In order to be privileged, a communication must first be made in confidence and kept in confidence. This means that the privileged communication should not include unnecessary third parties. The inclusion of unnecessary parties on emails with in-house counsel and the discussion of legal issues in large meetings can dilute the company's ability to claim privilege. To bolster your claim that the communication was meant to be kept confidential, in-house counsel should limit the dissemination of that communication to individuals involved in or necessary to the legal discussion.
Attorney and Client
To be privileged, communication must also be between an attorney and client. This usually straightforward element can be more complicated when dealing with in-house counsel. As demonstrated in the recent trio of Gucci v. Guess? [membership required] cases (Gucci American, Inc. v. Guess?, Inc., 2010 WL 2720079 (S.D.N.Y. June 29, 2010); Gucci American, Inc. v. Guess?, Inc., 2010 WL 3718948 (S.D.N.Y. Sept. 23, 2010); Gucci America, Inc. v. Guess?, Inc., 2011 WL 9375 (S.D.N.Y. Jan. 3, 2011)), in-house counsel must be a licensed attorney or the client must at least have a reasonable belief that he or she is a licensed attorney. Although in-house lawyers generally do not have to be licensed to practice law in the state in which they are located, they generally must be licensed in at least one state. See Model Rule 5.5(d)(1). But state law requirements vary. In addition, in-house counsel will sometimes claim "inactive status" to avoid CLE requirements. Depending on the jurisdiction's requirements for inactive status, claiming such status could make it very difficult for counsel to claim she is providing legal services. An attorney on inactive status in Texas, for example, cannot "practice law" in the State of Texas.
In addition, companies who do business in Europe need to be aware that the European Court of Justice recently held that in-house counsel do not have the requisite independence from their corporate clients to meet the requirements for Europe's equivalent of the attorney-client privilege, the legal professional privilege. See Akzo Nobel Chemicals Ltd. and Akcros Chemicals, Ltd. v. European Commission [PDF], Court of Justice of the European Union, Case 550/07 P. But the result might be different in the individual EU countries.
Identifying the client can also be more complicated when dealing with in-house counsel. Companies act through individuals, and which of those individuals can be considered the "client" for purposes of privilege will vary by jurisdiction. In sorting through these issues, it is important to understand whether your jurisdiction applies the Upjohn [membership required] test, control group test, subject matter test, or some hybrid. Adding to the confusion, the answer may be different depending on whether you are litigating the issue in state or federal court.
Securing Legal Advice
Communication with in-house counsel, as with communication with any attorney, must be made for the purpose of securing legal advice to be privileged. The privilege protects "not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice." Upjohn Co. v. United States, 449 U.S. 383, 390 (1981). Although courts will often presume that communication with outside counsel are for the purpose of securing legal advice, they generally do not apply the same presumption to in-house counsel. In-house lawyers often wear multiple hats—lawyer, corporate secretary, vice-president, head of human resources, etc. Whether a communication is privileged can depend on what hat the lawyer was wearing when he or she created or received the communication. If he or she wasn't wearing her lawyer hat, the document probably is not privileged.
Activities that likely will not be protected by the attorney-client privilege include business negotiations, preparation of tax returns, lobbying, serving on corporate committees, and public relations strategizing. Advice concerning human resources actions, press releases, and correspondence present gray areas that may or may not be considered the rendering of "legal advice," depending on the circumstances and the content of the communication. Although most courts will protect communication containing a mixture of legal and business advice, some courts require that the entire communication satisfy the requirements of privilege, or else production of the non-privileged portions is required. See Costco Wholesale Corp. v. Superior Court [membership required], 219 P.3d 736 (Cal. 2009).
To best protect important communication, in-house counsel should be clear in the communication itself that it is for the purpose of giving legal advice. It can be extremely helpful to begin the communication with language such as, "For the purpose of advising the company on [a particular legal issue], I interviewed the following employees." On the other hand, however, simply stamping every document as a "Confidential Attorney-Client Communication" will dilute the effectiveness. To the extent possible, business advice and legal advice should also be separate communication in order to reduce the risk that some or all of the legal communication has to be produced.
Finally, in-house counsel and their corporate clients must take care not to waive the privilege. Voluntary disclosure to a third party generally waives the attorney-client privilege not only for the disclosed communication, but often for the entire subject matter. Clients can waive the privilege by forwarding an otherwise privileged communication to someone outside the attorney-client relationship, such as a business colleague or an adversary, or discussing attorney-client communication at meetings with outsiders. Including independent contractors or other third parties in attorney-client communication will not necessarily waive the privilege, however, if the third parties are considered "functional equivalents of employees." See, e.g., United States ex rel. Strom v. Scios, Inc. [membership required], 2011 U.S. Dist. LEXIS 108485 (N.D. Cal. Sept. 21, 2011).
