Presenting a live 90-minute webinar with interactive Q&A Third-Party Attorney-Client Privilege Waiver Exceptions: Kovel, Common Interest and Functional Equivalent Doctrines WEDNESDAY, OCTOBER 18, 2017 1pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Donna L. Fisher, Partner, Pepper Hamilton, Harrisburg, Pa. Brian C. Spahn, Shareholder, Godfrey & Kahn, Milwaukee The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
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Third Party Attorney-Client Privilege Waiver Exceptions: Kovel, Functional Equivalent and Common Interest Doctrines Donna L. Fisher, Esq. Pepper Hamilton LLP fisherd@pepperlaw.com Brian C. Spahn, Esq. Godfrey & Kahn S.C. bspahn@gklaw.com October 18, 2017
Table of Contents I. Overview Attorney-Client Privilege; Attorney Work-Product Doctrine; and Waiver II. III. IV. Exceptions to Third-Party Waivers Kovel Doctrine; Functional Equivalent Doctrine; Common Interest Doctrine Case Discussions Best Practices/Lessons Learned V. Q & A 6
Part I: Overview A. Attorney-Client Privilege B. Attorney Work-Product Doctrine C. Waiver 7
A. Attorney-Client Privilege Generally: - The person or entity asserting the privilege must be a client; - The person to whom the communication was made must be an attorney acting in that capacity at the time of the communication; - The communication must have been made by the client, not a third party; - The communication must be made in confidence; and - The communication must be for the purposes of obtaining legal advice or assistance in a legal proceeding. States, federal and foreign systems each have their own particular law on the attorney-client privilege (i.e., protection in one jurisdiction does not mean protection in another jurisdiction). 8
B. Attorney Work-Product Doctrine The work-product doctrine is a qualified immunity from the discovery of an attorney s written statements, private memoranda and personal recollections that are made in anticipation of litigation. The immunity is qualified in that it is subject to discovery by the opposing party upon a special showing of undue hardship or injustice. Attorney opinions made in anticipation of litigation are never subject to discovery. 9
C. Waiver The attorney-client privilege is waived when the communication is made in the presence of, or communicated to, a third party. The widely applied standard for determining the scope of a waiver of attorney-client privilege is that the waiver applies to all other communications relating to the same subject matter. Fort James Corp. v. Solo Cup Co., 412 F.3d 1340, 1349 (Fed. Cir. 2005). FRE 502(a) When the disclosure is made in a federal proceeding or to a federal office or agency and waives the attorney-client privilege or work-product protection, the waiver extends to an undisclosed communication or information in a federal or state proceeding only if: 10
Waiver (cont d) 1) The waiver is intentional; 2) The disclosed and undisclosed communications or information concern the same subject matter; and 3) They ought in fairness to be considered together. 11
Part II: Exceptions to Third-Party Waivers A. Kovel Doctrine B. Functional Equivalent Doctrine C. Common Interest Doctrine 12
A. Kovel Doctrine - United States v. Kovel, 296 F.2d 918 (2nd Cir. 1961) Accountants - Theme: serving as interpreters analogy that the accountant is facilitating communications between attorney and a non-english speaking client - Elements Communication between attorney and an accountant must be made in confidence for the purpose of obtaining legal advice from the lawyer. 296 F.2d at 922. Predominant purpose test. Distinguishing between legal work and accounting work. The presence of the accountant is necessary, or at least highly useful, for the effective consultation between the client and lawyer which the privilege is designed to permit. Id. 13
Application of Kovel Doctrine to Other Third- Party Consultants Communications with other third party consultants may still be privileged as long as the consulting service is rendered for legal rather than business advice. - Communications with the consultant must be kept confidential. - However, reports or statements made by or to the consultant without an attorney s direction or supervision are presumably made in the ordinary course of business and so are not privileged. Translation analogy still applies the consultant must be translating information or facilitating the communication between the lawyer and client so that the lawyer can render legal advice. See also Fed. R. Civ. P. 26(b)(4)(B) and (C). - In federal courts, draft expert reports and certain attorneyexpert communications are protected as work-product. 14
