By Thomas E. Spahn, a partner in the Tysons Corner, Virginia office of the law firm McGuire Woods LLP.
Last fall, the U.S. District Court for the Eastern District of Pennsylvania denied privilege protection for a company’s antitrust compliance policy in In re Domestic Drywall Antitrust Litig.1That decision typifies federal courts’ current, narrow approach to companies’ privilege protection claims for compliance-related documents and communications.
However, other more recent decisions from the D.C. Circuit and the Southern District of New York addressing internal corporate investigations may reflect a more protective judicial attitude that could ultimately extend to the compliance context. This Legal Backgrounder will survey a sample of recent cases and suggest why greater protection for compliance-focused attorney-client communications could be justified.
WHY COURTS DENY PRIVILEGE PROTECTION
Frequent judicial deprivation of privilege protection for internally-circulated corporate-compliance documents rests on two related doctrines that can destroy companies’ privilege protection—without the documents ever leaving the company. The first doctrine indicates that wide intra-corporate circulation of a document demonstrates its primarily business rather than primarily legal motivation.2 The Domestic Drywall court, for example, held that the policy at issue there “is general and does not contain any specific advice,” and that “the policy is primarily a business policy.”3
That conclusion might well be justified in the circumstances of that case, but courts’ line-drawing between legal and business advice can create some surprising results. For instance, in Koumoulis v. Independent Financial Marketing Group, Inc.,4the court held that many communications from a Duane Morris lawyer to her corporate client’s human resources employees did not deserve privilege protection. A magistrate judge noted that the Duane Morris lawyer “sometimes told human resources employees exactly what questions to ask during interviews and what statements to make during meetings” and that “her advice would advance business goals, such as improving business relationships.”5 The court also noted that the firm’s “advice rarely involved ‘the interpretation and application of legal principles to guide future conduct or to assess past conduct,’. . . and rarely explicitly considered future litigation.”6 A few months later, the district court upheld the magistrate judge’s conclusion.7
Of course most companies do not hire law firms to provide business advice, and most outside lawyers’ suggestions about their client’s language constitutes legal advice. Surely lawyers should not have to cite statutes or case law when communicating to their clients to assure privilege protection for their legal advice.
In a 2012 case involving compliance-related documents, the Middle District of Florida articulated perhaps the most extreme example of this approach. The court denied privilege protection for a hospital’s compliance-related documents—explaining that “when a communication is simultaneously emailed to a lawyer and a non-lawyer, the corporation ‘cannot claim that the primary purpose of the communication was for legal advice or assistance because the communication served both business and legal purposes.’”8 Later in the opinion, the court distinguished legal advice from compliance advice, and rejected a corporate litigant’s argument that the privilege protected compliance department employees’ communication because “‘the compliance department operates under the supervision and oversight of [the] legal department.’”9 The court’s response to that position was blunt: “Halifax’s organizational structure is of no consequence.”10 Other courts take the same narrow approach.11
A second privilege-destroying doctrine indicates that corporations waive their privilege protection by internally circulating documents beyond those with a “need to know.”12 Acknowledging that the company did not disclose the compliance policy outside the company, the Domestic Drywall court nevertheless held that the company’s privilege claim was “undermined by the wide distribution of the policy within the organization.”13 Ultimately rejecting the company’s privilege claim, the court pointed to the company’s distribution of the policy to more than 120 of its employees, and the company’s step to make it “available to numerous employees on an internal internet site.”14 Ironically, the company thus had to disclose to its adversaries a purely internal policy whose “purpose is to help insure that its employees do not violate the antitrust laws”—because the company widely circulated that policy to its employees.[/note]Id. at *9.[/note]
One would think that the law should encourage companies to disseminate compliance-related communications between the company’s lawyers and other employees. Those communications highlight lawyers’ compliance-promoting role in the company, encourage all of the email participants to seek legal advice when they need it, and could even provide advice that the employees might themselves need at some point. So there is a potential benefit to circulation within a corporation, even beyond those with an immediate “need to know.” And there is not much downside, because all of the employees receiving the communications have a contractual or even a fiduciary duty to keep them confidential. But courts often do not see it this way. Indeed, this doctrine does not even require widespread circulation to destroy the privilege.15
The Domestic Drywall decision also focused on the lack of evidence that the company “labeled the [compliance policy] document as confidential or privileged.”16 This approach has a “damned if you do, damned if you don’t” ring to it. Nearly every court finds that corporations cannot assure privilege protection merely by stamping a document “privileged.” The compliance-related Halifax decision mentioned above articulated this common theme. That court acknowledged that the withheld documents were stamped “‘Confidential Attorney-Client Privileged Information,’” but held “[t]hat is not dispositive of the privilege issue”—“[a] document is not privileged simply because the custodian wants it to be or because it is marked as such.”17 So it is hard to understand how a corporation could lose its privilege protection in part because it did not use such labels.
