© 2014 The Texas Lawbook.
By William B. Finkelstein, Ed Tomko and Jason M. Ross – (October 6) – In the course of any given day, an attorney may send and receive hundreds of e-mails. And while we take for granted that communications between counsel and clients are protected by the attorney-client privilege, the limits and contours of privilege become more complex for in-house lawyers.
The day-to-day reality of weighing in on business decisions, offering legal advice – and the commonplace mix of the two – can leave in-house lawyers unsure of whether their communications will later survive an opponent’s challenge to an assertion of privilege.
In May 2014, the Fifth Circuit’s opinion in Exxon Mobil Corp. v. Hill clarified the boundaries of the attorney-client privilege for in-house lawyers. The facts of that case illustrate the long shelf life of attorney advice in later litigation.
The privilege controversy stemmed from advice given by an in-house lawyer for Exxon in 1988, when Exxon negotiated with a contractor to clean and store its oilfield services products contaminated with radioactive material. Before that transaction, Exxon hired an environmental expert to test whether the contractor’s cleaning devices would work as intended on the oilfield products.
The expert authored a confidential report for Exxon containing four tables, each of which referenced levels of radiation in from air sampling. As part of the due diligence for negotiating with the cleaning and storage contractor, Exxon’s in-house attorney advised an employee to only produce one of the tables – remove the label “Table 4” – because the vendor’s due diligence request only covered that table.
Twenty years later, Exxon and other companies were sued by various plaintiffs for radiation exposure. Plaintiffs’ attorneys sought turnover of the 1988 memo from Exxon’s in-house lawyer, suggesting that the memo would show higher levels of radiation.
The Fifth Circuit disagreed, and reversed the district court’s decision that the memo should be disclosed.
The Court recognized that, although in-house counsel can take on a variety of roles with an organization—and are often called upon to provide business advice—the privilege still strictly protects legal advice given by outside counsel and in-house counsel alike. Because the memo reflected “just the sort of lawyerly thing one would expect of an in-house lawyer: advice on transactional matters,” the privilege applied.
In June 2014, the District of Columbia Circuit decided In re Kellogg Brown & Root, Inc., and similarly held that “a lawyer’s status as in-house counsel does not dilute the privilege.”
In that case, a former employee of defense contractor Kellogg Brown & Root (KBR) brought a False Claims Act action against the company, alleging that KBR committed fraud and participated in kickbacks while administering military contracts.
During discovery, the former employee sought documents related to a prior internal investigation conducted by KBR’s in-house legal department related to the alleged fraud.
In its reversal, the appellate court held that it did not matter that the internal investigation was conducted under the direction of KBR’s in-house legal department instead of outside counsel.
The court of appeals further held that the documents were privileged even though KBR had a duty under its compliance policy to conduct an investigation regardless of whether the company was doing so to seek legal advice.
The D.C. Circuit concluded that, as long as one of several primary purposes of the communications is to obtain legal advice, the privilege applies.
While these recent decisions broadly protect the attorney-client privilege for in-house lawyers, it is important to remember that the privilege (and the work-product doctrine) have their limits.
For example, in its June 2013 decision in Gruss v. Zwirn, the United States District Court for the Southern District of New York held that the protections of the work-product doctrine can be waived despite attorneys’ and their client’s demonstrated intent not to do so.
In that case, the former CFO of the Zwirn hedge fund sued the company for defamation, alleging that statements made by the company blaming him for financial irregularities were false and defamatory. During discovery, the plaintiff sought the attorney notes from the company’s internal investigation into the alleged financial irregularities, along with the attorneys’ summaries of those notes.
The plaintiff argued that because the attorney notes and summaries were voluntarily presented to the SEC, attorney-client privilege and work-product protections were waived.
The company responded that the privilege was expressly not waived because the company entered into a confidentiality agreement with the SEC, whereby the SEC and the company agreed that the company did not “intend to waive the protection of the attorney work product doctrine, attorney-client privilege, or any other privilege applicable as to third parties.”
Despite the company’s unambiguous intention not to waive the privilege, as expressed in the confidentiality agreement, the District Court rejected the “selective, manipulative and strategic use of evidentiary privileges,” and ordered that the requested notes and summaries must be disclosed.
The recent decisions in Hill and In re Kellogg Brown & Root affirm that the attorney-client privilege is alive and well for in-house lawyers.
Courts recognize that in order to obtain sound legal advice from in-house lawyers, those lawyers must receive open and candid communications from employees.
And for such candor to exist, the in-house lawyer and the client must be able to rely on the principle that the confidentiality of their discussions will be protected. Indeed, the courts’ protection of the confidences held by in-house lawyers is vital, because in-house counsel are often the first responders when sensitive issues arise and candid legal advice is needed the most.
Likewise, these decisions remind us that even when an in-house lawyer’s advice has a business component, if one of several primary purposes of the communication is to give or seek legal advice, the confidentiality of that communication will be protected. Still, in-house lawyers and outside counsel should proceed with caution in turning over protected materials to third parties.
As in Gruss v. Zwirn, even with well-crafted confidentiality agreements, many courts look askance at attempts to gain the benefits of selectively waiving the privilege to some third parties, while seeking the benefit of maintaining confidentiality as to others.
William B. Finkelstein is an attorney in Dykema’s Corporate Finance and Bankruptcy Practice Groups, and Office Managing Member in the Firm’s Dallas office. Edwin J. Tomko is a former enforcement lawyer at the U.S. Securities and Exchange Commission. Tomko and Jason M. Ross are lawyers at Dykema who specialize in white-collar criminal law.
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