Best practices for preserving corporate attorney-client privilege in Massachusetts

Issue November/December 2016 By Sarah Heaton Concannon and Robyn R. Schwartz

Consider the following hypothetical:

A bank's general counsel (GC) learns that $200,000 has been illegally wired from a customer's account to an account overseas. The GC immediately asks the branch manager (who is not an attorney) to interview the employees involved. The branch manager summarizes her interviews for the GC, and the GC drafts a memo to outside counsel detailing the information uncovered, and the GC's conclusion is that the fraud occurred because branch employees did not follow the bank's fraud-prevention policies.

Fast-forward two years, and the customer has sued. Aware of the bank's investigation, the customer demands production of the GC's memo and related interview summaries, notes and communications. The bank claims that the documents sought, though relevant and responsive, are attorney-client privileged. The customer moves to compel.

The court's decision whether these documents must be produced will hinge on questions implicating the scope and applicability of the corporate attorney-client privilege, including whether:

  • the GC was acting in a legal, or business, capacity during the investigation;
  • the branch manager acted as an agent of the GC while conducting her interviews;
  • the branch manager's summaries to the GC were for the purpose of seeking legal advice and kept confidential;
  • the GC's memo to outside counsel was for the purpose of seeking legal advice;
  • the investigation was "in anticipation of litigation."1

As this hypothetical illustrates, corporate assertions of attorney-client privilege raise myriad questions. Here, it seems likely that the court will order some production. Given the opportunity, what would you have advised the GC before the investigation to create and preserve the privilege?

Overview of the Attorney-Client Privilege in the Corporate Setting

The attorney-client privilege generally protects clients' communications with their attorneys from disclosure to third parties - including both civil litigants and governmental regulators - provided the communications are: (i) confidential; (ii) between an attorney and client; and (iii) for the purpose of obtaining or providing legal advice.

In the corporate setting, step (ii) is often complicated. Since a corporation acts through its principals, directors, officers, and employees, who, then, is the "client"? More importantly, who may invoke or waive the privilege on behalf of the company?

The authoritative test for the scope of the attorney-client privilege in the corporate setting comes from the U.S. Supreme Court's decision in Upjohn Co. v. United States 449 U.S. 383 (1981). In Upjohn, the Supreme Court held that communications between corporate counsel and employees at any level can be protected, provided: (i) the communication is made at the direction of corporate officials to obtain legal advice; (ii) the matters communicated fall within the scope of the employees' duties and are not available from upper level employees; (iii) employees are aware that the purpose of the inquiry is to help in obtaining legal advice; and (iv) the communications are intended to be kept confidential. Massachusetts follows the Upjohn test.

Selected Corporate Situations Giving Rise to Attorney-Client Privilege Issues

Counsel should be aware of the corporate situations where privilege issues are most likely to arise and adopt proactive strategies to protect privileged communications:

Conducting an internal investigation. In-house counsel should formally document the initiation of an internal investigation and establish that the purpose of the investigation is to provide legal advice to the company. The company should consider hiring outside counsel to conduct the investigation, because courts are often more willing to view outside counsel as operating in a legal capacity, making their communications related to the investigation privileged. If, as above, non-attorneys like the branch manager must be involved in gathering information during the investigation, then counsel should document that the employee's actions are at the direction and under the supervision of legal counsel and for the purpose of providing legal advice to the company. Further, before any interviews are conducted, counsel should give Upjohn warnings to the interviewees, in which counsel explains that the interviewers are acting at the direction of counsel and that the purpose of the interviews is to gather information to provide legal advice to the company.

Responding to a regulatory inquiry. Today's companies operate in a highly regulated environment and frequently receive inquiries from regulators calling for the production of confidential, sensitive, and potentially privileged information. In their effort to cooperate fully, some companies may be too quick to open their files, producing privileged information and creating waiver issues for subsequent civil litigation. Companies should identify privileged material before producing it to regulators and waive the privilege only after making a conscious assessment of the benefits and detriments of doing so. In addition, any company producing documents to a regulator should be aware of applicable state and federal freedom of information laws, which provide the public with a right of access to government-held information.

