General Practice, Solo & Small Firm DivisionMagazine
The Attorney-Client Privilege Under Siege: Health Care Lawyers Beware
By Kerry A. Kearney
This article provides a set of guidelines for in-house lawyers at healthcare organizations so as to increase their awareness of the attorney-client privilege and to reduce the risk of inadvertent waiver and loss of the privilege.
Most health care clients are corporations. It is often difficult to determine who is the client for purposes of a corporation’s assertion of the attorney-client privilege. At least since Upjohn Co. v. United States, 449 U.S. 383 (1981), the corporate client includes employees who act on the corporation’s behalf, not just the corporate CEO or those in control. Where a corporate employee makes an oral or written statement to counsel for the purpose of seeking legal advice and at the direction of a supervisor and the communication relates to job duties, the communication is made by the corporate "client" and is privileged. That communication is not discoverable under the attorney-client privilege.
Over time, mergers may occur, management may change and the people who "control" the attorney-client relationship may be replaced. Since it is the corporation’s privilege, rather than the privilege of any individual president or CEO, the corporation’s new management can also choose to waive the privilege.
In several recent cases, Assistant U.S. Attorneys have taken the concept of waiver to new extremes, finding waiver even without an affirmative act by the corporation. In one case, the government argued that a healthcare client had waived the attorney-client privilege because its CEO announced (after public disclosure in the media of a grand jury probe of its Medicare billing) that the company had a legal opinion from a reputable and experienced law firm approving the questioned billings.
In another case, the government served search warrants on a corporate target. The target firm hired a Washington, DC firm to do exactly the kind of investigation done in the Upjohn v. U.S. case. After that investigation was completed, the CEO announced at a press conference only that the investigation had determined that the corporation had not engaged in wrongdoing. The government immediately served a grand jury subpoena on the law firm and the lawyers who did the investigation claiming that the CEO had waived the attorney-client privilege at the news conference.
In Vicinanzo v. Brunschwig & Fils, Inc., 739 F.Supp. 891 (S.D.N.Y. 1990), the court found that where there had been an oral disclosure of a lawyer’s conclusions, without any disclosure of the written document, there is no waiver of the attorney-client privilege. Where the disclosure "offered no more than a glimpse into the law department’s analysis," the Vicinanzo court found that the privilege had not been waived.
There is little law to support the government’s broad theory of waiver, but the government is vigorously attempting to make new law, by asserting waiver in courts all over the United States.
The government has been taking an increasingly expansive view of the crime fraud exception to the attorney-client privilege in the healthcare field. Under this exception, attorney-client communications that are otherwise privileged, may lose their protection if they further a contemplated fraud or ongoing crime. There is no waiver when counsel discusses past criminal conduct with a client ( United States v. Zolin, 491 U.S. 554 (1988)). It is not necessary that a criminal fraud be discussed; discussions of civil fraud also waive the attorney-client privilege. In re Grand Jury Subpoena Duces Tecum, 731 F.2d 1032, 1039 (2d Cir. 1984).
The party seeking to overcome the privilege must present a reasonable basis for the court to make a factual finding that the purpose of the attorney-client communication was fraudulent and that documents or communications furthered the fraud; otherwise, the privilege will be upheld. In re Richard Roe, Inc., 68 F.3d 38 (2d Cir. 1995).
Counsel should consider the following guidelines to reduce the risk of losing the privilege. Each corporation should have a written policy preserving the privilege and the confidentiality of a work product. The corporation can waive the privilege by disclosing a confidential communication or document to a third party or by disseminating the document or communication more widely within the corporation than is necessary. Once waiver has occurred, the privilege may be waived as to the subject matter covered in the document, and the attorney who gave advice on the subject matter covered by the waiver may be questioned about the basis for rendering the advice.
Counsel or high-ranking employees can waive the privilege by disclosure, even if the corporation has not consented to waiver. New management of a corporation can waive the privilege after a merger or a change in management, sometimes with catastrophic effects as to old management. Public reliance on advice of counsel may waive the privilege. If you must disclose, disclose only the bottom line and not the details of counsel’s advice.
If a corporate employee feels (s)he must communicate confidential information or documents to a third party, (s)he should consult counsel. Disclosure to outsiders should be limited, made only pursuant to an agreement to maintain confidentiality and with an appreciation of the risk of waiver. When you plan to disclose privileged information, it is important to know whether the disclosee has an adverse interest to the corporation. If the interest is adverse, a finding of waiver is more likely than if the disclosee has a joint interest.
Communication of confidential information over unsecured communication channels (including cellular phones) may waive the privilege, as will disclosures to auditors and due diligence investigations in which confidential information is disclosed to merger partners.
If inadvertent disclosure occurs counsel must take immediate steps to avoid or lessen the impact of waiver. Courts look to the following to determine whether there has been waiver: (a) reasonableness of precautions taken to prevent disclosure; (b) number of inadvertent disclosures; (c) extent of disclosure; (d) delay and/or measures taken to rectify disclosure; and (e) whether overriding interest of justice is served by relieving party of its error.
Involve counsel before undertaking internal corporate investigations. Counsel’s involvement may make the product of the investigation privileged and nondiscoverable. Expect the government to seek the corporation’s internal self-audits and investigations, even if counsel supervises the investigation.
There is no attorney client privilege for discussions about ongoing "criminal conduct." Many violations of federal and state health and safety statutes and regulations are now "criminal."
Counsel does not represent employees of the corporation. Recognize when there is a conflict of interest between the corporation and an employee. The employee and the corporation can usually consent to joint representation by the same attorney. The attorney has an ethical obligation to inform the corporation when there may be a conflict in such dual representation. In certain conflict of interest situations, corporate employees may be able to demand that the corporation retain and pay for personal counsel.
Joint representation by one lawyer of a parent and subsidiary or of a corporation and employees is permitted where all consent. Either may waive the privilege if they later become adverse, unless there has been prior contrary agreement by both. Neither, however, may waive the privilege in the absence of adversity.
Advise corporate employees not to respond to outside persons investigating the corporation without consulting counsel, no matter how casual the questions may seem. This prohibition applies to all contacts including those between employees and litigants, those between employees and government investigators and regulators, those between employees and the police and those between employees and reporters.
Kerry A. Kearney is a partner with the law firm of Reed Smith Shaw & McClay.
- This article is an abridged and edited version of one that originally appeared on page 9 in The Health Lawyer, October 1997 (10:2).