scope of his former employment as Defendant's executive chef."; "Plaintiff also argues that there was animosity between Virgen and Fivespice management which precipitated his resignation. Specifically, Plaintiff asserts that the real reason Virgen left his employment with Defendant was because management had been critical of his performance and instituted a verbal plan for improvement. Because Virgen's interests were adverse to Defendant's interests, Plaintiff claims that the attorney-client privilege was inapplicable to his post-employment conversations with Defendant's attorney. At his deposition, however, Virgen testified that he left Defendant's employ for a more attractive opportunity and that he had no hard feelings towards management. In any event, whether or not Virgen's interests were adverse to Defendant's plays no role in the attorney-client privilege determination here. Plaintiff provides no legal support for the proposition that adverse interests would render the communications at issue non-privileged. Such a requirement is absent from the attorney-client privilege analysis as announced in Upjohn and Admiral [Admiral Ins. Co. v. U.S. Dist. Court for Dist. of Arizona, 881 F.2d 1486, 1492 (9th Cir. 1989)]. Accordingly, the Court rejects this argument as well.")

Case Date Jurisdiction State Cite Checked
2017-05-04 Federal OR
Comment:

key case


Chapter: 6.1202
Case Name: Newman v. Highland School Dist. No. 203, No. 90194-5, 2016 Wash. LEXIS 1135 (Wash. Oct. 20, 2016)
(in a 4-3 vote, holding that former high school coaches were not within the attorney-client privilege protection; explaining that the trial court had earlier held that the high school's lawyer could not also represent the former coaches as clients; dissenting judge explained as follows: "I disagree with the majority's decision to adopt a bright-line rule that will cut off the corporate attorney-client privilege at the termination of employment, and will exclude from its scope all postemployment communications with former employees, even when those employees have relevant personal knowledge regarding the subject matter of the legal inquiry and even though had they remained employed, such communications with counsel would have been privileged under Upjohn. This temporal limitation is at odds with the functional analysis underlying the decision in Upjohn and ignores the important purposes and goals that the attorney-client privilege serves."; "Instead, I would conclude the scope of the attorney-client privilege and the decision as to whether to extend its protections to former employees is based on the flexible approach articulated in Upjohn. Under this flexible analysis, I would hold that postemployment communications consisting of a factual inquiry into the former employee's conduct and knowledge during his or her employment, made in furtherance of the corporation's legal services, are privileged."; "The majority in this case now eschews Upjohn 's functional analysis for a bright-line rule, cutting off the privilege at the termination of employment. . . . The majority argues that Upjohn supports this bright-line rule because the Court presupposed that the communications occurred within the corporate employee relationship. . . . Nothing in the Upjohn decision supports the majority's bald assertion that the decision 'presupposed attorney-client communications taking place within the corporate employment relationship' before the privilege would attach. . . . In fact, 7 of the 86 employees interviewed by corporate counsel in Upjohn had left employment prior to being interviewed. . . . The Court expressly declined to decide the issue whether former employees were included in the privilege, instead providing the functional framework for lower courts to utilize in answering that precise question."; "Moreover, the majority's focus on the formalities of the relationship between the employee and the corporation as the standard for the attorney-client privilege misses the point of the Upjohn Court's functional framework."; "Former employees, just like current employees, may possess relevant information pertaining to events occurring during their employment 'needed by corporate counsel to advise the client with respect to actual or potential difficulties.'. . . Relevant knowledge obtained by an employee during his or her period of employment does not lose relevance simply because employment has ended. When former employees have relevant knowledge about incidents that occurred while they were employed, the extension of the attorney-client privilege to cover postemployment communications may further support the privilege's fact-finding purpose."; "But the majority overlooks that this stated purpose -- facilitating the flow of relevant and necessary information from lower-level employees to counsel -- was a key function of the privilege identified by the Court in Upjohn and a critical reason that Court extended the privilege to lower-level employees in the first place."; "I acknowledge that Upjohn's policies and purposes do not require us to consider former employees exactly as we consider current employees."; "I am persuaded that the appropriate line is expressed in this simple test: Did the communications with the former employee, whenever they occurred, 'relate to the former employee's conduct and knowledge, or communication with defendant's counsel, during his or her employment?'. . . If so, the communications are privileged, consistent with Upjohn. . . . The Peralta court that adopted this test noted it was rejecting a wholesale application of the specific factors identified in Upjohn because former employees, unlike current employees, were not directed to speak with corporate counsel at the direction of management. . . . But the court relied on the rationale of Upjohn, which is to say the court looked to the purpose of the attorney-client privilege and whether that privilege was served by applying it to postemployment communications with a former employee -- it held that the privilege applied to the extent the communications concerned the underlying facts in the case."; "The distinction I would draw today should not be difficult for the parties to apply if the relevant purpose of the privilege--promoting necessary factual investigation -- is kept clear. . . . It will be incumbent on counsel to exercise caution when communicating with their client's former employees in order to ensure communications stay within these parameters. Should disputes arise as to whether a specific communication is privileged, they should be submitted to the trial court for a determination as to whether the purposes identified today would be furthered by its application.")

Case Date Jurisdiction State Cite Checked
2016-10-20 Federal WA

Chapter: 6.1202
Case Name: Newman v. Highland Sch. Dist., No. 90194-5, 2016 Wash. LEXIS 1135 (Wash. Oct. 20, 2016)
December 7, 2016 (PRIVILEGE POINT)

"Court Nixes Privilege Protection for Former Employee Interviews – Is This a Big Deal?: Part I"

In a 4-3 vote, the Washington Supreme Court held that an institution's lawyers' communications with former employees did not deserve privilege protection. Newman v. Highland Sch. Dist., No. 90194-5, 2016 Wash. LEXIS 1135 (Wash. Oct. 20, 2016). This decision places Washington in a distinct minority position – but is it a big deal?

The Newman majority emphasized the predictability of a per se rule that "the privilege does not broadly shield counsel's postemployment communications with former employees." Id. at *3. A strong dissent relied on the Supreme Court's seminal decision in Upjohn Co. v. United States, 449 U.S. 383 (1981). As the dissent correctly explained, Upjohn rejected the earlier "control group" standard for corporate privilege protection – which looked at the employee's place in the corporate hierarchy. Instead, Upjohnfocused on the employees' factual knowledge that the corporation's lawyer needs before advising his corporate client. Upjohn did not explicitly extend privilege protection to former employees with such knowledge, but the Newman dissent noted that those Upjohn employee interviews held to be within privilege protection included seven former employees.

Nearly every court since Upjohn has adopted that decision's focus on employees' knowledge rather than their place in the corporate hierarchy — and extended privilege protection to former employees. See, e.g., Indergit v. Rite Aid Corp., No. 08 Civ. 9361 (JPO)(HBP), 2016 U.S. Dist. 150565, at *11 (S.D.N.Y. Oct. 31, 2016) (holding that a Rite Aid lawyer's conversation with former employees "concerning their conduct and duties while employed by Rite Aid would also be within the attorney-client privilege"). Newmanhas sparked many articles sounding the alarm about this erosion of corporate privilege protection. But is it a big deal? The next two Privilege Points will answer that question.

Case Date Jurisdiction State Cite Checked
2016-10-20 Federal WA
Comment:

key case


Chapter: 6.1202
Case Name: Newman v. Highland School Dist. No. 203, No. 90194-5, 2016 Wash. LEXIS 1135 (Wash. Oct. 20, 2016)
(in a 4-3 vote, holding that former high school coaches were not within the attorney-client privilege protection; explaining that the trial court had earlier held that the high school's lawyer could not also represent the former coaches as clients; "At issue is whether postemployment communications between former employees and corporate counsel should be treated the same as communications with current employees for purposes of applying the corporate attorney-client privilege. Although we follow a flexible approach to application of the attorney-client privilege in the corporate context, we hold that the privilege does not broadly shield counsel's postemployment communications with former employees."; "Highland argues the flexible approach to protecting privileged communications recognized in Upjohn supports extending the privilege to postemployment communications with former employees. . . . We disagree. Because we conclude Upjohn does not justify applying the attorney-client privilege outside the employer-employee relationship, the trial court properly denied Highland a protective order to shield from discovery communications with former coaches who are otherwise fact witnesses in this litigation."; "[E]verything changes when employment ends. When the employer-employee relationship terminates, this generally terminates the agency relationship. As a result, the former employee can no longer bind the corporation and no longer owes duties of loyalty, obedience, and confidentiality to the corporation. . . . Without an ongoing obligation between the former employee and employer that gives rise to a principal-agent relationship, a former employee is no different from other third-party fact witnesses to a lawsuit, who may be freely interviewed by either party."; "Refusing to extend the corporate attorney-client privilege articulated in Upjohn beyond the employer-employee relationship preserves a predictable legal framework."; "All agree that it cannot extend forever and that it cannot encompass every communication between corporate counsel and former employees. But it is difficult to find any principled line of demarcation that extends beyond the end of the employment relationship. We conclude that the interests served by the privilege are sufficiently protected by recognizing that communications between corporate counsel and employees during the period of employment continue to be privileged after the agency relationship ends.")

Case Date Jurisdiction State Cite Checked
2016-10-20 Federal WA

Chapter: 6.1202
Case Name: In re General Motors LLC Ignition Switch Litig., 14-MD-2543 (JMF), 2015 U.S. Dist. LEXIS 5199 (S.D.N.Y. Jan. 15, 2015)
(finding that the attorney-client privilege and the work product doctrine protected notes and memoranda relating to the witness interviews conducted by the Jenner lawyers during the firm's investigation into General Motors ignition switch incidents; explaining the background; finding that the privilege protected communications with former GM employees; "[D]istrict courts in this Circuit have consistently held that the privilege also extends to 'conversations between corporate counsel and former employees of the corporation, so long as the discussion related to the former employee's conduct and knowledge gained during employment.'")

Case Date Jurisdiction State Cite Checked
2015-01-15 Federal NY
Comment:

key case


Chapter: 6.1202
Case Name: In Winthrop Resources Corp. v. CommScope, Inc., Civ. A. No. 5:11-CV-172, 2014 U.S. Dist. LEXIS 158413 (W.D.N.C. Nov. 7, 2014)
December 31, 2014 (PRIVILEGE POINT)

“Court Applies the Peralta Standard for Company Lawyers' Communications with Former Employees”

Although the attorney-client privilege generally protects company lawyers' communications with former company employees, most courts follow the nuanced approach of Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999). Under that standard, the privilege can protect communications relating to the former employee's time at the company, but not since then.

In Winthrop Resources Corp. v. CommScope, Inc., Civ. A. No. 5:11-CV-172, 2014 U.S. Dist. LEXIS 158413 (W.D.N.C. Nov. 7, 2014), the court addressed plaintiff's effort to compel deposition answers from defendant's former vice president and CIO Kap Kim. Applying the Peralta standard, the court upheld the magistrate judge's ruling that Kim must answer the following questions (among others): (1) "whether [defendant's] attorney Jeff Mayer had told, or if Kim had asked, Mayer's 'personal view on whether [plaintiff] Winthrop or [defendant] CommScope is correct in their interpretation of the lease language in the case,'" id. at *12 (internal citation omitted); (2) "whether Kim had asked any lawyer to determine whether CommScope's or Winthrop's interpretation of the lease was correct," id.; and (3) "the substance of conversations that occurred during a deposition break" — which the court held were "questions that directly relate[d] to deposition preparation" and thus "are squarely covered by the holding in Peralta." Id. at *10-11. Defendant also claimed work product protection for those communications, but the court held that the defendant waived that argument by not presenting it to the magistrate judge.

Company lawyers dealing with former employees should remember the Peralta standard's limitations. They should also weigh both work product and privilege protection possibilities, considering that in the former employee context, the work product doctrine may provide more promising protection than the attorney-client privilege.

Case Date Jurisdiction State Cite Checked
2014-11-07 Federal NC
Comment:

key case


Chapter: 6.1202
Case Name: Winthrop Resources Corp. v. CommScope, Inc., Civ. A. No. 5:11-CV-172, 2014 U.S. Dist. LEXIS 158413 (W.D.N.C. Nov. 7, 2014)
(applying the Peralta standard, and upholding a magistrate judge's order that a former employee must answer deposition questions; "The final two questions ask whether attorney Jeff Mayer [company lawyer] had told, or if Kim [company's former vice president and CIO] had asked, Mayer's 'personal view on whether Winthrop or Commscope is correct in their interpretation of the lease language in the case.'. . . Mayer's personal view on the litigation is outside the scope of Kim's personal knowledge or his scope of employment with Commscope. Gaining insight into Mayer's view would have a tendency to influence Kim's testimony. Therefore, the Court holds that this matter is not protected by the privilege.")

Case Date Jurisdiction State Cite Checked
2014-11-07 Federal NC

Chapter: 6.1202
Case Name: Winthrop Resources Corp. v. CommScope, Inc., Civ. A. No. 5:11-CV-172, 2014 U.S. Dist. LEXIS 158413 (W.D.N.C. Nov. 7, 2014)
(applying the Peralta standard, and upholding a magistrate judge's order that a former employee must answer deposition questions; "A series of questions ask whether Kim [company's former vice president and CIO] had asked any lawyer to determine whether CommScope's or Winthrop's interpretation of the lease was correct. . . . Of course, if this occurred during Kim's employment with Commscope it would be subject to the privilege. However, if it did not it would not be subject to the privilege and would tend to influence Kim's testimony. Therefore, the Court holds that the Magistrate's finding was not clearly erroneous.")

Case Date Jurisdiction State Cite Checked
2014-11-07 Federal NC

Chapter: 6.1202
Case Name: Winthrop Resources Corp. v. CommScope, Inc., Civ. A. No. 5:11-CV-172, 2014 U.S. Dist. LEXIS 158413 (W.D.N.C. Nov. 7, 2014)
("The Court has not found a North Carolina case analyzing whether the attorney-client privilege applies to former employees. The Wuchenich [Wuchenich v. Shenandoah Mem'l Hosp., No. CIV. A. 598CV00041, 2000 WL 1769577, at *2 (W.D. Va. Nov. 2, 2000)] case is instructive on this point. In that case, there appeared to be no Virginia case law addressing the matter so the court turned to federal law. Id., 2000 WL 1769577 at *2. This Court, therefore, turns to the federal law of privilege for guidance.")

Case Date Jurisdiction State Cite Checked
2014-11-07 Federal NC

Chapter: 6.1202
Case Name: Winthrop Resources Corp. v. CommScope, Inc., Civ. A. No. 5:11-CV-172, 2014 U.S. Dist. LEXIS 158413 (W.D.N.C. Nov. 7, 2014)
(applying the Peralta standard, and upholding a magistrate judge's order that a former employee must answer deposition questions; "[T]here are questions that directly relate to deposition preparation. . . . In others, counsel for Winthrop ask about the substance of conversations that occurred during a deposition break. . . . These are squarely covered by the holding in Peralta. Therefore, the Magistrate's finding is not clearly erroneous.")

Case Date Jurisdiction State Cite Checked
2014-11-07 Federal NC

Chapter: 6.1202
Case Name: Winthrop Resources Corp. v. CommScope, Inc., Civ. A. No. 5:11-CV-172, 2014 U.S. Dist. LEXIS 158413 (W.D.N.C. Nov. 7, 2014)
(applying the Peralta standard, and upholding a magistrate judge's order that a former employee must answer deposition questions; "One question seeks the substance of conversation with counsel that occurred during employment. . . . This is clearly subject to the privilege under Peralta [Peralta v. Cendant Corp., 190 F.R.D. 38, 40-42 (D. Conn. 1999)] and In re Allen [In re Allen, 106 F.3d 582, 605-06 (4th Cir. 1997)].")

Case Date Jurisdiction State Cite Checked
2014-11-07 Federal NC

Chapter: 6.1202
Case Name: Goswami v. Depaul University, No. 12 C 7167, 2014 U.S. Dist. LEXIS 44249 (N.D. Ill. March 31, 2014)
(finding that a former employee was inside privilege protection; "The Seventh Circuit has not addressed this question, saying only that '[a]n argument could be made that the attorney-client privilege does not protect statements made in conversations with former employees,' while at the same time conceding that 'every circuit to address this question has concluded that the distinction between present and former employees is irrelevant for purposes of the attorney-client privilege.'"; "If it did not, the entity's attorney client privilege could be destroyed by nothing more than the career movements of employees. More so than in the past, careers are transient, and employees move from employer to employer. In this case, Dr. Krell simply retired. Under plaintiff's view, his communications with DePaul's counsel were privileged one day and not privileged the next.")

Case Date Jurisdiction State Cite Checked
2014-03-31 Federal IL

Chapter: 6.1202
Case Name: Melchior v. Hilite Int'l, Inc., Case No. 13-50177, 2013 U.S. Dist. LEXIS 71393, at *5 (E.D. Mich. May 21, 2013)
("While employed at BorgWarner [third party], Butterfield was intimately involved with the technical investigation of the Hilite products and communicated/worked closely with BorgWarner's in-house attorney, Michael Tucker. Working with Tucker, Butterfield helped to develop a legal strategy to protect BorgWarner's interests. In the circumstances of this case, Butterfield's communications with Tucker, after Butterfield retired, are protected by the attorney-client privilege."; "That Butterfield is a former rather than a current employee makes no difference.")

Case Date Jurisdiction State Cite Checked
2013-05-21 Federal MI B 3/14

Chapter: 6.1202
Case Name: Digital Vending Servs. Intl, Inc. v. Univ. of Phoenix, A. No. 2:09cv555, 2013 U.S. Dist. LEXIS 53108, at *21-22 (E.D. Va. Apr. 22, 2013)
("In its decision in In re Allen, 106 F.3d 582 (1997), the Fourth Circuit held 'that the analysis applied by the Supreme Court in Upjohn to determine which employees fall within the scope of the privilege applies equally to former employees.'")

Case Date Jurisdiction State Cite Checked
2013-04-22 Federal VA B 3/14
Comment:

key case


Chapter: 6.1202
Case Name: DCG Sys., Inc. v. Checkpoint Techs., LLC, Case No. C 11 03792 PSG, 2012 U.S. Dist. LEXIS 149707, at *3-4 (N.D. Cal. Oct. 17, 2012)
(analyzing a plaintiff's insistence that a defendant company's interrogatory answers include information from former employees; noting that the company asserted that the former employees' communications with outside lawyers hired by the company to represent the former employees in deposition were privileged and therefore did not have to be included in the interrogatory answers; "'In situations such as this where a former employee is represented by counsel for a defendant corporation for the purpose of testifying at a deposition at no cost to him, courts have not treated the former employee as having an independent right to the privilege, even where that employee believes that he is being represented by that counsel.' [quoting Gary Friedrich Enters., LLC v. Marvel Enters., Inc., No. 08 Civ. 1533 (BSJ)(JCF), 2011 U.S. Dist. LEXIS 54154, at *11-12 (S.D.N.Y. May 20, 2011)] To the extent that counsel's communications with a former employee are protected by the attorney-client privilege, the privilege thus belongs to the corporation.")

Case Date Jurisdiction State Cite Checked
2012-10-17 Federal CA B 12/13

Chapter: 6.1202
Case Name: Collins v. Braden, 384 S.W.3d 154, 162 (Ky. 2012)
("[A] statement made by a former employee after the employment relationship has ceased is not covered because the statement is not made in the course or scope of employment as required by KRE 503(a)(2)(B)(i).")

Case Date Jurisdiction State Cite Checked
2012-01-01 State KY B 1/14

Chapter: 6.1202
Case Name: Gioe v. AT&T Inc., No. CV 09-4545(LDW)(AKT) 2010 U.S. Dist. LEXIS 99066, at *6-7 (E.D.N.Y. Sept. 20, 2010)
("In light of the applicable case law, the Court finds that any communication between counsel and Mr. Done, occurring after Mr. Done's employment at AT&T, that goes beyond Mr. Done's knowledge of the circumstances of plaintiff's employment and termination, and beyond Mr. Done's activities within the course of her employment with AT&T, is not protected by the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2010-09-20 Federal NY

Chapter: 6.1202
Case Name: Wade Williams Distribution, Inc. v. Am. Broad. Companies, Inc., No. 00-5002, 2004 U.S. Dist. LEXIS 12152 (S.D.N.Y. June 30, 2004)
("Here, . . . , Mr. Siegel [corporations' lawyer] asserts his representation of the witness [former employee] as well as of the defendant [company]. That assertion -- even supported, as it is, by the witness' understanding that he is being represented by Mr. Siegel -- should, in this Court's view, make no difference to the application of Peralta [Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999)]. The mere volunteered representation by corporate counsel of a former employee should not be allowed to shield information which there is no independent basis for including within the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2004-06-30 Federal NY

Chapter: 6.1202
Case Name: Infosystems, Inc. v. Ceridian Corp., Case No. 00-71147, 2000 U.S. Dist. LEXIS 17071 (E.D. Mich. Nov. 17, 2000)
(holding that the attorney-client privilege protected communications with a former corporate employee, but holding that the company had not proven that the communications were similar to those with a current employee, and had not offered the materials to the court for an in camera review; "The Court concurs in this reasoning, and concludes that counsel's communications with a former employee of the client corporation generally should be treated no differently from communications with any other third-party witness. Admittedly, there are exceptions to this general rule. As noted earlier, privileged communications which occur during the period of employment do not lose their protection when the employee leaves the client corporation. . . . Moreover, there may be situations where the former employee retains a present connection or agency relationship with the client corporation, or where the present-day communication concerns a confidential matter that was uniquely within the knowledge of the former employee when he worked for the client corporation, such that counsel's communications with this former employee must be cloaked with the privilege in order for meaningful fact-gathering to occur."; "As the party seeking to invoke the attorney/client privilege, it is Sarla's burden to show that its counsel's communications with Raghvandaran differed in some relevant way from counsel's communications with any other third-party witness. . . . Sarla has not made such a showing, and has not submitted the subpoenaed materials at issue for an in camera review. Instead, Sarla rests its claim of privilege on the broad assertion that counsel's recent communications with Raghvandaran in advance of his deposition concerned 'the witness's conduct and knowledge during his employment with Sarla.' While Peralta [Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999)] appears to suggest that this claim alone is sufficient to invoke the attorney/client privilege, this Court declines to grant such sweeping protection to all attorney communications with former employees of the client corporation. Rather, the Court finds that Sarla has failed to satisfy its burden of establishing that the materials called for in the subpoena contain privileged attorney/client communications.")

Case Date Jurisdiction State Cite Checked
2000-11-17 Federal MI

Chapter: 6.1202
Case Name: Peralta v Cendant, 190 F.R.D. 38 (D. Conn. 1999)
December 14, 2016 (PRIVILEGE POINT)

"Court Nixes Privilege Protection for Former Employee Interviews – Is This a Big Deal?: Part II"

Last week's Privilege Point described the Washington Supreme Court's 4-3 rejection of privilege protection for communications with former corporate employees.Newman v. Highland Sch. Dist., No. 90194-5, 2016 Wash. LEXIS 1135 (Wash. Oct. 20, 2016). Although the decision seems to ignore the widely accepted Upjohn analysis, is it a big deal?

The answer is no. First, no court assessing privilege protection has ever treated former employees as if they were current employees. The majority approach to former employee privilege protection is often called the Peralta standard. Peralta v Cendant, 190 F.R.D. 38 (D. Conn. 1999). Under that standard, the privilege only extends to communications about the former employee's tenure at the company – it never protects discussions about what happened after the employee left, or the typical type of testimony-preparation give and take that a company lawyer might have with a current employee. So the only privileged communications under the Peralta standard involve mundane open-ended questions about historical facts. Second, corporate lawyers hoping to cinch privilege protection might jointly represent former employees – although that might create conflicts problems. If available, such an arrangement would also preclude an adverse lawyer's ex parte communications with the former employees. For some reason, the Newman trial court prohibited such joint representations. Third, if a joint representation would not work, the company might hire separate lawyers for the former employees – in which case a common interest agreement might assure privilege protection.

At most, the Newman approach makes privilege protection unavailable for communications most lawyers would not mind disclosing – questioning former employees about what they remembered from their time at the company. And joint representations or common interest agreements might provide alternative ways to protect such communications. Next week's Privilege Point explains another possible way to protect such communications (which Newman did not even address) – as well as another risk to privilege that no commentator seems to have mentioned.

Case Date Jurisdiction State Cite Checked
1999-10-22 Federal CT
Comment:

key case


Chapter: 6.1202
Case Name: Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999)
December 31, 2014 (PRIVILEGE POINT)

“Court Applies the Peralta Standard for Company Lawyers' Communications with Former Employees”

Although the attorney-client privilege generally protects company lawyers' communications with former company employees, most courts follow the nuanced approach of Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999). Under that standard, the privilege can protect communications relating to the former employee's time at the company, but not since then.

