Do the Right Thing, Inside and Out: Ethics for...

Do the Right Thing, Inside and Out: Ethics for Transactional Attorneys

ABA Business Law Section Spring 2007 Meeting

Commercial Financial Services Committee

Committee Forum

March 15, 2007 Program Panel: Corie Pauling, Senior Counsel, TIAA, Moderator Thomas B. Mason, Partner, Zuckerman Spader LLP Raymond L. Sweigart, Partner, Pillsbury Winthrop Shaw Pittman LLP

Table of Contents

Program Outline

Conflicts in Transactional Matters. Identifying and Avoiding Conflicts at the Outset of An Engagement ..................................Thomas B. Mason

Form of Engagement Letter (Law Firm)

Protecting the Attorney-Client and Other Privileges .......................Raymond L. Sweigart

Issues/References to Outline ............................................Raymond L. Sweigart

Attorney-Client Privilege for Transactional Lawyers – Sample Documents ..................................................Raymond L. Sweigart

Challenges to the Attorney/Client Relationship: Disqualification and Privilege Disputes ................................................................ Corie Pauling

Program Outline Conflicts

• Basic Conflicts Rules o Current Client Conflicts o Former Client Conflicts o Imputation of Conflicts o Waiver of Conflicts

• Identifying Conflicts o Who is the client?

De Facto Clients Corporate Families and Membership Organizations Former client or current client?

• Representing Multiple Parties • Examples/Hypotheticals

• Strategies for Avoiding Conflicts

Communications During the Transaction

• Privilege (and How Not to Lose It) • Communication with a Non-Client

o Represented by Other Counsel o Not Represented

• Watch Out for Expectations as to Who You Represent When a Transaction Becomes a Dispute

• Disqualification • Privilege (and How Not to Lose It) • Watch Out for Expectations as to Who You Represent

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Conflicts in Transactional Matters

Identifying and Avoiding Conflicts at the Outset of An EngagementThomas B. MasonZuckerman Spaeder LLP


Prohibitions on Conflicts of Interests Apply in Transactional MattersABA Model Rule 1.7 Comments [7] and [26]:“Directly adverse conflicts can . . . arise in

transactional matters.”“Conflicts of interests . . . arise in matters

other than litigation.”

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Basic conflict rules

Identifying conflicts

Strategies for avoiding conflicts

Basic Conflict Rules

Concurrent conflicts, i.e., conflicts between current clientsFormer client conflictsImputation of conflictsWaiver

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Basic Conflict Rules:Current Client Conflicts

ABA Model Rule 1.7: Representation of one client in a matter directly adverse to another clientRepresentation of client “materially limited” by responsibilities to other clients, third parties, etc.

Basic Conflict Rules: Former Client Conflicts

ABA Model Rule 1.9:Representation of a current client against a former client in a matter that is “substantially related” to the work done for the former client

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Basic Conflict Rules:Imputation of Conflicts

ABA Model Rule 1.10With limited exceptions, your colleague’s conflict is your conflictWith limited exceptions, screening does not cure a conflict

Basic Conflict Rules: Waiver

Some, but not all, conflicts can be waivedOnly per se non-waivable conflicts under ABA Rules are litigation conflicts (ABA Model Rule 1.7(b)(3))Waiver of future conflicts permitted (Comment [22] to ABA Model Rule 1.7)

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Identifying Conflicts: Key Questions

Who is the client?Are you representing multiple, adverse parties? Handling client confidential information?

Identifying Conflicts:Who is the Client?

“Accidental” or “de facto” clientsCorporate family issues: e.g., are parents, affiliates, subsidiaries, of a client also clients?Membership entities: e.g., trade associations, lending syndicates, partnerships.

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Identifying Conflicts: Who is the Client?

Corporate Family Issues: “A lawyer who represents a corporation . . . does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary.” Comment [34] to ABA Model Rule 1.7

Identifying Conflicts:Who is the Client?

BUT, a corporate affiliate may also be a client: if the lawyer has agreed to so treat itif the lawyer, in practice, so treats itif the affiliate reasonably believes that it is a client of the lawyer

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if the lawyer and affiliates share confidential informationif affiliates share common management, especially in-house counselif corporate formalities among distinct entities are not observed

E.g., ABA Formal Opinion 95-390.


Trade Associations, etc.Are members of trade associations, partnerships, franchisee groups, lending syndicates represented by a lawyer also clients of the lawyer? No per se rule re when a lawyer representing an informal association also represents the members of that group;

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Trade Associations, etc.Depends on facts and circumstances of each case: disclosure of confidential info by member to lawyer, reasonable expectations of the member, number of members in the association, separate representation of the member in the matter, etc.


Trade Associations, etc.E.g., Westinghouse Electric v. Kerr-McGee, 580 F.2d 1311 (7th Cir. 1978); Lawyer’s Ability to Represent a Trade Association As Well As Clients with Interests Adverse to Individual Members of Association, NYC Eth. Op. 1999-1, 1999 WL 1845729

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When does a client become a former client?

For engagements limited to specific matters, representation terminates when matter is completed; for other engagements, client may assume relationship continues unless lawyer sends notice of withdrawal. ABA Model Rule 1.3, Comment [4]

Identifying Conflicts:Representing Multiple Parties

“A lawyer may not represent multiple parties to a negotiation whose interests are fundamentally antagonistic . . . but [with disclosure and consent] common representation is permissible where clients are generally aligned in interest even though there is some difference in interest among them.” ABA Model Rule 1.7, Comment [28]

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“Lawyer may seek to establish . . . a relationship between clients on an amicable and mutually advantageous basis,” “resolv[ing] potentially adverse interests by developing the parties mutual interests” ABA Model Rule 1.7, Comment [32]


Confidential InformationCompeting principles: each party to a representation has the right to require its lawyer to maintain its confidences but in common representations the privilege may not attach as between common clients. Comment [30] to ABA Model Rule 1.7

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Need consent to withhold confidential information as between clients.Even with consent, withholding confidential information is problematic if the same lawyer w/in the firm represents all parties. If different lawyers w/in a firm representing multiple clients, screening with client consent may suffice.

See Conflicts of Interests; Waivers, Imputation of Conflicts, NYC Eth. Op. 2001-2, 2001 WL 1870202.

Identifying Conflicts: Example 1

Lawyer’s Firm Represent Bank X on real estate (but not lending) matters; lawyer is asked to represent Borrower in a loan transaction with Bank X. Is it a conflict? Is it waivable?

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Yes, it is a conflict. In representing Borrower, the lawyer would be adverse to Bank X, also a client of the Lawyer’s Firm. But the conflict is waivable. ABA Model Rule 1.7(a)(1) and (b), Comment [6]


Lawyer’s Firm (but not lawyer) represents Borrower, lawyer leaves Firm and goes to work for Bank X and is asked to handle a loan to BorrowerSame as above, except that lawyer before joining Bank X worked on a matter for Borrower

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No conflict, Rule 1.9(b) allows lawyer who leaves Firm to be adverse to Firm clients so long as lawyer has no relevant confidential informationUnder Rule 1.9(b), conflict if lawyer leaving Firm has relevant confidential information. Conflict can be waived.


Firm represents Bank X as lead bank in lending syndicate. Firm also represents Bank Y (a member of the syndicate), but not on this transaction. Bank X’s and Y’s interests in the deal are aligned in most but not all respects. Can firm represent Bank X in negotiations with Bank Y?

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Conflict, if Firm is negotiating with Bank Y on behalf of Bank X. Bank Y can waive conflict or Firm can eliminate conflict with limitation on scope of representation of Bank X, i.e., not negotiating or advising on matters between Bank X and Bank Y.


Firm is asked by Borrower to give an opinion on a regulatory matter with respect to a loan transaction with Bank X, which Firm represents on other matters. Firm does not otherwise participate in the transaction between Borrower and Bank X.

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Answer may depend on the nature of the opinion and issue addressed in it. Standard opinion that a corporation was validly formed and remains in existence may not give rise to conflicts. More complex opinions on more nuanced subjects may create conflicts. So long as Firm is not representing Bank X in the transaction, the conflict is waivable.


Firm represents Lender. Borrower is obligated to pay Lender’s legal fees. Borrower asks for Firm’s detailed billing statement to Lender

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Identifying Conflicts:Example 5

A client confidentiality issue, not a conflict issue. Lawyer can only disclose client confidences with client authorization. Typically, detailed billing statements are considered client confidences.


Firm represents Underwriter in a securities offering. Firm also represents a subsidiary of Issuer on other matters and Issuer as tax/regulatory counsel on this deal. Issuer has separate transaction counsel.

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Conflict. In representing Underwriter, Firm is adverse to Issuer who is also a client by virtue of Firm’s tax/regulatory work for Issuer and perhaps as a result of Firm’s work for subsidiary of Issuer. Conflict may be waivable. See Conflicts of Interests; Waivers, Imputation of Conflicts, NYC Eth. Op. 2001-2, 2001 WL 1870202.

Strategies for Avoiding Conflicts

The Engagement LetterDefine the client in the engagement letter: “best solution to the problems that may arise by reason of clients’ corporate affiliations is to have a clear understanding . . . at the very start of the representation, as to which entity or entities in the corporate family are to be the lawyer’s clients” ABA Formal Op. 95-390

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Watch out for broad definitions of client in corporate guidelines and proceduresObserve the limitations in the engagement letter during the representation, particularly with respect to confidential information Consider advance waivers – the more specific the better


For unincorporated associations and other informal groups, advise potential “de facto” clients that they are not your clients and observe that restriction in practice

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Common RepresentationsDisclosure and ConsentLimitations on scope of representation to avoid non-consentable conflicts, i.e., don’t negotiate business termsRetention of independent “shadow”counsel for each party


SummaryIdentify the client at the outset of an engagement and don’t acquire additional unintended clients Avoid unintentional or “de facto”clients in the engagement letter and through written notice to other possible clients

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Summary (cont’d)When representing multiple clients in the same matter, evaluate whether “differing interests” can be addressed by disclosure and consent or rise to non-consentable antagonism


Summary (cont’d)Address issues of client confidentiality, particularly in common representationsRe-evaluate all of the above through the course of the representation: are you in danger of a “de facto” client, have the interests of multiple clients become antagonistic, etc.

FORM OF ENGAGEMENT LETTER (LAW FIRM)

Dear ________________:

We are pleased that ______ (“______” or “you”) has selected _________________ (“we” or the “Firm”) as legal counsel to represent you with respect to the matter identified below. The purpose of this letter is to set forth the terms and conditions of our representation and the basis for the fees to be charged.

1. NATURE OF THE ENGAGEMENT.

You have requested that we represent you in connection with ______________________. This is understood and agreed to be a limited engagement, and any change in scope, or additional or further work may require a supplemental engagement letter.

For purpose of this representation, you agree that our client is _____________________ only. Because of the proliferation today of companies affiliated through common or partial ownership, and the problems this can create in identifying potential conflicts of interest, we advise our clients that this Firm will not regard any affiliate of a client (i.e., parent, subsidiary or other related entity) as a client of the Firm for any purpose, unless an attorney-client relationship with that affiliate has been established by an express agreement with the Firm. Similarly, the Firm will not regard a representation that is adverse to an affiliate of a client as being adverse to the client. You agree that our attorney client relationship is so limited, and that we remain free to take on matters for other clients, including contested or litigated matters, that may be adverse to your affiliates without that constituting a conflict of interest.

In the course of engagements, it sometimes becomes necessary to provide opinions or advice as to the laws of jurisdictions other than those where the Firm has established offices. Special local counsel may need to be retained in that situation. We will advise you if, in our judgment, the need for local counsel in the engagement has arisen.

You hereby give us permission, to the extent that our work for you becomes public, to list you in our marketing materials as a client and to briefly note the matters on which we have represented you. By granting us this permission, you do not waive our continuing obligation to continue to maintain the confidentiality of confidential information and documents that we have received from you and that you may provide to us in the future.

2. BILLING POLICIES AND PROCEDURES.

Unless otherwise agreed in writing, our fees are based on the number of hours devoted to your matter. The current rates for attorneys and paralegals who will work on your matter are as follows:

Attorney/Paralegal Name Rate

Date Page 2

From time to time, it may become necessary or desirable to assign different or additional attorneys or paralegals to work on your matter. You agree that we may charge the hourly rates currently in effect at the time the work is performed.

Our standard hourly rates are adjusted periodically to reflect the advancing experience, capabilities and seniority of our professionals as well as general economic factors. We will provide you with notice of any adjustment in rates for professionals working on your matter.

