Do the Right Thing, Inside and Out Ethics for

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					       Do the Right Thing, Inside and Out:
        Ethics for Transactional Attorneys

                         ABA Business Law Section
                           Spring 2007 Meeting

             Commercial Financial Services Committee

                               Committee Forum

                                 March 15, 2007

Program Panel:   Corie Pauling, Senior Counsel, TIAA, Moderator
                 Thomas B. Mason, Partner, Zuckerman Spader LLP
                 Raymond L. Sweigart, Partner, Pillsbury Winthrop Shaw Pittman LLP
                                       Table of Contents

Program Outline

Conflicts in Transactional Matters. Identifying and Avoiding
     Conflicts at the Outset of An Engagement ..................................Thomas B. Mason

Form of Engagement Letter (Law Firm)

Protecting the Attorney-Client and Other Privileges ....................... Raymond L. Sweigart

     Issues/References to Outline ............................................ Raymond L. Sweigart

     Attorney-Client Privilege for Transactional Lawyers
         – Sample Documents .................................................. Raymond L. Sweigart

Challenges to the Attorney/Client Relationship: Disqualification
   and Privilege Disputes ................................................................ Corie Pauling
                                       Program Outline


   •   Basic Conflicts Rules
          o Current Client Conflicts
          o Former Client Conflicts
          o Imputation of Conflicts
          o Waiver of Conflicts

   •   Identifying Conflicts
          o Who is the client?
                     De Facto Clients
                     Corporate Families and Membership Organizations
                     Former client or current client?
          • Representing Multiple Parties
          • Examples/Hypotheticals

   •        Strategies for Avoiding Conflicts

Communications During the Transaction

   •   Privilege (and How Not to Lose It)

   •   Communication with a Non-Client
         o Represented by Other Counsel
         o Not Represented

   •   Watch Out for Expectations as to Who You Represent

When a Transaction Becomes a Dispute

   •   Disqualification

   •   Privilege (and How Not to Lose It)

   •   Watch Out for Expectations as to Who You Represent
Conflicts in Transactional

        Identifying and Avoiding
        Conflicts at the Outset of An
        Thomas B. Mason
        Zuckerman Spaeder LLP

Conflicts in Transactional Matters

  Prohibitions on Conflicts of Interests
  Apply in Transactional Matters
  ABA Model Rule 1.7 Comments [7]
  and [26]:
   “Directly adverse conflicts can . . . arise in
     transactional matters.”
  “Conflicts of interests . . . arise in matters
     other than litigation.”

Conflicts in Transactional Matters

  Basic conflict rules

  Identifying conflicts

  Strategies for avoiding conflicts

Basic Conflict Rules

  Concurrent conflicts, i.e., conflicts
  between current clients
  Former client conflicts
  Imputation of conflicts

Basic Conflict Rules:
Current Client Conflicts

           ABA Model Rule 1.7:
  Representation of one client in a
  matter directly adverse to another
  Representation of client “materially
  limited” by responsibilities to other
  clients, third parties, etc.

Basic Conflict Rules:
Former Client Conflicts

          ABA Model Rule 1.9:
  Representation of a current client
  against a former client in a matter that
  is “substantially related” to the work
  done for the former client

Basic Conflict Rules:
Imputation of Conflicts

          ABA Model Rule 1.10
  With limited exceptions, your
  colleague’s conflict is your conflict
  With limited exceptions, screening
  does not cure a conflict

Basic Conflict Rules: Waiver

  Some, but not all, conflicts can be
  Only per se non-waivable conflicts
  under ABA Rules are litigation conflicts
  (ABA Model Rule 1.7(b)(3))
  Waiver of future conflicts permitted
  (Comment [22] to ABA Model Rule

Identifying Conflicts:
Key Questions

   Who is the client?
   Are you representing multiple,
   adverse parties?
   Handling client confidential

Identifying Conflicts:
Who is the Client?

  “Accidental” or “de facto” clients
  Corporate family issues: e.g., are
  parents, affiliates, subsidiaries, of a
  client also clients?
  Membership entities: e.g., trade
  associations, lending syndicates,

Identifying Conflicts:
Who is the Client?

        Corporate Family Issues:
  “A lawyer who represents a
  corporation . . . does not, by virtue of
  that representation, necessarily
  represent any constituent or affiliated
  organization, such as a parent or
  subsidiary.” Comment [34] to ABA
  Model Rule 1.7

Identifying Conflicts:
Who is the Client?

BUT, a corporate affiliate may also be a
  if the lawyer has agreed to so treat it
  if the lawyer, in practice, so treats it
  if the affiliate reasonably believes that
  it is a client of the lawyer

Identifying Conflicts:
Who is the Client?

   if the lawyer and affiliates share
   confidential information
   if affiliates share common
   management, especially in-house
   if corporate formalities among distinct
   entities are not observed
E.g., ABA Formal Opinion 95-390.

Identifying Conflicts:
Who is the Client?

             Trade Associations, etc.
    Are members of trade associations,
    partnerships, franchisee groups, lending
    syndicates represented by a lawyer also
    clients of the lawyer?
    No per se rule re when a lawyer
    representing an informal association also
    represents the members of that group;

Identifying Conflicts:
Who is the Client?

        Trade Associations, etc.
  Depends on facts and circumstances
  of each case: disclosure of
  confidential info by member to lawyer,
  reasonable expectations of the
  member, number of members in the
  association, separate representation of
  the member in the matter, etc.

Identifying Conflicts:
Who is the Client?

         Trade Associations, etc.
  E.g., Westinghouse Electric v. Kerr-McGee, 580
  F.2d 1311 (7th Cir. 1978); Lawyer’s Ability to
  Represent a Trade Association As Well As Clients
  with Interests Adverse to Individual Members of
  Association, NYC Eth. Op. 1999-1, 1999 WL

Identifying Conflicts:
Who is the Client?

  When does a client become a former
  For engagements limited to specific matters,
  representation terminates when matter is
  completed; for other engagements, client
  may assume relationship continues unless
  lawyer sends notice of withdrawal. ABA
  Model Rule 1.3, Comment [4]

Identifying Conflicts:
Representing Multiple Parties

  “A lawyer may not represent multiple parties
  to a negotiation whose interests are
  fundamentally antagonistic . . . but [with
  disclosure and consent] common
  representation is permissible where clients
  are generally aligned in interest even though
  there is some difference in interest among
  them.” ABA Model Rule 1.7, Comment [28]

Identifying Conflicts:
Representing Multiple Parties

  “Lawyer may seek to establish . . . a
  relationship between clients on an
  amicable and mutually advantageous
  basis,” “resolv[ing] potentially adverse
  interests by developing the parties
  mutual interests” ABA Model Rule 1.7,
  Comment [32]

Identifying Conflicts:
Representing Multiple Parties

         Confidential Information
  Competing principles: each party to a
  representation has the right to require
  its lawyer to maintain its confidences
  but in common representations the
  privilege may not attach as between
  common clients. Comment [30] to ABA
  Model Rule 1.7

Identifying Conflicts:
Representing Multiple Parties

  Need consent to withhold confidential
  information as between clients.
  Even with consent, withholding confidential
  information is problematic if the same lawyer
  w/in the firm represents all parties.
  If different lawyers w/in a firm representing
  multiple clients, screening with client
  consent may suffice.
See Conflicts of Interests; Waivers, Imputation
  of Conflicts, NYC Eth. Op. 2001-2, 2001 WL

Identifying Conflicts:
Example 1

   Lawyer’s Firm Represent Bank X on
   real estate (but not lending) matters;
   lawyer is asked to represent
   Borrower in a loan transaction with
   Bank X. Is it a conflict? Is it waivable?

Identifying Conflicts:
Example 1

  Yes, it is a conflict. In representing
  Borrower, the lawyer would be adverse
  to Bank X, also a client of the Lawyer’s
  Firm. But the conflict is waivable. ABA
  Model Rule 1.7(a)(1) and (b), Comment [6]

Identifying Conflicts:
Example 2

  Lawyer’s Firm (but not lawyer)
  represents Borrower, lawyer leaves
  Firm and goes to work for Bank X and
  is asked to handle a loan to Borrower
  Same as above, except that lawyer
  before joining Bank X worked on a
  matter for Borrower

Identifying Conflicts:
Example 2

  No conflict, Rule 1.9(b) allows lawyer
  who leaves Firm to be adverse to Firm
  clients so long as lawyer has no
  relevant confidential information
  Under Rule 1.9(b), conflict if lawyer
  leaving Firm has relevant confidential
  information. Conflict can be waived.

Identifying Conflicts:
Example 3

  Firm represents Bank X as lead bank
  in lending syndicate. Firm also
  represents Bank Y (a member of the
  syndicate), but not on this transaction.
  Bank X’s and Y’s interests in the deal
  are aligned in most but not all
  respects. Can firm represent Bank X in
  negotiations with Bank Y?

Identifying Conflicts:
Example 3

  Conflict, if Firm is negotiating with
  Bank Y on behalf of Bank X. Bank Y
  can waive conflict or Firm can
  eliminate conflict with limitation on
  scope of representation of Bank X, i.e.,
  not negotiating or advising on matters
  between Bank X and Bank Y.

Identifying Conflicts:
Example 4

  Firm is asked by Borrower to give an
  opinion on a regulatory matter with
  respect to a loan transaction with Bank
  X, which Firm represents on other
  matters. Firm does not otherwise
  participate in the transaction between
  Borrower and Bank X.

Identifying Conflicts:
Example 4

  Answer may depend on the nature of the
  opinion and issue addressed in it. Standard
  opinion that a corporation was validly
  formed and remains in existence may not
  give rise to conflicts. More complex
  opinions on more nuanced subjects may
  create conflicts. So long as Firm is not
  representing Bank X in the transaction, the
  conflict is waivable.

Identifying Conflicts:
Example 5

  Firm represents Lender. Borrower is
  obligated to pay Lender’s legal fees.
  Borrower asks for Firm’s detailed
  billing statement to Lender

Identifying Conflicts:
Example 5

  A client confidentiality issue, not a
  conflict issue. Lawyer can only
  disclose client confidences with client
  authorization. Typically, detailed
  billing statements are considered client

Identifying Conflicts:
Example 6

  Firm represents Underwriter in a
  securities offering. Firm also
  represents a subsidiary of Issuer on
  other matters and Issuer as
  tax/regulatory counsel on this deal.
  Issuer has separate transaction

Identifying Conflicts:
Example 6

  Conflict. In representing Underwriter,
  Firm is adverse to Issuer who is also a
  client by virtue of Firm’s tax/regulatory
  work for Issuer and perhaps as a result
  of Firm’s work for subsidiary of Issuer.
  Conflict may be waivable.
  See Conflicts of Interests; Waivers, Imputation of
  Conflicts, NYC Eth. Op. 2001-2, 2001 WL 1870202.

Strategies for Avoiding Conflicts

            The Engagement Letter
  Define the client in the engagement letter:
  “best solution to the problems that may arise
  by reason of clients’ corporate affiliations is
  to have a clear understanding . . . at the
  very start of the representation, as to which
  entity or entities in the corporate family are
  to be the lawyer’s clients” ABA Formal Op.

Strategies for Avoiding Conflicts

  Watch out for broad definitions of client
  in corporate guidelines and procedures
  Observe the limitations in the
  engagement letter during the
  representation, particularly with
  respect to confidential information
  Consider advance waivers – the more
  specific the better

Strategies for Avoiding Conflicts

  For unincorporated associations and
  other informal groups, advise potential
  “de facto” clients that they are not your
  clients and observe that restriction in

Strategies for Avoiding Conflicts

       Common Representations
  Disclosure and Consent
  Limitations on scope of representation
  to avoid non-consentable conflicts, i.e.,
  don’t negotiate business terms
  Retention of independent “shadow”
  counsel for each party

Conflicts in Transactional Matters

   Identify the client at the outset of an
   engagement and don’t acquire
   additional unintended clients
   Avoid unintentional or “de facto”
   clients in the engagement letter and
   through written notice to other
   possible clients

Conflicts in Transactional Matters

             Summary (cont’d)
  When representing multiple clients in
  the same matter, evaluate whether
  “differing interests” can be addressed
  by disclosure and consent or rise to
  non-consentable antagonism

Conflicts in Transactional Matters

            Summary (cont’d)
  Address issues of client confidentiality,
  particularly in common representations
  Re-evaluate all of the above through
  the course of the representation: are
  you in danger of a “de facto” client,
  have the interests of multiple clients
  become antagonistic, etc.


Dear ________________:

We are pleased that ______ (“______” or “you”) has selected _________________ (“we” or the
“Firm”) as legal counsel to represent you with respect to the matter identified below. The
purpose of this letter is to set forth the terms and conditions of our representation and the basis
for the fees to be charged.


        You have requested that we represent you in connection with ______________________.
This is understood and agreed to be a limited engagement, and any change in scope, or additional
or further work may require a supplemental engagement letter.

        For purpose of this representation, you agree that our client is _____________________
only. Because of the proliferation today of companies affiliated through common or partial
ownership, and the problems this can create in identifying potential conflicts of interest, we
advise our clients that this Firm will not regard any affiliate of a client (i.e., parent, subsidiary or
other related entity) as a client of the Firm for any purpose, unless an attorney-client relationship
with that affiliate has been established by an express agreement with the Firm. Similarly, the
Firm will not regard a representation that is adverse to an affiliate of a client as being adverse to
the client. You agree that our attorney client relationship is so limited, and that we remain free to
take on matters for other clients, including contested or litigated matters, that may be adverse to
your affiliates without that constituting a conflict of interest.

