The Attorney-Client Privilege: What Every In-House Lawyer Should Know

Transcription

1 The Attorney-Client Privilege: What Every In-House Lawyer Should Know Ninth Annual GC Roundtable and All Day MCLE January 13, 2012 Presented By James Huston and Erin Bosman, Morrison & Foerster LLP and Richard Maroun, General Counsel, APP Pharmaceuticals, Inc Morrison & Foerster LLP All Rights Reserved mofo.com

2 Historic Privilege The oldest of the privileges involving confidential communications Allows a client to refuse to testify or to have his or her counsel testify about confidential communications made in connection with the rendering of legal representation Encourages full and frank communication between attorneys and their clients Recognizes that sound legal advice depends upon a lawyer being fully informed by the client However, the privilege comes with a cost; it excludes relevant evidence and stands in derogation of the search for the truth. Consequently it is not applied indiscriminately (e.g. the crime fraud exception) (What of a communication by a RCO on off-label promotion?) This is MoFo. 2

3 Securing Privilege Leads to Truth Confidentiality encourages candid communications Fosters the best understanding and analysis Best understanding leads to the most effective advice and counsel Effective advice and counsel promote appropriate resolution This is MoFo. 3

4 Encouraging Legal Compliance Corporations face innumerable legal issues on a daily basis Seeking legal advice is a way to conform business policy to the law Privilege promotes that practice This is MoFo. 4

5 Full disclosure v. Confidentiality The Balancing Act Liberal discovery v. Privilege This tension runs through the doctrines of privilege and work product, and it becomes particularly complex when the client is a corporation This is MoFo. 5

6 Confidential v. Privileged A client tells an attorney about his plastic surgery while representing him in potential criminal charges not privileged. It is confidential. This is Dillinger after his surgery: Separate and apart from the privilege rules that affect discovery, attorneys, law firms, and their employees have an ethical duty to maintain the secrecy of a client s confidential information ABA Model Rules of Professional Conduct, Rule 1.6 ABA Model Code of Professional Responsibility, DR This is MoFo. 6

7 Elements of the Attorney-Client Privilege The holder of the privilege: Is a client or client s agent, or Sought to become a client The communication was between the client or the client s agent and an attorney or the attorney s agent The communication was made confidentially The communication was made for the purpose of securing legal advice This is MoFo. 7

8 Federal Court Federal Rule of Evidence 501 What Law Applies? Privilege questions shall be governed by common law as interpreted by federal courts in light of reason and experience However, in civil actions in which state law applies, privilege shall be governed by state law State Court State rules This is MoFo. 8

9 Courts have adopted various approaches to corporate attorney-client privilege Former test: The Control Group: Criticized for lacking predictability and for failing to reflect the realities of corporate practice The Supreme Court agreed and rejected this approach in Upjohn Co. v. United States Declined to use the case to clarify the corporate attorney-client privilege Found the control-group test too narrow and restrictive This is MoFo. 9

10 The Unlimited Approach: Unlimited Approach Asserted holder of the privilege is or sought to become a client Person to whom the communication was made Is a member of the bar of a court, or his subordinate and In connection with this communication is acting as a lawyer Communication relates to a fact of which the attorney was informed And By his client Without the presence of strangers For the purpose of securing either an opinion on law, legal services, or assistance in some legal proceeding Privilege has been claimed and not waived by the client This is MoFo. 10

11 Subject Matter Test The Subject-Matter Test: Allows a privilege to apply to corporate communications if: An employee makes the communication at the direction of his superior, and The subject matter of the communication is in the performance by the employee of the duties of his employment (equally divided Supreme Court affirmed without opinion) This is MoFo. 11

12 Modified Subject Matter Test Modified Subject-Matter Test: Five requirements: 1. The communication was made for the purpose of securing legal advice 2. The employee making the communication did so at the direction of his or her corporate superior 3. The superior made the request so that the corporation could secure legal advice 4. The subject matter of the communication is within the scope of the employee's corporate duties 5. The communication is not disseminated beyond those persons who, because of the corporate structure, need to know its contents (8 th Circuit case cited many times by Upjohn) This is MoFo. 12

13 Hypothetical 1 Pharmaceutical company is being investigated for off-label promotion of its drug. As in-house counsel for the company, you decide it would be helpful to interview the marketing personnel responsible for the product. You call Mary Contrary, a marketing representative. When she expresses caution about discussing the incident, you tell her, Don t worry, this is a privileged conversation. You can tell me anything. She tells you that she had a sweetheart deal with a physician. Not only did she provide company-sponsored vacations in exchange for his promise to prescribe the drug for offlabel purposes, but she accompanied him on these trips as his companion in violation of company policy. She says she doesn t want to lose her job over this. What now? This is MoFo. 13

