United States: Privilege Considerations When Defending Corporate Clients

Although the attorney-client privilege applies to in-house counsel equally as outside counsel, courts scrutinize the privilege more carefully when it involves in-house counsel

When defending corporate clients, one of the primary issues to tackle is identifying when a corporate document contains privileged information. This can be difficult for two reasons. First, many corporate employees mistakenly believe that as long as in-house counsel is included in an email or a document it is privileged. This results in a host of communications that on the surface may appear privileged but under greater security are not. Second, in-house counsel often wear multiple hats, making it difficult to determine when a communication contains legal versus business advice.

Although the attorney-client privilege applies to in-house counsel equally as outside counsel, courts scrutinize the privilege more carefully when it involves in-house counsel. To be protected, the communication must contain legal advice or be made for the purposes of providing or giving legal advice. Recognizing that communications with in-house counsel may contain both legal and non-legal advice, most courts hold, "for the privilege to apply, the client's confidential communication must be for the primary purpose of soliciting legal, rather than business, advice."

Whether a document was prepared for primarily a legal purpose is a factual determination. Courts may look to the role that the in-house counsel was performing at the time the communication was made to determine whether it contains legal versus business advice. Some courts have held that an in-house counsel who works outside the corporation's legal department is providing business rather than, legal advice. In all cases, the courts conduct the privilege analysis on a document-by-document basis. In a recent opinion from the S.D. New York (Int'l Cards Co., Ltd. v. MasterCard Intern. Inc.), the court had the following guidance to the parties: "Documents shared with in-house attorneys are not presumptively privileged, nor are documents arising from conferences at which in-house attorneys were present. A business document vetted by the legal department is unlikely to be privileged, while a communication from the legal department containing advice as to the document is likely to be privileged."

Even assuming a document contains legal advice, the privilege may be waived if the communication was too widely disseminated. One of the basic tenants of the attorney-client privilege is that disclosure of privileged information to a third party can waive privilege. In the context of corporate employees, a third person is not just someone outside of the company, but can be an employee within the corporation as well.

There are two leading tests for determining the employees who should be included on a privileged communication: the control group test and the modified subject matter test. Under the control group test, a communication between an in-house counsel and an employee is privileged if the employee was a corporate decision maker, someone with authority to obtain legal advice, or in a position to act on legal advice on behalf of the corporation. Under the modified control group test, a communication between an in-house counsel and an employee is privileged if it "concerned matters within the scope of the employees' corporate duties, and the employees themselves were sufficiently aware that they were being questioned in order that the corporation could obtain legal advice." Some courts ask only one question under the control group test: Did the employee "need to know" the legal advice contained in the communication?

Ultimately, the burden is on the party asserting the attorney-client privilege to establish each element of the three-part standard. Any ambiguities as to whether the essential elements have been met are construed against the party asserting the privilege. Keeping this burden in mind, be sure to understand the circumstances under which the communication was made. Specifically, get an understanding of what "hat" in-house counsel was wearing and understand why each recipient was included on the document. Finally, make sure, as the court will, to conduct the privilege review on a document-by-document (sometimes even line-by-line) basis.

This article first appeared in Inside Counsel on October 23, 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.