In the course of our engagement, we will use our available support systems. In addition to our fees for legal services, we will charge separately for certain costs and expense disbursements. Enclosed as Attachment “A” is a list of the Firm’s standard charges, that may be incurred during the course of the engagement. Any large disbursement amounts will be forwarded to you for direct payment to the supplier or service provider, rather than being paid by the Firm. Normally, this would apply to any disbursement of $2,000 or more. We will consult with you in advance if we reasonably anticipate incurring such large disbursements amounts on your account.

Please note that any estimates of anticipated fees that we may provide at your request, whether for budgeting purposes or otherwise, are only an approximation of actual fees because of the uncertainties involved. Unless we have otherwise agreed in writing to a specific arrangement, any such estimate is not a maximum or minimum fee quotation, and our fees will be determined based on actual hours incurred in accordance with the policies described above.

Our billing statements will normally be rendered to you on a monthly basis. Fees will generally be billed within 30 days following the month in which the services are rendered, and disbursements and other charges will generally be billed within 30 to 60 days after they are incurred by the Firm. Unless another arrangement has been agreed in writing, payment is due upon your receipt of our statement.

Please understand that timely payments of our statements is important to the firm and a critical part of our engagement. If our statement is not paid within 35 days following the date of the statement , you agree that interest on the full amount thereof at the rate of 1% per month will also be due. Interest will commence to run on the 35th day following the date of our statement for all unpaid amounts. Payment of interest does not in any way waive or limit our firm’s rights to withdraw from representation for failure to make timely payment of statements when due.

If at any time you wish to discuss any matter relating to our billing policies or a specific billing statement, we encourage you to communicate with us.

3. RETAINER.

We have agreed that you will provide a retainer of $ ______ before we commence work on this engagement. This retainer will normally be retained until the conclusion of the matter and will then be returned to you after full payment for all billing statements has been made. In our discretion, the retainer, or portions thereof, may be applied to a billing statement or

Date Page 3 statements in the course of the engagement. If all or any part of the retainer is so applied, you agree promptly to replenish the retainer to the full original amount. Upon termination of the engagement, any amount of the retainer remaining after deduction of any fees and other charges which then remain unpaid will be promptly returned to you.

In addition, should it become necessary for the Firm to expand the scope of its services in the future, the Firm may require an additional retainer payment and supplemental engagement letter. We will discuss the additional retainer that would be appropriate given the services required of the Firm at that time.

Payment for a retainer should be sent by separate check or wire clearly marked as “retainer.” Please do not include any invoice payments for services or expenses in the same check. Funds received that are not marked as “retainer” or that are transferred into our operating account will be considered payments against invoiced amounts.

4. CONFLICT OF INTEREST.

As we have discussed, our conflict of interest review discloses that our Firm is currently representing ____________ in _____________ in which _________________ is adverse to you. The rules of professional conduct prohibit a law firm from representing a client in a matter against another current client without the informed written consent of both clients, even where, as here, the two representations are unrelated. In order for the Firm to undertake your representation in this matter, while continuing to represent adversely to you, we are required to obtain your written consent as well as the written consent of _________________. We are not aware of any actual or reasonably foreseeable adverse consequences of such a conflict of interest in light of the fact that there is no relationship between the matter in which we are representing ____________ and the matter on which you propose to engage the Firm. By signing and returning to us the enclosed copy of this letter, you will be acknowledging that you have been advised of the conflict associated with our continued representation of ___________ and that you consent to our continuing with that representation and consent to our requesting a reciprocal consent from _____.

5. ADVANCE CONFLICT WAIVER.

As you know, the Firm represents many different clients with diverse interests. Many of our clients compete with one another and do business with one another. We are precluded by the Rules of Professional Conduct and Code of Professional Responsibility, however, from representing a client in a matter in which the client’s interests are adverse to the interests of another client of the firm, absent the written consent of both clients. In the future, we may be asked to represent another client in a transaction or dispute adverse to you, where that transaction or dispute is unrelated to the matter involved in our representation of you. For that circumstance, we ask that you give us advance consent at this time to any such representation and that you waive any conflicts that such a representation would present.

Date Page 4

Currently, we foresee that we may be asked to represent certain specific clients [NAME CLIENTS] that may be adverse to you in the future.

Your execution of this engagement letter constitutes your consent to the advance waiver described above. We will at all times preserve all your confidences and secrets as the applicable Rules of Professional Conduct and Code of Professional Responsibility require, and this advance conflict waiver does not affect that obligation.

6. TERMINATION.

You may terminate our representation at any time, with or without cause, by providing written notice to us. In that circumstance, your papers and any of your other property will be returned promptly upon our receipt of a written request from you for their return and our receipt of payment for fees and other charges incurred through the date of such termination.

Your termination of our engagement will not affect your responsibility for payment for legal services rendered and other charges incurred prior to termination or in connection with a transition of the matter to other counsel. At our own expense, we may retain a copy of all files, records and documents involving the matter.

We have the right to withdraw from our representation of you subject to any applicable professional responsibility rules. Certain circumstances may require us to withdraw from continuing to represent a client. We will identify in advance and discuss with you any situation that might require or lead to our withdrawal from representation.

7. ARBITRATION OF DISPUTES.

If you disagree with the amount of our fees or other charges at any time, or if you have any concern as to any other matter related to or arising out of our engagement, including the nature and quality of our services, please discuss any such questions or concerns with us. Typically, such questions or concerns can be resolved to the satisfaction of both parties with little inconvenience or formality. In the event any dispute cannot be resolved informally, you agree to resolve any and all disputes with the Firm, or with any of our lawyers or staff arising from or relating to our work for you, including but not limited to disputes over fees and charges, exclusively through private and confidential binding arbitration before the American Arbitration Association, under the rules for commercial disputes, before one neutral arbitrator for any dispute where the claim is less than $100,000, or before three neutral arbitrators for any larger dispute.

We also advise you that in the event of a dispute that cannot be readily resolved, you may have the right to request arbitration in New York City under Part 137 of the Rules of the Chief Administrator of the Office of Court Administration of the New York State Unified Court System or under applicable bar association procedures. By signing this engagement letter, you waive that right and agree to binding private arbitration as provided above.

Date Page 5

8. RETURN OF FILES AND OTHER MATERIALS AT COMPLETION OF ENGAGEMENT.

At the completion of this engagement, you may request the return of any client papers, files and other property in our possession. Such a request should be made in writing. In working on the engagement, we will preserve communications and documents in either hard-copy or electronic form, depending on the circumstances. If you do not request the return of such materials, we will maintain them only for a period of five (5) years, after which time you agree that we may dispose of them. Prior to disposal of such materials, we will advise you in writing, at the last known address in our files, of our intent to do so and give you an opportunity to request the materials if you so desire. Any disposal will be made in a confidential manner. You agree to pay for all time and costs related to identification, review and return to you of any materials. At our sole discretion and expense, we may make and keep a copy of any materials being returned to you.

9. REVIEW AND RETURN OF LETTER.

We ask that you review this letter carefully and let us know if there is any provision that you do not understand. You are also free, and encouraged to review this engagement letter with other counsel of your choice. If the terms of this letter are acceptable, please sign the enclosed copy of this letter and return it to me. We recommend that you keep a signed copy of this letter in your files. If you have questions or concerns about any aspect of our services or the relationship at any time, please do not hesitate to contact me.

We are pleased to have this opportunity to be of service and look forward to working with you on this engagement.

Very truly yours, Partner ACCEPTED AND AGREED TO: By Name: Title: Date:

PROTECTING THE ATTORNEY-CLIENT AND OTHER PRIVILEGES

Raymond L. Sweigart Pillsbury Winthrop Shaw Pittman LLP

I. INTRODUCTION............................................................................................................. 1

A. Definition ................................................................................................................ 1

B. No bright lines......................................................................................................... 1

C. Law varies............................................................................................................... 2

II. THE RULES...................................................................................................................... 2 A. Role of Inside Counsel as Legal Advisor vs. Business Executive.......................... 2

B. Use of Inside Counsel To Hide Information........................................................... 5

C. Confidentiality ........................................................................................................ 6

1. Client Confidences...................................................................................... 6

2. E-mail Communication............................................................................... 7

3. Metadata...................................................................................................... 8

4. Cordless & Cell Phones .............................................................................. 9

5. Dumpster Diving....................................................................................... 10

6. Inadvertent Disclosure .............................................................................. 11

III. NEGOTIATIONS ........................................................................................................... 12 A. General Principles................................................................................................. 12

B. Illustrative Cases................................................................................................... 12

IV. DEALING WITH THIRD PARTIES ........................................................................... 16

A. Auditors................................................................................................................. 16

1. Insurance Auditors .................................................................................... 16

2. Other Auditors .......................................................................................... 16

B. Investment Banker/Accountant............................................................................. 17

C. Insurance Broker................................................................................................... 18

D. Independent Contractors – Outsourcing ............................................................... 19

E. Exchanging Information Within the Corporate “Family” .................................... 21

V. OTHER CONSIDERATIONS....................................................................................... 22

A. “Work Product” Doctrine and Limitations ........................................................... 22

B. Disseminating Information ................................................................................... 26

C. Communication to Low-Level Employees and Other Non-Lawyer Employees:. 27

D. When In-House Counsel is Designated to Testify................................................ 27

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I. Introduction

A. Definition

A well-known treatise provides the most comprehensive statement of the criteria for the attorney/client privilege to apply:

(1) Where legal advice of any kind is sought

(2) from a professional legal adviser in his capacity as such,

(3) the communications relating to that purpose,

(4) made in confidence

(5) by the client,

(6) are at his instance permanently protected

(7) from disclosure by himself or by the legal adviser,

(8) except the protection be waived.

8 John H. Wigmore, Evidence in Trials at Common Law §2292 (McNaughton Rev. 1961).

Where in-house counsel is involved, “Confidential communications between in-house counsel and corporate employees are privileged to the same extent as communications between outside counsel and a client.” Ames v. Black Entertainment Television, 1998 WL 812051 (S.D.N.Y. Nov. 18, 1998). However, “Because an in-house attorney, particularly one who holds an executive position in the company, often is involved in business matters, in order to demonstrate that the communication in question is privileged, the company bears the burden of ‘clearly showing’ that the in-house attorney gave advice in her legal capacity, not in her capacity as a business adviser.” Id.

States can and do adopt variant formulations; see below.

B. No bright lines – judgment calls – fact-intensive

As Judge Kaye said, writing for unanimous N.Y. Ct. of Appeals in Rossi v. Blue Cross, 73 N.Y.2d 588, 593 (1989): “No ready test exists for distinguishing between protected legal communications and unprotected business or personal communications . . . .”

Rossi illustrates the confusion: trial court with in camera review ordered production; divided appellate division reversed; and Court of Appeals unanimously affirmed that materials were privileged.

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C. Law varies

Federal v. state, and state law varies.

In California, there is a qualified privilege against discovery of an attorney’s general work product and an absolute privilege against discovery of an attorney’s impressions, conclusions, opinions, or legal theories. In re Jeanette H. 225 Cal. App. 3d 25, 31 (1990). The work product privilege is not limited to documents prepared in anticipation of litigation, but also applies to the work product of an attorney generated in the attorney’s role as counselor. Aetna Casualty & Surety Co. v. Superior Court, 153 Cal. App. 3d 467,478-79 (1984).

In New York, the protection for attorney work product is absolute (CPLR 3101(c)), but trial preparation materials enjoy only a qualified privilege (CPLR 3101(d)2).

In NJ, attorney/client privilege yields to public policy concerns (NY also has a public policy exception, but it’s rarely used).

PRACTICE POINTERS: Because it is unclear where a suit will occur ⎯ Fed. vs. state and you may not even know

what state — need to be careful.

In diversity cases, look to state law on privilege, but federal law will govern work product. F.R.C.P. 26(b)(3).

In New York, attorney work product (CPLR 3101(c)) and trial preparation (CPLR 3101(d)2) are two different concepts.

II. The Rules

A.

1.

(i)

Role of Inside Counsel as Legal Advisor vs. Business Executive.

Perception (and in many cases reality) is that inside counsel is not only lawyer, but also a business person ⎯ may even have a second title, like Corporate Secretary.

Illustrative cases:

Rossi p. 592-93: “[S]taff attorneys may serve as company officers, with mixed business-legal responsibility; whether or not officers, their day-to-day involvement in their employers’ affairs may blur the line between legal and non-legal communications; and their advice may originate not in response to the client’s consultation about a particular problem but with them, as part of an ongoing, permanent relationship with the organization.” (Emphasis added).

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(ii) In U.S. v. Chevron Corp., 1996 WL 264769 (N.D. Cal. 1996), the court was even more blunt:

“Some courts have applied a presumption that all communications to outside counsel are primarily related to legal advice. See Diversified Indus. v. Meredith, 572 F.2d 596, 610 (8th Cir. 1977). In this context, the presumption is logical since outside counsel would not ordinarily be involved in the business decisions of a corporation. However, the Diversified presumption cannot be applied to in-house counsel because in-house counsel are frequently involved in the business decisions of a company.” Chevron, 1996 WL 264769 at *4.