14 Who is the client? Corporate counsel represent the corporation, and would be unable to represent an employee with whom the corporation has a conflict BUT, privilege can be asserted by someone who sought to become a client Overbroad statement from corporate counsel gave Mary Contrary a reasonable basis to believe counsel might be available to her Corporate counsel cannot reveal Mary Contrary s statement This is MoFo. 14

15 Duty of Counsel to Corporate Client Corporate counsel represents the corporation Corporate counsel should consider advising the employee that counsel does NOT represent the employee If corporate counsel is conducting an inquiry into possible illegal activity involving the employee, such advice is a strongly preferred best practice. This is MoFo. 15

16 Hypothetical 2 In-house lawyer is a member of a team assigned to evaluate alternatives for relocation of a business unit Memo prepared by a non-lawyer member of the team and circulated to all team members sets forth an interpretation of a landlord s offer to the company Company accepts offer In subsequent litigation between company and landlord, may the memo copied to the lawyer be discovered? This is MoFo. 16

17 Communication Regarding Legal Advice In-house counsel often perform multiple roles, covering both legal and business functions Establishing privilege requires showing that communication was made by in-house counsel acting in legal capacity Where the communication is with in-house counsel for a corporation, particularly where that counsel also serves a business function, the corporation must clearly demonstrate that the advice to be protected was given in a professional legal capacity. Avianca, Inc. v. Corriea, 705 F.Supp. 666, 676 (D.D.C. 1989) Many courts fear that businesses will immunize internal communications from discovery by placing legal counsel in strategic corporate positions and funneling documents through counsel. As a results, courts require a clear showing that the attorney was acting in his professional legal capacity before cloaking documents in the privilege s protection. In re: Vioxx Prods. Liab. Litig., 501 F. Supp. 2d 789, 797 (E.D. La. 2007). This is MoFo. 17

18 Was the Lawyer Acting as a Lawyer? Pure fact gathering (e.g., for purposes of determining where to locate a new warehouse) will not be deemed a legal activity and privilege will not apply However, if the fact gathering is intertwined with legal analysis (e.g., for purposes of determining whether terminated employee has a discrimination claim), then the activity is legal and privilege will apply This is MoFo. 18

19 Request for Legal Advice The communication has to be made in connection with a request for legal advice However, the request does NOT have to be explicit The privilege attaches to a document even if the document does not contain, or is not accompanied by, a written request for legal advice, if the proponent of the privilege sustains its burden of proof to show that the document was prepared with the intention of securing legal advice on its contents. Virginia Elec. & Power Co. v. Westmoreland-LG&E Partners, 526 S.E.2d 750, 755 (Va. 2000) This is MoFo. 19

20 Mixed Communications Often the communication contains BOTH legal and non-legal advice If the communication is predominantly concerned with legal requirements or opportunities, privilege will apply Timing matters a report circulated amongst business people and later given to a lawyer may be deemed a business (non-legal) communication The entire mixed communication may be privileged if the non-legal communications were integral to the legal advice Sealy Mattress Co. of New Jersey, Inc. v. Sealy, Inc., 1987 WL 12500, at *3 (Del. Ch. 1987). This is MoFo. 20

21 Practical Tip Clearly identify when you are communicating in your role as attorney Repeatedly remind non-lawyer fact gatherers to mention in their written work product that work was done at the request of counsel Mark documents as privileged when you think the privilege applies Will save time and avoid errors later in potential document review in litigation This is MoFo. 21

22 Privilege Disputes Discovery is already an expensive process; privilege disputes exacerbate the expense Vioxx privilege dispute initially involved 30,000 documents, amounting to 500,000 pages After the trial court ruled most of them non-privileged, Merck petitioned for a writ of mandamus Fifth Circuit declined to issue a writ but suggested that the court review 2,000 representative documents Special master and special counsel incurred over $400,000 in fees and expenses in reviewing 2,500 representative documents over the course of three months In re: Vioxx Prods. Liab. Litig., 501 F. Supp. 2d 789 (E.D. La. 2007) This is MoFo. 22

23 Who Holds The Power Of Waiver? Client (company) holds all the power Client will waive the privilege in most states if it sues its counsel for malpractice Defendant lawyer can use privileged communications to explain/defend conduct What if outside counsel wants to explain/defend conduct to court (no malpractice suit involved)? Outside counsel cannot break privilege without client s consent, even when faced with sanctions. Qualcomm, Inc. v. Broadcom Corp., 2008 WL Qualcomm failed to produce relevant documents Outside counsel subject to sanctions and investigation by state bar Qualcomm wasn t suing outside counsel for malpractice, refused to waive privilege Outside counsel thus precluded from using privileged information to explain/defend their conduct This is MoFo. 23

