An Essential Guide to Attorney-Client Privilege ... - the Missouri Bar

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protects communications betweenupper-echelon management and theattorney. 51In 1981, the United States SupremeCourt rejected the control grouptest for federal cases in Upjohn Co.v. United States. 52 Upjohn createda less structured definition of thecorporate client, looking to whatmotivated the lawyer to seek out orto impart information. In place ofthe control group test, the Courtlaid out five factors to guide federalcourts in determining the validityof attorney-client privilege claimsfor communications between legalcounsel and lower-echelon corporateemployees: (1) the information isnecessary to supply the basis forlegal advice to the corporation orwas ordered to be communicated bysuperior officers; (2) the informationwas not available from “controlgroup” management; (3) “[t]hecommunications concerned matterswithin the scope of the employees’”duties; (4) the employees were “awarethat they were being questionedin order [for] the corporation” tosecure legal advice; and (5) “thecommunications were considered‘highly confidential’ when made”and kept confidential. 53 When theseelements are met, even a lowerechelon employee is considered aclient protected under the attorneyclientprivilege. 54 The test developedin Upjohn does not distinguishbetween an agent’s position or degreeof decision-making responsibility,and instead focuses on whether theemployee provided information to thelawyer or received assistance from thelawyer on behalf of the organization.Although Upjohn is controlling infederal courts applying federal law,state courts and federal courts sittingin exercise of diversity jurisdiction arenot bound by the Upjohn decision andhave adopted various tests for definingthe organizational client. Additionally,the current Restatement (Third)of the Law Governing Lawyersadopts a pre-Upjohn test known asthe “subject matter” test. 55 Underthe subject matter test, the privilegeextends to communications of anyagent or employee of the corporationso long as the communicationrelates to a subject matter for whichthe organization is seeking legalrepresentation. 56 By contrast, underthe Upjohn test, the subject matter ofthe communication is just one factorto consider.States across the country applydifferent tests to analysis of theattorney-client privilege in thecorporate context. 57 Alabama,Arizona, Arkansas, Colorado, Nevada,Oregon, Texas and Vermont haveexplicitly adopted the test articulatedby Upjohn. 58The more limited control grouptest is still used in at least eight states– Alaska, Hawaii, Illinois, Maine,New Hampshire, North Dakota,Oklahoma, and South Dakota –despite the harsh results it sometimesyields. 59 In a recent Illinois caseapplying the control group test, thecourt held that interviews conductedby the defendant’s managers at thedirection of in-house counsel werenot privileged. 60 The court reasonedthat the interviews were not protectedfrom disclosure because the witnesses,including a director of clinicalservices responsible for overseeingand managing all bio-medicalservice contracts, were not “involvedin decisionmaking at the highestlevels,” and the communicationswere not made for the purpose ofexpressing recommendations to topmanagement. 61By contrast, Missouri courts apply amodified version of the subject mattertest. 62 In Missouri, communicationsbetween a corporation’s in-housecounsel and its directors, officers andemployees will be privileged if:(1) the communication wasmade for the purpose ofsecuring legal advice;(2) the employee making thecommunication did so atthe direction of his [or her]corporate superior; (3) thesuperior made the requestso that the corporationcould secure legal advice;(4) the subject matter of thecommunication is withinthe scope of the employee’scorporate duties; and(5) the communication is notdisseminated beyond thosepersons who, because of thecorporate structure, need toknow its contents. 632. Choice of Law IssuesIn addition to the fact thatthe law governing privilege variesamong jurisdictions, the questionof which state’s privilege laws willgovern in a particular dispute alsoMarch-April 2012 / 85