In Winthrop Resources Corp. v. CommScope, Inc., Civ. A. No. 5:11-CV-172, 2014 U.S. Dist. LEXIS 158413 (W.D.N.C. Nov. 7, 2014), the court addressed plaintiff's effort to compel deposition answers from defendant's former vice president and CIO Kap Kim. Applying the Peralta standard, the court upheld the magistrate judge's ruling that Kim must answer the following questions (among others): (1) "whether [defendant's] attorney Jeff Mayer had told, or if Kim had asked, Mayer's 'personal view on whether [plaintiff] Winthrop or [defendant] CommScope is correct in their interpretation of the lease language in the case,'" id. at *12 (internal citation omitted); (2) "whether Kim had asked any lawyer to determine whether CommScope's or Winthrop's interpretation of the lease was correct," id.; and (3) "the substance of conversations that occurred during a deposition break" — which the court held were "questions that directly relate[d] to deposition preparation" and thus "are squarely covered by the holding in Peralta." Id. at *10-11. Defendant also claimed work product protection for those communications, but the court held that the defendant waived that argument by not presenting it to the magistrate judge.

Company lawyers dealing with former employees should remember the Peralta standard's limitations. They should also weigh both work product and privilege protection possibilities, considering that in the former employee context, the work product doctrine may provide more promising protection than the attorney-client privilege.

Case Date Jurisdiction State Cite Checked
1999-01-01 Federal CT
Comment:

key case


Chapter: 6.1202
Case Name: Better Gov't Bureau v. McGraw (In re Allen), 106 F.3d 582, 605-06 & n.14 (4th Cir. 1997)
("[W]e hold that the analysis applied by the Supreme Court in Upjohn to determine which employees fall within the scope of the privilege applies equally to former employees"; recognizing that most courts grant the privilege to "communications between a client's counsel and the client's former employees"; noting that "[t]hose courts that have denied the privilege to communications between the client's attorney and former employees have generally been following state law or concluded that the former employee had ceased being employed by the client before the relevant conduct occurred"), cert. denied, 522 U.S. 1047 (1998)

Case Date Jurisdiction State Cite Checked
1997-01-01 Federal

Chapter: 6.1203
Case Name: Pallies v. The Boeing Company, Case No. C16-01437RSL, 2017 U.S. Dist. LEXIS 144431 (W.D. Wash. Sept. 6, 2017)
(holding that the attorney-client privilege applied to a pre-deposition meeting among defendant's lawyer and several former defendant employees; holding that defendant Boeing's lawyer represented all of the former employee; "While Ms. Hubbard [former Boeing employee] made no formal contract or payments to Ms. Svanfeldt [Boeing lawyer], these are not necessary conditions to establish an attorney-client relationship or the privilege it entails. She actively sought representation from Ms. Svanfeldt during her deposition and was entitled to do so as a former employee of Boeing. Ms. Hubbard's lack of knowledge about the definition of the word 'retained' is not sufficient evidence to invalidate the attorney-client privilege."; "Given that the Court has determined that there was an attorney-client relationship between Ms. Svanfeldt and Ms. Hubbard regarding the deposition preparation, Plaintiff's argument that the group meeting with Ms. Hubbard waived any attorney-client privilege due to the presence of a third party fails.")

Case Date Jurisdiction State Cite Checked
2017-09-06 Federal WA
Comment:

key case


Chapter: 6.1203
Case Name: Newman v. Highland School Dist. No. 203, No. 90194-5, 2016 Wash. LEXIS 1135 (Wash. Oct. 20, 2016)
(in a 4-3 vote, holding that former high school coaches were not within the attorney-client privilege protection; explaining that the trial court had earlier held that the high school's lawyer could not also represent the former coaches as clients; "At issue is whether postemployment communications between former employees and corporate counsel should be treated the same as communications with current employees for purposes of applying the corporate attorney-client privilege. Although we follow a flexible approach to application of the attorney-client privilege in the corporate context, we hold that the privilege does not broadly shield counsel's postemployment communications with former employees."; "Highland argues the flexible approach to protecting privileged communications recognized in Upjohn supports extending the privilege to postemployment communications with former employees. . . . We disagree. Because we conclude Upjohn does not justify applying the attorney-client privilege outside the employer-employee relationship, the trial court properly denied Highland a protective order to shield from discovery communications with former coaches who are otherwise fact witnesses in this litigation."; "[E]verything changes when employment ends. When the employer-employee relationship terminates, this generally terminates the agency relationship. As a result, the former employee can no longer bind the corporation and no longer owes duties of loyalty, obedience, and confidentiality to the corporation. . . . Without an ongoing obligation between the former employee and employer that gives rise to a principal-agent relationship, a former employee is no different from other third-party fact witnesses to a lawsuit, who may be freely interviewed by either party."; "Refusing to extend the corporate attorney-client privilege articulated in Upjohn beyond the employer-employee relationship preserves a predictable legal framework."; "All agree that it cannot extend forever and that it cannot encompass every communication between corporate counsel and former employees. But it is difficult to find any principled line of demarcation that extends beyond the end of the employment relationship. We conclude that the interests served by the privilege are sufficiently protected by recognizing that communications between corporate counsel and employees during the period of employment continue to be privileged after the agency relationship ends.")

Case Date Jurisdiction State Cite Checked
2016-10-20 Federal WA

Chapter: 6.1203
Case Name:


Case Date Jurisdiction State Cite Checked
2016-10-20 Federal WA

Chapter: 6.1203
Case Name: Newman v. Highland School Dist. No. 203, No. 90194-5, 2016 Wash. LEXIS 1135 (Wash. Oct. 20, 2016)
(in a 4-3 vote, holding that former high school coaches were not within the attorney-client privilege protection; explaining that the trial court had earlier held that the high school's lawyer could not also represent the former coaches as clients; dissenting judge explained as follows: "I disagree with the majority's decision to adopt a bright-line rule that will cut off the corporate attorney-client privilege at the termination of employment, and will exclude from its scope all postemployment communications with former employees, even when those employees have relevant personal knowledge regarding the subject matter of the legal inquiry and even though had they remained employed, such communications with counsel would have been privileged under Upjohn. This temporal limitation is at odds with the functional analysis underlying the decision in Upjohn and ignores the important purposes and goals that the attorney-client privilege serves."; "Instead, I would conclude the scope of the attorney-client privilege and the decision as to whether to extend its protections to former employees is based on the flexible approach articulated in Upjohn. Under this flexible analysis, I would hold that postemployment communications consisting of a factual inquiry into the former employee's conduct and knowledge during his or her employment, made in furtherance of the corporation's legal services, are privileged."; "The majority in this case now eschews Upjohn 's functional analysis for a bright-line rule, cutting off the privilege at the termination of employment. . . . The majority argues that Upjohn supports this bright-line rule because the Court presupposed that the communications occurred within the corporate employee relationship. . . . Nothing in the Upjohn decision supports the majority's bald assertion that the decision 'presupposed attorney-client communications taking place within the corporate employment relationship' before the privilege would attach. . . . In fact, 7 of the 86 employees interviewed by corporate counsel in Upjohn had left employment prior to being interviewed. . . . The Court expressly declined to decide the issue whether former employees were included in the privilege, instead providing the functional framework for lower courts to utilize in answering that precise question."; "Moreover, the majority's focus on the formalities of the relationship between the employee and the corporation as the standard for the attorney-client privilege misses the point of the Upjohn Court's functional framework."; "Former employees, just like current employees, may possess relevant information pertaining to events occurring during their employment 'needed by corporate counsel to advise the client with respect to actual or potential difficulties.'. . . Relevant knowledge obtained by an employee during his or her period of employment does not lose relevance simply because employment has ended. When former employees have relevant knowledge about incidents that occurred while they were employed, the extension of the attorney-client privilege to cover postemployment communications may further support the privilege's fact-finding purpose."; "But the majority overlooks that this stated purpose -- facilitating the flow of relevant and necessary information from lower-level employees to counsel -- was a key function of the privilege identified by the Court in Upjohn and a critical reason that Court extended the privilege to lower-level employees in the first place."; "I acknowledge that Upjohn's policies and purposes do not require us to consider former employees exactly as we consider current employees."; "I am persuaded that the appropriate line is expressed in this simple test: Did the communications with the former employee, whenever they occurred, 'relate to the former employee's conduct and knowledge, or communication with defendant's counsel, during his or her employment?'. . . If so, the communications are privileged, consistent with Upjohn. . . . The Peralta court that adopted this test noted it was rejecting a wholesale application of the specific factors identified in Upjohn because former employees, unlike current employees, were not directed to speak with corporate counsel at the direction of management. . . . But the court relied on the rationale of Upjohn, which is to say the court looked to the purpose of the attorney-client privilege and whether that privilege was served by applying it to postemployment communications with a former employee -- it held that the privilege applied to the extent the communications concerned the underlying facts in the case."; "The distinction I would draw today should not be difficult for the parties to apply if the relevant purpose of the privilege--promoting necessary factual investigation -- is kept clear. . . . It will be incumbent on counsel to exercise caution when communicating with their client's former employees in order to ensure communications stay within these parameters. Should disputes arise as to whether a specific communication is privileged, they should be submitted to the trial court for a determination as to whether the purposes identified today would be furthered by its application.")

Case Date Jurisdiction State Cite Checked
2016-10-20 Federal WA

Chapter: 6.1203
Case Name: Peralta v Cendant, 190 F.R.D. 38 (D. Conn. 1999)
December 14, 2016 (PRIVILEGE POINT)

"Court Nixes Privilege Protection for Former Employee Interviews – Is This a Big Deal?: Part II"

Last week's Privilege Point described the Washington Supreme Court's 4-3 rejection of privilege protection for communications with former corporate employees.Newman v. Highland Sch. Dist., No. 90194-5, 2016 Wash. LEXIS 1135 (Wash. Oct. 20, 2016). Although the decision seems to ignore the widely accepted Upjohn analysis, is it a big deal?

The answer is no. First, no court assessing privilege protection has ever treated former employees as if they were current employees. The majority approach to former employee privilege protection is often called the Peralta standard. Peralta v Cendant, 190 F.R.D. 38 (D. Conn. 1999). Under that standard, the privilege only extends to communications about the former employee's tenure at the company – it never protects discussions about what happened after the employee left, or the typical type of testimony-preparation give and take that a company lawyer might have with a current employee. So the only privileged communications under the Peralta standard involve mundane open-ended questions about historical facts. Second, corporate lawyers hoping to cinch privilege protection might jointly represent former employees – although that might create conflicts problems. If available, such an arrangement would also preclude an adverse lawyer's ex parte communications with the former employees. For some reason, the Newman trial court prohibited such joint representations. Third, if a joint representation would not work, the company might hire separate lawyers for the former employees – in which case a common interest agreement might assure privilege protection.

At most, the Newman approach makes privilege protection unavailable for communications most lawyers would not mind disclosing – questioning former employees about what they remembered from their time at the company. And joint representations or common interest agreements might provide alternative ways to protect such communications.

Case Date Jurisdiction State Cite Checked
1999-10-20 Federal CT
Comment:

key case


Chapter: 6.1205
Case Name: Newman v. Highland School Dist., 186 Wash. 2d 769, 381 P.3d 1188 (2016)
December 21, 2016 (PRIVILEGE POINT)

"Court Nixes Privilege Protection for Former Employee Interviews – Is This a Big Deal?: Part III"

The last two Privilege Points (Part I and Part II) described the Washington Supreme Court's 5-4 rejection of privilege protection for communications with former corporate employees (Newman v. Highland School Dist., 186 Wash. 2d 769, 381 P.3d 1188 (2016)), and three reasons why the decision should not frighten corporations' lawyers.

Newman alarmists often miss the fourth and perhaps most important reason why the decision should not cause panic. In the normal context for such communications (when the company is in or anticipates litigation), the work product doctrine usually can provide an entirely separate protection in most courts. That protection should cover lawyers' and former employees' notes of their communication, and even their intangible oral conversations. Although fact work product protection can be overcome, that seems unlikely if the former employee is available for the adversary to interview or depose. And focused questions from the corporation's lawyer might even deserve absolute opinion work product protection. Newman did not address that independently sufficient protection. A 2014 Privilege Point described a federal case in which litigants also inexplicably failed to timely claim work product protection in this context. Winthrop Res. Corp. v. CommScope, Inc., Civ. A. No. 5:11-CV-172, 2014 U.S. Dist. LEXIS 158413 (W.D.N.C. Nov. 7, 2014). All in all, careful lawyers should be able to work around Newman's adverse impact.

Ironically, Newman's extension of privilege only to current employees might prove a greater threat in a totally different direction. Most courts extend privilege protection to non-employees who are the "functional equivalent" of employees. In this age of outsourcing, the "functional equivalent" doctrine can be critically important. Newman's "bright line" privilege approach could threaten this protection.

Case Date Jurisdiction State Cite Checked
2016-10-20 Federal WA
Comment:

key case


Chapter: 6.1206
Case Name: Bryant v. Yorktowne Cabinetry, Inc., 538 F. Supp. 2d 948, 950, 953, 953-954 (W.D. Va. 2008)
(assessing the permissibility of plaintiff's ex parte communications with former employees of a corporate adversary; explaining that the Virginia State Bar has issued legal ethics opinions permitting such ex parte communications, while another Western District of Virginia case (Armsey v. Medshares Mgmt. Servs., Inc., 184 F.R.D. 569 (W.D. Va. 1998) prohibited such ex parte communications; noting "the vast divergence of opinion in state and federal courts in other jurisdictions on the issue of ex parte communications between counsel and former management employees of an adverse corporate party."; explaining several policy reasons in favor of the bar approach; "First, as this issue is an ethical one, it is critical to provide clear guidance to practicing lawyers. Lawyers need to know where the electrified third rail lies. The bright line rule set forth in the text and comments to Virginia Rule 4.2 serves this purpose. Indeed, any lack of clarity in this area can only serve to foster more discovery disputes requiring the parties and the courts to expend resources to resolve. Second, requiring discovery of former employees only through formal means will needlessly raise the cost of litigating with corporate parties. Third, the court in Frank v. L.L. Bean, Inc., 377 F. Supp. 2d 233, 238 (D. Me. 2005), appropriately inquired as to 'why the onus should not be on counsel for the witness' former employer to offer him or her counsel,' and suggested that '[s]uch efforts could be undertaken by defense counsel as a matter of course when a plaintiff seeks to hold a corporate defendant vicariously liable for the wrongful acts of a former employee.'"; finding the situation distinguishable from that in Armsey because the plaintiff did not seek to impute the former corporate employee's "statements, conduct or actions" to the corporate defendant; ultimately allowing such ex parte communications; "In sum, the court believes that the approach taken by the Virginia State Bar Committee on Legal Ethics and the Rules of Professional Conduct strikes the correct balance between efficient and appropriate discovery, protection from overreaching by counsel in dealing with unrepresented persons, and the protection of a corporate party's privileged and confidential information. . . . Thus, although the Rules allow communication with former corporate employees, including those with managerial responsibilities, opposing counsel must tread very carefully to avoid discussing information which 'may reasonably be foreseen as stemming from attorney/client communications,' Virginia LEO 1749, or to 'use methods of obtaining evidence that violate the legal rights of such a person.' Va. R. Prof'l Conduct 4.4."; imposing several procedural requirements on such communications; "1. Upon contacting any former employee, plaintiff's counsel shall immediately identify himself as the attorney representing plaintiff in the instant suit and specify the purpose of the contact. 2. Plaintiff's counsel shall ascertain whether the former employee is associated with defendant or is represented by counsel. If so, the contact must terminate immediately. 3. Plaintiff's counsel shall advise the former employee that (a) participation in the interview is not mandatory and that (b) he or she may choose not to participate or to participate only in the presence of personal counsel or counsel for the defendant. Counsel must immediately terminate the interview of the former employee if he or she does not wish to participate. 4. Plaintiff's counsel shall advise the former employee to avoid disclosure of privileged or confidential corporate materials. In the course of the interview, plaintiff's counsel shall not attempt to solicit privileged or confidential corporate information and shall terminate the conversation should it appear that the interviewee may reveal privileged or confidential matters. 5. Plaintiff shall create and preserve a list of all former employees contacted and the date(s) of contact(s) and shall maintain and preserve any and all statements or notes resulting from such contacts, whether by phone or in person, as they may be subject to in camera review to ensure compliance with this Order.")

Case Date Jurisdiction State Cite Checked
2008-01-01 Federal VA

Chapter: 6.1206
Case Name: Armsey v. Medshares Mgmt. Servs., Inc., 184 F.R.D. 569, 574 (W.D. Va. 1998)
("I agree with the committee that former employees may no longer bind their corporate employer by their current statements, acts or omissions. Yet, this does not prevent liability being imposed upon their former employer based on the statements, acts or omissions of these individuals which occurred during the course of their employment. In fact, Plaintiffs' counsel in this case has informed the court that it seeks to speak to each of these former employees because Plaintiffs believe that they can impute liability upon Medshares through the statements, actions or omissions of these former employees. Under these facts, I do not believe ex parte communications with these former employees is proper." (emphasis in original; citations omitted))

Case Date Jurisdiction State Cite Checked
1998-01-01 Federal VA

Chapter: 6.1206
Case Name:


Case Date Jurisdiction State Cite Checked

Chapter: 6.1207
Case Name: Buchanan v. Sterling Construction Co., Civ. A. No. 4:16-cv-3429 JURY, 2018 U.S. Dist. LEXIS 39792 (S.D. Tex. March 12, 2018)
(analyzing privilege issues in connection with a corporate investigation (although without explaining what the investigation focused on); "[D]efendants have refused to produce emails authored by or received by plaintiffs when they were employed by defendants because they were under the 'umbrella' of defendants' privilege. Defendants insist the emails are privileged attorney communications and/or attorney work product. The burden is on defendants to show the attorney client privilege or the work product protection is applicable. . . . Defendants have pointed to no authority to support their insistence that a party cannot obtain copies of emails he himself authored or received merely because that communication involved an attorney.")

Case Date Jurisdiction State Cite Checked
2018-03-12 Federal TX

Chapter: 6.1207
Case Name: Mooney v. Diversified Bus. Communs., 2017 Mass. Super. LEXIS 133, 34 Mass L. Rep. 352, 2017 WL 4172592, Dkt. No. SUCV2016-3726-BLS2 (Mass. Super. July 24, 2017)
(applying Massachusetts rather than Delaware law in concluding that a company's former CEO could be denied access to privileged communications that were available to him when he was at the company; "The motion also raises difficult questions concerning attorney client privilege – specifically, whether a former officer [former CEO] of a company can obtain communications between corporate counsel and the corporation exchanged when he still worked for the company but where he is now adverse to the corporation itself."; "The choice of law issue is an important one because Delaware law and Massachusetts law would (in this Court's view) require different outcomes on the privilege issue. Delaware, along with a few other courts, has adopted the so-called 'collective-corporate-client' approach, which was first recognized in the Delaware Chancery Court. . . . Under this approach, former directors or officers are entitled to privileged communications created during their tenure because both the corporation and the then-current officer or director are viewed as joint clients (or separate part of the collective corporate client) at the time the communications occurred."; "In jurisdictions outside of Delaware, the majority of courts have adopted 'the entity is the Client' approach. . . . These courts hold that, despite the fact that a corporation can only act through individuals, officers and directors are not properly viewed as joint, independent clients of corporate counsel; the corporation alone is the client. Applying this approach, these courts do not permit former officers and directors to access privileged information for use in litigation where the corporation asserts a privilege. This doctrine represents the modern trend."; "'The idea that a director whose interests are adverse to those of a corporation on a given issue is not automatically entitled to access a corporation's confidential communications with counsel furthers the policy rationale underlying the attorney-client privilege; it promotes candid communications between attorneys and organizational clients.'")

Case Date Jurisdiction State Cite Checked
2017-07-24 State MA
Comment:

key case


Chapter: 6.1207
Case Name: Mooney v. Diversified Business Communications, Dkt. No. SUCV2016-3726-BLS2, 2017 Mass. Super. LEXIS 133 (Mass. Super. Ct. July 20, 2017)
November 22, 2017 (PRIVILEGE POINT)

"Choice of Laws Analyses Can Be Dispositive"

Although most jurisdictions agree on many basic privilege issues, some important variations remain. The most important involves a few states' rejection of the majority Upjohn v. United States, 449 U.S. 383 (1981) rule protecting corporations' lawyers' communications with middle and lower level corporate employees. But there are other significant distinctions among states that can make a big difference in a corporate context.

In Mooney v. Diversified Business Communications, Dkt. No. SUCV2016-3726-BLS2, 2017 Mass. Super. LEXIS 133 (Mass. Super. Ct. July 20, 2017), a corporation's former CEO/director (now adverse to the corporation) sought access to privileged communications from his time at the corporation. The court acknowledged that "[t]he choice of law issue is an important one" -- because under Delaware law "former directors or officers are entitled to privileged communications created during their tenure," while other states (including Massachusetts) "do not permit former officers and directors to access privileged information for use in litigation where the corporation asserts a privilege." Id. at *6, *7. The court had to decide between applying (1) Delaware law (because that is the defendant's state of incorporation), or (2) Massachusetts law (under the Restatement (Second) of Conflict of Laws § 139 choice of law approach). The court applied the latter standard in denying plaintiff access to the privileged documents.

Although privilege choice of law disputes rarely arise, they occasionally have dispositive effects.

Case Date Jurisdiction State Cite Checked
2017-07-20 State MA
Comment:

key case


Chapter: 6.1207
Case Name: Mason v. OSR Open Sys., Inc., No. 218-CR-2016-CV-1294, 2017 N.H. Super. LEXIS 12 (N.H. Super. May 24, 2017)
(holding that a former employee was not entitled to access privileged communications from his former employer; "The New Hampshire Supreme Court has never considered the issue of whether or not former employees who once had access to privileged information are entitled to it in subsequent litigation; however, 'an evolving line of cases holds that they do not.' The privilege is that of the corporation and the majority of courts hold that 'the fact that a former employee had access to such privileged communications and actually saw the very disputed documents in the course of employment will not function as a waiver sufficient to give access to the privileged communications in the course of litigation.'. . . The LLC is the holder of the privilege, not the individual members of the LLC; therefore, the fact that Mason was once a member of the control group of the LLC does not mean that the LLC is not entitled to assert its separate attorney-client privilege. . . . The Court must therefore consider whether production is appropriate applying the standards of Superior Court Rule 25.")

Case Date Jurisdiction State Cite Checked
2017-05-24 State NH

Chapter: 6.1207
Case Name: Del Giudice v. Harlan, 15 Civ. 7330 (LTS) (JCF), 2016 U.S. Dist. LEXIS 129938 (S.D.N.Y. Sept. 22, 2016)
(applying Delaware law based on the pertinent LLC operating agreement choice of law provision, concluding that an LLC's directors were entitled to access privileged communications even though they were adverse to the corporation; "Kirby [] and Moore Business Forms [] appear to dictate that, under Delaware law, Mr. Lambert and Mr. Crotty are each entitled to all attorney-client communications that were generated during the period when he was a director. Citing New York law, the defendants contend that the documents may be withheld because (1) the plaintiffs are suing to enforce their own interests rather than acting on behalf of Rockland . . . and (2) the plaintiffs 'are or may be adverse' to Rockland (Def. Memo. at 11-12 (emphasis omitted) . . . . The problem is that the Delaware cases do not make those distinctions when addressing the right of a director to legal advice provided to the business entity during the time he was a director. To be sure, Kirby briefly addresses the question of whose benefit the plaintiff director seeks to vindicate, asking whether an action can be analogized to a shareholder's derivative claim. Kirby, 1987 Del. Ch. LEXIS 463, 1987 WL 14862, at *7. However, it does so only in the context of a former director's right to attorney-client material generated after his directorship. Id. Moore Business Forms appears to reject the idea that a litigant's position vis à vis the corporation -- that is, whether their interests are antagonistic or not is relevant to the question at hand. . . . Indeed, the case indicates that, where a possible conflict is foreseeable, the way to keep attorney advice to the business entity confidential from certain board members is through a separate agreement among the relevant players. . . . Here, based on the architecture of the Operating Agreement -- with its board divided evenly between Class A-1 designees on the one hand and Class A-2 and B designees on the other, and a fifth tie-breaking vote provided to the Weichert designee on certain issues (including the Class A-1 Preference Amount) -- the parties involved recognized the possibility of conflict. But, as in Moore Business Forms, they failed protect against disclosure to putatively 'adverse' directors."; "Under Delaware law, then, Mr. Lambert, and Mr. Crotty are entitled to attorney-client communications that were generated during each of their tenures as director."; "I understand the plaintiffs to argue that the defendants have put the Bracewell Documents at issue (1) by contending, in their opposition to this motion to compel, that Bracewell concluded that the September 2014 and January 2015 resolutions passed by the plaintiff directors were invalid . . . and (2) by producing some, but not all, attorney-client communications connected to Bracewell's advice regarding those resolutions."; "The first argument is a non-starter. The mere mention, in the facts section of an opposition to a motion to compel, that Rockland's counsel believed the resolutions to be invalid has neither put that advice at issue nor placed the plaintiffs in a position where they cannot make their case without examining the privileged communications. The defendants have not defended against the claims in this action by asserting that they relied on Bracewell's advice and therefore should not be held liable. The defendants' reference to that advice here, then, does not effect a waiver. The other argument also fails. It appears that there are a few assertedly privileged emails that, like the documents already disclosed, discuss the September 2014 and January 2015 resolutions. . . . Ultimately, however, fairness does not require that the plaintiffs examine these additional emails, because, although the validity of those resolutions is an ultimate issue in this case, the plaintiffs have not established that the defendants have or will rely on the Bracewell Documents to support their position. Thus, the plaintiffs' 'inability to examine' whether Bracewell stuck to its original analysis, modified it, reversed it, or abandoned it altogether does not put the plaintiffs at a 'distinct disadvantage' in this litigation. . . . In short, the plaintiffs have not established that the defendants waived privilege over the Bracewell Documents."; "This is not a claim brought by members of Rockland against Rockland alleging that the Rockland board of directors breached its fiduciary duties. Not only have the plaintiffs insisted that the action involves the defendants 'in their individual capacities, and not as managers of Rockland'. . . but also they do not attempt to plead a cause of action for breach of fiduciary duties against the defendants. Therefore, there is no need to inquire as to whether the plaintiffs have demonstrated good cause under Garner's non-exhaustive list of factors."; "As explained above, under Delaware law, Mr. Lambert and Mr. Crotty are entitled to the Bracewell Documents. The other plaintiffs, however, are not. This creates some difficulty, as all of the plaintiffs are represented by the same law firm. Therefore, before any attorney-client privileged documents are produced to Mr. Lambert and Mr. Crotty, plaintiffs' counsel must screen off those attorneys with access to these documents from those representing Mr. Del Giudice, Mr. Rubin, and Ms. Wollman.")