2.

(i)

Title may matter.

Boca Investerings Partnership v. U.S., 31 F. Supp.2d 9 (D.D.C. 1998). Says that the presumption for in-house counsel working in departments that are on the business side is that they are NOT doing legal work and must affirmatively prove that a communication is legal for the privilege to apply:

“One important indicator of whether a lawyer is involved in giving legal advice or in some other activity is his or her place on the corporation’s organizational chart. There is a presumption that a lawyer in the legal department or working for the general counsel is most often giving legal advice, while the opposite presumption applies to a lawyer…who works for…some…seemingly management or business side of the house…A lawyer’s place on the organizational chart is not always dispositive, and the relevant presumption therefore may be rebutted by the party asserting the privilege.” (citing In re Sealed Case, 737 F.2d 94, 99 (D.C. Cir. 1984).

Borase v. M/A Com, Inc., 171 F.R.D. 10 (D. Mass. 1997). Need affirmative proof that a counsel with both business and legal hats is doing legal work to obtain privilege, cannot presume that it is privileged:

Where in-house counsel who was also general secretary of the company had conversations with senior managers and officers regarding employee entitlement to stock options and firing of employee, and where court thought the communications might be business/non-privileged or legal/privileged, court held non-privileged because company failed to introduce proper affidavits that the counsel was acting in a legal capacity.

(ii)

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3. Mixing business and legal discussions: timing as a factor of privilege.

Satcom Int’l Group v. Orbcomm Int’l Partners, 1999 WL 76847 (S.D.N.Y 1999). Court follows “other courts” taking an approach used by Virginia court that:

“[A]ssertion of the privilege over all communications at a strategy and policy committee meeting that included both legal and business decisions so long as those decisions were arrived at ‘only after examining the legal implications of doing so.’” (quoting Kelly v. Ford Motor Co., 110 F.3d 954, 966 (3d Cir. 1997)).

Court then ruled privilege applied to communications from an “Executive Committee Meeting” where in-house counsel was present for purpose of rendering legal advice regarding company’s non-performance on licensing agreements.

4. Whether attorney has a vote may change result.

If counsel has voting privilege on business decision committee, all communications could be judged business, not legal, and not privileged. Marten v. Yellow Freight System, Inc., 1998 WL 13244, at *8 (D. Kan. Jan. 6, 1998): “In the context of a required meeting to determine possible employment actions, legal advice sought or received during such meeting appears to be incidental to considerations of what is most prudent for the successful operation of the business.”

Court then found that counsel’s attendance at meeting of an employee review committee, where counsel had a vote in decision to terminate employee, produced non-privileged communications because “[a]s a voting member of the [committee] . . . [the counsel] was not acting merely as an attorney rendering legal advice. Officially voting on a proposed action goes beyond the bounds of giving legal advice. It performs an act of business. Legal considerations may influence his vote or that of any other committee member as well. The attorney-client privilege does not protect the act of voting, the minutes which record it, or all the discussion of the committee relating to its decision.”

But note: “Mere membership on a committee does not itself necessitate a finding that a counsel was not acting as an attorney. Membership on a committee which decides if an employee should be terminated . . . may lead to an inference that the attorney…was acting in a non-legal capacity. When an attorney is a voting member, the indication is even stronger.” Id. at *9.

Court found defendant failed to prove counsel acted in legal capacity.

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B.

1.

(i)

Use of Inside Counsel To Hide Information.

Concern that corporations use inside counsel to try to cloak non-privileged communications by including inside counsel even though not really seeking their legal judgment.

Illustrative Cases:

Rossi p. 593: “the need to apply the [a/c privilege] cautiously and narrowly is heightened in the case of corporate staff counsel, lest the mere participation of an attorney be used to seal off disclosure.” (The opinion cites the Yale Law Journal from 1956 -- this is not a new concern!)

(ii) F.C. Cycles Int’l, Inc. v. Fila Sport, S.P.A., 184 F.R.D. 64, 71 (D. Md. 1998). “What would otherwise be routine, non privileged communications between corporate officers or employees transacting the general business of the company do not attain privileged status solely because in-house or outside counsel is ‘copied in’ on correspondence or memoranda.” (quoting U.S. Postal Service v. Phelps Dodge Refining Corp., 852 F. Supp. 156, 163-64 (E.D.N.Y. 1994)).

Court then held that memorandum in question was privileged, not because it was copied to in-house counsel for one Fila USA branch, but because it “represents the legal advice of . . . in-house counsel for Fila Canada.”

Court found the memorandum prepared by Fila Canada counsel privileged, except for one paragraph, because of its legal content where: it was “replete with references to legal possibilities,” and it plainly stated that the purpose of the meeting it summarized was to “garner legal advice.”

Neuder v. Battelle Pacific Northwest National Laboratory, 194 F.R.D. 289 (D.D.C. 2000), describes common situations where red flags may be raised and give the impression that in-house counsel is “hiding the ball”:

(iii)

o documents prepared by non-attorneys are copied and routed through counsel, but are not privileged because they are not made primarily for legal advice.

o recitation of the phrase “confidential and privileged attorney-client communication” is not dispositive for determining attorney-client privilege.

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o meetings with attendance of counsel but primary function was to make business decisions and not obtain legal advice are not privileged.

PRACTICE POINTERS: The concern over the dual roles of in-house counsel suggest two opposing strategies, each

of which has at times been endorsed by a court:

(i)

(ii)

separate legal advice from business discussions in memoranda, and where practical create separate documents; or

draft memoranda in which the business material is so interwoven with the legal material that the two cannot be separated, and it is clear from reading the document that it is primarily legal in nature and any business material is incidental to providing legal advice.

See the 1996 California case: U.S. v. Chevron Corp. Business advice was not privileged; one cannot make blanket assertion of privilege. If document is an “amalgam of legal and business advice,” the party claiming privilege bears the burden of proving privilege. The non-privileged portions of the document must be produced, with privileged portions redacted, unless privileged and non-privileged portions are “inextricably intertwined.”

C.

1.

Confidentiality Requirement:

Client confidence requirement

Confidentiality is discussed largely in context of whether the privilege has been waived. Courts generally require that privileged information be kept confidential in order to remain privileged.

BUT: at least one circuit court has identified two views of whether the privileged communication must itself contain a client confidence in order to be privileged at all.

Sprague v. Thorn Americas, Inc., 129 F.3d 1355 (10th Cir. 1997). The court identified two approaches:

(1) Narrow – courts will not protect a communication unless it contains client confidences even if the communication contains counsel’s legal advice or opinion.

(2) Broader – protect all communications regardless of whether they contain a revealed client confidence.

The 10th circuit and state of Kansas follow the broader approach, finding it to prevail in the federal courts and that the “predictability of confidence is central to the role of the attorney.” Here: the court applied the privilege to

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a memorandum from the staff attorney in charge of the human resources department to the Vice President who was also General Counsel regarding the staff attorney’s concern about disparate treatment of women at the company.

The court said the memo was protected because it was prepared by in-house counsel in the scope of counsel’s employment for higher management, and the memo was related to legal services and advice because it gave advice to the General Counsel to enable him to render legal advice which is allowed under the privilege.

2. E-mail communication

a. General Recommendations

The ordinary standard for communications is reasonable expectation of privacy.

A number of advisory opinions, including those of the American Bar Association, the Delaware State Bar Association on Professional Ethics and the Ohio Supreme Court Board of Commissioners on Grievances and Discipline, advise that counsel may use unencrypted email for privileged communications with a reasonable expectation of privacy.

The ABA panel approved all forms of e-mail transmission without the need for prior client consent as consistent with counsel’s obligation to keep client confidentiality except for information so highly sensitive that it warrants extraordinary security measures. Further, the attorney must abide by the client’s wishes for form of communication, either encrypted or unencrypted e-mail, or any other means of communication. ABA Standing Committee on Ethics and Professional Responsibility, Formal Opinion 99-413, March 10, 1999, released April 14, 1999.

Note: the ABA’s opinion is founded largely on court holdings regarding reasonable expectation of privacy pursuant to the Fourth Amendment but at least three federal decisions have allowed attorney-client privilege and work product to apply to e-mail communication:

The Association of the Bar of the City of New York advises that a lawyer need not use encrypted e-mail, but should caution clients that e-mail may not be as secure as other forms of communication. Op. 1998-2.

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b. Illustrative Cases:

In re Grand Jury Proceedings, 43 F.3d 966, 968 (5th Cir. 1994) Group of documents including “internal law firm memoranda, e-mails, draft pleadings, and memoranda to file” held within scope of work product doctrine.

(i)

(ii) United States v. Keystone Sanitation Co., Inc., 903 F. Supp. 803, 807-08 (M.D. Pa 1995) (e-mail messages held privileged but privilege then waived due to inadvertent production of printouts of the messages).

(iii) Miller v. Federal Express Corp., 186 F.R.D. 376, 386 (W.D. Tenn. 1999) (court considered application of work product protection to group of documents including, “e-mails, interoffice memos, reports, handwritten notes, and the like concerning defendant’s internal investigation,” and found all of them protected under work product).

3. Metadata

a. Definition

Metadata = “Data hidden in documents that is generated during the course of creating and editing such documents. It may include fragments of data from files that were previously deleted, overwritten or worked on simultaneously. Metadata may reveal the persons who worked on a document, the name of the organization in which it was created or worked on, information concerning prior versions of the document, recent revisions of the document, and comments inserted in the document in the drafting or editing process. The hidden text may reflect editorial comments, strategy considerations, legal issues raised by the client or the lawyer, legal advice provided by the lawyer, and other information.” New York State Bar Ass’n Committee on Prof’l Eth. Opinion 782 (Dec. 8, 2004).

b. Use of Metadata

ABA takes the position that Model Rules do not contain any specific prohibition against using metadata, whether received from opposing counsel, an adverse party, or an agent of an adverse party (assuming the lawyer acted lawfully and ethically in obtaining the documents). ABA Standing Committee on Ethics and Prof’l Responsibility, Formal Opinion 06-442, Aug. 5, 2006.

New York has taken the position that “Lawyer-recipients . . . have an obligation not to exploit an inadvertent or unauthorized

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transmission of client confidences or secrets. In N.Y. State 749, we concluded that the use of computer technology to access client confidences and secrets revealed in metadata constitutes ‘an impermissible intrusion on the attorney-client relationship in violation of the Code.’” New York State Bar Ass’n Committee on Prof’l Eth. Opinion 782 (Dec. 8, 2004).

c. Duty to Prevent Inadvertent Disclosure of Confidential Information in Metadata

Under New York’s Code of Professional Responsibility, lawyers must exercise reasonable care to prevent disclosure of client confidences contained in metadata.

“What constitutes reasonable care will vary with the circumstances, including the subject matter of the document, whether the document was based on a “template” used in another matter for another client, whether there have been multiple drafts of the document with comments from multiple sources, whether the client has commented on the document, and the identity of the intended recipients of the document. Reasonable care may, in some circumstances, call for the lawyer to stay abreast of technological advances and the potential risks in transmission in order to make an appropriate decision with respect to the mode of transmission.” New York State Bar Ass’n Committee on Prof’l Eth. Opinion 782 (Dec. 8, 2004).

While adopting the view that the level of care required varies with the particular circumstances of the transmission, the New York Bar cautions that “exercising reasonable care under DR 4-101 may, in certain circumstances, require the lawyer to remove metadata (for example, where the lawyer knows that the metadata reflects client confidences and secrets, or that the document is being sent to an aggressive and technologically savvy adversary) . . .” Id.

4. Cordless & Cell Phones

Authority divided on whether cordless and cellular telephone communication carries a reasonable expectation of privacy because it is “broadcast” over public airwaves using radio like signals that can be intercepted. ABA contemplates that digital technology improvements may change this. ABA 99-413, at 6 ( citing United States v. Maxwell, 42 M.J. 568, 576 (A. F. Ct. Crim. App. 1995), which held that email has reasonable expectation of privacy in context of search and seizure, but that cordless phone communications do not). See Delaware State Bar Association Committee on Professional Ethics, Opinion 2001-2, which collects cites to recent opinions on the subject.

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The Association of the Bar of the City of New York advised that lawyers should be circumspect when using cellular and cordless phones and should warn clients not to discuss confidential information on the call. Op. 1994-11.

Cf. Cal. Evid. Code § 952 (attorney-client communications do not lose their privileged character simply because they were transmitted by facsimile, cellular or cordless telephone, or other electronic means).

