Law360, New York (March 23, 2016, 4:48 PM ET)

Companies generally know that attorneys have an ethical obligation to keep information relating to their representation confidential, but many companies misunderstand how the attorney-client privilege works and incorrectly think that they can tell or send their attorneys anything without the risk of having to disclose that information in a lawsuit or arbitration (collectively referenced here as a “lawsuit”). Unfortunately, that misunderstanding could have serious consequences and jeopardize a company’s claims, defenses and/or arguments in a lawsuit. Accordingly, companies must know the following three basic principles about the privilege to ensure that they will not end up having to turn over communications to their attorney that they thought were privileged to their adversary in a lawsuit.

What and Who is Protected?

The privilege protects communications made to obtain legal advice. The privilege protects confidential communications (both verbal and written) and allows attorneys and their clients to discuss actual and potential legal matters openly and honestly without worrying that the information will be disclosed to their adversary in a lawsuit. This encourages full and frank discussion between attorneys and their clients. Significantly, however, merely saying or forwarding something to an attorney does not necessarily mean that the privilege protects that communication from disclosure. Rather, a company asserting the privilege (under federal law and most state laws) must establish the following five elements:

  • the company is (or is seeking to become) the attorney’s client;
  • the company speaks to an attorney or the attorney’s representatives, such as a paralegal;
  • the company expects the communication to be confidential;
  • the company seeks legal advice and the communication relates to that purpose; and
  • the company claims the privilege applies and does not waive it (see United States v. Massachusetts Institute of Technology, 1997).

The privilege does not protect criminal or fraudulent communications with an attorney or the attorney’s representative.

While a company benefits from the privilege, it does not automatically extend to the company’s employees, officers, board of directors or shareholders. The privilege covers certain communications between a company’s employees and its attorney that involve matters within the scope of the employees’ corporate duties and are made to obtain legal advice for the company (see Upjohn Co. v. United States, 1981).

In addition, the privilege protects communications in the lawsuit for which the company has retained the attorney to represent its interests and does not extend to any other issues or matters.

Common Misconceptions

Many companies (and even some attorneys) incorrectly believe that labeling emails, letters and other documents as “Attorney-Client Communication” or “Subject to the Attorney Work Product” protects them from disclosure. Yet the labels themselves have no legal meaning; they simply highlight the fact that the documents relate to legal advice and should be kept confidential internally. Such documents must still satisfy all of the elements necessary to establish the privilege.

Similarly, many companies believe that simply copying an attorney on emails, letters or other documents automatically protects them from disclosure. But the privilege applies only to documents a company provides to its attorney to obtain legal advice. This distinction can be especially challenging for companies with in-house counsel who have dual legal and business roles. As a federal court stated, “modern corporate counsel have become involved in all facets of the enterprises for which they work … in-house legal counsel participate in and render decisions about business, technical, scientific, public relations, and advertising issues, as well as purely legal issues.”

Courts know that companies may try to shield internal communications regarding claims or disputes from discovery by merely copying counsel on them. As such, courts usually apply the privilege to attorneys who are clearly acting in a legal, not a business, capacity. While companies can, and should, seek advice from their attorneys, they must understand that business-related communications to counsel are not privileged unless their primary purpose is obtaining legal advice.

Moreover, companies cannot protect certain facts under the privilege simply by communicating them to their attorney. For example, information that can be gathered from a source other than the privileged communication is not protected (see Upjohn, 449 U.S. at 395-96). A company’s normal business records do not somehow become privileged if it discusses them with its attorney. Companies must remember that merely communicating something to an attorney does not prevent the underlying facts from disclosure if they can be properly discovered from another source. In other words, the privilege does not transform discoverable information into privileged information.

Waiving the Privilege

Companies most commonly waive the privilege by disclosing the protected conversation, email, letter or other document (or its contents) to a third party outside the attorney-client relationship, such as an insurance agent, financial adviser, accountant or consultant not involved in the claim or dispute. Companies inadvertently waive the protection afforded by the privilege most often by being careless with emails. Companies must always check and double-check the email addresses in the “To” and “Cc” lines before sending confidential communications to counsel or forwarding emails from an adversary in a lawsuit. This waiver occurs even if the company inadvertently includes or forwards privileged communications to third parties.

Likewise, companies should think very carefully before forwarding emails from counsel to others since that could terminate the privilege. While companies can sometimes preserve the privilege after an inadvertent disclosure, it is, of course, much easier to prevent disclosure in the first place, as a company can never really “un-ring the bell.”

Courts, however, recognize that companies can share protected communications with certain third parties without waiving the privilege and “tend to mark out a small circle of ‘others’ with whom information may be shared without losing the privilege (e.g., secretaries, interpreters, experts retained for the lawsuit and counsel for a cooperating co-defendant).” Even so, companies should be extremely cautious when discussing conversations or forwarding information sent to their attorney as well as the attorney’s resulting advice on legal matters.

In the end, companies must know the privilege’s basic parameters so that they can properly and effectively communicate with their counsel at all times regardless of whether they are currently, or are expecting to be, involved in a lawsuit. A company should include that knowledge in its best practices and hopefully avoid having to produce communications mistakenly thought to be privileged to their adversary in a lawsuit with potentially devastating consequences.

Kelley J. Halliburton of Shapiro Lifschitz & Schram PC