In-house lawyers and their clients know that an email is not automatically cloaked in privilege just because a lawyer appears on the cc line. But when exactly are communications and information privileged and when are they not? 

THE BASICS

Although each jurisdiction has its own privilege definitions and rules, generally the attorney-client privilege protects confidential communications between an attorney and client, including a client representative, made for the purpose of rendering professional legal services.

Practice Tip: Even if you believe a written communication is privileged, write it believing that someone else will see it, and that someone may be a judge.

Whether a privilege applies to an in-house lawyer’s communications depends on this question: What is the predominant purpose of the communication? If the purpose is legal advice, the communication is privileged if it’s confidential and between lawyer and client. On the other hand, if the lawyer is acting as a business negotiator or advisor, the communication probably is not privileged. An in-house lawyer fulfills multiple roles! Just because part of a document is privileged doesn’t mean that the entire document is protected.

Practice Tip: Remember the telephone — some things are better said than written.

The work product doctrine protects material prepared, mental impressions, conclusions, opinions or legal theories developed in anticipation of litigation.

The work product doctrine is both broader and narrower than the attorney-client privilege. It is narrower in that it applies only “in anticipation of litigation.” It is broader in that it does not require a “confidential communication” of legal advice, and therefore is less at risk of waiver.

Practice Tip: To best protect the work product privilege, implement a litigation hold when litigation is reasonably anticipated.

WHO OWNS THE PRIVILEGE?

The attorney-client privilege belongs to the client, which is the company, not its employees. The company’s management has the power to waive the attorney-client privilege. When appropriate—for example, in interviews during an internal investigation—counsel may caution an employee that the client is the company and the privilege may be waived. The work product privilege belongs to the client, but the lawyer may invoke it too.

DON’T WAIVE THE PRIVILEGE INADVERTENTLY

The attorney-client privilege extends to clients, clients’ representatives, lawyers and lawyers' representatives—the circle of trust. A voluntary disclosure to persons outside of the “circle of trust” waives the privilege. In other cases, waiver can occur inadvertently, as in the following circumstances:

Special Committees – If a special committee of the board of directors retains counsel, the client is the special committee and not the full board. Consequently, disclosure of privileged information to the full board may constitute waiver.

Parents and Subsidiaries – If a parent and subsidiary are represented by the same counsel, they are generally considered joint clients and the privilege extends to both. This means (1) one cannot shield privileged communications from the other and (2) neither can unilaterally waive the privilege. To avoid this result, consider (1) employing separate counsel for subsidiaries; (2) limiting the scope of the joint representations; and (3) retaining separate counsel when interests may diverge.

Mergers and Acquisitions – In a merger or acquisition, absent an agreement to the contrary, the privilege passes to the surviving or acquiring corporation. To avoid awkward disclosure of privileged information—including about the negotiation of the acquisition—address privilege in transaction documents by (1) defining the scope of the deal lawyer’s representation; (2) disclaiming the duty to disclose privileged information to the buyer; and (3) agreeing that the seller’s privilege does not transfer to the buyer.

Shareholder Litigation – A company generally can assert the attorney-client privilege against its shareholders. However, some courts, including the Fifth Circuit and Delaware Supreme Court, have adopted a fiduciary exception to the attorney-client privilege, when the company is in a lawsuit against its shareholders. In such cases, the privilege may be invaded if shareholders show good cause.

Voluntary Disclosure to Lower Level Employees – Disclosure of privileged information to non-“control group” employees who “need to know” the information generally does not waive the privilege—the so-called “subject matter” test. To protect the privilege, be sure to exclude lower level employees from privileged communications as soon as they no longer need to know. Also be aware that some jurisdictions still use the “control group” test, which considers disclosure of privileged information to any lower level employee as a waiver.

“AT ISSUE” WAIVER

If a party places its privileged information “at issue” in a lawsuit, the attorney-client privilege is generally waived. Waiver occurs if the party places the privileged information “at issue” through some affirmative act for its own benefit if maintaining the privilege would be manifestly unfair to the opposing party. Examples of an “at issue” waiver include: (1) when the client testifies or offers evidence of otherwise privileged communications; (2) when the client places the attorney-client relationship directly at issue; and (3) when the client asserts reliance on its counsel’s advice as an element of a claim or defense. “At issue” waivers likely extend to the entire subject matter. Plan ahead if reliance on legal advice may be needed to support a claim or defense, thereby waiving the privilege.

PRIVILEGE: THIRD PARTIES AND COMMON INTERESTS

Accountants – Many jurisdictions do not recognize an accountant-client privilege, including federal courts and Texas. However, if an accountant is engaged by the attorney to facilitate the rendition of legal services, there is a better argument that the communication falls within the attorney-client privilege.

Auditors – The general rule is that disclosure of attorney-client communications to an auditor waives the privilege.

Investment Bankers – Communications between lawyers and investment bankers may be privileged if the purpose is to obtain legal advice for the client, especially if counsel engages the banker. In limited circumstances, if the investment banker improves the comprehension of the communications between the attorney and client by translating or interpreting information given to the attorney by the client, the communication may be afforded protection. In other instances, communications may not be privileged.

Consultants – In jurisdictions following the “subject matter” test, the privilege may extend to outside consultants in the “need to know” category who are the functional equivalent of an employee.

Counterparties – Disclosing privileged materials to another company during due diligence, even under a non-disclosure agreement, likely waives the privilege. To avoid waiver, keep privileged materials out of data rooms.

Common Interests – During litigation, counsel for parties with aligned interests may engage in confidential communications regarding matters of common interest. The existence of this “common interest” can expand the privilege to insulate communications from disclosure. Some courts recognize a common interest privilege that would protect communications between counsel for corporate parties engaged in business transactions if the purpose of the communication is to further a nearly identical legal interest shared by the parties, but other courts do not. Appropriate documentation can support the existence of a common interest privilege.