5. Dumpster Diving Waiver: theft of privileged documents as disclosure an example of how documents must be treated to retain their confidentiality and thus their privilege:

McCafferty’s, Inc. v. Bank of Glen Burnie, 179 F.R.D. 163 (D. Md. 1998). Client tears original draft memo from attorney into 16 pieces and throws it away. Pieces end up in dumpster on client’s property. Client’s adversary retrieves memo pieces by dumpster-diving.

Court held that privilege still applied because client had taken reasonable precautions to maintain the confidentiality of the document: client had torn up the memo, had put it in dumpster on client’s property, and warning signs against trespassing were posted on the property.

PRACTICE POINTERS: The court in McCafferty’s offered 5 suggestions for maintaining the privilege:

i. label privileged documents as such at origination;

ii. segregate privileged documents in separate files;

iii. establish policies to limit access to privileged documents;

iv. discard and shred privileged documents if no longer needed;

v. if privileged documents are stolen or taken, take immediate remedial steps to recover them.

BUT SEE: Suburban Sew n’ Sweep, Inc. v. Swiss-Bernina, Inc., 91 F.R.D. 254, 260 (N.D. Ill. 1981). Under very similar circumstances an Illinois district court did not allow a stolen document to retain its privilege. The court held that the defendants could have “destroy[ed] the documents or render[ed] them unintelligible [e.g., by using a shredder] before placing them in a trash dumpster.” Such actions would demonstrate an intent to maintain confidentiality which seems the critical distinction in these types of cases.

What to do: after Sew n’ Sweep, always shred discarded documents so that they are impossible to reassemble or read.

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6. Inadvertent Disclosure

Inadvertent disclosure does not automatically constitute a waiver of attorney-client privilege. Bank Brussels Lambert v. Credit Lyonnais (Suisse), 160 F.R.D. 437 (S.D.N.Y. 1995), discusses the varying conclusions courts have reached, with one extreme being inadvertent disclosure can never constitute waiver as the element of intentional relinquishment of the right must be present, and as such an “inadvertent waiver” is “inherently contradictory.” Quoting Mendenhall v. Barber-Greene Co., 531 F. Supp. 951 (N.D. Ill. 1982).

At the other extreme is that any disclosure constitutes waiver, relying on the principle that “one cannot ‘unring’ a bell.” Quoting FDIC v. Singh, 140 F.R.D. 252, (D. Me. 1992).

A third and middle approach, as followed in New York, looks at the reasonable steps taken to maintain confidentiality to determine the proper range of privilege to extend. The court looks at:

• the precautions taken to avoid disclosure

• the amount of time taken to correct any errors in disclosure when discovered

• the scope of discovery in the case

• the extent of disclosure

• any issues of fairness.

The Ninth Circuit takes a similar approach to New York stating, “when the disclosure is involuntary, we will find the privilege preserved if the privilege holder has made efforts reasonably designed to protect and preserve the privilege.” Transamerica Computer Co., Inc., v. Int’l. Business Machines Corp., 573 F.2d 646, 650 (9th Cir. 1978). Although the Ninth Circuit has not formally adopted the five-factor test set forth above, “courts adopting the totality of the circumstances approach – including several district courts within the Ninth Circuit typically use [the] five-factor test” to guide analysis in cases in which privileged documents have been produced inadvertently. U.S. ex. rel. Bagley v. TRW Inc., 204 F.R.D 170, 177-8 (C.D. Cal. 2001).

In a case of first impression for appellate review in Connecticut, the Supreme Court of Connecticut has recently adopted the middle approach and the five-factor test for inadvertent disclosures of privileged documents. Harp v. King, 2002 WL 32318318, at *9 (Conn. Dec. 9, 2003).

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III. Negotiations

A.

1.

2.

3.

B.

1.

General Principles

Courts look to see if negotiating attorney was sought out for advice that only an attorney could give or advice that could have been given by a business person who happens to be an attorney.

The role of counsel in negotiations is not incompatible with the assertion of the privilege.

When lawyer serves purely as negotiator, he risks losing privilege.

Illustrative Cases

Boss Mfg. Co. v. Hugo Boss, 1999 WL 47324 (S.D.N.Y. 1999). Court found that attorney participating in negotiations was consistent with the traditional role of the attorney as a legal advisor and representative of the client, BUT

A critical aspect to these negotiations was the need to protect the Boss company’s legal interest by making arrangements with another company that would be consistent with Boss’ assignment of certain rights to a third party company to settle legal claims with that third party.

“[T]he attorneys were participating in this process because of their legal expertise or acumen and not because they had any particular experience in business affairs.”

2. Note Funding Corp. v. Bobian Investment Co., 1995 U.S. Dist. LEXIS 16605 (S.D.N.Y).

“The fact that an attorney’s advice encompasses commercial as well as legal considerations does not vitiate the privilege. If the attorney’s advice is sought, at least in part, because of his legal expertise and the advice rests ‘predominantly’ on his assessment of the requirement imposed, or the opportunities offered by applicable rules of law, he is performing the function of a lawyer.

“In contrast, if the attorney is called upon to render solely business advice based on an expertise that is distinct from his legal calling, his communications with his client are plainly not protected. Similarly, if the lawyer is serving as a business representative of his client, those functions that he performs purely in that capacity -- such as negotiation of the provisions of a business contract or relationship -- are not the source of a privilege. In making this distinction, we look to whether the attorney’s performance depends principally on his knowledge of or application of

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legal requirements or principles, rather than his expertise in matters of commercial practice.

“In those circumstances in which counsel may be performing a dual function, we must necessarily assess each communication separately.

Most [of the documents sought] include references to, or even fairly extensive discussions of, financial questions and issues of commercial strategy and tactics, but do so in a context that makes it evident that the attorney is presenting the issues and analyzing the choices on the basis of his legal expertise and with an obvious eye to the constraints imposed by applicable law. Those documents are thus eligible for protection under the attorney-client privilege.”

3. 305-7 West 128th St. Corp. v. Gold, 577 N.Y.S.2d 278 (1st Dep’t 1991). Assistant general counsel negotiated lease; her deposition sought; she defends, claiming she had no authority to negotiate and others were the main participants.

Court ordered deposition, ruling: “Nor does the attorney-client privilege bar discovery, since it is well settled that an attorney who functions as an agent or negotiator in a commercial venture may be examined.”

The court did not make an advance ruling on privilege; it just said that the issue could be raised in response to specific questions at the deposition.

4. Cooper-Rutter Associates, Inc. v. Anchor Nat’l. Life Insurance Co., 563 N.Y.S.2d 491 (2d Dep’t 1990).

Fight over two memos written by in-house counsel/corp. sec. - concerned business and legal aspects of negotiations of business transaction.

Documents held discoverable in their entirety because “[t]he documents were not primarily of a legal character, but expressed substantial non-legal concerns.”

F.C. Cycles Internat’l, Inc. v. Fila Sport, 184 F.R.D. 64 (D. Md. 1998)

Memorandum prepared by one in-house counsel and copied to another held privileged except for one paragraph that recounted the price and status of a bicycle license. Rest of memo held privileged because it was “replete” with legal advice references. Court held that the license information was business/negotiation in character, not legal, and thus not privileged.

Court also found faxes between in-house counsel and company’s bike license manager non-legal business communications and thus not privileged.

5.

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6. TVT Records v. Island Def Jam Music Group, 214 F.R.D. 143 (S.D.N.Y. 2003) (holding that attorney-client privilege protected internal emails to and from corporation’s in-house counsel, who were also high-ranking management executives, only to the extent that they included legal strategy or advice, as opposed to business negotiations).

7. Diversey U.S. Holdings, Inc. v. Sara Lee Corp., 1994 U.S. Dist. LEXIS 2554 (N.D. Ill.). In Diversey, issue involved memos written by Sara Lee’s counsel (apparently outside lawyers) to Sara Lee’s executives concerning the implications of contractual language being negotiated. The Court held that “[d]rafting legal documents is a core activity of lawyers, and obtaining information and feedback from clients is a necessary part of the process. Thus, we find that Sara Lee’s attorneys were acting in a legal, not business, capacity.

8. Georgia-Pacific Corp. v. GAF Roofing Manuf. Corp., 1996 U.S. Dist. LEXIS 671 (S.D.N.Y.). Inside counsel for GAF (Michael Scott) served as negotiator for various environmental issues relating to possible acquisition of Georgia-Pacific properties.

Court applied New York state law in diversity. Court concluded:

“[I]t is clear that Mr.. Scott was not ‘exercising a lawyer’s traditional function.’… As a negotiator on behalf of management, Mr. Scott was acting in a business capacity….Mr. Scott was acting as a negotiator of the environmental provisions for GAF….Mr. Scott’s averment that he rendered legal advice to management, although considered, does not overcome the nature of his role in the transaction as revealed by his deposition.”

Accordingly, Mr. Scott was ordered to answer questions pertaining to matters within the scope of the plaintiff’s first request.

9. More recently, in City of Springfield v. Rexnord Corp., 196 F.R.D. 7 (D. Mass. 2000), the court classified as privileged a memorandum written by an attorney who was a member of an in-house “team” formed to deal with an inquiry conducted by the Massachusetts Department of Environmental Quality Engineering. Of the document, the court said, “It should be noted that at least one court [has] concluded that an in-house counsel was acting in his business, rather than legal, capacity when he negotiated the environmental provisions of an asset purchase agreement. (citing Georgia-Pacific)…The court does not believe that the reasoning behind that decision…applies to the purchase and sale agreement which is the subject of this document.” Springfield, at 10 n. 1.

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10. Preferred Health Care Ltd. v. Empire Blue Cross and Blue Shield, 1996 WL 288160 (S.D.N.Y. 1996). Highlights problems with titles and dual roles.

Communications with former general counsel/new COO regarding negotiation of contract. Most of communications found to be business advice.

“While legal advice provided in the context of business negotiations is protected under the attorney-client privilege, business information provided in the context of business negotiations does not acquire protection under the privilege merely because it has been provided to an attorney.”

11. ABB Kent-Taylor, Inc. v. Stallings and Co., Inc., 172 F.R.D. 53 (W.D.N.Y.1996). In-house counsel for ABB negotiated aborted asset sale with Stallings. Prior to ABB’s decision to terminate negotiations, in-house counsel made oral recommendation on whether to close the transaction. Stallings moved to compel disclosure of the oral recommendation, specifically counsel’s assessment of defendant’s credibility and trustworthiness.

The court held that “[w]hen a credibility assessment is part and parcel of a lawyer’s legal opinion, such an assessment is no less legal advice than a case citation or a legal theory.” Legal advice also includes a lawyer’s strategic assessment of alternatives available to the client.

Special circumstances – the aborted asset sale was an attempt by the parties to settle claims each held against the other. Some litigation had already commenced, and more lawsuits were possible, depending on the outcome of the asset sale. The judge considered these circumstances in making his decision.

PRACTICE POINTERS:

Have business person present at negotiations -- someone else to decide what corporation thinks it agreed to.

Testify only about what management instructed counsel to do, not what inside counsel told management.

Separate legal and business advice (if possible) -- but risk of increasing probability that business advice will be disclosed because it is not intertwined with legal advice.

Counsel’s legal memos should contain a preamble describing the circumstances of creation: for example, “You have requested legal advice on [question], and have provided me with various facts set forth herein to facilitate the rendering of that advice.”

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Consider asking that a magistrate judge become involved.

Do not antagonize the judge!

Dealing with Third Parties IV.

A.

1.

Auditors - Communication with ordinary auditors not privileged, communication with special auditors for legal advice purposes may be privileged

Disclosure of Billing Information to Insurer or Third-Party Auditors

ABA Formal Opinion 01-421, Feb. 16, 2001 describes the ethical obligations of a lawyer retained by an insurance company who is asked to submit detailed billing information to the insurer’s third-party auditor. The ABA Opinion states that a lawyer may not disclose confidential information to a third-party auditor without the informed consent of the insured. The Opinion notes that “a majority of jurisdictions have concluded that it is not ethically proper for a lawyer to disclose billing information to a third-party billing review company at the request of an insurance company unless he has obtained the client’s consent.” Id. at n.27.

“Unlike the disclosure of the insured's confidential information to secretaries and interpreters, the disclosure of such information to a third-party auditor, a vendor with whom the lawyer has no employment or direct contractual relationship, may not be deemed essential to the representation and may, therefore, result in a waiver--albeit unintended--of the [attorney-client] privilege. Therefore, since such disclosures always involve the risk of loss of privilege, the lawyer must obtain the insured's informed consent before sending bills with such information to a third party hired by the insurer to audit the bills.” Id.

2.

a.