Case Date Jurisdiction State Cite Checked
2016-09-22 Federal NY
Comment:

key case


Chapter: 6.1207
Case Name: Del Giudice v. Harlan, 15 Civ. 7330 (LTS) (JCF), 2016 U.S. Dist. LEXIS 129938 (S.D.N.Y. Sept. 22, 2016)
(applying Delaware law based on the pertinent LLC operating agreement choice of law provision, concluding that an LLC's directors were entitled to access privileged communications even though they were adverse to the corporation; "'The defendants note that some of the Bracewell Documents relate only to the claims in the Proposed Complaint, which is not yet operative. . . . That is true, and, normally, those documents would not be discoverable because they relate to claims that are not yet part of the case. . . . However, here, the right to the documents does not derive from the rules of relevance, but from Delaware law regarding directors' right of access to company documents and a client's right of access to its attorney's advice. . . . Therefore, Rockland's attorney-client communications are available to Mr. Lambert and Mr. Crotty regardless of whether they are relevant to a claim or defense in the operative complaint.'")

Case Date Jurisdiction State Cite Checked
2016-09-22 Federal NY
Comment:

key case


Chapter: 6.1207
Case Name: United States v. Heine, Case No. 3:15-cr-00238-SI-2, 2016 U.S. Dist. LEXIS (D. Ore. March 31, 2016)
(rejecting a former Bank executive's effort to obtain privileged Bank documents in his criminal proceeding; holding that the Bank had not waived its privilege by providing facts to the FBI, or by disclosing protected documents to bank regulators; holding that the executive's constitutional due process rights might outweigh the Bank's privilege protection; "Yates argues that even if the Bank can establish that the documents she requests under her Subpoena are protected under the attorney-client privilege, Yates's constitutional due process rights outweigh the Bank's interest in maintaining confidentiality.")

Case Date Jurisdiction State Cite Checked
2016-03-31 Federal OR

Chapter: 6.1207
Case Name: United States v. Heine, Case No. 3:15-cr-00238-SI-2, 2016 U.S. Dist. LEXIS (D. Ore. March 31, 2016)
(rejecting a former Bank executive's effort to obtain privileged Bank documents in his criminal proceeding; holding that the Bank had not waived its privilege by providing facts to the FBI, or by disclosing protected documents to bank regulators; holding that the executive's constitutional due process rights might outweigh the Bank's privilege protection; "Yates argues that even if the Bank can establish that the documents she requests under her Subpoena are protected under the attorney-client privilege, Yates's constitutional due process rights outweigh the Bank's interest in maintaining confidentiality.")

Case Date Jurisdiction State Cite Checked
2016-03-31 Federal OR

Chapter: 6.1207
Case Name: SEC v. Present, Civ. No. 14-14692-LTS, 2015 U.S. Dist. LEXIS 170245 (D. Mass. Dec. 21, 2015)
(concluding that a former CEO could not obtain documents from a bankrupt company he founded and ran in order to use the documents to defend himself from an SEC action by asserting advice of counsel; "In 2013, the Securities and Exchange Commission ('SEC') commenced an investigation into both F-Squared and Present. . . . In August 2014, during the course of this investigation, F-Squared, with Present as CEO, refused the SEC's request to waive its attorneyclient privilege . . . . In November 2014, Present left F-Squared . . . And thereafter F-Squared admitted liability for making materially false statements . . . And paid a $35 million fine. . . . F-Squared has now filed for bankruptcy protection, where it faces a variety of creditor claims, including a potential class action lawsuit."; "On the day the SEC settled with F-Squared, the SEC sued Present for various violations of the Advisers Act . . . And associated SEC regulations."; "Among other affirmative defenses, Present asserted in his Answer that he 'reasonably relied upon the work, advice, professional judgment, and opinion of others, including but not limited to legal and compliance professionals."; "Both as the CEO and a sophisticated businessman, he necessarily understood that F-Squared, rather than he, personally held the keys to attorney-client privilege. At that time, as the CEO of F-Squared, Present was in the position either to waive the privilege or to obtain in his personal capacity the right to be able to waive the privilege in the future. He chose not to do so. These circumstances mitigate the fairness considerations advanced by Present. Finally, ordering disclosure, even under a protective order, necessarily divests F-Squared from control over its privileged information and exposes it to the SEC and, ultimately, at trial to a variety of others contrary to the fundamental purposes of the privilege.")

Case Date Jurisdiction State Cite Checked
2015-12-21 Federal MA
Comment:

key case


Chapter: 6.1207
Case Name: SEC v. Present, Civ. No. 14-14692-LTS, 2015 U.S. Dist. LEXIS 170245 (D. Mass. Dec. 21, 2015)
February 17, 2016 (PRIVILEGE POINT)

"Can a Company's Founder and CEO Use Company Documents to Support His "Advice of Counsel" Defense After the Company Declares Bankruptcy?"

Courts agree that bankruptcy trustees control bankrupt companies' attorney-client privilege. It is easy to underestimate this basic principle's strength.

In SEC v. Present, Civ. No. 14-14692-LTS, 2015 U.S. Dist. LEXIS 170245 (D. Mass. Dec. 21, 2015), the court dealt with the SEC's investigation of F-Squared and its co-founder and CEO Howard Present. When the SEC began investigating F-Squared in 2013, its CEO Present refused the SEC's request to waive the company's attorney-client privilege. Then the company went bankrupt, and the SEC sued Present himself. He pleaded advice of counsel as an affirmative defense, and subpoenaed supporting documents from the company he had founded and led. But now in the hands of a bankruptcy trustee, the company moved to quash Present's subpoena. The court granted the motion to quash, noting that "[b]oth as the CEO and a sophisticated businessman, [Present] necessarily understood that F-Squared, rather than he, personally held the keys to attorney-client privilege." Id. At *9. Adding insult to injury, the court noted that Present could have arranged for the company's waiver while he was CEO before the bankruptcy, but "[h]e chose not to do so." Id. At *10.

Corporations, their CEOs, and their lawyers should always keep their eye on the ball — and know who owns the corporation's privilege and when that ownership might change.

Case Date Jurisdiction State Cite Checked
2015-12-21 Federal MA
Comment:

key case


Chapter: 6.1207
Case Name: In re PWK Timberland, LLC, Case No. 13-20242, 2015 Bankr. LEXIS 248 (W.D. La. Jan. 27, 2015)
(holding that a bankrupt LLC's members could not automatically access the LLC's document, and that former directors could likewise not access the document; "[T]he fact that Movants were members of PWK prior to January 2011 does not provide them with an independent ground to access PWK's privileged communications because the privilege belongs to PWK, not its members."; "In the intervening years [since a 1970 Fifth Circuit Garner case], the Fifth Circuit and other courts have expanded the scope of the Garner exception beyond shareholder derivative actions to a broad range of fiduciary relationships outside the corporate context."; "[C]ourts have generally been reluctant to apply the Garner exception where the parties seeking disclosure are seeking disclosure to benefit their individual interests as opposed to the collective interests of all shareholders or of all members of a organization imbued with similar fiduciary duties. . . . While the presence of an adverse interest alone may not defeat the Garner exception, the fact that the privileged communications at issue here relate to the present dispute between the LLC and a minority of former LLC members weighs heavily against the appicability [sic] of the exception.")

Case Date Jurisdiction State Cite Checked
2015-01-27 Federal LA

Chapter: 6.1207
Case Name: In re PWK Timberland, LLC, Case No. 13-20242, 2015 Bankr. LEXIS 248 (W.D. La. Jan. 27, 2015)
(holding that a bankrupt LLC's members could not automatically access the LLC's document, and that former directors could likewise not access the document; "[T]here are two lines of cases on whether an officer or director of an LLC can pierce the LLC's attorney-client privilege in litigation with the LLC and other members of the LLC. The first line of cases views the corporate attorney-client privilege as a 'collective' right belonging to the corporate entity and its management. Analogizing to the joint client privilege, these courts conclude that a company cannot assert its attorney-client privilege against dissident officers or directors with respect to communications occurring during their tenure."; "The second line of cases rejects Gottlieb's [] 'collective corporate client' approach to the attorney-client privilege. . . . These courts hold that there is no collective joint client privilege between a company and its management and that the privilege resides solely with the company. . . . The company's managers have the authority to participate in privileged communications and to act on those communications solely in their corporate fiduciary capacity. Id. Once officers or directors are no longer in management, and thus are no longer acting in their corporate fiduciary capacity, they are no longer entitled to access privileged communications occurring during their tenure."; "The court finds [this] . . . Line of cases more consistent with federal precedent on the corporate attorney-client privilege as well as the policies underlying the privilege. . . . Corporate managers receive and act on privileged communications solely in their fiduciary capacities as managers of the company. . . . Once former managers are no longer acting in their fiduciary capacity, they no longer have the right to access the company's privileged documents because there is no independent attorney-client relationship between a company's lawyers and the individual managers of that company.")

Case Date Jurisdiction State Cite Checked
2015-01-27 Federal LA

Chapter: 6.1207
Case Name: Las Vegas Sands Corp. v. The Eighth Judicial Dist. Court of the State of Nevada, No. 63444, 2014 Nev. LEXIS 81 (Nev. Aug. 7, 2014)
(granting a petition for writ of mandamus, and holding that a former CEO should not be given access to privileged communications to which he had access when he was employed, and which he took with him when he left the company; "Allowing a former fiduciary of a corporation to access and use privileged information after he or she becomes adverse to the corporation solely based on his or her former fiduciary role is entirely inconsistent with the purpose of the attorney-client privilege. We believe such a situation would have a perverse chilling effect on candid communications between corporate managers and counsel. . . . We therefore decline to recognize the collective corporate client exception to a corporation's attorney-client privilege and conclude that Jacobs may not use Sands's privileged documents in litigation over Sands's current management's assertion of the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2014-08-07 State NV

Chapter: 6.1207
Case Name: Las Vegas Sands Corp. v. The Eighth Judicial Dist. Court of the State of Nevada, No. 63444, 2014 Nev. LEXIS 81 (Nev. Aug. 7, 2014)
(granting a petition for writ of mandamus, and holding that a former CEO should not be given access to privileged communications to which he had access when he was employed, and which he took with him when he left the company; "In this opinion, we consider whether a former chief executive officer of a corporation, who is now suing his former employer, is within a 'class of persons' entitled to access the corporation's privileged documents for use in the litigation. We conclude that a corporation's current management is the sole holder of its attorney-client privilege, and thus, Nevada law does not allow for a judicially created class of persons exception to attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2014-08-07 State NV

Chapter: 6.1207
Case Name: Las Vegas Sands Corp. v. Eighth Judicial District Court, 331 P.3d 905 (Nev. 2014)
September 24, 2014 (PRIVILEGE POINT)

“Are Now-Adverse Former Corporate Executives Entitled to See Their Own Files?”

Courts vehemently disagree about now-adverse former corporate executives' right to see privileged documents that were in their possession when they worked at the company. A 1987 Delaware decision provided such access. Kirby v. Kirby, Civ. A. No. 8604, 1987 Del. Ch. LEXIS 463 (Del. Ch. July 29, 1987) (not released for publication). In 2005, the Montana Supreme Court even condemned the opposite approach as "perverse." Inter-Fluve v. Mont. Eighteenth Judicial Dist. Court, 112 P.3d 258, 264 (Mont. 2005).

In Las Vegas Sands Corp. v. Eighth Judicial District Court, 331 P.3d 905 (Nev. 2014), the Nevada Supreme Court took what Montana called the "perverse" view — but which seems much more logical. A company's CEO took 40 gigabytes of documents with him when he left. After examining both sides of the issue, the court concluded that "the modern trend in caselaw" denies access to now-adverse former employees. Id. at 913. The court explained that allowing former executives "to access and use privileged information after he or she becomes adverse to the corporation" is inconsistent with the privilege’s purpose. Id. In an undoubtedly unintended swipe at the Montana analysis, the court concluded that providing such access "would have a perverse chilling effect on candid communications between corporate managers and counsel." Id.

Although the trend favors corporations' right to deny former employees access to their privileged communications, the debate probably will continue.

Case Date Jurisdiction State Cite Checked
2014-01-01 State NV
Comment:

key case


Chapter: 6.1207
Case Name: Kalisman v. Friedman, C.A. No. 8447-VCL, 2013 Del. Ch. LEXIS 100, at *9, *10, *10-11, *12, *13, *14-15, *15, *15-16 (Del. Ch. Ct. Apr. 17, 2013)
(in a derivative case, holding that a director can obtain access to privileged corporate communications until adversity develops; "A director's right to information is 'essentially unfettered in nature.'" (citation omitted); "The director's right to information extends to privileged material. As a general rule, 'a corporation cannot assert the privilege to deny a director access to legal advice furnished to the board during the director's tenure.'" (citation omitted); "Under these precedents, Morgans cannot pick and choose which directors get information by asserting the attorney-client privilege against Kalisman but not against the defendant directors. Kalisman has a right of equal access to the materials he seeks in his capacity as a director of Morgans [Delaware corporation] and in light of his status as a joint client of the subpoenaed law firms."; "There are three recognized limitations on a director's ability to access privileged information. First, the director's right can be diminished 'by an ex ante agreement among the contracting parties.'" (citation omitted); "Second, a board can act 'pursuant to 8 Del. C. § 141(c) and openly with the knowledge of [the excluded director] to appoint a special committee.'" (citation omitted); "Third, a board or a committee can withhold privileged information once sufficient adversity exists between the director and the corporation such that the director could no longer have a reasonable expectation that he was a client of the board's counsel."; selecting a date when adversity developed; "In this case, the adversity exception applies from March 30, 2013 on with respect to the recapitalization and the matters at issue in this litigation. After the meetings of the Special Committee and the board on that date, Kalisman could no longer have a reasonable expectation that he was a client of the board's counsel or the Special Committee's counsel with respect to the recapitalization and other matters placed at issue in this case. Although tensions likely began rising between Kalisman and his fellow directors as soon as OTK [co-plaintiff] proposed to nominate its own slate, the defendants chose to respond in secret and to conceal their activities until March 30. Company counsel went so far as to represent to Kalisman, days before the March 30 meeting, that no transaction was under consideration. In light of the defendants' efforts to mislead Kalisman, it would be inequitable to give them the benefit of an earlier date for purposes of limiting Kalisman's informational rights."; rejecting the argument that the director might use the information to harm the company; "The defendants contend that Kalisman will use privileged information to harm the Company in violation of his fiduciary duties."; "If Morgans had concrete evidence that Kalisman would use privileged information improperly, then that fact might counsel in favor of a different result.")

Case Date Jurisdiction State Cite Checked
2013-04-17 State DE B 3/14

Chapter: 6.1207
Case Name: Barasch v. Williams Real Estate Co., Inc., 961 N.Y.S.2d 125, 127 (N.Y. App. Div. 2013)
(holding that a shareholder and director had interests adverse to the company, which meant that she was not entitled to privileged corporate documents; "[T]his case involves a party who is both a corporate director and a shareholder, suing in her capacity as a shareholder, and seeking to invade the corporation's attorney-client privileged communications about her, which took place at a time when she was adverse to the corporation, in order to advance her own interests as a shareholder.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State NY B 3/14

Chapter: 6.1207
Case Name: Chambers v. Gold Medal Bakery, Inc., 983 N.E.2d 683, 692 (Mass. 2013)
(holding that directors whose interests are adverse to the corporation's interest cannot rely on their role as shareholders or on the Garner (Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970)) doctrine to obtain privileged corporate documents; "We now reach the central question [of] whether the plaintiffs are entitled to Gold Medal's attorney-client privileged and otherwise protected information. We reiterate the touchstone that a director has fiduciary duties to the corporation irrespective of his involvement in day-to-day operations. . . . In addition, as noted, a director cannot satisfy his fiduciary responsibilities without access to basic information about the company he represents. When that information includes legal advice, a director is generally entitled to it. . . . Thus, to the extent that the plaintiffs' interests are not adverse to Gold Medal, they are within the circle of Gold Medal's privilege.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State MA B 3/14

Chapter: 6.1207
Case Name: Chambers v. Gold Medal Bakery, Inc., 983 N.E.2d 683, 690 (Mass. 2013)
(holding that directors whose interests are adverse to the corporation's interest cannot rely on their role as shareholders or on the Garner (Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970)) doctrine to obtain privileged corporate documents; "We conclude that the plaintiffs' interests are adverse to Gold Medal as narrowly concerns the 2007 and instant litigations. Thus, to the extent that there are documents that qualify as attorney-client privileged or work product protected, the plaintiffs are not entitled to access them.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State MA B 3/14

Chapter: 6.1207
Case Name: Barasch v. Williams Real Estate Co., 961 N.Y.S.2d 125, 127, 128, 129 (N.Y. App. Div. 2013)
(holding that a shareholder/director is not entitled to privileged communications relating to her as of the date that her interests became adverse to the company's interests; "The underpinning of the motion court's determination was that petitioner, as a director of Williams, was a corporate insider by definition, and therefore could not be adverse to Williams. However, this case involves a party who is both a corporate director and a shareholder, suing in her capacity as a shareholder, and seeking to invade the corporation's attorney-client privileged communications about her, which took place at a time when she was adverse to the corporation, in order to advance her own interests as a shareholder. It is evident from the September emails that Williams's transaction counsel believed petitioner to be hostile to the transaction and that it was advising Williams on how to handle petitioner. Furthermore, that petitioner retained separate counsel to represent her interests demonstrates that she did not believe that Williams's in-house counsel or transaction counsel were representing her interests as a shareholder. Thus, it is clear that as of September 8, 2008, petitioner was in an adversarial position with Williams, and the attorney-client communications between Williams and its counsel regarding how to deal with petitioner are privileged."; "[I]t is evident that as of September 8, 2008, there was a conflict between the interests of petitioner and Williams, which would have prevented Williams's in-house counsel from representing petitioner, and which in fact led to the retention of separate counsel by petitioner."; "Taken to its logical conclusion, the motion court's reasoning would prevent a corporation from freely consulting with counsel when dealing with a dispute involving a sitting director, or seeking advice regarding a director's suspected misconduct. For these reasons, we find that the parties were adverse as of September 8, 2008.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State NY B 3/14

Chapter: 6.1207
Case Name: Chambers v. Gold Medal Bakery, Inc., 983 N.E.2d 683, 692-93, 693 & n.31, 694 (Mass. 2013)
(holding that directors whose interests are adverse to the corporation's interest cannot rely on their role as shareholders or on the Garner (Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970)) doctrine to obtain privileged corporate documents; "[A] corporate director who is not adverse to the corporation is, as a general matter, 'entitled to equal access to legal advice furnished to other board members.' . . . The principle that directors have equal access to legal advice rendered to the corporation stems from their joint responsibility for the management of the corporation. . . . ('[A]ll of a corporation's directors, not just a select or privileged group thereof, are entitled to advice of corporate counsel'). There is also a need to prevent the strategic use of attorney-client privilege and other protections to hinder a codirector's access to the legal advice, particularly in the close corporation context where shareholders owe fiduciary duties to each other as well as to the corporation, and the minority may be particularly vulnerable to freezeout." (citation omitted); "The idea that a director whose interests are adverse to those of a corporation on a given issue is not automatically entitled to access a corporation's confidential communications with counsel furthers the policy rationale underlying the attorney-client privilege: it promotes candid communications between attorneys and organizational clients. . . . It guards against the unfair disadvantage that would result if a director with adverse interests, and who seeks to vindicate those interests against a corporation, could access the corporation's confidential communications with counsel. It also comports with the notion of fiduciary responsibility. A director advancing interests shared with the corporation should be entitled to the associated privilege of access to legal advice furnished to a corporation. A director motived by adverse interests is not so entitled."; "The fact that a director-shareholder brings a derivative action against codirectors does not necessarily signal mutuality of interest with the corporation. . . . Although a derivative plaintiff stands in the shoes of a corporation and ostensibly seeks to vindicate the corporation's interests, . . . it would be naive to assume that a plaintiff is motivated only by the interests of the corporation. The reality of complex cases in which plaintiffs in the dual role of director-shareholder assert multiple direct and derivative claims is that such efforts often arise out of a mix of interests, some of which may be adverse to interests of the corporation."; "The plaintiffs are interested in maximizing the price in the sale of their stock consistent with their fiduciary obligations as directors and shareholders of a close corporation to the corporation and other shareholders. . . . Gold Medal, as a potential buyer, is interested in minimizing the stock price, consistent with its contractual duty of good faith pursuant to the 2008 settlement agreement described earlier. Thus, the interests of the plaintiffs and Gold Medal are adverse.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State MA B 3/14

Chapter: 6.1207
Case Name: Barasch v. Williams Real Estate Co., Inc., 961 N.Y.S.2d 125, 129 (N.Y. App. Div. 2013)
(holding that a shareholder and director had interests adverse to the company, which meant that she was not entitled to privileged corporate documents; "Taken to its logical conclusion, the motion court's reasoning would prevent a corporation from freely consulting with counsel when dealing with a dispute involving a sitting director, or seeking advice regarding a director's suspected misconduct. For these reasons, we find that the parties were adverse as of September 8, 2008.")

Case Date Jurisdiction State Cite Checked
2013-01-01 State NY B 3/14

Chapter: 6.1207
Case Name: Moore v. Lender Processing Servs., Inc., Case No. 3:12 cv 205 J 99TJC MCR, 2012 U.S. Dist. LEXIS 158387, at *7 (M.D. Fla. Nov. 5, 2012)
(holding that a former executive should be given access to privileged documents to which he had access while at the company, although she would not be allowed to make a copy; "While Defendant is correct that the Garner [Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970)] case dealt specifically with a shareholder derivative action, the analysis of the case has been applied to other corporate actions beyond simply shareholder cases. Indeed, the Braniff [In re Braniff, Inc., 153 B.R. 941 (Bankr. M.D. Fla. 1993)] case was not a shareholder action. Accordingly, the simple fact that the instant case does not involve a shareholder action is not sufficient to completely disregard the Garner analysis.")

Case Date Jurisdiction State Cite Checked
2012-11-05 Federal FL B 5/13

Chapter: 6.1207
Case Name: Moore v. Lender Processing Servs., Inc., Case No. 3:12 cv 205 J 99TJC MCR, 2012 U.S. Dist. LEXIS 158387, at *9 (M.D. Fla. Nov. 5, 2012)
(holding that a former executive should be given access to privileged documents to which he had access while at the company, although she would not be allowed to make a copy; "Counsel for Defendant is hereby directed to make the withheld documents either authored by or received by Plaintiff available for inspection by Plaintiff and her attorney.")

Case Date Jurisdiction State Cite Checked
2012-11-05 Federal FL B 5/13

Chapter: 6.1207
Case Name: Wychocki v. Franciscan Sisters of Chicago, No. 10 C 2954, 2011 U.S. Dist. LEXIS 63223 (N.D. Ill. June 15, 2011)
(holding that defendant's Vice President of Human Resources Secvir was within the control group, but that she could not access privileged documents when she left the defendant; "Although Secviar may have been in the control group when the communications with counsel (DeJong) were made, once she left the Franciscan Sisters' employ, the privilege did not leave with her. Attorney-client privilege does not belong to the individual control-group member; it belongs to the corporation because the corporation is the client. . . . Thus, once Secviar's control group status terminated, so did her right to access to Franciscan Sisters' privileged documents. . . . Consequently, Secviar's status as a former control-group member of Franciscan Sisters does not entitle her to see privileged documents that she saw, or to which she had access, during the time she was employed by Franciscan Sisters."; "'While the Illinois Supreme Court has not weighed in on this issue, the Court agrees with Dexia [Dexia Credit Local v. Rogan, 231 F.R.D. 268, 277 (N.D. Ill. 2004)] that not allowing a former control group member access to privileged documents is consistent with the Illinois rule that, 'in a corporate setting, the privilege resides with the corporation, as the client, and not in the individuals who are in the control group at any given time.'").

