Business lawyers: Listen up!
Attorney-client privilege isnit just for trial lawyers
By Thomas E. Spahn
Some business lawyers think that only litigators have to
know about attorney-client privilege. To be sure,
litigators go to court to defend their client's
privilege or to assault their adversary's privilege
claims. But often they are trying to overcome their
business partner's mistakes, or take advantage of the
other side's business lawyer's ignorance. If the truth
be told, the attorney-client privilege affects
all lawyers every time we communicate with
anyone there is no more important legal
If any of us needed a reminder, consider the World Trade
Center insurance coverage litigation. That titanic
struggle has already spawned four separate Southern
District of New York decisions about the privilege.
Prestigious law firms such as Wachtell, Lipton, Rosen
& Katz and Cadwalader, Wickersham & Taft lost
their efforts to protect from disclosure key
communications, documents and statements at meetings.
Who can calculate the hundreds of millions (or even
billions) of dollars that were won or lost because what
the lawyers wanted to protect was ultimately revealed?
This short article goes back to the basics
describing the attorney-client privilege's elemental
rules, along with some good and bad trends.
The attorney-client privilege developed in Elizabethan
England. Once transplanted to the United States, it took
essentially the same shape in every state (with one
important exception, discussed below). Most foreign
countries have not been as generous. Many European
countries do not protect communications to or from in-
house lawyers as privileged. Even in the United Kingdom
(which created the privilege and takes a broader view
than most European countries), the House of Lords
recently refused to expand the privilege covering U.K.
corporations to employees below the "control
group." Companies with overseas operations should
never assume that other countries provide as much
protection as our courts do.
The attorney-client privilege still reflects a tension
apparent from its birth. The privilege provides absolute
protection to most confidential communications between
clients and their lawyer, so that clients will feel free
to share all of the facts with those who can guide their
conduct in the right direction. After 500 years, courts
continue to emphasize that the privilege's absolute
protection rests on the same basic principle
lawyers cannot help their clients (and guide them toward
lawful conduct) if the clients worry that third parties
might later learn what clients tell their lawyers.
On the other hand, the privilege undeniably hides the
truth. What could be more relevant than what a recently
arrested criminal defendant tells her lawyer
yet no one will ever be able to know. As a result of
this tension, the privilege provides insurmountable
protection to those who apply it correctly, but is
narrowly construed and extremely fragile.
This is why business lawyers must know the rules
they most often engage in the communications that might
deserve protection, and they have the opportunity every
day to train their business clients about the
Reflecting its original purpose, the attorney-client
privilege provides protection to clients asking their
lawyers for legal advice, or providing the facts that
the lawyer needs.
This basic rule did not translate easily into the world
of corporations. Courts universally recognize the
incorporeal institution as the "client." This
means that whoever controls the corporation controls the
privilege including bankruptcy trustees and
purchasers of a company's subsidiary.
Business lawyers assisting a client in spinning off a
subsidiary should remember that the subsidiary's new
owners now control the lawyer's former client
and those new owners generally can ask for the lawyer's
files generated while representing the subsidiary, waive
the privilege that covers the pre-spin communications,
The law also had a difficult time deciding who
"speaks" for the corporation for privilege
purposes. At first, courts only protected communications
to and from a corporation's "control group" of
upper management (and those who advise them). In 1981,
the U.S. Supreme Court rejected this
"hierarchical" test in a case called Upjohn
Co. v. United States, 449 U.S. 383 (1981).
The Supreme Court instead adopted a
"functional" test which protects a
corporation's lawyer's communications with any
company employee regarding information the lawyer needs
to give the corporation legal advice. To earn this
protection, lawyers must identify themselves, describe
their communications' purpose and advise the employee to
keep the communication confidential.
Some states still follow the control group test,
including Illinois. In an especially frightening
scenario, Illinois state courts sometimes apply their
own state's restrictive "control group" test
to corporations from other states that happen to be sued
in Illinois stripping the protection from
communications that would have been protected when and
where they were made.
There is good news and bad news in courts' application
of the privilege to other corporate employees or agents.
Once most courts abandoned the hierarchical approach and
focused on an employee's particular knowledge, they
generally began to apply the privilege even to former
corporate employees with pertinent knowledge. Lawyers
dealing with former corporate clients should memorialize
the privilege's applicability in some written document,
preferably signed by the former employee.
Similarly, courts are increasingly treating as full-time
employees those independent contractors who are the
"functional equivalent" of employees.
Viacom Inc. v. Sumitomo Corp. (In re Copper Market
Antitrust Litig.), 200 F.R.D. 213, 220 & n.4
(S.D.N.Y. 2001) (public relations advisers). Any
corporation that outsources important functions will
want to follow this helpful trend documenting
how such independent contractors act as the
"functional equivalent" of full-time
employees. Unfortunately, corporate benefits folks might
push back on this issue, hoping to avoid the adverse
consequences of such a characterization.
