Consider the following hypothetical:
A bank's general counsel (GC) learns that $200,000 has been
illegally wired from a customer's account to an account overseas.
The GC immediately asks the branch manager (who is not an attorney)
to interview the employees involved. The branch manager summarizes
her interviews for the GC, and the GC drafts a memo to outside
counsel detailing the information uncovered, and the GC's
conclusion is that the fraud occurred because branch employees did
not follow the bank's fraud-prevention policies.
Fast-forward two years, and the customer has sued. Aware of the
bank's investigation, the customer demands production of the GC's
memo and related interview summaries, notes and communications. The
bank claims that the documents sought, though relevant and
responsive, are attorney-client privileged. The customer moves to
compel.
The court's decision whether these documents must be produced
will hinge on questions implicating the scope and applicability of
the corporate attorney-client privilege, including whether:
- the GC was acting in a legal, or business, capacity during the
investigation;
- the branch manager acted as an agent of the GC while conducting
her interviews;
- the branch manager's summaries to the GC were for the purpose of
seeking legal advice and kept confidential;
- the GC's memo to outside counsel was for the purpose of seeking
legal advice;
- the investigation was "in anticipation of
litigation."1
As this hypothetical illustrates, corporate assertions of
attorney-client privilege raise myriad questions. Here, it seems
likely that the court will order some production. Given the
opportunity, what would you have advised the GC before the
investigation to create and preserve the privilege?
Overview of the Attorney-Client Privilege in the
Corporate Setting
The attorney-client privilege generally protects clients'
communications with their attorneys from disclosure to third
parties - including both civil litigants and governmental
regulators - provided the communications are: (i) confidential;
(ii) between an attorney and client; and (iii) for the purpose of
obtaining or providing legal advice.
In the corporate setting, step (ii) is often complicated. Since
a corporation acts through its principals, directors, officers, and
employees, who, then, is the "client"? More importantly, who may
invoke or waive the privilege on behalf of the company?
The authoritative test for the scope of the attorney-client
privilege in the corporate setting comes from the U.S. Supreme
Court's decision in Upjohn Co. v. United States 449 U.S.
383 (1981). In Upjohn, the Supreme Court held that communications
between corporate counsel and employees at any level can be
protected, provided: (i) the communication is made at the direction
of corporate officials to obtain legal advice; (ii) the matters
communicated fall within the scope of the employees' duties and are
not available from upper level employees; (iii) employees are aware
that the purpose of the inquiry is to help in obtaining legal
advice; and (iv) the communications are intended to be kept
confidential. Massachusetts follows the Upjohn test.
Selected Corporate Situations Giving Rise to
Attorney-Client Privilege Issues
Counsel should be aware of the corporate situations where
privilege issues are most likely to arise and adopt proactive
strategies to protect privileged communications:
Conducting an internal investigation. In-house
counsel should formally document the initiation of an internal
investigation and establish that the purpose of the investigation
is to provide legal advice to the company. The company should
consider hiring outside counsel to conduct the investigation,
because courts are often more willing to view outside counsel as
operating in a legal capacity, making their communications related
to the investigation privileged. If, as above, non-attorneys like
the branch manager must be involved in gathering information during
the investigation, then counsel should document that the employee's
actions are at the direction and under the supervision of legal
counsel and for the purpose of providing legal advice to the
company. Further, before any interviews are conducted, counsel
should give Upjohn warnings to the interviewees, in which counsel
explains that the interviewers are acting at the direction of
counsel and that the purpose of the interviews is to gather
information to provide legal advice to the company.
Responding to a regulatory inquiry. Today's
companies operate in a highly regulated environment and frequently
receive inquiries from regulators calling for the production of
confidential, sensitive, and potentially privileged information. In
their effort to cooperate fully, some companies may be too quick to
open their files, producing privileged information and creating
waiver issues for subsequent civil litigation. Companies should
identify privileged material before producing it to regulators and
waive the privilege only after making a conscious assessment of the
benefits and detriments of doing so. In addition, any company
producing documents to a regulator should be aware of applicable
state and federal freedom of information laws, which provide the
public with a right of access to government-held information.