B. Functional Equivalent Doctrine Protects communications between organizations and nonemployees who are the functional equivalent of employees. Factors that courts consider in applying the test: - Whether the consultant had primary responsibility for a key corporate job. - Whether there was a continuous and close working relationship between the consultant and the company s principals on issues interrelated with legal issues. - Whether the consultant is likely to possess information unique to anyone else at the company. 15
Functional Equivalent Doctrine (cont d) Courts disagree over the evidence necessary to meet the functional equivalence doctrine. Courts also disagree whether the functional equivalence test is in lieu of, or in addition to, the necessity test to determine whether the attorney client privilege protects these communications. See, e.g., Viacom, Inc. v. Sumitomo Corp. (In re Copper Mkt. Antitrust Litig.), 200 F.R.D. 213 (S.D.N.Y. 2001) 16
C. Common Interest Doctrine AKA - Community of interest rule; Co-client privilege; Joint prosecution privilege; Joint defense privilege. The joint defense privilege was adopted as an exception to [the] waiver rule, under which communications between a client and his own lawyer remain protected by the attorneyclient privilege when disclosed to co-defendants or their counsel for purposes of a common defense. United States v. Stepney, 246 F. Supp. 2d 1069, 1075 (N.D. Cal. 2003). Courts now recognize the doctrine as also applying to parties in civil litigation. Generally speaking, the common interest doctrine applies when the parties 1) share a common interest; 2) the communication is confidential; 3) the communication is in furtherance of the common legal interest; and 4) the communication is related to pending or reasonably anticipated litigation. 17
Common Interest Doctrine (cont d) Courts have applied the Common Interest Doctrine inconsistently. - Hard line test requires that the parties common interest is nearly identical. More flexible test requires that the parties common interest must be closely aligned. Jurisdictions also differ as to whether litigation is necessary to invoke the common interest doctrine or whether the doctrine also applies in the transaction context. 18
Part III: Case Discussion 19
United States v. Chevron Texaco Corp., 241 F. Supp. 2d 1065 (N.D. Cal. 2002) Defendant sought advice from Price Waterhouse on the structure of a transaction. Defendant s legal department discussed structure, purpose and tax consequences of transaction. Defendant, relying on Kovel, withheld documents exchanged as privileged. Magistrate judge distinguished between an accountant being hired merely to give additional legal advice about complying with the tax code from being hired to assist in understanding financial information. Recommended the court hold that Kovel only applied if the consultation with the third party was necessary to effectuate legal advice. 20
Calvin Klein Trademark Trust v. Wachner, 198 F.R.D. 53 (S.D.N.Y. 2000) In anticipation of filing a lawsuit, plaintiff s counsel retained PR consultant for certain communications services in connection with the law firm s representation of plaintiff. At the time, PR firm was already working directly for plaintiff. Defendant sought communications between PR firm and plaintiff. After in camera review, Court held most of the correspondence was not protected by the attorney-client privilege: - Few were made for the purpose of obtaining legal advice. - PR firm was providing ordinary public relations advice. - PR firm was not performing functions materially different from those that any ordinary PR firm would have performed. Court distinguished between strategizing about the conduct of litigation from the effects of the litigation on customers, the media, or the public. 21
In re Copper Mkt. Antitrust Litig., 200 F.R.D. 213 (S.D.N.Y. 2001) Foreign corporation was embroiled in high profile scandal involving both regulatory and civil litigation aspects. Corporation had no experience with publicity issues in high profile cases. Further, only 2 of 3 executives in corporation s communications department spoke English and their language skills were not sufficient for media relations. Corporation hired PR firm to assist with media relations in connection with the scandal and litigation. PR firm conferred frequently with the corporation s U.S. litigation counsel and general counsel in preparing press releases and other materials which incorporated the lawyers advice. 22
