In House Counsel and Attorney Client Privilege

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In‐House Counsel and Attorney‐Client Privilege 
Protecting Confidential Information in Business Communications, Depositions and Litigation


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                                                                            T d ’ faculty features:
                                                                            Today’s f l f

 Brian M. Martin, Senior Vice President and General Counsel, KLA-Tencor Corp., Milpitas, Calif.
                                Kenneth E. McKay, Partner, Locke Lord Bissell & Liddell, Houston
              Michael B. Hayes, Partner, Montgomery McCracken Walker & Rhoads, Philadelphia

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      The Attorney-Client
Privilege i th U it d St t
P i il    in the United States

           Brian Martin
         General Counsel
        KLA-Tencor, Corp.

              The Attorney-Client
                   P i il
         attorney-client
    The attorney client privilege has been
    described as "narrowly defined, riddled
    with exceptions, and subject to continued
    criticism." United States v. Schwimmer,
          F 2d 237          Cir 1989)
    892 F.2d 237, 243 (2d Cir. 1989).
   Nowhere is its application more
    troublesome than in the corporate

                  The Attorney-Client
                       P i il
   If a client consults with an attorney for the
    purpose of obtaining legal assistance, all
    confidential communications with the
    client in furtherance of that end are
                       attorney client privilege.
    protected by the attorney-client privilege
       Client to lawyer for legal advice
       Lawyer to client for legal advice

               The Attorney-Client
                    P i il
   (1) Where legal advice of any kind is
    sought (2) from a professional legal
    adviser in his capacity as such (3) the
    communications relating to that purpose
    (4) made in confidence (5) by the client
    (6) are protected (7) from disclosure by
    himself or by the legal advisor (8) unless
    the protection is waived. 8 Wigmore,
              sec.            ed. 1995).
    Evidence sec 2292 (4th ed 1995)
              The Attorney-Client
                   P i il
    In                            attach,
    "In order for the privilege to attach the
    information must have been given with
    the expectation of confidentiality and for
    the purpose of obtaining legal as opposed
                advise.           v Belge
    to business advise " People v. Belge, 399
    N.Y.S. 2d 539, 540 (N.Y. App. Div. 1977).

     The Policy Behind the Rule
   The privilege is intended to ensure full
    disclosure by clients who feel safe
    confiding in their attorney. Only full and
    frank communications between clients and
    their attorneys allow attorneys to provide
    effective, expeditious and informed
    representation Additionally, recognizing
    representation. Additionally
    the privilege encourages the public to
    seek early legal assistance
    When Does the Privilege Apply?
   The privilege protection attaches to all
    communications of the client from the moment
    that the attorney is approached for the purpose
    of obtaining legal assistance
   The privilege applies regardless of
           et e the attorney decides ot      ep ese t the
        Whether t e atto ey dec des not to represent t e
       Whether the client decides not to retain the attorney;
       Whether the person consulted turns out not to have
        been a licensed attorney.

              The Privilege in the
               Corporate Setting
               C       t S tti
   Applicability of privilege in corporate
    setting finally settled by 1963. See,
                       v Amer         Ass n,
    Radiant Burners v. Amer. Gas Ass'n 320
    F. 2d 314 (7th Cir. 1963) (reversing
             court s
    district court's ruling that the attorney
    client privilege was not applicable to a

                                      In-House Counsel and Attorney-Client
                                       Recent Developments and Common
                                      Applications in the Business Advice vs.
                                                 l d           h
                                            Legal Advice Dichotomy

                                                                                 August 31, 2011
Ken McKay

Litigation Partner
Locke Lord Bissell & Liddell LLP
600 Travis, Suite 2800
Houston Texas
(713) 226-1127
                                   Atlanta, Austin, Chicago, Dallas, Houston, London, Los Angeles, New Orleans, New York, Sacramento, San Francisco, Washington, DC
     • The Applicable Legal Standards and Factors Considered in Applying the
                    In House
       Privilege to In-House Counsel Communication

     • Recent Developments and Common Applications
        – Internal Investigations, including Corporate Miranda Warnings
                          g      ,         g    p                    g

         – “At Issue” Waivers relating to External Investigations & Corporate

         – Board Presentations

         – Corporate Acquisitions

         – Impact of Business Globalization on the Privilege

     • Suggested Best Practices
     The Applicable Legal Standards and
                            pp y g
     Factors Considered in Applying the
        Privilege to In-House Counsel

             A Different Standard?
     Courts have repeatedly held that there is no
        distinction between the standard to be
         li d for in-house and outside counsel f
      applied f i h          d t id           l for
       purposes of the attorney-client privilege.
                       See H      Calamari & Gl
                       S Hertzog, C l                 P d i lI         8 0 F Supp. 2 (S D N Y 1 )
                                         i Gleason v. Prudential Ins., 850 F. S    255 (S.D.N.Y. 1994);
                                                  U.S. v. Mobil Corp., 149 F.R.D. 533 (N.D. Tex. 1993)

         But there is a distinction, at least in
          Isn t
     But, Isn’t that a Double Standard?


          it s                life
     But, it’s also a fact of life…

     Why is a different standard applied
           to in house counsel?

     Principally because in-house counsel often perform non-
       legal business functions within their organizations and
         h law       i   h      i il      l i distinguish the
        the l requires that privilege analysis di i    ih h

       Having attorneys serve in dual capacities is the most
                frequently-cited factor as a basis for
                   q     y
                   denying a claim of privilege.

                           See Teltron, Inc. v. Alexander, 132 F.R.D. 394 (E.D. Pa. 1990); N.C. Elec. Membership
                                   Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 517 (M.D.N.C. 1986)

Satisfying the “Attorney” Requirement
    of the Attorney Client Privilege
                                     General Rule:

If an in-house counsel is acting in her capacity as an attorney, the attorney-client
    privilege applies. Where, however, counsel is acting as a business advisor or has
    only limited involvement, the privilege does not apply.

"[T]he privilege is limited to confidential communications with an attorney acting in
   his professional legal capacity for the express purpose of securing legal advice. As
   a general rule, an attorney who serves a client in a business capacity may not
   assert the attorney-client privilege because of the lack of a confidential
   relationship. Thus, ordinary business advice is not protected."