Other Auditors – Illustrative cases

The “Magic Circle”: United States v. Massachusetts Institute of Technology, 129 F.3d 681 (1st Cir. 1997). Circuit court held that MIT forfeited privilege regarding billing statements of law firms that had represented MIT and minutes of the MIT Corporation and its executive and auditing committees because MIT disclosed these communications to a third-party Department of Defense audit agency that assisted in reviewing contracts MIT had with the Department of Defense.

The court noted that the case law in this area is far from settled: “[D]ecisions do tend to mark out, although not with perfect consistency, a small circle of ‘others’ with whom information may be shared without loss of the privilege (e.g., secretaries,

16

interpreters, counsel for a cooperating co-defendant, a parent present when a child consults a lawyer).”

“The underlying concern is functional: that the lawyer be able to consult with others needed in the representation and that the client be allowed to bring closely related persons who are appropriate, even if not vital to a consultation.”

BUT: “An intent to maintain confidentiality is ordinarily necessary…but it is not sufficient” to maintain protection.

“[W]here the client chooses to share communications outside this magic circle, the courts have usually refused to extend the privilege.” (citing 6th, 4th, D.C., and 2d circuits).

The court rejected the 8th Circuit’s reasoning in Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978), and felt that the better approach is to maintain the rule that disclosure vitiates the privilege because this “makes the law more predictable and certainly eases its administration.”

b. Diversified Industries had upheld the Selective Waiver doctrine whereby only a limited waiver of attorney-client privilege had occurred after material was voluntarily surrendered in a non-public SEC investigation.

c. United States v. South Chicago Bank, 1998 U.S. Dist. Lexis 17445, at *7 (N.D. Ill. 1998).

“[A]uditors are not generally part of the circle of persons, including secretaries and interpreters, for example, with whom confidential information may be shared without destroying the privilege.” (citing Massachusetts Institute of Technology, 129 F.3d 681)

Where bank had appointed special audit team to investigate a fraud, court denied the privilege to communications made to “year-end audit team” as opposed to the “fraud-audit team” because the year-end team were performing work in the ordinary course of business, not for the sake of legal advice.

“By voluntarily disclosing the minutes from the meetings of the board of directors and special fraud committees to the year-end auditors in full and to their insurance company in part, the banks have relinquished the right to assert the privilege now against the government.”

B. Investment Banker/Accountant

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1.

2.

a.

General Principle:

Conversations not privileged, and third party conversations may not be privileged even if they contribute to legal advising significantly unless the third party acts as an “interpreter”

Illustrative Cases:

United States v. Ackert, 169 F.3d 136, 139 (2d Cir. 1999). counsel’s discussion with an investment banker held not privileged where the lawyer met with the banker to collect information in order to advise client on feasibility of an investment proposal.

2d Circuit said that privilege cannot be expected to shield every conversation a lawyer has with a third person just because the conversation helps the attorney represent the client even though it acknowledged its own “assumption that those conversations significantly assisted the attorney in giving his client legal advice about its tax situation.”

The court rejected an argument based on United States v. Kovel, 296 F.2d 918 (2d Cir. 1961) (Friendly, J.), which held that privilege can protect communications between client and accountant, or the accountant and the client’s attorney, where the accountant serves to “clarify communications between attorney and client.”

The court found that the investment banker’s role “was not as a translator or interpreter of client communications,” therefore the Kovel principle could not shield the communications.

b.

c.

See Adlman II, infra.

See also, In re G-I Holdings, Inc., 218 F.R.D. 428, 434-35 (D.N.J. 2003). GAF’s attorneys (predecessor to G-I Holdings) hired tax consultant to explain tax concepts to in-house counsel. Court found communications between in-house counsel and tax consultant were not privileged because the consultant was not directly interpreting client communications, even though the advice was necessary for in-house counsel to understand client communications and render legal advice to GAF’s senior management.

C. Insurance Broker

SR Int’l Bus. Ins. Co. Ltd. v. World Trade Center Properties LLC, 01-CV-9291 (S.D.N.Y. 2002), Judge Martin held that the attorney-client privilege does not extend to “post-9/11 communications between [defendant’s attorneys] and

18

employees of [defendant’s insurance broker].” Id. at 1-2. The Court held that defendant’s attorneys “had no ethical obligation ‘told hold inviolate’ any information they obtained from Willis employees.” Id. at 6. “The [brokers] who conferred with [defendant’s attorneys] had no reason to believe that they were talking to lawyers who were representing their interests and who would “hold inviolate [their] confidences and secrets.’” Id.

The Court was not persuaded by the limited “common interest privilege” exception, finding that there “had been no showing that [the brokers] and [defendant] have an identical legal interest.” Id. at 9. “The [broker] is not a party to this litigation, and its legal position will be unaffected by the outcome of this case . . . Thus the communications . . . are not protected by the common interest privilege.” Id.

The Court also held that statements made to defendant’s attorneys by the brokers “should [not] be protected from disclosure under the work product privilege,” id. at 10, as this privilege applies “only to tangible things – not testimony.”

D. Independent Contractors – Outsourcing

1. In re Bieter Co., 16 F. 3d 929 (8th Cir. 1994).

Bieter Company (“Bieter”) was a partnership formed to develop a parcel of farm land. The partnership retained an independent contractor to provide advice and guidance regarding commercial and retail development in the area. The contract between the parties expressly stated that the contractor was not an agent, employee, or partner of Bieter.

The court held that the documents Bieter gave to the contractor were protected by the attorney-client privilege. The court analyzed the issue using a two-part inquiry:

• First, whether the relationship between the independent contractor and the company is significant enough for the independent contractor to be the “functional equivalent” of an employee of the company for the purposes of invoking the privilege;

• Second, whether the elements that would allow the privilege to attach to the communications if they were made or received by an employee of the company have been met.

Under the first part of the inquiry, the following factors are important: (a) The independent contractor is retained by the company to provide advice and guidance necessary for the transaction; (b) The independent contractor is intimately involved with the company’s business objectives for the transaction; (c) The independent contractor and the company engage in constant interaction over the course of the transaction; (d) The independent contractor is viewed by outsiders as a representative of the

19

company; and (e) The independent contractor possesses information not possessed by any employee of the company.

The second part of the inquiry, originally outlined in Diversified Indus., Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977), concerns the following factors: (a) The communication at issue is made for the purpose of seeking or providing legal advice or “legal assistance”; (b) The subject matter of the communication is within the scope of the duties provided to the company by the independent contractor; (c) The communication is treated as confidential and only disseminated to those persons with a specific need to know its contents; (d) The independent contractor making the communication does so at the direction of his superior at the company; and (e) The corporate superior makes the request so that the corporation can secure legal advice.

2. Two contrasting decisions by federal district courts in the Southern District of New York over the last year help to illustrate those settings in which communications with independent contractors are likely to be protected and those in which they are not.

a. In Twentieth Century Fox Film Corp. v. Marvel Enterprises, Inc., 2002 WL 31556383 (S.D.N.Y.), the court cited Bieter and declined to compel production of documents that Fox had disclosed to independent contractors, finding that the contractors were the “functional equivalent” of Fox’s employees for the purposes of privilege.

The court appears to have been most influenced by the nature of the industry of the parties involved. “The fact that the nature of the industry dictates the use of independent contractors over employees should not, without more, create greater limitations on the scope of the attorney-client privilege.” Id. at *2.

In re Currency Conversion Fee Antitrust Litig., 2003 WL 22389169 (S.D.N.Y). This case arose out of the class action litigation against Visa and MasterCard and their member banks for alleged price fixing with respect to their currency conversion fees.

One of the defendants, First USA Bank (“First USA”), sought to shield from production documents that had been disclosed to employees of First Data Resources (“First Data”), a third-party company that provided outsourced computing services, consulting services and other support services to First USA and other credit card issuers.

The court was not persuaded that First Data employees were the “functional equivalent” of First USA employees. The court viewed

b.

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First Data as “merely a transaction processing and computer services corporation that provided standard trade services to First USA and a vast number of other credit card companies”. Id. at *2. In other words, the services provided by First Data were similar to the services provided by any “ordinary third party specialist, disclosure to whom destroys the attorney-client privilege.” Id.

E. Exchanging Information Within the Corporate “Family”

Where a corporation and its wholly-owned subsidiary are represented by a common attorney or have a common legal cause or identity of interest in the matter discussed with an attorney, a joint attorney-client privilege attaches to the discussion. See Polycast Tech. Corp. v. Uniroyal, Inc., 125 F.R.D. 47, 50 (S.D.N.Y. 1989).

An officer or employee of a holding or affiliated company can receive legal advice from counsel employed by a wholly-owned subsidiary or affiliate without destroying the confidentiality of the attorney-client communication. See Insurance Co. of N. Am. v. Superior Court, 108 Cal. App. 3d 758, 771 (1980).

But see Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 491 (S.D.N.Y. 1993) (under New York law, parent corporation’s communications to employees of its subsidiary were not protected by attorney-client privilege, where subsidiary maintained its own in-house counsel and corporations did not share common legal interest).

PRACTICE POINTERS

It is risky to release an internal report.

The report should not quote or paraphrase what interviewees said in what is released to the public.

Should not use report as part of PR campaign.

Should not use report as sword in litigation.

Should probably not use the lawyer who prepares the published independent report to defend the lawsuit.

Distinguish advice to counsel from the rest of consultants’ services to company

Separate retainer agreement establishing responsibility directly to inside counsel for specific advice.

Separate billing (if outside counsel, a disbursement).

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Retainer should state that expert’s advice was sought in order to permit counsel to render legal advice.

Possibly use expert who doesn’t regularly render services to company.

Do not distribute expert’s advice except in conjunction with legal advice.

V. Other Considerations

A.

1.

2.

a.

b.

3.

“Work Product” Doctrine and Limitations

Federal Standard for work product -- Rule 26(b)(3):

“A party may obtain discovery of documents and tangible things . . . prepared in anticipation of litigation or for trial by or for another party or by or for that other party’s representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party’s case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means.

“In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.”

Purpose:

Establish zone of privacy for litigation planning

Prevent “piggybacking” on adversary’s preparation.

Recently broadened work product doctrine: Adlman II

United States v. Adlman (“Adlman II”), 134 F.3d 1194 (2d Cir. 1998). Court adopted the less stringent “because of litigation” test for determining whether documents are prepared in anticipation of litigation and thus protected by work product.

Court rejected the more stringent test: “We believe that a requirement that documents be produced primarily or exclusively to assist in litigation in order to be protected is at odds with the text and the policies of the Rule. Nowhere does Rule 26(b)(3) state that a document must have been prepared to aid in the conduct of litigation in order to constitute work product, much less primarily or exclusively to aid in litigation. Preparing a document ‘in anticipation of litigation’ is sufficient.”

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Second Circuit identified other circuits that follow the less stringent “because of litigation” formulation of the work product test: 3rd, 4th, 7th, 8th, and D.C. Circuits.

Court then vacated and remanded district court’s holding that denied work product protection to a memorandum prepared by a taxpayer’s outside accounting firm, at the request of the taxpayer’s tax attorney, in order to evaluate tax consequences of corporate reorganization upon expected litigation with the IRS.

Adlman II gave three examples of protected analysis:

i. Legal analysis of possible claims prepared for a publisher to assess whether to proceed with publishing a book after litigation had been threatened;

ii. In connection with a business combination, an attorney’s assessment of the risks in pending litigation shared with the financier; and

iii. As part of the formulation of reserves for financial statements, an assessment of litigation given to the auditor.

The Adlman II court further noted that, to the extent that such analyses involve the mental impressions and legal theories of the attorneys or their representatives, a simple showing of need by the opposing party would not justify production.

4. The effect of Adlman II:

a. U.S. v. Chevrontexaco Corp., 2002 U.S. Dist. LEXIS 24970 (N.D. Cal. Mar. 25, 2002), following Adlman II stated, “In our view, the Second Circuit’s test better serves the purpose driving the work product doctrine. An attorney’s (or a party’s) reasoning or research (factual or legal) about anticipated litigation should not be discoverable simply because the work had to be undertaken to facilitate or consider a business transaction. . . . [T]hus the work product doctrine can reach documents prepared ‘because of litigation’ even if they were prepared in connection with a business transaction or also served a business purpose.” Id. at *42-3.

b. Jumpsport, Inc. v. Jumpking, Inc., 213 F.R.D. 329, 330-31 (N.D. Cal. Mar. 11, 2003). Extending Adlman II, the court outlines a 2-stage test for determining whether a document was prepared in anticipation of litigation and thus protected by work product:

i. First, the court should determine whether the party seeking protection has shown that the prospect of litigation was a

23

substantial factor in the mix of considerations, purposes, or forces that led to the preparation of the document.

ii. Second, the court should decide whether disclosing the document would harm the policy objectives that the work product doctrine has been developed to promote (or, alternatively, whether conferring protection would advance the policy purposes underlying the work product doctrine).

c. Granite Partners, L.P. v. Bear, Stearns & Co., Inc., 184 F.R.D. 49, 54 (S.D.N.Y. 1999).