In re Copper Mkt. Antitrust Litig., 200 F.R.D. 213 (S.D.N.Y. 2001) (cont d) Court held that the PR firm was the functional equivalent of the corporation s employee. The Court rejected the argument that third party consultants came within the scope of the privilege only when acting as conduits or facilitators of attorney-client communications: - [I]n this case, RLM is the functional equivalent of a Sumitomo employee. Accordingly, the analysis set forth in Kovel and its progeny concerning whether the privilege applies to communications made to third parties for the purpose of facilitating attorney-client communications is inapposite. 200 F.R.D. at 220. 23
In re Grand Jury Subpoenas Dated March 24, 2003, 265 F. Supp. 2d 321 (S.D.N.Y. 2003) Target of grand jury investigation hired a PR firm to assist in influencing the outcome of the investigation. Government subpoenaed the PR firm to produce documents and to testify before the grand jury regarding communications with the target. PR firm asserted the attorney-client privilege on behalf of the target, arguing that the purpose of its public relations campaign was to counter unbalanced and inaccurate press reports about the target. Court upheld the assertion of privilege: - [T]he ability of lawyers to perform some of their most fundamental client functions would be undermined seriously if lawyers were not able to engage in frank discussion of facts and strategies with the lawyers public relations consultants. 265 F.Supp. 2d at 330. 24
In re Grand Jury Subpoenas Dated March 24, 2003, 265 F. Supp. 2d 321 (S.D.N.Y. 2003) (cont d) Court explicitly stated that target would not have enjoyed any privilege for her own communications with PR firm if she had hired firm directly. Court held communications between target and PR firm without the attorney may also be privileged but carved out two conversations between target and PR firm without law firm, determining neither were made for purpose of obtaining legal services. 25
Grand Canyon Skywalk Dev. LLC v. Cieslak, 2015 U.S. Dist. LEXIS 107457 (D. Nev. Aug. 13, 2015) Plaintiffs alleged that the PR firm and individual members of the Tribal Council conspired to conduct a public relations campaign to accuse plaintiffs of having breached their contracts with the Tribe. Alleged purpose of conspiracy was to gain support for the Tribe s enactment of an eminent domain ordinance and subsequent condemnation of plaintiffs contractual rights. The individual tribal members asserted affirmative defense that they had acted in good faith upon advice of counsel. Plaintiffs sought to depose Tribe s attorney relating to his communications with the PR firm. Tribe s law firm stated that as part of its representation of Tribe, it had recommended that the Tribe hire PR firm to manage media contacts relating to the litigation. 26
Grand Canyon Skywalk Dev. LLC v. Cieslak, 2015 U.S. Dist. LEXIS 107457 (D. Nev. Aug. 13, 2015) (cont d) Court upheld the assertion of privilege, holding that the PR firm should be treated as the functional equivalent of an employee of the Tribe. Court noted: - PR firm was hired by the Tribe, through its counsel, to protect the name of the Tribe and make it look more reasonable. - The law firm reviewed and approved agreement between Tribe and PR firm. - PR firm did not undertake to provide general PR services to the Tribe beyond the legal dispute with plaintiffs. 27
Scott v. Chipotle Mexican Grill, Inc., 94 F. Supp. 3d 585 (S.D.N.Y. 2015) Action involved violations of the Fair Labor Standards Act and class action claims under the New York Minimum Wage Act. The defendant had reached out to its legal counsel for advice on the classification of apprentices. After counsel had provided legal advice on the classification question, defendant retained a human resources consultant to conduct a job function analysis. 94 F.Supp. 3d at 592. Defendant produced some of consultant s interview notes without asserting privilege objection. Results/conclusions of job function analysis were communicated in memorandum to counsel, which defendant withheld as privileged. 28