       In the course of engagements, it sometimes becomes necessary to provide opinions or
advice as to the laws of jurisdictions other than those where the Firm has established offices.
Special local counsel may need to be retained in that situation. We will advise you if, in our
judgment, the need for local counsel in the engagement has arisen.

       You hereby give us permission, to the extent that our work for you becomes public, to list
you in our marketing materials as a client and to briefly note the matters on which we have
represented you. By granting us this permission, you do not waive our continuing obligation to
continue to maintain the confidentiality of confidential information and documents that we have
received from you and that you may provide to us in the future.


       Unless otherwise agreed in writing, our fees are based on the number of hours devoted to
your matter. The current rates for attorneys and paralegals who will work on your matter are as

                        Attorney/Paralegal Name                           Rate
Page 2

        From time to time, it may become necessary or desirable to assign different or additional
attorneys or paralegals to work on your matter. You agree that we may charge the hourly rates
currently in effect at the time the work is performed.

       Our standard hourly rates are adjusted periodically to reflect the advancing experience,
capabilities and seniority of our professionals as well as general economic factors. We will
provide you with notice of any adjustment in rates for professionals working on your matter.

        In the course of our engagement, we will use our available support systems. In addition
to our fees for legal services, we will charge separately for certain costs and expense
disbursements. Enclosed as Attachment “A” is a list of the Firm’s standard charges, that may be
incurred during the course of the engagement. Any large disbursement amounts will be
forwarded to you for direct payment to the supplier or service provider, rather than being paid by
the Firm. Normally, this would apply to any disbursement of $2,000 or more. We will consult
with you in advance if we reasonably anticipate incurring such large disbursements amounts on
your account.

        Please note that any estimates of anticipated fees that we may provide at your request,
whether for budgeting purposes or otherwise, are only an approximation of actual fees because
of the uncertainties involved. Unless we have otherwise agreed in writing to a specific
arrangement, any such estimate is not a maximum or minimum fee quotation, and our fees will
be determined based on actual hours incurred in accordance with the policies described above.

       Our billing statements will normally be rendered to you on a monthly basis. Fees will
generally be billed within 30 days following the month in which the services are rendered, and
disbursements and other charges will generally be billed within 30 to 60 days after they are
incurred by the Firm. Unless another arrangement has been agreed in writing, payment is due
upon your receipt of our statement.

         Please understand that timely payments of our statements is important to the firm and a
critical part of our engagement. If our statement is not paid within 35 days following the date of
the statement , you agree that interest on the full amount thereof at the rate of 1% per month will
also be due. Interest will commence to run on the 35th day following the date of our statement
for all unpaid amounts. Payment of interest does not in any way waive or limit our firm’s rights
to withdraw from representation for failure to make timely payment of statements when due.

        If at any time you wish to discuss any matter relating to our billing policies or a specific
billing statement, we encourage you to communicate with us.

         3.    RETAINER.

        We have agreed that you will provide a retainer of $ ______ before we commence work
on this engagement. This retainer will normally be retained until the conclusion of the matter
and will then be returned to you after full payment for all billing statements has been made. In
our discretion, the retainer, or portions thereof, may be applied to a billing statement or
Page 3

statements in the course of the engagement. If all or any part of the retainer is so applied, you
agree promptly to replenish the retainer to the full original amount. Upon termination of the
engagement, any amount of the retainer remaining after deduction of any fees and other charges
which then remain unpaid will be promptly returned to you.

        In addition, should it become necessary for the Firm to expand the scope of its services in
the future, the Firm may require an additional retainer payment and supplemental engagement
letter. We will discuss the additional retainer that would be appropriate given the services
required of the Firm at that time.

        Payment for a retainer should be sent by separate check or wire clearly marked as
“retainer.” Please do not include any invoice payments for services or expenses in the same
check. Funds received that are not marked as “retainer” or that are transferred into our operating
account will be considered payments against invoiced amounts.

         4.    CONFLICT OF INTEREST.

As we have discussed, our conflict of interest review discloses that our Firm is currently
representing ____________ in _____________ in which _________________ is adverse to you.
The rules of professional conduct prohibit a law firm from representing a client in a matter
against another current client without the informed written consent of both clients, even where,
as here, the two representations are unrelated. In order for the Firm to undertake your
representation in this matter, while continuing to represent adversely to you, we are required to
obtain your written consent as well as the written consent of _________________. We are not
aware of any actual or reasonably foreseeable adverse consequences of such a conflict of interest
in light of the fact that there is no relationship between the matter in which we are representing
____________ and the matter on which you propose to engage the Firm. By signing and
returning to us the enclosed copy of this letter, you will be acknowledging that you have been
advised of the conflict associated with our continued representation of ___________ and that
you consent to our continuing with that representation and consent to our requesting a reciprocal
consent from _____.


        As you know, the Firm represents many different clients with diverse interests. Many of
our clients compete with one another and do business with one another. We are precluded by the
Rules of Professional Conduct and Code of Professional Responsibility, however, from
representing a client in a matter in which the client’s interests are adverse to the interests of
another client of the firm, absent the written consent of both clients. In the future, we may be
asked to represent another client in a transaction or dispute adverse to you, where that transaction
or dispute is unrelated to the matter involved in our representation of you. For that circumstance,
we ask that you give us advance consent at this time to any such representation and that you
waive any conflicts that such a representation would present.
Page 4

     Currently, we foresee that we may be asked to represent certain specific clients [NAME
CLIENTS] that may be adverse to you in the future.

        Your execution of this engagement letter constitutes your consent to the advance waiver
described above. We will at all times preserve all your confidences and secrets as the applicable
Rules of Professional Conduct and Code of Professional Responsibility require, and this advance
conflict waiver does not affect that obligation.

         6.     TERMINATION.

        You may terminate our representation at any time, with or without cause, by providing
written notice to us. In that circumstance, your papers and any of your other property will be
returned promptly upon our receipt of a written request from you for their return and our receipt
of payment for fees and other charges incurred through the date of such termination.

        Your termination of our engagement will not affect your responsibility for payment for
legal services rendered and other charges incurred prior to termination or in connection with a
transition of the matter to other counsel. At our own expense, we may retain a copy of all files,
records and documents involving the matter.

       We have the right to withdraw from our representation of you subject to any applicable
professional responsibility rules. Certain circumstances may require us to withdraw from
continuing to represent a client. We will identify in advance and discuss with you any situation
that might require or lead to our withdrawal from representation.


        If you disagree with the amount of our fees or other charges at any time, or if you have
any concern as to any other matter related to or arising out of our engagement, including the
nature and quality of our services, please discuss any such questions or concerns with us.
Typically, such questions or concerns can be resolved to the satisfaction of both parties with little
inconvenience or formality. In the event any dispute cannot be resolved informally, you agree to
resolve any and all disputes with the Firm, or with any of our lawyers or staff arising from or
relating to our work for you, including but not limited to disputes over fees and charges,
exclusively through private and confidential binding arbitration before the American Arbitration
Association, under the rules for commercial disputes, before one neutral arbitrator for any
dispute where the claim is less than $100,000, or before three neutral arbitrators for any larger

       We also advise you that in the event of a dispute that cannot be readily resolved, you may
have the right to request arbitration in New York City under Part 137 of the Rules of the Chief
Administrator of the Office of Court Administration of the New York State Unified Court
System or under applicable bar association procedures. By signing this engagement letter, you
waive that right and agree to binding private arbitration as provided above.
Page 5


         At the completion of this engagement, you may request the return of any client papers,
files and other property in our possession. Such a request should be made in writing. In working
on the engagement, we will preserve communications and documents in either hard-copy or
electronic form, depending on the circumstances. If you do not request the return of such
materials, we will maintain them only for a period of five (5) years, after which time you agree
that we may dispose of them. Prior to disposal of such materials, we will advise you in writing,
at the last known address in our files, of our intent to do so and give you an opportunity to
request the materials if you so desire. Any disposal will be made in a confidential manner. You
agree to pay for all time and costs related to identification, review and return to you of any
materials. At our sole discretion and expense, we may make and keep a copy of any materials
being returned to you.


        We ask that you review this letter carefully and let us know if there is any provision that
you do not understand. You are also free, and encouraged to review this engagement letter with
other counsel of your choice. If the terms of this letter are acceptable, please sign the enclosed
copy of this letter and return it to me. We recommend that you keep a signed copy of this letter
in your files. If you have questions or concerns about any aspect of our services or the
relationship at any time, please do not hesitate to contact me.

       We are pleased to have this opportunity to be of service and look forward to working
with you on this engagement.

Very truly yours,





                                             Raymond L. Sweigart
                                    Pillsbury Winthrop Shaw Pittman LLP

I.     INTRODUCTION............................................................................................................. 1
       A.        Definition ................................................................................................................ 1
       B.        No bright lines......................................................................................................... 1
       C.        Law varies............................................................................................................... 2
II.    THE RULES...................................................................................................................... 2
       A.        Role of Inside Counsel as Legal Advisor vs. Business Executive.......................... 2
       B.        Use of Inside Counsel To Hide Information........................................................... 5
       C.        Confidentiality ........................................................................................................ 6
                 1.         Client Confidences...................................................................................... 6
                 2.         E-mail Communication............................................................................... 7
                 3.         Metadata...................................................................................................... 8
                 4.         Cordless & Cell Phones .............................................................................. 9
                 5.         Dumpster Diving....................................................................................... 10
                 6.         Inadvertent Disclosure .............................................................................. 11
III.   NEGOTIATIONS ........................................................................................................... 12
       A.        General Principles................................................................................................. 12
       B.        Illustrative Cases................................................................................................... 12
IV.    DEALING WITH THIRD PARTIES ........................................................................... 16
       A.        Auditors................................................................................................................. 16
                 1.         Insurance Auditors .................................................................................... 16
                 2.         Other Auditors .......................................................................................... 16
       B.        Investment Banker/Accountant............................................................................. 17
       C.        Insurance Broker................................................................................................... 18
       D.        Independent Contractors – Outsourcing ............................................................... 19
       E.        Exchanging Information Within the Corporate “Family” .................................... 21
V.   OTHER CONSIDERATIONS....................................................................................... 22
     A.       “Work Product” Doctrine and Limitations ........................................................... 22
     B.       Disseminating Information ................................................................................... 26
     C.       Communication to Low-Level Employees and Other Non-Lawyer Employees:. 27
     D.       When In-House Counsel is Designated to Testify................................................ 27

I.   Introduction

     A.    Definition

           A well-known treatise provides the most comprehensive statement of the criteria
           for the attorney/client privilege to apply:

                    (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 at his instance permanently protected

                    (7) from disclosure by himself or by the legal adviser,

                    (8) except the protection be waived.

           8 John H. Wigmore, Evidence in Trials at Common Law §2292 (McNaughton
           Rev. 1961).

           Where in-house counsel is involved, “Confidential communications between in-
           house counsel and corporate employees are privileged to the same extent as
           communications between outside counsel and a client.” Ames v. Black
           Entertainment Television, 1998 WL 812051 (S.D.N.Y. Nov. 18, 1998). However,
           “Because an in-house attorney, particularly one who holds an executive position
           in the company, often is involved in business matters, in order to demonstrate that
           the communication in question is privileged, the company bears the burden of
           ‘clearly showing’ that the in-house attorney gave advice in her legal capacity, not
           in her capacity as a business adviser.” Id.

           States can and do adopt variant formulations; see below.

     B.    No bright lines – judgment calls – fact-intensive

           As Judge Kaye said, writing for unanimous N.Y. Ct. of Appeals in Rossi v. Blue
           Cross, 73 N.Y.2d 588, 593 (1989): “No ready test exists for distinguishing
           between protected legal communications and unprotected business or personal
           communications . . . .”

           Rossi illustrates the confusion: trial court with in camera review ordered
           production; divided appellate division reversed; and Court of Appeals
           unanimously affirmed that materials were privileged.

       C.     Law varies

              Federal v. state, and state law varies.

              In California, there is a qualified privilege against discovery of an attorney’s
              general work product and an absolute privilege against discovery of an attorney’s
              impressions, conclusions, opinions, or legal theories. In re Jeanette H. 225 Cal.
              App. 3d 25, 31 (1990). The work product privilege is not limited to documents
              prepared in anticipation of litigation, but also applies to the work product of an
              attorney generated in the attorney’s role as counselor. Aetna Casualty & Surety
              Co. v. Superior Court, 153 Cal. App. 3d 467,478-79 (1984).

              In New York, the protection for attorney work product is absolute (CPLR
              3101(c)), but trial preparation materials enjoy only a qualified privilege (CPLR

              In NJ, attorney/client privilege yields to public policy concerns (NY also has a
              public policy exception, but it’s rarely used).

    Because it is unclear where a suit will occur ⎯ Fed. vs. state and you may not even know
    what state — need to be careful.

       In diversity cases, look to state law on privilege, but federal law will govern work
       product. F.R.C.P. 26(b)(3).

       In New York, attorney work product (CPLR 3101(c)) and trial preparation (CPLR
       3101(d)2) are two different concepts.