Board meetings. Both in-house and outside
counsel frequently attend board of directors' meetings as corporate
secretaries or observers. The mere presence of counsel at board
meetings, however, does not make the board's discussions
privileged. Indeed, board minutes are often one of the first
categories of documents sought in litigation. If, however, the
board seeks legal advice from counsel, then that portion of the
meeting (and the minutes) may be protected by the attorney-client
privilege. All third parties should be asked to leave the meeting
before privileged matters are discussed, and the meeting minutes
should clearly distinguish between the business and legal portions
of the meeting. If minutes are recorded while legal advice is being
sought and provided, then the minutes should document the legal
nature of the discussion, be marked as privileged, and state that
only the client and attorney (and no third parties) were
present.
Compliance departments. Corporate compliance
departments play a key role in ensuring companies' compliance with
applicable laws, rules, and regulations. The distinct, yet related,
functions of the compliance and legal departments can create
uncertainty about the scope of the attorney-client privilege.
Whether compliance departments' investigations and communications
are privileged is a fact-intensive inquiry, which depends on facts
such as whether: (i) the work of the compliance department is
undertaken at the request and direction of the legal department;
(ii) attorneys are regularly involved in the compliance
department's investigations; and (iii) compliance department
investigations are conducted as part of the regular course of
business, to provide legal advice to the company, or in
anticipation of litigation.
Best Practices for Protecting Attorney-Client
Privilege
So what should we, as outside counsel, advise our hypothetical
GC before he launches an investigation? As an initial matter,
clients should always be told that the only way to guarantee that a
communication or document will not be discoverable is not to make
it. Because the pros of an internal investigation often outweigh
the cons, however, the steps below will help our GC ensure that the
bank's investigation stays internal:
Explicitly state that legal advice is being
provided. The GC should state that the investigation is
being undertaken to inform the GC of facts necessary to seek (from
outside counsel) and provide (to the bank's principals, officers,
and directors) legal advice. Counsel should clearly label legal
communications as "Attorney-Client Privileged," and expressly state
that the communications are providing (or seeking) legal advice. In
addition, counsel should protect against inadvertent waiver of
privileged written communications by labeling communications with
"Do Not Forward." In all instances, these labels should be used
thoughtfully and only where applicable.
Corporate employees should specify that they are seeking
legal advice.In our hypothetical above, the GC asked the
branch manager (the person closest to the branch's employees,
policies, and procedures) to speak with her employees about what
occurred. The GC should document that these tasks were assigned to
the branch manager as part of the legal function, and that there is
no other employee who could as readily carry out the investigation.
Ideally, a member of the legal department would participate in the
interviews, and Upjohn warnings should always be provided. Finally,
when providing summaries to the GC, the branch manager should
indicate that the summaries are intended to provide information to
the GC for the purpose of requesting legal advice and discuss the
summaries only with legal counsel.
Separate legal and business advice. In-house
counsel often wear two "hats," assisting their companies with both
business and legal functions in the course of a work day. If
business advice is sought along with legal advice, then it is
important to distinguish the two functions. In the above
hypothetical, for example, the GC may ask the branch manager to
review and update the branch's fraud-prevention policies and
procedures. Whether the GC's request is a legal or business
function is not immediately clear. Therefore, the GC should
document precisely what is being requested and for what purpose.
In-house counsel should be aware of their dual roles at all times,
and employees should be instructed, as a best practice, to initiate
separate communications with in-house counsel when requesting
legal, as opposed to business, advice.
Avoid routine copying of in-house counsel on non-legal
communications. Merely copying in-house counsel on
communications does not make them privileged. To the contrary, such
a practice may undermine the company's legitimate privilege claims.
Here, for example, the branch manager may be tempted to copy the GC
on day-to-day communications concerning branch management, to give
the GC an opportunity to weigh in on the ongoing operations of the
branch and the prevention of further fraud. The branch manager
should be instructed to only copy the GC when legal advice is
expressly sought.
Conclusion
Questions of corporate attorney-client privilege often arise
only after the cat is out of the bag. To prevent compelled
disclosure, counsel should advise clients as to privilege best
practices and proactive steps they can take to protect the
privilege.
This article appeared in the April 2016 edition of
the ComCom Quarterly, the newsletter of the Complex Commercial
Litigation Section. For more articles like these on business
litigation, bankruptcy, and intellectual property topics, check out
the Quarterly at http://is.gd/lFJCJw.
This question concerns the applicability of the attorney
work product doctrine, a more limited protection that applies to
materials created in anticipation of litigation. In practice, the
work product protection is often asserted hand-in-hand with the
attorney-client privilege.