                                  Teltron, Inc. v. Alexander, 132 F.R.D. 394 (E.D. Pa. 1990). See also N.C. Elec. Membership
                                              Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 514 (M.D.N.C. 1986).

Satisfying the “Attorney” Requirement
    of the Attorney Client Privilege

 Does not depend on whether the in-house lawyer’s license is “active”.

          per Judge Shira Scheindlin of the Southern District of New York
                             in Gucci/Guess litigation
      (although the lawyer was apparently fired by Gucci at about that time)

                                                       f                            g
                                         see Good News for In-House Counsel: Privilege Prevails in Showdown at Gucci Gulch,

                 There is no Silver Bullet

     No single factor is
     dispositive in every

 See N.C. Elec. Membership Corp. v. Carolina Power & Light Co.,
                         110 F.R.D. 511, 516 (M.D.N.C. 1986)

   Examples of Potentially “Non-Legal”
                        In House
 Functions Performed by In-House Counsel
     – Conducting investigations
     – Fact-gathering regarding issues that may later be the
       subject of litigation
          j           g
     – Regulatory compliance issues
     – Matters concerning the functioning of the entity

                      See e.g. Giffin v. Smith, 688 S.W.2d 112 (Tex. 1985) (General counsel's communications
                           found not to be privileged despite his role in corporate investigation because there
                                                    was no evidence that the communication was confidential).

                       Dual Capacities
In-house counsel routinely handle mixed business and legal functions,
   sometimes with dual titles such as
    – Corporate Secretary
    – Vice President
    – Board Member
These are sometimes perceived to be capacities separate from their legal

Apparently, an even higher standard is sometimes applied where such is
   the case:
“[I]n i      i     h
“[I] a situation where the author or recipient of allegedly privileged
                         h      h          i i      f ll dl   i il d
   documents functions as a corporate manager as well as an attorney,
   efforts must include clear designation of those communications sent
   or received in his capacity as a legal advisor ”
                                       Hardy v. New York News, Inc., 114 F.R.D. 633, 644 (S.D.N.Y. 1987)

     How Does an In-House Attorney
          Meet this Burden?
                             g        y
               Court's finding in Hardy

“Although some of the documents [were] addressed to
 [in-house counsel], there was nothing to indicate that
   [he] requested or received any of the documents at
   issue, or the information contained in them, in the
  capacity of a legal advisor and solely for the purpose
         of rendering advice to the corporation.”
                             Hardy New York News, I
                             H d v. N Y k N                 F.R.D. 633,   (S D N Y 1987)
                                                  Inc., 114 F R D 633 644 (S.D.N.Y. 1987).

                                   Applicable Test

      The client’s communication must be for the
       primary or dominant purpose of soliciting
           legal, rather than business, advice.

     See N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 514 (M.D.N.C. 1986); Teltron, Inc. v. Alexander,
       132 F.R.D. 394, 396 (E.D. Pa. 1990) ("[must be able to] clearly demonstrate that the advice to be protected was given in a professional
                                        legal capacity."); U.S Postal Serv. V. Phelps Dodge Ref. Corp., 852 F. Supp. 156 (E.D.N.Y. 1994).

     Factors to be Considered
                       ordinary          activities ?
     • Is the subject “ordinary business activities”?
       Whether the subject matter of the document is primarily
       business-oriented, such as documents discussing cost
       information technical data, contract negotiations, delivery
       information,            data           negotiations
       problems or lobbying efforts.
                                               ,               ,
              See Coleman v. Am. Broad. Cos., 106 F.R.D. 201, 205 (                ) (concluding that communications between an
                                                                    (D.C. Cir. 1985) (          g
             attorney and another individual which relate to business, rather than legal matters, do not fall within the protection
              of the privilege.); N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 514 (M.D.N.C. 1986).

     Stated differently, would the document have been prepared
        whether or not the attorney was sent a copy?
                                                USP      lS      V. Phelps Dodge Ref. Corp., 8 2 F. S
                                                U.S Postal Serv. V Ph l D d R f C                        156,    (E.D.N.Y. 1994).
                                                                                             852 F Supp. 1 6 163 (E D N Y 199 )

     Factors to be Considered
      • Do the documents specifically request legal
        advice or, if generated by counsel, reference the
        request for legal advice?
          q           g

              See N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 516 (M.D.N.C. 1986)

     Factors to be Considered
     • Was the communication

      Whether h document i
      Wh h the d             in
      question is simply marked
       “Memorandum” with no
      notation of confidentiality

     See N.C. Elec. Membership Corp. v. Carolina Power & Light
                     Co., 110 F.R.D. 511, 516 (M.D.N.C. 1986)

     This is not just a question of labeling.

                             Does the communication itself reveal any
                             confidential information?
                                   See N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511, 514
                                                                                                    (M D N C 1986

     Can you overuse your
      “Privileged” t
      “P i il d” stamp??

           No case so finding, but perhaps.

     Factors to be Considered
 Did the attorney have only “Limited Involvement” in the Matter?

• Whether the document is addressed to a number of individuals, only
  one of whom is in-house counsel

• “Copying the Lawyer” does not create a privileged document.

An entity cannot shield its business transactions from discovery simply
  by funneling its communications through an attorney.

                   See U.S Postal Serv. V. Phelps Dodge Ref. Corp., 852 F. Supp. 156 (E.D.N.Y. 1994); Teltron, Inc. v. Alexander
                         132 F.R.D. 394, 396 (E.D. Pa. 1990); Hardy v. New York News, Inc., 114 F.R.D. 633 (S.D.N.Y. 1987)

      Limited Involvement" (Cont )
     "Limited Involvement (Cont.)
• Whether the document is addressed to counsel vs. “cc” and whether
  many others, outside of the legal function, were addressees

  Whether the document refers t h as “
• Wh th th d                           l”
                     t f to her “counsel”

                               g g                ,     p      g
• Whether the documents were segregated from other, non-privileged
• Whether the document was marked as “Privileged” and/or

                                       See Hardy v. New York News, Inc., 114 F.R.D. 633,644 (S.D.N.Y. 1987);
                               U.S Postal Serv. V. Phelps Dodge Ref. Corp., 852 F. Supp. 156 (E.D.N.Y. 1994).