II.    The Rules

       A.     Role of Inside Counsel as Legal Advisor vs. Business Executive.

              Perception (and in many cases reality) is that inside counsel is not only lawyer,
              but also a business person ⎯ may even have a second title, like Corporate

              1.      Illustrative cases:

                      (i)     Rossi p. 592-93: “[S]taff attorneys may serve as company officers,
                              with mixed business-legal responsibility; whether or not officers,
                              their day-to-day involvement in their employers’ affairs may blur
                              the line between legal and non-legal communications; and their
                              advice may originate not in response to the client’s consultation
                              about a particular problem but with them, as part of an ongoing,
                              permanent relationship with the organization.” (Emphasis added).

     (ii)   In U.S. v. Chevron Corp., 1996 WL 264769 (N.D. Cal. 1996), the
            court was even more blunt:

            “Some courts have applied a presumption that all communications
            to outside counsel are primarily related to legal advice. See
            Diversified Indus. v. Meredith, 572 F.2d 596, 610 (8th Cir. 1977).
            In this context, the presumption is logical since outside counsel
            would not ordinarily be involved in the business decisions of a
            corporation. However, the Diversified presumption cannot be
            applied to in-house counsel because in-house counsel are
            frequently involved in the business decisions of a company.”
            Chevron, 1996 WL 264769 at *4.

2.   Title may matter.

     (i)    Boca Investerings Partnership v. U.S., 31 F. Supp.2d 9 (D.D.C.
            1998). Says that the presumption for in-house counsel working in
            departments that are on the business side is that they are NOT
            doing legal work and must affirmatively prove that a
            communication is legal for the privilege to apply:

            “One important indicator of whether a lawyer is involved in giving
            legal advice or in some other activity is his or her place on the
            corporation’s organizational chart. There is a presumption that a
            lawyer in the legal department or working for the general counsel
            is most often giving legal advice, while the opposite presumption
            applies to a lawyer…who works for…some…seemingly
            management or business side of the house…A lawyer’s place on
            the organizational chart is not always dispositive, and the relevant
            presumption therefore may be rebutted by the party asserting the
            privilege.” (citing In re Sealed Case, 737 F.2d 94, 99 (D.C. Cir.

     (ii)   Borase v. M/A Com, Inc., 171 F.R.D. 10 (D. Mass. 1997). Need
            affirmative proof that a counsel with both business and legal hats is
            doing legal work to obtain privilege, cannot presume that it is

            Where in-house counsel who was also general secretary of the
            company had conversations with senior managers and officers
            regarding employee entitlement to stock options and firing of
            employee, and where court thought the communications might be
            business/non-privileged or legal/privileged, court held non-
            privileged because company failed to introduce proper affidavits
            that the counsel was acting in a legal capacity.

3.   Mixing business and legal discussions: timing as a factor of privilege.

     Satcom Int’l Group v. Orbcomm Int’l Partners, 1999 WL 76847 (S.D.N.Y
     1999). Court follows “other courts” taking an approach used by Virginia
     court that:

     “[A]ssertion of the privilege over all communications at a strategy and
     policy committee meeting that included both legal and business decisions
     so long as those decisions were arrived at ‘only after examining the legal
     implications of doing so.’” (quoting Kelly v. Ford Motor Co., 110 F.3d
     954, 966 (3d Cir. 1997)).

     Court then ruled privilege applied to communications from an “Executive
     Committee Meeting” where in-house counsel was present for purpose of
     rendering legal advice regarding company’s non-performance on licensing

4.   Whether attorney has a vote may change result.

     If counsel has voting privilege on business decision committee, all
     communications could be judged business, not legal, and not privileged.
     Marten v. Yellow Freight System, Inc., 1998 WL 13244, at *8 (D. Kan.
     Jan. 6, 1998): “In the context of a required meeting to determine possible
     employment actions, legal advice sought or received during such meeting
     appears to be incidental to considerations of what is most prudent for the
     successful operation of the business.”

     Court then found that counsel’s attendance at meeting of an employee
     review committee, where counsel had a vote in decision to terminate
     employee, produced non-privileged communications because “[a]s a
     voting member of the [committee] . . . [the counsel] was not acting merely
     as an attorney rendering legal advice. Officially voting on a proposed
     action goes beyond the bounds of giving legal advice. It performs an act
     of business. Legal considerations may influence his vote or that of any
     other committee member as well. The attorney-client privilege does not
     protect the act of voting, the minutes which record it, or all the discussion
     of the committee relating to its decision.”

     But note: “Mere membership on a committee does not itself necessitate a
     finding that a counsel was not acting as an attorney. Membership on a
     committee which decides if an employee should be terminated . . . may
     lead to an inference that the attorney…was acting in a non-legal capacity.
     When an attorney is a voting member, the indication is even stronger.” Id.
     at *9.

     Court found defendant failed to prove counsel acted in legal capacity.

B.   Use of Inside Counsel To Hide Information.

     Concern that corporations use inside counsel to try to cloak non-privileged
     communications by including inside counsel even though not really seeking their
     legal judgment.

     1.     Illustrative Cases:

            (i)     Rossi p. 593: “the need to apply the [a/c privilege] cautiously and
                    narrowly is heightened in the case of corporate staff counsel, lest
                    the mere participation of an attorney be used to seal off
                    disclosure.” (The opinion cites the Yale Law Journal from 1956 --
                    this is not a new concern!)

            (ii)    F.C. Cycles Int’l, Inc. v. Fila Sport, S.P.A., 184 F.R.D. 64, 71 (D.
                    Md. 1998). “What would otherwise be routine, non privileged
                    communications between corporate officers or employees
                    transacting the general business of the company do not attain
                    privileged status solely because in-house or outside counsel is
                    ‘copied in’ on correspondence or memoranda.” (quoting U.S.
                    Postal Service v. Phelps Dodge Refining Corp., 852 F. Supp. 156,
                    163-64 (E.D.N.Y. 1994)).

                    Court then held that memorandum in question was privileged, not
                    because it was copied to in-house counsel for one Fila USA
                    branch, but because it “represents the legal advice of . . . in-house
                    counsel for Fila Canada.”

                    Court found the memorandum prepared by Fila Canada counsel
                    privileged, except for one paragraph, because of its legal content
                    where: it was “replete with references to legal possibilities,” and it
                    plainly stated that the purpose of the meeting it summarized was to
                    “garner legal advice.”

            (iii)   Neuder v. Battelle Pacific Northwest National Laboratory, 194
                    F.R.D. 289 (D.D.C. 2000), describes common situations where red
                    flags may be raised and give the impression that in-house counsel
                    is “hiding the ball”:

                           o documents prepared by non-attorneys are copied and
                             routed through counsel, but are not privileged because
                             they are not made primarily for legal advice.

                           o recitation of the phrase “confidential and privileged
                             attorney-client communication” is not dispositive for
                             determining attorney-client privilege.

                                    o meetings with attendance of counsel but primary
                                      function was to make business decisions and not obtain
                                      legal advice are not privileged.

    The concern over the dual roles of in-house counsel suggest two opposing strategies, each
    of which has at times been endorsed by a court:

             (i)     separate legal advice from business discussions in memoranda, and where
                     practical create separate documents; or

            (ii)     draft memoranda in which the business material is so interwoven with the
                     legal material that the two cannot be separated, and it is clear from reading
                     the document that it is primarily legal in nature and any business material
                     is incidental to providing legal advice.

       See the 1996 California case: U.S. v. Chevron Corp. Business advice was not
       privileged; one cannot make blanket assertion of privilege. If document is an “amalgam
       of legal and business advice,” the party claiming privilege bears the burden of proving
       privilege. The non-privileged portions of the document must be produced, with
       privileged portions redacted, unless privileged and non-privileged portions are
       “inextricably intertwined.”

       C.     Confidentiality Requirement:

              1.     Client confidence requirement

                     Confidentiality is discussed largely in context of whether the privilege has
                     been waived. Courts generally require that privileged information be kept
                     confidential in order to remain privileged.

                     BUT: at least one circuit court has identified two views of whether the
                     privileged communication must itself contain a client confidence in order
                     to be privileged at all.

                     Sprague v. Thorn Americas, Inc., 129 F.3d 1355 (10th Cir. 1997). The
                     court identified two approaches:

                             (1) Narrow – courts will not protect a communication unless it
                             contains client confidences even if the communication contains
                             counsel’s legal advice or opinion.

                             (2) Broader – protect all communications regardless of whether
                             they contain a revealed client confidence.

                     The 10th circuit and state of Kansas follow the broader approach, finding it
                     to prevail in the federal courts and that the “predictability of confidence is
                     central to the role of the attorney.” Here: the court applied the privilege to

     a memorandum from the staff attorney in charge of the human resources
     department to the Vice President who was also General Counsel regarding
     the staff attorney’s concern about disparate treatment of women at the

     The court said the memo was protected because it was prepared by in-
     house counsel in the scope of counsel’s employment for higher
     management, and the memo was related to legal services and advice
     because it gave advice to the General Counsel to enable him to render
     legal advice which is allowed under the privilege.

2.   E-mail communication

     a.     General Recommendations

            The ordinary standard for communications is reasonable
            expectation of privacy.

            A number of advisory opinions, including those of the American
            Bar Association, the Delaware State Bar Association on
            Professional Ethics and the Ohio Supreme Court Board of
            Commissioners on Grievances and Discipline, advise that counsel
            may use unencrypted email for privileged communications with a
            reasonable expectation of privacy.

            The ABA panel approved all forms of e-mail transmission without
            the need for prior client consent as consistent with counsel’s
            obligation to keep client confidentiality except for information so
            highly sensitive that it warrants extraordinary security measures.
            Further, the attorney must abide by the client’s wishes for form of
            communication, either encrypted or unencrypted e-mail, or any
            other means of communication. ABA Standing Committee on
            Ethics and Professional Responsibility, Formal Opinion 99-413,
            March 10, 1999, released April 14, 1999.

            Note: the ABA’s opinion is founded largely on court holdings
            regarding reasonable expectation of privacy pursuant to the Fourth
            Amendment but at least three federal decisions have allowed
            attorney-client privilege and work product to apply to e-mail

            The Association of the Bar of the City of New York advises that a
            lawyer need not use encrypted e-mail, but should caution clients
            that e-mail may not be as secure as other forms of communication.
            Op. 1998-2.

     b.    Illustrative Cases:

           (i)     In re Grand Jury Proceedings, 43 F.3d 966, 968 (5th Cir.
                   1994) Group of documents including “internal law firm
                   memoranda, e-mails, draft pleadings, and memoranda to
                   file” held within scope of work product doctrine.

           (ii)    United States v. Keystone Sanitation Co., Inc., 903 F. Supp.
                   803, 807-08 (M.D. Pa 1995) (e-mail messages held
                   privileged but privilege then waived due to inadvertent
                   production of printouts of the messages).

           (iii)   Miller v. Federal Express Corp., 186 F.R.D. 376, 386
                   (W.D. Tenn. 1999) (court considered application of work
                   product protection to group of documents including, “e-
                   mails, interoffice memos, reports, handwritten notes, and
                   the like concerning defendant’s internal investigation,” and
                   found all of them protected under work product).

3.   Metadata

     a.    Definition

           Metadata = “Data hidden in documents that is generated during the
           course of creating and editing such documents. It may include
           fragments of data from files that were previously deleted,
           overwritten or worked on simultaneously. Metadata may reveal
           the persons who worked on a document, the name of the
           organization in which it was created or worked on, information
           concerning prior versions of the document, recent revisions of the
           document, and comments inserted in the document in the drafting
           or editing process. The hidden text may reflect editorial comments,
           strategy considerations, legal issues raised by the client or the
           lawyer, legal advice provided by the lawyer, and other
           information.” New York State Bar Ass’n Committee on Prof’l
           Eth. Opinion 782 (Dec. 8, 2004).

     b.    Use of Metadata

           ABA takes the position that Model Rules do not contain any
           specific prohibition against using metadata, whether received from
           opposing counsel, an adverse party, or an agent of an adverse party
           (assuming the lawyer acted lawfully and ethically in obtaining the
           documents). ABA Standing Committee on Ethics and Prof’l
           Responsibility, Formal Opinion 06-442, Aug. 5, 2006.

           New York has taken the position that “Lawyer-recipients . . . have
           an obligation not to exploit an inadvertent or unauthorized

            transmission of client confidences or secrets. In N.Y. State 749,
            we concluded that the use of computer technology to access client
            confidences and secrets revealed in metadata constitutes ‘an
            impermissible intrusion on the attorney-client relationship in
            violation of the Code.’” New York State Bar Ass’n Committee on
            Prof’l Eth. Opinion 782 (Dec. 8, 2004).

     c.     Duty to Prevent Inadvertent Disclosure of Confidential
            Information in Metadata

            Under New York’s Code of Professional Responsibility, lawyers
            must exercise reasonable care to prevent disclosure of client
            confidences contained in metadata.

            “What constitutes reasonable care will vary with the
            circumstances, including the subject matter of the document,
            whether the document was based on a “template” used in another
            matter for another client, whether there have been multiple drafts
            of the document with comments from multiple sources, whether
            the client has commented on the document, and the identity of the
            intended recipients of the document. Reasonable care may, in
            some circumstances, call for the lawyer to stay abreast of
            technological advances and the potential risks in transmission in
            order to make an appropriate decision with respect to the mode of
            transmission.” New York State Bar Ass’n Committee on Prof’l
            Eth. Opinion 782 (Dec. 8, 2004).

            While adopting the view that the level of care required varies with
            the particular circumstances of the transmission, the New York Bar
            cautions that “exercising reasonable care under DR 4-101 may, in
            certain circumstances, require the lawyer to remove metadata (for
            example, where the lawyer knows that the metadata reflects client
            confidences and secrets, or that the document is being sent to an
            aggressive and technologically savvy adversary) . . .” Id.