The bad news involves other client agents
investment bankers, environmental consultants, financial
advisers, reorganization consultants, etc. A few courts
apply the privilege to communications to or from (or in
the presence of) such agents, but the vast majority of
courts find that communications made in the presence of
these client advisers do not deserve privilege
protection, and that sharing privileged communications
with them waives the protection (a related doctrine
discussed below). See, for example, American Legacy
Found. v. Lorillard Tobacco Co., 2004 Del. Ch. LEXIS
157 (Del. Ch. Nov. 3, 2004) (holding that Wilmer
Cutler's client had waived the privilege by sharing the
law firm's advice with its public relations
This is perhaps the most counter-intuitive privilege
rule, and clients generally do not understand it.
Clients put together "teams" of problem-
solvers, and naturally want to share one adviseris
thoughts with the entire "team." Business
lawyers must stop them. If they need a concrete example
of just how fragile the privilege can be, they should
remind their clients that Martha Stewart lost the
privilege covering her e-mail to her lawyer by
sharing it with her own daughter. United
States v. Stewart, 287 F. Supp. 2d 461 (S.D.N.Y.
If a client loses the privilege by sharing a
communication with her only daughter, who would expect
it to survive disclosure to an environmental consultant
or accountant? Clients and lawyers must treat privileged
communications as the corporation's "crown
jewels," and rarely if ever share them with other
Privileged communications also involve lawyers.
Only a few complications arise when analyzing this
aspect of the privilege. In the United States, in-house
lawyers receive the same privilege protection as outside
lawyers (even communicating in states where they are not
licensed). Most courts even protect communications to
and from foreigners (such as patent agents) who perform
functions in their countries that lawyers perform here.
As mentioned above, most European countries are not as
generous to in-house lawyers.
In a critical distinction between clients and lawyers,
courts generally protect communications to or from (or
in the presence of) a lawyer's agents if
the agents are assisting the lawyer in giving legal
advice. Thus, an accountant providing independent advice
to a client is an outsider to the attorney-client
relationship, while an accountant helping a lawyer
understand financial statements usually will be treated
just like a lawyer's paralegal inside
the intimate attorney-client relationship.
Clever lawyers have tried to take advantage of this key
distinction by retaining consultants that the client
needs, and "laundering" their independent
advice through the lawyer back to the client. Courts
reject these efforts, and examine the bona fides of such
arrangements. Lawyers preparing a legitimate
relationship with consultants who are helping them give
legal advice should carefully document the consultants'
role and how the consultants are assisting the
Some lawyers focus so intently on client and lawyer
participants that they forget another key element of the
attorney-client privilege it protects only
client-lawyer communications relating to legal
When quizzed, some sophisticated business clients will
say that they can make something privileged by putting a
"privileged" legend on it, or by sending a
copy to a lawyer. These clients sometimes ask lawyers to
attend a meeting so the "meeting will be
privileged." These and similar misconceptions can
lead to disaster.
Business lawyers must constantly remind their clients
that the privilege only protects communications relating
to legal advice. It does not cover the
facts and circumstances of the communication (such as
where and when clients and lawyers meet or talk); it
does not cover a general description of the
lawyer's services; it does not cover historical
facts (the light was either red or green and
that fact does not become privileged because the client
and lawyer discuss it); and it generally does not
cover information that lawyers learn from third parties
and relay to their clients.
Clients and lawyers should train themselves to
articulate in the body of their
communication how the communication relates to
To make it even clearer that their communications relate
to legal advice, clients and lawyers should get into the
habit of separating their communications from the
widespread type of e-mail message traffic that permeates
today's corporations. For instance, if a client wants
the CFO's and the in-house lawyer's thoughts about a
draft contract, the client generally should send two
In the same vein, the privilege only protects
communications with lawyers acting as legal advisers
not acting as lobbyists, directors, friends or
especially business advisers. If a
lawyer's communication contains a mixture of business
and legal advice, courts generally look for the
communication's "primary purpose." Because in-
house lawyers so frequently provide nonlegal advice,
courts usually place a heightened burden on them to
establish that they meet this "legal advice"
element. In-house lawyers should try to articulate the
privileged nature of important documents containing
their legal advice (rather than simply slap a
"privileged" legend on the document).
Fortunately, most lawyers never face one additional
issue dealing with a communication's content
the "crime fraud exception." The law would
never protect communications about future criminal
Courts have wrestled with two issues: (1) what
wrongdoing does the exception cover (all courts say
crimes and frauds, and some expand the exception to
other intentional wrongdoing); and (2) what connection
must there be between the communication and the
wrongdoing (most courts require the communication to
have been "in furtherance of" the
Courts analyzing the privilege do not only look at a
communication's participants and its content
they also examine the context. As indicated above, the
privilege provides absolute protection so that clients
will feel free to air all necessary information with
their lawyers in confidence. That justification
evaporates if either the client or the lawyer does not
treat the communication with the confidence the law
As indicated elsewhere, communications in the presence
of a third party (even family members) usually will not
deserve privilege protection. Similarly, the privilege
generally will not cover communications or documents
that the client ultimately intends to reveal beyond the
intimate attorney-client relationship some
courts do not even protect drafts of such
One exception to this general rule the
"common interest" exception has led
some lawyers astray, and cost them and their clients the
privilege. The "common interest" doctrine
started with the common-sense notion that jointly
prosecuted criminal defendants or civil co-defendants
represented by separate lawyers should nevertheless be
able to plan a common litigation strategy without
forfeiting the privilege protection.