Interpreting the effect of Adlman II, the court said: “It may well be said that the effect of Adlman [II] is to enforce the work product privilege even if there is a dual purpose for the creation of the materials.”

Court then held that a party had waived its protection regarding trustee investigation interview notes that formed the basis of a report that was intended “from the outset” to be made public but that the report “might also provide grounds for asserting claims against third parties” where a financial fund had collapsed.

d. Boss Mfg. Co. v. Hugo Boss, 1999 WL 47324 (S.D.N.Y. 1999).

Interpreting the Adlman II “because of” litigation test: “This formulation is sufficiently broad to cover documents that serve primarily a non-litigation purpose, provided that their creation was motivated by actual or anticipated litigation.”

Hugo Boss was in negotiations with Boss Mfg. to determine how agreement with Boss Mfg. might be modified to enable Hugo Boss to settle disputes with third-party company.

Court then concluded that documents produced as part of these negotiations resulting from “ongoing litigation” with the third-party company came within the scope of work product.

Court reasoned that there was the “distinct prospect” that if the third-party suit was settled without a change of terms regarding Boss Mfg.’s agreement with Hugo Boss, Boss Mfg. would resort to litigation because the settlement would violate the terms of Boss Mfg.’s agreement with Hugo Boss.

e. Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D. 466, 475 (S.D.N.Y. May, 29, 2003).

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The “because-of” litigation test has subjective and objective prongs: (1) the subjective question of whether the party thought it was threatened with litigation, and (2) the objective question of whether that belief was reasonable.

f. Resolution Trust Corp. v. Massachusetts Mutual Life Insurance Co., 200 F.R.D. 183 (W.D.N.Y. 2001)

Discusses Adlman II and gives work-product protection to memorandum that “outlines legal consequences that would likely arise as a result of choosing from various options available to address [a pension plan’s] underfunding, a majority of which include the prospect of litigation.”

PRACTICE POINTERS:

“Anticipation of litigation” means focusing on a specific claim, not an abstract possibility. But the facts need not have occurred yet (Adlman II). In Connecticut, similarly, a specific claim must have arisen. SCM v. Xerox Corp, 70 F.R.D. 508 (D. Conn. 1976).

A document is still work product even if prepared in contemplation of another lawsuit rather than the one at issue. FTC v. Grolier, Inc., 462 U.S. 19 (1983); Bruce v. Christian 113 F.R.D. 554 (S.D.N.Y. 1987).

No Specific Claim Has to Exist:

In re Sealed Case, 146 F.3d 881 (D.C. Cir. 1998). No specific claim has to exist at the time a protected document is created; its existence is just one factor of many factors to be considered by the court in determining work product protection.

Otherwise, “[w]ithout a strong work-product privilege, lawyers would keep their thoughts to themselves, avoid communicating with other lawyers, and hesitate to take notes.” The court said this would negatively affect counsel’s ability to represent clients effectively.

“Weakening lawyer ability to represent clients at the pre-claim stage of anticipated litigation would inevitably reduce voluntary compliance with the law, produce more litigation, and increase the workload of government law-enforcement agencies.”

But see: Burton v. R.J. Reynolds Tobacco Co., 177 F.R.D. 491 (D. Kan. 1997). Rejects work product privilege as to studies of tobacco produced by company generally for litigation where company argued that it had multiple lawsuits filed against it at the time the reports were prepared.

Documents prepared out of ordinary business will not always be deemed in anticipation of litigation:

25

U.S. v. Lockheed Martin Corp., 995 F.Supp. 1460 (M.D. Fla. 1998). Lockheed became aware of improper accounting on one of its projects. The company performed an internal audit that was not part of the ordinary course of business but specifically because it became aware of the irregularities. The court held that the audit was not done in anticipation of litigation where the audit manager conducted employee interviews with the in-house counsel present. The court held that the attorney was present only for informational purposes and not legal purposes. But the court did apply work product and attorney-client privilege to communications intended specifically and exclusively for communication within Lockheed regarding legal issues.

The court may decline to apply work product and attorney-client privilege simultaneously to same communication document.

Miller v. Federal Express Corp., 186 F.R.D. 376, 387 (W.D. Tenn. 1999). “The work product protection only applies to materials which are ‘otherwise discoverable.’ Fed.R.Civ.P. 23(b)(3). Therefore, if any of the disputed documents are privileged then the party seeking discovery has failed the first step [of work product analysis], and the court would not proceed through the remaining steps.” Court then analyzed documents under work product doctrine first, assuming they were not privileged, and held them protected by work product.

B. Disseminating Information

If counsel is “simply reporting the positions taken by the negotiating parties on various business issues,” the reports aren’t privileged. “Such reporting of developments in negotiations, if divorced from legal advice, is not protected by the privilege under New York law.” Note Funding Corp. v. Bobian Investment Co., 1995 U.S. Dist. LEXIS 16605 (S.D.N.Y.).

Legal/business advice must be predominantly legal to be privileged. E.g. Cooper-Rutter Assocs., Inc. v. Anchor Nat’l Life Insurance Co., 563 N.Y.S.2d 491 (2d Dep’t 1990) (memoranda prepared by lawyer who was in-house counsel and corporate secretary concerned “both the business and legal aspects” of ongoing negotiations, and “were not primarily of a legal character, but expressed substantial non-legal concerns.” Therefore, documents in their entirety were discoverable.)

Some courts will redact legal advice from business memos, and order production of the business portions. But courts tend not to work that hard. F.C. Cycles Internat’l. Inc. v. Fila Sport, 184 F.R.D. 64 (D. Md. 1998). Court redacted almost an entire memorandum save a single paragraph that it ordered discoverable because while the memorandum was otherwise “replete” with legal advice, the paragraph that referred to the price and status of bicycle licenses was deemed business negotiating information and not legal information.

It is alright to show privileged documents to a consultant, if the consultant “was called upon to assist the attorneys in providing legal advice to the client.” Note

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Funding Corp. E.g., merger dispute: one side retained investment banker as consultant and attorneys gave their interpretation of contract clauses to the investment banker. Attorney’s interpretations held privileged, even though disclosed to investment banker. Consultant was retained to facilitate legal advice. BUT, Privilege is waived if documents shown to a third party for any reason “other than assistance of an attorney in performing legal services for the client.”

Even when passed on within the client and the client’s corporate “family,” the communication isn’t privileged if it’s divorced from legal advice and becomes a business directive from one unit to another.

Attorney’s notes to self may be privileged if they facilitate legal advice to client.

C. Communication to Low-Level Employees and Other Non-Lawyer Employees:

1. United States v. Lockheed Martin Corp., 995 F.Supp. 1460 (M.D. Fla. 1998). “When executives who will act on legal advice direct lower level employees to provide information to counsel, those communications (though not the underlying information) may qualify for the privilege.

2. F.C. Cycles Internat’l., Inc. v. Fila Sport, 184 F.R.D. 64 (D. Md. 1998). Communications to (non-lawyer) officers and employees of corporation of information relevant to legal decision-making remains privileged so long as it is relayed on a “need to know” basis by other non-lawyer employees.

Court emphasized view that it is the content of the communications and not to whom or from whom they originate that forms the basis of the privilege.

Privilege is lost if information is relayed to those who do not need the information to carry out their jobs.

D.

1.

When In-House Counsel is Designated to Testify: Run risk of waiving attorney-client privilege and/or work product protection.

Avery Dennison Corp. v. UCB Films PLC, 1998 WL 703647 (N.D. Ill. 1998). In-house counsel gave deposition testimony as to meetings between corporation and counsel regarding patent. Counsel had “attempted to reveal nothing more than the fact that [the corporation] conferred with in-house and outside patent counsel regarding…the patent” during a reissue application process and while deciding to withdraw a reissue application.

Corporation argued it only revealed the fact of the communications so communications themselves should remain privileged. Court rejected this argument: “[W]hen placed within the full context of [in-house counsel’s] twelve days of deposition testimony, [the corporation’s] disclosures clearly go beyond the mere fact of communications regarding the…patent,

27

and instead implicitly reveal the legal conclusions of [the corporation’s] in-house and outside counsel.”

Court also held that counsel’s deposition testimony had waived work product protection as to investigation of the patent in question by revealing legal conclusions drawn by in-house and outside counsel regarding investigation of the patent in question.

Also held that counsel cannot waive privilege as to some materials on a given subject, then withhold other materials on same subject; so waiver of some may waive everything on same subject (citing Ziemack v. Centel Corp, 1995 WL 314526 (N.D. Ill.1995).

2. United Hospital Center, Inc. v. Bedell, 484 S.E.2d 199 (W. Va. 1997).

Hospital waived work product protection with respect to matters about which its general counsel was designated to testify.

Investigation report prepared out of concern for hospital’s exposure to liability for a fall sustained by a patient while in hospital’s care was held within scope of work product doctrine.

BUT court found that hospital waived both attorney-client privilege and work product protection of report when it designated general counsel “as a witness pursuant to plaintiff’s [West Virginia] Rule [of Civil Procedure] 30(b)(6) notice of deposition….”

The counsel refused to testify regarding the contents of the investigative report BUT the court held that “by producing [the general counsel] as a witness in response to a Notice of Deposition under [West Virginia Rule of Civil Procedure] Rule 30(b)(6)…[the hospital] had waived both attorney-client and work product privilege[.]”

The court based its decision on the fact that the hospital had voluntarily designated the general counsel as the 30(b)(6) witness where it could have prepared and designated another person to testify: “[T]he hospital deliberately designated its general counsel to speak for the corporation…[T]o allow a corporation or organization that chooses to designate counsel to testify at a Rule 30(b)(6) deposition to refuse to answer certain questions based on attorney client privilege and the work product doctrine would obviously confer unfair advantage on them and would be contrary to the spirit of Rule 30(b)(6) and the discovery process.”

The court rejected the hospital’s argument that the general counsel was “its only logical designee to answer [the deposition notice] questions because he was the person who gathered the information necessary to respond to the complaint.” The court noted that West Virginia’s notice

28

deposition rule does not require that a corporation’s designated witness have personal knowledge or have been personally involved in the examination topics.

The court specifically distinguished this circumstance from one in which the opposing party has served a deposition subpoena on the general counsel, a situation that the court described in dicta as negative and burdensome in time and cost of litigation but declined to say was prohibited.

29

Issues/References to Outline

Document 1 –

• [A] - Role of inside counsel as legal advisor vs. business executive – (II.,A.)

• [B] - Disseminating Information – (V.,B.)

• [C] - Negotiations – (III.,A.)

• [D] - Work Product Privilege – (V.,A.)

• [E] - Exchanging Information Within the Corporate “Family” (IV.,E.)

Document 2 –


• [B] - Inadvertent Disclosure – (II.,C.,6.)

• [C] - Negotiations – (III)

• [D] - Dealing with Third Parties – Other Auditors – (IV.,A.,2.)

Document 3 –

• [A] - Confidentiality - E-mail communication – (II.,C.,2.)

• [B] - Use of inside counsel to hide information – (II.,B.)

• [C] - Dumpster Diving Waiver – (II.,C.,5.)

• [D] - Role of inside counsel as legal advisor vs. business executive – (II.,A.)

Document 4 –


• [B] - Negotiations – (III.,A.)

• [C] - Dealing with Third Parties – Other Auditors – (IV.,A., 2.)

• [D] - Dealing with Third Parties – Outsourcing – (IV.,D.)

Document 5 –

• [A] - Disseminating Information – communications passed on within corporate “family” is not privileged if divorced from legal advice (V.,B.)

• [B] - Communication to Low-Level Employees and Other Non-lawyer Employees – (V.,C.)

• [C] - Dealing with Third Parties – Outsourcing – (IV.,D.)

Document 6 –

• [A] - Confidentiality - E-mail communication – (II.,C.,2.)

• [B] - Role of inside counsel as legal advisor vs. business executive – (II.,A.)

• [C] - Negotiations –(III.,A.)

• [D] - Dealing with Third Parties – Insurance Broker – (IV.,C.)

• [E] – Dealing with Third Parties – Insurance Auditors – (IV.,A.,1.)

Document 7 –


• [B] - Negotiations –(III.,A.)

• [C] - Confidentiality – Client confidence requirement – (II.,C.,1.)

• [D] – Work Product Doctrine and Limitations – Adlman II (V., A.)

2

Document 1

ABC Corp. Transaction Memorandum

To: XYZ Parent Corp. Board and XYZ Corp. Board [E]

Fr: Joe M. Consul, General Counsel and Corporate Secretary, XYZ Corp. [A]

Date: January 1, 2005

Re: ABC Corp. Lease _____________________________________________________________________________

A. Basic Terms and Conditions of the Transaction

XYZ Corp. has proposed to enter a 72 month lease of ABC Corp.’s aircraft equipment beginning July 1, 2005. The rent will be $500,000 monthly in advance, with a $1,000,000 security deposit.

