QuickCounselAttorney/Client Privilege for In-house CounselBy Henry Hipkens and Samuel Felker of Bass, Barry & Sims, PLC
Rate this QuickCounselOverviewLike all lawyers, in-house counsel need to know what steps they must take to ensure that their confidential communications are protected by the attorney/client privilege. Unfortunately, making that determination in a corporate setting can be quite challenging. One of the major challenges is determining who the client is for purposes of determining the privilege. The glib answer is, of course, “the corporation.” However, since the corporation is an artificial creation of the law and cannot communicate, that answer is clearly insufficient. Courts have employed a number of tests to identify employees who qualify as “the corporation” for the purposes of determining the applicability of the privilege. Some courts also focus on the subject matter of the communication as the determining factor. In-house counsel must determine the applicable test in their jurisdictions and in any other jurisdiction from which corporate employees communicate with in-house counsel. However, an in-house counsel armed with that information may still find that application of the law to particular facts remains a challenge. Another area of difficulty arises from the evolving role in-house counsel play within their corporations, as in-house counsel frequently focus on business rather than legal issues. Because the privilege only applies to legal communications, it is critical to determine the capacity in which an in-house counsel was acting when a particular communication was made. While courts have provided some guidance in this area as well, application of the law in a particular factual setting difficult can prove difficult. This QuickCounsel will first briefly discuss the attorney/client privilege generally. It will then discuss the privilege’s application in the corporate context with particular emphasis on identifying the client and the issues raised by in-house counsel's dual role (legal/business) in the corporation. Finally, this article will propose several steps in-house counsel can take to help insure that privileged communications receive the protection to which they are entitled. Basics of the Attorney/Client PrivilegeAlthough courts have recognized the attorney/client privilege for centuries (8 J. WIGMORE, EVIDENCE, §2290 (McNaughton Rev. 1961)), it is not found in the United States Constitution or the Federal Rules of Evidence. Rather, it is a product of state and federal common law. Accordingly, the nature and application of the privilege varies by jurisdiction. Thus, in-house counsel must be familiar with the applicable rules in the appropriate jurisdiction. Nonetheless, most jurisdictions recognize some variation of the formulation of the privilege requirements found in U.S. v. United Shoe Mach. Corp., 89 F.Supp.357, 358-59 (D. Mass. 1950). There the court held that the privilege applies only if:
Stated more succinctly the privilege requires:
See e.g., In re: Teleglobe Communications Corp., 493 F.3d 345, 359 (3d Cir. 2007). The purpose of the privilege is "to encourage full and frank communications between attorneys and their clients … [recognizing] that sound legal advocacy serves public ends and that such advice or advocacy depends upon the lawyer’s being fully informed by the client.” Upjohn Co. v. U.S., 449 U.S. 383, 389 (1981). The Attorney/Client Privilege in the Corporate SettingBoth the basic elements of the privilege and the policy supporting its existence are just as applicable to corporate clients as they are to individual clients. The application of the privilege is, however, far more problematic in the corporate context. This is true, at least in part, because a corporation is "an artificial creature of the law and not an individual . . . ." Upjohn, at 389-90. This "artificial" status forces courts analyzing claims of privilege to ask questions that do not arise in a non-corporate context. Foremost among these is the threshold question "who is the client?" Because one of the fundamental requisites of the privilege is that the communication be made with the client, this determination is essential. Who is the Client?Courts have provided a number of tests to help determine whether an individual working within the corporation is a client for the purposes of applying the attorney/client privilege. Corporate Control TestSome courts employ the Control Group Test whereby protection is available only to the corporation's controlling executives and managers. The Control Group Test is relatively restrictive and limits protected communications to those involving employees in a position to control the operations of a corporation or those employees playing a significant role in making the decision utilizing the requested legal advice. City of Philadelphia v. Westinghouse Elec. Corp., 210 F.Supp. 483, 485 (E.D.P. 1962). In practice, this is usually a limited number of corporate employees. The use of the Control Group Test has diminished in recent years, though it is still employed by a minority of jurisdictions. Subject Matter TestIn 1970, the Seventh Circuit in Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th Cir. 1970) changed the focus of the inquiry from the traditional Control Group Test. Instead of looking at the roles of those employees involved, the Harper court looked to the subject matter of the employees' communications. Under this approach, dubbed the Subject Matter Test, communications to the corporation's attorney are privileged if the employee communicates with counsel at the direction of his superiors and the subject matter of that communication relates to the performance by the employee of the duties of his or her employment. The Upjohn TestIn 1981, the U.S. Supreme Court essentially adopted a variation of the Subject Matter Test in Upjohn v. U.S., 449 U.S. 383 (1981). Under Upjohn, an attorney/client privilege protects communications between a corporation's employees and the corporation's lawyers provided the following criteria are satisfied:
The Subject Matter Test and the Upjohn Test are relied upon by a majority of those states adopting a specific test. Is Counsel Acting in a Business or Legal Capacity?The role of in-house counsel has evolved. Increasingly, the person acting as in-house counsel, in addition to advising the corporation on legal matters, also participates in the corporation's business operations. Reflecting this development, in-house counsel may have a title such as "Counsel & Vice President of Internal Operations." The legal/business mixture of in house counsel's responsibilities and the titles reflecting that mixture are fertile ground for challenges to the assertion of attorney/client privilege in the corporate setting. As a result, courts are frequently asked to determine whether in-house counsel was acting as legal counsel or in a business capacity at the time a challenged communication was made. The court in In Re Vioxx Products Liability Litigation, 501 F. Supp. 2d 789, 797 (E.D. La. 2007) acknowledged the difficulty in making this determination and observed that the issue arose because “modern corporate counsel have become involved in all facets of the enterprises for which they work." Unfortunately, "No ready test exists for distinguishing between protected legal communications and unprotected business or personal communications . . . ." Rossi, 73 N.Y.2d 593. However, most courts look to the primary purpose of the communication. For example, the court in United States v. Chevron held that "A party seeking to withhold discovery based upon the attorney-client privilege must prove that all of the communications it seeks to protect were made 'primarily for the purpose of generating legal advice.'" United States v. Chevron Corp., 1996 U.S. Dist. LEXIS 4154 (N.D. Cal. Mar. 13, 1996). Similarly, the court in Vioxx held that the burden was on the party asserting the privilege to establish a primary legal purpose for each of those communications. Vioxx, 501 F. Supp. 2d at 796-97. To do this, the lawyer's role as a lawyer must be primary to the purpose of the communication. In other words, "only if the attorney is 'acting as a lawyer' — giving advice with respect to the legal implications of a proposed course of conduct — may the privilege be properly invoked. Protecting the PrivilegeThere are practical steps in-house counsel can take to maximize the chances of prevailing on any challenge to an assertion of privilege. Create a RecordMost challenges to a corporation's assertion of attorney/client privilege contain an allegation that in-house counsel was acting in a business rather than legal capacity at the time a particular communication was sent or received. Anticipating this, counsel should, whenever possible, create a record memorializing the communication and providing the basic information a court would need to subsequently determine that the communication was indeed legal in nature and deserving of protection. The existence of such a record will substantially increase the odds of successfully defending a challenge to the legitimacy of a claim of privilege. The record can take the form of handwritten notes, a statement in an email, or a memo to the file. In either case, counsel should label the communication "attorney/client communication" and include information sufficient for a court to confirm the legitimacy of the corporation's assertion of privilege. For example, on any given matter, the corporate employees should expressly state that legal advice is sought. Similarly, in-house counsel can affirmatively state as much in a reply communication by writing something to the effect of “you sought my legal advice regarding…” or “from a legal perspective…” There are no magical words, but the import should be that legal advice is involved. Accordingly, in-house counsel should instruct corporate employees seeking legal advice to clearly state as much in their communications with in-house counsel. Segregate Business and Legal AdviceIn an effort to blunt assertions that counsel was working in a business capacity, counsel should also try to separate the legal and business components of email communications. At a minimum, this means dividing the email into a business section and a properly labeled legal section. Ideally, counsel should send two emails. The first email should contain discussion of the legal issues and the second should discuss the non-legal issues. Segregating the legal advice maximizes the chances that a court will view the assertion of the privilege as legitimate. It also allows counsel to separate the recipients. Email communications containing a mixture of legal and business advice are often sent to a large number of recipients when in fact the legal advice is only relevant to a subset of that group. An email containing legal advice sent to recipients who neither need nor sought such advice is vulnerable to a claim that counsel did not treat the communication as confidential and therefor waived the privilege. For the same reasons in-house counsel should advise employees to limit the recipients of a communication seeking legal advice from in house counsel to only those directly involved in the relevant legal issue. Avoid Routine Copying of In-house Counsel on Non-legal CommunicationsCounsel should advise the corporation to avoid routinely copying in house counsel on non-legal internal communications. Corporations sometimes copy in-house counsel in a misguided effort to cloak business communications with the attorney/client privilege. This strategy, though frequently employed, is almost always unsuccessful and may backfire. Not only is it unlikely to protect routine business communications, it is also very likely to undermine the corporation's legitimate privilege claims. Use Appropriate TitleFinally, to the extent possible, in-house counsel should avoid using his or her business title when acting as a legal advisor. Designating in-house counsel as such is the first step in establishing the protection that corporate communications deserve. ConclusionDetermining the scope of the attorney/client privilege in a corporate setting is challenging. In-house counsel must understand which corporate employees can be shielded by the privilege and mindful that mixing business advice with legal advice may undermine the successful use of the privilege. To that end, in-house counsel can take steps that will improve the corporation's chances of prevailing on any challenge to an assertion of privilege. These steps include the creation of a written record memorializing the legal nature of the communication, as well as the careful segregation of business and legal communications. While following these steps will not guarantee that a corporation's assertion of privilege will be viewed as legitimate, it will certainly maximize the corporation's chances of success. Additional ResourcesACC Resources
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Reprinted with permission from the Association of Corporate Counsel 2012 All Rights Reserved
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