Scott v. Chipotle Mexican Grill, Inc., 94 F. Supp. 3d 585 (S.D.N.Y. 2015) (cont d) Court held the attorney-client privilege did not protect the memorandum: - Report did not provide any specialized knowledge that the attorney could not have acquired or understood on his/her own. - None of the communications between HR consultant and employees were designated privileged. - Defendant s own HR team could have easily performed the analysis. - Legal counsel did not use the HR memorandum to render legal advice as the law firm s legal advice was provided before receiving HR memorandum. 29
BouSamra v. Excela Health, 2017 PA Super 235 (Pa. Super. 2017) Plaintiff and another physician held staff privileges at defendant s facility. During the course of a peer review, Defendant discovered that the physicians provided unnecessary treatments. Defendant hired outside counsel to advise it regarding disclosing physicians names. Outside counsel wrote an opinion letter. Defendant retained a public relations firm to advise it on potential public statements about the physicians and forwarded the legal analysis to the PR firm. After defendant publicly disclosed the physicians names, plaintiff sued. In discovery, plaintiff sought outside counsel s opinion and related emails. 30
BouSamra v. Excela Health, 2017 PA Super 235 (Pa. Super. 2017) (cont d) Court held PR firm input was not required in order for outside counsel to provide legal advice: - PR firm not involved in the legal issue in question. - PR firm provided no input into that decision. - Outside counsel never communicated with PR firm. Court also held PR firm was not functional equivalent of an employee: - Defendant had a staffed PR department. - PR firm was hired for crisis management on discrete assignments. - PR firm controlled staffing and methodology of its projects. Court also held work-product privilege did not protect the legal opinion sent to the PR firm because the opinion was not sent to help outside counsel in preparing for litigation. 31
Behunin v. Superior Court, 9 Cal.App.5th 833, 215 Cal.Rptr.3d 475 (App. 2d Dist. 2017) Lawsuit by plaintiff against the defendant family involving an unsuccessful business deal. To induce settlement, Behunin s attorney hired a PR firm to create a social media campaign to induce the Schwab family to settle. The Schwabs sued for defamation and invasion of privacy and requested information exchanged between Behunin, Behunin s attorney and the PR firm. Court held Behunin had not proven the communications were reasonably necessary for counsel s representation and determined the information was not privileged. 32
Endeavor Energy Res. v. Gatto & Reitz, No. 2:13CV542, 2017 U.S. Dist. LEXIS 48715 (W.D. Pa. 2017) Plaintiff filed a claim against defendant alleging improper distribution of funds held in escrow. In discovery, defendant sought deposition responses from, and documents provided to, a contract landman hired by plaintiff as an independent contractor. Court cited In re Flonase Antitrust Litigation, 879 F. Supp. 2d 454, 460 (E.D. Pa. 2012)(citations omitted): - Extending the privilege to a consultant performing a role similar to that of an employee, to the same extent as it applies to a corporate employee, simply reflects the reality that corporations increasingly conduct their business not merely through regular employees but also through a variety of independent contractors retained for specific purposes. 2017 U.S. Dist. LEXIS 48715, at *17-18. 33
Endeavor Energy Res. v. Gatto & Reitz, No. 2:13CV542, 2017 U.S. Dist. LEXIS 48715 (W.D. Pa. 2017) (cont d) Court held that the contract landman easily qualifies as the functional equivalent of an employee. 2017 U.S. Dist. LEXIS 48715, *24-25. Interesting facts: - Landman testified he was not plaintiff s agent, that he considered himself a contractor. - Landman did not communicate directly with counsel but testified that he knew the information plaintiff was giving him had been discussed with counsel. - Court noted landman was routinely performing same type of work as plaintiff s employees. 34
Supreme Forest Products, Inc. et al. v. Kennedy et al, No. 3:16CV54, 2017 WL 120644 (D. Conn. Jan. 12, 2017) Company and two of its employees brought suit against two former employees for unlawfully tape recording conversations that the former employees used to bring workplace safety lawsuits against company. Two defendants were represented in the lawsuit by the same attorney who had brought the two separate workplace safety lawsuits previously. Defendants invoked attorney-client privilege relating to meetings and communications that they jointly participated in with their attorney during the prior lawsuit. Issue was whether the privilege applied to joint communications between defendants and their attorney before the current lawsuit was filed. 35