Although not limited to the compliance context, courts’ narrow view of corporations’ privilege protection seems especially out of place in this age of email and texts. These forms of communication tend to be more cryptic than the old hard-copy memoranda, so it seems inappropriate to deny privilege protection because such communications provide general rather than specific advice, or do not cite case law or statutes. The nature of electronic communication also sometimes leaves unstated what might once have been expressly included in a formal, hard-copy memoranda. A fast-paced exchange of emails will often leave out some explicit articulation of what the sender means—much like body language and tone of voice convey part of a message when we talk to each other. Yet courts often scour the four corners of an email for some explicit request for legal advice, and reject corporations’ privilege claim if they don’t find it.18
Moreover, those using electronic communications tend to send them more widely than the more traditional hard-copy memoranda. As explained above, one could easily argue that widespread intra-corporate communications reflect corporations’ praiseworthy efforts to foster transparency.
Given the volume of emails lawyers receive every day, it also seems wrong to take the approach some courts articulate—denying privilege protection for employees’ emails to lawyers because the lawyers do not respond. But courts also do that even though lawyers’ mere silence may well amount to their approval of the client’s proposed course of action or its draft document.19
A MORE PROTECTIVE (AND WELCOME) EMERGING TREND?
Although not arising in the compliance context, several recent cases may point to a judicial shift in defining the line between business and legal advice. As explained above, the Domestic Drywall decision held that the company’s compliance policy was “primarily a business policy.” Courts have traditionally extended privilege protection only to communications whose “primary purpose” related to legal rather than business concerns. Under that standard, compliance-related documents usually have fallen on the business side.
But in In re Kellogg Brown & Root, Inc., the D.C. Circuit rejected the “primary purpose” standard and instead held that the privilege applied “[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation” at issue in that case.20 If other courts begin to apply that more capacious standard, compliance-related attorney-client communications have a much better chance of obtaining protection.
We may already be seeing a trend. In In re General Motors LLC Ignition Switch Litigation,21 the Southern District of New York approved the “one of the significant purposes” standard in protecting communications generated during a law firm’s investigation into an ignition switch incident. Significantly, the court explained that “the D.C. Circuit’s holding [in In re Kellogg Brown & Root, Inc.] is consistent with—if not compelled by—the Supreme Court’s logic in Upjohn.”22 That is powerful language for such a well-respected court. And then the court concluded with an equally significant point, which could be applied just as easily to compliance-related communications as to those occurring during internal corporate investigations: “an attorney-client privilege that fails to account for the multiple and often-overlapping purposes of internal investigations would ‘threaten to limit the valuable efforts of corporate counsel to ensure their client’s compliance with the law.’”23
As companies have ramped up their compliance efforts over the last several years, case law has mostly refused to respect privilege protections for compliance-related documents. Apart from a few glimmers of good news,24the case law generally rejects attorney-client privilege and even work-product protection for compliance-related documents and communications.
Courts’ frequent hostility to corporations’ privilege claims might seem to advance the public good at first glance, but that view overlooks the historically recognized societal benefits the privilege advances. The tension between compliance efforts and privilege protection is not some Manichean contrast between good and evil—both serve society. Unfortunately, some courts’ hostility toward corporations’ assertions of privilege colors their compliance-related opinions.
Perhaps these courts should rethink their hostility to privilege protection for compliance-related communications, as the benefits to society of robust corporate compliance are similar to the long-recognized benefits that have justified the attorney-client privilege.25 In both cases a company seeks the advice to help it conform its conduct to the law.
Thomas E. Spahn is a partner in the Tysons Corner, Virginia office of the law firm McGuire Woods LLP. He is the author of The Attorney-Client Privilege and the Work Product Doctrine: A Practitioner’s Guide (3d. ed. 2013).
- MDL No. 2437, 2014 U.S. Dist. LEXIS 144263 (E.D. Pa. Oct. 9, 2014).
- In re Vioxx Prods. Liab. Litig., 501 F. Supp. 2d 789 (E.D. La. 2007).
- 2014 U.S. Dist. LEXIS 144263 at *9-10.
- 295 F.R.D. 28 (E.D.N.Y. 2013).
- Id. at 45.
- Koumoulis v. Indep. Fin. Mktg. Grp., Inc., No. 10-CV-0887 (PKC) (VMS), 2014 U.S. Dist. LEXIS 7695, at *12 (E.D.N.Y. Jan. 21, 2014) (explaining that the Duane Morris lawyer’s “full page of detail, multi-part instructions on how to deal with [the plaintiff’s] personnel issues” were ‘plainly . . . not legal advice, but rather human resources advice on personnel management and customer relations.”)