Case Date Jurisdiction State Cite Checked
2011-06-15 Federal IL

Chapter: 6.1207
Case Name: Wychocki v. Franciscan Sisters of Chicago, No. 10 C 2954, 2011 U.S. Dist. LEXIS 63223 (N.D. Ill. June 15, 2011)
(holding that defendant's Vice President of Human Resources Secvir was within the control group, but that she could not access privileged documents when she left the defendant; "Although Secviar may have been in the control group when the communications with counsel (DeJong) were made, once she left the Franciscan Sisters' employ, the privilege did not leave with her. Attorney-client privilege does not belong to the individual control-group member; it belongs to the corporation because the corporation is the client. . . . Thus, once Secviar's control group status terminated, so did her right to access to Franciscan Sisters' privileged documents. . . . Consequently, Secviar's status as a former control-group member of Franciscan Sisters does not entitle her to see privileged documents that she saw, or to which she had access, during the time she was employed by Franciscan Sisters."; "'While the Illinois Supreme Court has not weighed in on this issue, the Court agrees with Dexia [Dexia Credit Local v. Rogan, 231 F.R.D. 268, 277 (N.D. Ill. 2004)] that not allowing a former control group member access to privileged documents is consistent with the Illinois rule that, 'in a corporate setting, the privilege resides with the corporation, as the client, and not in the individuals who are in the control group at any given time.'")

Case Date Jurisdiction State Cite Checked
2011-06-15 Federal IL

Chapter: 6.1207
Case Name: Rush v. Sunrise Senior Living, Inc., No. CL-07-11322, 2008 Va. Cir. LEXIS 12, at *10-11 (Va. Cir. Ct. Feb. 12, 2008)
(addressing the privilege implications of a company's former CFO's request for a protected document from his former employer, against which he had filed a breach of contract and defamation action; "Under the circumstances of this case, I find that the public policy of furthering Sunrise's 'full and frank communication' with its in house and outside counsel is outweighed by Mr. Rush's right of access to documents which he received or reviewed, authored or reasonably had access to as CFO during his tenure. Because a narrow application of the attorney client privilege is required by law, I find that it does not apply to such documents in this case. The issue is not whether Mr. Rush may waive the privilege that Sunrise currently holds. Rather, under the circumstances presented, I find the privilege does not apply to those documents. Applying Wigmore [8 Wigmore, Evidence (McNaughton rev. 1961)], these were not documents that were kept confidential in relation to Mr. Rush. At the same time, the privilege may still apply to documents not reasonably accessible by Mr. Rush as CFO during his tenure, documents created outside of his tenure, and documents clearly not intended to be for his eyes even during his tenure.")

Case Date Jurisdiction State Cite Checked
2008-02-12 State VA B 5/09 & 6/09
Comment:

key case


Chapter: 6.1207
Case Name: Rush v. Sunrise Senior Living, Inc., No. CL-07-11322, 2008 Va. Cir. LEXIS 12, at *7-9 (Va. Cir. Ct. Feb. 12, 2008)
(addressing the privilege implications of a company's former CFO's request for a protected document from his former employer, against which he had filed a breach of contract and defamation action; "The Supreme Court of Virginia has not yet decided whether the attorney client privilege applies against a former officer or director as to documents created during the course of his employment. However, some jurisdictions considering the issue have held that the privilege cannot be invoked against a corporation's former directors because directors are treated as the 'joint client' when they receive legal advice for the corporation. . . . Such cases find persuasive the fact that the former employee was already aware of the contents of the employee's own communications with counsel for the organization. . . . In contrast, other courts uphold the privilege without limitation and refuse access by the former officer. . . . Still other courts permit access only to the former officer's own communications with counsel.") [Woolridge, J.]

Case Date Jurisdiction State Cite Checked
2008-02-12 State VA B 5/09 & 6/09

Chapter: 6.1207
Case Name: Inter-Fluve v. Mont. Eighteenth Judicial Dist. Court, 112 P.3d 258, 264 (Mont. 2005)
September 24, 2014 (PRIVILEGE POINT)

"Are Now-Adverse Former Corporate Executives Entitled to See Their Own Files?"

Courts vehemently disagree about now-adverse former corporate executives' right to see privileged documents that were in their possession when they worked at the company. A 1987 Delaware decision provided such access. Kirby v. Kirby, Civ. A. No. 8604, 1987 Del. Ch. LEXIS 463 (Del. Ch. July 29, 1987) (not released for publication). In 2005, the Montana Supreme Court even condemned the opposite approach as "perverse." Inter-Fluve v. Mont. Eighteenth Judicial Dist. Court, 112 P.3d 258, 264 (Mont. 2005).

In Las Vegas Sands Corp. v. Eighth Judicial District Court, 331 P.3d 905 (Nev. 2014), the Nevada Supreme Court took what Montana called the "perverse" view — but which seems much more logical. A company's CEO took 40 gigabytes of documents with him when he left. After examining both sides of the issue, the court concluded that "the modern trend in caselaw" denies access to now-adverse former employees. Id. at 913. The court explained that allowing former executives "to access and use privileged information after he or she becomes adverse to the corporation" is inconsistent with the privilege’s purpose. Id. In an undoubtedly unintended swipe at the Montana analysis, the court concluded that providing such access "would have a perverse chilling effect on candid communications between corporate managers and counsel." Id.

Although the trend favors corporations' right to deny former employees access to their privileged communications, the debate probably will continue.

Case Date Jurisdiction State Cite Checked
2005-01-01 State MT
Comment:

key case


Chapter: 6.1207
Case Name: Kirby v. Kirby, Civ. A. No. 8604, 1987 Del. Ch. LEXIS 463 (Del. Ch. July 29, 1987)
September 24, 2014 (PRIVILEGE POINT)

"Are Now-Adverse Former Corporate Executives Entitled to See Their Own Files?"

Courts vehemently disagree about now-adverse former corporate executives' right to see privileged documents that were in their possession when they worked at the company. A 1987 Delaware decision provided such access. Kirby v. Kirby, Civ. A. No. 8604, 1987 Del. Ch. LEXIS 463 (Del. Ch. July 29, 1987) (not released for publication). In 2005, the Montana Supreme Court even condemned the opposite approach as "perverse." Inter-Fluve v. Mont. Eighteenth Judicial Dist. Court, 112 P.3d 258, 264 (Mont. 2005).

In Las Vegas Sands Corp. v. Eighth Judicial District Court, 331 P.3d 905 (Nev. 2014), the Nevada Supreme Court took what Montana called the "perverse" view — but which seems much more logical. A company's CEO took 40 gigabytes of documents with him when he left. After examining both sides of the issue, the court concluded that "the modern trend in caselaw" denies access to now-adverse former employees. Id. at 913. The court explained that allowing former executives "to access and use privileged information after he or she becomes adverse to the corporation" is inconsistent with the privilege’s purpose. Id. In an undoubtedly unintended swipe at the Montana analysis, the court concluded that providing such access "would have a perverse chilling effect on candid communications between corporate managers and counsel." Id.

Although the trend favors corporations' right to deny former employees access to their privileged communications, the debate probably will continue.

Case Date Jurisdiction State Cite Checked
1987-07-29 State DE
Comment:

key case


Chapter: 6.1301
Case Name: King Drug Co. of Florence, Inc. v. Cephalon, Inc., Civ. A. Nos. 2:06-cv-1797 & 2:08-cv-2141, 2013 U.S. Dist. LEXIS 129472, at *19, *3 -32, *32 33, *33 34 (E.D. Pa. Sept. 11, 2013)
(holding that a pharmaceutical company's consultant satisfied the "functional equivalent" standard; "Clarion [Consultant] was hired by Cephalon [Defendant pharmaceutical company] in 2005 to assist its employees in developing a plan to maximize the commercial success of Cephalon's modafinil products, which included Provigil, and two other drugs that had yet to reach the market, Sparlon and Nuvigil."; "We agree with the district court in Flonase [In re Flonase Antitrust Litig., 879 F. Supp. 2d 454 (E.D. Pa. 2012)], and the other courts that have adopted this broader approach to determining whether a consultant is the 'functional equivalent' of an employee for purposes of the attorney-client privilege. . . . This is particularly true in the pharmaceutical industry, where marketing and business strategies are inextricably tied to regulatory, antitrust and intellectual property issues."; "It makes little sense to impose additional requirements for extending the privilege to independent contractors merely because they are not on the corporate payroll. . . . The difference is only one of formality, and does not in itself diminish the need for the attorney and non-lawyer to collaborate to ensure that the corporation is complying with the law. Extending the privilege to a consultant performing a role similar to that of an employee, to the same extent as it applies to a corporate employee, simply 'reflects the reality that 'corporations increasingly conduct their business not merely through regular employees but also through a variety of independent contractors retained for specific purposes.'. . . Where a consultant performs a similar role to an employee, confidential communications made for the purpose of obtaining or providing legal advice should be subject to the attorney-client privilege regardless of whether the consultant was hired for a litigation or business purpose."; "[A]side from the formal aspects of the relationship between Clarion and Cephalon, the consultants were indistinguishable from the Cephalon employees. . . . Clarion personnel were in fact considered part of Cephalon's BST [business strategy team], had dedicated office space within Cephalon, and were subject to confidentiality agreements.")

Case Date Jurisdiction State Cite Checked
2013-09-11 Federal PA B 4/14

Chapter: 6.1302
Case Name: Technetics Group Daytona, Inc. v. N2 Biomedical, LLC, N2 No. 17 CVS 22738, 2018 NCBC LEXIS 116, at *2 (N.C. Super. Ct. Nov. 8, 2018)
January 2, 2019 (PRIVILEGE POINT)

State Courts Address Outsiders' Privilege Impact: Part I

Most client agents/consultants stand outside privilege protection. This means that: (1) communications with them do not deserve privilege protection; (2) their presence during otherwise privileged communications aborts that protection; and (3) disclosing pre-existing privileged communications to them waives that privilege. In the corporate setting, clients have other options for seeking privilege protection in such scenarios, but many of those fail.

In Technetics Group Daytona, Inc. v. N2 Biomedical, LLC, N2 and its lawyer retained a technology consultant "because of his expertise in relevant fields." No. 17 CVS 22738, 2018 NCBC LEXIS 116, at *2 (N.C. Super. Ct. Nov. 8, 2018). In a later patent dispute, N2 claimed privilege protection for communications with that consultant. The court rejected the privilege claim, holding that the technology consultant: (1) was not the "functional equivalent" of an N2 employee (because he had no "continuous and close working relationship with the company," and he "does not maintain an office at N2 or spend a substantial amount of his time working for N2"); (2) was not within the narrow privilege protection for client agents/consultants who are "nearly indispensable or serve some specialized purpose in facilitating the attorney-client communications" or “function more or less as a 'translator or interpreter' between the client and the lawyer" – but instead was "retained for the value of his own advice"; (3) could not claim that he had a "common interest" with N2, because he "help[ed] develop a solution to a technological problem" rather than cooperate "for purposes [of] indemnification or coordination in anticipated litigation." Id. at *10-11, *12, *14 (citations omitted).

Corporate executives sometimes erroneously assume that confidentiality agreements with such outside agent/consultants assure privilege protection or avoid waiver. They do not. Next week's Privilege Point discusses the same issue in a family setting.

Case Date Jurisdiction State Cite Checked
2018-11-08 State NC

Chapter: 6.1302
Case Name: Regents of the University of California v. Affymetrix, Inc., Case No. 3:17-cv-1394-H-NLS, 2018 U.S. Dist. LEXIS 102554 (S.D. Cal. June 19, 2018)
("Both the Ninth Circuit and this Court have held that communications between corporate counsel and a third party can retain their privilege if the third party is the functional equivalent of an employee. . . . Here, no party argues that Mr. Diwu was the functional equivalent of an employee of Affymetrix. AAT is a separate company, and the patent was eventually jointly assigned to both Affymetrix and AAT.")

Case Date Jurisdiction State Cite Checked
2018-06-19 Federal CA

Chapter: 6.1302
Case Name: Narayanan v. Southern Global Holdings Inc., No. 15-CV-6165T, 2018 U.S. Dist. LEXIS 12358, at *12 (W.D.N.Y. Jan. 25, 2018)
March 21, 2018 (PRIVILEGE POINT)

"Courts Wrestle with Privilege Protection for Client Consultants: Part I"

The attorney-client privilege protects confidential communications between clients and their lawyers. Corporate client consultants may also deserve this protection if they act as the "functional equivalent" of corporate employees. Otherwise, most but not all courts take a very narrow view of privilege protection for communications to or from such consultants.

In Durling v. Papa John's International, Inc., No. 16 Civ. 3592 (CS) (JCM), 2018 U.S. Dist. LEXIS 11584(S.D.N.Y. Jan. 24, 2018), Papa John's relied on a third-party consultant to analyze how it should reimburse its delivery drivers. Class action plaintiffs claiming minimum wage violations sought communications between Papa John's and the consultant. The court first rejected Papa John's "functional equivalent" argument – noting that the consultant's employees were "not so fully integrated into the [Papa John's] hierarchy that its employees were de facto employees of [Papa John's]." Id.at *15. The court also found that the consultant was outside privilege protection, because its "role was not as a translator or interpreter of client communications," and that Papa John's retained the consultant "not to improve the comprehension of the communications between attorney and client, but rather to obtain information that [Papa John's] did not already have." Id. at *14. One day later, another court in Narayanan v. Southern Global Holdings Inc., similarly found that a corporation's "consulting and accounting firm" failed the "functional equivalent" standard and likewise fell outside privilege protection -- because the consultant's involvement was not "nearly indispensable or serve[d] some specialized purpose in facilitating the attorney-client communications." No. 15-CV-6165T, 2018 U.S. Dist. LEXIS 12358, at *12 (W.D.N.Y. Jan. 25, 2018). Instead, "the proof suggests that [the consultant's] role in attorney-client communications was merely useful and convenient." Id. at *19.

Most courts take this narrow approach. But next week's Privilege Point will discuss a case going the other way.

Case Date Jurisdiction State Cite Checked
2018-01-25 Federal NY
Comment:

key case


Chapter: 6.1302
Case Name: Narayanan v. Sutherland Global Holdings Inc., 15-CV-6165T, 2018 U.S. Dist. LEXIS 12358 (W.D.N.Y. Jan. 25, 2018)
(analyzing the privilege implications of a company relying on a public accountant firm (run by a former employee of the company) to investigate an acquisition of land in India; holding that the accountant consultant and its managing director were not the functional equivalent of corporate employees, and were outside privilege protection as client agents/consultants; "[T]he record demonstrates that Sutherland engaged Russo [former Sutherland senior vice president of finance and former CFO], a Director of Freed Maxick [CPA agent/consultant], in August 2013 'to consult with and assist [Sutherland] with providing outsourced internal control assessment services.'. . . His role included 'gathering and analyzing the underlying facts' of the Sutherland Land Acquisition . . . and 'provid[ing] recommendations for improvements to internal controls at [Sutherland]'. . . all of which were to be detailed in the Report."; "The record also reveals that Russo and his team traveled to India for less than two weeks to conduct the investigation."; "Sutherland has proffered no evidence that it retained Freed Maxick as part of an 'economic decision' to conduct business through independent contractors rather than employees."; "Indeed, the engagement letter makes clear that Sutherland, not Freed Maxick, retained the authority to make decisions on the issues about which Freed Maxick was consulted -- a distinction of material significance."; "Nor, on this record, has Sutherland demonstrated that 'there was a continuous and close working relationship' between its principals and Russo's team 'on matters critical to [Sutherland's] position in [anticipated] litigation' at the time of the communications."; "The simple fact that Russo's investigation uncovered and developed facts that were used in this litigation does not prove the existence of that type of relationship. That Russo himself was a Sutherland employee during periods before and after his investigation of the Sutherland Land Acquisition also does not demonstrate that he was 'integrat[ed] into [Sutherland's] corporate structure' at the time he learned the attorney-client communications at issue. . . . In addition, even if Russo learned factual information about the Sutherland Land Acquisition that no one else at Sutherland knew, that fact alone does not transform Russo into a functional equivalent of a Sutherland employee."; "On the record before this Court, I find that Sutherland has not carried its burden of demonstrating that Russo functioned as a de facto employee of Sutherland at the time the challenged communications occurred, and I conclude that its assertion of privilege as to those communications is not justified. Because I conclude that the communications are not protected, I need not address whether Sutherland waived any privilege by placing the communications at issue in the litigation.")

Case Date Jurisdiction State Cite Checked
2018-01-25 Federal NY
Comment:

key case


Chapter: 6.1302
Case Name: Durling v. Papa John's Int'l, Inc., 16 Civ. 3592 (CS) (JCM), 2018 U.S. Dist. LEXIS 11584 (S.D.N.Y. Jan. 24, 2018)
(finding that a client agent/consultant analyzed the appropriate reimbursement for delivery drivers was not the function equivalent of a Papa John's employee, and was outside privilege protection; also finding that the work product doctrine did not protect documents created by the agent/consultant because it was not motivated by litigation; "PJI [Papa John's] has failed to establish that Motus [Client agent/consultant] employees were the 'functional equivalent' of PJI employees. It appears that Motus employees had neither independent authority to make decisions on PJI's behalf, nor primary responsibility for PJI's reimbursement program. Although Motus employees collaborated with and provided input to PJI's employees for over a year, Motus -- a third-party consultant with multiple employees and numerous customers other than PJI -- was not so fully integrated into the PJI hierarchy that its employees were de facto employees of PJI. . . . Moreover, even if Motus employees were the functional equivalent of PJI employees, the communications at issue between Motus and PJI would not fall within the scope of the attorney-client privilege because the predominant purpose of the communications was not to render or solicit legal advice, but rather to help evaluate the commercial wisdom of various options.")

Case Date Jurisdiction State Cite Checked
2018-01-24 Federal NY
Comment:

key case


Chapter: 6.1302
Case Name: Durling v. Papa John's International, Inc., No. 16 Civ. 3592 (CS) (JCM), 2018 U.S. Dist. LEXIS 11584(S.D.N.Y. Jan. 24, 2018)
March 21, 2018 (PRIVILEGE POINT)

"Courts Wrestle with Privilege Protection for Client Consultants: Part I"

The attorney-client privilege protects confidential communications between clients and their lawyers. Corporate client consultants may also deserve this protection if they act as the "functional equivalent" of corporate employees. Otherwise, most but not all courts take a very narrow view of privilege protection for communications to or from such consultants.

In Durling v. Papa John's International, Inc., No. 16 Civ. 3592 (CS) (JCM), 2018 U.S. Dist. LEXIS 11584(S.D.N.Y. Jan. 24, 2018), Papa John's relied on a third-party consultant to analyze how it should reimburse its delivery drivers. Class action plaintiffs claiming minimum wage violations sought communications between Papa John's and the consultant. The court first rejected Papa John's "functional equivalent" argument – noting that the consultant's employees were "not so fully integrated into the [Papa John's] hierarchy that its employees were de facto employees of [Papa John's]." Id.at *15. The court also found that the consultant was outside privilege protection, because its "role was not as a translator or interpreter of client communications," and that Papa John's retained the consultant "not to improve the comprehension of the communications between attorney and client, but rather to obtain information that [Papa John's] did not already have." Id. at *14. One day later, another court in Narayanan v. Southern Global Holdings Inc., similarly found that a corporation's "consulting and accounting firm" failed the "functional equivalent" standard and likewise fell outside privilege protection -- because the consultant's involvement was not "nearly indispensable or serve[d] some specialized purpose in facilitating the attorney-client communications." No. 15-CV-6165T, 2018 U.S. Dist. LEXIS 12358, at *12 (W.D.N.Y. Jan. 25, 2018). Instead, "the proof suggests that [the consultant's] role in attorney-client communications was merely useful and convenient." Id. at *19.

Most courts take this narrow approach. But next week's Privilege Point will discuss a case going the other way.

Case Date Jurisdiction State Cite Checked
2018-01-24 Federal NY
Comment:

key case


Chapter: 6.1302
Case Name: Homeward Residential, Inc. v. Sand Canyon Corp., 12-CV-5067 (JFK) (JLC), 12-CV-7319 (JFK) (JLC), 2017 U.S. Dist. LEXIS 171685 (S.D.N.Y. Oct. 17, 2017)
(holding that a client consultant was not the functional equivalent of an employee; "To determine whether a third party can be considered the 'functional equivalent' of an employee, courts look to (1) whether the third party had 'primary responsibility for a key corporate job,' (2) 'whether there was a continuous and close working relationship between the [third party] and the company's principals on matters critical to the company's position in litigation,' and (3) 'whether the [third party] is likely to possess information possessed by no one else at the company.'"; "None of these factors weighs in favor of Altisource employees being characterized as the functional equivalent of Ocwen employees. Altisource [provides data management and reporting services to Ocwen] was not given primary responsibility for a key corporate job. Altisource is an independent company that provides services and technology to multiple clients. Its role in storing and managing data for Ocwen did not integrate it into Ocwen's 'corporate structure.'. . . Homeward has not alleged that any of the communications between Ocwen and Altisource relate to Ocwen or Homeward's position in these cases. Even if Altisource had information possessed by no one at Ocwen, such a fact alone cannot transform the relationship such that Altisource's employees are the 'functional equivalent' of Ocwen's employees. Businesses routinely rely on other companies to carry out important functions and services, including but not limited to shipping, accounting, customer service, and, as here, data storage and management. If this relationship satisfied the functional equivalent standard, the exception could well swallow the rule.")

Case Date Jurisdiction State Cite Checked
2017-10-17 Federal NY

Chapter: 6.1302
Case Name: Blake v. Batmasian, Case No. 15-cv-81222-Marra/Matthewman, 2017 U.S. Dist. LEXIS 166208 (S.D. Fla. Oct. 5, 2017)
(in an FLSA case, holding that there had been no waiver when a functional equivalent of an employee took documents when leaving the company, but the company sued to retrieve; and when a hostile witness disclosed privileged communications over the company's lawyer's objection; "In this case, Baker was a CFO/controller for Defendants, and it would seem obvious that an attorney or attorneys for a company would have the need to confer confidentially with a company's CFO/controller, thus placing those communications within the scope of the attorney-client privilege. As CFO/controller, Baker would have arguably possessed decision-making authority about the employment issues allegedly discussed by counsel, he would have been implicated in the relevant chain of command, and he allegedly had personal involvement in the relevant activity. Thus, the Court finds that Baker, whether an employee or independent contractor, was within the scope of the attorney-client privilege. Plaintiffs' position is therefore without merit.")

Case Date Jurisdiction State Cite Checked
2017-10-05 Federal FL

Chapter: 6.1302
Case Name: Endeavor Energy Resources, L.P. v. Gatto & Reitz, LLC, 2:13cv542, 2017 U.S. Dist. LEXIS 48715 (W.D. Pa. March 31, 2017)
(finding that the functional equivalent doctrine applied; "[W]e conclude that the Pennsylvania Supreme Court will adopt the functional-equivalent doctrine when it is required to consider the issue."; "Applying the functional-equivalent doctrine to the facts of this case, Estill easily qualifies as the functional equivalent of an Endeavor employee. He routinely performed the same type of work as Endeavor employees who worked in the land department. He provided 'contract land services' and assisted Endeavor's 'exploration and operations' anywhere Endeavor 'want[ed] [him] to go.'. . . He ran title searches and reviewed leases for Endeavor. . . . In other words, he was one of several contractors who performed the same and similar tasks to those performed by Endeavor's 'landman' employees. Thus, Endeavor is entitled to invoke the attorney-client privilege where it utilized Estill in an effort to inform counsel about pressing legal matters or formulate legal strategy."; "In camera review has revealed that Estill identified and researched records, transactions and conveyances within this area of general services in order for Endeavor to gain informed legal opinions and make decisions about specific legal matters. He also assisted by providing information to devise or refine legal strategy involving the instant dispute. Considering that Estill followed Endeavor's instructions on where he should go and performed specific tasks in a legal context such as running title searches, reviewing leases, and gathering information to make informed decisions on legal matters and he understood that his conversations and undertakings involved matters that were legal in nature, the fact that he was not an Endeavor employee per se is not enough to retract the attorney-client-privilege umbrella over the communications in which he participated or defeat the invocation of the work-product doctrine."; "It follows that despite Estill not being on Endeavor's payroll, if (1) he was communicating about matters with Short, Gilmour (who must be considered Short's subordinate), or Endeavor's outside counsel in Pennsylvania . . . in an effort to gather information on a legal matter under review by Endeavor and/or to facilitate the dispensing of legal advice to Endeavor, and (2) he and counsel overseeing the undertaking had an understanding that the undertaking was occurring in such a context, then it is proper to infer that those communications were made under the veil of confidentiality that accompanies the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2017-03-31 Federal PA
Comment:

key case


Chapter: 6.1302
Case Name: Bousamra v. Excela Health, No. 1637 WDA 2015, 2017 Pa. Super. LEXIS 166 (Pa. Super. Ct. March 13, 2017)
("We also reject Excela's [Client] implication that Jarrard ["Independent public relations firm"] was part of its operation rather than a third party. Excela does not reference anything in the record establishing that Jarrard was more than a separate organization that had no common ownership interest with Excela. Ms. Cate clearly articulated that Excela was merely one of Jarrard's clients. . . . Jarrard was an independent contractor hired, in this instance, to aid Excela in making a public announcement about the purported stenting issues and doctors involved. The issue of the legal ramifications of naming Appellee and Dr. Morcos was already a decided matter when Jarrard was engaged.")

