In most instances, discovery disputes over applicability of a privilege are litigated in the same jurisdiction where the privileged relationship arose, and the availability of that privilege is clear. But what happens when a different forum is called upon to evaluate the privilege issue and the two jurisdictions do not agree on the availability of the privilege? Most states have not yet decided what conflict of laws analysis to apply to privilege questions, and a recent decision issued by the New York Supreme Court, Appellate Division indicates that the answer may not always be what you expect.
New York Attorney General Eric Schneiderman has been conducting an investigation of Exxon Mobil Corporation under the Martin Act regarding whether the company misled investors about climate-change-related risks to its business. In connection with that investigation, Schneiderman issued a subpoena to Exxon’s auditor, seeking information such as projected carbon costs and greenhouse gas emissions. Exxon objected to the subpoena, asserting the accountant-client privilege.
Texas, where the accountant-client relationship arose and where the professional services were performed, has a statutory accountant-client privilege, Tex. Occ. Code § 901.457; New York, where the subpoena was issued and where the investigation is being conducted, does not. The issue before the court was which jurisdiction’s view of the privilege would carry the day. On May 23, 2017, the New York Supreme Court, Appellate Division issued a short, four-paragraph opinion stating that New York law would apply and Texas’s privilege would not be available to bar production of the subpoenaed documents: “Our current case law requires that when we are deciding privilege issues, we apply the law of the place where the evidence will be introduced at trial, or the place where the discovery proceeding is located.” In re People of the State of New York v. PricewaterhouseCoopers, LLP, No. 3685N, 2017 WL 2231158 (N.Y. App. Div. May 23, 2017) (citing People v. Greenberg, 50 App. Div. 3d 195, 198 (N.Y. App. Div. 2008)).
The Appellate Division’s opinion arguably is inconsistent with those of other courts in New York that have displayed a greater willingness to apply other states’ laws regarding privileges. E.g., Lego v. Stratos Lightwave, Inc., 224 F.R.D. 576, 579 (S.D.N.Y. 2004) (“In cases requiring a choice of privilege law, the interest analysis usually has led New York courts to apply the law of the jurisdiction in which the assertedly privileged communications were made, which in most of the cases was also the jurisdiction in which the party that made the communications resided”); Tartaglia v. Paul Revere Life Ins. Co., 948 F. Supp. 325, 326 (S.D.N.Y. 1996) (stating in privilege dispute, “New York choice of law gives ‘controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation’”) (quoting Babcock v. Jackson, 12 N.Y.2d 473, 481-82, 240 N.Y.S.2d 743, 749, 191 N.E.2d 279, 283-84 (1963)). This split of authority, even within New York jurisprudence, highlights the uncertainty that can surround the availability of a privilege when the forum evaluating that privilege is different from the jurisdiction where the purportedly privileged communications were made.
Most states have not yet established a choice of law doctrine applicable to privilege issues. Those that have addressed the issue follow varying approaches.
The traditional choice of law rules are set forth in the First Restatement of Conflict of Laws, which views matters as either substantive or procedural and holds that procedural matters are to be governed by the law of the forum. Some courts applying the First Restatement analysis view privilege as an evidentiary matter and therefore characterize it as “procedural” and subject, almost invariably, to the law of the forum. E.g., Hatfill v. New York Times Co., 459 F. Supp. 2d 462, 466 (E.D. Va. 2006) (finding law of privilege is procedural under traditional choice of law principles); Frugard v. Pritchard, 338 N.C. 508, 450 S.E.2d 744, 744 (N.C. 1994) (“[t]he law of the forum governs as to the admissibility of evidence” in North Carolina); People v. Greenberg, 50 App. Div. 3d 195, 198 (N.Y. App. Div. 2008) (law of the forum governs privilege issues). But see Brandman v. Cross & Brown Co. of Fla., Inc., 479 N.Y.S.2d 435, 436-37 (N.Y. Sup. 1984) (viewing attorney-client privilege as substantive for conflict of laws purposes).
A number of courts, however, have taken the view that privilege must be considered substantive, rather than procedural, because it affects private conduct before the litigation arises and outside the context of litigation. E.g., Palmer v. Fisher, 228 F.2d 603, 608 (7th Cir. 1955) (“[f]ederal courts have held that state laws creating a privilege are substantive”), abrogated on other grounds, Carter Prods., Inc. v. Eversharp, Inc. 360 F.2d 868 (7th Cir. 1966); Com., Cabinet for Health & Family Servs. v. Chauvin, 316 S.W.3d 279, 285 (Ky. 2010) (“Privileges are ultimately substantive law, at least those that apply outside the courtroom”); State v. Heaney, 689 N.W.2d 168, 174 (Minn. 2004) (“A question of privilege is an evidentiary question, but it has a substantive component”). This position is taken to be consistent with the First Restatement’s overall aim of limiting forum-shopping and ensuring “that the rights and duties of parties arising from a legal situation shall not be substantially varied because of the forum in which an action is brought.” Restatement (1st) of Conflict of Laws 12 Intro. Note (1934).