is jurisdiction dependent. Thiscircumstance frequently arises wherethe communication at issue occurredin a jurisdiction with a different testthan the one in which the disputeis pending. In this situation, a courtfrequently will apply the choice-oflawrules of the state in which thecourt sits to determine which privilegelaw should apply to a particularcommunication. 64A federal court sitting in diversitynormally will apply the privilege lawof the state in which it sits. 65 Statecourts have adopted a variety ofdifferent tests to resolve choice-of-lawissues concerning the application ofprivilege. Perhaps the most prevalenttest is that of the Restatement(Second) of Conflict of Laws.The Restatement approach generallyfocuses on the jurisdiction having themost significant relationship to thecommunication, which typically isdefined as that jurisdiction where thecommunication took place. 66 Becausethe law varies widely from state tostate, it is critical to understand thetest applied by each jurisdiction inwhich an attorney practices. 67III. Special Situations Uniqueto the In-House PractitionerThe attorney-client privilege maybe waived by almost any voluntarydisclosure running contrary to itsassertion. 68 In the corporate context,there are a number of specialsituations where corporations may beconsidered to have made a voluntarydisclosure, and, in these situations, theprotection of the privilege will be lost.A. Internal AuditOne issue that frequentlyarises during corporate internalinvestigations is whether an auditcommittee or special litigationcommittee and its counsel maycommunicate investigation findingsand related investigatory materialsto the company’s board of directors86 / Journal of the MISSOURI BARwithout waiving otherwise applicableprivileges. An audit committee orspecial litigation committee mayestablish an attorney-client privilegewith counsel engaged by thecommittee. 69 This is the prevailingview among jurisdictions that haveconsidered this issue. 70 However, somecourts have held that communicationsbetween counsel for the specialcommittee and the company’s boardof directors are not privileged. 71For example, in SEC v. Roberts thecourt required disclosure of all factualinformation that counsel for thespecial committee had provided to thegovernment or the board regardingthe internal investigation becausenot only is the Board not [thespecial committee counsel’s]client such that the attorneyclientprivilege does notattach, the Board also doesnot have a common interestwith the Special Committeesince it was the SpecialCommittee’s mandate toascertain whether membersof the Board … may haveengaged in wrongdoing. 72To avoid disclosing confidentialinformation learned during internalaudits, in-house counsel must developclear procedures that membersof special committees and theircounsel can follow to ensure thatcommunications and work productremain confidential and protected.B. External AuditAt least in part due to variousrecent scandals that have colored thecorporate landscape in recent years,corporations are under pressure tomake broad disclosures to outsideentities such as independent auditors.Likewise, auditors are becomingmore demanding, sending moreburdensome engagement lettersand issuing more expansive requestsduring audits – such as seekinginternal audit letters, board minutes,assessments of litigation reserves oraccruals by in-house and outsidecounsel, tax opinions, and results ofinternal investigations.In general, an outside auditor isconsidered a non-privileged partyunder federal law, because the interestsof independent auditors are notaligned with the corporation. 73 UnitedStates v. Textron, referenced in § Iabove, exemplifies the rigidity of thisrule. As a result, disclosures to outsideauditors risks waiver of the privilege.In contrast with federal law,several states provide varying degreesof protection for communicationsbetween auditors/accountantsand their clients. For example, theMissouri legislature has enactedan accountant-client privilege. 74Under that privilege, informationcommunicated by the client to anaccountant in connection with theaccounting issue and/or audit isprotected and privileged in order“to create an atmosphere wherethe client will provide all relevantinformation to the accountantwithout fearing future disclosure insubsequent litigation.” 75 There is nota significant body of law on the issueof whether Missouri’s statute appliesin the context of a corporation and itsexternal auditors. However, a recentfederal case suggests that Missouri willprotect communications between acorporation and its external auditor. 76Corporations must proceed carefullywhen working with externalauditors. Until federal regulators orcourts adopt a universal standardprotecting disclosure of privilegedmaterials to outside auditors,corporations will continue to be putin a position of having to make aHobson’s choice: Failure to discloseprotected information may lead toa qualified opinion or liability formisrepresentation, but disclosure maywaive the attorney-client and workproduct protections.
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