The attorney-client privilege protects certain communications between lawyers and clients from disclosure to third parties and is a bedrock of the American legal system. Understanding who is the “client,” for the purposes of applying the privilege to protect communications, is critical to its maintenance, but is not always straightforward. It is not uncommon for someone to work in more than one corporate capacity over a given period and to work with the same counsel during that period. This can create issues concerning waiver of the attorney-client privilege in the event of a later dispute.

For example, imagine that a law firm generally represents a private equity firm in multiple matters, including in connection with a portfolio company controlled by the firm. As is common, the private equity firm controls the portfolio company board, and three of its own employees serve as board members. The portfolio company – but not the private equity firm – then hires the law firm to represent it in a large acquisition. During the transaction, lawyers communicate regularly with members of the portfolio company’s board. Surely these communications are privileged, aren’t they? 

According to a recent decision by the United States District Court for the Southern District of New York, the answer is no, they are not privileged. The court’s decision in Argos Holdings Inc. v. Wilmington N.A., 1 explores the limits of the attorney-client privilege in the context of communications received by individuals having multiple roles in a transaction and provides much needed guidance for practitioners and their clients. The holding is of special interest to private equity fund managers that appoint principals as directors to their portfolio company boards. As discussed further below, this decision teaches that proper policies and procedures should be implemented to minimize the risk of waving privilege. 

Prior to the relevant transaction, the law firm frequently represented the private equity firm BC Partners, including in relation to its investment in Argos Holdings. Three BC Partners’ employees (described as the “Three Individuals” in the court’s decision) were on the Argos board at the time Argos hired the law firm to represent it in connection with its 2015 acquisition of PetSmart. In 2017, the law firm represented Argos and PetSmart in PetSmart’s acquisition of Chewy, Inc. and certain related transactions. 

During these engagements, the law firm communicated with the Three Individuals via their BC Partners’ email accounts. In later litigation relating to the PetSmart acquisition, a party challenged whether those communications were with Argos or with BC Partners – because they were sent to BC Partners email addresses – and, if so, whether the communication with BC Partners constitutes a waiver of the privilege between the firm and Argos.

Rejecting the argument that the Three Individuals’ BC Partners’ employment should be ignored, the court noted that:

  1.  Argos failed to identify any measures taken to prevent disclosure to BC Partners of the privileged communications to Argos, and Argos did not offer evidence that the communications were in fact kept confidential to Argos; 
  2. Argos failed to identify any document, protocol, or training designed to protect the privilege;
  3.  Despite having Argos email addresses, the Three Individuals received all allegedly privileged communications via their BC Partners email addresses; and
  4.  Argos failed to explain why, if the communications were made to the Three Individuals in their capacity as Argos board members, the emails were not also sent to the other four board members.

As relates to no. 4 above, the court did find that communications addressed to the entire Argos Board of Directors were privileged, regardless of whether Argos email addresses were used for the Three Individuals. The court also ruled that those documents that clearly identified which “capacity hat” the individual was wearing at the time—schedules, for example, identifying each of the individuals by their relationship to PetSmart or Argos – were protected by the attorney-client privilege while directing that all other documents needed to be produced. 

Argos shows that by taking simple steps— establishing guidelines and protocols for communications with counsel, training directors to follow those guidelines and protocols, and ensuring that privileged communications are appropriately designated as such—and ensuring that protocols are rigorously followed, private equity firms can successfully minimize the risk of waiving the attorney-client privilege while still effectively managing their investments.