     The In-House Privilege in the Context
            Internal Investigations
            I      lI       i i

       Rule 1.13 of the ABA Model Rules
            of Professional Conduct

     (a) A lawyer employed or retained by an organization represents the organization acting
            through its duly authorized constituents…

     (f) In dealing with an organization’s directors, officers, employees, members,
             shareholders or other constituents, a lawyer shall explain the identity of the client
             when the lawyer knows or reasonably should know that the organization’s
             interests are adverse to those of the constituents with hom the lawyer is dealing.

     Comment 10: …Care must be taken to assure that the individual understands that, when
         there is such adversity of interest, the lawyer for the organization cannot provide
         legal representation for that constituent individual, and that discussions between
         the lawyer for the organization and the individual may not be privileged

                                                                  ABA Model Rules of Prof’l Conduct (1983) (emphasis added)

         Case Study: Broadcom Option
            Backdating Investigation
     •   Broadcom’s board hired lawyers to conduct an internal investigation regarding its
                                              options           thereafter
         alleged practice of backdating stock options. Shortly thereafter, civil suits were
         filed against the company and several of its executives.

     •   The lawyers conducted an interview of the CFO, but never disclosed to him that
         they represented only Broadcom and that whatever he told them could later be
         disclosed at Broadcom’s discretion.

     •   The SEC and US Attorney’s Office then commenced an investigation of several
                                             company s
         Broadcom executives relating to the company’s option granting practices and
         Broadcom agreed to allow interviews of its attorneys regarding the internal
         investigation, including information concerning the CFO’s interview.

     •                  indicted
         The CFO was indicted, but claimed that the information from the meetings was
         privileged. The lawyers claimed that, at the beginning of the interview, they had
         provided the CFO with an Upjohn or Corporate Miranda warning, but the CFO
         denied receiving such a warning.

             Case Study: Broadcom Option
                Backdating Investigation
     •                                                    g      pp
             The district court held that: “an oral warning, as opposed to a
             written waiver of the clear conflict presented by [the law
             firm’s] representation of both Broadcom and [the CFO], is
                 py                      p                          g
             simply not sufficient to suspend or dissolve an existing
             attorney-client relationship and to waive the privilege.”
     •       Ultimate outcome:
         –                                              CFO s
                Ninth Circuit reversed based upon the CFO’s knowledge that the
                investigation was to be turned over to the company’s auditors and
                probably the government.
         –      The district court referred the law firm to the California State Bar for
                disciplinary action.

                                                         See United States v. Ruehle, 583 F.3d 600 (9th Cir. 2009);
                                                  United States v. Nicholas, 606 F.Supp. 2d 1109 (C.D. Cal. 2009).

         The Proper Upjohn or Corporate
               Miranda Warning
     •       Disclosures (before the interview begins):
         –       Th lawyer represents the company and not the i di id l personally.
                 The l                t th               d t th individual            ll
         –       The interview is part of an investigation being conducted for the purpose of providing legal
                 advice to the company.
         –       The interview is protected by the attorney-client privilege that belongs solely to the
                 company and not the individual.
         –       The privilege is subject to waiver at any time by the company without the individual’s
                 consent or knowledge.
         –       The substance of the interview is to be kept confidential, including as to other employees.
         –       The individual may want to retain outside counsel to represent his interests.

     •       Make a written record of the disclosures
         –       Additionally, Upjohn Waivers are sometimes utilized at the time of hiring or at the
                 inception of an investigation.

                                          See also, Upjohn Warnings: Recommended Best Practices When Corporate Counsel Interacts
                                                                            with Corporate Employees, American Bar Association

     The In House Privilege in the Context
          “At Issue” Waivers relating to
       External Investigations & Corporate

Case Study: B of A’s Proxy Statement
    re: Merrill Lynch Acquisition
     •   Regarding investigations conducted by the SEC and the NY Attorney General’s
         office concerning possible misleading statements in B of A s proxy statement which
         solicited approval for the acquisition of Merrill Lynch, B of A claimed that the the
         statements were not misleading and that the bank’s lawyers determined what to
         disclose, but was not willing to waive the A/C privilege so that the lawyers’
         involvement could be investigated.

     •   B of A claimed that it had not put the subject matter of legal advice “at issue” because
         it had not asserted reliance of legal advice as a justification for any inadequate or
               g               ;           ,                            p             pp
         wrongful disclosures; but rather, that the disclosures complied with all applicable

     •   B of A claimed that a regulator cannot create a basis for waiver of the A/C privilege
          y      p    g             q                g p
         by compelling answers to questions that might provoke answers concerning   g
         privileged communications. The holder of the privilege alone must affirmatively
         place the advice he received from his attorney “at issue” in the case.

     •                      g                     p      g
         B of A’s ultimate agreement to waive the privilege and settle with the SEC did not
         resolve the question as to the NY AG’s investigation, which is ongoing.
                                                See Securities and Exchange Commission v. Bank of America Corp., 653 F.Supp.2d 507, 508 (S.D.N.Y. 2009)
Case Study: B of A’s Proxy Statement
    re: Merrill Lynch Acquisition


 If B of A had not chosen to waive the privilege,
          ld b th i    ti ti    h
     would both investigations have b      thwarted
                                     been th     t d
     due to lack of evidence regarding reliance on
     legal d i ?
     l l advice?