Some courts expanded this doctrine, but the recent trend
has been to restrict it. Recent decisions have
emphasized that the "common interest"
exception applies only to those with an identical
legal interest who are in litigation or facing
litigation, and jointly plan a litigation strategy.
Business lawyers hoping to take advantage of this
doctrine should remember that Wachtell Lipton lost its
argument that a large bank could share privileged
communications with its investment advisers because they
shared a "common interest." A New York court
found that any "common interest" was
commercial rather than legal, and that the sharing
therefore forfeited the privilege. Stenovich v.
Wachtell, Lipton, Rosen & Katz, 756 NYS 2d 367
(N.Y. App. Div. 2003). They should also remember that
even a properly created "common interest"
agreement disappears if the participants later become
Even if clients and their business lawyers have taken
all the proper steps to correctly create the privilege,
they can still lose its protection if they are not
careful. Disclosing or relying on privileged
communications can cause a "waiver" of the
protection. Business lawyers play an especially
important role in warning their clients not to waive the
An "express" waiver occurs if the client
actually discloses privileged information
either intentionally or accidentally.
An intentional disclosure can involve sharing
privileged communications with another company adviser
(discussed above), the government, an outside auditor,
etc. The privilege is so fragile that even a careful
confidentiality agreement generally does not prevent a
waiver remember Martha Stewart's daughter.
Even sharing privileged communications too widely
inside the corporation can waive the privilege.
Verschoth v. Time Warner Inc., No. 00 Civ. 1339
(AGS) (JCF), 2001 U.S. Dist. LEXIS 3174 (S.D.N.Y. Mar.
22, 2001). Business lawyers should remind their clients
to share privileged communications only with those in
the corporation having a "need to know" in
order to perform their jobs. As indicated above, clients
should treat privileged communications as the company's
"crown jewels," and be wary of outdated e-mail
recipient lists, etc.
Clients and lawyers might inadvertently disclose
privileged communications by sending an errant e-mail or
letting a privileged document slip through during a
document production connected with litigation. Some
courts take a forgiving approach, but others find a
waiver in such circumstances.
Lawyers (and their clients) should also remember that
the intentional or even inadvertent disclosure of
privileged communications can destroy the privilege
forever, and for all purposes. Thus,
another third party (such as eager plaintiffs or their
lawyers) might later obtain access to the communications
whose protection was stripped away by too wide a
The other and more frightening type of
waiver is called an "implied" waiver.
This type does not involve the actual disclosure of
privileged communications, but rather a client's or
lawyer's reliance on the fact of the privileged
communication to gain some advantage. In many
circumstances, simple fairness requires the actual
disclosure of the communications. For example, litigants
cannot seek to avoid liability by claiming that they
relied on their lawyer's advice without
disclosing that advice, and what facts they gave their
lawyer before obtaining that advice.
The implied waiver doctrine has grown recently. For
instance, a defendant in a hostile work environment case
hoping to rely on the affirmative defense of having
conducted a thorough investigation and taking remedial
steps will almost always have to reveal otherwise
privileged communications relating to the investigation
and remedial steps.
To make the waiver issue even more frightening, most
courts apply the "subject matter" waiver
doctrine requiring a party who discloses some
privileged communication (or relies on some privileged
communication) to reveal all privileged
communications on the same subject matter.
Again, fairness dictates this result. Clients cannot
expect to defend themselves by relying on a helpful
letter from their lawyer without having to cough up all
communications with their lawyer on the same topic. Some
courts even apply this scary doctrine to the
mistaken disclosure of privileged documents.
VLT Inc. v. Lucent Techs. Inc., 54 Fed. R. Serv.
3d (Callaghan) 1319 (D. Mass. 2003). This is yet another
reason business lawyers should train their clients to
treat privileged communications like the company's
Although many lawyers equate or confuse the attorney-
client privilege and the work-product doctrine, they are
totally different protections.
The work-product doctrine applies only at certain
limited times (when a company reasonably anticipates
litigation). The doctrine can protect documents created
by any client agent not just lawyers
as long as the agent was motivated by litigation
in creating the documents (in other words, the document
would not have been created but for the
anticipated litigation). Unlike the privilege, the
doctrine provides only a qualified protection, because
an adversary can obtain work product if it has
"substantial need" for the documents and
cannot obtain the equivalent without "undue
Finally, because the doctrine does not rest on
confidentiality, work product can be shared with
friendly third parties without waiving its protection.
For instance, although Martha Stewart was found to have
waived the privilege by sharing a protected e-mail with
her daughter, the court found that she did not
waive the separate work product protection covering the
Business lawyers whose clients might be involved in
litigation should familiarize themselves with the
crucial differences between the attorney-client
privilege and the work product doctrine.
Business lawyers who leave it to their litigation
partners to understand the attorney-client privilege
risk confusion, embarrassment and malpractice. They
should learn the basics, and then train their clients.
Spahn is a partner at McGuireWoods LLP, in McLean,
Va. His e-mail is email@example.com.