4.   Cordless & Cell Phones

     Authority divided on whether cordless and cellular telephone
     communication carries a reasonable expectation of privacy because it is
     “broadcast” over public airwaves using radio like signals that can be
     intercepted. ABA contemplates that digital technology improvements
     may change this. ABA 99-413, at 6 ( citing United States v. Maxwell, 42
     M.J. 568, 576 (A. F. Ct. Crim. App. 1995), which held that email has
     reasonable expectation of privacy in context of search and seizure, but that
     cordless phone communications do not). See Delaware State Bar
     Association Committee on Professional Ethics, Opinion 2001-2, which
     collects cites to recent opinions on the subject.

                      The Association of the Bar of the City of New York advised that lawyers
                      should be circumspect when using cellular and cordless phones and should
                      warn clients not to discuss confidential information on the call. Op. 1994-

                      Cf. Cal. Evid. Code § 952 (attorney-client communications do not lose
                      their privileged character simply because they were transmitted by
                      facsimile, cellular or cordless telephone, or other electronic means).

              5.      Dumpster Diving Waiver: theft of privileged documents as disclosure an
                      example of how documents must be treated to retain their confidentiality
                      and thus their privilege:

                      McCafferty’s, Inc. v. Bank of Glen Burnie, 179 F.R.D. 163 (D. Md. 1998).
                      Client tears original draft memo from attorney into 16 pieces and throws it
                      away. Pieces end up in dumpster on client’s property. Client’s adversary
                      retrieves memo pieces by dumpster-diving.

                      Court held that privilege still applied because client had taken reasonable
                      precautions to maintain the confidentiality of the document: client had torn
                      up the memo, had put it in dumpster on client’s property, and warning
                      signs against trespassing were posted on the property.

    The court in McCafferty’s offered 5 suggestions for maintaining the privilege:

           i. label privileged documents as such at origination;

          ii. segregate privileged documents in separate files;

         iii. establish policies to limit access to privileged documents;

          iv. discard and shred privileged documents if no longer needed;

          v. if privileged documents are stolen or taken, take immediate remedial steps to
             recover them.

       BUT SEE: Suburban Sew n’ Sweep, Inc. v. Swiss-Bernina, Inc., 91 F.R.D. 254, 260
       (N.D. Ill. 1981). Under very similar circumstances an Illinois district court did not allow
       a stolen document to retain its privilege. The court held that the defendants could have
       “destroy[ed] the documents or render[ed] them unintelligible [e.g., by using a shredder]
       before placing them in a trash dumpster.” Such actions would demonstrate an intent to
       maintain confidentiality which seems the critical distinction in these types of cases.

       What to do: after Sew n’ Sweep, always shred discarded documents so that they are
       impossible to reassemble or read.

6.   Inadvertent Disclosure

     Inadvertent disclosure does not automatically constitute a waiver of
     attorney-client privilege. Bank Brussels Lambert v. Credit Lyonnais
     (Suisse), 160 F.R.D. 437 (S.D.N.Y. 1995), discusses the varying
     conclusions courts have reached, with one extreme being inadvertent
     disclosure can never constitute waiver as the element of intentional
     relinquishment of the right must be present, and as such an “inadvertent
     waiver” is “inherently contradictory.” Quoting Mendenhall v. Barber-
     Greene Co., 531 F. Supp. 951 (N.D. Ill. 1982).

     At the other extreme is that any disclosure constitutes waiver, relying on
     the principle that “one cannot ‘unring’ a bell.” Quoting FDIC v. Singh,
     140 F.R.D. 252, (D. Me. 1992).

     A third and middle approach, as followed in New York, looks at the
     reasonable steps taken to maintain confidentiality to determine the proper
     range of privilege to extend. The court looks at:

        •   the precautions taken to avoid disclosure

        •   the amount of time taken to correct any errors in disclosure when

        •   the scope of discovery in the case

        •   the extent of disclosure

        •   any issues of fairness.

     The Ninth Circuit takes a similar approach to New York stating, “when
     the disclosure is involuntary, we will find the privilege preserved if the
     privilege holder has made efforts reasonably designed to protect and
     preserve the privilege.” Transamerica Computer Co., Inc., v. Int’l.
     Business Machines Corp., 573 F.2d 646, 650 (9th Cir. 1978). Although
     the Ninth Circuit has not formally adopted the five-factor test set forth
     above, “courts adopting the totality of the circumstances approach –
     including several district courts within the Ninth Circuit typically use [the]
     five-factor test” to guide analysis in cases in which privileged documents
     have been produced inadvertently. U.S. ex. rel. Bagley v. TRW Inc., 204
     F.R.D 170, 177-8 (C.D. Cal. 2001).

     In a case of first impression for appellate review in Connecticut, the
     Supreme Court of Connecticut has recently adopted the middle approach
     and the five-factor test for inadvertent disclosures of privileged
     documents. Harp v. King, 2002 WL 32318318, at *9 (Conn. Dec. 9,

III.   Negotiations

       A.    General Principles

             1.       Courts look to see if negotiating attorney was sought out for advice that
                      only an attorney could give or advice that could have been given by a
                      business person who happens to be an attorney.

             2.       The role of counsel in negotiations is not incompatible with the assertion
                      of the privilege.

             3.       When lawyer serves purely as negotiator, he risks losing privilege.

       B.    Illustrative Cases

             1.       Boss Mfg. Co. v. Hugo Boss, 1999 WL 47324 (S.D.N.Y. 1999). Court
                      found that attorney participating in negotiations was consistent with the
                      traditional role of the attorney as a legal advisor and representative of the
                      client, BUT

                      A critical aspect to these negotiations was the need to protect the Boss
                      company’s legal interest by making arrangements with another company
                      that would be consistent with Boss’ assignment of certain rights to a third
                      party company to settle legal claims with that third party.

                      “[T]he attorneys were participating in this process because of their legal
                      expertise or acumen and not because they had any particular experience in
                      business affairs.”

             2.       Note Funding Corp. v. Bobian Investment Co., 1995 U.S. Dist. LEXIS
                      16605 (S.D.N.Y).

                      “The fact that an attorney’s advice encompasses commercial as well as
                      legal considerations does not vitiate the privilege. If the attorney’s advice
                      is sought, at least in part, because of his legal expertise and the advice
                      rests ‘predominantly’ on his assessment of the requirement imposed, or
                      the opportunities offered by applicable rules of law, he is performing the
                      function of a lawyer.

                      “In contrast, if the attorney is called upon to render solely business advice
                      based on an expertise that is distinct from his legal calling, his
                      communications with his client are plainly not protected. Similarly, if the
                      lawyer is serving as a business representative of his client, those functions
                      that he performs purely in that capacity -- such as negotiation of the
                      provisions of a business contract or relationship -- are not the source of a
                      privilege. In making this distinction, we look to whether the attorney’s
                      performance depends principally on his knowledge of or application of

     legal requirements or principles, rather than his expertise in matters of
     commercial practice.

     “In those circumstances in which counsel may be performing a dual
     function, we must necessarily assess each communication separately.

     Most [of the documents sought] include references to, or even fairly
     extensive discussions of, financial questions and issues of commercial
     strategy and tactics, but do so in a context that makes it evident that the
     attorney is presenting the issues and analyzing the choices on the basis of
     his legal expertise and with an obvious eye to the constraints imposed by
     applicable law. Those documents are thus eligible for protection under the
     attorney-client privilege.”

3.   305-7 West 128th St. Corp. v. Gold, 577 N.Y.S.2d 278 (1st Dep’t 1991).
     Assistant general counsel negotiated lease; her deposition sought; she
     defends, claiming she had no authority to negotiate and others were the
     main participants.

     Court ordered deposition, ruling: “Nor does the attorney-client privilege
     bar discovery, since it is well settled that an attorney who functions as an
     agent or negotiator in a commercial venture may be examined.”

     The court did not make an advance ruling on privilege; it just said that the
     issue could be raised in response to specific questions at the deposition.

4.   Cooper-Rutter Associates, Inc. v. Anchor Nat’l. Life Insurance Co., 563
     N.Y.S.2d 491 (2d Dep’t 1990).

     Fight over two memos written by in-house counsel/corp. sec. - concerned
     business and legal aspects of negotiations of business transaction.

     Documents held discoverable in their entirety because “[t]he documents
     were not primarily of a legal character, but expressed substantial non-legal

5.   F.C. Cycles Internat’l, Inc. v. Fila Sport, 184 F.R.D. 64 (D. Md. 1998)

     Memorandum prepared by one in-house counsel and copied to another
     held privileged except for one paragraph that recounted the price and
     status of a bicycle license. Rest of memo held privileged because it was
     “replete” with legal advice references. Court held that the license
     information was business/negotiation in character, not legal, and thus not

     Court also found faxes between in-house counsel and company’s bike
     license manager non-legal business communications and thus not

6.   TVT Records v. Island Def Jam Music Group, 214 F.R.D. 143 (S.D.N.Y.
     2003) (holding that attorney-client privilege protected internal emails to
     and from corporation’s in-house counsel, who were also high-ranking
     management executives, only to the extent that they included legal
     strategy or advice, as opposed to business negotiations).

7.   Diversey U.S. Holdings, Inc. v. Sara Lee Corp., 1994 U.S. Dist. LEXIS
     2554 (N.D. Ill.). In Diversey, issue involved memos written by Sara Lee’s
     counsel (apparently outside lawyers) to Sara Lee’s executives concerning
     the implications of contractual language being negotiated. The Court held
     that “[d]rafting legal documents is a core activity of lawyers, and
     obtaining information and feedback from clients is a necessary part of the
     process. Thus, we find that Sara Lee’s attorneys were acting in a legal,
     not business, capacity.

8.   Georgia-Pacific Corp. v. GAF Roofing Manuf. Corp., 1996 U.S. Dist.
     LEXIS 671 (S.D.N.Y.). Inside counsel for GAF (Michael Scott) served as
     negotiator for various environmental issues relating to possible acquisition
     of Georgia-Pacific properties.

     Court applied New York state law in diversity. Court concluded:

     “[I]t is clear that Mr.. Scott was not ‘exercising a lawyer’s traditional
     function.’… As a negotiator on behalf of management, Mr. Scott was
     acting in a business capacity….Mr. Scott was acting as a negotiator of the
     environmental provisions for GAF….Mr. Scott’s averment that he
     rendered legal advice to management, although considered, does not
     overcome the nature of his role in the transaction as revealed by his

     Accordingly, Mr. Scott was ordered to answer questions pertaining to
     matters within the scope of the plaintiff’s first request.

9.   More recently, in City of Springfield v. Rexnord Corp., 196 F.R.D. 7 (D.
     Mass. 2000), the court classified as privileged a memorandum written by
     an attorney who was a member of an in-house “team” formed to deal with
     an inquiry conducted by the Massachusetts Department of Environmental
     Quality Engineering. Of the document, the court said, “It should be noted
     that at least one court [has] concluded that an in-house counsel was acting
     in his business, rather than legal, capacity when he negotiated the
     environmental provisions of an asset purchase agreement. (citing
     Georgia-Pacific)…The court does not believe that the reasoning behind
     that decision…applies to the purchase and sale agreement which is the
     subject of this document.” Springfield, at 10 n. 1.

           10.     Preferred Health Care Ltd. v. Empire Blue Cross and Blue Shield, 1996
                   WL 288160 (S.D.N.Y. 1996). Highlights problems with titles and dual

                   Communications with former general counsel/new COO regarding
                   negotiation of contract. Most of communications found to be business

                   “While legal advice provided in the context of business negotiations is
                   protected under the attorney-client privilege, business information
                   provided in the context of business negotiations does not acquire
                   protection under the privilege merely because it has been provided to an

           11.     ABB Kent-Taylor, Inc. v. Stallings and Co., Inc., 172 F.R.D. 53
                   (W.D.N.Y.1996). In-house counsel for ABB negotiated aborted asset sale
                   with Stallings. Prior to ABB’s decision to terminate negotiations, in-
                   house counsel made oral recommendation on whether to close the
                   transaction. Stallings moved to compel disclosure of the oral
                   recommendation, specifically counsel’s assessment of defendant’s
                   credibility and trustworthiness.

                   The court held that “[w]hen a credibility assessment is part and parcel of a
                   lawyer’s legal opinion, such an assessment is no less legal advice than a
                   case citation or a legal theory.” Legal advice also includes a lawyer’s
                   strategic assessment of alternatives available to the client.

                   Special circumstances – the aborted asset sale was an attempt by the
                   parties to settle claims each held against the other. Some litigation had
                   already commenced, and more lawsuits were possible, depending on the
                   outcome of the asset sale. The judge considered these circumstances in
                   making his decision.


    Have business person present at negotiations -- someone else to decide what corporation
    thinks it agreed to.

    Testify only about what management instructed counsel to do, not what inside counsel
    told management.

    Separate legal and business advice (if possible) -- but risk of increasing probability that
    business advice will be disclosed because it is not intertwined with legal advice.

    Counsel’s legal memos should contain a preamble describing the circumstances of
    creation: for example, “You have requested legal advice on [question], and have
    provided me with various facts set forth herein to facilitate the rendering of that advice.”

      Consider asking that a magistrate judge become involved.

      Do not antagonize the judge!

