A PRIMER ON ATTORNEY CLIENT PRIVILEGE: PART 1

By Charles A. Weiss

When I give talks on attorney-client privilege, I start by holding up the book I purchased about 20 years ago: a single volume of about 250 pages. Then I hold up the current edition: two volumes with more than 600 pages. This makes two points. First, I cannot even begin to cover the topic of "attorney-client privilege" in my talk. Second, the law in this area is rapidly increasing in complexity, so what you learned a few years ago may not be applicable today.

That being the case, why bother with this article? Much like the standard exams given in U.S. law schools, the answer is "issue spotting." Certain problems concerning attorney-client privilege come up repeatedly, and being able to spot them adds value even if the ultimate answers may not be clear. Stated differently, being able to identify and spot recurrent problems affords the best chance of avoiding or mitigating them.

This article is the first of a series. It presents the basic rule, and examines two common problems that can negate what is believed to be the protection of privilege.

This article addresses two problems seen commonly in the case of corporate clients. The first concerns the role of intermediaries or advisors who are involved in a substantive but informal manner in the company's communications with its lawyers. The second concerns the distinction between legal advice and business advice, and the issues created by lawyers who wear two hats (legal and business).

The next article will examine the problem of cross-border privilege, such as how a U.S. court applies attorneyclient privilege in the case of a non-U.S. lawyer advising a client on matters that span international borders.

THE BASIC RULE OF PRIVILEGE

Three elements must be satisfied for attorney-client privilege to attach to communications. Specifically, privilege applies to communications 1) between a lawyer and client, 2) in confidence, 3) for the purpose of requesting or receiving legal advice. Some add a fourth element, which is 4) the privilege has not been waived, but we prefer to treat that as an event that destroys privilege that previously existed (as opposed to an element that is necessary for privilege to attach in the first place).

As with many legal rules in the U.S., the rules of privilege are primarily governed by state law, meaning that, in most case, there is not a uniform national rule. With the caveat that nuances vary from state to state, the issues addressed in this article are generally applicable throughout U.S. jurisdictions.

COMMUNICATIONS WITH INTERMEDIARIES OR ADVISORS

Business entities, such as corporations or limited liability companies, can act and communicate only through human beings. To state the obvious, a corporation cannot itself talk on the phone, attend a meeting or engage in correspondence. It is, nevertheless, recognized legally as a "person" that can engage attorneys and enjoy the benefits of attorney-client privilege. In recognition that a corporation can act only through its agents, communications between a corporation's attorney and the corporation's personnel are protected by attorneyclient privilege even though the personnel themselves are not the attorney's clients.

In the simple case, a company's attorney-client communications occur between the company's lawyer and its directors, officers, executives or managers who have sufficient authority to direct the company's affairs. There

is no doubt that such communications are protected by attorney-client privilege (so long as the other conditions for privilege to attach are satisfied).

Historically, there was a division of authority as to whether attorney-client privilege also attached to communications between a company's lawyer and its lower-level employees. Some courts held that communications with such employees, who were outside a company's "control group," were not subject to privilege because lower-level employees did not have authority to speak for the company. In 1981, the U.S. Supreme Court rejected this narrow and formulaic approach to attorney-client privilege in the corporate context, recognizing that thorough representation of larger corporations often mandated that the company's counsel gather information from employees who were not members of a "control group" of high-level personnel. Under the prevailing modern view, communications between the company's lawyers and its employees would be subject to privilege so long as they were undertaken for the purpose of the lawyers' representation of the company.

Thus, when a company's lawyer communicates with its employees on matters of company business, there can be a high degree of assurance that attorney-client privilege will apply. This confidence also applies to communications between a company's lawyer and its board of directors, even though outside directors are usually not employees.

The challenge to application of privilege applies when communications are between a company's lawyer and an intermediary or advisor who is not a director, officer or employee. For example, in Global Textile Alliance, Inc. v. TDI Worldwide, LLC, 833 S.E.2d 342 (N.C. 2019), the owner of the plaintiff (GTA) lived in Europe and often communicated with the company's board through an advisor who held no position with the company itself. During discovery, the defendant asked GTA to collect documents from this individual, and GTA declined on the basis that he was not GTA's agent. Nevertheless, GTA asserted attorney-client privilege to withhold communications with him by its lawyer, contending that he was the owner's agent and thus stood in the owner's shoes for purpose of attorney-client privilege.

