When dealing with communications protected by the attorney-client privilege, companies face an added challenge that does not apply to most individuals. As we all know, emails can and are forwarded rather easily within and outside of companies. The sharing of such communications raises a host of potential issues for companies, including the potential waiver of the attorney-client privilege. A couple of recent decisions addressed these very issues and shed some light on when the attorney-client privilege may be waived by a company.
In AU New Haven, LLC v. YKK Corp., No. 1:15-CV-3411-GHW, 2016 WL 5477775 (S.D.N.Y. Sept. 28, 2016), the United States District Court for the Southern District of New York reviewed a variety of communications to determine whether they were protected by the attorney-client privilege. Many of the communications involved circumstances where the communications were circulated beyond the attorney-client relationship, specifically non-attorney employees within the same company or employees of another company under common ownership. While the court noted that the attorney-client relationship is automatically waived when a privileged communication is disclosed to a third party or a litigation adversary, there are some exceptions to this general rule.
One of those exceptions concerns communications between clients and non-lawyer agents or contractors of the attorney, as communications to an attorney’s agent or contractor at the behest of the attorney can be for the purpose of obtaining legal advice. The court in YKK explained that this exception applies differently in the context of corporations. To this end, the court noted that the United States Supreme Court in Upjohn Co. v. United States, 449 U.S. 383 (1981), rejected the “control group” test for the attorney-client privilege, which applied the privilege only to a company’s top executives, finding that an “attorney’s advice will also frequently be more significant to noncontrol group members than those who officially sanction the advice, and the control group test makes it more difficult to convey full and frank legal advice to the employees who will put into effect the client corporation’s policy.” Based on this principle, courts have determined that “the distribution within a corporation of legal advice received from its counsel does not, by itself, vitiate the privilege.”
Another exception the court discussed concerns the common interest rule. To protect a privileged communication under the common interest rule, a party must show that “(1) the party who asserts the rule must share a common interest with the party with whom the information was shared and (2) the statements for which protection is sought [must have been] designed to further that interest.” The common interest must be legal in nature, not commercial. The court went on to hold, however, that the common interest need not be “identical,” as such a stringent test would “unduly hamper the purpose of the common interest rule.” In reaching this conclusion, the court noted that it is “commonplace that parties may engage in a ‘common legal strategy’ without having an exactly identical interest in the outcome of the litigation” and the “joint endeavor is not diminished solely because, in the final instance, the remedies that they derive from the litigation differ.” The court concluded that “[t]he key question is whether the parties are collaborating on a legal effort that is dependent on the disclosure of otherwise privileged information between the parties or their counsel.”
The court then proceeded to evaluate whether the attorney-client privilege applied to a number of documents, only some of which will be addressed here.
One email the court examined was from the Stuart Press, President of Uretek, to an employee of the company (not described or otherwise identified as an executive) concerning a patent application. The email from Press had forwarded an email from the company’s attorney to Press that described the patent application, which the court found to be a privileged communication. In this instance, without much explanation, the court found that forwarding the email to the company employee did not waive the privilege.
Another email the court examined was from a non-attorney to eight non-attorney recipients that contained primarily non-privileged business information. Item number six of the document, however, referenced prior advice by an attorney regarding whether a certain product could be used in light of a certain patent. The court found that the advice was legal, not business, in nature, and, thus, it could potentially be privileged. The plaintiff in the litigation challenged the claim of privilege, however, on the ground that the entities with which the communication was shared did not share a common interest that was sufficient to apply the attorney-client privilege. In this regard, the attorney that gave the advice in the email represented YKK Corporation of America (“YCA”), not YKK Corporation (“YKK”), and the email was forwarded to employees of YKK. The defendants countered that YCA and YKK shared a common ownership, as YCA was a wholly owned subsidiary of YKK, and entities under a common ownership sharing privileged information are always considered a single entity for purposes of the attorney-client privilege. The court rejected the per se standard the defendants advocated, noting that privileges should be narrowly construed and, “in certain circumstances, commonly owned subsidiaries simply do not have the common purpose in litigation necessary for the invocation of the doctrine.” Although the court rejected the per se rule advocated by the defendants, the court ultimately found that the common interest doctrine applied in this case and the forwarded email remained privileged. In reaching this conclusion, the court, based on its in camera review of various documents, found that the legal departments of each member entity (meaning YCA and YKK) worked collaboratively with each other and the court credited the testimony of YCA’s Chief Legal Counsel, who testified that the two legal departments “essentially function[ed] as a single unified department which provides legal advice to all members of the YKK Group.”
Separately, in Newman v. Highland School District No. 203, 381 P.3d 1188 (Wash. 2016), the Washington Supreme Court, in a case of first impression in that state, held that the United States Supreme Court’s decision in Upjohn did not “justify applying the attorney-client privilege outside the employer-employee relationship.” Although the court in Newman recognized that the Supreme Court’s decision in Upjohn advocated a flexible approach to applying the attorney-client privilege, which necessarily involved non-managerial employees, the court determined that the flexible approach advocated by Upjohn “presupposed attorney-client communications take place within the corporate employment relationship.” The court in Newman declined to “expand the privilege to communications outside the employer-employee relationship because former employees categorically differ from current employees with respect to the concerns identified in Upjohn.” The court in Newman declined to apply the privilege after the employer-employee relationship terminates because, according to the court, “this generally terminates the agency relationship.” In reaching that conclusion, however, the Washington State Supreme Court acknowledged that courts in other jurisdictions have recognized the attorney-client privilege extends to former employees in circumstances where a continuing agency duty exists, but the court in Newman did not make any effort to distinguish those circumstances from the one before it or to recognize any exceptions to its holding that the attorney-client privilege cannot apply to former employees.
The decisions in YKK and Newman are important for companies and their respective legal counsel. First, YKK gives some guidance as to when communications forwarded to other employees within the company may remain privileged. Second, YKK establishes some guidelines for companies with parent-subsidiary relationships to follow when trying to determine whether communications between the parent and subsidiary may remain privileged. Notably, even though there may be common ownership, the court in YKK did not recognize a blanket rule that allowed the common interest doctrine to apply in every instance where there is a parent-subsidiary relationship. Third, the court’s decision in Newman sets forth a rather restrictive application of the attorney-client privilege, as it appears to establish a blanket rule that the privilege can never apply to former employees. While this strict application of the rule governs communications in the State of Washington, it is important for companies to understand the limits and reaches of the privilege in each state where they operate, as the restrictive approach taken by the Supreme Court of Washington does not apply in every state and other states do permit the privilege to apply to communications with former employees in some circumstances.