Supreme Forest Products, Inc. et al. v. Kennedy et al, No. 3:16CV54, 2017 WL 120644 (D. Conn. Jan. 12, 2017) (cont d) Court ruled that the fact that attorney filed separate lawsuits rather than joining both former employees did not dispel the application of the co-client privilege. Company argued that common interest privilege did not apply because defendants interest must be identical, not merely similar. Court distinguished between community of interest doctrine in which some courts have held that parties interests must be identical, and co-client privilege. Co-client privilege only requires common interest, not identical interest. 36
Supreme Forest Products, Inc. et al. v. Kennedy et al, No. 3:16CV54, 2017 WL 120644 (D. Conn. Jan. 12, 2017) (cont d) Court also rejected argument that lack of joint representation agreement destroyed privilege because the defendants course of dealing demonstrated a common interest. However, Court agreed with plaintiffs that underlying facts were not privileged and, therefore, to the extent that any facts or information were known to defendant without reference to privileged communications, they were discoverable. Communications between defendants outside the presence of counsel were also discoverable and not privileged. 37
Dresser-Rand Co. v. Schutte & Koerting Acquisition Co. 242 F. Supp. 3d 576 (S.D. Tex. 2017) Company sued competitor and two former employees alleging misappropriation of trade secrets. After filing lawsuit, plaintiff approached U.S. Attorney s Office in an attempt to have that office initiate a criminal prosecution of former employees. Plaintiffs voluntarily turned over a forensic expert s report to the federal prosecutors. Plaintiff then sought to withhold from discovery expert s report and correspondence with the prosecutors on the ground of the joint prosecution privilege. 38
Dresser-Rand Co. v. Schutte & Koerting Acquisition Co. 242 F. Supp. 3d 576 (S.D. Tex. 2017) (cont d) Court recognized that work-product privilege protects the work-product of consulting experts. Court also noted that the joint prosecution privilege has been found to exist in the context of False Claims Act litigation where it has been inferred that a common interest exists between a FCA relator and the Government in prosecuting such claims. However, relying in-part on the sword-shield doctrine whereby the privilege is waived when a party selectively presents certain materials to an adversary to prove a point, the court ruled that no common interest existed between the civil litigants and a potential criminal prosecution. Because plaintiffs made a calculated disclosure to further the government s inclination to prosecute they waived any privilege attached to the information voluntarily divulged to the government. 39
Schaeffler v. United States, 806 F.3d 34 (2d Cir. 2015) Company sought to restructure and refinance eleven-billion Euro loan agreement with a consortium of banks. In doing so, Company retained Ernst & Young to advise on federal tax implications and possible future litigation with IRS. IRS audited the company and sought E&Y work-product. District court ruled that company waived attorney-client privilege by sharing E&Y analysis with the consortium of banks because the banks interest was commercial rather than legal. Second Circuit reversed. 40
Schaeffler v. United States, 806 F.3d 34 (2d Cir. 2015) (cont d) Second Circuit held that the banks common interest with the company was of a sufficient legal character to prevent waiver by sharing communications. - [I]t is unnecessary that there be actual litigation in progress for the common interest rule of the attorney-client privilege to apply. 806 F.3d at 40. - The communications regarding tax opinions were made in the course of an ongoing common enterprise and intended to further the enterprise. Id. at 42. Parties may share a common interest even if they are not parties in ongoing litigation. 41
Schaeffler v. United States, 806 F.3d 34 (2d Cir. 2015) (cont d) Second Circuit also ruled that work-product doctrine applied to E&Y tax advice memorandum because it was specifically aimed at addressing the urgent circumstances arising from the need for a refinancing and restructuring and was necessarily geared to an anticipated audit and subsequent litigation, which was on this record highly likely. Id. at 44. 42
