How Not to Waive Privilege When Consulting Non-Attorney Experts or Professionals

Although the holding of Kovel seems simple enough, decades of subsequent court cases leave the precise boundaries of the Kovel privilege far from clear, however (as illustrated by three cases all from the Southern District of New York, cited below, that reached different conclusions on whether communications between an attorney and a public-relations firm fell within the privilege); and application of the privilege may vary from jurisdiction to jurisdiction. Two basic principles do apply fairly uniformly, however. First, the Kovel expert must have been engaged specifically to assist counsel in rendering legal advice to a specific client; and second, the services of the Kovel expert must have been necessary to translate, interpret, or explain communications from the client to the attorney that the attorney would not otherwise understand properly, for the attorney to render full and informed legal advice. This second principle has been applied more rigorously in recent cases than in earlier post-Kovel decisions. Defense counsel’s engagement of the Kovel expert must also be structured properly, as discussed below, so that the attorney-client privilege is not inadvertently waived.

The Kovel Case
Louis Kovel, a former IRS agent, was an accountant employed by a law firm to assist in representing clients with tax problems. After Kovel had undertaken accounting work for the firm’s client during a government investigation, he was called to testify against the client before a federal grand jury. Kovel’s employer directed him to refuse to testify and to assert that his work, performed under the direct supervision of an attorney, was protected by the attorney-client privilege. The government argued that the attorney-client privilege could not extend to a non-attorney, even if employed or retained by a law firm. The district court agreed, holding Kovel in criminal contempt and sentencing him to imprisonment. Kovel served four days in prison. The Second Circuit, in a decision by Judge Friendly, overturned Kovel’s conviction.

Recognizing that it could not with any credibility dispute defense arguments that attorneys cannot function without secretaries, messengers, file clerks, and the like, the government conceded on appeal that the attorney-client privilege could extend to some law-firm employees, but argued that the privilege could apply only to an employee “with a menial or ministerial responsibility.” 295 F.2d at 921. The Second Circuit disagreed, first reasoning that a translator’s work with a client who spoke only a foreign language would be protected by the attorney-client privilege; and following this reasoning with the trenchant observation that, “Accounting concepts are a foreign language to some lawyers in almost all cases, and to almost all lawyers in some cases.” The court continued: “What is vital to the privilege is that the communication be made in confidence for the purpose of obtaining legal advice from the lawyer. If the advice sought is not legal advice but only accounting service . . . , or if the advice sought is the accountant’s rather than the lawyer’s, no privilege exists.” The court recognized that its decision drew “a rather arbitrary line” between a case where the client communicated first with his or her own accountant—where no privilege would apply—and a case where the client first consulted a lawyer on the same matter, and the lawyer then employed an accountant, where the privilege would apply. This dichotomy was, however, the “inevitable consequence of having to reconcile the absence of privilege for accountants and the effective operation of the privilege of client and lawyer under conditions where the lawyer needs outside help.”

Development of the Kovel Doctrine
The Kovel decision has been cited by nearly every Federal Court of Appeals in the country, by federal district courts in every federal circuit, and by many state courts. It has also been applied in civil cases. See, e.g., Lluberes v. Uncommon Products, LLC, 663 F.3d 6, 24 n.20 (1st Cir. 2011) (noting Kovel’s “pedigree and wide acceptance”).

Kovel’s application to accountants who assist an attorney in providing legal advice has been confirmed by numerous later cases. See, e.g., Schaeffler v. United States, 806 F.3d 34, 40–42 (2d Cir. 2015) (not citing Kovel, but holding that accountants’ advice to attorneys representing a corporate taxpayer-client remained privileged even when later disclosed to consortium of banks interested in same matter, because taxpayer-client and consortium “had a common interest in seeing that [U.S. tax] law [was] applied in a particular way”); United States v. Schwimmer, 892 F.2d 237, 243 (2d Cir. 1989) (privilege was not waived when accountants’ advice to attorney was disclosed to attorneys for third parties under joint defense agreement, i.e. “where a joint defense effort or strategy has been decided upon and undertaken by the parties and their respective counsel . . . in the course of an ongoing common enterprise . . . [and] multiple clients share a common interest about a legal matter”); United States v. Judson, 322 F.2d 460, 462 (9th Cir. 1963) (privilege applied where taxpayer retained accountant at request of attorney to “facilitate an accurate an complete consultation between the client and the attorney”). But see United States v. Brown, 478 F.2d 1038, 1040 (7th Cir. 1973) (refusing to apply Kovel when accountant’s presence at meeting between counsel and client “was requested by the [client]'s assistant and not by the attorney”).