Producing privileged documents to the government pursuant to a governmental investigation can also constitute waiver of the attorney-client privilege. Federal Rule of Evidence 502 provides that intentional disclosures in a federal proceeding or to a federal office or agency can result in a blanket waiver of all communication on the same subject matter. Even if the attorney-client privilege is waived, however, the corporation may still be protected by the work-product doctrine. Work-product protection may still be available if the disclosure, under the circumstances, is nevertheless consistent with the maintenance of secrecy from the disclosing party's adversary. See, e.g., United States v. Deloitte LLP [membership required], 610 F.3d 129, 139–40 (D.C. Cir. 2010) (Listing jurisdictions addressing whether disclosure to corporation's independent auditor constitutes waiver.)
In addition to these fairly common issues, in-house counsel can be involved in complicated situations requiring even more scrutiny of attorney-client privilege issues.
For example, in-house counsel are often involved in internal investigations, which can present complicated issues regarding the interplay between the roles of detective, legal counsel, and business advisor. When properly structured and executed, an internal investigation performed by or at the behest of in-house counsel can be privileged. To provide the best chance of protection, in-house counsel and those working at their direction should take care to clearly identify that they are acting as or at the direction of legal counsel and for the purpose of facilitating legal advice. Any business advice coming out of the investigation should be given in a separate document. Hiring outside counsel to assist on the legal issues can be helpful in identifying and protecting particularly sensitive communication.
Special privilege issues also arise when in-house counsel has communicated with a corporate officer who later gets into a dispute with the company. In-house counsel presumptively represents the company and not its officers, and so former officers typically cannot unilaterally waive the privilege. But many courts use the "Bevill test" to determine whether counsel actually represented the officer in his or her individual capacity, in which case the officer may be able to exert control over the privilege. See In re Bevill, Bresler & Schulman Asset Mgmt. Corp. [membership required], 805 F.2d 120, 124–25 (3d Cir. 1986).
Similarly, corporate shareholders typically cannot get access to the company's privileged documents. However, when shareholders bring litigation accusing the corporation of acting against the shareholders' interests, courts applying the "Garner doctrine" will consider whether "good cause" exists to pierce the company's privilege, considering such things as the number of shareholders, the nature and viability of their claims, and the need for the documents. See Garner v. Wolfinbarger [membership required], 430 F.2d 1093 (5th Cir. 1970).
In-house counsel also will often jointly represent multiple entities, such as a parent company and its subsidiary. Communication between the lawyer and the joint clients are privileged as to third parties, but they may have to be produced if the parent and the subsidiary end up in a legal dispute, as happened in In re Teleglobe [membership required], 493 F.3d 345 (3rd Cir. 2007). In that case, in-house counsel provided advice to the parent company and its subsidiary. The subsidiary later sued the parent and sought discovery of material prepared by the in-house counsel, which the parent claimed was privileged. The court held that there was a joint representation and ordered the documents produced. Although it was remanded for further fact finding on the scope of the joint representation, the risk of disclosure in this scenario is apparent.
If the company goes into bankruptcy, control of the company's attorney-client privilege passes to the bankruptcy trustee, even with respect to pre-bankruptcy communication. Commodity Futures Trading Commission v. Weintraub [membership required], 105 S.Ct. 1986 (1985). So all the communication in-house counsel believed would be privileged can quickly become discoverable.
Finally, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and recent related regulations (see 17 C.F.R. Part 240.21F) have provided statutory exceptions to the attorney-client privilege, which now allow in-house counsel to "blow the whistle" on their corporate clients in certain circumstances, including "to rectify the consequences of a material violation" of the securities laws "in the furtherance of which the attorney's services were used." These exceptions likely trump more restrictive state bar rules, which would otherwise bar the disclosure. Van Asdale v. Int'l Game Tech. [membership required], 577 F.3d 989, 995–96 (9th Cir. 2009). So, in these limited circumstances, in-house lawyers themselves may be in a position to disclose what would otherwise be privileged communication.
Knowing the rules affecting the privileges of in-house counsel is essential in making correct privilege decisions during litigation. But knowing and educating clients about these rules before litigation arises so that they can take appropriate steps to protect important communications can be even more valuable.
Keywords: litigation, commercial, business, legal professional privilege, attorney-client privilege, Federal Rule of Evidence 502, Bevill test, Garner doctrine, Sarbanes-Oxley Act of 2002, Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, in-house counsel