Case Date Jurisdiction State Cite Checked
2017-03-13 State PA

Chapter: 6.1302
Case Name: CAC Atlantic LLC v. Hartford Fire Ins. Co., 16 Civ. 5454 (GHW) (JCF), 2017 U.S. Dist. LEXIS 11010 (S.D.N.Y. Jan. 19, 2017)
(in an opinion by Magistrate Judge Francis, inexplicably citing Kovel in the context of a client rather than a lawyer agent; "The documents now at issue are all communications to or from Minogue ["a building consultant retained by Hartford prior to its disclaimer of coverage"], and since Minogue is not 'the client,' they are not privileged on their face. Nevertheless, there are two theories that might bring these communications within the privilege. First, an attorney may rely on a non-lawyer to facilitate communications with the client, including persons with expertise such as accountants used to convey technical information. See United States v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961); Osorio, 75 N.Y.2d at 84, 550 N.Y.5.2d at 615. Here, however, Hartford has not demonstrated that Minogue was engaged simply to 'translate' information for purposes of providing legal advice."; "Second, even though Minogue is not itself a party, its communications with counsel and the defendant might be privileged if it were the functional equivalent of an employee of Hartford."; "Hartford has not established that Minogue served such an integral role in light of these factors that it must be treated as if it were an employee for purposes of the privilege.")

Case Date Jurisdiction State Cite Checked
2017-01-19 Federal NY
Comment:

key case


Chapter: 6.1302
Case Name: Natural Alternatives Int'l, Inc. v. Creative Compounds, Inc., Case No.: 15-cv-02081-JM-AGS, 2016 U.S. Dist. LEXIS 175231 (S.D. Cal. Dec. 16, 2016)
("NAI argues that the emails to and from Derek Cornelius cannot be privileged because he is merely an independent contractor, not Creative's employee. Creative, in turn, argues that Cornelius is a 'functional employee' based on his level of interaction with the company. Creative attaches to its opposition Cornelius's affidavit, explaining his role at the company: he is an independent contractor for Creative; he is the sole individual responsible for Creative's product development and research; the board and executive listen to and follow his guidance on those matters; part of his 'role as a key decision maker for Creative' includes being the 'primary interface with Creative's patent and litigation counsel;' when he talks to Nolte, he is seeking legal advice on behalf of Creative; he receives compensation for these activities; Creative's business makes up about 25% of his daily work; he has worked with Creative for over twelve years; and he expects to be a Rule 30(b)(6) witness given the breadth of his knowledge."; "Here, Cornelius falls within the same functional employee analysis as Graf did, and thus is covered by the attorney-client privilege. Like Graf, Cornelius's affidavit establishes that he is a regular and integral part of Creative's business, especially when it comes to product development and working with patent counsel.")

Case Date Jurisdiction State Cite Checked
2016-12-16 Federal CA

Chapter: 6.1302
Case Name: Sierra Development Co. v. Chartwell Advisory Group, Ltd., Case No. 3:13-CV-0602-RTB (VPC), 2016 U.S. Dist. LEXIS 100290 (D. Nev. Aug. 1, 2016)
("The Ninth Circuit adopted Bieter's 'functional employee' principles in United States v. Graf, 610 F.3d 1148, 1159 (9th Cir. 2010).")

Case Date Jurisdiction State Cite Checked
2016-08-01 Federal NV

Chapter: 6.1302
Case Name: In re Lumber Liquidator S Chinese-Manufactured Flooring Products, MDL No. 1:15-md-02627, 2015 WL 947286 (E.D. Va. Dec. 28, 2015) (unpublished)
(finding that defendant's crisis management consultant met the "functional equivalent" standard, but that many of the withheld documents did not intrinsically deserve privilege protection; "Defendant hired Mercury to provide various and expanding services described in summary as 'crisis management' as the events leading to litigation unfolded. Defendant contends that Mercury was so tightly integrated into defendant's damage control operation that Mercury's personnel became 'the functional equivalent of employees,' so that it meets the standard for inclusion within the attorney-client privilege. The court agrees that Mercury's relationship with defendant meets that standard, so that its personnel would not be privilege-negating 'outsiders,' and any communication involving Mercury that otherwise met the standard for invocation of the privilege would qualify for non-disclosure."; "[T]he court finds that counsel engaging with Mercury personnel were assisting defendant only in the business activity of managing a public/customer relations crisis, with no observable interface, much less overlap, between that effort and one to plan the defense of claims made in litigation."; "There are a few communications involving Mercury that relate to possible administrative proceedings before CARB or another agency and how to deal with that agency in that context. When Mercury personnel participated in communication about interaction with an agency (e.g. the redacted portion of Exhibit 5) as distinguished from public relations efforts, then that material may be redacted or withheld. All the rest of the material tendered for review (e.g. beginning with 'Second . . .' in the redacted portion of Exhibit 7) relates to counsel involved in quintessential business advice as distinguished from legal advice or strategy, and it and all similar material must be produced."; "If defendant contends that other, dissimilar material relating to Mercury's work is privileged or protected, defendant may log and produce it for in camera review.")

Case Date Jurisdiction State Cite Checked
2015-12-28 Federal VA
Comment:

key case


Chapter: 6.1302
Case Name: BEW Parking Corp. v. Apthorp Associates LLC, 601155/09, 2015 N.Y. Misc. LEXIS 857 (N.Y. Sup. Ct. March 24, 2015)
(finding that defendant's agents were within the privilege, because the defendant did not have any employees of its own; "Apthorp [Owner and landlord of a parking garage in New York] sufficiently demonstrated that the privileged communications were between its lawyers and its agents, Mann Realty Associates, GACE Consulting Engineers PC, Milrose Consultants, Inc., and Seamus Henchy & Associates who were hired by Apthorp to manage the building and repairs. Apthorp submitted an affidavit from Peter O'Connor of Broadwall Management of Apthorp LLC, the entity that currently serves as managing agent of the building. In his affidavit, O'Connor stated that Apthorp 'has no employees of its own' and instead acts 'through various agents that are typically hired by contract.' Apthorp also submitted affidavits from its lawyers Jeffrey Goldman and Howard Zipser who both affirmed that Apthorp does not have any employees of its own and hired the above-mentioned third-parties as its agents for the purpose of obtaining legal advice concerning the vacate order, repairs to the premises, landmark issues, and Apthorp's ongoing dispute with Plaintiffs.")

Case Date Jurisdiction State Cite Checked
2015-03-24 State NY

Chapter: 6.1302
Case Name: Church & Dwight Co. Inc. v. SPD Swiss Precision Diagnostics, 14-cv-585, 2014 U.S. Dist. LEXIS 175552 (S.D.N.Y. Dec. 19, 2014)
(analyzing communications to and from an outside marketing firm; questioning the "functional equivalent" doctrine's viability in the Second Circuit; "Although a number of courts around the country, including several within this Circuit, have adopted this exception, it has never been recognized by the Second Circuit. . . . Without deciding whether the functional equivalent exception is valid, the Court concludes that SPD has failed to satisfy its burden under either mode of analysis."; "[T]he Second Circuit has not adopted the equivalent function exception. Because the Second Circuit has recognized very limited exceptions to privilege waiver, the Court has doubts as to whether it would endorse such an approach.")

Case Date Jurisdiction State Cite Checked
2014-12-19 Federal NY

Chapter: 6.1302
Case Name: Church & Dwight Co. v. SPD Swiss Precision Diagnostics, GmbH, No. 14-cv-585, 2014 U.S. Dist. LEXIS 175552 (S.D.N.Y. Dec. 19, 2014)
February 11, 2015 (PRIVILEGE POINT)

“A Southern District of New York Decision Adopts Narrow Views of Privilege Protection for Independent Contractors and Lawyer-Retained Consultants: Part I”

Not all recent Southern District of New York decisions have favored privilege protection in the corporate setting. In Church & Dwight Co. v. SPD Swiss Precision Diagnostics, GmbH, No. 14-cv-585, 2014 U.S. Dist. LEXIS 175552 (S.D.N.Y. Dec. 19, 2014), the court dealt with two issues that frequently arise in the corporate context: (1) the "functional equivalent" doctrine, and (2) privilege protection for communications with outside consultants on whom lawyers rely in giving legal advice.

The "functional equivalent" doctrine treats as corporate employees for privilege purposes non-employees who are the "functional equivalent" of full-time employees. In this era of outsourcing, one can easily imagine the disruption corporations would face if the privilege did not protect communications with, or in the presence of, temporary secretaries or long-time outsourced contractors who report every day to the company just as employees do. Since first articulated by the Eighth Circuit in In re Bieter, 16 F.3d 929, 933-34 (8th Cir. 1994), the "functional equivalent" doctrine has spread throughout the country, and only a few courts have questioned it. However, the Church & Dwight decision noted that the Second Circuit has not adopted the doctrine, and "[b]ecause the Second Circuit has recognized very limited exceptions to privilege waiver, the Court has doubts as to whether it would endorse such an approach." 2014 U.S. Dist. LEXIS 175552, at *6.

Although the court justifiably concluded that the outside marketing consultant at issue would not have satisfied the generally accepted "functional equivalent" doctrine standard, its negative comments should worry those seeking privilege protection in the corporate setting. Next week's Privilege Point will address the standard for protecting communications with lawyer-retained consultants.

Case Date Jurisdiction State Cite Checked
2014-12-19 Federal NY
Comment:

key case


Chapter: 6.1302
Case Name: Georgia-Pacific LLC v. OfficeMax Inc., No. C 12-02797 WHO (LB), 2014 U.S. Dist. LEXIS 89735, at *20 (N.D. Cal. June 30, 2014)
("[T]he parties have not provided the court with enough information about AME's relationship with GP for the court to determine whether AME indeed was the functional equivalent of a GP employee. In the few opinions by district courts within this Circuit that have analyzed this issue (none of which was cited by the parties), the courts were provided with much more detail in this regard.")

Case Date Jurisdiction State Cite Checked
2014-06-30 Federal CA

Chapter: 6.1302
Case Name: MediaTek Inc. v. Freescale Semiconductor, Inc., Case No. 4:11-cv-05341 YGR (JSC), 2013 U.S. Dist. LEXIS 147032, at *11-12 (N.D. Cal. Oct. 10, 2013)
("In certain circumstances, courts have extended the attorney-client privilege to the substantive advice and technical assistance of agents of the attorney. . . . For example, in the corporate context, communications between an outside consultant and a company's corporate counsel may fall within the scope of the entity's attorney-client privilege where the consultant acts as a 'functional employee' to the company by providing information which facilitates the obtaining of legal advice. . . . However, if the third-party consultant is retained by the client for non-legal purposes, the privilege does not apply. . . . What is vital to the privilege is that the consultant was retained 'for the purpose of obtaining legal advice.'" (citation omitted))

Case Date Jurisdiction State Cite Checked
2013-10-10 Federal CA B 5/14

Chapter: 6.1302
Case Name: King Drug Co. of Florence, Inc. v. Cephalon, Inc., Civ. A. Nos. 2:06-cv-1797 & 2:08-cv-2141, 2013 U.S. Dist. LEXIS 129472, at *19, *3 -32, *32 33, *33 34 (E.D. Pa. Sept. 11, 2013)
(holding that a pharmaceutical company's consultant satisfied the "functional equivalent" standard; "Clarion [Consultant] was hired by Cephalon [Defendant pharmaceutical company] in 2005 to assist its employees in developing a plan to maximize the commercial success of Cephalon's modafinil products, which included Provigil, and two other drugs that had yet to reach the market, Sparlon and Nuvigil."; "We agree with the district court in Flonase [In re Flonase Antitrust Litig., 879 F. Supp. 2d 454 (E.D. Pa. 2012)], and the other courts that have adopted this broader approach to determining whether a consultant is the 'functional equivalent' of an employee for purposes of the attorney-client privilege. . . . This is particularly true in the pharmaceutical industry, where marketing and business strategies are inextricably tied to regulatory, antitrust and intellectual property issues."; "It makes little sense to impose additional requirements for extending the privilege to independent contractors merely because they are not on the corporate payroll. . . . The difference is only one of formality, and does not in itself diminish the need for the attorney and non-lawyer to collaborate to ensure that the corporation is complying with the law. Extending the privilege to a consultant performing a role similar to that of an employee, to the same extent as it applies to a corporate employee, simply 'reflects the reality that 'corporations increasingly conduct their business not merely through regular employees but also through a variety of independent contractors retained for specific purposes.'. . . Where a consultant performs a similar role to an employee, confidential communications made for the purpose of obtaining or providing legal advice should be subject to the attorney-client privilege regardless of whether the consultant was hired for a litigation or business purpose."; "[A]side from the formal aspects of the relationship between Clarion and Cephalon, the consultants were indistinguishable from the Cephalon employees. . . . Clarion personnel were in fact considered part of Cephalon's BST [business strategy team], had dedicated office space within Cephalon, and were subject to confidentiality agreements.")

Case Date Jurisdiction State Cite Checked
2013-09-11 Federal PA B 4/14

Chapter: 6.1302
Case Name: BSP Software, LLC v. Motio, Inc., No. 12 C 2100, 2013 U.S. Dist. LEXIS 95511, at *2 (N.D. Ill. July 9, 2013)
October 2, 2013 (PRIVILEGE POINT)

"Northern District of Illinois Questions the "Functional Equivalent" Doctrine"

One of the notable recent privilege trends involves most courts' adoption of what is called the "functional equivalent" doctrine – which extends privilege protection to nonemployees who are the functional equivalent of corporate employees. The vast majority of courts recognize the functional equivalent doctrine, which greatly benefits corporations relying on temporary workers or outsourcing corporate functions such as tech support or even human resources support.

However, a few courts take a narrower approach. In BSP Software, LLC v. Motio, Inc., No. 12 C 2100, 2013 U.S. Dist. LEXIS 95511, at *2 (N.D. Ill. July 9, 2013), the court addressed a functional equivalent argument by a company which did not have a formal board of directors, but which asserted privilege protection for communications to and from its "advisory board." The court rejected the company's privilege assertion, finding that the company waived its privilege protection by communicating with its advisory board. Ironically, the court expressed as its first worry the possibility that the functional equivalent doctrine would "increase the level of uncertainty" about the privilege's applicability. Id. At *7.

Although rejecting the functional equivalent doctrine might avoid legal uncertainty, it creates enormous factual uncertainty. Anyone communicating with or in the presence of even a long-term temp could unknowingly abort or waive privilege protection.

Case Date Jurisdiction State Cite Checked
2013-07-09 Federal IL
Comment:

key case


Chapter: 6.1302
Case Name: Phillips v. C.R. Bard, Inc., 290 F.R.D. 615, 633 (D. Nev. 2013)
(holding that consultants were the "functional equivalent" of employees; "[T]he court will turn to the Ninth Circuit's application of the 'functional equivalent' of an employee theory in deciding whether specific communications are covered by the attorney-client privilege."; quoting a lengthy affidavit supporting the functional equivalent claim)

Case Date Jurisdiction State Cite Checked
2013-01-01 Federal NV B 3/14

Chapter: 6.1302
Case Name: I.R.S. Gen. Couns. Mem. 20123901F, at 2, 3, 4 (Aug. 27, 2012) (available at http://www.irs.gov/pub/irs-lafa/20123901F.pdf)
(criticizing a tax payer's privilege log, and requiring additional information about third parties mentioned on the log; "Several of the entries in the privilege log refer to meetings at which individuals other than directors or officers of Taxpayer were present. Specifically, the first, second, and third unnumbered entries list three attendees at the meeting who are employees of ___________. The eleventh, twelfth, and thirteenth unnumbered entries list an attendee from _________, an investment banker and 'strategic advisor' to Taxpayer. The fourteenth and fifteenth unnumbered entries list attendees from ____________, financial advisors to Taxpayer."; "Taxpayer is the proponent of the privilege and bears the burden of proving that the privilege applies, including that it has not waived the privilege. Taxpayer provided no information for you to evaluate whether the outside advisors who attended the meetings had a sufficient relationship to Taxpayer and to the transactions that were the subject of the legal advice. Without such a showing, Taxpayer has not demonstrated that the communications were, in fact, confidential and has not demonstrated that if the communications were confidential, that it has not waived the privilege."; "Should you decide to ask Taxpayer to supplement its privilege log, Taxpayer should provide information about the extent of the consultants' relationship to Taxpayer. The following questions are designed to seek additional information in this regard: Please quantify the percentage of time spent on the transaction by consultants in relation to the total time spent on the transaction by both consultants and employees. Please state who (name, employer, title) provided the information to counsel upon which the advice was based. Please describe what, if any, capacity the consultants are authorized to act for Taxpayer. Please explain where the consultants are in Taxpayer's chain-of-command regarding the subject matter of the legal services. Please explain to what extent, if any, the consultants are personally responsible for or are involved in the activity that might lead to liability for Taxpayer. Please provide, to the extent not already provided, a detailed factual explanation showing that the consultant is the functional equivalent of one of Taxpayer's employees and include supporting documentation (for example but not limitation, consulting agreements, letters of engagement).")

Case Date Jurisdiction State Cite Checked
2012-08-27 Other Other B 6/13

Chapter: 6.1302
Case Name: BSP Software, LLC v. Motio, Inc., No. 12 C 2100, 2013 U.S. Dist. LEXIS 95511, at *5 6, *6, *7 8, *8, *9, *9 10, *10 11 (N.D. Ill. July 9, 2011)
(rejecting the functional equivalent doctrine; "BSP argues that sharing the privileged information with the advisory board did not waive the privilege any more than would sharing privileged information with a duly constituted board of directors. . . . This at bottom is an argument that, for purposes of the attorney-client privilege, the advisory board should be treated as the functional equivalent of a formal board of directors. However, BSP ignores that this 'functional equivalent' test has never been adopted by the Seventh Circuit, and has been treated skeptically by trial courts in this district."; "[A]pplication of the test would increase the uncertainty on the important question of when disclosure to non-employees who comprise an advisory board would waive the privilege."; "It would not be productive to increase the level of uncertainty about whether a communication with a third party -- such as BSP's advisory board here -- would waive the privilege. Nor do we see the need to do [sic] employ a functional equivalent test when a corporation such as BSP could create a formal board of directors to fulfill what Mr. Rachmiel describes as the 'central' function of deciding whether to pursue litigation, and vest that board with the authority to make that decision and not merely offer non-binding advice."; "[W]e are concerned that over time, the application of the functional equivalent test could expand the scope of the privilege by eroding the circumstances in which it can be waived."; "We therefore will not adopt that test in deciding BSP's motion. As a result, the cases that BSP cites for the proposition that we should equate BSP's advisory board with a formal board of directors are inapposite. Those cases . . . turn on the acceptance of the functional equivalent theory that we do not endorse."; "That said, we note that even if we were to apply the functional equivalent test as formulated in Asia Pulp [Export-Import Bank v. Asia Pulp & Paper Co., 232 F.R.D. 103 (S.D.N.Y. 2005)], we would find that BSP waived the privilege when it disclosed privileged information to its 'advisory board.' BSP's submissions show that there was a 'continuous and close working relationship' with the 'advisory board,' which is a portion of the second factor of the Asia Pulp test. But, BSP's submissions fail to show that that working relationship was on matters 'critical to the company's position in litigation.' . . . To the contrary, BSP's submissions show that the advice it received from the advisory board was for business and financial matters, and not litigation."; "Moreover, BSP falls far short of showing that the advisory board meets the other two factors of the Asia Pulp test. Unlike a real board of directors, the advisory board had no decision making authority or 'primary responsibility for a key corporate job.' . . . Moreover, BSP has not offered any evidence that the advisory board possessed information that no one else at BSP would possess. . . . The four persons who comprised that advisory board were simply people whose opinions Mr. Rachmiel [officer of plaintiff] valued and trusted, akin to a 'kitchen cabinet' of trusted friends and associates to whom many presidents over the years have resorted for advice. Even under the functional equivalent test, BSP's advisory board would not fall within the scope of the privilege.")

Case Date Jurisdiction State Cite Checked
2011-07-09 Federal IL B 4/14

Chapter: 6.1302
Case Name: DE Techs., Inc. v. Dell, Inc., Civ. A. No. 7:04CV00628, 2006 U.S. Dist. LEXIS 62580, at *6-8 (W.D. Va. Sept. 1, 2006)
(reversing a magistrate judge's order indicating that the privilege would not protect communications with the president of the plaintiff company and a non employee acquaintance of one of the plaintiff's principals; finding the holding in Bieter "instructive," and holding that "the existence of a formal employment relationship is not the primary factor to consider in determining whether attorney-client privilege applies to the Blasdel [non-employee acquaintance of one of the plaintiff's principals] communications. Like the third party in Bieter, Blasdel was 'intimately involved' in achieving DE's [plaintiff] chief objective, obtaining a patent. . . . Blasdel's participation was at the direction of DE, in order to assist attorneys in providing legal services. In addition, communications between Blasdel, DE, and DE's attorneys were made with the expectation of confidentiality. . . . The court believes that it is especially appropriate to look beyond the existence of a formal employment relationship in those cases involving a small, fledgling company which is compelled by circumstance to rely on compensation in kind, or even prior friendships with consulting specialists, in obtaining information required by the company's attorney in order to provide legal services. . . . In short, the court is unable to conclude, based on the existing record, that the documents at issue are, or are not, privileged. The court does conclude, however, that resolution of this issue cannot turn solely, or even primarily, on the nature of the employment relationship between DE and the various third parties listed above. In the case of Blasdel, it is just as likely that the consultant was a 'functional equivalent' of a DE employee. For these reasons, the court sustains plaintiff's objections to the orders granting defendant's motions to compel.")

Case Date Jurisdiction State Cite Checked
2006-09-01 Federal VA BS 6/07

Chapter: 6.1302
Case Name: In re Bieter, 16 F.3d 929, 933-34 (8th Cir. 1994)
February 11, 2015 (PRIVILEGE POINT)

“A Southern District of New York Decision Adopts Narrow Views of Privilege Protection for Independent Contractors and Lawyer-Retained Consultants: Part I”

Not all recent Southern District of New York decisions have favored privilege protection in the corporate setting. In Church & Dwight Co. v. SPD Swiss Precision Diagnostics, GmbH, No. 14-cv-585, 2014 U.S. Dist. LEXIS 175552 (S.D.N.Y. Dec. 19, 2014), the court dealt with two issues that frequently arise in the corporate context: (1) the "functional equivalent" doctrine, and (2) privilege protection for communications with outside consultants on whom lawyers rely in giving legal advice.

The "functional equivalent" doctrine treats as corporate employees for privilege purposes non-employees who are the "functional equivalent" of full-time employees. In this era of outsourcing, one can easily imagine the disruption corporations would face if the privilege did not protect communications with, or in the presence of, temporary secretaries or long-time outsourced contractors who report every day to the company just as employees do. Since first articulated by the Eighth Circuit in In re Bieter, 16 F.3d 929, 933-34 (8th Cir. 1994), the "functional equivalent" doctrine has spread throughout the country, and only a few courts have questioned it. However, the Church & Dwight decision noted that the Second Circuit has not adopted the doctrine, and "[b]ecause the Second Circuit has recognized very limited exceptions to privilege waiver, the Court has doubts as to whether it would endorse such an approach." 2014 U.S. Dist. LEXIS 175552, at *6.

Although the court justifiably concluded that the outside marketing consultant at issue would not have satisfied the generally accepted "functional equivalent" doctrine standard, its negative comments should worry those seeking privilege protection in the corporate setting. Next week's Privilege Point will address the standard for protecting communications with lawyer-retained consultants.

Case Date Jurisdiction State Cite Checked
1994-01-01 Federal
Comment:

key case


Chapter: 6.1303
Case Name: FTC v. Innovative Designs, Inc., Civ. A. No. 16-1669, 2017 U.S. Dist. LEXIS 162222 (W.D. Pa. Sept. 28, 2017)
(a lab tester consultant was the functional equivalent of a corporate employee; "Determining functional equivalence entails a broad, practical analysis of a consultant's relationship with a corporation. . . . Accordingly, the Court should look to whether the consultant acted for the corporation, had a role similar to that of an employee, and/or was an integral member of a team assigned to handle an issue related to litigation. . . . The Court must also consider whether the consultant possessed information needed by corporate attorneys in order to render legal advice."; "In his May 22, 2017, Declaration, Riccelli explains that Defendant hired Manni during the FTC's initial investigation in order to aid in preparation of a defense against any future claims by the FTC. . . . He acknowledges that Manni, and his company BRC Laboratories, had been previously engaged by Defendant to conduct the R-value testing of Insultex. . . . However, the new engagement was different; Manni was to consult with Defendant's non-testifying experts and attorneys to prepare responses to FTC inquiries, and assist with R-value testing of Insultex and with modifications to a machine used for R-value testing. . . . Manni was, thus, considered to be part of a 'defense team.'. . . This characterization of Manni's involvement with Defendant was reiterated in the Declaration by Loew, also dated May 22, 2017. . . . Loew noted that Manni was part of a defense team, with which he worked, and that communications between Manni and Defendant were understood to be confidential. . . . Manni was included in the email chain at issue with the expectation of confidentiality. . . . Finally, the Court observes that Defendant disclosed to the FTC that Manni was being utilized as a consulting expert in a January 19, 2015, letter."; "Although no formal consulting agreement existed, and Manni had been involved with Defendant well before litigation was foreseeable, the record supports a finding that Manni was an integral member of a team assembled to address the FTC's investigation and subsequent lawsuit. Indeed, his inclusion in all the email chains at issue in the instant Motion corroborates the Declarations to the extent that Manni worked as part of a team, participated in conference calls, and consulted for the purpose of conducting additional testing and responding to FTC inquiries. Additionally, having conducted much of the original R-value testing for Insultex at his lab, Manni would clearly have information valuable to Defendant's attorneys in preparing to respond to, and/or defend against, the FTC. Consequently, the Court finds that Defendant has demonstrated that Manni was the functional equivalent of an employee.")