24 Hypothetical 3 Your company has three non-lawyer members in the legal department based in Switzerland During litigation, opposing counsel serves discovery seeking communications between one of the Swiss non-lawyers and an executive Your litigation counsel objects on the grounds of privilege Opposing counsel argues that the communications were with non-lawyers, so no privilege attaches What do you do? This is MoFo. 24

25 International Privilege Issues Are communications between international legal departments and their U.S. counterparts privileged? American view? European view? Japanese view? Brazilian view? This is MoFo. 25

26 General Rules for Int l Privilege Any communications related to matters solely involving a foreign country will be governed by applicable foreign privilege law Non-U.S. companies are entitled to protection when involved in U.S. disputes: Any communications touching base with the U.S. will be governed by federal discovery rules. Tulip Computers Int l B.V. v. Dell Computers Corp., 210 F.R.D. 100 (D. Del. 2002) Even if foreign law would not afford privilege protection, U.S. courts may still protect non-u.s. party on public policy grounds. Astra Aktiebolag v. Andryx Pharms., 208 F.R.D. 92 (S.D.N.Y. 2002) Safest Course: involve a U.S. admitted lawyer in process, particularly if there are sensitive legal issues that may involve the U.S. This is MoFo. 26

27 Attorney-Client Privilege for Non-U.S. In-House Legal Personnel: Broad View Renfield Corp. v. E. Remy Martin & Co., 98 F.R.D. 442 (D. Del. 1982): Test for attorney-client privilege is a functional one of whether the individual is competent to render legal advice and is permitted by law to do so French in-house counsel certainly meet this test; like their American counterparts, they have legal training and are employed to give legal advice to corporate officials on matters of legal significance to the corporation This is MoFo. 27

28 Attorney-Client Privilege for Non-U.S. In-House Legal Personnel: Narrow View Honeywell, Inc. v. Minolta Camera Co., Ltd., 1990 U.S. Dist. Lexis 5954 (D.N.J. May 15, 1990): Rejects functional equivalence rationale of Remy Martin Minolta employee has never been licensed to practice law in any country and has never been registered as a patent agent in Japan or the United States Employee has a Bachelor s of Science degree and, over the years, has attended various seminars, lectures and classes concerning legal and patent issues. The court finds this is insufficient factual support for the finding that [the employee] is a de facto attorney. This is MoFo. 28

29 European View Internal communications with in-house counsel are not privileged, even when in-house counsel is admitted to the bar of an EU State Akzo Nobel Chemicals Ltd. v. Commission, Case C-550/07 P, 2010 E.C.R. 791 (September 14, 2010) Akzo: Ruling by the European Court of Justice, the EU s highest court, in a competition case Issue is counsel s independence : The Court considers that an in-house lawyer, despite his enrollment with a Bar or Law Society and the fact that he is subject to the professional ethical obligations, 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. This is MoFo. 29

30 Akzo s argument: European View (cont d) In-house counsel should be considered independent because he was a member of the Dutch bar and subject to same rules/discipline as any external lawyer ECJ s response: In-house counsel have stronger economic dependence on employer and closer personal identification with company and corporate strategy, which means less independence than external lawyer Predominant Trend : ECJ noted that its holding was consistent with legal systems in the 27 EU Member States ECJ left door open for future change if and when a predominant trend towards protection under legal professional privilege of communication within a company or group with in-house lawyers [is] discerned in the legal systems of the 27 MS of the EU This is MoFo. 30

31 Japanese View Communications between a corporation and bengoshi (lawyers) and/or benrishi (patent agents) are privileged under current Japanese law. See Minsoho [Code of Civil Procedure] arts. 197(2), 220(4). Japanese corporation s use of non-bengoshi in-house lawyers : No privilege applicable to non-bengoshi in-house lawyers under current Japanese law. Japanese corporations needs to look to alternative arguments to protect confidential communications with non-bengoshi, non-benrishi in-house lawyers. 機 密 This is MoFo. 31

32 Brazilian View Statutory provision protects the communication between attorney and client, including in-house lawyers (Federal Law no /94) Also enunciated in the Brazilian Bar Association Code of Ethics and Discipline: Relationship is protected by professional secrecy, which can only be violated in cases of: (1) severe threat to life or honor; (2) when attorney is insulted by client; and (3) in self defense Privilege also applies to Agentes da Propriedade Industrial (Patent Agents) This is MoFo. 32