IV.   Dealing with Third Parties

      A.     Auditors - Communication with ordinary auditors not privileged, communication
             with special auditors for legal advice purposes may be privileged

             1.     Disclosure of Billing Information to Insurer or Third-Party Auditors

                    ABA Formal Opinion 01-421, Feb. 16, 2001 describes the ethical
                    obligations of a lawyer retained by an insurance company who is asked to
                    submit detailed billing information to the insurer’s third-party auditor.
                    The ABA Opinion states that a lawyer may not disclose confidential
                    information to a third-party auditor without the informed consent of the
                    insured. The Opinion notes that “a majority of jurisdictions have
                    concluded that it is not ethically proper for a lawyer to disclose billing
                    information to a third-party billing review company at the request of an
                    insurance company unless he has obtained the client’s consent.” Id. at

                    “Unlike the disclosure of the insured's confidential information to
                    secretaries and interpreters, the disclosure of such information to a third-
                    party auditor, a vendor with whom the lawyer has no employment or
                    direct contractual relationship, may not be deemed essential to the
                    representation and may, therefore, result in a waiver--albeit unintended--of
                    the [attorney-client] privilege. Therefore, since such disclosures always
                    involve the risk of loss of privilege, the lawyer must obtain the insured's
                    informed consent before sending bills with such information to a third
                    party hired by the insurer to audit the bills.” Id.

             2.     Other Auditors – Illustrative cases

                    a.     The “Magic Circle”: United States v. Massachusetts Institute of
                           Technology, 129 F.3d 681 (1st Cir. 1997). Circuit court held that
                           MIT forfeited privilege regarding billing statements of law firms
                           that had represented MIT and minutes of the MIT Corporation and
                           its executive and auditing committees because MIT disclosed these
                           communications to a third-party Department of Defense audit
                           agency that assisted in reviewing contracts MIT had with the
                           Department of Defense.

                           The court noted that the case law in this area is far from settled:
                           “[D]ecisions do tend to mark out, although not with perfect
                           consistency, a small circle of ‘others’ with whom information may
                           be shared without loss of the privilege (e.g., secretaries,

                  interpreters, counsel for a cooperating co-defendant, a parent
                  present when a child consults a lawyer).”

                  “The underlying concern is functional: that the lawyer be able to
                  consult with others needed in the representation and that the client
                  be allowed to bring closely related persons who are appropriate,
                  even if not vital to a consultation.”

                  BUT: “An intent to maintain confidentiality is ordinarily
                  necessary…but it is not sufficient” to maintain protection.

                  “[W]here the client chooses to share communications outside this
                  magic circle, the courts have usually refused to extend the
                  privilege.” (citing 6th, 4th, D.C., and 2d circuits).

                  The court rejected the 8th Circuit’s reasoning in Diversified Indus.,
                  Inc. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978), and felt that
                  the better approach is to maintain the rule that disclosure vitiates
                  the privilege because this “makes the law more predictable and
                  certainly eases its administration.”

           b.     Diversified Industries had upheld the Selective Waiver doctrine
                  whereby only a limited waiver of attorney-client privilege had
                  occurred after material was voluntarily surrendered in a non-public
                  SEC investigation.

           c.     United States v. South Chicago Bank, 1998 U.S. Dist. Lexis
                  17445, at *7 (N.D. Ill. 1998).

                  “[A]uditors are not generally part of the circle of persons,
                  including secretaries and interpreters, for example, with whom
                  confidential information may be shared without destroying the
                  privilege.” (citing Massachusetts Institute of Technology, 129
                  F.3d 681)

                  Where bank had appointed special audit team to investigate a
                  fraud, court denied the privilege to communications made to “year-
                  end audit team” as opposed to the “fraud-audit team” because the
                  year-end team were performing work in the ordinary course of
                  business, not for the sake of legal advice.

                  “By voluntarily disclosing the minutes from the meetings of the
                  board of directors and special fraud committees to the year-end
                  auditors in full and to their insurance company in part, the banks
                  have relinquished the right to assert the privilege now against the

B.   Investment Banker/Accountant

     1.     General Principle:

            Conversations not privileged, and third party conversations may not be
            privileged even if they contribute to legal advising significantly unless the
            third party acts as an “interpreter”

     2.     Illustrative Cases:

            a.     United States v. Ackert, 169 F.3d 136, 139 (2d Cir. 1999).
                   counsel’s discussion with an investment banker held not privileged
                   where the lawyer met with the banker to collect information in
                   order to advise client on feasibility of an investment proposal.

                   2d Circuit said that privilege cannot be expected to shield every
                   conversation a lawyer has with a third person just because the
                   conversation helps the attorney represent the client even though it
                   acknowledged its own “assumption that those conversations
                   significantly assisted the attorney in giving his client legal advice
                   about its tax situation.”

                   The court rejected an argument based on United States v. Kovel,
                   296 F.2d 918 (2d Cir. 1961) (Friendly, J.), which held that
                   privilege can protect communications between client and
                   accountant, or the accountant and the client’s attorney, where the
                   accountant serves to “clarify communications between attorney
                   and client.”

                   The court found that the investment banker’s role “was not as a
                   translator or interpreter of client communications,” therefore the
                   Kovel principle could not shield the communications.

            b.     See Adlman II, infra.

            c.     See also, In re G-I Holdings, Inc., 218 F.R.D. 428, 434-35 (D.N.J.
                   2003). GAF’s attorneys (predecessor to G-I Holdings) hired tax
                   consultant to explain tax concepts to in-house counsel. Court
                   found communications between in-house counsel and tax
                   consultant were not privileged because the consultant was not
                   directly interpreting client communications, even though the
                   advice was necessary for in-house counsel to understand client
                   communications and render legal advice to GAF’s senior

C.   Insurance Broker

     SR Int’l Bus. Ins. Co. Ltd. v. World Trade Center Properties LLC, 01-CV-9291
     (S.D.N.Y. 2002), Judge Martin held that the attorney-client privilege does not
     extend to “post-9/11 communications between [defendant’s attorneys] and

     employees of [defendant’s insurance broker].” Id. at 1-2. The Court held that
     defendant’s attorneys “had no ethical obligation ‘told hold inviolate’ any
     information they obtained from Willis employees.” Id. at 6. “The [brokers] who
     conferred with [defendant’s attorneys] had no reason to believe that they were
     talking to lawyers who were representing their interests and who would “hold
     inviolate [their] confidences and secrets.’” Id.

     The Court was not persuaded by the limited “common interest privilege”
     exception, finding that there “had been no showing that [the brokers] and
     [defendant] have an identical legal interest.” Id. at 9. “The [broker] is not a party
     to this litigation, and its legal position will be unaffected by the outcome of this
     case . . . Thus the communications . . . are not protected by the common interest
     privilege.” Id.

     The Court also held that statements made to defendant’s attorneys by the brokers
     “should [not] be protected from disclosure under the work product privilege,” id.
     at 10, as this privilege applies “only to tangible things – not testimony.”

D.   Independent Contractors – Outsourcing

     1.     In re Bieter Co., 16 F. 3d 929 (8th Cir. 1994).

            Bieter Company (“Bieter”) was a partnership formed to develop a parcel
            of farm land. The partnership retained an independent contractor to
            provide advice and guidance regarding commercial and retail development
            in the area. The contract between the parties expressly stated that the
            contractor was not an agent, employee, or partner of Bieter.

            The court held that the documents Bieter gave to the contractor were
            protected by the attorney-client privilege. The court analyzed the issue
            using a two-part inquiry:

            •       First, whether the relationship between the independent contractor
                    and the company is significant enough for the independent
                    contractor to be the “functional equivalent” of an employee of the
                    company for the purposes of invoking the privilege;

            •       Second, whether the elements that would allow the privilege to
                    attach to the communications if they were made or received by an
                    employee of the company have been met.

            Under the first part of the inquiry, the following factors are important: (a)
            The independent contractor is retained by the company to provide advice
            and guidance necessary for the transaction; (b) The independent contractor
            is intimately involved with the company’s business objectives for the
            transaction; (c) The independent contractor and the company engage in
            constant interaction over the course of the transaction; (d) The
            independent contractor is viewed by outsiders as a representative of the

     company; and (e) The independent contractor possesses information not
     possessed by any employee of the company.

     The second part of the inquiry, originally outlined in Diversified Indus.,
     Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977), concerns the following
     factors: (a) The communication at issue is made for the purpose of seeking
     or providing legal advice or “legal assistance”; (b) The subject matter of
     the communication is within the scope of the duties provided to the
     company by the independent contractor; (c) The communication is treated
     as confidential and only disseminated to those persons with a specific need
     to know its contents; (d) The independent contractor making the
     communication does so at the direction of his superior at the company;
     and (e) The corporate superior makes the request so that the corporation
     can secure legal advice.

2.   Two contrasting decisions by federal district courts in the Southern
     District of New York over the last year help to illustrate those settings in
     which communications with independent contractors are likely to be
     protected and those in which they are not.

     a.     In Twentieth Century Fox Film Corp. v. Marvel Enterprises, Inc.,
            2002 WL 31556383 (S.D.N.Y.), the court cited Bieter and declined
            to compel production of documents that Fox had disclosed to
            independent contractors, finding that the contractors were the
            “functional equivalent” of Fox’s employees for the purposes of

            The court appears to have been most influenced by the nature of
            the industry of the parties involved. “The fact that the nature of the
            industry dictates the use of independent contractors over
            employees should not, without more, create greater limitations on
            the scope of the attorney-client privilege.” Id. at *2.

     b.     In re Currency Conversion Fee Antitrust Litig., 2003 WL
            22389169 (S.D.N.Y). This case arose out of the class action
            litigation against Visa and MasterCard and their member banks for
            alleged price fixing with respect to their currency conversion fees.

            One of the defendants, First USA Bank (“First USA”), sought to
            shield from production documents that had been disclosed to
            employees of First Data Resources (“First Data”), a third-party
            company that provided outsourced computing services, consulting
            services and other support services to First USA and other credit
            card issuers.

            The court was not persuaded that First Data employees were the
            “functional equivalent” of First USA employees. The court viewed

                            First Data as “merely a transaction processing and computer
                            services corporation that provided standard trade services to First
                            USA and a vast number of other credit card companies”. Id. at *2.
                            In other words, the services provided by First Data were similar to
                            the services provided by any “ordinary third party specialist,
                            disclosure to whom destroys the attorney-client privilege.” Id.

    E.      Exchanging Information Within the Corporate “Family”

            Where a corporation and its wholly-owned subsidiary are represented by a
            common attorney or have a common legal cause or identity of interest in the
            matter discussed with an attorney, a joint attorney-client privilege attaches to the
            discussion. See Polycast Tech. Corp. v. Uniroyal, Inc., 125 F.R.D. 47, 50
            (S.D.N.Y. 1989).

            An officer or employee of a holding or affiliated company can receive legal
            advice from counsel employed by a wholly-owned subsidiary or affiliate without
            destroying the confidentiality of the attorney-client communication. See
            Insurance Co. of N. Am. v. Superior Court, 108 Cal. App. 3d 758, 771 (1980).

            But see Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 491
            (S.D.N.Y. 1993) (under New York law, parent corporation’s communications to
            employees of its subsidiary were not protected by attorney-client privilege, where
            subsidiary maintained its own in-house counsel and corporations did not share
            common legal interest).


    It is risky to release an internal report.

    The report should not quote or paraphrase what interviewees said in what is released to
    the public.

    Should not use report as part of PR campaign.

    Should not use report as sword in litigation.

    Should probably not use the lawyer who prepares the published independent report to
    defend the lawsuit.

    Distinguish advice to counsel from the rest of consultants’ services to company

    Separate retainer agreement establishing responsibility directly to inside counsel for
    specific advice.

    Separate billing (if outside counsel, a disbursement).

     Retainer should state that expert’s advice was sought in order to permit counsel to render
     legal advice.

     Possibly use expert who doesn’t regularly render services to company.

     Do not distribute expert’s advice except in conjunction with legal advice.

V.   Other Considerations

     A.     “Work Product” Doctrine and Limitations

            1.      Federal Standard for work product -- Rule 26(b)(3):

                    “A party may obtain discovery of documents and tangible things . . .
                    prepared in anticipation of litigation or for trial by or for another party or
                    by or for that other party’s representative (including the other party’s
                    attorney, consultant, surety, indemnitor, insurer, or agent) only upon a
                    showing that the party seeking discovery has substantial need of the
                    materials in the preparation of the party’s case and that the party is unable
                    without undue hardship to obtain the substantial equivalent of the
                    materials by other means.

                    “In ordering discovery of such materials when the required showing has
                    been made, the court shall protect against disclosure of the mental
                    impressions, conclusions, opinions, or legal theories of an attorney or
                    other representative of a party concerning the litigation.”

            2.      Purpose:

                    a.     Establish zone of privacy for litigation planning

                    b.     Prevent “piggybacking” on adversary’s preparation.

            3.      Recently broadened work product doctrine: Adlman II

                    United States v. Adlman (“Adlman II”), 134 F.3d 1194 (2d Cir. 1998).
                    Court adopted the less stringent “because of litigation” test for
                    determining whether documents are prepared in anticipation of litigation
                    and thus protected by work product.

                    Court rejected the more stringent test: “We believe that a requirement that
                    documents be produced primarily or exclusively to assist in litigation in
                    order to be protected is at odds with the text and the policies of the Rule.
                    Nowhere does Rule 26(b)(3) state that a document must have been
                    prepared to aid in the conduct of litigation in order to constitute work
                    product, much less primarily or exclusively to aid in litigation. Preparing
                    a document ‘in anticipation of litigation’ is sufficient.”