- United States ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., Case No. 6:09‑cv‑1002‑Orl‑31TBS, 2012 U.S. Dist. LEXIS 158944, at *11-12 (M.D. Fla. Nov. 6, 2012) (citation omitted).
- Id. at *23 (internal citation omitted).
- Williams v. Duke Energy, Civ. A. 1:08-cv-00046, 2014 U.S. Dist. LEXIS 109835, at *8 (S.D. Ohio Aug. 8, 2014) (“Documents prepared and emailed for review by both legal and non-legal employees are often held to be not privileged because the communications were not made for the primary purpose of seeking legal advice.”); Kleen Prods. LLC v. Int’l Paper, Case No. 10 C 5711, 2014 U.S. Dist. LEXIS 163987 (N.D. Ill. Nov. 12, 2014).
- JA Apparel Corp. v. Abboud, No. 07 Civ. 7787 (THK), 2008 WL 111006, at *2 (S.D.N.Y. Jan. 10, 2008).
- 2014 U.S. Dist. LEXIS 144263 at *10.
- Lolonga-Gedeon v. Child & Family Servs., No. 08-CV-00300A(F), 2012 U.S. Dist. LEXIS 67843, at *12 (W.D.N.Y. May 15, 2012) (“Defendant’s failure to demonstrate that [three employees] each needed to know the information contained in the communication has waived the attorney-client privilege.”).
- 2014 U.S. Dist. LEXIS 144263 at *10.
- 2012 U.S. Dist. LEXIS 158944 at *20.
- See, e.g., Bernstein v. Mafcote, Inc., Civ. No. 3:12CV311 (WWE), 2014 U.S. Dist. LEXIS 122269 at *13 (D. Conn. Sept. 2, 2014) (“[T]he emails do not divulge the substance of any legal advice, or a substantive request for legal advice.”); Hamdan v. Ind. Univ. Health N., LLC, No. 1:13-CV-00195-WTL, 2014 U.S. Dist. LEXIS 86097 at *9 (S.D. Ind. June 24, 2014) (“There is no request for legal advice in any of the redacted emails”); Lee v. Chi. Youth Ctrs., No. 12 C 9245, 2014 U.S. Dist. LEXIS 79868, at *24 (N.D. Ill. June 10, 2014) (“This email is not privileged as it does not ask for legal advice”); Owens v. Stifel, Nicolaus & Co., Civ. A. No. 7:12-CV-144 (HL), 2013 U.S. Dist. LEXIS 171913, at *6 (M.D. Ga. Dec. 6, 2013) (denying a privilege claim because emails to and from an in-house lawyer “do not explicitly seek or contain legal advice”); Lolonga‑Gedeon, 2012 U.S. Dist. LEXIS 67843, at *12-13) (“Nor is there any request within the text of the communication for legal advice or services and, as such, the communication is not protected by the attorney-client privilege.”).
- Kleen Prods., 2014 U.S. Dist. 163987, at *14) (“[A]lthough [the General Counsel] is copied on three out of the four emails contained within [one email] chain, he offered no legal advice in response”).
- 756 F.3d 754, 758 (D.C. Cir. 2014) (emphasis added).
- No. 14-MD-2543 (JMF), 2015 U.S. Dist. LEXIS 5199 (S.D.N.Y. 2015).
- Id. at *240.
- Upjohn Co. v. United States, 449 U.S. 383, 393 (1981) (In the seminal Upjohn case, the Supreme Court warned that “[a]n uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.”); accord United States v. Jicarilla Apache Nation, 131 S. Ct. 2313, 2328 (2011) (“We have said that for the attorney-client privilege to be effective, it must be predictable.”).
- See, e.g., Pub. Citizen v. United States Dep’t of Health and Human Servs. v. Pfizer Inc., 2014 WL 4388062 (D.D.C. Sept. 5, 2014) (rejecting plaintiff Public Citizen’s Freedom of Information Act request for compliance-related documents Pfizer and Purdue Pharma had submitted to the government under earlier settlement agreements. After a lengthy analysis, the court concluded that some of the documents satisfied FOIA exemptions because they might include protected commercial information and gave the companies another chance to justify the government’s withholding).
- In re Grand Jury Subpoena, 662 F.3d 65, 70-71 (1st Cir. 2011) (“[T]reating communications between lawyer and clients as confidential encourages full and frank disclosure that better enables the lawyer to represent the client and better enables the client to conform his conduct to the law.”).