Avoiding Potential Pitfalls In Corporate Attorney-Client Privilege

November 6, 2012

Corporate counsel frequently find themselves lending a hand in both legal and business responsibilities.  Because of this, issues frequently arise when trying to determine the extent of attorney-client privilege that applies to internal corporate documents. And in-house counsel’s more strategic, business-focused responsibilities have created new challenges to the old assumptions about attorney-client privilege. Compounding these issues, corporate transitions like mergers and restructuring may result in multiple claims to attorney-client privilege or more expansive waiver arguments.  Two recent disputes that touch on these new views of corporate privilege are instructive for in-house and outside counsel alike as they consider their current privilege practices and procedures.

In re Google

In an interlocutory appeal from Oracle’s suit against Google concerning intellectual property, the Federal Circuit addressed corporate privilege of internal documents. In that case, Google inadvertently produced draft “autosave” versions of communications that were identified on a privilege log. Included among those communications was an email from a Google engineer to the vice president of the Google Android platform and to an in-house lawyer at Google, which included an “Attorney Work Product” designation at the top. The message stated that Google’s founders had asked the engineer to look into alternatives for the Android platform, that the engineer had found no viable options existed, and a recommendation that Google should negotiate a license from Oracle.

Arguing in favor of clawing back the document, Google submitted that it was part of an internal investigation conducted by in-house counsel, and,as such, was protected by the attorney-client privilege and work-product doctrine. The district court disagreed, holding Google had not met its burden to make a “clear showing” that the email was sent to in-house counsel in his capacity as an attorney conducting a legal investigation. The Federal Circuit affirmed that holding, and ultimately found that a party claiming privilege must “sufficiently establish the communication at issue relates to professional legal services as opposed to business considerations.”

Escue v. Sequent, Inc.

In Escue v. Sequent, Inc., a corporate merger led to dueling claims of attorney-client privilege. There, plaintiff Escuehad been a 100% shareholder of a company that merged with defendant Sequent, Inc.  Escue subsequently sued to rescind the merger agreement on grounds of misrepresentation.  A dispute arose during discovery, in which Escue argued that, as a former Sequent owner and director, Sequent could not withhold documents from him on the basis of privilege.

The district court disagreed and emphasized two core principles of corporate privilege law: (1) the corporation, not its officers, holds the privilege, and (2) a corporation’s officers when making decisions for the company act as fiduciaries who are bound to pursue the best interests of the company, rather than their own personal interests. Thus, the district court held, a former officer or director cannot exercise or waive the privilege on behalf of acorporatewhen he’s no longer acting on the corporation’s behalf.The district court also rejected the argument that a “duty to disclose” during the merger discussions required Sequent to waive its privilege.

But the court did find that a waiver occurred for information communicated during a phone conversation in which Escue’s private attorneys had participated. In that instance, the Sequent’s outside counsel disclosed the details of a criminal investigation to Escue, whom he believed was on his client’s board of directors, and continued to discuss privileged information even after he learned that Escue’s counsel was on the call. As a result, the district court found that Sequent waived its privilege even though the waiver wasn’t intentional (and the outside attorney didn’t have the authority to waive the Sequent’s privilege), because counsel “should have known”the conversation would waive privilege.

Conclusion

In-house counsel’s involvement in mixed business and legal responsibilities mean that more challenges to corporate privilege claims are likely. In assessing the privilege landscape, it’s necessary to review the nature of a communication more so than in-house counsel’s job title.  In addition, attorneys and corporations need to take precautions in all communications—written and oral—in what can be complicated transactional settings so as to preserve attorney-client privilege.  If these recent cases are any indication, courts are closely monitoring privilege claims by corporations in litigation; in-house and outside counsel are well-advised to keep a close eye on those issues too.