     Second Circuit identified other circuits that follow the less stringent
     “because of litigation” formulation of the work product test: 3rd, 4th, 7th,
     8th, and D.C. Circuits.

     Court then vacated and remanded district court’s holding that denied work
     product protection to a memorandum prepared by a taxpayer’s outside
     accounting firm, at the request of the taxpayer’s tax attorney, in order to
     evaluate tax consequences of corporate reorganization upon expected
     litigation with the IRS.

     Adlman II gave three examples of protected analysis:

                i. Legal analysis of possible claims prepared for a publisher
                   to assess whether to proceed with publishing a book after
                   litigation had been threatened;

                ii. In connection with a business combination, an attorney’s
                    assessment of the risks in pending litigation shared with the
                    financier; and

                iii. As part of the formulation of reserves for financial
                     statements, an assessment of litigation given to the auditor.

     The Adlman II court further noted that, to the extent that such analyses
     involve the mental impressions and legal theories of the attorneys or their
     representatives, a simple showing of need by the opposing party would not
     justify production.

4.   The effect of Adlman II:

     a.     U.S. v. Chevrontexaco Corp., 2002 U.S. Dist. LEXIS 24970 (N.D.
            Cal. Mar. 25, 2002), following Adlman II stated, “In our view, the
            Second Circuit’s test better serves the purpose driving the work
            product doctrine. An attorney’s (or a party’s) reasoning or
            research (factual or legal) about anticipated litigation should not be
            discoverable simply because the work had to be undertaken to
            facilitate or consider a business transaction. . . . [T]hus the work
            product doctrine can reach documents prepared ‘because of
            litigation’ even if they were prepared in connection with a business
            transaction or also served a business purpose.” Id. at *42-3.

     b.     Jumpsport, Inc. v. Jumpking, Inc., 213 F.R.D. 329, 330-31 (N.D.
            Cal. Mar. 11, 2003). Extending Adlman II, the court outlines a 2-
            stage test for determining whether a document was prepared in
            anticipation of litigation and thus protected by work product:

                i. First, the court should determine whether the party seeking
                   protection has shown that the prospect of litigation was a

            substantial factor in the mix of considerations, purposes, or
            forces that led to the preparation of the document.

        ii. Second, the court should decide whether disclosing the
            document would harm the policy objectives that the work
            product doctrine has been developed to promote (or,
            alternatively, whether conferring protection would advance
            the policy purposes underlying the work product doctrine).

c.   Granite Partners, L.P. v. Bear, Stearns & Co., Inc., 184 F.R.D. 49,
     54 (S.D.N.Y. 1999).

     Interpreting the effect of Adlman II, the court said: “It may well be
     said that the effect of Adlman [II] is to enforce the work product
     privilege even if there is a dual purpose for the creation of the

     Court then held that a party had waived its protection regarding
     trustee investigation interview notes that formed the basis of a
     report that was intended “from the outset” to be made public but
     that the report “might also provide grounds for asserting claims
     against third parties” where a financial fund had collapsed.

d.   Boss Mfg. Co. v. Hugo Boss, 1999 WL 47324 (S.D.N.Y. 1999).

     Interpreting the Adlman II “because of” litigation test: “This
     formulation is sufficiently broad to cover documents that serve
     primarily a non-litigation purpose, provided that their creation was
     motivated by actual or anticipated litigation.”

     Hugo Boss was in negotiations with Boss Mfg. to determine how
     agreement with Boss Mfg. might be modified to enable Hugo Boss
     to settle disputes with third-party company.

     Court then concluded that documents produced as part of these
     negotiations resulting from “ongoing litigation” with the third-
     party company came within the scope of work product.

     Court reasoned that there was the “distinct prospect” that if the
     third-party suit was settled without a change of terms regarding
     Boss Mfg.’s agreement with Hugo Boss, Boss Mfg. would resort to
     litigation because the settlement would violate the terms of Boss
     Mfg.’s agreement with Hugo Boss.

e.   Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D.
     466, 475 (S.D.N.Y. May, 29, 2003).

                           The “because-of” litigation test has subjective and objective
                           prongs: (1) the subjective question of whether the party thought it
                           was threatened with litigation, and (2) the objective question of
                           whether that belief was reasonable.

                   f.      Resolution Trust Corp. v. Massachusetts Mutual Life Insurance
                           Co., 200 F.R.D. 183 (W.D.N.Y. 2001)

                           Discusses Adlman II and gives work-product protection to
                           memorandum that “outlines legal consequences that would likely
                           arise as a result of choosing from various options available to
                           address [a pension plan’s] underfunding, a majority of which
                           include the prospect of litigation.”


     “Anticipation of litigation” means focusing on a specific claim, not an abstract
    possibility. But the facts need not have occurred yet (Adlman II). In Connecticut,
    similarly, a specific claim must have arisen. SCM v. Xerox Corp, 70 F.R.D. 508 (D.
    Conn. 1976).

    A document is still work product even if prepared in contemplation of another lawsuit
    rather than the one at issue. FTC v. Grolier, Inc., 462 U.S. 19 (1983); Bruce v. Christian
    113 F.R.D. 554 (S.D.N.Y. 1987).

    No Specific Claim Has to Exist:

    In re Sealed Case, 146 F.3d 881 (D.C. Cir. 1998). No specific claim has to exist at the
    time a protected document is created; its existence is just one factor of many factors to be
    considered by the court in determining work product protection.

    Otherwise, “[w]ithout a strong work-product privilege, lawyers would keep their thoughts
    to themselves, avoid communicating with other lawyers, and hesitate to take notes.” The
    court said this would negatively affect counsel’s ability to represent clients effectively.

    “Weakening lawyer ability to represent clients at the pre-claim stage of anticipated
    litigation would inevitably reduce voluntary compliance with the law, produce more
    litigation, and increase the workload of government law-enforcement agencies.”

    But see: Burton v. R.J. Reynolds Tobacco Co., 177 F.R.D. 491 (D. Kan. 1997). Rejects
    work product privilege as to studies of tobacco produced by company generally for
    litigation where company argued that it had multiple lawsuits filed against it at the time
    the reports were prepared.

    Documents prepared out of ordinary business will not always be deemed in anticipation
    of litigation:

U.S. v. Lockheed Martin Corp., 995 F.Supp. 1460 (M.D. Fla. 1998). Lockheed became
aware of improper accounting on one of its projects. The company performed an internal
audit that was not part of the ordinary course of business but specifically because it
became aware of the irregularities. The court held that the audit was not done in
anticipation of litigation where the audit manager conducted employee interviews with
the in-house counsel present. The court held that the attorney was present only for
informational purposes and not legal purposes. But the court did apply work product and
attorney-client privilege to communications intended specifically and exclusively for
communication within Lockheed regarding legal issues.

The court may decline to apply work product and attorney-client privilege simultaneously
to same communication document.

Miller v. Federal Express Corp., 186 F.R.D. 376, 387 (W.D. Tenn. 1999). “The work
product protection only applies to materials which are ‘otherwise discoverable.’
Fed.R.Civ.P. 23(b)(3). Therefore, if any of the disputed documents are privileged then the
party seeking discovery has failed the first step [of work product analysis], and the court
would not proceed through the remaining steps.” Court then analyzed documents under
work product doctrine first, assuming they were not privileged, and held them protected
by work product.

B.     Disseminating Information

       If counsel is “simply reporting the positions taken by the negotiating parties on
       various business issues,” the reports aren’t privileged. “Such reporting of
       developments in negotiations, if divorced from legal advice, is not protected by
       the privilege under New York law.” Note Funding Corp. v. Bobian Investment
       Co., 1995 U.S. Dist. LEXIS 16605 (S.D.N.Y.).

       Legal/business advice must be predominantly legal to be privileged. E.g. Cooper-
       Rutter Assocs., Inc. v. Anchor Nat’l Life Insurance Co., 563 N.Y.S.2d 491 (2d
       Dep’t 1990) (memoranda prepared by lawyer who was in-house counsel and
       corporate secretary concerned “both the business and legal aspects” of ongoing
       negotiations, and “were not primarily of a legal character, but expressed
       substantial non-legal concerns.” Therefore, documents in their entirety were

       Some courts will redact legal advice from business memos, and order production
       of the business portions. But courts tend not to work that hard. F.C. Cycles
       Internat’l. Inc. v. Fila Sport, 184 F.R.D. 64 (D. Md. 1998). Court redacted almost
       an entire memorandum save a single paragraph that it ordered discoverable
       because while the memorandum was otherwise “replete” with legal advice, the
       paragraph that referred to the price and status of bicycle licenses was deemed
       business negotiating information and not legal information.

       It is alright to show privileged documents to a consultant, if the consultant “was
       called upon to assist the attorneys in providing legal advice to the client.” Note

     Funding Corp. E.g., merger dispute: one side retained investment banker as
     consultant and attorneys gave their interpretation of contract clauses to the
     investment banker. Attorney’s interpretations held privileged, even though
     disclosed to investment banker. Consultant was retained to facilitate legal advice.
     BUT, Privilege is waived if documents shown to a third party for any reason
     “other than assistance of an attorney in performing legal services for the client.”

     Even when passed on within the client and the client’s corporate “family,” the
     communication isn’t privileged if it’s divorced from legal advice and becomes a
     business directive from one unit to another.

     Attorney’s notes to self may be privileged if they facilitate legal advice to client.

C.   Communication to Low-Level Employees and Other Non-Lawyer Employees:

     1.     United States v. Lockheed Martin Corp., 995 F.Supp. 1460 (M.D. Fla.
            1998). “When executives who will act on legal advice direct lower level
            employees to provide information to counsel, those communications
            (though not the underlying information) may qualify for the privilege.

     2.     F.C. Cycles Internat’l., Inc. v. Fila Sport, 184 F.R.D. 64 (D. Md. 1998).
            Communications to (non-lawyer) officers and employees of corporation of
            information relevant to legal decision-making remains privileged so long
            as it is relayed on a “need to know” basis by other non-lawyer employees.

            Court emphasized view that it is the content of the communications and
            not to whom or from whom they originate that forms the basis of the

            Privilege is lost if information is relayed to those who do not need the
            information to carry out their jobs.

D.   When In-House Counsel is Designated to Testify: Run risk of waiving attorney-
     client privilege and/or work product protection.

     1.     Avery Dennison Corp. v. UCB Films PLC, 1998 WL 703647 (N.D. Ill.
            1998). In-house counsel gave deposition testimony as to meetings
            between corporation and counsel regarding patent. Counsel had
            “attempted to reveal nothing more than the fact that [the corporation]
            conferred with in-house and outside patent counsel regarding…the patent”
            during a reissue application process and while deciding to withdraw a
            reissue application.

            Corporation argued it only revealed the fact of the communications so
            communications themselves should remain privileged. Court rejected this
            argument: “[W]hen placed within the full context of [in-house counsel’s]
            twelve days of deposition testimony, [the corporation’s] disclosures
            clearly go beyond the mere fact of communications regarding the…patent,

     and instead implicitly reveal the legal conclusions of [the corporation’s]
     in-house and outside counsel.”

     Court also held that counsel’s deposition testimony had waived work
     product protection as to investigation of the patent in question by
     revealing legal conclusions drawn by in-house and outside counsel
     regarding investigation of the patent in question.

     Also held that counsel cannot waive privilege as to some materials on a
     given subject, then withhold other materials on same subject; so waiver of
     some may waive everything on same subject (citing Ziemack v. Centel
     Corp, 1995 WL 314526 (N.D. Ill.1995).

2.   United Hospital Center, Inc. v. Bedell, 484 S.E.2d 199 (W. Va. 1997).

     Hospital waived work product protection with respect to matters about
     which its general counsel was designated to testify.

     Investigation report prepared out of concern for hospital’s exposure to
     liability for a fall sustained by a patient while in hospital’s care was held
     within scope of work product doctrine.

     BUT court found that hospital waived both attorney-client privilege and
     work product protection of report when it designated general counsel “as a
     witness pursuant to plaintiff’s [West Virginia] Rule [of Civil Procedure]
     30(b)(6) notice of deposition….”

     The counsel refused to testify regarding the contents of the investigative
     report BUT the court held that “by producing [the general counsel] as a
     witness in response to a Notice of Deposition under [West Virginia Rule
     of Civil Procedure] Rule 30(b)(6)…[the hospital] had waived both
     attorney-client and work product privilege[.]”

     The court based its decision on the fact that the hospital had voluntarily
     designated the general counsel as the 30(b)(6) witness where it could have
     prepared and designated another person to testify: “[T]he hospital
     deliberately designated its general counsel to speak for the
     corporation…[T]o allow a corporation or organization that chooses to
     designate counsel to testify at a Rule 30(b)(6) deposition to refuse to
     answer certain questions based on attorney client privilege and the work
     product doctrine would obviously confer unfair advantage on them and
     would be contrary to the spirit of Rule 30(b)(6) and the discovery

     The court rejected the hospital’s argument that the general counsel was
     “its only logical designee to answer [the deposition notice] questions
     because he was the person who gathered the information necessary to
     respond to the complaint.” The court noted that West Virginia’s notice

deposition rule does not require that a corporation’s designated witness
have personal knowledge or have been personally involved in the
examination topics.