Kovel’s principles have also been applied to a variety of different kinds of Kovel experts other than accountants, including:

• Public relations consultants, see In re Grand Jury Subpoenas Dated March 24, 2003, 265 F. Supp.2d 321, 326, 330-31 (S.D.N.Y. 2003) (privilege applied to communications between attorney and public relations firm hired by attorney to assist in advising client, inter alia, on “the legal risks of speaking publicly”; attorney’s out-of-court public advocacy for target of grand jury investigation qualified as a “professional legal service”); In re Copper Market Antitrust Litigation, 200 F.R.D. 213, 219 (S.D.N.Y. 2001) (public relations firm hired by Japanese company lacking experience with Western media functioned as equivalent of a company in-house department; its communications with company’s lawyers were therefore privileged). But see Calvin Klein Trademark Trust v. Wachner, 198 F.R.D. 53, 54 (S.D.N.Y. 2000) (documents sought from public relations firm hired by plaintiff’s attorney were not privileged as they did not “contain or reveal confidential communications from the underlying client . . . , made for the purpose of obtaining legal advice”; “far from serving the kind of ‘translator’ function served by the accountant in Kovel, [the public relations firm] is, at most, simply providing ordinary public relations advice”).
• Investigators, see United States v. Davis, 131 F.R.D. 391, 397–98 (S.D.N.Y. 1990) (unusually, government asserted attorney-client privilege; privilege applied where FBI agent acted as representative of Department of Justice attorneys when interviewing federal officials); American Nat. Watermattress Corp. v. Manville, 642 F.2d 1330, 1333 (Alaska 1982) (investigator was “an employee and agent of the attorney who was acting as a conduit for the transmission of information from the client to her attorney”). But see United States v. Haynes, 216 F.3d 787, 798 (9th Cir. 2000), amended on denial of rehearing (August 15, 2000) (information about marijuana-growing operation obtained by investigator retained by attorney was not privileged where client requested that investigator refrain from telling attorney about the operation).
• Psychiatrists, see United States v. Alvarez, 519 F.2d 1036, 1046–47 (3d Cir. 1975) (defendant’s communications with non-testifying, non-treating psychiatrist hired by defense counsel “to advise him with respect to the defendant's mental condition” were privileged); Ursry v. State, 428 So.2d 713, 714–15 (Fla. Dist. Ct. App. 4th Dist. 1983) (psychiatrist “employed by counsel for a defendant to assist him in preparing a defense” fell within privilege).
• A patent agent, see Golden Trade, S.r.L v. Lee Apparel Co., 143 F.R.D. 514, 518 (S.D.N.Y. 1992) (communications with patent agent “acting to assist an attorney to provide legal services” were privileged).
• A polygraph examiner, see State v. Rickabaugh, 361 N.W.2d 623, 625 (S.D. 1985) (defendant’s communications with polygraph examiner hired by defendant’s attorney were privileged).
• Environmental engineers, see Olson v. Accessory Controls and Equipment Corp. 757 A.2d 14, 22 (Conn. 2000) (privilege applied to defendant’s communications with environmental management firm hired by defendant’s lawyer to assist in replying to state agency’s directive regarding environmental issues).
• Possibly a union representative, see Boyer v. Rock Township Ambulance Dist., 2012 WL 1033007 at *4 (E.D. Mo. 2012) (presence of union representative when attorney interviewed client might not destroy privilege if representative was there to assist lawyer in providing legal services).

