The In-House Attorney-Client Privilege The In-House Attorney-Client Privilege: The Scope of the Privilege for Businesses and Law Firms Presented by: Ajamie.

The In-House Attorney-Client Privilege

The In-House Attorney-Client Privilege:The Scope of the Privilege for Businesses and

Law Firms

Presented by:

Ajamie LLPPennzoil Place – South Tower711 Louisiana, Suite 2150Houston, Texas 77002www.ajamie.com


LAWYER BUSINESS PERSON

Negotiating agreements

Drafting contracts

Gathering facts

Preparing reports

Preparing letters

Advising on personnel issues


“THE COMPLETE LAWYER”

Understands the client’s business Learns the facts Understands the legal issues Researches legal options Develops one or more solutions Presents pros and cons of options Helps the client decide Helps the client implement legal advice Monitors compliance with advice

THE LAWYER DOES NOT SIMPLY RECITE PRINCIPLES OF LAWTHE LAWYER PUTS THOSE PRINCIPLES INTO PRACTICE


THE ATTORNEY-CLIENT PRIVILEGE

The oldest privilege known to the law.

Applies to attorney-client communications, including communications to and from an attorney’s assistant or those working under the attorney’s direction.

The communications must be made and maintained in confidence; privilege can be waived by disclosure.

Privileged communications cannot be discovered or used as evidence in a court proceeding.


THE WORK PRODUCT DOCTRINE

Protects materials and mental impressions

Anticipated or actual litigation

Extends to the litigant’s lawyers, employees, insurers, indemnitors, consultants, and other agents

Waived by disclosure

THE CONCEPT: A LITIGANT’S IDEAS AND STRATEGIES SHOULD NOT BE SERVED UP TO THE OPPONENT.


Upjohn v. U.S. – A leading case on privilege

Upjohn v. U.S., 499 U.S. 383 (1981):

– The U.S. Supreme Court applied the privilege to corporate communications.

– Upjohn’s in-house general counsel initiated an FCPA investigation.– Holding: Confidential communications to and from the general

counsel and those acting on his behalf are privileged. The privilege extends to communications to and from employees at all levels. Court rejected the “control group” test.

– Benefits of the privilege: Ensure full and frank discussion between lawyer and client; ensure that lawyer has full information; facilitate compliance with the law.


MUST RELATE TO LEGAL ADVICE

In the U.S., communications with in-house counsel are typically privileged if they relate to legal – rather than business – advice.

Some U.S. courts apply heightened scrutiny to in-house communications because of the perceived tendency to mix legal and business functions.



Exxon Mobil Corp. v. Hill, 751 F.3d 379 (5th Cir. 2014): In-house lawyer helped client answer questions from a

contractor The lawyer prepared a letter for the business person to

send, with disclaimers of liability The lawyer’s advice was recorded in a memo

IS THE MEMO PRIVILEGED?



District court (E. D. La.):

Holding: No privilege. Memo can be discovered and used by adverse parties in litigation.

“Although there may be an unstated operating presumption that communications with outside counsel constitute legal advice, this presumption does not apply to communications with in-house counsel because of the many nonlegal responsibilities in-house counsel assumes.”



District court - There is more:

Communications to and from in-house counsel are privileged only upon a clear showing in-house counsel gave advice in a professional legal capacity.

A double-standard for in-house lawyers?



FIFTH CIRCUIT:

The district court got it wrong. The memo is privileged.

The memo was drafted during contact negotiations where both sides were assisted by counsel. The negotiations involved legal issues such as indemnities. The letter the lawyer wrote was intended to limit Exxon Mobil’s liability.

Viewed in this context, the memo “cannot be mistaken for anything other than legal advice.”

The record is “devoid of any indication that the lawyer was providing business advice divorced from its legal implications.”



WHY THE STARK DISCREPANCY between the District Court’s and Fifth Circuit’s opinions?

Incomplete understanding of in-house role?

Assumption that all corporate employees are running the business?

Bias against in-house lawyers?

Belief that law imposes a higher burden on in-house communications?

OR …



Lawyer’s communications do not reflect legal concerns? Communications emphasize business issues or minimize legal

issues? Counsel’s communications are “unprofessional”?

We are not able to see the memo and decide.


Other cautionary cases

In re Kellogg Brown & Root, 756 F.3d 754 (D.C. Cir. 2014):

– District court slammed an in-house investigation; characterized the investigation as a typical business function.

