In this case, the Third Circuit examined whether or not a parent corporation being sued by its subsidiaries can claim the attorney-client privilege for documents that were generated while the corporation’s in-house counsel jointly represented the parent corporation and the subsidiary on matters that were the subject of the documents sought to be protected.
In Teleglobe, Bell Canadian Enterprises Inc. (“BCE”), the parent corporation to Teleglobe Inc. (“Teleglobe”), directed Teleglobe to pursue the production and development of a fiber optic network called GlobeSystem. BCE pledged its financial support of the project and caused Teleglobe and its subsidiaries to borrow roughly $2.4 billion from bonds and bondholders. However, unbeknownst to Teleglobe, while this borrowing was underway, BCE decided to launch “Project X,” an evaluation of options for GlobeSystem—some of which could have sent Teleglobe and its subsidiaries into bankruptcy.
In 2001, BCE publicly announced that it was releasing its funding of Teleglobe, leaving Teleglobe with limited means to pay back its creditors. Within weeks, Teleglobe and its subsidiaries filed for bankruptcy. The Teleglobe subsidiaries sued BCE for fraud and breach of fiduciary duty in connection with the abandonment of the GlobeSystem project. During the litigation between BCE and Teleglobe subsidiaries, BCE withheld hundreds of documents reflecting legal advice on Project X matters. Even though BCE’s in-house counsel also acted as counsel for Teleglobe and its subsidiaries at the time these documents were prepared, BCE claimed that the legal advice within the subject documents was solely for BCE’s benefit and not as a part of any joint representation.
The Third Circuit first distinguished the difference between two oft- confused privileges: the joint-client privilege and the community-ofinterest privilege. The joint-client privilege applies when multiple clients have the same counsel to represent them on a matter of common interest; the community-of-interest privilege comes into play when clients with separate attorneys share privileged information for the purpose of coordinating legal activities.
The facts of the Teleglobe case focused on the joint-client privilege as the parties shared the same corporate
counsel. However, the court stated that the joint-client privilege only protects disclosure of communications to parties outside the joint representation. Therefore, given the facts of Teleglobe, the joint-client privilege did not apply.
The court ultimately held that even in the parent-subsidiary context, a joint representation only arises when common attorneys are affirmatively doing legal work for both entities on a matter of “common interest.” Moreover, after reviewing the documents at issue, the court held that the case must be remanded to the district court to determine whether BCE’s lawyers had engaged in joint representation of BCE and the Teleglobe subsidiaries (i.e., representing the parties on matters of common interest). If the lower court were to determine that a joint representation did, indeed, exist, the documents would be discoverable. Otherwise, the documents would be protected from disclosure.