Two Essential Elements Must Be Proven to Establish Application of the Kovel Privilege
The burden of establishing the essential elements of the attorney-client privilege falls on the party claiming that the privilege applies. See, e.g., United States v. Adlman, 68 F.3d 1495, 1500 (2d Cir. 1995). In the Kovel expert context, this burden includes proving two essential elements:

• That the purported Kovel expert was engaged specifically to assist counsel in rendering legal advice to a particular client. Cases rejecting a claim of attorney-client privilege include Adlman, which addressed whether memoranda from an accounting firm concerning the tax consequences of a proposed corporate reorganization were privileged. Although the accounting firm was the corporation’s general accountant and auditor, the corporation claimed that, in this particular matter, its in-house tax counsel had engaged the accounting firm to assist him in rendering legal advice. The Second Circuit disagreed because there was “virtually no contemporaneous documentation supporting the view that [the accounting firm], in this task alone, was working under a different arrangement from that which governed the rest of its work for [the corporation].” 68 F.3d at 1500. The court noted that the accounting firm’s bills “lump the work done in this consultation together with its other accounting and advisory services.” In Cavallaro v. United States, 284 F.3d 236, 248-49 (1st Cir. 2002), documents about a corporate merger, created by and disclosed to an accounting firm, were held not privileged because the accounting firm provided accounting advice to its client before meeting with the client’s law firm; and, after the meeting, “the evidence supports the conclusion that the [accounting and law firms] continued to work on their respective, separate tracks, albeit in a more coordinated way.” The court noted that “when a party hires an accountant to provide accounting advice, and only later hires an attorney to provide legal advice, it is particularly important for the party to show that the accountant later acted as an agent necessary to the lawyer in providing legal advice.” See also United States v. Gurtner, 474 F.2d 297, 299 (9th Cir. 1973) (“[E]ven if we assumed that [accountant] was the agent of an attorney, not all consultations with such agents are privileged. [Defendant]'s consultations with [accountant] for the purpose of preparing tax returns did not fall within the privilege. Such consultations, even with an attorney who is preparing the returns, are not privileged” because information provided to accountant or attorney by client is intended to be disclosed on tax returns); and
• Second, that the services of the purported Kovel expert were necessary to translate, interpret, or explain communications between the client and attorney that the attorney would not otherwise fully comprehend. Cases rejecting the claim of attorney-client privilege include United States v. Ackert, 169 F.3d 136, 139 (2d Cir. 1999), in which the court, going back to basics, emphasized that “the privilege protects communications between a client and an attorney, not communications that prove important to an attorney’s legal advice to a client.” The privilege therefore did not extend to communications with an independent investment banker consulted by counsel, even though the banker may have “significantly assisted the attorney in giving his client legal advice about its tax situation,” because counsel “was not relying on [the banker] to translate or interpret information given to” counsel by the client. See also Cavallaro, 284 F.3d at 249 (“The involvement of the third party must be nearly indispensable or serve some specialized purpose in facilitating the attorney-client communications. Mere convenience is not sufficient.”).

These cases rejecting application of the attorney-client privilege demonstrate that, before revealing client confidences to a non-attorney expert or professional, or permitting a client to do so, defense counsel must carefully consider whether his or her use of the non-attorney expert’s or professional’s services will satisfy these two requirements, particularly the second requirement, which, as noted, is being applied more stringently by courts in recent years. If a non-attorney expert or professional will merely serve to assist counsel in preparing a defense, and is not necessary to translate, interpret, or explain client communications that counsel would not otherwise properly understand, defense counsel must be vigilant not to disclose sensitive client confidences to that non-attorney expert or professional, who will not qualify as a Kovel expert who falls within the attorney-client privilege.