The court specifically distinguished this circumstance from one in which
the opposing party has served a deposition subpoena on the general
counsel, a situation that the court described in dicta as negative and
burdensome in time and cost of litigation but declined to say was

                                 Issues/References to Outline

Document 1 –

      •   [A] - Role of inside counsel as legal advisor vs. business executive – (II.,A.)

      •   [B] - Disseminating Information – (V.,B.)

      •   [C] - Negotiations – (III.,A.)

      •   [D] - Work Product Privilege – (V.,A.)

      •   [E] - Exchanging Information Within the Corporate “Family” (IV.,E.)

Document 2 –

      •   [A] - Role of inside counsel as legal advisor vs. business executive – (II.,A.)

      •   [B] - Inadvertent Disclosure – (II.,C.,6.)

      •   [C] - Negotiations – (III)

      •   [D] - Dealing with Third Parties – Other Auditors – (IV.,A.,2.)

Document 3 –

      •   [A] - Confidentiality - E-mail communication – (II.,C.,2.)

      •   [B] - Use of inside counsel to hide information – (II.,B.)

      •   [C] - Dumpster Diving Waiver – (II.,C.,5.)

      •   [D] - Role of inside counsel as legal advisor vs. business executive – (II.,A.)

Document 4 –

      •   [A] - Role of inside counsel as legal advisor vs. business executive – (II.,A.)

      •   [B] - Negotiations – (III.,A.)

      •   [C] - Dealing with Third Parties – Other Auditors – (IV.,A., 2.)

      •   [D] - Dealing with Third Parties – Outsourcing – (IV.,D.)
Document 5 –

      •   [A] - Disseminating Information – communications passed on within corporate
          “family” is not privileged if divorced from legal advice (V.,B.)

      •   [B] - Communication to Low-Level Employees and Other Non-lawyer Employees –

      •   [C] - Dealing with Third Parties – Outsourcing – (IV.,D.)

Document 6 –

      •   [A] - Confidentiality - E-mail communication – (II.,C.,2.)

      •   [B] - Role of inside counsel as legal advisor vs. business executive – (II.,A.)

      •   [C] - Negotiations –(III.,A.)

      •   [D] - Dealing with Third Parties – Insurance Broker – (IV.,C.)

      •   [E] – Dealing with Third Parties – Insurance Auditors – (IV.,A.,1.)

Document 7 –

      •   [A] - Role of inside counsel as legal advisor vs. business executive – (II.,A.)

      •   [B] - Negotiations –(III.,A.)

      •   [C] - Confidentiality – Client confidence requirement – (II.,C.,1.)

      •   [D] – Work Product Doctrine and Limitations – Adlman II (V., A.)

Document 1

                                       ABC Corp. Transaction Memorandum

To:       XYZ Parent Corp. Board and XYZ Corp. Board [E]

Fr:       Joe M. Consul, General Counsel and Corporate Secretary, XYZ Corp. [A]

Date: January 1, 2005

Re:   ABC Corp. Lease

          A.         Basic Terms and Conditions of the Transaction

XYZ Corp. has proposed to enter a 72 month lease of ABC Corp.’s aircraft equipment beginning
July 1, 2005. The rent will be $500,000 monthly in advance, with a $1,000,000 security deposit.

          B.         Transaction Background

XYZ Corp. has decided to upgrade their aircraft equipment to meet international premium
passenger traffic and cargo demand. XYZ Corp. will need to invest approximately $750,000 up
front to get the aircraft into delivery condition.

          C.         Other Market Alternatives

I am currently in preliminary discussions and negotiations with three other aircraft equipment
companies. However, their equipment is more outdated than ABC Corp.’s and would require a
greater up front investment. XYZ Corp.’s position, which I made clear to the aircraft equipment
companies, is that the up-front investment will need be as close to $750,000 as possible for any
acceptable lease agreement. [B] [C]

          D.         Case for the Transaction

ABC Corp. is offering an attractive lease rate compared to our other market alternatives. Their
reputation for aircraft equipment leasing is top notch, and they already have long-term leases
with many of our competitors. They have also agreed to waive our maintenance reserves
requirement for one month. [B] [C] From a legal perspective, however, the transaction might
pose litigation difficulties because ABC Corp. is based in Iceland, which is not a signatory to the
Hague Convention. [C] [D]

          E.         ABC Corp. Analysis

Attached is the report of Acme Accounting, the accounting firm that I have employed to assist
me in understanding ABC Corp.’s complicated financial documents. Based on their report, I
believe that ABC Corp. is financially sound.

Atty-Client Privilege for Transactional Lawyers -- Sample Docs (2).DOC
Document 2

                                                 XYZ Corp. Board Minutes

To:       XYZ Corp. Board

Fr:       Joe M. Consul, General Counsel and Corporate Secretary, XYZ Corp.

Date: January 1, 2006

Re:   ABC Corp. Lease Litigation

On December 1, 2005, the XYZ Board Members had a meeting regarding the pending litigation
against ABC Corp. The Board Members also conducted a vote to terminate Senior Vice
President of Sales Bob Jones due to fraudulent activities in the sales division.

The primary issue for discussion was the ongoing settlement negotiations with ABC Corp. I
reported that our outside counsel, Pillsbury Winthrop Shaw Pittman LLP, prepared a damages
memorandum which I showed to counsel for ABC Corp. at our last settlement meeting. Despite
the persuasive language contained in the damages memorandum, ABC Corp. refused to increase
their settlement amount. Further, ABC Corp. would only agree to a settlement if our outside
counsel entered an agreement to refrain from bringing actions for others against ABC Corp.
based on similar leases. We ended the settlement negotiations in a deadlock. [A] [C]

I also brought to the Board’s attention that an entire box of documents produced to ABC Corp. as
part of our response to their discovery requests contained attorney-client privileged information.
Our legal department contacted ABC Corp. a few days after the inadvertent delivery and
requested that ABC Corp. return the box. ABC Corp. agreed to return the box but we have not
yet received it. [B]

Finally, all of the Board Members, including myself, voted to terminate Bob Jones from XYZ
Corp. due to his involvement in fraudulent sales activities relating to Lemon Corp. As part of
XYZ Corp.’s investigation into the corporate fraud, we created a special “fraud-audit” team that
was given access to all of XYZ Corp.’s sales documents. [A] [D]

The Board Meeting began at 12:30 p.m. and ended at 1:00 p.m.


Atty-Client Privilege for Transactional Lawyers -- Sample Docs (2).DOC
Document 3

                                                          Internal Email

To:       Jane Doe, (Chief Executive Officer); Sally Smith, (Chief Operating Officer)

Fr:       John Bee, (Chief Financial Officer)

Cc:       Joe M. Consul, Esq., (General Counsel), [A] [B]

Date: January 1, 2005

Re:       Termination of Lemon Contract

Confidential and Privileged Attorney-Client Communication [B]

Jane and Sally,

Attached is my report regarding the financial implications of terminating the Lemon Contract
and entering the Orange Contract. The bottom line is that if we terminate the Lemon Contract
within the next two weeks, we could potentially save hundreds of thousands of dollars. If we do
not terminate the Lemon Contract, we would, at best, break even on this deal.

I also attach Lemon Corp.’s financial report, indicating that their net profit from the Lemon
Contract would be half as much as what we could make if we terminated the Lemon Contract
and entered the Orange Contract. Thus, even if Lemon Corp. sued us for breach of contract, we
would be able to settle the case while making an acceptable profit.

Please advise.

John Bee

P.S. Due to the sensitive nature of my report, all of the drafts of Joe’s legal analysis have been
shredded, except the copy that I mistakenly took home. I threw out that copy. [C]

P.P.S. Joe, I thought you would be interested in knowing about this. [D]

Atty-Client Privilege for Transactional Lawyers -- Sample Docs (2).DOC
Document 4

                                                          Internal Email

To:       Joe M. Consul, Esq., (General Counsel)

Fr:       Bill N. Johnson, Esq., (Ass’t General Counsel)

Date:      January 1, 2005

Re:     Strategy for Meeting with Bicycles International (“BI”)
As you are aware, I met with George James, our outside counsel, to review the potential legal
and strategic adjustments and/or offsets identified to date in our negotiations with BI.

George’s opinion, based on our discussions, was as follows:

(i) We cannot obtain adjustments that change the amount paid at the closing date unless we can
prove collusion or fraud.

(ii) We are on solid legal ground for the adjustments to the Winter 2004 commissions for items
“B” to “E” as set forth in Exhibit One.

(iii) The balance of the adjustments we have identified are up in the air. We cannot negotiate a
further reduction in the commissions that may result in a payment to BI that is less than the
remaining balance of the commissions (about $470,000). [A] [B]

(iv) Prior to our meeting with BI, George recommends that we file claims against the Edmonton
and Toronto boutiques. Notwithstanding that we may extricate some settlement, George feels
that we must put pressure on these companies to see if they will crumble and admit collusion
with BI. He feels that the individuals will contact BI and threaten to disclose any such
arrangements to us rather than spend money to defend themselves.

(v) BI should be advised that no commissions will be paid until our special auditors have
investigated the loss in value of the assets that we acquired and that such investigation will
include the personal examination of third parties including their books and records. George has
asked whether inside counsel will be involved in the review. [C]

(vi) Some of our legal analysis regarding the BI transaction, attached hereto, have been given to
Bicycles R Us, an independent contractor to whom we have outsourced part of our bicycle
licensing operations. [D]

(vii) Based on the advice of Bicycles R Us, George decided that the bike license should be used
as a negotiating tool. We may threaten to cancel our fixed term. George will follow up with
New York to determine the value of this license to BI. [A] [B]


Atty-Client Privilege for Transactional Lawyers -- Sample Docs (2).DOC
Document 5

                                                     Two Internal Emails

Email #2

To:       Jack Johnson, (Vice President, IT Department) [B]

Fr:       Jane Doe, (Anderson Consulting, Temporary Chief Executive Officer) [C]

Cc:       Rob Norris (Secretary to Jane Doe) [B]

Date: January 2, 2005

Re:       Document Retention Policy


Stop destroying all backup tapes until I tell you otherwise. [A]



Email #1

To:       Jane Doe, (Anderson Consulting, Temporary Chief Executive Officer)

Fr:       Joe M. Consul, (General Counsel)

Date: January 1, 2005

Re:       Document Retention Policy


Per our document retention policy, we have been destroying our backup tapes every three
months. However, due to the pending litigation with Lemon Corp., we need to stop destroying
all backup tapes and retain the tapes in our IT Department. Please inform all of the appropriate


Atty-Client Privilege for Transactional Lawyers -- Sample Docs (2).DOC
Document 6


To:       Joe M. Consul, Esq. (General Counsel – XYZ Corp.)

Fr:       Anne Jackson (Bicycle License Manager – XYZ Corp.)

Cc:       Axis Management, (XYZ Corp. Licensing Management) [A]

Date: February 1, 2005

Re:   Bicycle License

Dear Joe,

I am in Madrid for an executive meeting. What is the current status of the negotiations with
Bicycles International for the bicycle license? What is our strategy for obtaining the greatest
number of adjustments? Please fax me all of the draft agreements to date, as well as your notes
from your last meeting with BI. Based on what I have heard at the executive meeting, we need
to close this deal as soon as possible. [B] [C]

Also, thank you for faxing me your notes from your conversations with our insurance brokers.
That information may be valuable if we need to litigate these bicycle licenses. [D]

Finally, I received a call recently from our outside counsel requesting permission to submit our
billing statements to their insurance carrier’s independent auditor. Please advise. [E]


Atty-Client Privilege for Transactional Lawyers -- Sample Docs (2).DOC
Document 7

                                                          Internal Email

Fr:       Joe M. Consul, Esq. (Chief Operating Officer – XYZ Corp.)

To:       Rob Hernandez (Senior Vice President – XYZ Corp.)

Date: June 1, 2005

Re:   Asset Sale with ABC Corp.


I received your message about the asset sale with ABC Corp., which I worked on a few months
ago while I was still the General Counsel. [B] You wanted to know what I thought of ABC
Corp.’s credibility and trustworthiness. [B] Since I was the sole negotiator for this deal, I can
certainly answer your question. [B] Throughout the negotiations for the asset sale, I thought that
ABC Corp. was unprofessional, disorganized and untrustworthy. I had a very difficult time
trying to work with them because they never returned my calls and their work product was
sloppy. Moreover, after looking over Arthur Anderson’s memorandum that you forwarded to me
last week regarding the tax implications of this transaction, my advice would be to stop
negotiating with ABC Corp. and find someone else for this asset sale. We have a few
alternatives, including Lemon Corp., Orange Corp., and Lime Corp. [A]

I have attached a copy of the report our outside lawyers prepared for our Bank in connection
with the financing for the threatened legal challenge to our ownership of some of the assets. [D]

Please let me know if you have any other questions. I look forward to seeing you at the Yankees
game tomorrow. We can talk about the issues there (between innings of course). [C]


Atty-Client Privilege for Transactional Lawyers -- Sample Docs (2).DOC
    Challenges to the Attorney/Client Relationship: Disqualification and Privilege Disputes

                  Felicia Washington Mauney, Esq. and Andrew Habenicht, Esq.
                          Kennedy Covington Lobdell & Hickman, LLP

                                     Corie Pauling, Esq.
            Teachers Insurance and Annuity Association of America (“TIAA-CREF”)

       The following summarizes case studies and issues suggesting trends related to attorney
disqualification from representation on conflicts grounds and related to protection of the
attorney-client privilege possessed by corporations. Attribution to appropriate sources has been
noted since much of this document’s content on these issues has been compiled from publicly-
available sources.