Case Date Jurisdiction State Cite Checked
2017-09-28 Federal PA

Chapter: 6.1303
Case Name: FTC v. Innovative Designs, Inc., Civ. A. No. 16-1669, 2017 U.S. Dist. LEXIS 162222 (W.D. Pa. Sept. 28, 2017)
(a lab tester consultant was the functional equivalent of a corporate employee; "Determining functional equivalence entails a broad, practical analysis of a consultant's relationship with a corporation. . . . Accordingly, the Court should look to whether the consultant acted for the corporation, had a role similar to that of an employee, and/or was an integral member of a team assigned to handle an issue related to litigation. . . . The Court must also consider whether the consultant possessed information needed by corporate attorneys in order to render legal advice."; "In his May 22, 2017, Declaration, Riccelli explains that Defendant hired Manni during the FTC's initial investigation in order to aid in preparation of a defense against any future claims by the FTC. . . . He acknowledges that Manni, and his company BRC Laboratories, had been previously engaged by Defendant to conduct the R-value testing of Insultex. . . . However, the new engagement was different; Manni was to consult with Defendant's non-testifying experts and attorneys to prepare responses to FTC inquiries, and assist with R-value testing of Insultex and with modifications to a machine used for R-value testing. . . . Manni was, thus, considered to be part of a 'defense team.'. . . This characterization of Manni's involvement with Defendant was reiterated in the Declaration by Loew, also dated May 22, 2017. . . . Loew noted that Manni was part of a defense team, with which he worked, and that communications between Manni and Defendant were understood to be confidential. . . . Manni was included in the email chain at issue with the expectation of confidentiality. . . . Finally, the Court observes that Defendant disclosed to the FTC that Manni was being utilized as a consulting expert in a January 19, 2015, letter."; "Although no formal consulting agreement existed, and Manni had been involved with Defendant well before litigation was foreseeable, the record supports a finding that Manni was an integral member of a team assembled to address the FTC's investigation and subsequent lawsuit. Indeed, his inclusion in all the email chains at issue in the instant Motion corroborates the Declarations to the extent that Manni worked as part of a team, participated in conference calls, and consulted for the purpose of conducting additional testing and responding to FTC inquiries. Additionally, having conducted much of the original R-value testing for Insultex at his lab, Manni would clearly have information valuable to Defendant's attorneys in preparing to respond to, and/or defend against, the FTC. Consequently, the Court finds that Defendant has demonstrated that Manni was the functional equivalent of an employee.")

Case Date Jurisdiction State Cite Checked
2017-09-28 Federal PA

Chapter: 6.1303
Case Name: Tech Pharmacy Services, LLC v. Alixa Rx LLC, Civ. A. No. 4:15-CV-766, 2017 U.S. Dist. LEXIS 130369 (E.D. Tex. Aug. 16, 2017)
("Here, it is undisputed that attorney-client privilege attached to communication between Alixa [company which acted to provide certain services] and Walker [Lawyer]. It is further undisputed that Anthony [the company which contracted with Alixa [company which acted to provide certain services] was an employee or contractor for Alixa when Anthony [the company which contracted with Alixa [company which acted to provide certain services] transmitted the Disputed Documents to Walker in October 2012. Following an in camera review of the Disputed Documents, the Court finds the documents meet the requirements set forth in Upjohn. For example, the Disputed Documents constitute: (1) communications between Anthony and Walker on matters pertinent to Anthony's duties to Alixa under the assignment agreement; and (2) information that Walker could use to obtain patent protection for Alixa. Since attorney-client privilege covered Alixa, the same privilege extends to Anthony's communications with Walker. Accordingly, the Court holds the Disputed Documents are privileged.")

Case Date Jurisdiction State Cite Checked
2017-08-16 Federal TX

Chapter: 6.1303
Case Name: Endeavor Energy Resources, L.P. v. Gatto & Reitz, LLC, 2:13cv542, 2017 U.S. Dist. LEXIS 48715 (W.D. Pa. March 31, 2017)
(finding that the functional equivalent doctrine applied; "[W]e conclude that the Pennsylvania Supreme Court will adopt the functional-equivalent doctrine when it is required to consider the issue."; "Applying the functional-equivalent doctrine to the facts of this case, Estill easily qualifies as the functional equivalent of an Endeavor employee. He routinely performed the same type of work as Endeavor employees who worked in the land department. He provided 'contract land services' and assisted Endeavor's 'exploration and operations' anywhere Endeavor 'want[ed] [him] to go.'. . . He ran title searches and reviewed leases for Endeavor. . . . In other words, he was one of several contractors who performed the same and similar tasks to those performed by Endeavor's 'landman' employees. Thus, Endeavor is entitled to invoke the attorney-client privilege where it utilized Estill in an effort to inform counsel about pressing legal matters or formulate legal strategy."; "In camera review has revealed that Estill identified and researched records, transactions and conveyances within this area of general services in order for Endeavor to gain informed legal opinions and make decisions about specific legal matters. He also assisted by providing information to devise or refine legal strategy involving the instant dispute. Considering that Estill followed Endeavor's instructions on where he should go and performed specific tasks in a legal context such as running title searches, reviewing leases, and gathering information to make informed decisions on legal matters and he understood that his conversations and undertakings involved matters that were legal in nature, the fact that he was not an Endeavor employee per se is not enough to retract the attorney-client-privilege umbrella over the communications in which he participated or defeat the invocation of the work-product doctrine."; "It follows that despite Estill not being on Endeavor's payroll, if (1) he was communicating about matters with Short, Gilmour (who must be considered Short's subordinate), or Endeavor's outside counsel in Pennsylvania . . . in an effort to gather information on a legal matter under review by Endeavor and/or to facilitate the dispensing of legal advice to Endeavor, and (2) he and counsel overseeing the undertaking had an understanding that the undertaking was occurring in such a context, then it is proper to infer that those communications were made under the veil of confidentiality that accompanies the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2017-03-31 Federal PA

Chapter: 6.1303
Case Name: Natural Alternatives Int'l, Inc. v. Creative Compounds, Inc., Case No.: 15-cv-02081-JM-AGS, 2016 U.S. Dist. LEXIS 175231 (S.D. Cal. Dec. 16, 2016)
("NAI argues that the emails to and from Derek Cornelius cannot be privileged because he is merely an independent contractor, not Creative's employee. Creative, in turn, argues that Cornelius is a 'functional employee' based on his level of interaction with the company. Creative attaches to its opposition Cornelius's affidavit, explaining his role at the company: he is an independent contractor for Creative; he is the sole individual responsible for Creative's product development and research; the board and executive listen to and follow his guidance on those matters; part of his 'role as a key decision maker for Creative' includes being the 'primary interface with Creative's patent and litigation counsel;' when he talks to Nolte, he is seeking legal advice on behalf of Creative; he receives compensation for these activities; Creative's business makes up about 25% of his daily work; he has worked with Creative for over twelve years; and he expects to be a Rule 30(b)(6) witness given the breadth of his knowledge."; "Here, Cornelius falls within the same functional employee analysis as Graf did, and thus is covered by the attorney-client privilege. Like Graf, Cornelius's affidavit establishes that he is a regular and integral part of Creative's business, especially when it comes to product development and working with patent counsel.")

Case Date Jurisdiction State Cite Checked
2016-12-16 Federal CA

Chapter: 6.1303
Case Name: Fosbre v. Las Vegas Sands Corp., Case No. 2:10-cv-00765-APG-GWF Consolidated with: Case No.: 2:10-cv-01210-APG-GWF, 2016 U.S. Dist. LEXIS 5422 (D. Nev. Jan. 14, 2016)
(finding that Goldman Sachs and financial advisors were the functional equivalent of employees and therefore within the privilege; "This Court agrees with those courts that have adopted the broad practical approach in applying the functional equivalent doctrine. Stafford Trading [Stafford Trading, Inc. v. Lovely, No. 05-4868, 2007 U.S. Dist. LEXIS 13062, 2007 WL 611252, at *7 (N.D.Ill. February 22, 2007)] is particularly instructive because the services undertaken by Goldman Sachs in that case were similar to the services it provided on behalf of LVS in this case."; "During the time period from late 2007 to late 2008, Defendants were dealing with the crisis in the world financial markets and the need for LVS to raise substantial funds (ultimately in excess of $2 billion) to support its extensive business operations and development projects in the United States, Macao and Singapore, and to avoid insolvency. Based on the Court's review of the Defendants' exhibits, Opposition Exhibits (#177), it is reasonably clear that Goldman Sachs acted in the role of financial advisor to the upper echelon of LVS's management, including its chief executive officer (CEO), Defendant Sheldon Adelson, and LVS's Board of Directors, in providing different financing options and making recommendations to LVS as to which avenues to pursue in raising the necessary funds."; "[T]he Court finds that the relationship between LVS and Goldman Sachs was not an 'arms-length' negotiation between a prospective borrower and a prospective lender during which various proposals were exchanged. The Court also finds that Jefferies acted as a financial advisor to the non-management members of LVS's Board with respect to the financial transactions with the Adelson family. The fact that Defendants have not asserted the attorney-client privilege with respect to communications with other investment banks is not inconsistent with Defendants' position that Goldman Sachs and Jefferies personnel acted in the capacity of financial advisors to LVS and/or its directors, which qualifies them as the functional equivalent of employees."; "Plaintiffs also argue that the assertion of the functional equivalent doctrine is inconsistent with Goldman Sachs' disclaimer of any fiduciary or agency relationship in the September 28, 2008 contract with LVS."; "Although the consultant's disavowal of a fiduciary or agency relationship with the company is a factor to be considered, it does not alone preclude a finding that the contractor or consultant was the functional equivalent of an employee. Here, Goldman Sachs' relationship with LVS was that of a financial advisor in developing its complex financing strategy. This supports a finding that Goldman Sachs' personnel performing these duties were the functional equivalent of LVS employees."; "Plaintiffs argue that Defendants have the burden of demonstrating that each of the Goldman Sachs and Jefferies employees, who participated in or received allegedly confidential attorney-client communications, was the functional equivalent of an LVS employee."; "It is not surprising that Goldman Sachs and Jefferies assigned numerous employees to work on financial projects or transactions as substantial as those involved in this case. . . . It is more appropriate to require Defendants to supplement their privilege log and demonstrate the applicability of the privilege to the individual employees. Such supplementation should include a description of the duties or role of the individual Goldman Sachs and Jefferies employees to demonstrate that they were proper participants in, or recipients of, confidential attorney communications, and that they understood the communications were for purposes of obtaining legal advice, and were intended to be confidential.")

Case Date Jurisdiction State Cite Checked
2016-01-14 Federal NV
Comment:

key case


Chapter: 6.1303
Case Name: Fosbre v. Las Vegas Sands Corp., Case No. 2:10-cv-00765-APG-GWF c/w Case No. 2:10-cv-01210-APG-GWF, 2016 U.S. Dist. LEXIS 5422 (D. Nev. Jan. 14, 2016)
March 23, 2016 (PRIVILEGE POINT)

"How Far Does the "Functional Equivalent" Standard Extend?"

Many previous Privilege Points have addressed the corporate-friendly "functional equivalent" doctrine, under which non-employees who essentially act as employees are inside privilege protection. An equal number of Privilege Points have explained that disclosure even to friendly client consultant/agents normally waives privilege protection (although not work product protection). One might think that these two types of non-employees would be easy to distinguish, but some courts blur the line.

In Fosbre v. Las Vegas Sands Corp., Case No. 2:10-cv-00765-APG-GWF c/w Case No. 2:10-cv-01210-APG-GWF, 2016 U.S. Dist. LEXIS 5422 (D. Nev. Jan. 14, 2016), the court addressed Sands’ privilege claims for its communications with Goldman Sachs employees who helped it deal with the 2007-2008 financial crisis. After describing Goldman Sachs' relationship with Sands as "that of a financial advisor in developing its complex financial strategy," the court surprisingly found that "Goldman Sachs' personnel performing these duties were the functional equivalent of [Sands] employees." Id. At *19. The court required Sands to supplement its privilege log and demonstrate that the individual Goldman Sachs employees (among other things) "understood the communications were for purposes of obtaining legal advice and were intended to be confidential."Id. At *45.

Most courts would not go this far — instead finding that disclosing of privileged communications to Goldman Sachs employees waived privilege protection. But corporations and their lawyers should consider claiming that friendly third parties such as financial advisors are inside privilege protection under an expansive "functional equivalent" doctrine.

Case Date Jurisdiction State Cite Checked
2016-01-14 Federal NV
Comment:

key case


Chapter: 6.1303
Case Name: In re Lumber Liquidator S Chinese-Manufactured Flooring Products, MDL No. 1:15-md-02627, 2015 WL 947286 (E.D. Va. Dec. 28, 2015) (unpublished)
(finding that defendant's crisis management consultant met the "functional equivalent" standard, but that many of the withheld documents did not intrinsically deserve privilege protection; "Defendant hired Mercury to provide various and expanding services described in summary as 'crisis management' as the events leading to litigation unfolded. Defendant contends that Mercury was so tightly integrated into defendant's damage control operation that Mercury's personnel became 'the functional equivalent of employees,' so that it meets the standard for inclusion within the attorney-client privilege. The court agrees that Mercury's relationship with defendant meets that standard, so that its personnel would not be privilege-negating 'outsiders,' and any communication involving Mercury that otherwise met the standard for invocation of the privilege would qualify for non-disclosure."; "[T]he court finds that counsel engaging with Mercury personnel were assisting defendant only in the business activity of managing a public/customer relations crisis, with no observable interface, much less overlap, between that effort and one to plan the defense of claims made in litigation."; "There are a few communications involving Mercury that relate to possible administrative proceedings before CARB or another agency and how to deal with that agency in that context. When Mercury personnel participated in communication about interaction with an agency (e.g. the redacted portion of Exhibit 5) as distinguished from public relations efforts, then that material may be redacted or withheld. All the rest of the material tendered for review (e.g. beginning with 'Second . . .' in the redacted portion of Exhibit 7) relates to counsel involved in quintessential business advice as distinguished from legal advice or strategy, and it and all similar material must be produced."; "If defendant contends that other, dissimilar material relating to Mercury's work is privileged or protected, defendant may log and produce it for in camera review.")

Case Date Jurisdiction State Cite Checked
2015-12-28 Federal VA
Comment:

key case


Chapter: 6.1303
Case Name: Grand Canyon Skywalk Development LLC v. Cieslak, Case Nos.: 2:15-cv-01189-JAD-HWF2:13-cv-00596-JAD-GWF, 2015 U.S. Dist. LEXIS 107457 (D. Nev. Aug. 13, 2015)
(analyzing many opinions dealing with the role of public relations consultants in privilege and work product analyses; ultimately concluding that a public relations consultant was the "functional equivalent" of an employee, and therefore was within privilege protection; "Courts are divided on whether the attorney-client privilege extends to communications between a client's counsel and a public relations consultant that the client or its counsel hires to assist in ongoing or anticipated legal matters or disputes. In support of its position, Gallagher & Kennedy relies on In re Grand Jury Subpoenas Dated March 24, 2003 ('In re Grand Jury Subpoenas'), 265 F.Supp.2d 321 (S.D.N.Y. 2003); F.T.C. v. Glaxosmithkline, 294 F.3d 141, 352 U.S. App. D.C. 343 (D.C.Cir. 2002); and In re Copper Market Antitrust Litigation, 200 F.R.D. 213 (S.D.N.Y. 2001). In opposing the application of the privilege, Plaintiffs rely on Scott v. Chipotle Mexican Grill Inc., 2015 U.S. Dist. LEXIS 40176, 2015 WL 1424009, *3 (S.D.N.Y. 2015); Egiazaryan v. Zalmayev, 290 F.R.D. 421, 431 (S.D.N.Y. 2013); Calvin Klein Trademark Trust v. Wachner, 198 F.R.D. 53, 54-55 (S.D.N.Y. 2000); Fine v. ESPN, Inc., 2015 U.S. Dist. LEXIS 68704, 2015 WL 3447690, *11 (N.D.N.Y. 2015); and McNamee v. Clemens, 2013 U.S. Dist. LEXIS 179736, 2013 WL 6572899, *1, 6 (E.D.N.Y. 2013). The decisions cited by the parties chiefly emanate from federal district courts in New York. The Court has found two decisions from federal districts in other circuits that also address this issue. See Hadjih v. Evenflo Company, Inc., 2012 U.S. Dist. LEXIS 76100, 2012 WL 1957302 (D.Colo. 2012); and Schaeffer v. Gregory Village Partners, L.P., 2015 U.S. Dist. LEXIS 3966, 2015 WL 349039 (N.D.Cal. 2015)."; "The cases that support application of the attorney-client privilege to communications with public relations consultants retained by the party or its counsel do so on two grounds that are not necessarily mutually exclusive. Some courts find that in high profile cases a public relations strategy is an important element in the preparation or presentation of a party's claim or defense. These courts are therefore willing to extend the protection of the attorney-client privilege to a party's and its counsel's communications with a public relations consultant which are directed at supporting the client's legal position in the case or dispute."; "Other courts have upheld the assertion of the attorney-client privilege to communications with a public relations consultant on the grounds that the consultant is the functional equivalent of the client's employee."; "Nevada has adopted the Upjohn test for applying the attorney-client privilege to confidential communications with corporate employees. The functional equivalent test extends Upjohn to agents where the circumstances indicate that they should be treated the same as employees. This Court predicts the Nevada Supreme Court will apply the functional equivalent test in appropriate circumstances."; "An attorney for a corporation or governmental entity should be able to provide confidential legal advice to employees or agents in performing their duties on behalf of the corporation or governmental entity. In the case of a public relations consultant who is hired to conduct a media relations campaign on behalf of the client with respect to a lawsuit or legal dispute, it is important that the client's counsel be able to provide confidential legal advice to the consultant so that he can perform his duties on behalf of the client in accordance with that legal advice."; inexplicably pointing to the fact that the public relations consultant did not provide general advice to the company, but rather provided advice only about a specific issue; "There is no evidence that Scutari & Cieslak undertook to provide general public relations services to the Tribe beyond the legal dispute with the Plaintiffs. Under these circumstances, the confidential legal advice that Gallagher & Kennedy provided to Scutari & Cieslak with respect to the legal dispute is within the scope of the attorney-client privilege and is protected from disclosure unless the privilege has otherwise been waived by the Tribe.")

Case Date Jurisdiction State Cite Checked
2015-08-13 Federal NV
Comment:

key case


Chapter: 6.1303
Case Name: Grand Canyon Skywalk Development LLC v. Cieslak, Case Nos. 2:15-cv-01189- & 2:13-cv-00596-JAD-GWF, 2015 U.S. Dist. LEXIS 107457, at *22 (D. Nev. Aug. 13, 2015)
October 14, 2015 (PRIVILEGE POINT)

"Court Analyzes Possible Privilege Protection for Communications with Public Relations Consultants"

Corporations and their lawyers frequently work with public relations consultants when facing ongoing or anticipated litigation. In the work product context, courts agree that disclosing preexisting work product to such consultants does not waive that robust protection, but disagree about whether the consultants can themselves create protected work product.

The analysis in the attorney-client privilege context involves even more judicial disagreements. In Grand Canyon Skywalk Development LLC v. Cieslak, the District of Nevada extensively dealt with this issue, starting with an understatement: "Courts are divided on whether the attorney-client privilege extends to communications between a client's counsel and the public relations consultant that the client or its counsel hires to assist in ongoing or anticipated legal matters or disputes." Case Nos. 2:15-cv-01189- & 2:13-cv-00596-JAD-GWF, 2015 U.S. Dist. LEXIS 107457, at *22 (D. Nev. Aug. 13, 2015). The court catalogued many cases dealing with this issue — noting that some decisions protect such communications either (1) because the lawyers needed the consultants' assistance in providing legal advice, or (2) because "the consultant is the functional equivalent of the client's employee." Id. At *27. The court ultimately extended privilege protection using the second approach. Ironically, the court described as a helpful fact that "[t]here is no evidence that [the public relations consultant] undertook to provide general public relations services to the [defendant] beyond the legal dispute with the Plaintiffs." Id. At *40. That fact actually cuts against the "functional equivalent" standard.

Most courts consider public relations consultants outside privilege protection. The good news is that corporations most frequently call upon such consultants during or in anticipation of litigation, making the work product doctrine protection available in many cases.

Case Date Jurisdiction State Cite Checked
2015-08-13 Federal NV
Comment:

key case


Chapter: 6.1303
Case Name: BEW Parking Corp. v. Apthorp Associates LLC, 601155/09, 2015 N.Y. Misc. LEXIS 857 (N.Y. Sup. Ct. March 24, 2015)
(finding that defendant's agents were within the privilege, because the defendant did not have any employees of its own; "Apthorp [Owner and landlord of a parking garage in New York] sufficiently demonstrated that the privileged communications were between its lawyers and its agents, Mann Realty Associates, GACE Consulting Engineers PC, Milrose Consultants, Inc., and Seamus Henchy & Associates who were hired by Apthorp to manage the building and repairs. Apthorp submitted an affidavit from Peter O'Connor of Broadwall Management of Apthorp LLC, the entity that currently serves as managing agent of the building. In his affidavit, O'Connor stated that Apthorp 'has no employees of its own' and instead acts 'through various agents that are typically hired by contract.' Apthorp also submitted affidavits from its lawyers Jeffrey Goldman and Howard Zipser who both affirmed that Apthorp does not have any employees of its own and hired the above-mentioned third-parties as its agents for the purpose of obtaining legal advice concerning the vacate order, repairs to the premises, landmark issues, and Apthorp's ongoing dispute with Plaintiffs.")

Case Date Jurisdiction State Cite Checked
2015-03-24 State NY

Chapter: 6.1303
Case Name: Smith v. Unilife Corp., Civ. A. No. 13-5101, 2015 U.S. Dist. LEXIS 18755 (E.D. Pa. Feb. 13, 2015)
(finding that the attorney-client privilege protected draft 10-K filings, and that the nonlawyer consultants were the functional equivalent of employees; "A trial judge is not in a good position to second-guess a corporate decision to rely on an independent consultant or an employee to accomplish a specific task and/or to make recommendations to the CEO or general counsel. A review of the documents demonstrated that the communications were with counsel and were made for the purpose of assisting the corporation in securing legal advice or making legal decisions.")

Case Date Jurisdiction State Cite Checked
2015-02-13 Federal PA
Comment:

key case


Chapter: 6.1303
Case Name: Smith v. Unilife Corp., Civ. A. No. 13-5101, 2015 U.S. Dist. LEXIS 18755 (E.D. Pa. Feb. 13, 2015)
April 29, 2015 (PRIVILEGE POINT)

“Court Offers Good Privilege News for Draft Form 10-K Filings”

Courts disagree about the attorney-client privilege protection's applicability to draft documents whose final version will be publicly disclosed. Public companies naturally worry about this issue's impact on their draft securities filings.

In Smith v. Unilife Corp., Civ. A. No. 13-5101, 2015 U.S. Dist. LEXIS 18755 (E.D. Pa. Feb. 13, 2015), a whistleblower plaintiff alleged that Unilife's 2011 Form 10-K report contained false and misleading statements. He sought discovery of Unilife's draft 10-Ks and company lawyers' communications to and from nonlawyer consultants "concerning the [drafts'] contents, style and 'wordsmithing.'" Id. at *5. The court first found that the consultants were the "functional equivalent" of employees — refreshingly acknowledging that "[a] trial judge is not in a good position to second-guess a corporate decision to rely on an independent consultant or an employee to accomplish a specific task." Id. at *7-8. The court then held that the draft 10-Ks deserved privilege protection — citing an earlier decision protecting 10-Ks that contained "legal advice and communications between a law firm and its client . . . even though the final version of the Form 10-K was publicly filed, because the drafts contained information not included in the final version." Id. at *9-10 (citing In re U.S. Healthcare, Inc. Sec. Litig., Master File No. 88-0559, 1989 U.S. Dist. LEXIS 1043, at *12 (E.D. Pa. Feb. 8, 1989)).

Although many decisions seem hostile to corporations' privilege claims, some courts' analyses provide good news.