     The In-House Privilege in the Context
              Board Presentations

               Case Study:
       Maxim Option Back Dating Case
     • Facts: A special committee formed by Maxim’s board of
       directors shared the report of its outside counsel s special
       investigation with the full board, which included individual
       board members who were under investigation for alleged
       wrongdoing, g

     • Trial Court Decision
                          d     l            l        d
        – Maxim waived any claim to privilege regarding communications with      h
          outside counsel because board members who were individual defendants
          were present at the meeting that the relationship between the individual
          defendant board members and the special committee was “adversarial in
                       d h h      i il             h f           i
          nature,” and that the privilege did not therefore survive.
        – The board presentations waived privilege not merely as to the report
          itself, but to all communications relating to the subject matter of the
                            Ryan v. Gifford, Civ. Action No. 2213-CC (Del. Ch. Nov. 30, 2007), [unpublished opinion]

               Case Study:
       Maxim Option Back Dating Case
            q                           y
     • Subsequent Denial of Interlocutory Review
       – “The decision was the result only of the application of well-settled
         precedent to a set of particular and specific facts.... [T]he relevant factual
         circumstances here include the receipt of purportedly privileged
         information by the director defendants in their individual capacities
         from the Special Committee. The decision would not apply to a
         situation (unlike that presented in this case) in which board members are
         found to be acting in their fiduciary capacity, where their personal
         lawyers are not present, and where the board members do not use the
         privileged information to exculpate themselves. Similarly, the decision
         would not affect the privileges of a Special Litigation Committee
         formed under Zapata, or any other kind of committee that (unlike
         the Special Committee here) has the power to take actions without
         approval of other board members.

                                               Ryan v. Gifford, 2008 Del. Ch. LEXIS 2 (Del. Ch. Jan. 2, 2008)

     The In House Privilege in the Context
              Asset Acquisitions

       Who Owns the Attorney/Client
     Privilege After an Asset Acquisition?
                    pp        y         yj
     • The answer apparently varies by jurisdiction
     • New York:
        – The seller retains the privilege as to communications with its
          counsel concerning the transaction and as to assets/liabilities
          not included in the sale.
        – The buyer acquires the privilege as to pre-closing issues
          pertaining to post-closing operations

                                                             See Tekni-Plex, Inc. v. Meyner & Landis, 674 N.E.2d 663 (N.Y. 1996);
                 Postorivo v. AG Paintball Holdings, Inc., Del. Ch., C.A. No. 2991, VC Parsons (2/7/08) (applying New York law)

       Who Owns the Attorney/Client
     Privilege After an Asset Acquisition?

     • Illinois:
        – The buyer generally acquires the privilege as a whole,
           in l din assets/liabilities n t in l d d in th sale
           including    t /li biliti not included the l

                             See American Int’l Specialty Lines Ins. Co. v. NWI-I, Inc., 240 F.R.D. 401 (N.D. Ill 2007)

     The Impact of Business Globalization
           on the In-House Privilege

                  Akzo Nobel Case:
                 In House
No Privilege for In-House Counsel Communications

     On September 14 2010 the E
     O S        b 14, 2010, h European C             f Justice issued i
                                            Court of J i i          d its
        final opinion excluding communications between in-house
                            y      p y                p
      counsel and the entity’s employees from the protection of the
      European Union’s counterpart to the attorney-client privilege
                    (“the legal professional privilege”).

                  From Akzo Nobel Opinion:

      An in-house lawyer,
     “An in house lawyer despite his enrolment with a Bar or Law
        Society and the professional obligations to which he is, as a
      result, subject, does not enjoy the same degree of independence
      from his employer as a lawyer working in an external law firm
      does in relation to his client. Consequently, an in-house lawyer
        is less able to deal effectively with any conflicts between his
              professional obligations and the aims of his client.”

                         Also cited as a basis for the decision: The
                         court’s concern over the fact that in-house
                         counsel are “dual-purpose” lawyers in that
                                they perform functions in addition to
                legal      representation of the company.

                          Akzo Nobel Case:
                         Possible Implications

• Although in the context of an investigation into alleged anti-
  competitive activities, the language of the opinion seems to indicate
  b d application by the ECJ to a b d context.
  broader    li i b h                   broader

• Communications with in-house counsel in the United States that
  would be clearly privileged must be scrutinized in any company
  operating in the EU or routinely conducting business there.
              h               f               l (“ACC”) intervened in the case and
     Note: The Association of Corporate Counsel (     )          d     h         d
       filed an amicus brief.

                           Akzo Nobel Case:
                          Possible Implications
        – If part of an EU investigation (or perhaps any EU proceeding), will the
          origin of the communication determine whether a communication is
          privileged? Or the location of the proceeding?
                  f               d by
        – May information seized b an EU investigation containing attorney-
          client communications be shared with its U.S. counterparts?
        – Does information contained in digital form exist anywhere it can be
          accessed by computer?
        – If a U.S. court determines that an entity had no expectation that the
          communication would be privileged because of its significant business in
          the EU, will that conceivably affect a domestic privilege determination?
        – If a U.S. court is asked to determine whether such communications are
          privileged that would otherwise not be privileged in the EU, what would
          be the outcome?

  Pennsylvania Supreme Court Confirms that
 the Privilege Operates in a “two-way” fashion
     • Nationwide Mutual Ins. Co v. Fleming, 924 A.2d 1259 (Pa. Super.
     The attorney-client privilege applies only to communications from
       a client to the attorney and not from the attorney to the client.

     • Upon review of this case, the Supreme Court was unable to
       reach a majority on this issue in 2010.

     • Gillard v. AIG Insurance Company, 15 A.3d 44 (Feb. 23, 2011):
       “We hold that, in Pennsylvania, the attorney-client privilege
        operates in a two-way fashion to protect confidential client-to-
                 y          y
         attorney or attorney-to-client communications made for the
         purpose of obtaining or providing professional legal advice.”
                   Suggested Best Practices

 • Make strategic decisions regarding which types of documents to protect

 • Reconsider dual titles and perhaps dual functions, where possible

                       specificall                  request           advice
 • Make a practice of specifically referencing the “req est for legal ad ice” or of the
   “legal advice” being provided

 • Address communications to counsel rather than using “cc”

 • Label documents to be protected as “Attorney-Client Privileged” and

 • In addition to in-house counsel themselves, non-lawyers who interact with in-
   house lawyers must be educated on privilege parameters.

               Suggested Best Practices (cont.)
•    Separate factual recitations and business considerations from actual legal advice as much as
     possible, i e here                  is”    here             advice”
     possible i.e. “here is what the law is or “here is my legal advice

•    Create a new e-mail rather than hitting the “Reply” option as an initial e-mail may affect
     whether the Reply is privileged. See Vioxx Products Liability Litigation, 501 F.Supp.2d 789
     (E.D. La
     (E D La. 2007)

•    Understand whether data/communications are being stored on a server in the European
     Union or other jurisdiction where privilege may not be recognized.