International commerce, to give but one example, could hardly continue if parties were frequently exposed to the hazards and unknown requirements of foreign laws…. [Therefore] the courts of all civilized states now decline the easy and obvious solution of ignoring foreign law and treating the case as a purely domestic one; instead, they seek, by reference to the foreign law deemed appropriate, to protect parties against a substantial change of position because of the fortuitous circumstance that suit is brought in that particular state.
A majority of states to consider the issue have opted to follow the Second Restatement of Conflict of Laws, which favors an interest-based test that applies the privilege law of the state with the greatest interest in the communication:
(1) Evidence that is not privileged under the local law of the state which has the most significant relationship with the communication will be admitted, even though it would be privileged under the local law of the forum, unless the admission of such evidence would be contrary to the strong public policy of the forum.
(2) Evidence that is privileged under the local law of the state which has the most significant relationship with the communication but which is not privileged under the local law of the forum will be admitted unless there is some special reason why the forum policy favoring admission should not be given effect.
Restatement (2d) of Conflict of Laws § 139. See e.g., In re Yasmin & Yaz (Drospirenone) Mktg., Sales Practices & Prod. Liab. Litig., No. 3:09-md-02100, MDL No. 2100, 2011 WL 1375011, *9-15 (S.D. Ill. Apr. 12, 2011) (collecting cases); see also Wellin v. Wellin, 211 F. Supp. 3d 793, 804 (D.S.C. 2016).
The rationale behind the first rule in the Second Restatement approach is that there is little reason for the forum state to exclude evidence that is not privileged under the law of the state where the communication was made, given that it would not defeat the expectations of the parties. “[I]f they relied on any law at all, they would have relied on the local law of the state of most significant relationship.” Id. cmt. c.
The rationale behind the second rule in the Second Restatement approach—which is the fact pattern present in the Exxon matter—is that there are competing interests to be balanced: On the one hand, the forum state has “a strong policy favoring disclosure of all relevant facts that are not privileged under its own local law,” but on the other hand, “the state which has the most significant relationship with the communication has a substantial interest in determining whether evidence of the communication should be privileged[, and] [i]t is also the state to whose local law a person might be expected to look for guidance.” Id. cmt. d.
Had the Appellate Division followed the Second Restatement analysis in the Exxon matter, it would have had to evaluate a number of factors:
1. The number and nature of the forum state’s contacts with the parties and with the transaction involved: If the forum state’s contacts are “numerous and important,” the forum court will be more reluctant to give effect to the foreign privilege than if the contacts are “few and insignificant.”
2. The relative materiality of the evidence sought to be excluded: If the facts that would be established by the evidence “would be unlikely to affect the result of the case or could be provided in some other way,” the forum court would be more inclined to give effect to the foreign privilege.
3. The kind of privilege involved: If the foreign privilege is “well established and recognized in many states” or “is generally similar to one or more privileges found in its local law,” the forum court will be more inclined to give effect to the foreign privilege.
4. Fairness to the parties: The forum court will be more inclined to give effect to a foreign privilege if it was probably relied upon by the parties—e.g., if the parties were aware of the existence of the privilege at the time of the communication or relied on the fact that such communications are typically treated in strict confidence in that jurisdiction—or if the privilege belongs to someone who is not a party to the litigation.
It is noteworthy that the forum court may not necessarily view a general choice of law provision in a contract to be dispositive of which law should apply to a privilege dispute. In Harrisburg Authority v. CIT Capital USA, Inc., 716 F. Supp. 2d 380 (M.D. Pa. 2010), for example, the court opted to apply New York law regarding the scope of the attorney-client privilege, notwithstanding the fact that the contract at issue in the case contained a Pennsylvania choice of law provision. The court reasoned that the privilege at issue did not involve a dispute over benefits received from or obligations imposed by the contract provisions, but instead involved issues collateral to the contract. Id. at 391-92.
In short, most states have not established which conflict of laws rules they will apply to disputes over privileges, and even for those states that have addressed the issue, the case law may be inconsistent. If you are drawn into litigation outside the jurisdiction where your privileged communications took place, then, depending on the forum, there is some possibility that those communications could be subject to disclosure in discovery, notwithstanding your expectations at the time the communications were made. It may be worth ascertaining up front the privilege laws in your home jurisdiction that are available to protect your communications and considering steps to document, contemporaneously with your privileged relationship, your expectation that those communications will be privileged under the applicable law of your jurisdiction. In courts that are concerned about forum-shopping, such documentation, while not outcome-determinative, could be persuasive in helping your preferred jurisdiction carry the day in a conflict of laws analysis.