Disqualification for Adverse Representation
of Related Corporate Entities Owned by a Multinational Corporation

        McKesson Information Solutions, Inc. v. Duane Morris, LLP, Civil Action No. 2006-CV-
121110, Fulton County, Georgia, Superior Court (September 7, 2006) is a highly-publicized
action in Georgia state court, ancillary to an arbitration proceeding involving McKesson
Information Solutions (“MIS”), in which the law firm of Duane Morris sought to represent two
individuals against MIS. 1 At the time of the dispute, Duane Morris was serving as local counsel
in a federal bankruptcy court in Pennsylvania to two MIS affiliates related by common
ownership under the McKesson Corporation umbrella. At the heart of MIS’s action was the
contention that Duane Morris should be disqualified from the representation of the two
individuals as a result of the Pennsylvania representation and despite Duane Morris’ limited
engagement letter with the two affiliates in Pennsylvania. In the engagement letter, the entities
were distinguished and the parties apparently agreed to waive future conflicts not “substantially
related” to the Pennsylvania bankruptcy matter.

       In the arbitration brought by Duane Morris on behalf of the individuals, MIS was
defended by Morris, Manning, & Martin, an Atlanta firm, which first objected by letter to Duane
Morris’ representation. Duane Morris responded by relying on its engagement letter with the
two McKesson Pennsylvania entities. Duane Morris contended that the engagement letter
contained an express limitation of the attorney-client relationship such that it applied only to
serving as local counsel in the limited bankruptcy matter. The engagement letter had apparently
been revised by McKesson itself to explicitly set forth that the firm represented only the two

 For media coverage of this case, see the series of Fulton County Daily Report articles at;; and
Corie Pauling, Esq.
January 25, 2007
Page 2

affiliates and not any other McKesson companies and that all conflicts other than those
“substantially related” to the bankruptcy matter would be waived by McKesson. The
engagement letter provided that the waiver would not apply in instances where Duane Morris
had obtained the McKesson corporation’s proprietary or confidential information.

       What became problematic was Duane Morris’ “threat” to bow out of the bankruptcy
representation if McKesson refused to waive the conflict at issue in the Georgia litigation. This
move was described in court papers by McKesson’s Georgia counsel as “bordering on extortion”
and a blatant breach of loyalty. McKesson responded by moving in Georgia state court to have
Duane Morris disqualified from representing the individual claimants in the arbitration. Judge
Moore of the Fulton County Superior Court granted McKesson relief and ordered Duane Morris
disqualified and enjoined from acting as counsel to the individuals in the arbitration against
MIS. 2

         In the Order, Judge Moore conveys a number of principles that should be at the forefront
of the minds of corporate attorneys engaged by, or currently representing, large, multi-national
clients where the risk of conflict is high because of the diversified corporate structure. For
instance, Judge Moore aptly states, “The Court is keenly aware that modern business practices in
this age of parent companies with worldwide subsidiaries, mergers and acquisitions make this
conflict       of     interest     issue      one       of      great     importance.”             See In the case, Judge Moore
found that although MIS and the two affiliated companies under the McKesson umbrella were
“separate and distinct legal entities for contract and liability purposes,” they constituted “a single
entity for purposes of conflict of interest analysis” since they shared the same parent.

        The Court applied the Georgia Rules of Professional Conduct to the dispute and the terms
of the engagement letter since the attorney conduct at issue took place in Georgia. Essentially,
the Court found that McKesson’s “future waiver” in the engagement letter was inadequate and,
thus, invalid because it was not a knowing waiver identifying specifically adverse clients or
details of adverse representation as required by Georgia’s ethics rules. As such, the court found
that Duane Morris’ concurrent representation of the McKesson entities presented a significant
“possibility of breach of loyalty and of possible disclosure of information that may have
adversely affected MIS in the impending arbitration” and that the engagement letter language
“[could] not override [the firm’s] ethical obligations to its clients.” The Court, as well, was not
persuaded by Duane Morris’s expert, Steven Krane of Proskauer Rose and the chairman of the
ABA’s Ethics and Professional Responsibility Committee, who testified that large, multi-faceted
and multi-national companies like McKesson should not reasonably expect law firms to look
upon an engagement with one affiliate or subsidiary as an engagement for an entire corporate

 Duane Morris has since moved for a new trial and to be re-appointed as claimants’ counsel in the arbitration, citing
settlement of the Pennsylvania bankruptcy matter and its subsequent withdrawal from the representation. McKesson
has opposed the motion contending it has never consented to the withdrawal and that settlement of another matter
does        not    resolve      an     existing     conflict.           See      article     at      located        at
Corie Pauling, Esq.
January 25, 2007
Page 3

        This case suggests large, multi-state or multi-regional law firms should re-evaluate their
conflict of interest policies and appropriately communicate such policies among both
transactional and litigation attorneys, so that engagement letters purporting to limit a
representation do not end up costing the firm in an ethics proceedings or suit like that brought
against Duane Morris. The analysis, it seems, will now have to be, “If we represent this small
entity owned by X Corporation on this one, apparently distinct matter, are we therefore
conflicted out of all future representation against the entire family of companies owned by X
Corporation?” See Commentators have
agreed this decision may “hold far-reaching consequences for corporate attorneys and their
clients.” Id.


Disqualification of Entire City Attorney’s Office

         In the interesting case of City of San Francisco v. Cobra Solutions, Inc., 38 Cal. 4th 839,
135 P.3d 20 (2006), the California Supreme Court disqualified the entire City Attorney’s office
from prosecuting a fraud and abuse case against the defendant. One of the city attorneys had
been the defendant’s lawyer while in private practice and his conflict was imputed to the entire
city attorney’s office. The attorney at issue was so familiar with the defendant’s confidential
information and conduct while he represented it that his conflict required “vicarious
disqualification” of the entire office at the city. Although the City tried to screen the defendant’s
former lawyer from the case, the Court held that such a screen could not properly resolve the
potential ethical issues the attorney may face as part of the City Attorney’s office handling the
lawsuit. This case may signal important ethical considerations for corporate attorneys in private
practice who go in-house with local, state, or federal government and may become involved in
investigating former clients on behalf of the government or who may be advising government
investigators or other officials about a former client’s conduct and business operations. See
From         the      Top        Ten       Legal       Ethics     Stories       of      2006,      at


“Attorney-Client Privilege Protection Act of 2006”
Introduced by Senator Arlen Specter

        On December 7, 2006, Senator Arlen Specter introduced the Attorney-Client Privilege
Protection Act of 2006 (“the Act”) seeking to add federal statutory protections to the attorney-
client relationship, particularly in Department of Justice (“DOJ”) investigations and prosecutions
of business entities. The principles at issue and at which the Act is directed stem from the DOJ’s
“Thompson Memorandum” of 2003 which set forth highly-disputed guidance from Deputy
Attorney General Larry Thompson to federal prosecutors, which appeared to threaten the
attorney-client privilege. The Act would, among other things:

Corie Pauling, Esq.
January 25, 2007
Page 4

       (1)     prohibit federal prosecutors and investigators from requesting that a
               corporation waive its privilege or work product doctrine;

       (2)     condition charges or cooperation credit on the corporation’s waiver or
               non-waiver of the privilege (essentially, prohibiting quid pro quo
               exchanges of a waiver of the privilege for more lenient treatment);

       (3)     preserve the corporation’s ability to voluntarily offer internal investigation
               materials to prosecutors; and,

       (4)     allow prosecutors to ask for materials in instances where they have reason
               to believe are not protected by a privilege.


        In apparent response to Senator Specter’s proposed Act and criticisms of the DOJ’s
tactics regarding essentially coerced waiver of a corporation’s privilege in exchange for
cooperation credit and good standing, Deputy Attorney General Paul McNulty recently issued a
new memorandum to replace the Thompson Memorandum. Prior to McNulty’s memorandum,
DOJ investigators and prosecutors could consider whether a corporation agreed to waive its
attorney-client privilege when deciding whether to the charge the corporation with federal
crimes. See

        In his memorandum, McNulty praises the DOJ’s successes in stemming the tide of
corporate fraud, but acknowledges, “Many of those associated with the corporate legal
community have expressed concern that our practices may be discouraging full and candid
communications between corporate employees and legal counsel. To the extent this is
happening, it was never the intention of the [DOJ] for our corporate charging principles to cause
such a result.” See id. Specifically, McNulty’s memorandum points out the “waiver of attorney-
client and work-product protections is not a prerequisite to a finding that a company has been
cooperating in the government’s investigation . . . Prosecutors may only request waiver of
attorney-client or work protections when there is a legitimate need for the privileged information
to fulfill their law enforcement obligations.” See id. The memorandum sets forth a series of
steps a prosecutor or investigator must take to request privileged documents properly.

        McNulty’s memorandum and Senator Specter’s proposed bill suggest a change in
treatment of corporations with regard to privilege protections. Following 9/11, as well as Enron,
WorldCom and other corporate scandals, privilege protections were challenged through broad
legislation such as Sarbanes-Oxley. While many sought to limit a corporate entity’s ability to
protect and defend itself against fraud allegations in the wake of these events, it seems that now
the DOJ may be modifying its challenge to the attorney-client privilege for which popular
sentiment had called in recent years.

Corie Pauling, Esq.
January 25, 2007
Page 5

Waiver of Attorney-Client Privilege Through Communications
Between a Corporation and a Public Relations Firm

        In an article for the Association of Corporate Counsel entitled, The Attorney-Client
Privilege and Associated Confidentiality Concerns in the Post-Enron Era, Douglas R. Richmond
discusses the issue of privilege waiver under circumstances where law firms and clients engaged
public relations consultants to aid in crisis and media management.                         See, at pages 20-26. In the article, Mr.
Richmond discusses a number of cases suggesting, on the whole, that the law on this particular
privilege-waiver issue remains unsettled.

        As discussed in the article, two cases provide insight on this issue. The case of Calvin
Klein Trademark Trust v. Wachter, 198 F.R.D. 53 (S.D.N.Y. 2000), involved Boies, Schiller &
Flexner, a well-known large corporate law firm, which hired a public relations consultant to
assist in representing Calvin Klein. When the defendants sought to obtain documents from the
public relations firm to depose one of its employees, Calvin Klein refused on privilege grounds,
which the court rejected. The court reasoned that the public relations firm was merely
dispensing advice to Boies Schiller’s client at the law firm’s direction, not aiding in the provision
of legal advice. On the other hand, the court did allow some of the documents to be withheld on
work-product grounds if Boies Schiller and the public relations firm collaborated on certain
documents, which contained combined directions and legal advice provided to Calvin Klein. See, at pages 20-26. In In re Grand Jury
Subpoena, (the Martha Stewart Case), on the other hand, the same court from the Calvin Klein
case in the Southern District of New York held that “confidential communications between
lawyers and public relations consultants hired by the lawyers to assist them in dealing with the
media in cases such as this . . . that are made for the purpose of giving or receiving advice
directed at handling the client’s legal problems are protected by the privilege.” See, at pages 20-26 (citing 265 F. Supp.
2d 321, 331 (S.D.N.Y. 2003)).

        As to this unsettled issue, corporate attorneys advising clients in a high profile
investigation should be well-read on the law of the applicable jurisdiction with regard to
privilege waiver should third-party consultants become involved in aiding the representation.
See, comparing generally the case of
Oxyn Telecom., Inc. v. Onsc Telecom, 2003 WL 660848 (S.D.N.Y. 2003) (presence of public
relations consultant during meeting between executive of corporation under federal investigation
and defense counsel may allow discovery of such communications) with the cases of Newman v.
State 863 A.2d 321 (Md. 2004) (noting presence of third-party does not waive privilege if the
third party is present to facilitate the provision of legal services in the best possible manner) and
Hangh v. Schroder Inv. Mgmt., Inc., 2003 WL 219986674 (S.D.N.Y. 2003); Blumenthal v.
Drudge, 186 F.R.D. 236 (D.D.C. 1999) (finding circumstances when such communications with
a public relations consultant may be protected).

Corie Pauling, Esq.
January 25, 2007
Page 6


Letting Your Client Know
Who’s The Client

        A number of recent cases discussed in the article entitled Ethical Issues for Business
Lawyers: Ten Things You Should Know, written by David Anthony and Matthew Chmiel of
Kaufman & Canoles, P.C. in Virginia, indicate that corporate lawyers must adhere to distinct
boundaries keeping separate the corporate client from its directors, officers or employees (who
are typically not the client) since some courts have disqualified lawyers on such grounds. See
0Lawyers.pdf. For instance, the article discusses the case of Home Care Indus., Inc. v. Murray,
154 F. Supp. 2d 861 (D.N.J. 2001), in which the court disqualified Skadden Arps from
representing the corporate plaintiff in a suit adverse to its former chief executive officer. The
court found Skadden had failed to inform the officer that the company was the client and not
him, personally, and that the firm had effectively been representing him over the course of the
corporate                         representation.                                                See
0Lawyers.pdf (citing In re Rite Aid Corp. Sec. Lit., 139 F. Supp. 2d 649 (E.D. Pa. 2001)
(describing proper use of engagement letter to define the client and scope of representation to
properly exclude representation of officers, directors, or employees)). This line of cases
indicates the importance of drafting a proper engagement letter and adhering to a coherent and
up-to-date conflict of interest policy to avoid surprising disqualifications during subsequent legal
matters. See