Establishing and Maintaining the Privilege for In-House Communications

Basics of the Attorney-Client Privilege
The purpose of the privilege “is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy . . . depends upon the lawyer’s being fully informed by the client.” Upjohn v. United States, 449 U.S. 383, 389 (1981). It protects not only a the lawyer’s communications providing professional advice but also the client’s communications to the attorney to enable counsel to give sound and informed legal advice.      

Applying the Attorney-Client Privilege In-House
The attorney-client privilege has long been held to apply in the corporate context. In Upjohn v. United States, 449 U.S. 383 (1981), the U.S. Supreme Court held that communications between in-house counsel and corporate constituents are privileged if such communications (1) were made by corporate employees, (2) to counsel for the company acting as such, (3) at the direction of corporate superiors, (4) concerning the matters within the scope of the employees’ corporate duties, (5) in order to secure legal advice from counsel, and (6) were considered confidential when made and had been kept confidential thereafter. The corporate client bears the burden of proving that each individual communication satisfies the Upjohn criteria, the highlights of which are addressed below.

The privilege covers communications with all corporate employees. In applying the privilege to communications with all corporate employees, the Supreme Court in Upjohn rejected the “control group” test, which would have limited the attorney-client privilege to communications with corporate officers who play a substantial role in deciding and directing a corporation’s legal responses. As the Supreme Court explained,

[m]iddle level—and indeed lower level—employees can, by actions within the scope of their employment, embroil the corporation in serious legal difficulties, and it is only natural that these employees would have the relevant information needed by corporate counsel if he is adequately to advise the client with respect to such actual or potential difficulties.

Upjohn, 449 U.S. at 391.

The Upjohn majority did not address whether the attorney-client privilege covers a corporate attorney’s communications with former employees. In the concurring opinion, however, Justice Burger stated that “a communication is privileged at least when, as here, an employee or former employee speaks at the direction of management with an attorney regarding conduct or proposed conduct within the scope of employment.” Upjohn, 449 U.S. at 403 (emphasis added). Subsequent case law confirms that the “same rationale applies to the ‘ex-employees’ involved in the case.” In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 658 F.2d 1355, 1361 (9th Cir. 1981). Most courts agree that the privilege protects postemployment communications with counsel that relate to the employee’s conduct and knowledge obtained during employment, but not those concerning other facts that the former employee would not have known during employment. See, e.g., Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999).

The attorney-client privilege belongs only to the corporate client, not the individual constituents with whom counsel communicates. In re Grand Jury Subpoena, 274 F.3d 563, 571 (1st Cir. 2001). In-house counsel does not become independent counsel for a corporate constituent solely because the employee discloses confidential information to the lawyer on a matter of interest to the organization. Kubin v. Miller, 801 F. Supp. 1101, 1114–15 (S.D.N.Y. 1992). Although situations may arise where in-house counsel represents a corporate constituent, the attorney must comply with the conflict-of-interest provisions of Model Rule of Professional Conduct 1.7 and may also be required to obtain the organization’s consent to the representation. See Model Rules of Prof’l Conduct R. 1.13(g).

To avoid any confusion about who owns the privilege, in-house counsel should inform corporate constituents that she represents only the corporation, that constituents should retain independent counsel if they need legal advice for their own interests, and that the corporation may disclose the communications to others on a “need-to-know” basis. Otherwise, in-house counsel risks the constituent invoking the privilege over the wishes of the corporation. “If a lawyer fails to clarify the lawyer’s role as representative solely of the organization and the organization’s agent reasonably believes that the lawyer represents the agent, the agent may assert the privilege personally with respect to the agent’s own communications.” Restatement (Third) of the Law Governing Lawyers § 73 cmt. (d) (2000). Model Rule of Professional Conduct 1.13(f) requires such notice when counsel knows or reasonably should know that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.                  

The privilege covers communications made to company counsel acting as such. Corporate counsel frequently perform both a business and a legal function for their employers. Indeed, many in-house lawyers hold two separate titles, one identifying their role as the corporation’s counsel and another reflecting their business-related functions or corporate officer status. Only in-house counsel’s communications while serving in an attorney capacity are protected by the attorney-client privilege.