The court rejected this argument because the advisor was not the company's agent, but was only the agent of its owner. And because a corporation has a legal existence that is separate and apart from its owners, the court declined to disregard the legal distinction between them, invoking the principle that a person who forms a corporation to secure the advantages of the corporate form cannot disregard the separate existence of the corporation to avoid its disadvantages.

The court also declined to apply the "functional employee" doctrine that some courts have adopted, under which attorney-client privilege applies to communications between a corporation and an agent who is not an actual employee but who has a relationship with the company that is largely indistinguishable from a formal employer-employee relationship. The court had never determined if this doctrine was recognized under its state law, but held that even if the "functional employee" doctrine did exist, it would not apply here because the individual was acting as an agent of the owner, not acting as an agent of the corporation.

This case has been criticized by some commentators, and it is not the purpose of this article to reargue the merits. Rather, the outcome here illustrates a challenge that is not unusual in the era of cross-border business operations. Specifically, the overseas owner of a U.S. business may find it necessary or convenient to direct and communicate with the business via an intermediary such as a consultant or trusted advisor. In the case of true necessity, such as use of an interpreter to overcome a language barrier between the overseas owner and the U.S. personnel, the courts will generally ignore the interpreter's presence because the communications could not occur without his or her assistance. This is no different than the case of a monolingual lawyer representing a client who cannot understand English, or a hearing-impaired client who communicates with sign language. In those cases, the interpreter's presence is essential to the representation itself, because communications between the lawyer and client could not occur without his or her assistance.

The Global Textile case, however, illustrates that courts may not be similarly accommodating to communications that occur through an intermediary when he or she is used only for convenience, and does not play a necessary role. What can an overseas owner of a U.S. business do to avoid this outcome? One option is to appoint the intermediary as an employee of the U.S. business, or in a position that is the "functional equivalent" of an employee (in the case of states that recognize that doctrine). Another option that is open when the overseas owner is itself a corporation is for that corporation to employ the intermediary. In that case, because the overseas owner is a corporation, and corporations can communicate only through their employees, the communications should be considered to occur directly with the owner. In either case, if the person on the U.S. end of the communication is an attorney representing the U.S. company, courts are likely to recognize the applicability of attorney-client privilege so long as all of the other requirements are met.

ATTORNEYS ACTING AS BUSINESS ADVISORS

As noted in the introduction, one requirement for attorney-client privilege to apply is that the communication must be for the purpose of requesting or receiving legal advice. Accordingly, privilege does not attach to all communications with persons who happen to be licensed attorneys, because some communications with lawyers are not for the purpose of seeking legal advice. In the role of trusted advisor and counselor with deep knowledge of a client's business, lawyers may sometimes be called on to provide business advice. In principle, the rule that privilege only applies to communications seeking legal advice (not business advice) applies equally to in-house attorneys and outside attorneys, but many judges are more skeptical of privilege claims for in-house attorneys because they consider (rightly or wrongly) it less common for outside counsel to be involved in providing business advice.

A closely related issue that often comes up are emails that are copied to a lawyer, but that do not request legal advice. One common typical argument made for asserting privilege in that scenario is that the business people on the email chain "expected" the lawyer to review the emails and weigh in with legal advice as needed, even if the lawyer did not actually participate in the communications. Though commonly made, this argument is rarely successful.

Unlike the challenge addressed in the first part of this article — where it is possible to provide ideas to protect what can be a reasonably straightforward claim of privilege — the situation of the lawyer acting in a business role presents a scenario in which the expectation of privilege should not have arisen in the first place. Stated differently, the solution is not to change things so that privilege applies, because privilege does not apply to nonlegal communications, but rather to adjust the client's expectations so it does not mistakenly believe that such communications are protected in the first place. Good email hygiene includes training non-attorney personnel to never assume that something will be protected by privilege without first receiving assurance to that effect from the company's counsel.

When an attorney wears two hats, the careful approach is to separate communications involving business advice from those involving legal advice. In principle, a communication that involves both can be parsed to assert privilege for the legal advice, while producing the portion involving solely business advice. But if a challenge to privilege is raised in litigation, and the judge requires the party asserting privilege to provide the entirety of the communications for in camera review to adjudicate the challenge, the presence of business advice mixed together with legal advice can easily tip the scales toward a ruling that the entire document is not privileged. By contrast, if the party asserting privilege is able to explain that it has a regular practice of separating legal communications and business communications, a privilege assertion for legal communications is more likely to be upheld even though occasional overlap and errors are likely to occur.