B. Transaction Background

XYZ Corp. has decided to upgrade their aircraft equipment to meet international premium passenger traffic and cargo demand. XYZ Corp. will need to invest approximately $750,000 up front to get the aircraft into delivery condition.

C. Other Market Alternatives

I am currently in preliminary discussions and negotiations with three other aircraft equipment companies. However, their equipment is more outdated than ABC Corp.’s and would require a greater up front investment. XYZ Corp.’s position, which I made clear to the aircraft equipment companies, is that the up-front investment will need be as close to $750,000 as possible for any acceptable lease agreement. [B] [C]

D. Case for the Transaction

ABC Corp. is offering an attractive lease rate compared to our other market alternatives. Their reputation for aircraft equipment leasing is top notch, and they already have long-term leases with many of our competitors. They have also agreed to waive our maintenance reserves requirement for one month. [B] [C] From a legal perspective, however, the transaction might pose litigation difficulties because ABC Corp. is based in Iceland, which is not a signatory to the Hague Convention. [C] [D]

E. ABC Corp. Analysis

Attached is the report of Acme Accounting, the accounting firm that I have employed to assist me in understanding ABC Corp.’s complicated financial documents. Based on their report, I believe that ABC Corp. is financially sound.

Atty-Client Privilege for Transactional Lawyers -- Sample Docs (2).DOC

Document 2

XYZ Corp. Board Minutes

To: XYZ Corp. Board

Fr: Joe M. Consul, General Counsel and Corporate Secretary, XYZ Corp.


Re: ABC Corp. Lease Litigation _____________________________________________________________________________

On December 1, 2005, the XYZ Board Members had a meeting regarding the pending litigation against ABC Corp. The Board Members also conducted a vote to terminate Senior Vice President of Sales Bob Jones due to fraudulent activities in the sales division.

The primary issue for discussion was the ongoing settlement negotiations with ABC Corp. I reported that our outside counsel, Pillsbury Winthrop Shaw Pittman LLP, prepared a damages memorandum which I showed to counsel for ABC Corp. at our last settlement meeting. Despite the persuasive language contained in the damages memorandum, ABC Corp. refused to increase their settlement amount. Further, ABC Corp. would only agree to a settlement if our outside counsel entered an agreement to refrain from bringing actions for others against ABC Corp. based on similar leases. We ended the settlement negotiations in a deadlock. [A] [C]

I also brought to the Board’s attention that an entire box of documents produced to ABC Corp. as part of our response to their discovery requests contained attorney-client privileged information. Our legal department contacted ABC Corp. a few days after the inadvertent delivery and requested that ABC Corp. return the box. ABC Corp. agreed to return the box but we have not yet received it. [B]

Finally, all of the Board Members, including myself, voted to terminate Bob Jones from XYZ Corp. due to his involvement in fraudulent sales activities relating to Lemon Corp. As part of XYZ Corp.’s investigation into the corporate fraud, we created a special “fraud-audit” team that was given access to all of XYZ Corp.’s sales documents. [A] [D]

The Board Meeting began at 12:30 p.m. and ended at 1:00 p.m.

J.M.C.

2 Atty-Client Privilege for Transactional Lawyers -- Sample Docs (2).DOC

Document 3

Internal Email

To: Jane Doe, (Chief Executive Officer); Sally Smith, (Chief Operating Officer)

Fr: John Bee, (Chief Financial Officer)

Cc: Joe M. Consul, Esq., (General Counsel), [email protected] [A] [B]


Re: Termination of Lemon Contract

Confidential and Privileged Attorney-Client Communication [B] _____________________________________________________________________________

Jane and Sally,

Attached is my report regarding the financial implications of terminating the Lemon Contract and entering the Orange Contract. The bottom line is that if we terminate the Lemon Contract within the next two weeks, we could potentially save hundreds of thousands of dollars. If we do not terminate the Lemon Contract, we would, at best, break even on this deal.

I also attach Lemon Corp.’s financial report, indicating that their net profit from the Lemon Contract would be half as much as what we could make if we terminated the Lemon Contract and entered the Orange Contract. Thus, even if Lemon Corp. sued us for breach of contract, we would be able to settle the case while making an acceptable profit.

Please advise.

John Bee

P.S. Due to the sensitive nature of my report, all of the drafts of Joe’s legal analysis have been shredded, except the copy that I mistakenly took home. I threw out that copy. [C]

P.P.S. Joe, I thought you would be interested in knowing about this. [D]


mailto:[email protected]

Document 4

Internal Email

To: Joe M. Consul, Esq., (General Counsel)

Fr: Bill N. Johnson, Esq., (Ass’t General Counsel)


Re: Strategy for Meeting with Bicycles International (“BI”) _____________________________________________________________________________ As you are aware, I met with George James, our outside counsel, to review the potential legal and strategic adjustments and/or offsets identified to date in our negotiations with BI.

George’s opinion, based on our discussions, was as follows:

(i) We cannot obtain adjustments that change the amount paid at the closing date unless we can prove collusion or fraud.

(ii) We are on solid legal ground for the adjustments to the Winter 2004 commissions for items “B” to “E” as set forth in Exhibit One.

(iii) The balance of the adjustments we have identified are up in the air. We cannot negotiate a further reduction in the commissions that may result in a payment to BI that is less than the remaining balance of the commissions (about $470,000). [A] [B]

(iv) Prior to our meeting with BI, George recommends that we file claims against the Edmonton and Toronto boutiques. Notwithstanding that we may extricate some settlement, George feels that we must put pressure on these companies to see if they will crumble and admit collusion with BI. He feels that the individuals will contact BI and threaten to disclose any such arrangements to us rather than spend money to defend themselves.

(v) BI should be advised that no commissions will be paid until our special auditors have investigated the loss in value of the assets that we acquired and that such investigation will include the personal examination of third parties including their books and records. George has asked whether inside counsel will be involved in the review. [C]

(vi) Some of our legal analysis regarding the BI transaction, attached hereto, have been given to Bicycles R Us, an independent contractor to whom we have outsourced part of our bicycle licensing operations. [D]

(vii) Based on the advice of Bicycles R Us, George decided that the bike license should be used as a negotiating tool. We may threaten to cancel our fixed term. George will follow up with New York to determine the value of this license to BI. [A] [B]

B.N.J.


Document 5

Two Internal Emails

Email #2

To: Jack Johnson, (Vice President, IT Department) [B]

Fr: Jane Doe, (Anderson Consulting, Temporary Chief Executive Officer) [C]

Cc: Rob Norris (Secretary to Jane Doe) [B]


Re: Document Retention Policy

Jack,

Stop destroying all backup tapes until I tell you otherwise. [A]

Jane

_______________________________________________________________________

Email #1

To: Jane Doe, (Anderson Consulting, Temporary Chief Executive Officer)

Fr: Joe M. Consul, (General Counsel)


Re: Document Retention Policy

Jane,

Per our document retention policy, we have been destroying our backup tapes every three months. However, due to the pending litigation with Lemon Corp., we need to stop destroying all backup tapes and retain the tapes in our IT Department. Please inform all of the appropriate people.

Joe


Document 6

Facsimile

To: Joe M. Consul, Esq. (General Counsel – XYZ Corp.)

Fr: Anne Jackson (Bicycle License Manager – XYZ Corp.)

Cc: Axis Management, (XYZ Corp. Licensing Management) [A]

Date: February 1, 2005

Re: Bicycle License _____________________________________________________________________________

Dear Joe,

I am in Madrid for an executive meeting. What is the current status of the negotiations with Bicycles International for the bicycle license? What is our strategy for obtaining the greatest number of adjustments? Please fax me all of the draft agreements to date, as well as your notes from your last meeting with BI. Based on what I have heard at the executive meeting, we need to close this deal as soon as possible. [B] [C]

Also, thank you for faxing me your notes from your conversations with our insurance brokers. That information may be valuable if we need to litigate these bicycle licenses. [D]

Finally, I received a call recently from our outside counsel requesting permission to submit our billing statements to their insurance carrier’s independent auditor. Please advise. [E]

Anne


Document 7

Internal Email

Fr: Joe M. Consul, Esq. (Chief Operating Officer – XYZ Corp.)

To: Rob Hernandez (Senior Vice President – XYZ Corp.)

Date: June 1, 2005

Re: Asset Sale with ABC Corp. _____________________________________________________________________________

Rob,

I received your message about the asset sale with ABC Corp., which I worked on a few months ago while I was still the General Counsel. [B] You wanted to know what I thought of ABC Corp.’s credibility and trustworthiness. [B] Since I was the sole negotiator for this deal, I can certainly answer your question. [B] Throughout the negotiations for the asset sale, I thought that ABC Corp. was unprofessional, disorganized and untrustworthy. I had a very difficult time trying to work with them because they never returned my calls and their work product was sloppy. Moreover, after looking over Arthur Anderson’s memorandum that you forwarded to me last week regarding the tax implications of this transaction, my advice would be to stop negotiating with ABC Corp. and find someone else for this asset sale. We have a few alternatives, including Lemon Corp., Orange Corp., and Lime Corp. [A]

I have attached a copy of the report our outside lawyers prepared for our Bank in connection with the financing for the threatened legal challenge to our ownership of some of the assets. [D]

Please let me know if you have any other questions. I look forward to seeing you at the Yankees game tomorrow. We can talk about the issues there (between innings of course). [C]

Joe


Challenges to the Attorney/Client Relationship: Disqualification and Privilege Disputes

Felicia Washington Mauney, Esq. and Andrew Habenicht, Esq. Kennedy Covington Lobdell & Hickman, LLP

Corie Pauling, Esq.

Teachers Insurance and Annuity Association of America (“TIAA-CREF”)

The following summarizes case studies and issues suggesting trends related to attorney disqualification from representation on conflicts grounds and related to protection of the attorney-client privilege possessed by corporations. Attribution to appropriate sources has been noted since much of this document’s content on these issues has been compiled from publicly-available sources.

Disqualification for Adverse Representation of Related Corporate Entities Owned by a Multinational Corporation McKesson Information Solutions, Inc. v. Duane Morris, LLP, Civil Action No. 2006-CV-121110, Fulton County, Georgia, Superior Court (September 7, 2006) is a highly-publicized action in Georgia state court, ancillary to an arbitration proceeding involving McKesson Information Solutions (“MIS”), in which the law firm of Duane Morris sought to represent two individuals against MIS.1 At the time of the dispute, Duane Morris was serving as local counsel in a federal bankruptcy court in Pennsylvania to two MIS affiliates related by common ownership under the McKesson Corporation umbrella. At the heart of MIS’s action was the contention that Duane Morris should be disqualified from the representation of the two individuals as a result of the Pennsylvania representation and despite Duane Morris’ limited engagement letter with the two affiliates in Pennsylvania. In the engagement letter, the entities were distinguished and the parties apparently agreed to waive future conflicts not “substantially related” to the Pennsylvania bankruptcy matter.

In the arbitration brought by Duane Morris on behalf of the individuals, MIS was defended by Morris, Manning, & Martin, an Atlanta firm, which first objected by letter to Duane Morris’ representation. Duane Morris responded by relying on its engagement letter with the two McKesson Pennsylvania entities. Duane Morris contended that the engagement letter contained an express limitation of the attorney-client relationship such that it applied only to serving as local counsel in the limited bankruptcy matter. The engagement letter had apparently been revised by McKesson itself to explicitly set forth that the firm represented only the two

1 For media coverage of this case, see the series of Fulton County Daily Report articles at http://law.gsu.edu/ccunningham/PR/McKesson-FCDR-Aug31-06.htm; http://www.dailyreportonline.com/Editorial/News/print_article.asp?individual_SQL=11/2/2006@12236; and http://law.gsu.edu/ccunningham/PR/McKesson-FCDR-Nov10-06.htm?origin=NewsAlrt&individual_SQL=11/10/2006@12350_Public_

http://law.gsu.edu/ccunningham/PR/McKesson-FCDR-Aug31-06.htm

http://www.dailyreportonline.com/Editorial/News/print_article.asp?individual_SQL=11/2/2006@12236

http://law.gsu.edu/ccunningham/PR/McKesson-FCDR-Nov10-06.htm?origin=NewsAlrt&individual_SQL=11/10/2006@12350_Public_

http://law.gsu.edu/ccunningham/PR/McKesson-FCDR-Nov10-06.htm?origin=NewsAlrt&individual_SQL=11/10/2006@12350_Public_

Corie Pauling, Esq. January 25, 2007 Page 2

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affiliates and not any other McKesson companies and that all conflicts other than those “substantially related” to the bankruptcy matter would be waived by McKesson. The engagement letter provided that the waiver would not apply in instances where Duane Morris had obtained the McKesson corporation’s proprietary or confidential information.