Preserving the Privilege When Counsel Engages the Services a Kovel Expert
Ideally, the Kovel expert should not have had any prior relationship with the client. Particularly in tax matters, a natural inclination may be to use the client’s pre-existing accountant as a Kovel expert during a criminal investigation or prosecution, because that accountant is likely already to have a full understanding of the client’s business or finances. It is, however, preferable to avoid using the client’s own accountant, as the lines between what is a privileged communication and what is not privileged may become murky, particularly if the accountant is called to testify before the grand jury or at trial. In addition, when using a purported Kovel expert who has a prior relationship with the client, it may be difficult to establish that the purported Kovel expert is functioning as such rather than, for example, as a financial advisor to the client, if the purported Kovel expert has previously given financial advice to the client. It also may be unclear whether the purported Kovel expert’s workpapers were prepared to interpret data for counsel’s benefit or were prepared during the regular course of work for the client. If using a Kovel expert who has a prior relationship with the client cannot be avoided, for economic or other reasons, defense counsel should be sure to instruct the Kovel expert that he or she must rigorously maintain entirely separate files for pre-engagement non-privileged communications, and for post-engagement privileged communications.

Note that the client and the Kovel expert may communicate outside counsel’s presence, as long as they do so at counsel’s direction. See, e.g., Kovel, 296 F.2d at 922. But counsel should direct the client and the Kovel expert to discuss only issues necessary for the Kovel expert to render advice to counsel, within the area of the Kovel expert’s particular expertise. As a cautionary example, it has been held that the Kovel privilege did not protect a conversation between a Kovel expert and the client at which the Kovel expert repeated to the client advice that counsel gave to the client at a prior privileged meeting during which all three were present, reasoning that the Kovel expert’s role was not to render legal advice to the client. United States v. Bein, 728 F.2d 107, 112-13 (2d Cir. 1984).

Counsel, not the client, should engage the Kovel expert. The engagement letter, often referred to by defense counsel as a “Kovel letter,” should reference the first time the attorney communicated with the Kovel expert as the date when the engagement began, even if the actual engagement letter is written at a later date. The engagement letter should include the following clear statements:

• that the attorney is retaining the Kovel expert to assist the attorney in representing a specific client;
• that the Kovel expert’s services are necessarily adjunct to the attorney’s legal services, because the Kovel expert’s services are necessary to explain, translate, or interpret the client’s communications to the attorney, for the attorney to fully understand and make use of the client’s communications in providing legal advice and/or in developing a defense;
• that the Kovel expert will work under the attorney’s direction, and report directly to the attorney;
• that the Kovel expert’s bills will be addressed to the attorney. The attorney will bill the client for the Kovel expert’s services as part of the cost of the attorney’s representation (the Kovel letter may contain a provision that the Kovel expert’s bills will not be paid until the attorney receives payment from the client for the Kovel expert’s services);
• that all communications between the Kovel expert and the client, and between the Kovel expert and any attorney, agent, or employee acting on behalf of the client, will be regarded as privileged and will be made solely to assist the attorney in providing legal advice to the client;
• that the attorney retains ultimate control over any work papers or reports generated by the Kovel expert during the engagement;
• that the Kovel expert is not to disclose to any third party information obtained either orally or from any document or written communication provided to the Kovel expert during the engagement, unless the attorney gives written permission for the disclosure; and
• that the Kovel expert will immediately notify the attorney if any third party tries to access the Kovel expert’s work product or any information obtained or generated by the Kovel expert during the engagement, including the Kovel expert’s receipt of a court order, subpoena, or summons.

In conclusion, although the Kovel privilege has its limitations, if defense counsel is careful in deciding if the services of a Kovel expert are necessary, and careful in setting up the engagement with a Kovel expert, counsel may safely rely on the attorney-client privilege to protect communications with experts and professionals of all types who serve to analyze, develop, and even originate essential parts of counsel’s defense strategy.

Keywords: criminal litigation, attorney-client privilege, Kovel, expert witness

_{Caroline Rule is chair of the Criminal Litigation Committee Subcommittee on Tax Crimes, and is a partner at Kostelanetz & Fink, LLP in New York.}