In re Santa Fe Int l Corp, 272 F.3d 705 (5th Cir. 2001) Companies in-house counsel shared opinion letter with each other regarding potential antitrust exposure years before antitrust litigation was filed. Fifth Circuit noted that there are two types of communications protected under the common interest doctrine (1) communications between co-defendants in actual litigation and their counsel; and (2) communications between potential co-defendants and their counsel. 272 F.3d at 710 (citations omitted). - Court noted that potential had not been clearly defined. 43
In re Santa Fe Int l Corp, 272 F.3d 705 (5th Cir. 2001) (cont d) Therefore, unlike the Second Circuit decision in Schaeffler, the Fifth Circuit held that because the privilege is an obstacle to truth seeking, it must be construed narrowly to effectuate necessary consultation between legal advisers and client. Id. There must be a palpable threat of litigation at the time of the communication before the communication between one possible future co-defendant and another can qualify as privileged. Here, the Court noted that documents were circulated for the purpose of ensuring compliance with the antitrust laws and minimizing risk. Documents were circulated in 1991 and the antitrust lawsuit was not filed until 2000. Therefore, Fifth Circuit affirmed ruling that litigation had not been anticipated at time of disclosure. 44
Obeid v. La Mack, 2016 WL 7176653 (S.D.N.Y. Dec. 9, 2016) Plaintiffs regularly communicated with third-party investor about the lawsuit and its impact on the third-party s investment. Defendants sought communication between plaintiffs and third-party investor. Plaintiffs asserted common interest doctrine. Court held that communications were not for the purpose of developing a common legal strategy and, therefore, were not protected under the common interest privilege. 45
Obeid v. La Mack, 2016 WL 7176653 (S.D.N.Y. Dec. 9, 2016) (cont d) It was not clear to the court that plaintiffs and investor had formed a coordinated legal strategy: More importantly, it does not seem plaintiff s communications with [the investor] were for the purpose of developing a common legal strategy. Although plaintiff claims to have sought [the investor s] opinion of and, in some cases, personal involvement in the litigation strategy, he sought it because [the third-party] is an investor with an interest in seeing that the case is successful. Moreover, plaintiff admits that his precise reason in generating the Disputed Documents was because the litigation materially affects [the investor s] financial interest. 2016 WL 7176653 at *8. 46
Part IV: Best Practices/Lessons Learned Determine the applicable law, to extent possible. When retaining consultants, either in-house or outside counsel should initiate the engagement. The engagement letter/agreement should make explicit that the consultant is being retained to assist counsel in providing legal advice. Counsel should emphasize at the outset of each consultant engagement that all communications and documents generated in the engagement should be considered confidential and only shared with individuals within the company who have a need for the information and never with a third-party without approval of counsel. 47
Best Practices/Lessons Learned (cont d) In-house or outside counsel and the consultant must regularly consult with each other about the engagement, and counsel should oversee the consultant s work. Simply retaining outside counsel to engage the consultant is probably not enough to ensure protection from subsequent discovery. Key meetings and communications should involve counsel. Counsel should be prepared to identify the specialized role that a consultant performed for the client and that that role involved working closely with the lawyers. (Consultant is the translator. ) 48
Best Practices/Lessons Learned (cont d) With respect to work-product, counsel must be mindful that only information prepared in anticipation of litigation will be protected. The anticipated litigation should be easily articulated. With respect to the common interest doctrine, make sure the common interest is easily articulated. The parties interests must be closely aligned and, in some jurisdictions, identical. Make sure that each communication is made in the course of, and for the purpose of, furthering the common interest. Entering into a joint defense agreement may help but, in the end, the parties course of conduct will drive the determination. Information should only be shared among the lawyers, not the clients 49