What became problematic was Duane Morris’ “threat” to bow out of the bankruptcy representation if McKesson refused to waive the conflict at issue in the Georgia litigation. This move was described in court papers by McKesson’s Georgia counsel as “bordering on extortion” and a blatant breach of loyalty. McKesson responded by moving in Georgia state court to have Duane Morris disqualified from representing the individual claimants in the arbitration. Judge Moore of the Fulton County Superior Court granted McKesson relief and ordered Duane Morris disqualified and enjoined from acting as counsel to the individuals in the arbitration against MIS.2

In the Order, Judge Moore conveys a number of principles that should be at the forefront of the minds of corporate attorneys engaged by, or currently representing, large, multi-national clients where the risk of conflict is high because of the diversified corporate structure. For instance, Judge Moore aptly states, “The Court is keenly aware that modern business practices in this age of parent companies with worldwide subsidiaries, mergers and acquisitions make this conflict of interest issue one of great importance.” See http://law.gsu.edu/ccunningham/PR/McKesson%20Decision.pdf. In the case, Judge Moore found that although MIS and the two affiliated companies under the McKesson umbrella were “separate and distinct legal entities for contract and liability purposes,” they constituted “a single entity for purposes of conflict of interest analysis” since they shared the same parent.

The Court applied the Georgia Rules of Professional Conduct to the dispute and the terms of the engagement letter since the attorney conduct at issue took place in Georgia. Essentially, the Court found that McKesson’s “future waiver” in the engagement letter was inadequate and, thus, invalid because it was not a knowing waiver identifying specifically adverse clients or details of adverse representation as required by Georgia’s ethics rules. As such, the court found that Duane Morris’ concurrent representation of the McKesson entities presented a significant “possibility of breach of loyalty and of possible disclosure of information that may have adversely affected MIS in the impending arbitration” and that the engagement letter language “[could] not override [the firm’s] ethical obligations to its clients.” The Court, as well, was not persuaded by Duane Morris’s expert, Steven Krane of Proskauer Rose and the chairman of the ABA’s Ethics and Professional Responsibility Committee, who testified that large, multi-faceted and multi-national companies like McKesson should not reasonably expect law firms to look upon an engagement with one affiliate or subsidiary as an engagement for an entire corporate family. 2 Duane Morris has since moved for a new trial and to be re-appointed as claimants’ counsel in the arbitration, citing settlement of the Pennsylvania bankruptcy matter and its subsequent withdrawal from the representation. McKesson has opposed the motion contending it has never consented to the withdrawal and that settlement of another matter does not resolve an existing conflict. See article at located at http://biz.yahoo.com/law/070103/353898c1962375c44060fda141701f34.html?.v=1.

http://law.gsu.edu/ccunningham/PR/McKesson%20Decision.pdf

http://biz.yahoo.com/law/070103/353898c1962375c44060fda141701f34.html?.v=1


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This case suggests large, multi-state or multi-regional law firms should re-evaluate their conflict of interest policies and appropriately communicate such policies among both transactional and litigation attorneys, so that engagement letters purporting to limit a representation do not end up costing the firm in an ethics proceedings or suit like that brought against Duane Morris. The analysis, it seems, will now have to be, “If we represent this small entity owned by X Corporation on this one, apparently distinct matter, are we therefore conflicted out of all future representation against the entire family of companies owned by X Corporation?” See http://www.law.com/jsp/article.jsp?id=1162461919192. Commentators have agreed this decision may “hold far-reaching consequences for corporate attorneys and their clients.” Id.

* * * Disqualification of Entire City Attorney’s Office In the interesting case of City of San Francisco v. Cobra Solutions, Inc., 38 Cal. 4th 839, 135 P.3d 20 (2006), the California Supreme Court disqualified the entire City Attorney’s office from prosecuting a fraud and abuse case against the defendant. One of the city attorneys had been the defendant’s lawyer while in private practice and his conflict was imputed to the entire city attorney’s office. The attorney at issue was so familiar with the defendant’s confidential information and conduct while he represented it that his conflict required “vicarious disqualification” of the entire office at the city. Although the City tried to screen the defendant’s former lawyer from the case, the Court held that such a screen could not properly resolve the potential ethical issues the attorney may face as part of the City Attorney’s office handling the lawsuit. This case may signal important ethical considerations for corporate attorneys in private practice who go in-house with local, state, or federal government and may become involved in investigating former clients on behalf of the government or who may be advising government investigators or other officials about a former client’s conduct and business operations. See From the Top Ten Legal Ethics Stories of 2006, at http://legalethicsforum.typepad.com/blog/2006/12/top_ten_legal_e.html

* * *

“Attorney-Client Privilege Protection Act of 2006” Introduced by Senator Arlen Specter

On December 7, 2006, Senator Arlen Specter introduced the Attorney-Client Privilege Protection Act of 2006 (“the Act”) seeking to add federal statutory protections to the attorney-client relationship, particularly in Department of Justice (“DOJ”) investigations and prosecutions of business entities. The principles at issue and at which the Act is directed stem from the DOJ’s “Thompson Memorandum” of 2003 which set forth highly-disputed guidance from Deputy Attorney General Larry Thompson to federal prosecutors, which appeared to threaten the attorney-client privilege. The Act would, among other things:

http://www.law.com/jsp/article.jsp?id=1162461919192

http://legalethicsforum.typepad.com/blog/2006/12/top_ten_legal_e.html


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(1) prohibit federal prosecutors and investigators from requesting that a corporation waive its privilege or work product doctrine;

(2) condition charges or cooperation credit on the corporation’s waiver or non-waiver of the privilege (essentially, prohibiting quid pro quo exchanges of a waiver of the privilege for more lenient treatment);

(3) preserve the corporation’s ability to voluntarily offer internal investigation materials to prosecutors; and,

(4) allow prosecutors to ask for materials in instances where they have reason to believe are not protected by a privilege.

See http://www.abanet.org/buslaw/attorneyclient/materials/076/076.pdf.

In apparent response to Senator Specter’s proposed Act and criticisms of the DOJ’s tactics regarding essentially coerced waiver of a corporation’s privilege in exchange for cooperation credit and good standing, Deputy Attorney General Paul McNulty recently issued a new memorandum to replace the Thompson Memorandum. Prior to McNulty’s memorandum, DOJ investigators and prosecutors could consider whether a corporation agreed to waive its attorney-client privilege when deciding whether to the charge the corporation with federal crimes. See http://www.abanet.org/buslaw/attorneyclient/materials/071/071.pdf.

In his memorandum, McNulty praises the DOJ’s successes in stemming the tide of corporate fraud, but acknowledges, “Many of those associated with the corporate legal community have expressed concern that our practices may be discouraging full and candid communications between corporate employees and legal counsel. To the extent this is happening, it was never the intention of the [DOJ] for our corporate charging principles to cause such a result.” See id. Specifically, McNulty’s memorandum points out the “waiver of attorney-client and work-product protections is not a prerequisite to a finding that a company has been cooperating in the government’s investigation . . . Prosecutors may only request waiver of attorney-client or work protections when there is a legitimate need for the privileged information to fulfill their law enforcement obligations.” See id. The memorandum sets forth a series of steps a prosecutor or investigator must take to request privileged documents properly.

McNulty’s memorandum and Senator Specter’s proposed bill suggest a change in treatment of corporations with regard to privilege protections. Following 9/11, as well as Enron, WorldCom and other corporate scandals, privilege protections were challenged through broad legislation such as Sarbanes-Oxley. While many sought to limit a corporate entity’s ability to protect and defend itself against fraud allegations in the wake of these events, it seems that now the DOJ may be modifying its challenge to the attorney-client privilege for which popular sentiment had called in recent years.

* * *

http://www.abanet.org/buslaw/attorneyclient/materials/076/076.pdf

http://www.abanet.org/buslaw/attorneyclient/materials/071/071.pdf


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Waiver of Attorney-Client Privilege Through Communications Between a Corporation and a Public Relations Firm

In an article for the Association of Corporate Counsel entitled, The Attorney-Client Privilege and Associated Confidentiality Concerns in the Post-Enron Era, Douglas R. Richmond discusses the issue of privilege waiver under circumstances where law firms and clients engaged public relations consultants to aid in crisis and media management. See http://www.acc.com/public/article/attyclient/postenron.pdf, at pages 20-26. In the article, Mr. Richmond discusses a number of cases suggesting, on the whole, that the law on this particular privilege-waiver issue remains unsettled.

As discussed in the article, two cases provide insight on this issue. The case of Calvin Klein Trademark Trust v. Wachter, 198 F.R.D. 53 (S.D.N.Y. 2000), involved Boies, Schiller & Flexner, a well-known large corporate law firm, which hired a public relations consultant to assist in representing Calvin Klein. When the defendants sought to obtain documents from the public relations firm to depose one of its employees, Calvin Klein refused on privilege grounds, which the court rejected. The court reasoned that the public relations firm was merely dispensing advice to Boies Schiller’s client at the law firm’s direction, not aiding in the provision of legal advice. On the other hand, the court did allow some of the documents to be withheld on work-product grounds if Boies Schiller and the public relations firm collaborated on certain documents, which contained combined directions and legal advice provided to Calvin Klein. See http://www.acc.com/public/article/attyclient/postenron.pdf, at pages 20-26. In In re Grand Jury Subpoena, (the Martha Stewart Case), on the other hand, the same court from the Calvin Klein case in the Southern District of New York held that “confidential communications between lawyers and public relations consultants hired by the lawyers to assist them in dealing with the media in cases such as this . . . that are made for the purpose of giving or receiving advice directed at handling the client’s legal problems are protected by the privilege.” See http://www.acc.com/public/article/attyclient/postenron.pdf, at pages 20-26 (citing 265 F. Supp. 2d 321, 331 (S.D.N.Y. 2003)).

As to this unsettled issue, corporate attorneys advising clients in a high profile investigation should be well-read on the law of the applicable jurisdiction with regard to privilege waiver should third-party consultants become involved in aiding the representation. See http://www.acc.com/public/article/attyclient/postenron.pdf, comparing generally the case of Oxyn Telecom., Inc. v. Onsc Telecom, 2003 WL 660848 (S.D.N.Y. 2003) (presence of public relations consultant during meeting between executive of corporation under federal investigation and defense counsel may allow discovery of such communications) with the cases of Newman v. State 863 A.2d 321 (Md. 2004) (noting presence of third-party does not waive privilege if the third party is present to facilitate the provision of legal services in the best possible manner) and Hangh v. Schroder Inv. Mgmt., Inc., 2003 WL 219986674 (S.D.N.Y. 2003); Blumenthal v. Drudge, 186 F.R.D. 236 (D.D.C. 1999) (finding circumstances when such communications with a public relations consultant may be protected).

http://www.acc.com/public/article/attyclient/postenron.pdf





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* * *

Letting Your Client Know Who’s The Client

A number of recent cases discussed in the article entitled Ethical Issues for Business Lawyers: Ten Things You Should Know, written by David Anthony and Matthew Chmiel of Kaufman & Canoles, P.C. in Virginia, indicate that corporate lawyers must adhere to distinct boundaries keeping separate the corporate client from its directors, officers or employees (who are typically not the client) since some courts have disqualified lawyers on such grounds. See http://www.kaufmanandcanoles.com/documents/misc/Ethical%20Issues%20for%20Business%20Lawyers.pdf. For instance, the article discusses the case of Home Care Indus., Inc. v. Murray, 154 F. Supp. 2d 861 (D.N.J. 2001), in which the court disqualified Skadden Arps from representing the corporate plaintiff in a suit adverse to its former chief executive officer. The court found Skadden had failed to inform the officer that the company was the client and not him, personally, and that the firm had effectively been representing him over the course of the corporate representation. See http://www.kaufmanandcanoles.com/documents/misc/Ethical%20Issues%20for%20Business%20Lawyers.pdf (citing In re Rite Aid Corp. Sec. Lit., 139 F. Supp. 2d 649 (E.D. Pa. 2001) (describing proper use of engagement letter to define the client and scope of representation to properly exclude representation of officers, directors, or employees)). This line of cases indicates the importance of drafting a proper engagement letter and adhering to a coherent and up-to-date conflict of interest policy to avoid surprising disqualifications during subsequent legal matters. See http://www.kaufmanandcanoles.com/documents/misc/.

http://www.kaufmanandcanoles.com/documents/misc/Ethical%20Issues%20for%20Business%20Lawyers.pdf




http://www.kaufmanandcanoles.com/documents/misc/

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