You Can Lose the Protection of Privileged Communication
from
July/August 2003
by John R. Engen
In a world loaded with legal challenges, the attorney-client privilege has traditionally been a way for management and boards to get frank opinions, and confide sensitive information, without fear that those communications might wind up in the hands of regulators, prosecutors, or plaintiffs’ lawyers during a legal discovery process. But there are limits to privileged communication. The biggest public battle over it has been focused on attempts to make attorneys inform the SEC of their resignation from companies under certain circumstances. But other facts and misconceptions about privileged communication are probably more important for board members of most companies to know. Some critical examples:
You can use the privilege to shield a wide variety of legal communications, such as discussion with a lawyer about mergers-and-acquisitions transactions, tender offers, tax planning, litigation, or investigations of wrongdoing within the company. As long as you’re seeking legal advice, the privilege applies to all forms of communication with an attorney, including phone calls, face-to-face conversations, meeting notes, investigative documents, and correspondence by mail, e-mail, or fax. Say an audit committee member is alerted to questionable accounting practices. Bringing the company’s general counsel into the decision-making process, and including the counsel in any discussions or correspondence on the matter, will cloak those communications from prying eyes, says Warren Hamel, a partner at Venable LLP in Baltimore. “If you don’t have an attorney involved, everything will be discoverable later on,” he warns.
But some people think that merely copying an attorney on all communications will make them privileged. Not so. You must be looking for guidance from the lawyer, not just creating a paper trail. And you can’t use the privilege to perpetrate a fraud or, says Robert Clarke, a partner at Bracewell & Patterson in Houston, to shield nonlegal matters, such as a strategic discussion on whether or not to open a plant in Columbus, Ohio. The attorney must be acting as a legal adviser, not a business adviser, for privilege to apply.
Watch out for people who may be reading over your shoulder. Only employees who are directly involved in the legal matter should see privileged communications. If another party is copied in, the privilege could be lost. Companies are advised to be especially careful with e-mail, since even the inadvertent viewing of a privileged e-mail by, say, a spouse could be grounds for a judge to make it eligible for discovery. “E-mail,” says Richard Koppes, a partner with Jones Day in Sacramento, California, “is a very dangerous thing for the privilege.” And if you waive the privilege just once in connection with a specific case, you lose the right to claim it in all matters related to that case.
Board members must be wary of one other fact: The client is the company. It controls the privilege, and can exercise it in ways that could leave directors, as individuals, vulnerable. Ron Glancz, a partner in Venable’s Washington, D.C., office, says a company might waive the privilege as part of a plea agreement. This could hurt some directors, because communications that they participated in and assumed were cloaked—alleged securities violations, for instance—could then be released. Glancz says, “We could see the prosecution of some individuals as a result.”
Hamel advises directors to discuss the fine points of privileged communication with an attorney. For example, the Sarbanes-Oxley Act permits audit committees to hire their own counsel, separate from the company’s but on the company’s dime. In communications with its own lawyer, the committee would control the privilege without risk of having it waived by the company.
In the best of worlds, boards need not worry about using the attorney-client privilege at all. But matters confronting corporations nowadays are so complex that directors must know how to use the privilege to safeguard not only the interests of their companies but their own as well.