– D.C. Circuit reversed: The KBR investigation was similar to the Upjohn investigation. As in Upjohn, the KBR investigation meets the requirements of the privilege.

– An investigation can have both a business and legal purpose. If a significant purpose is to provide legal guidance, the privilege will apply.


Other cautionary cases

Komoulis v. Indep. Fin. Mktg. Group, --F.Supp.2d--, 2014 WL 223173 (E.D. Pa. Jan. 21, 2014):

– Outside lawyer was part of human resources team.

– Court found that “predominant purpose” of the advice was business-related.

– “Despite its legal content, human resources work, like other business activities with a regulatory flavor, is part of the day-to-day operation of a business; it is not a privileged legal activity.”


THE FIDUCIARY EXCEPTION

Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1981):

Shareholders sued corporation in dispute over corporate stock. Shareholders wanted the company to produce corporate counsel’s

advice to the company on issuance of the stock. Held: On a showing of good cause, the company must share

counsel’s records with the corporate shareholders. “Where the corporation is in suit against its stockholders on charges of

acting inimically to stockholder interests… the availability of the privilege [is] subject to the right of the stockholders to show cause why it should not be invoked in this particular instance.”

THE COURT SET OUT FACTORS THAT DEMONSTRATE GOOD CAUSE (“Garner factors”).


IS GARNER STALE?

A 1981 case

Specifically dealing with shareholder claims

Is it a stale case?

No! The case remains relevant. In 2014 the Delaware Supreme Court adopted the Garner principles.


The Delaware Supreme Court adopted a fiduciary exception to the attorney-client privilege

Wal-Mart Stores, Inc. v. Indiana Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264 (Del. 2014):

– Corporate shareholder demanded inspection of corporate records under Delaware law.

– Delaware Court of Chancery, citing Garner, found that shareholder showed “good cause” to obtain privileged materials.

– Delaware Supreme Court adopted Garner.– The shareholder demonstrated good cause to obtain the corporate lawyers’

records.– The shareholder is ordered to take steps to preserve confidentiality of the

records.


You are suing your law firm… Now things will really get wild.

Competing rights:

• Right of client to full disclosure from its fiduciary

• Right of law firm to obtain advice of counsel, particularly in-house counsel

What happens when a client wants to discover communications with its law firm’s in-house lawyers?


Option 1: The law firm is a fiduciary and must produce to the client in-house communications regarding the client’s matter.

Many law firms have in-house counsel, just like business corporations.

When a client sues his lawyer, must the law firm produce records of communications to and from the firm's in-house counsel concerning the client’s matter?

Several federal courts have said YES when the evidence concerns communications made while the attorney-client relationship existed:

Asset Funding Group LLC v. Adams & Reese LLP, 2008 WL 4948835 (E.D. La. 2008) Cold Spring Harbor Lab. v. Ropes & Gray LLP, 2011 WL 2884893 (D. Mass. 2011) Thelen Reid & Priest LLP v. Marland, 2007 WL 578989 (N. D. Cal. 2007) Koen Book Distribs. v. Powell, Trachtman et al., 212 F.R.D. 283 (E.D. Pa. 2002) Bank Brussels Lambert v. Credit Lyonnais (Suisse), S.A., 220 F.Supp.2d 283 (S.D.N.Y. 2002)


Option 2: The law firm has the right to consult with in-house counsel and keep those consultations confidential

The supreme courts of three states have sided with law firms on this issue.The courts held that the law firm’s right to obtain legal advice, particularly

advice from its in-house lawyers, trumps the client’s interest in disclosure of these communications:

RFF Family Ptshp. v. Burns & Levinson, LLP, 991 N.E.2d 1066 (Mass. 2013) St. Simon’s Waterfront, LLC v. Hunter, Maclean, et al., 746 S.E.2d 98 (Ga. 2013) Crimson Trace Corp. v. Davis Wright Tremaine LLP, 326 P.3d 1181 (Ore. 2014)


A test for applying the law firm in-house privilege:

1. The law firm has designated an attorney or attorneys within the firm to represent the firm as in-house counsel,

2. The in-house counsel has not performed any work on the client matter at issue or a substantially related matter,

3. The time spent by the attorneys in these communications with in-house counsel is not billed to a client, and

4. The communications are made in confidence and kept confidential.

RFF Family Partnership, LP v. Burns & Levinson, LLP, 465 Mass. 702, 991 N.E.2d 1066, 1068 (Mass. 2013).