•    Create appropriate Upjohn/Corporate Miranda warning documents for investigation

•    Consider the information to be disclosed at board meetings and attendees.

•    Except where absolutely necessary, assume the privilege does not exist

•    Where absolutely critical to protect privilege, involve outside counsel

In-House Counsel and the
          l          l
Attorney-Client Privilege

     CLE Program Materials Prepared by:
                Michael Hayes
          Montgomery, McCracken,
           Walker & Rhoads, LLP
           123 South Broad Street
           Phil d l hi PA 19109
                (215) 772-7211

          Wednesday, August 31, 2011
           Facts Versus Privileged Communications

•   The attorney-client privilege offers protection against the forced disclosure
    of confidential communications between client and lawyer.

•   The privilege does not, however, extend to protect against disclosure of the
    facts discussed in otherwise confidential attorney-client communications.

                 Facts Versus Privileged Communications

A fact is one thing and a communication concerning that fact is an entirely
different thing. The client cannot be compelled to answer the question, ‘What did
               i     h          ?’ but          f      disclose any relevant f
you say or write to the attorney?’ b may not refuse to di l            l     fact
within his knowledge merely because he incorporated a statement of such fact
into his communication with the attorney.

Upjohn v. United States, 449 U.S. 383, 395-96 (1981).

                         ,     g                g      g
Facts are discoverable, the legal conclusions regarding those facts are not. A
litigant cannot shield from discovery the knowledge it possessed by claiming it has
been communicated to a lawyer; nor can a litigant refuse to disclose facts simply
because the information came from a lawyer.

Rhone-Poulenc Rorer, Inc. v. Home Indem. Co., 32 F.3d 851, 864 (3d Cir. 1994).

                                   Documents and the Privilege

•   Documents which would not be privileged if they remained in the client’s hands do not
    acquire protection merely because they are transferred to a lawyer.
    See United States v. Robinson, 121 F.3d 971, 975 (5th Cir. 1997); Gould, Inc. v. Mitsui Min. & Smelting Co., Ltd.,
    825 F.2d 676, 679-80 (2d Cir. 1987); see also Zelaya v. UNICO Service Co., 682 F. Supp. 2d 28 (D.D.C. 2010);
    New York Marine & General Ins. Co. v. Tradeline (L.L.C.), 186 F.R.D. 317 (S.D.N.Y. 1999); Smith v. Texaco, Inc.,
    186 F.R.D. 354 (E.D. Tex. 1999).

•   Nor does the mere fact that a document acknowledges the existence of an attorney-
    client communication imbue the document with privilege protection.
    See Burton v. R.J. Reynolds Tobacco Co., 177 F.R.D. 491 (D. Kan. 1997) (ordering production of redacted portion
                           g                                                 g
    of document concerning scientific studies conducted for defendant relating that a draft work statement was
    submitted to in-house counsel for legal input).

•   However, documents need not be authored by or addressed to an attorney in order to
    obtain attorney-client privileged status
    See SEPTA v. Caremark PCS Health, L.P., 254 F.R.D. 253, 258 (E.D. Pa. 2008) (“[T]he privilege may also
    extend to certain documents, that while not involving employees assisting counsel, still reflect confidential
    communications between client and counsel . . . .”).

                                    Documents and the Privilege

•   In addition, non-attorney employees can share privileged documents with appropriate
    personnel in order to relay information requested by counsel or to properly inform the
    corporation of legal advice without waiving the privilege.
    See Smithkline Beecham Corp. v. Apotex Corp., 232 F.R.D. 467, 477 (E.D. Pa. 2005).

•   Drafts or memorializations of the client’s confidential communications with counsel
                         attorney-client privilege.
    are protected by the attorney client privilege
    See WebXchange v. Dell, Inc., 264 F.R.D. 123 (D. Del. 2010) (client’s notes memorializing privileged
    communications with counsel are protected by the privilege); see also Laethem Equip. Co. v. Deere & Co., 261
    F.R.D. 127, 142 (E.D. Mich. 2009) (“drafts of a [confidential] communication to an attorney are privileged.”);
    Adamowicz v. I.R.S., 672 F. Supp. 2d 454 (S.D. N.Y. 2009).

•   Moreover, drafts of documents, including contracts, that are prepared by counsel or
    circulated to counsel for comments on legal issues may be privileged to the extent
    that they contain information or comments not included in the final version of the
    See Andritz Sprout-Bauer, Inc. v. Beazer East, Inc., 174 F.R.D. 609, 633 (M.D. Pa. 1997); see also Muller v. Walt
    Disney Prods., 871 F. Supp. 678, 682 (S.D.N.Y. 1994) (“Preliminary drafts of contracts are generally protected by
    attorney/client privilege, since they may reflect not only client confidences, but also legal advice and opinions of

    What About Facts Compiled or Analyzed at the Request of Counsel?

•   Internally-generated corporate reports and analyses may be protected from
    disclosure depending on the nature of the documents and the circumstances
    surrounding their creation.
    See Holt v. KMI-Continental, Inc., 95 F.3d 123 (2d Cir. 1996) (internal report reviewing employer’s potential
    exposure for Equal Pay Act violations was protected by the attorney-client privilege as it sought legal advice in
    connection with employment discrimination action).

•                                                                        in-house
    Factual information contained in internal reports commissioned by in house counsel
    generally are not protected by the attorney-client privilege (but may constitute work
    product assuming the primary motivation in creating the report was to aid in possible
    future litigation).
    See Smith v. Texaco, Inc., 186 F.R.D. 354, 357 (E.D. Tex. 1999) (rejecting claim of privilege in connection with
    data drawn from employee records recompiled in an internal report commissioned by in-house counsel subject to

•   However,
    However interpretive material and analyses contained in such reports may constitute
    confidential communications from client to counsel and therefore fall within the
    See id. (finding “interpretive material comprised of tables, lists, statistical analyses, and graphical representations”
                                            in-house                                   attorney client privilege)
    contained in report commissioned by in house counsel were covered by the attorney-client privilege).

          p    g       p
       Preparing for Deposition as In-House Counsel

•   Assuming all efforts to oppose the taking of your deposition fail, your first
       p                                           p prepare y and represent
    step should be to retain outside counsel to help p p     you          p
    you for purposes of the deposition.