When determining whether corporate counsel is serving as an attorney, some courts have considered whether in-house counsel is an active member of the bar. See, e.g., Scranton Prods., Inc. v. Bobrick Washroom Equip., Inc., No. 3L14-cv-00853, 2016 WL 3418535 (M.D. Pa. June 3, 2016). Accordingly, corporate counsel who fail to maintain appropriate licenses not only risk ethical violations for unauthorized practice of law but also might jeopardize their corporate clients’ ability to rely upon the attorney-client privilege. Fortunately, many states have “single client” rules that allow in-house counsel to register in the state where they maintain an office but keep up their licenses in other states. The American Bar Association maintains a chart of state registration requirements for corporate counsel who are licensed in another jurisdiction. ABA, Ctr. for Prof’l Responsibility, In-House Corporate Counsel Registration Rules (2017).

The privilege covers communications made to obtain or provide legal advice. To be protected by the attorney-client privilege, communications between corporate constituents and in-house counsel must be made for the purpose of obtaining or providing legal advice. The attorney-client privilege will apply when in-house counsel is providing advice that is predominately legal, as opposed to business related, in nature. N. Am. Mortg. Investors v. First Wis. Nat’l Bank of Milwaukee, 69 F.R.D. 9, 11 (E.D. Wis. 1975).

Because in-house counsel often serves other business functions in addition to providing legal advice, the lawyer’s role on a particular occasion will not always be evident. Boca Investerings P’ship v. United States, 31 F. Supp. 2d 9, 12 (D.D.C. 1998). Courts review the circumstances of a given situation to determine whether the lawyer’s advice stemmed principally from her knowledge of and application of legal requirements and principles rather than her expertise in business or commercial matters. Gomez v. Metro. Dist., No. 3:11-cv-1934, 2013 WL 2489138, at *3 (D. Conn. June 10, 2013). Relevant factors include whether the in-house counsel alluded to legal principles or engaged in legal analysis. Vidal v. Metro-N. Commuter Ry. Co., No. 3:12-cv-0248, 2014 WL 413952, at *5 (D. Conn. Feb. 4, 2014). Courts also have considered counsel’s place on the corporation’s organizational chart, recognizing a presumption that a lawyer working in the legal department or reporting to general counsel is most often giving legal advice, while applying the opposite presumption to a lawyer working in a business unit. Boca Investerings P’ship, 31 F. Supp. 2d at 12.

Under these standards, “[d]ocuments prepared by non-attorneys and addressed to non-attorneys with copies routed to counsel are generally not privileged since they are not communications made primarily for legal advice.” Pacamor Bearings, Inc. v. Minebea Co., 918 F. Supp. 491, 511 (D.N.H. 1996). Thus, a “corporation cannot be permitted to insulate its files from discovery simply by sending a ‘cc’ to in-house counsel.” U.S. Postal Serv. v. Phelps Dodge Refining Corp., 852 F. Supp. 156, 163 (E.D.N.Y. 1994). Nor does a business-related document become privileged simply because it was reviewed by legal counsel or prepared at the request of counsel. Likewise, minutes of business meetings are not automatically privileged based solely upon an attorney’s presence. Vidal, 2014 WL 413952, at *5. The defining factor is whether the document reveals the substance of a confidential attorney-client communication or whether it is essentially a business communication. Scanlon v. Bricklayers & Allied Craftworkers, Local No. 3, 242 F.R.D. 238, 245 (W.D.N.Y. 2007).

Similarly, the attorney-client privilege may or may not protect draft documents contained in in-house counsel’s file, depending upon whether the documents contain largely factual information or whether they relate to legal advice of a confidential nature. In the latter case, draft documents may retain their privilege if they contain information that a client considered but decided not to include in the final version. Women’s InterArt Ctr., Inc. v. N.Y.C. Econ. Dev., 223 F.R.D. 156, 161 (S.D.N.Y. 2004). If, however, the changes reflected by the draft documents are limited to stylistic or structural changes, the documents are not privileged. AIU Ins. Co. v. TIG Ins. Co., No. 07-civ-7052, 2008 WL 4067437, at *10 (S.D.N.Y. Aug. 28, 2008).

The privilege covers communications intended to be, and kept, confidential. Generally, the voluntary disclosure of attorney-client communications constitutes a waiver of the privilege as to all other such communications dealing with the same subject matter. United States v. Zolin, 809 F.2d 1411, 1415 (9th Cir. 1987), rev’d in part on other grounds by 491 U.S. 554 (1989). Any disclosure inconsistent with maintaining the confidential nature of the communications waives the privilege. Id.