Another test for the law firm in-house privilege:

1. There is a genuine attorney-client relationship between he firm’s lawyers and its in-house counsel,

2. The communications in question were intended to advance the firm's interests in limiting exposure to liability rather than the client's interests in obtaining sound legal representation,

3. The communications were conducted and maintained in confidence, and

4. No exception to the privilege applies. St. Simons Waterfront, LLC v. Hunter, Maclean,

Exley & Dunn, P.C., 746 S.E.2d 98 (Ga. 2013).


Texas: Huie v. DeShazo

A trust beneficiary sought discovery of the trustee’s consultations with a lawyer. The consultations dealt with trust matters.

Holding: The trustee’s communications with the lawyer are privileged.

The trustee owes the beneficiary a duty of full disclosure of all material facts. The attorney-client privilege does not limit this duty. The beneficiary may discover facts but not communications between the trustee and his lawyer for the purpose of obtaining legal advice.

Huie v. DeShazo, 922 S.W.2d 920 (Tex. 1996).


YOUR CLIENT’S BUSINESS MAY BE GLOBAL,BUT THE PRIVILEGE IS NOT.

In some foreign jurisdictions, communications with in-house counsel are not privileged, even if they relate to legal advice. These jurisdictions include most European countries (France, Spain, Italy, Germany, Poland), Japan, and Korea.

Notably, the same communications would be privileged in these jurisdictions if they involved outside counsel.

In-house counsel are considered to lack the required “independence” from the company for the attorney-client privilege to attach. Outside counsel are considered to have this “independence.”

The civil codes of civil law jurisdictions may limit application of the privilege. The scope of the privilege also may depend on the opposing party and the type of proceeding.


IN-HOUSE PRIVILEGE NOT RECOGNIZED IN THE EU

Akzo Nobel Chem. Ltd. & Akros Chem. Ltd. v. Comm’n, Case C-550/07 P (Eur. Ct. Just. 2010)

European Commission conducted a “dawn raid” as part of an antitrust investigation. Investigators obtained two emails between an in-house counsel and a manager related to legal advice.

Company sued to recover these emails, claiming they were privileged. Several groups—including the International Bar Association, European

Lawyers Association, Association of Corporate Council Association, Great Britain, Northern Ireland, and the Netherlands—intervened on behalf of the company and argued that the emails were privileged.


NOT RECOGNIZED IN THE EU


Holding: The emails were not privileged because the in-house counsel was not “independent” of the company.

– “[T]he requirement of independence means the absence of any employment relationship between the lawyer and his client, so that legal professional privilege does not cover exchanges within a company or group with in-house lawyers.”

– Confirmed existing EU caselaw related to antitrust investigations. AM&S Eur. Ltd. v. Comm’n, Case 155/79, 1982 E.C.R. 1575 (1982).




“An in-house lawyer . . . does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his client. Consequently, an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client.”

An in-house lawyer’s employment “does not allow him to ignore the commercial strategies pursued by his employer, and thereby affects his ability to exercise professional independence.”




The emails would have been privileged under English and Dutch law (the in-house counsel was licensed in the Netherlands), but this was irrelevant.

– “The uniform interpretation and application of the principle of legal professional privilege at European Union level are essential in order that inspections by the Commission in anti-trust proceedings may be carried out under conditions in which the undertakings concerned are treated equally.”


Considerations:

Respect the fact that some courts are skeptical of the in-house lawyer’s role.

When communicating regarding legal advice, make clear that you are dealing with legal issues. Establish linkage to legal advice.

Communicate in a professional manner so a court will understand that you are acting as a lawyer. Overly casual tweets and e-mails can be misunderstood. If you do not take your words seriously, neither may a court.

Think about who should receive your communications. A wide distribution list might signal that you do not intend a privileged legal communication.

Add terms such as “confidential” or “attorney-client privilege” as appropriate.

Remember that a judge might end up reading your mail, memos and reports. Keep your content and tone professional.

Educate fellow counsel and management on importance of the privilege and what must be done to maintain privilege.


Thank You

Dona [email protected]

Jack [email protected]

713-860-1600www.ajamie.com

The In-House Attorney-Client Privilege The In-House Attorney-Client Privilege: The Scope of the Privilege for Businesses and Law Firms Presented by: Ajamie.

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