•   Thorough preparation – with your outside counsel – is absolutely critical to
    protecting the privilege at your deposition.

•   Whether or not your deposition includes attendant requests for documents,
          ill   d to identify d t k      t the          ’    iti       di
    you will need t id tif and stake out th company’s position regarding all  ll
    of your potentially privileged communications well ahead of the deposition.

•               time                                          obligations.
    At the same time, you must be mindful of your own ethical obligations

        Survey the Landscape – Get Comfortable in the Batters’ Box

•   Consider (but don’t dwell on) the possible reasons why you are being
     – are you in unique possession of relevant facts or information?
     – is opposing counsel attempting to do make an end-run around adverse discovery
       rulings on privilege or other issues?
     – worse yet is the deposition a harassment tactic?

•   Understand the specific subject matter and/or other limitations on your
     – is there an order limiting the type(s) of information that counsel for the opposing
       party is permitted to question you on?
     – have the parties otherwise agreed to limit the scope of your deposition to one or
       more topics?
     – how have the courts in the relevant jurisdiction dealt with issues surrounding the
       taking of discovery from opposing and/or in-house counsel?

           Know the Rules and Understand the Potential Outcomes
                 of a Privilege Dispute in Your Jurisdiction

•   Thoroughly re-acquaint yourself with the contours of the attorney-client privilege, the
    work-product doctrine, the joint-defense privilege and any other potentially applicable
    li i i         discovery (i.e., trade secrets, privacy concerns, self-critical analysis,
    limitations on di        (i        d             i                 lf i i l       l i

                         g general p
     – An understanding of g                p                     ; you
                                      principles is not sufficient; y need to know the
       current state of the law in the relevant jurisdiction(s).

     – Make sure that your understanding of the law is consistent with that of your
       outside counsel

     – Closely review any prior privilege or other discovery orders in your action, as well
       as any other significant privilege decisions previously published by the judge.

                        Prepare for Potential Waiver Issues

•   To properly protect the privilege, you need to know what is considered a waiver and
    how the scope of waiver is determined in the relevant jurisdiction(s):

     – Although the privilege belongs to the company, even the inadvertent disclosure
       of privileged communications in discovery can lead to a finding of waiver.

     – Using the privilege as a sword doesn’t work – selective waiver is almost always a
       bad idea in litigation, and especially so if the waiver is made “on the fly” during a

     – As a general principle, waiver of the privilege extends to all other privileged
       communications regarding the same subject matter – and can go further
       depending on the circumstances.

     – Again, preparation is key. Work with your outside counsel to identify areas of
       anticipated questioning likely to implicate potentially privileged communications
       and/or work-product issues.

             Assess Your Roles and Responsibilities – and Their
              Potential Impact on Your Privilege Determinations

•   Consider your roles and responsibilities as in-house counsel and how they might
    impact your deposition testimony, including your ability to identify and protect
    potentially privileged communications:

     – Do you have legal and business roles and responsibilities?

     – Have your roles and responsibilities been clearly defined?

     – Have your roles and responsibilities evolved during the relevant time period?

     – Do you have a written job description?

     – Have you always made clear in what role you are providing advice, information
         di    t to       ll      ?
       and input t your colleagues?

     – Do your colleagues respect the distinct nature of your roles when they seek your
       advice and input regarding legal or business matters?

                       Consider Confidentiality Concerns

•   In order to properly identify and assess your potentially privileged communications,
    you must consider whether your legal advice was sought and provided in confidence:

     – Have the participants in / audience to your privileged communications been
       appropriately limited?

     – Has the confidential nature of your privileged communications been respected
       and maintained?

       Does your company h
     – D                                li i          d            i how l
                            have any policies or procedures concerning h      l
       advice is to be requested, provided, and disseminated? Have they been
       consistently followed?

                                Preparation is the Key

•   To effectively protect the company’s privilege at deposition, you must first dedicate
    sufficient time and resources to thoroughly prepare for the deposition with your
    outside counsel.

•   Depositions of in-house counsel are considered extraordinary events by outside
    counsel – your should treat them as such and prepare yourself for what could be a
       y      ,p                     p        your deposition.
    very tense, pressure-filled atmosphere at y      p

•   Consider conducting a mock deposition with your outside counsel to help prepare for
    anticipated areas of questioning and ensure that you and your outside counsel share
    a mutual understanding of what p       g
                                    privileged communications y                 y
                                                               you’ve had and any work-
    product issues that may be implicated.

•   Talk with your outside counsel about how he/she intends to object when privilege
                      g       p                you
    issues arise during the deposition and how y intend to communicate with counsel
    when you believe that a privilege issue may be implicated by a question.

                         “Oh Lord, its Hard to be Humble . . .” *

•   As you prepare for your deposition, consider the possibility that we, as lawyers, may
    not make the best witnesses. Why not? Well, for example:
                                     y            ,         p

    We . . . hate to admit that we do not know the answer to something (really anything); after all,
    that’s what we’re paid for, knowing the answer. This urge is especially strong among in-house
    counsel who are involved in almost every aspect of the company’s business. Their clients rely on
    them to know the inner workings of the business and to keep them on the straight and narrow To
    admit that they don’t know some detail often feels to them like an admission that they haven’t
    done their job, even if it’s not accurate. . . . Depositions are about real world events; they require
    witnesses to acknowledge imperfect facts and imperfect decisions. Hard line advocacy makes the
    witness look foolish at best and disingenuous at worst.

    Albert Vreeland and Jennifer Howard, The Care and Feeding of In-House Counsel;
    The Alabama Lawyer 340 (September 2006).

* Mac Davis @ the Muppets ( )

      Consistent Respect for the Privilege Helps Ensure its Protection

•   To successfully protect its attorney-client privileged communications against
            y                  p                   y y      g g
    discovery, it has to be respected on an everyday, ongoing basis.

