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In-House Counsel Committee - ATTORNEY-CLIENT PRIVILEGE

IN-HOUSE COUNSEL AND
THE ATTORNEY-CLIENT PRIVILEGE IN PENNSYLVANIA

There are some days when it is just impossible to stay holed up in an office researching and writing, no matter how interesting the issue or case. This was just one of those glorious spring days. At 5:00 AM the birds were sharing their melodies while lilac fragrance wafted through the early morning mist.

By 7:00 AM the scene had shifted to yellow and brown steel furniture serenaded by the whir of a CPU’s fan deep inside a corporate edifice. For the next five hours there was a barrage of crucial phone calls and urgent e-mails, no time for rigorous legal analysis. Then, just as I completed an intense discussion with Plaintiff’s counsel on the merits of his damage claim and allowed the handset to gently settle into its cradle, the entire morning flashed before me. Each firefight and brushfire came back to tell me they were still there. At that moment I knew I better not let the usual legal triage deprive me of a luncheon stroll through the park.

The park is one of those vestiges of a more genteel time when important townsfolk met here to resolve the issues of the day in the lush green arboretum with manicured rows of flora commanded by past military heroes. Anyone entering this hallowed ground was duty bound to refrain from discussions on any but the weightiest matters. Anything less would be sacrilege. This was the place to find peace and serenity. It was also a place where someone might meet important company executives or overhear judges baring their souls through theoretical legal discussions. This park is the place to be for lunch on warm sunny days!

As I reflected on the town’s historic past, I heard familiar voices expressing controlled enthusiasm. When I drew closer to the voices I recognized that two of our most revered jurists were engaged in collegial exchanges of mutual respect. Then the topic shifted as one voice said, "You know how they are. Whenever they’re involved our need for caution is heightened." The other responded, "I agree, they’re different from the rest of us. When one of them comes into court, I know what they’ve been up to, so I’m very careful and make sure they’re not hiding the truth from us. But I am concerned about Justice Rehnquist’s Upjohn opinion." "Yes, I know," said the other, "but that is only federal law." Naturally this discussion piqued my interest. Perhaps I had been lucky enough to pick up a few useful nuggets to give me an edge in the future. But whom were they discussing? As I strained to hear more, their conversation turned to other matters.

Somehow the rest of the luncheon stroll lost its original purpose. I had to find and read Upjohn. With a few clicks and keystrokes, there it was on my screen, Upjohn Co. V. United States et al., 449 U.S. 383 (1981). The only thing the jurists could possibly have meant by "they" in this case was either corporations or in-house counsel. But Upjohn made sense. A company’s General Counsel had conducted an investigation, and the communications by employees to counsel were privileged. There had to be more to this. With a few more keystrokes and clicks it was clear that by "they" the jurists meant in-house counsel. "In that the privilege obstructs the truth-finding process and its scope is limited to that which is necessary to achieve its purpose, the need to apply it 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." Rossi v. Blue Cross, 540 N.E.2d 703 (1989). In another case in-house counsel was required to answer questions concerning communications he had with one of his corporation’s executives while negotiating a contract. Georgia-Pacific Corporation v. GAF Roofing Manufacturing Corporation, 1996 WL 29392 (S.D.N.Y., Jan. 25, 1996).

The issue of when the attorney-client privilege applies to communications by corporate employees to in-house counsel has become a fact specific analysis because of the various roles in-house counsel may assume. In-house counsel frequently offer mixed legal and business advice to senior management on matters critical to a corporation’s success. Because of the dual role, courts have struggled with providing guidance for application of the attorney-client privilege in the corporate setting, and that struggle has not been lost on in-house counsel. There is clearly a concern that corporations may attempt to seal off disclosure of information by the mere participation of an attorney. But there is also the recognition that the attorney-client privilege is necessary in the corporate setting because corporations may seek advice to comply with law. "In a society as complicated as ours and governed by laws as complex and detailed as those imposed on us, expert legal advice is essential." United States v. United Shoe Machinery Corporation, 89 F. Supp. 357 (1950). This tension between competing social policies has placed in-house counsel in a unique and difficult advisory role.