Case Date Jurisdiction State Cite Checked
2015-02-13 Federal PA
Comment:

key case


Chapter: 6.1303
Case Name: Schaeffer v. Gregory Village Partners, L.P., Case No. 13-cv-04358-JST, 2015 U.S. Dist. LEXIS 8797 (N.D. Cal. Jan. 25, 2015)
(finding that a public relations consultant was the functional equivalent of a corporate employee; "Under these precedents, Craig was a 'functional employee' of Gregory Village. At the time she was hired, Gregory Village faced regulatory action by the Board in light of possible contamination at the site, as well as potential litigation with neighbors whose properties might have been contaminated. She also interacted with neighbors-potential opponents in litigation, who turned out, at least in this case, to be actual opposing litigants-to gather information from them regarding their concerns about the contamination; to secure access agreements so Gregory Village could perform on-site sampling; to plan and execute sampling on site; and to attempt to avoid litigation on behalf of Gregory Village by offering to install depressurization systems to prevent contaminated vapor particles from entering Plaintiffs' home. When attending public meetings, interacting with neighbors, and otherwise being the face of the company, Gregory Village's attorneys counseled her actions. In all these activities, Craig acted as the public face of the company and provided information to Gregory Village's legal staff that was useful and necessary to evaluate legal strategy for the company going forward. Craig acted as Gregory Village's functional employee for the purposes of the attorney-client privilege."; "Here, unlike in Calvin Klein [Calvin Klein Trademark Trust v. Wachner, 198 F.R.D. 53 (S.D.N.Y. 2000)], Craig communicated directly with the regulatory bodies and neighbors/potential legal adversaries that were the source of Gregory Village's legal concerns. She collected information from neighbors that she transmitted to Gregory Village's attorneys for the purpose of assisting counsel to obtain access agreements and negotiate potential disputes in the shadow of possible litigation. She was hired solely to perform those functions, unlike the firm in Calvin Klein, which the company had already retained for general public relations. In contrast to the firm in Calvin Klein, Craig's duties for Gregory Village were so intertwined with the subject matter for which Gregory Village sought legal advice that she should be treated as a functional employee. Finally, the Calvin Klein court expressly relied on the fact that the communications at issue were not made for the purpose of obtaining legal advice; unlike here, the court did not expressly decide whether the firm's employees should be treated as Calvin Klein's 'functional employees.'")

Case Date Jurisdiction State Cite Checked
2015-01-25 Federal CA

Chapter: 6.1303
Case Name: King Drug Co. of Florence, Inc. v. Cephalon, Inc.; FTC v. Cephalon, Inc., Civ. A. No. 2:06-cv-1797, Civ. A. No. 2:08-cv-2141, 2013 U.S. Dist. LEXIS 129472 (E.D. Pa. Sept. 11, 2013)
(concluding that a business consultant was the "functional equivalent" of a corporate employee; "With this legal standard in mind, and after reviewing the documents withheld or redacted by Cephalon, we conclude that the Clarion documetns fall squarely within the attorney-client privilege. Clarion was performing a role for Cephalon substantially identical to that of employees. Indeed, aside from the formal aspects of the relationship between Clarion and Cephalon, the consultants were indistinguishable from the Cephalon employees. Clarion's consultants worked closely with Cephalon employees to provide managerial support and strategic advice, and participated in making presentations to Cephalon's senior management regarding commercial and regulatory strategy for Cephalon's modafinil products. . . . Clarion personnel were in fact considered part of Cephalon's BST, had dedicated office space within Cephalon, and were subject to confidentiality agreements. . . . In all material aspects, Clarion's consultants were the functional equivalent of the Cephalon employees tasked with developing marketing and regulatory strategies for its modafinil products.")

Case Date Jurisdiction State Cite Checked
2013-09-11 Federal PA

Chapter: 6.1303
Case Name: King Drug Co. of Florence, Inc. v. Cephalon, Inc., Civ. A. Nos. 2:06-cv-1797 & 2:08-cv-2141, 2013 U.S. Dist. LEXIS 129472, at *19, *3 -32, *32 33, *33 34 (E.D. Pa. Sept. 11, 2013)
(holding that a pharmaceutical company's consultant satisfied the "functional equivalent" standard; "Clarion [Consultant] was hired by Cephalon [Defendant pharmaceutical company] in 2005 to assist its employees in developing a plan to maximize the commercial success of Cephalon's modafinil products, which included Provigil, and two other drugs that had yet to reach the market, Sparlon and Nuvigil."; "We agree with the district court in Flonase [In re Flonase Antitrust Litig., 879 F. Supp. 2d 454 (E.D. Pa. 2012)], and the other courts that have adopted this broader approach to determining whether a consultant is the 'functional equivalent' of an employee for purposes of the attorney-client privilege. . . . This is particularly true in the pharmaceutical industry, where marketing and business strategies are inextricably tied to regulatory, antitrust and intellectual property issues."; "It makes little sense to impose additional requirements for extending the privilege to independent contractors merely because they are not on the corporate payroll. . . . The difference is only one of formality, and does not in itself diminish the need for the attorney and non-lawyer to collaborate to ensure that the corporation is complying with the law. Extending the privilege to a consultant performing a role similar to that of an employee, to the same extent as it applies to a corporate employee, simply 'reflects the reality that 'corporations increasingly conduct their business not merely through regular employees but also through a variety of independent contractors retained for specific purposes.'. . . Where a consultant performs a similar role to an employee, confidential communications made for the purpose of obtaining or providing legal advice should be subject to the attorney-client privilege regardless of whether the consultant was hired for a litigation or business purpose."; "[A]side from the formal aspects of the relationship between Clarion and Cephalon, the consultants were indistinguishable from the Cephalon employees. . . . Clarion personnel were in fact considered part of Cephalon's BST [business strategy team], had dedicated office space within Cephalon, and were subject to confidentiality agreements.")

Case Date Jurisdiction State Cite Checked
2013-09-11 Federal PA B 4/14

Chapter: 6.1303
Case Name: Leone v. Owsley, Civ. A. No. 12-cv-02961-PAB-KMT, 2013 U.S. Dist. LEXIS 75432, at *10, *10-11 (D. Colo. May 29, 2013)
("Courts applying the rationale of the Upjohn [Upjohn v. United States, 449 U.S. 385 (1981)] and Bieter [In re Bieter, 16 F.3d 929 (8th Cir. 1994)] cases to third party communications with an attorney have held that confidential communications between a party's counsel and a non-testifying expert or consultant, hired in anticipation of litigation, are protected by the attorney-client privilege."; "Defendants are not entitled to communications between Plaintiff and his counsel and experts hired for the purposes of litigation.")

Case Date Jurisdiction State Cite Checked
2013-05-29 Federal CO B 8/13

Chapter: 6.1303
Case Name: Digital Vending Servs. Intl, Inc. v. Univ. of Phoenix, A. No. 2:09cv555, 2013 U.S. Dist. LEXIS 53108, at *25-26, *27, *28, *28-29, *29-30 (E.D. Va. Apr. 22, 2013)
(analyzing the privilege impact of communications to and from General McKnight, who is described as a "member" of plaintiff corporation but not a board member; "This case presents a different question than classic corporate attorney-privilege cases like Upjohn [Upjohn v. United States, 449 U.S. 383 (1981)], Allen [In re Allen, 106 F.3d 582 (4th Cir. 1997)], and Bieter [In re Bieter Co., 16 F.3d 929 (8th Cir. 1994)]. Those cases dealt with communications from the client's agent or former agent to the client's counsel, thereby giving counsel information that is pertinent to prepare the case. In this case, the question is whether the privilege applies when the reverse occurs, where counsel gives information and advice to the client and the client's agent or former agent."; "These cases counsel the Court to ask whether General McKnight had a need to know the information included in counsel's communications with the DVSI Board. The Court finds it appropriate to apply the functional equivalence test in this situation. The test, however, is not whether General McKnight is the functional equivalent of an employee, but of a member of the board of directors."; "Similar to communications between counsel and employees, communications between counsel and current members of a Board of Directors are generally protected. . . . This protection stems from a Board of Director's need to know counsel's advice given that it must make strategic decisions for the company."; "[T]he facts show that General McKnight was a trusted advisor with an on-going role with the Board of Directors. General McKnight had been part of DVSI since its inception and held key knowledge of the enterprise. Although General McKnight resigned from DVSI's Board of Directors sometime before the present litigation commenced, he did so to avoid a conflict of interest and remained involved in DVSI. The email communications reviewed by the Court, appear to support Plaintiff's counsel's representation that General McKnight was a sort of 'ex-officio' member of the Board of Directors. He was included in a number of discussions and strategic decisions regarding this litigation. For example, some of the email communications asked that he be part of strategy conference calls. General McKnight was a person who the Board of Directors frequently called upon for advice."; "The facts demonstrate that General McKnight was the functional equivalent of a member of the Board of Directors. He had a need to know counsel's advice as he was part of the strategic decision making for DVSI.")

Case Date Jurisdiction State Cite Checked
2013-04-22 Federal VA B 3/14

Chapter: 6.1303
Case Name: In re High Tech Emp. Antitrust Litig., Case. No. 11-CV-2509-LHK-PSG, 2013 U.S. Dist. LEXIS 28623, at *12-13 & *4, *14, *15-16 (N.D. Cal. Feb. 28, 2013)
(holding that a non-employee who acted as what the court called an "executive whisperer" for Google should be treated as the functional equivalent of a Google employee; "Prior to 2007, Campbell [eventual Google employee who earned a nominal salary, and who had earlier acted as a consultant, but in both roles operated 'an elite niche in the technology industry . . . best described as an 'executive whisperer'"] served as a consultant to Google in a role that Campbell himself described as 'informal[].'" (internal citation omitted); "This evidence suffices to show that Campbell's role at Google was that of a functional equivalent of an employee even before an employment agreement was executed."; "In 2007, Campbell signed an agreement with Google that rendered him officially a part-time employee with the company. According to Campbell's declaration and Google's representations, Campbell's role with the company did not significantly change following the change in his status. The change in Campbell's status from an outside consultant to Google's employee further supports that Campbell from 2007 until the end of his relationship with Google is at least eligible for the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2013-02-28 Federal CA B 3/14

Chapter: 6.1303
Case Name: Phillips v. C.R. Bard, Inc., 290 F.R.D. 615, 633 (D. Nev. 2013)
(holding that consultants were the "functional equivalent" of employees; "[T]he court will turn to the Ninth Circuit's application of the 'functional equivalent' of an employee theory in deciding whether specific communications are covered by the attorney-client privilege."; quoting a lengthy affidavit supporting the functional equivalent claim)

Case Date Jurisdiction State Cite Checked
2013-01-01 Federal NV B 3/14

Chapter: 6.1303
Case Name: Phillips v. C.R. Bard, Inc., 290 F.R.D. 615, 643 (D. Nev. 2013)
("After reviewing the document, the court has determined that the initial e-mail was sent to outside counsel for purposes of obtaining legal advice. The fact that it was forwarded on to Dr. Lehmann, Bard's consultant at the time, does not defeat the privilege. Plaintiff has conceded that Dr. Lehmann was considered the 'functional equivalent' of a Bard employee. . . . In addition, Bard represents that the other non-lawyer employees who were copied on the initial e-mail were given this information in order to perform their jobs. Bard has supplied the affidavit of Donna L. Passero, Esq., which indicates that Bard has a policy that communications between and among Bard employees and counsel, made for the purposes of giving or receiving legal advice and those created in anticipation of litigation are kept confidential.")

Case Date Jurisdiction State Cite Checked
2013-01-01 Federal NV B 3/14

Chapter: 6.1303
Case Name: DE Techs., Inc. v. Dell, Inc., Civ. A. No. 7:04CV00628, 2006 U.S. Dist. LEXIS 62580, at *6-8 (W.D. Va. Sept. 1, 2006)
(reversing a magistrate judge's order indicating that the privilege would not protect communications with the president of the plaintiff company and a non employee acquaintance of one of the plaintiff's principals; finding the holding in Bieter "instructive," and holding that "the existence of a formal employment relationship is not the primary factor to consider in determining whether attorney-client privilege applies to the Blasdel [non-employee acquaintance of one of the plaintiff's principals] communications. Like the third party in Bieter, Blasdel was 'intimately involved' in achieving DE's [plaintiff] chief objective, obtaining a patent. . . . Blasdel's participation was at the direction of DE, in order to assist attorneys in providing legal services. In addition, communications between Blasdel, DE, and DE's attorneys were made with the expectation of confidentiality. . . . The court believes that it is especially appropriate to look beyond the existence of a formal employment relationship in those cases involving a small, fledgling company which is compelled by circumstance to rely on compensation in kind, or even prior friendships with consulting specialists, in obtaining information required by the company's attorney in order to provide legal services. . . . In short, the court is unable to conclude, based on the existing record, that the documents at issue are, or are not, privileged. The court does conclude, however, that resolution of this issue cannot turn solely, or even primarily, on the nature of the employment relationship between DE and the various third parties listed above. In the case of Blasdel, it is just as likely that the consultant was a 'functional equivalent' of a DE employee. For these reasons, the court sustains plaintiff's objections to the orders granting defendant's motions to compel.")

Case Date Jurisdiction State Cite Checked
2006-09-01 Federal VA BS 6/07
Comment:

key case


Chapter: 6.1303
Case Name: In re U.S. Healthcare, Inc. Sec. Litig., Master File No. 88-0559, 1989 U.S. Dist. LEXIS 1043, at *12 (E.D. Pa. Feb. 8, 1989)
April 29, 2015 (PRIVILEGE POINT)

“Court Offers Good Privilege News for Draft Form 10-K Filings”

Courts disagree about the attorney-client privilege protection's applicability to draft documents whose final version will be publicly disclosed. Public companies naturally worry about this issue's impact on their draft securities filings.

In Smith v. Unilife Corp., Civ. A. No. 13-5101, 2015 U.S. Dist. LEXIS 18755 (E.D. Pa. Feb. 13, 2015), a whistleblower plaintiff alleged that Unilife's 2011 Form 10-K report contained false and misleading statements. He sought discovery of Unilife's draft 10-Ks and company lawyers' communications to and from nonlawyer consultants "concerning the [drafts'] contents, style and 'wordsmithing.'" Id. at *5. The court first found that the consultants were the "functional equivalent" of employees — refreshingly acknowledging that "[a] trial judge is not in a good position to second-guess a corporate decision to rely on an independent consultant or an employee to accomplish a specific task." Id. at *7-8. The court then held that the draft 10-Ks deserved privilege protection — citing an earlier decision protecting 10-Ks that contained "legal advice and communications between a law firm and its client . . . even though the final version of the Form 10-K was publicly filed, because the drafts contained information not included in the final version." Id. at *9-10 (citing In re U.S. Healthcare, Inc. Sec. Litig., Master File No. 88-0559, 1989 U.S. Dist. LEXIS 1043, at *12 (E.D. Pa. Feb. 8, 1989)).

Although many decisions seem hostile to corporations' privilege claims, some courts' analyses provide good news.

Case Date Jurisdiction State Cite Checked
1989-02-08 Federal PA
Comment:

key case


Chapter: 6.1304
Case Name: Technetics Group Daytona, Inc. v. N2 Biomedical, LLC, N2 No. 17 CVS 22738, 2018 NCBC LEXIS 116, at *2 (N.C. Super. Ct. Nov. 8, 2018)
January 2, 2019 (PRIVILEGE POINT)

State Courts Address Outsiders' Privilege Impact: Part I

Most client agents/consultants stand outside privilege protection. This means that: (1) communications with them do not deserve privilege protection; (2) their presence during otherwise privileged communications aborts that protection; and (3) disclosing pre-existing privileged communications to them waives that privilege. In the corporate setting, clients have other options for seeking privilege protection in such scenarios, but many of those fail.

In Technetics Group Daytona, Inc. v. N2 Biomedical, LLC, N2 and its lawyer retained a technology consultant "because of his expertise in relevant fields." No. 17 CVS 22738, 2018 NCBC LEXIS 116, at *2 (N.C. Super. Ct. Nov. 8, 2018). In a later patent dispute, N2 claimed privilege protection for communications with that consultant. The court rejected the privilege claim, holding that the technology consultant: (1) was not the "functional equivalent" of an N2 employee (because he had no "continuous and close working relationship with the company," and he "does not maintain an office at N2 or spend a substantial amount of his time working for N2"); (2) was not within the narrow privilege protection for client agents/consultants who are "nearly indispensable or serve some specialized purpose in facilitating the attorney-client communications" or “function more or less as a 'translator or interpreter' between the client and the lawyer" – but instead was "retained for the value of his own advice"; (3) could not claim that he had a "common interest" with N2, because he "help[ed] develop a solution to a technological problem" rather than cooperate "for purposes [of] indemnification or coordination in anticipated litigation." Id. at *10-11, *12, *14 (citations omitted).

Corporate executives sometimes erroneously assume that confidentiality agreements with such outside agent/consultants assure privilege protection or avoid waiver. They do not. Next week's Privilege Point discusses the same issue in a family setting.

Case Date Jurisdiction State Cite Checked
2018-11-08 State NC

Chapter: 6.1304
Case Name: Narayanan v. Southern Global Holdings Inc., No. 15-CV-6165T, 2018 U.S. Dist. LEXIS 12358, at *12 (W.D.N.Y. Jan. 25, 2018)
March 21, 2018 (PRIVILEGE POINT)

"Courts Wrestle with Privilege Protection for Client Consultants: Part I"

The attorney-client privilege protects confidential communications between clients and their lawyers. Corporate client consultants may also deserve this protection if they act as the "functional equivalent" of corporate employees. Otherwise, most but not all courts take a very narrow view of privilege protection for communications to or from such consultants.

In Durling v. Papa John's International, Inc., No. 16 Civ. 3592 (CS) (JCM), 2018 U.S. Dist. LEXIS 11584(S.D.N.Y. Jan. 24, 2018), Papa John's relied on a third-party consultant to analyze how it should reimburse its delivery drivers. Class action plaintiffs claiming minimum wage violations sought communications between Papa John's and the consultant. The court first rejected Papa John's "functional equivalent" argument – noting that the consultant's employees were "not so fully integrated into the [Papa John's] hierarchy that its employees were de facto employees of [Papa John's]." Id.at *15. The court also found that the consultant was outside privilege protection, because its "role was not as a translator or interpreter of client communications," and that Papa John's retained the consultant "not to improve the comprehension of the communications between attorney and client, but rather to obtain information that [Papa John's] did not already have." Id. at *14. One day later, another court in Narayanan v. Southern Global Holdings Inc., similarly found that a corporation's "consulting and accounting firm" failed the "functional equivalent" standard and likewise fell outside privilege protection -- because the consultant's involvement was not "nearly indispensable or serve[d] some specialized purpose in facilitating the attorney-client communications." No. 15-CV-6165T, 2018 U.S. Dist. LEXIS 12358, at *12 (W.D.N.Y. Jan. 25, 2018). Instead, "the proof suggests that [the consultant's] role in attorney-client communications was merely useful and convenient." Id. at *19.

Most courts take this narrow approach. But next week's Privilege Point will discuss a case going the other way.

Case Date Jurisdiction State Cite Checked
2018-01-25 Federal NY
Comment:

key case


Chapter: 6.1304
Case Name: Narayanan v. Sutherland Global Holdings Inc., 15-CV-6165T, 2018 U.S. Dist. LEXIS 12358 (W.D.N.Y. Jan. 25, 2018)
(analyzing the privilege implications of a company relying on a public accountant firm (run by a former employee of the company) to investigate an acquisition of land in India; holding that the accountant consultant and its managing director were not the functional equivalent of corporate employees, and were outside privilege protection as client agents/consultants; "[T]he record demonstrates that Sutherland engaged Russo [former Sutherland senior vice president of finance and former CFO], a Director of Freed Maxick [CPA agent/consultant], in August 2013 'to consult with and assist [Sutherland] with providing outsourced internal control assessment services.'. . . His role included 'gathering and analyzing the underlying facts' of the Sutherland Land Acquisition . . . and 'provid[ing] recommendations for improvements to internal controls at [Sutherland]'. . . all of which were to be detailed in the Report."; "The record also reveals that Russo and his team traveled to India for less than two weeks to conduct the investigation."; "Sutherland has proffered no evidence that it retained Freed Maxick as part of an 'economic decision' to conduct business through independent contractors rather than employees."; "Indeed, the engagement letter makes clear that Sutherland, not Freed Maxick, retained the authority to make decisions on the issues about which Freed Maxick was consulted -- a distinction of material significance."; "Nor, on this record, has Sutherland demonstrated that 'there was a continuous and close working relationship' between its principals and Russo's team 'on matters critical to [Sutherland's] position in [anticipated] litigation' at the time of the communications."; "The simple fact that Russo's investigation uncovered and developed facts that were used in this litigation does not prove the existence of that type of relationship. That Russo himself was a Sutherland employee during periods before and after his investigation of the Sutherland Land Acquisition also does not demonstrate that he was 'integrat[ed] into [Sutherland's] corporate structure' at the time he learned the attorney-client communications at issue. . . . In addition, even if Russo learned factual information about the Sutherland Land Acquisition that no one else at Sutherland knew, that fact alone does not transform Russo into a functional equivalent of a Sutherland employee."; "On the record before this Court, I find that Sutherland has not carried its burden of demonstrating that Russo functioned as a de facto employee of Sutherland at the time the challenged communications occurred, and I conclude that its assertion of privilege as to those communications is not justified. Because I conclude that the communications are not protected, I need not address whether Sutherland waived any privilege by placing the communications at issue in the litigation.")

Case Date Jurisdiction State Cite Checked
2018-01-25 Federal NY
Comment:

key case


Chapter: 6.1304
Case Name: Durling v. Papa John's Int'l, Inc., 16 Civ. 3592 (CS) (JCM), 2018 U.S. Dist. LEXIS 11584 (S.D.N.Y. Jan. 24, 2018)
(finding that a client agent/consultant analyzed the appropriate reimbursement for delivery drivers was not the function equivalent of a Papa John's employee, and was outside privilege protection; also finding that the work product doctrine did not protect documents created by the agent/consultant because it was not motivated by litigation; "PJI [Papa John's] has failed to establish that Motus [Client agent/consultant] employees were the 'functional equivalent' of PJI employees. It appears that Motus employees had neither independent authority to make decisions on PJI's behalf, nor primary responsibility for PJI's reimbursement program. Although Motus employees collaborated with and provided input to PJI's employees for over a year, Motus -- a third-party consultant with multiple employees and numerous customers other than PJI -- was not so fully integrated into the PJI hierarchy that its employees were de facto employees of PJI. . . . Moreover, even if Motus employees were the functional equivalent of PJI employees, the communications at issue between Motus and PJI would not fall within the scope of the attorney-client privilege because the predominant purpose of the communications was not to render or solicit legal advice, but rather to help evaluate the commercial wisdom of various options.")

Case Date Jurisdiction State Cite Checked
2018-01-24 Federal NY
Comment:

key case


Chapter: 6.1304
Case Name: Durling v. Papa John's International, Inc., No. 16 Civ. 3592 (CS) (JCM), 2018 U.S. Dist. LEXIS 11584(S.D.N.Y. Jan. 24, 2018)
March 21, 2018 (PRIVILEGE POINT)

"Courts Wrestle with Privilege Protection for Client Consultants: Part I"

The attorney-client privilege protects confidential communications between clients and their lawyers. Corporate client consultants may also deserve this protection if they act as the "functional equivalent" of corporate employees. Otherwise, most but not all courts take a very narrow view of privilege protection for communications to or from such consultants.

In Durling v. Papa John's International, Inc., No. 16 Civ. 3592 (CS) (JCM), 2018 U.S. Dist. LEXIS 11584(S.D.N.Y. Jan. 24, 2018), Papa John's relied on a third-party consultant to analyze how it should reimburse its delivery drivers. Class action plaintiffs claiming minimum wage violations sought communications between Papa John's and the consultant. The court first rejected Papa John's "functional equivalent" argument – noting that the consultant's employees were "not so fully integrated into the [Papa John's] hierarchy that its employees were de facto employees of [Papa John's]." Id.at *15. The court also found that the consultant was outside privilege protection, because its "role was not as a translator or interpreter of client communications," and that Papa John's retained the consultant "not to improve the comprehension of the communications between attorney and client, but rather to obtain information that [Papa John's] did not already have." Id. at *14. One day later, another court in Narayanan v. Southern Global Holdings Inc., similarly found that a corporation's "consulting and accounting firm" failed the "functional equivalent" standard and likewise fell outside privilege protection -- because the consultant's involvement was not "nearly indispensable or serve[d] some specialized purpose in facilitating the attorney-client communications." No. 15-CV-6165T, 2018 U.S. Dist. LEXIS 12358, at *12 (W.D.N.Y. Jan. 25, 2018). Instead, "the proof suggests that [the consultant's] role in attorney-client communications was merely useful and convenient." Id. at *19.

Most courts take this narrow approach. But next week's Privilege Point will discuss a case going the other way.