    At a deposition, the smart deposing lawyer . . . will not merely ask the in-house counsel to repeat
    communications made to him by upper management and hope that she momentarily forgets the
    p     ege and answers the question. at e , the a ye           attempt, through go ous questioning,
    privilege a d a s e s t e quest o Rather, t e lawyer will atte pt, t oug rigorous quest o g,
    to lay a foundation for the argument that the communications are not actually privileged or,
    alternatively, that the privilege has been waived. For example, the lawyer will ask the in-house
    lawyer to name all recipients of the subject communication to see if any third parties received the
    information which, if so, would constitute a waiver of the privilege. Or, the lawyer will question the
    in house attorney about all the measures taken to ensure that the communication remained
    confidential and not subject to disclosure, again hoping to later argue that a waiver has occurred.
    The equally smart in-house lawyer, therefore, will take the necessary steps - long before
    receiving a deposition subpoena - to ensure that the privilege is not only established at the
    time of the communication, but also maintained thereafter.

    Todd Presnell, Depositions of In-House Counsel – Protecting the Attorney-Client Privilege;
    In-House Def. Q. 50 (Winter 2007) (emphasis added).

The Attorney-Client
  Privilege in the
 Corporate S tti
 C       t Setting
           Brian Martin
         General Counsel
        KLA-Tencor, C
        KLA T        Corp.
                 Knowledge Gap
   The best evidence of this knowledge gap is
    recent case law where courts have been forced
    to remind us of the following fundamental
       Conversations are not privileged simply because a
        lawyer is in the meetings.
        l      i i th        ti
       E-mails are not privileged because a lawyer is copied
               e mail.
        on the e-mail.
       Communications are not privileged when a lawyer
        serves as a conduit for the communication.

             Who is the Client?
   Two principal tests have been used to
    determine whether corporate
    communications fell within the attorney-
    client privilege: (1) Control group test and
    (2) Subject matter test

         The Control Group Test
   A corporate employee communicating with
    the company's lawyer has to be a member
    of management with authority to take part
    in decisions on the matter in question for
    the privilege to apply In re Grand Jury
    Investigation, 599 F.2d 1224, 1235 (3rd
    Cir. 1979)
    Cir 1979).

           The Control Group Test
   The control group test essentially requires that the
        l       ith h         tt                i t b
    employee with whom an attorney communicates be a
    member of senior management for the
    communication to be privileged.
   Management is the “client.”
   The control group test has been severely criticized
       it has a chilling effect on corporate communications;
       it frustrates the very purpose of the privilege by discouraging
        subordinate employees from communicating important
        information to corporate counsel;
       it makes it difficult for corporate counsel to properly advise their
        clients and to ensure their clients' compliance with the law; and
       it yields unpredictable results.
         The Subject Matter Test
   The privilege extends to communications
    made by any corporate employee so long
    as the communication is both made at the
    direction of his superiors and relates to
                             employee s duties.
    the performance of the employee's duties
    Diversified Indus., v. Meredith, 572 F.2d
              Cir 1978)
    596 (8th Cir. 1978).

                 The Upjohn case
   Facts
       Independent auditor uncovered potentially illegal
        payments by foreign subsidiaries to foreign gov't
        officials to secure government business.
       General Counsel retains outside counsel and confers
        with chairman. Initiates investigation by sending
        questionnaires to management and requesting "full
        information" concerning any such payments.
       Managers were instructed to treat the process as
        highly confidential.

                  The Upjohn case
   Upjo    acts co t ued
    Upjohn Facts continued
       The GC and outside counsel interviewed 33
       The company disclosed the questionable payments on
        the company's Form 8-K and a copy of the Form was
        submitted to the IRS who began investigations
             di th       t ti l t implications of the
        regarding the potential tax i li ti       f th
       The IRS sought the production of the questionnaires
        and the GC's files. Upjohn declined production based
        upon the attorney-client privilege. The IRS instituted
        an action seeking enforcement of the IRS summons.

   Control group test rejected by Supreme Court
       Lower level employees can embroil the corporation in
        serous legal difficulties and thus will have relevant
        information needed by corporate counsel if he/she is
        to perform his/her mission of counseling the
         o po a o      ga d g            u
        corporation regarding these issues.
       Privilege protects employee communications and
        thereby enables the attorney to counsel the

               Court s
    The Supreme Court's holding:
       Sound legal advice serves the public interest
        and full disclosure from the client insures that
        the lawyer is fully informed.

             The Upjohn Factors
   The Supreme Court set down five factors to
    guide courts in determining the validity of
    attorney-client privilege claims for
    communications between legal counsel and
    lower-echelon corporate employees:
    1.The information is necessary to supply the basis for
      legal advice to the corporation or was ordered to be
                        y p
      communicated by superior officers; ;
    2.The information was not available from "control
      group" management;

        The Upjohn Factors
            (         )
3. The communications concerned matters
   within the scope of the employees' duties;
4. The employees were aware that they were
   being questioned in order for the corporation
   to secure legal advice; and
5. The communications were considered
   confidential when made and kept
       fd     l

             The Upjohn Factors
                 (         )
                                            lower-
    When each of these elements is met, a lower
    echelon employee is considered a client under
    the attorney-client privilege, and the employee's
    communications with corporate counsel are
    privileged. Bruce v. Christian, 113 F.R.D. 554,
         (S D N Y         ( i il       t d t
    560 (S.D.N.Y. 1986) (privilege extends to
    employee communications on matters within the
    scope of their employment and when the
    employee is being questioned in confidence in
    order for an employer to obtain legal advice).
                    p y                 g        )

           Clarify the Relationship
                  p                            p
    Some courts place the burden on the corporate counsel
    to clarify the nature of the relationship with the
    employee. In those jurisdictions, if a lawyer fails to
          y                  y p          g        g        ,
    clarify that she is solely representing the organization,
    then the employee can assert the privilege if the
    employee reasonably believed that the lawyer
      p                   p y                          ,
    represented the employee. United States v. Hart, No.
    Crim. A. 92-219, 1992 WL 348425 (E.D. La. Nov. 16,
    1992) (employees reasonably believed that corporate
                     p         g                 y
    counsel was representing them individually and therefore
    could invoke privilege).