Judge Wyzanski provided instructive guidance in his United Shoe opinion. First he addressed the attorney-client privilege. "The privilege applies only if (1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (I) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client." Then he addressed the status of in-house counsel. "On the record as it now stands, the apparent factual differences between these house counsel and outside counsel are that the former are paid annual salaries, occupy offices in the corporation’s buildings, and are employees rather than independent contractors. These are not sufficient differences to distinguish the two types of counsel for purposes of the attorney-client privilege. And this is apparent when attention is paid to the realities of modern corporate law practice. The type of service performed by house counsel is substantially like that performed by many members of the large urban law firms. The distinction is chiefly that the house counsel gives advice to one regular client, the outside counsel to several regular clients." Judge Wyzanski determined that the attorney-client privilege protected all communications to or from legal counsel, whether outside or in-house counsel, so long as they were not acting principally as business advisors giving only incidental legal advice, and his approach was adopted as applicable to Pennsylvania law. In Re: Westinghouse Electric Corporation Uranium Contracts Litigation, 76 F.R.D. 47, 2 Fed. R. Evid. Serv. 87 (W.D.Pa.,Jul 19, 1977).

Like it or not, in-house counsel find themselves in a difficult situation. Much of a corporation’s communication with outside and in-house counsel involves mixed legal and business advice. Corporations need comprehensive advice from counsel to ensure compliance with a myriad of complex laws and regulations. In order to provide the comprehensive advice corporations need, a lawyer must have the benefit of open and frank discussions with corporate employees in the same sense that any lawyer needs full disclosure from his/her client to provide meaningful legal advice. But it is often difficult to explain to corporate management that a court may interpret communications from a corporation to a lawyer as being for some purpose which does not qualify for the attorney-client privilege and that sensitive communications may have to be disclosed to a competitor during legal proceedings. But there are steps in-house counsel can take to minimize the likelihood that a corporation will be forced to disclose sensitive communications.

If in-house counsel follow Judge Wyzanski’s guidance very closely, the attorney-client privilege can be preserved.

1. Communication needs to be with a client or prospective client. There is generally little argument about whether in-house counsel’s employer is a client. There should be no doubt that in-house counsel’s client is the corporation or business entity, not individual executives in their individual capacity. Communication between in-house counsel and other corporate employees is also privileged as long as the communication is necessary to provide legal advice to the corporation.

2. The communication must be with a lawyer who is a member of a bar of a court, or the lawyer’s subordinate. Query, is there an issue for the court’s determination if the lawyer is a member of the bar of a court different from the one in which the privilege will be determined?

3. The lawyer must be acting in a capacity as a lawyer. The lawyer cannot be acting in a business capacity at the time of the communication. Where lawyers serve in positions involving legal and management duties in a corporation, the lawyer needs to ensure that legal analysis is not commingled with management duties.

4. The communication must be for the purpose of obtaining legal advice and counsel, not business advice. The in-house lawyer could, for example, incorporate phrases like “You inquired whether there is any legal or regulatory restraint on …” or “Under the facts as you presented them, the law would allow …” in his communication to demonstrate a clear intent to provide legal advice.

5. The communication cannot be made in the presence of strangers.

6. The communication cannot be for the purpose of committing a crime or tort.

7. The privilege must have been claimed. In-house counsel can and should label documents “Attorney-Client Privilege” or “Privileged and Confidential” to make it obvious that the privilege was claimed.

8. The privilege must not have been waived. In-house counsel needs to ensure that discussions concerning sensitive matters do not include individuals outside of the corporation and that documents are distributed to only those individuals who have a need for the information.

There are a number of communication formalities that in-house counsel can recommend to corporate management, but the personality of each corporation will determine which formalities may be appropriate. If documents are appropriately labeled as privileged and confidential, there is a clear indication that the client has claimed the privilege. Policies requiring that distribution of privileged documents be to only those inside the corporation who have a need for the information reduces the chances of waiving the privilege. In-house counsel could draft documents referring to a specific request for legal advice demonstrating that there was an appropriate purpose for the communication. In-house counsel could also ensure that legal advice is always provided separately from business advice to avoid another potential problem area. In recognition of these concerns and as a guide for corporate clients, the PBA In-House Committee has recently published a brochure, "Attorney-Client Privilege in the Corporate Setting: How to Keep Confidential Information Confidential," which provides a brief primer to corporate clients on the scope and limitations of the privilege. Copies of the brochure are available through the PBA office.

The purpose of this article is to sensitize in-house counsel to an issue that is critical to preserving confidentiality of corporate communications. There may be situations in which extreme formality is necessary to protect privileged communications. But there may also be situations in which there would be no possible question concerning the status of a communication as privileged. In-house counsel need to apply reasoned judgment to their unique situations in light of Judge Wyzanski’s guidance. But the price in-house counsel must pay to preserve the attorney-client privilege in a corporate setting is eternal vigilance.

Augustus C. Martin, Esquire
Member-PBA In-House Counsel Committee
June 2, 1999