The U.S. Supreme Court has held that

. . . the power to waive the corporate attorney-client privilege rests with the corporation’s management and is normally exercised by its officers and directors. The managers, of course, must exercise the privilege in a manner consistent with their fiduciary duty to act in the best interest of the corporation and not of themselves as individuals.

CFTC v. Weintraub, 471 U.S. 343, 348–49 (1985). Ordinarily, a corporation’s legal counsel is among those authorized to waive the attorney-client privilege in advancing the interests of the client. Restatement (Third) of the Law Governing Lawyers § 73, cmt. k.

A corporation may waive the attorney-client privilege by placing otherwise privileged communications at issue in litigation proceedings. This includes cases in which the corporation affirmatively relies upon the adequacy of an internal investigation as a defense, Koumoulis v. Indep. Fin. Mktg. Grp., 29 F. Supp.3d 142, 148 (E.D.N.Y. 2014), or in which parties cite reliance upon the advice of counsel to establish a claim or defense, Foster v. City of New York, No. 14-civ-4142, 2016 WL 524639, at *3 (S.D.N.Y. Feb. 5, 2016).

An exception to the general waiver provisions exists when a corporation discloses otherwise privileged information to a coparty in litigation or to another third party with whom the organization shares a common legal interest. This “common interest” exception enables those who share a common interest in litigation to communicate with their respective attorneys and with each other in order to coordinate their strategies and more effectively prosecute or defend their claims. Restatement (Third) of the Law Governing Lawyers § 76, cmt. b.

To rely upon the common interest doctrine, a party must prove that it shares legal interests with the party to whom the confidences were divulged. In re Steinhardt Partners, 9 F.3d 230, 236 (2d Cir. 1993). The shared interest must be a legal interest, not merely a commercial interest, and the parties must cooperate to advance a joint legal strategy. In re FTC, No. M18-304, 2001 WL 396522, at *4 (S.D.N.Y. Apr. 19, 2011). If their interests are not sufficiently aligned, the parties may not invoke the common interest doctrine. Bank of Am. N.A. v. Terra Nova Ins. Co. Ltd., 211 F. Supp. 2d 493, 496 (S.D.N.Y. 2002). If the parties at some point become adversaries, the privilege may be lost unless they have agreed otherwise. See, e.g., Sec. Investor Prot. Corp. v. Stratton Oakmont, Inc., 213 B.R. 433, 438 (Bankr. S.D.N.Y. 1997).

Strategies for Retaining the Privilege
Best practices for in-house counsel to retain the attorney-client privilege include the following:

1. Share privileged materials and communications only on a need-to-know basis. Avoid giving others access to privileged materials or communications unless they are in a position to aid in the rendering of legal advice.
2. Document the legal nature of the advice rendered by counsel. Keep communications on legal and business matters separate.
3. Label privileged materials “Confidential” or “Privileged” and store them separately from other, nonprivileged materials.
4. When gathering information for purposes of providing legal advice, inform corporate constituents that you represent only the corporation, that the attorney-client privilege belongs to the corporation, and that you may disclose the information you learn to others on a need-to-know basis. Consider providing these disclosures in writing in appropriate situations, where communications relate to a particularly sensitive matter or you have reason to believe that a constituent might be confused about counsel’s role.
5. If you disclose privileged communications to third parties, such as a government entity, consider limiting these disclosures to underlying facts or factual conclusions without divulging the privileged communications themselves.
6. Provide direction to corporate constituents on the nature of the attorney-client privilege and potential for waiver.
7. Update corporate policies and procedures relating to internal investigations and, where appropriate, ensure attorney direction and oversight.
8. Document and communicate the legal purpose of investigations and other activities of corporate counsel.
9. Consider referring highly sensitive matters to outside counsel because courts are more willing to uphold the privilege when outside counsel is involved.
10. Implement procedures to ensure in-house attorneys actively maintain their licenses and registrations.
11. Consider how job titles assigned to in-house counsel and the organization structure of the corporation might impact application of the privilege.
12. Use written agreements, such as joint defense agreements, to protect disclosures to third parties under the common interest doctrine. Be sure to specify how confidential information will be treated should the parties’ interests become adverse.
13. Be mindful of the law regarding attorney-client communications in all jurisdictions where you practice, including internationally.

Jill S. Stricklin and Steven W. Moore are partners with Constangy, Brooks, Smith & Prophete, LLP.

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