chevron-down Created with Sketch Beta.
March 31, 2016 Top Story

Attorney-Client Privilege Trumps Advice-of-Counsel Defense

Waiver of privilege is prerequisite to employee's assertion of advice-of-counsel defense

Theresa A. Vitello

Employees relying upon the advice of their corporate counsel may not assert the advice-of-counsel defense in civil suits unless their employer agrees to waive the attorney-client privilege. In one of the few cases to address this issue, the court in United States v. Wells Fargo Bank, N.A. held that the attorney-client privilege is absolute and will not yield to the advice-of-counsel defense absent a waiver. The court also cast doubt on the validity of cases holding that the advice-of-counsel defense can trump the attorney-client privilege in the criminal context, highlighting the beginning of a jurisdictional split over the issue.

Clash Between Attorney-Client Privilege and Advice-of-Counsel Defense

The U.S. government sued Wells Fargo in the U.S. District Court for the Southern District of New York for alleged violations of the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act. The government later added as a defendant Wells Fargo's vice president of quality control, citing his critical role in the bank’s alleged violations. The vice president asserted that he had relied upon the advice of Wells Fargo attorneys concerning statutory compliance. In support of his defense, he sought to reveal his communications with Wells Fargo's attorneys. It was undisputed that the vice president lacked authority to waive the privilege, which belonged to Wells Fargo.

The government opposed a joint defense proposal to sever the vice president, which the district court rejected as premature. The bank then filed a motion for protective order on the grounds of attorney-client privilege.

Attorney-Client Privilege Is Not Subject to Balancing

The district court granted the protective order, holding that the corporation's assertion of the attorney-client privilege foreclosed the vice president's advice-of-counsel defense. It reasoned that because the attorney-client privilege is not qualified, a defendant does not have an absolute right to present privileged information, even in criminal cases. To hold otherwise would render the privilege uncertain, prejudice Wells Fargo, and create a “perverse ‘incentive for plaintiffs to pursue claims against individual employees in the hopes of forcing a waiver of the corporation's privilege.’”

The district court also declined to weigh the interests of the vice president against the corporation's interests in asserting the privilege. It found persuasive the reasoning of the U.S. Court of Appeals for the Sixth Circuit in Ross v. City of Memphis, the only appellate court to consider the issue. Ross held that the corporation's assertion of the attorney-client privilege precluded an employee's use of the advice-of-counsel defense in a civil discrimination case because the U.S. Supreme Court ruled that the attorney-client privilege is absolute and survives the death of the client, with no exceptions for cases of "extreme injustice" or where the information was "of substantial importance."  In Swidler & Berlin v. United States, the Supreme Court also rejected a balancing test as undermining the purpose behind the privilege, reasoning that the client often may not know at the time of disclosure its relevance to future matters. Based on the Swidler and Ross decisions, the Wells Fargo court rejected arguments for a limited, judicially compelled disclosure as requiring the balancing test prohibited by Swidler and potentially opening the door to other privileged documents.

The Wells Fargo court also declined to follow United States v. Grace and its progeny, which were criminal cases holding that the attorney-client privilege yields to the advice-of-counsel defense where the privileged communications are "of such probative and exculpatory value as to compel admission of the evidence" over the objections of the co-defendant company holding the privilege. The district court noted that Grace had erred in failing to consider the Supreme Court's explicit rejection of a balancing test in Swidler, and concluded that employer indemnification of the employee could mitigate any harsh results for the employee.

Chilling Effect on Communications with Company Counsel

Leaders of the ABA Section of Litigation agree that the district court's decision may have a chilling effect. “This [decision] could result in reticence to seek advice from company counsel or to disclose potential issues to counsel, which is clearly harmful to the company from both a legal and a business standpoint,” says Emily C. Harlan, Washington, D.C., cochair of the Section of Litigation’s Criminal Litigation Committee. “It may put up some walls that do not help the company,” agrees Scott E. Reiser, Roseland, NJ, cochair of the Section’s Ethics & Professionalism Committee.

Nor do Section leaders consider indemnification to be a panacea. “It is fairly common for a higher level executive to negotiate for an indemnification that covers acts committed within the course of his employment,” states Reiser. Wells Fargo would be hard-pressed to argue that the vice president had not acted within the course of his duties if, he indeed, relied upon the advice of the company attorney, according to Reiser. However, “[i]f there is an adverse judgment against the employee, particularly if predicated on a finding or inference of bad faith, indemnity may not apply – and a term that required the company to indemnify the employee even under those circumstances may not be enforceable,” adds Harlan.

A company is unlikely to contractually allow an employee to control the privilege. “The likelihood that a company would agree to a term that required it to waive the privilege if an employee later raised an advice of counsel defense is non-existent,” states Harlan.

Theresa A. Vitello is a contributing editor for Litigation News.

Keywords: attorney-client privilege, waiver, advice-of-counsel defense

Related Resources

Copyright © 2017, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).