C       i ti
     Confidential Communications
    "Confidential Communications"
     o e a privileged a co
    To remain p                  u cat o    ust
                    eged communication must be
    made in confidence and kept confidential. The
    test is (1) whether the communicator, at the
    time the communication was made, intended for
    the information to remain secret from non-
    p      g p         ,     ( )            p
    privileged persons, and (2) whether the parties
    involved maintained the secrecy of the
    communication. See Haines v. Liggett Group,
    Inc.,      F 2d        Cir
    Inc 975 F.2d 81 (3d Cir. 1992) (privilege
    protects verbal and written communications
    conveyed in confidence for purpose of legal
    Confidential Communications
                       clients,
    For organizational clients the courts have
    permitted "need-to-know" agents to have
    access to privileged documents without
    destroying confidentiality and
    relinquishing the privilege. See Coastal
    States Gas Corp. v. Department of
    Energy,      F 2d 854        (D C Cir
    Energy 617 F.2d 854, 863 (D.C. Cir.
    1980); Diversified Indus., Inc. v.
    Meredith,       F 2d          Cir 1977)
    Meredith 572 F.2d 596 (8th Cir. 1977).
    Confidential Communications
                   need to know
    The group of "need-to-know" agents is
    comprised of employees of the
       g                         y
    organization who reasonably need to
    know of the communication in order to
    act in the interest of the corporation.
    Coastal States G C
    C    t l St t Gas Corp. v. D        t
                                  Department  t
    of Energy, 617 F.2d 854, 863 (D.C. Cir.
    1980) (applying a "need to know" test to
    find that indiscriminate circulation of a
    memorandum constituted disclosure)
    Confidential Communications
      o a dt e      oo e ette
    Exxon and the "Broome Letter"
   In-house counsel rendered legal opinion on
    whether Exxon was required to make royalty
                 h         f Al b
    payments to the state of Alabama.
        Memo was circulated to senior management
                                      mgmt
         Counsel was not involved with mgmt. decision
   State sues and lower court orders production of
    Broome Letter.
        Content and circulation list
        Result: $87m direct damages; $3.42b punitive

    Confidential Communications
                  Broome Letter
    Exxon and the "Broome Letter"
       Alabama Supreme Court reverses
         Content: non-confidential facts contained in letter
               p             p p             g    p
          but predominant purpose was a legal opinion
         Circulation: lawyer testified why each person
          needed to review the memo and "no mere
          spectators or 'fyi' recipients."

Legal Ad i
L   l Advice
              Legal Advice
             "Legal Advice"
                        apply,
    For the privilege to apply the
    communication must be made for the
    purpose of securing legal advice or
    assistance. See In re Six Grand Jury
    Witnesses,       F 2d         Cir
    Witnesses 979 F.2d 939 (2d Cir. 1992)
    (privilege protects communications made
    in confidence to lawyer to obtain legal

                   Legal Advice
                  "Legal Advice"
   Business Advice is excluded
       A communication is not privileged simply
        because it is made by or to a person who
        happens to be an attorney.
                  attorney-client
        When the attorney client privilege is invoked
        with regard to communications with in-house
        counsel, the court will look particularly closely
        at whether the counsel was providing
        business advice, rather than legal advice.

                Mixed Advice
          o      ed u pose o the privilege to
    Cases of Mixed Purpose: For t e p        ege
    apply in such cases, the communication between
    client and lawyer must be primarily for the
    purpose of providing legal assistance and not for
    another purpose. As long as the client's purpose
    was to gain some advantage from the lawyer's
            g                    g                y
    legal skills and training, the services will be
    considered legal in nature, despite the fact the
    client may also get other benefits such as
    business advice or friendship. United States v.
    Bornstein, 977 F.2d 112 (4th Cir. 1992).

                 Mixed Advice
                          y           p,
    But see: Kramer v. Raymond Corp., No. 90-
    5026, 1992 U.S. Dist. LEXIS 7418 at *3-4 (E.D.
    Pa. May 29, 1992). ( "The attorney-client
    privilege is construed narrowly. This is
    especially so when a corporate entity seeks to
    invoke the privilege to protect communications
       in-house                     in-house
    to in house counsel. Because in house counsel
    may play a dual role of legal advisor and
    business advisor, the privilege will apply only if
    the communication in question was made for the
    express purpose of securing legal not business
    advice." ).

           Preventative Measures
   Require written request for legal advice on any
    sensitive measures
   Keep privileged communications confidential
   Counsel should direct investigations
       Use of “Upjohn letters”
   Where experts are used to assist counsel, there
    must be a contemporaneous record of the
      i il   d t       f th
    privileged nature of the engagementt
   In-house counsel should obtain information from
    the most senior source available
         Preventative Measures
         Pre entati e Meas res
   Assertion of privilege must be particularized
   Resist indiscriminate use of privilege label
   Use legal titles in correspondence
   Assume non-lawyers neither understand nor
    respect the privilege
   Documents setting forth legal advice should
    relate only to legal subjects
   Control distribution
   Develop procedures to protect confidentiality
         5 Strategies for Managing the
1.        y
     Call your team to action.
         Too many in-house lawyers are unacceptably
         operating under their law-school-vintage
                       g             g
         understanding of the privilege.
        Ask one of your team members to take responsibility
         for refreshing the group on the law.
            One of your law firms would be happy to take responsibility
             f thi training.
             for this t i i
            Create a “privileged or not” game
            Jenner and Block publishes a handy compendium of cases
             relating to the privilege.

         5 Strategies for Managing the
2.   Educate your business teams
         Watch your language; use of the term
         One approach to educating the business
          teams is to publish a brief white paper
          explaining the privilege to non-lawyers.


         5 Strategies for Managing the
3    Develop and implement a standard
     internal investigation process.
         The effectiveness of an internal investigation
          is dependent upon the actions and decisions
          made in t e first 48 hours.
             ade the st 8 ou s

     5 Strategies for Managing the
4.   Internalize the lessons of Coastal States
     Gas Corp. v. Department of Energy, 617
     F 2d 854 (D.C Cir. 1980) and Exxon v.
     F.2d      (D C Cir                    v
     Department of Conservation and Natural
     Resources 859 So. 2d 1096, 1100 (Ala.
                   So     1096       (Ala

     5 Strategies for Managing the
5.   Give Courts a break!