33 Hypothetical 4 Your company has three patent attorneys on its staff During litigation over one of your company s patents, opposing counsel serves discovery seeking communications between the in-house patent attorneys and the company s product manager Your litigation counsel objects on the grounds of privilege Opposing counsel cites three cases holding that patent attorneys are technical, business people (not legal), so no privilege attaches What do you do? This is MoFo. 33

34 Patent Counsel Older cases held that in-house patent lawyers were corporate employees whose primary work was business; thus, no attorneyclient privilege would attach Recent cases, however, hold that patent counsel are acting as lawyers in their patent work Thus, the fact that a communication between a lawyer and his or her client relates to patent prosecution and contains technical information does not make it ineligible for protection by the attorney-client privilege. Softview Computer Prods. Corp. v. Haworth, Inc., 2000 WL , at *3, (S.D.N.Y. 2000); see also In re Ampicillin Antitrust Litig., 81 F.R.D. 377 (D.D.C. 1978) This is MoFo. 34

35 International Patent Counsel Communications between U.S. lawyers and non-u.s. patent agents: If foreign patent agent is merely a conduit between U.S. lawyer and foreign patent office, privilege will probably not apply If communication is between client and foreign patent agent and is just funneled though attorney, privilege unlikely to apply absent an independent ground for privilege If foreign patent agent is working for attorney or is engaged in the lawyering process, then privilege might apply This is MoFo. 35

36 Disclosure to Governmental Authorities Troublesome cases arise, often in context of disclosures to the SEC or DOJ Voluntary or pursuant to subpoena 2008 change in DOJ policy Majority of courts hold that such disclosures constitute a waiver of privilege as to disclosure and details underlying disclosed material Selective waiver provision not included in FRE 502 Little room for optimism about the possibility of cooperating with the government while maintaining privilege protections This is MoFo. 36

37 Avoiding Complete Waiver After Disclosure to Governmental Authorities There are some isolated cases, however, suggesting that waiver can be avoided by means of a privilege reservation agreement with the government But DON T count on it! This is MoFo. 37

38 Inadvertent Production Clawback agreements and no waiver agreements Newly amended FRCP requires return, destruction, or sequestering of a document that the producing party advises is privileged, but produced inadvertently. FRCP 26(b)(5). Ethical rules may require immediate notification by receiving party to disclosing party, and return or destruction This is MoFo. 38

39 Insurance Carrier Issues Are communications between your outside counsel and your insurance carriers privileged? Depends! States differ: California: Yes, company/outside counsel/insurance carrier are in a tripartite relationship and privilege attaches New York: Not necessarily. Attorney-created documents in a claims file created by or for an insurance company as part of its ordinary course of business are not afforded work-product protection. AIU Ins. v. TIG Ins., 2008 U.S. Dist. LEXIS (S.D.N.Y. Aug. 28, 2008) Texas: Yes, privilege intact because insurer is a representative of the client. In re Fontenot, 13 S.W.3d 111 (Tex. App. 2000) Caution! If your insurance carrier requests status reports from outside counsel, know the rules before forwarding privileged information. Worst-case scenario: not only do you lose privilege on whatever is forwarded to insurance carrier, but this constitutes a waiver of privilege that opens up the floodgates to discoverable information This is MoFo. 39

40 Joint Defense Privilege Not an independent privilege all elements of attorney-client privilege must be met Permits counsel and parties facing the same legal claims to share privileged information without destroying privilege Threatened or actual litigation or criminal proceedings can give rise to the privilege. This privilege can exist even if the litigation or proceedings never commence. This is MoFo. 40

41 When is the Joint Defense Privilege Useful? Complex litigation where multiple defendants are jointly and severally liable for damages (such as an antitrust action) Industry-wide litigation on the same claims Regulatory actions where a company and its directors and officers are defendants Co-defendants in civil cases This is MoFo. 41

42 Maximizing Privilege Protections Clearly establish that an attorney-client relationship exists, and when that relationship started Label all documents that relate to communications with counsel as Confidential Attorney-Client Privilege Maintain the confidentiality of the communications; do not distribute copies or reveal communications outside the company This is MoFo. 42

43 Maximizing Privilege Protections (International) If working with foreign legal dep t, make sure foreign agents are aware of the existence of the privilege and their confidentiality obligations under U.S. law Where the company s foreign legal dep t has responsibility for communications with U.S. attorneys, make clear that attorney-client relationship exists directly between U.S. attorneys and the company If potential U.S. dispute, involve U.S. counsel early Seek to maximize features of functional equivalence for foreign legal dep t members: Provide foreign legal dep t members with legal training in their home country Job description includes expectation to provide legal advice to company This is MoFo. 43

44 Questions? James W. Huston Erin M. Bosman This is MoFo. 44