Case Date Jurisdiction State Cite Checked
2018-01-24 Federal NY
Comment:

key case


Chapter: 6.1304
Case Name: Homeward Residential, Inc. v. Sand Canyon Corp., 12-CV-5067 (JFK) (JLC), 12-CV-7319 (JFK) (JLC), 2017 U.S. Dist. LEXIS 171685 (S.D.N.Y. Oct. 17, 2017)
(holding that a client consultant was not the functional equivalent of an employee; "To determine whether a third party can be considered the 'functional equivalent' of an employee, courts look to (1) whether the third party had 'primary responsibility for a key corporate job,' (2) 'whether there was a continuous and close working relationship between the [third party] and the company's principals on matters critical to the company's position in litigation,' and (3) 'whether the [third party] is likely to possess information possessed by no one else at the company.'"; "None of these factors weighs in favor of Altisource employees being characterized as the functional equivalent of Ocwen employees. Altisource [provides data management and reporting services to Ocwen] was not given primary responsibility for a key corporate job. Altisource is an independent company that provides services and technology to multiple clients. Its role in storing and managing data for Ocwen did not integrate it into Ocwen's 'corporate structure.'. . . Homeward has not alleged that any of the communications between Ocwen and Altisource relate to Ocwen or Homeward's position in these cases. Even if Altisource had information possessed by no one at Ocwen, such a fact alone cannot transform the relationship such that Altisource's employees are the 'functional equivalent' of Ocwen's employees. Businesses routinely rely on other companies to carry out important functions and services, including but not limited to shipping, accounting, customer service, and, as here, data storage and management. If this relationship satisfied the functional equivalent standard, the exception could well swallow the rule.")

Case Date Jurisdiction State Cite Checked
2017-10-17 Federal NY

Chapter: 6.1304
Case Name: Bousamra v. Excela Health, No. 1637 WDA 2015, 2017 Pa. Super. LEXIS 543 (Pa. Super. July 19, 2017)
(finding that a public relations consultant was outside privilege and work product protection, and was not the functional equivalent of an employee; "After careful review of the certified record and in camera review of the emails in question, we have decided that the reasoning of Kovel [United States v. Kovel, 296 F.2d 918 (2nd Cir. 1961)] is inapplicable in this matter. We find that the record conclusively establishes that Jarrard [public relations consultant] was uninvolved in the legal issue in question. Contrary to Excela's assertions on appeal, Mr. Fedele's February 26th communication to the outside media consultant was not designed to gain Jarrad's assistance in providing legal advice to the company nor did Mr. Fedele send outside counsel's email to the media firm in order to solicit advice from Jarrard so that counsel could advise Excela on the legal risks associated with the content of the public disclosure. Additionally, Jarrard failed to render any input into the question. We therefore do not need to address whether the attorney-client privilege in Pennsylvania should be expanded to encompass outside agents of the client under the reasoning employed in Kovel."; "[T]here is case law rejecting the notion that an outside public relations firm can fall within the parameters of the attorney-client privilege even if the public relations firm is actually involved in the legal decision-making process.")

Case Date Jurisdiction State Cite Checked
2017-07-19 State PA

Chapter: 6.1304
Case Name: Bousamra v. Excela Health, No. 1637 WDA 2015, 2017 Pa. Super. LEXIS 543 (Pa. Super. July 19, 2017)
(finding that a public relations consultant was outside privilege and work product protection, and was not the functional equivalent of an employee; "Excela relies upon various federal cases that have ruled that the attorney-client privilege is not waived when the privileged communication is disseminated to a public relations firm where the firm was the functional equivalent of an employee of the client due to the degree of work performed for the client by the firm or due to the close association between the outside public relations firm and the client."; "Herein, the record establishes that Jarrard [public relations consultant] was not treated as the functional equivalent of one of Excela's employees or of its public relations department. Ms. Cate outlined that, over the course of a three-year period, Jarrard was hired to work on six specific projects, including the one at issue. Excela had a staffed communications/marketing/public relations department. Excela was utilizing Jarrard for a situation requiring crisis management. In this Commonwealth, whether a person/entity is an employee is determined largely by whether the employer had 'control over the work to be completed and the manner in which it is to be performed.'")

Case Date Jurisdiction State Cite Checked
2017-07-19 State PA

Chapter: 6.1304
Case Name: Bousamra v. Excela Health, No. 1637 WDA 2015, 2017 Pa. Super. LEXIS 166 (Pa. Super. Ct. March 13, 2017)
("We also reject Excela's [Client] implication that Jarrard ["Independent public relations firm"] was part of its operation rather than a third party. Excela does not reference anything in the record establishing that Jarrard was more than a separate organization that had no common ownership interest with Excela. Ms. Cate clearly articulated that Excela was merely one of Jarrard's clients. . . . Jarrard was an independent contractor hired, in this instance, to aid Excela in making a public announcement about the purported stenting issues and doctors involved. The issue of the legal ramifications of naming Appellee and Dr. Morcos was already a decided matter when Jarrard was engaged.")

Case Date Jurisdiction State Cite Checked
2017-03-13 State PA

Chapter: 6.1304
Case Name: Sierra Development Co. v. Chartwell Advisory Group, Ltd., Case No. 3:13-CV-0602-RTB (VPC), 2016 U.S. Dist. LEXIS 100290 (D. Nev. Aug. 1, 2016)
(finding that defendant MGM could not satisfy the "functional equivalent doctrine" in connection with a consultant's employees; "Before discussing whether the functional equivalent doctrine applies to any communications in MGM's privilege log, it is necessary to sort out the business and legal relationships among the parties. At the July 28, 2016 case management conference, Mr. Bice clarified the nature of these relationships. The NRA had no retained counsel in the food comp litigation. The NRA retains R&R on an ongoing basis for the legislative, lobbying and other services R&R may provide to the NRA. When the food comp litigation arose, the NRA asked R&R to assist in resolving the sales tax issue. Mr. Bice represented the MGM and acknowledges that the MGM 'disseminated privileged advice from its counsel to the NRA's members and R&R on a matter of common legal interest -- the tax dispute with the Department [of Taxation].'. . . MGM contends that the inclusion of R&R members on emails in this case does not affect the underlying privilege because R&R was the functional equivalent of an employee."; "The question boils down to this: who employed R&R for purposes of claiming it is a functional equivalent of an employee? The answer is that to the extent R&R Partners is deemed the functional equivalent of an employee, its employer was the NRA, not MGM. MGM cannot assert a functional equivalent argument as to R&R because the two had no direct employer-employee relationship."; "Whether this court adopts the narrower Export-Import Bank [Export-Import Bank of the United States v. Asia Pulp & Paper Co., 232 F.R.D. 103 (S.D.N.Y. 2005).] approach or the broader approach adopted in Fosbre [Fosbre v. Las Vegas Sands Corp., Case No. 2:10-cv-00765-APG-GWF, 2016 U.S. Dist. LEXIS 5422, 2016 WL 183476, at *3-*4 (D. Nev. Jan. 14, 2016)] to decide whether the functional equivalent doctrine applies here, MGM has failed to make the necessary 'detailed factual showing' -- if it could -- to establish that R&R Partners is the functional equivalent of an employee of the NRA. . . . Had MGM done so, the court would then decide, based on the specific facts of this case, whether that functional equivalent protection between the NRA and R&R was encompassed into the common interest privilege between MGM and the NRA. The court need not reach this issue because MGM made no such showing here. Had MGM done so, the court would then decide, based on the specific facts of this case, whether R&R's protection as a functional equivalent employee of the NRA also entitled it to the protections of the common interest doctrine between MGM and the NRA."; "MGM failed to demonstrate that R&R Partners is the functional equivalent of an employee of the NRA; therefore, the communications in the MGM privilege log that include any employee of R&R are not privileged under any anti-waiver protection, and they shall be produced to Chartwell.")

Case Date Jurisdiction State Cite Checked
2016-08-01 Federal NV

Chapter: 6.1304
Case Name: United States v. Ormat Industries, Ltd., 3:14-cv-00325-RCJ-VPC, 2016 U.S. Dist. LEXIS 100292 (D. Nev. Aug. 1, 2016)
(rejecting defendant's "functional equivalent" argument; "Ormat describes the roles of its third party consultants as follows: 'Capstar was hired to help Ormat understand the monetization of available tax benefits related to the Brawley plant, including assisting Ormat's counsel in developing equity investor sheets. RLR Consultants helped Ormat organize and acquire financing for its projects. BDO performed an accounting of Ormat's cost basis for the Puna 8 MW 1603 grant application. And [PwC] performed general accounting audits and an accounting of Ormat's cost basis for the Brawley 1603 grant application.' This cursory statement of responsibilities is insufficient to show the court that any of the four consulting companies performed duties similar to those performed by Ormat employees or that they possessed information that would assist in rendering legal advice.")

Case Date Jurisdiction State Cite Checked
2016-08-01 Federal NV

Chapter: 6.1304
Case Name: United States ex rel. Calilung v. Ormat Industries, Ltd., 3:14-cv-00325-RCJ-VPC, 2016 U.S. Dist. LEXIS 100292 (D. Nev. Aug. 1, 2016)
(in a qui tam action, finding that defendant could not meet either the strict or broad "functional equivalent" standard for consultants' employees; "As this district discussed in Fosbre v. Las Vegas Sands Corp., Case No. 2:10-cv-00765-APG-GWF, 2016 U.S. Dist. LEXIS 5422, 2016 WL 183476, at *3-*4 (D. Nev. Jan. 14, 2016), courts have adopted varying constructions of the functional equivalent doctrine. Relators, unsurprisingly, prefer the narrower approach set forth in Export-Import Bank of the United States v. Asia Pulp & Paper Co., 232 F.R.D. 103 (S.D.N.Y. 2005). (See ECF No. 241 at 14; ECF No. 248 at 5.) Under that test, a court determines whether a consultant is the functional equivalent of an employee by looking to whether he or she was responsible for a key corporate job, the nature of the working relationship between the consultant and the principals, whether the relationship was critical to the company's position in litigation, and whether the consultant possessed information not held by others in the company. Ex.-Imp. Bank, 232 F.R.D. at 113. However, the Fosbre court expressly rejected Export-Import Bank in favor of a 'broad practical approach in applying the functional equivalent doctrine' that better fit 'today's marketplace.' 2016 U.S. Dist. LEXIS 5422, 2016 WL 183476, at *4. . . . The dispositive question, Fosbre reasoned, was 'whether the consultant performs duties similar to those performed by an employee and whether by virtue of that relationship, he or she possesses information about the company that would assist the company's attorneys in rendering legal advice.'"; "It makes little difference which approach the court adopts in this case, as Ormat has failed to make the 'detailed factual showing' required by the functional equivalent doctrine. . . . In its opposition, Ormat describes the roles of its third party consultants as follows: 'Capstar was hired to help Ormat understand the monetization of available tax benefits related to the Brawley plant, including assisting Ormat's counsel in developing equity investor sheets. RLR Consultants helped Ormat organize and acquire financing for its projects. BDO performed an accounting of Ormat's cost basis for the Puna 8 MW 1603 grant application. And [PwC] performed general accounting audits and an accounting of Ormat's cost basis for the Brawley 1603 grant application.'"; "This cursory statement of responsibilities is insufficient to show the court that any of the four consulting companies performed duties similar to those performed by Ormat employees or that they possessed information that would assist in rendering legal advice."; "Relatedly, Ormat failed to demonstrate that any individuals within the consulting companies who were party to the communications qualify as functional employees of Ormat. . . . Therefore, where communications are disclosed to numerous employees of third parties, the party asserting privilege must provide the court with enough information to establish not just that the functional equivalent doctrine is met, but also that the individuals in question 'were involved in the performance of services with which the attorney communications were concerned, that the employees were aware that the communications were for the purposes of providing or obtaining legal advice, and that the employees understood the communications were intended to be confidential.")

Case Date Jurisdiction State Cite Checked
2016-08-01 Federal NV

Chapter: 6.1304
Case Name: In re Lumber Liquidator S Chinese-Manufactured Flooring Products, MDL No. 1:15-md-02627, 2015 WL 947286 (E.D. Va. Dec. 28, 2015) (unpublished)
(holding that the privilege did not protect communications with a testing consultant, which was not the "functional equivalent" of defendant's employees (in contrast to a crisis management consultant that met the "functional equivalent" standard); "Benchmark had previously been hired by defendant to conduct regular, routine testing to monitor products' compliance with various standards, and defendant does not claim protection for communications and test results relating to that routine work."; "Defendant then engaged Benchmark on four occasions to conduct separate, special tests as part of defendant's investigation of the claims that ultimately led to this and other litigation. Defendant asserts that the results of those four groups of tests are work product, and the court agrees. In the situation revealed by the record before the court, it is clear that these tests were performed by Benchmark as defendant's agent as part of preparation for litigation, and they are work product within the ambit of Rule 26."; "The court finds that Benchmark was clearly and unambiguously defendant's agent, rather than counsel's agent, at all relevant times. The facts that Benchmark was bound by a confidentiality agreement, that it began taking instructions from counsel at some point, and that counsel later wrote correspondence attempting to bring Benchmark within the privilege do not alter Benchmark's status as defendant's agent rather than counsel's."; "Unlike agents of counsel representing a client, the client's agents are generally, and presumptively, not within the protected circle of privileged attorney-client communications. Relatively uncommon situations such as the cost has found above regarding Mercury in the present case (had its communications related to legal instead of business matters) are exceptions to that general rule. Benchmark, unlike Mercury, was a typical outside contractor performing discrete tasks, reporting pre-requested facts and neither providing additional information or advice to client or counsel, nor needing input much less advice from them. The court finds that defendant has not met its burden to show that communications to, from, or including Benchmark are protected by the attorney-client privilege.")

Case Date Jurisdiction State Cite Checked
2015-12-28 Federal VA

Chapter: 6.1304
Case Name: CertusView Technologies, LLC v. S&N Locating Servcs., No. 2:13cv346, 2015 WL 13037421 at *3 (E.D. Va. March 11, 2015)
(finding that the attorney-client privilege did not protect communications with two non-employees of plaintiff, because plaintiff had not established that they were the "functional equivalent" of employees; "The Court rejects Plaintiff's assertion that it was error for the Magistrate Judge to consider Messrs. Crawford's and Davis's contracts in determining whether they were the functional equivalent of Plaintiff's employees. Under the functional equivalent theory, while such factor may not be dispositive, the Court cannot conclude that it was error, much less clear error, to consider it. See In re Bristol-Myers Squibb Sec. Litig., Civ. No. 00-1990 (SRC), 2003 WL 25962198, at *4-5 (D.N.J. July 25, 2003) (finding that Magistrate Judge and Special Master did not commit clear error in concluding that individuals were not the functional equivalent of employees based, in part, on independent contractor designation in individuals' contracts). Moreover, the record establishes that, when articulating his ruling, the Magistrate Judge did not even refer to the contractual status of Messrs. Crawford and Davis. Thus, Plaintiff's contention with respect to such contractual status is unmerited."; "[T]he Court notes that, while some courts of appeals have adopted the functional equivalency doctrine, see United States v. Graf, 610 F.3d 1148, 1159 (9th Cir. 2010); In re Bieter Co., 16 F.3d 929, 940 (8th Cir. 1994); the Court of Appeals for the Fourth Circuit has not done so.")

Case Date Jurisdiction State Cite Checked
2015-03-11 Federal VA

Chapter: 6.1304
Case Name: Church & Dwight Co. Inc. v. SPD Swiss Precision Diagnostics, 14-cv-585, 2014 U.S. Dist. LEXIS 175552 (S.D.N.Y. Dec. 19, 2014)
(analyzing communications to and from an outside marketing firm; questioning the "functional equivalent" doctrine's viability in the Second Circuit; "Although a number of courts around the country, including several within this Circuit, have adopted this exception, it has never been recognized by the Second Circuit. . . . Without deciding whether the functional equivalent exception is valid, the Court concludes that SPD has failed to satisfy its burden under either mode of analysis."; "[T]he Second Circuit has not adopted the equivalent function exception. Because the Second Circuit has recognized very limited exceptions to privilege waiver, the Court has doubts as to whether it would endorse such an approach.")

Case Date Jurisdiction State Cite Checked
2014-12-19 Federal NY

Chapter: 6.1304
Case Name: U.S. Home Corp. v. Settlers Crossing, LLC, Civ. A. No. DKC 08-1863, 2014 U.S. Dist. LEXIS 40052, at *13-14 (D. Md. Mar. 26, 2014)
(holding that a consultant did not meet the "functional equivalent" standard; "Lennar [counter-defendant] argues, in effect, that the court should have ignored that contractual language and focused instead on whether Mr. Engel was the 'functional equivalent' of a Lennar employee, relying principally on the reasoning of In re Bieter, 16 F.3d 929 (8th Cir. 1994). Judge Connelly considered that argument, finding that '[Mr. Engel] did not work out of Lennar's offices, was not involved in the underlying Bevard development project, did not represent Lennar at public hearings or otherwise, and simply was not intimately involved in the Bevard development such that Lennar's counsel would need to confer confidentially with Mr. Engel to understand the issues raised [] by Sellers.' . . . Thus, he determined that Lennar's argument under In re Bieter -- which was also relied upon by Judge Grimm in Flo Pac [Flo Pac, LLC v. NuTech, LLC, Civ. No. WDQ-09-510, 2010 U.S. Dist. LEXIS 131120 (D. Md. Dec. 9, 2010)] -- was 'not persuasive' . . . and there is no discernable basis for finding that ruling was clearly erroneous.")

Case Date Jurisdiction State Cite Checked
2014-03-26 Federal MD B 8/14

Chapter: 6.1304
Case Name: BSP Software, LLC v. Motio, Inc., No. 12 C 2100, 2013 U.S. Dist. LEXIS 95511, at *2 (N.D. Ill. July 9, 2013)
October 2, 2013 (PRIVILEGE POINT)

"Northern District of Illinois Questions the "Functional Equivalent" Doctrine"

One of the notable recent privilege trends involves most courts' adoption of what is called the "functional equivalent" doctrine – which extends privilege protection to nonemployees who are the functional equivalent of corporate employees. The vast majority of courts recognize the functional equivalent doctrine, which greatly benefits corporations relying on temporary workers or outsourcing corporate functions such as tech support or even human resources support.

However, a few courts take a narrower approach. In BSP Software, LLC v. Motio, Inc., No. 12 C 2100, 2013 U.S. Dist. LEXIS 95511, at *2 (N.D. Ill. July 9, 2013), the court addressed a functional equivalent argument by a company which did not have a formal board of directors, but which asserted privilege protection for communications to and from its "advisory board." The court rejected the company's privilege assertion, finding that the company waived its privilege protection by communicating with its advisory board. Ironically, the court expressed as its first worry the possibility that the functional equivalent doctrine would "increase the level of uncertainty" about the privilege's applicability. Id. At *7.

Although rejecting the functional equivalent doctrine might avoid legal uncertainty, it creates enormous factual uncertainty. Anyone communicating with or in the presence of even a long-term temp could unknowingly abort or waive privilege protection.

Case Date Jurisdiction State Cite Checked
2013-07-09 Federal IL
Comment:

key case


Chapter: 6.1304
Case Name: Jackson v. Deen, Case No. CV412-139, 2013 U.S. Dist. LEXIS 65814, at *43-44 (S.D. Ga. May 8, 2013)
(in an employment discrimination case against celebrity Paula Deen and her brother "Bubba" Hiers, ultimately concluding that Deen's three outside consultants were outside the attorney-client privilege protection; rejecting Deen's functional equivalent argument; "Those three contractors, Deen concludes, 'are indistinguishable from my employees because each, in their individual capacity, acts for me and my business entities and possesses the information needed by attorneys in rendering legal advice.'")

Case Date Jurisdiction State Cite Checked
2013-05-08 Federal GA B 8/13

Chapter: 6.1304
Case Name: Jackson v. Deen, Case No. CV412-139, 2013 U.S. Dist. LEXIS 65814, at *45 (S.D. Ga. May 8, 2013)
(in an employment discrimination case against celebrity Paula Deen and her brother "Bubba" Hiers, ultimately concluding that Deen's three outside consultants were outside the attorney-client privilege protection; rejecting Deen's functional equivalent argument; "It is true that there is no per se rule restricting a corporation's assertion of its attorney-client based privilege to employees, as it is common to seek legal assistance from third parties who are neither employees nor lawyers.")

Case Date Jurisdiction State Cite Checked
2013-05-08 Federal GA B 8/13

Chapter: 6.1304
Case Name: Caruso v. Grace, No. 11 Civ. 2353 (SAS) (KNF), 2012 U.S. Dist. LEXIS 89176, at *18 (S.D.N.Y. June 27, 2012)
(holding that the presence of Nancy Grace's talent agency representative during otherwise privileged discussions between Nancy Grace and her lawyer meant that the privilege did not protect those communications; applying New York law in a diversity case without a choice of laws analysis; finding that the talent agency employee was not a necessary client agent, was not the functional equivalent of an employee, and was not assisting the lawyer in providing legal advice; "Grace failed to make citation to any New York authority in support of her argument that the waiver exception applies to 'the functional equivalent' of an employee and that Perry should be considered 'the functional equivalent' of her employee, and the Court finds none.")

Case Date Jurisdiction State Cite Checked
2012-06-27 Federal NY B 10/12

Chapter: 6.1304
Case Name: BSP Software, LLC v. Motio, Inc., No. 12 C 2100, 2013 U.S. Dist. LEXIS 95511, at *5 6, *6, *7 8, *8, *9, *9 10, *10 11 (N.D. Ill. July 9, 2011)
(rejecting the functional equivalent doctrine; "BSP argues that sharing the privileged information with the advisory board did not waive the privilege any more than would sharing privileged information with a duly constituted board of directors. . . . This at bottom is an argument that, for purposes of the attorney-client privilege, the advisory board should be treated as the functional equivalent of a formal board of directors. However, BSP ignores that this 'functional equivalent' test has never been adopted by the Seventh Circuit, and has been treated skeptically by trial courts in this district."; "[A]pplication of the test would increase the uncertainty on the important question of when disclosure to non-employees who comprise an advisory board would waive the privilege."; "It would not be productive to increase the level of uncertainty about whether a communication with a third party -- such as BSP's advisory board here -- would waive the privilege. Nor do we see the need to do [sic] employ a functional equivalent test when a corporation such as BSP could create a formal board of directors to fulfill what Mr. Rachmiel describes as the 'central' function of deciding whether to pursue litigation, and vest that board with the authority to make that decision and not merely offer non-binding advice."; "[W]e are concerned that over time, the application of the functional equivalent test could expand the scope of the privilege by eroding the circumstances in which it can be waived."; "We therefore will not adopt that test in deciding BSP's motion. As a result, the cases that BSP cites for the proposition that we should equate BSP's advisory board with a formal board of directors are inapposite. Those cases . . . turn on the acceptance of the functional equivalent theory that we do not endorse."; "That said, we note that even if we were to apply the functional equivalent test as formulated in Asia Pulp [Export-Import Bank v. Asia Pulp & Paper Co., 232 F.R.D. 103 (S.D.N.Y. 2005)], we would find that BSP waived the privilege when it disclosed privileged information to its 'advisory board.' BSP's submissions show that there was a 'continuous and close working relationship' with the 'advisory board,' which is a portion of the second factor of the Asia Pulp test. But, BSP's submissions fail to show that that working relationship was on matters 'critical to the company's position in litigation.' . . . To the contrary, BSP's submissions show that the advice it received from the advisory board was for business and financial matters, and not litigation."; "Moreover, BSP falls far short of showing that the advisory board meets the other two factors of the Asia Pulp test. Unlike a real board of directors, the advisory board had no decision making authority or 'primary responsibility for a key corporate job.' . . . Moreover, BSP has not offered any evidence that the advisory board possessed information that no one else at BSP would possess. . . . The four persons who comprised that advisory board were simply people whose opinions Mr. Rachmiel [officer of plaintiff] valued and trusted, akin to a 'kitchen cabinet' of trusted friends and associates to whom many presidents over the years have resorted for advice. Even under the functional equivalent test, BSP's advisory board would not fall within the scope of the privilege.")

Case Date Jurisdiction State Cite Checked
2011-07-09 Federal IL B 4/14

Chapter: 6.1304
Case Name: In re Bristol-Myers Squibb Securities Litig., Civ. No. 00-1990 (SRC), 2003 U.S. Dist. LEXIS 26985 (D.N.J. June 25, 2003)
(concluding that a public relations consultant was not the "functional equivalent" of an employee; "Courts that have considered this exception have considered many factors to reach an appropriate determination, including whether the consultants: (1) were incorporated in the staff to perform a corporate function, which is necessary in the context of actual or anticipated litigation; (2) possessed information needed by attorneys in rendering legal advice; (3) possessed authority to make decisions on behalf of the company; and (4) were hired because the company lacked sufficient internal resources and/or adequate experience within the consultant's field. . . . The key to deciding if a consultant should be protected under the 'functional equivalent' exception is if the consultant acts for the corporation and possesses the information needed by attorneys in rendering legal advice."; "Special Master Jacob indicated in her final report that the consultants only appeared to provide ordinary public relations and marketing advice because: (1) most of the consulting agreements were entered into well prior to the onset of this particular litigation and the consulting agreements covered responsibilities unrelated to litigation; (2) the contracts stated clearly that the consultants were not acting as agents or representatives of BMS; and (3) none of the consultants appeared to have had the authority to make decisions or issue statements on behalf of BMS, which could have brought them within the ambit of the privilege. . . . As Special Master Jacob went on to explain, the last factor was important because it indicated that the consultants could not be implicated in a chain of command relevant to the subject matter of legal services, and as a result could not 'act for the corporation and posses [sic] the information needed by attorneys in rendering legal advice.")

Case Date Jurisdiction State Cite Checked
2003-06-25 Federal NY