Board meetings. Both in-house and outside counsel frequently attend board of directors' meetings as corporate secretaries or observers. The mere presence of counsel at board meetings, however, does not make the board's discussions privileged. Indeed, board minutes are often one of the first categories of documents sought in litigation. If, however, the board seeks legal advice from counsel, then that portion of the meeting (and the minutes) may be protected by the attorney-client privilege. All third parties should be asked to leave the meeting before privileged matters are discussed, and the meeting minutes should clearly distinguish between the business and legal portions of the meeting. If minutes are recorded while legal advice is being sought and provided, then the minutes should document the legal nature of the discussion, be marked as privileged, and state that only the client and attorney (and no third parties) were present.

Compliance departments. Corporate compliance departments play a key role in ensuring companies' compliance with applicable laws, rules, and regulations. The distinct, yet related, functions of the compliance and legal departments can create uncertainty about the scope of the attorney-client privilege. Whether compliance departments' investigations and communications are privileged is a fact-intensive inquiry, which depends on facts such as whether: (i) the work of the compliance department is undertaken at the request and direction of the legal department; (ii) attorneys are regularly involved in the compliance department's investigations; and (iii) compliance department investigations are conducted as part of the regular course of business, to provide legal advice to the company, or in anticipation of litigation.

Best Practices for Protecting Attorney-Client Privilege

So what should we, as outside counsel, advise our hypothetical GC before he launches an investigation? As an initial matter, clients should always be told that the only way to guarantee that a communication or document will not be discoverable is not to make it. Because the pros of an internal investigation often outweigh the cons, however, the steps below will help our GC ensure that the bank's investigation stays internal:

Explicitly state that legal advice is being provided. The GC should state that the investigation is being undertaken to inform the GC of facts necessary to seek (from outside counsel) and provide (to the bank's principals, officers, and directors) legal advice. Counsel should clearly label legal communications as "Attorney-Client Privileged," and expressly state that the communications are providing (or seeking) legal advice. In addition, counsel should protect against inadvertent waiver of privileged written communications by labeling communications with "Do Not Forward." In all instances, these labels should be used thoughtfully and only where applicable.

Corporate employees should specify that they are seeking legal advice.In our hypothetical above, the GC asked the branch manager (the person closest to the branch's employees, policies, and procedures) to speak with her employees about what occurred. The GC should document that these tasks were assigned to the branch manager as part of the legal function, and that there is no other employee who could as readily carry out the investigation. Ideally, a member of the legal department would participate in the interviews, and Upjohn warnings should always be provided. Finally, when providing summaries to the GC, the branch manager should indicate that the summaries are intended to provide information to the GC for the purpose of requesting legal advice and discuss the summaries only with legal counsel.

Separate legal and business advice. In-house counsel often wear two "hats," assisting their companies with both business and legal functions in the course of a work day. If business advice is sought along with legal advice, then it is important to distinguish the two functions. In the above hypothetical, for example, the GC may ask the branch manager to review and update the branch's fraud-prevention policies and procedures. Whether the GC's request is a legal or business function is not immediately clear. Therefore, the GC should document precisely what is being requested and for what purpose. In-house counsel should be aware of their dual roles at all times, and employees should be instructed, as a best practice, to initiate separate communications with in-house counsel when requesting legal, as opposed to business, advice.

Avoid routine copying of in-house counsel on non-legal communications. Merely copying in-house counsel on communications does not make them privileged. To the contrary, such a practice may undermine the company's legitimate privilege claims. Here, for example, the branch manager may be tempted to copy the GC on day-to-day communications concerning branch management, to give the GC an opportunity to weigh in on the ongoing operations of the branch and the prevention of further fraud. The branch manager should be instructed to only copy the GC when legal advice is expressly sought.

Conclusion

Questions of corporate attorney-client privilege often arise only after the cat is out of the bag. To prevent compelled disclosure, counsel should advise clients as to privilege best practices and proactive steps they can take to protect the privilege.

This article appeared in the April 2016 edition of the ComCom Quarterly, the newsletter of the Complex Commercial Litigation Section. For more articles like these on business litigation, bankruptcy, and intellectual property topics, check out the Quarterly at http://is.gd/lFJCJw.

This question concerns the applicability of the attorney work product doctrine, a more limited protection that applies to materials created in anticipation of litigation. In practice, the work product protection is often asserted hand-in-hand with the attorney-client privilege.

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