Illinois Supreme Court to Decide on Self-Critical Analysis Privilege Reply

The Illinois Supreme Court accepted appeal of an appellate court’s refusal to recognize the self-critical analysis privilege. The Court’s decision should determine (1) whether the underlying policies of the self-critical analysis privilege warrant its recognition and (2) whether the legislature should have complete dominion over the evidentiary-privilege development or whether courts may develop and refine privilAppealeges through normal common-law evolution.

The Case

An infant died while in her mother’s care and in One Hope United’s family services program. The public guardian, acting as the infant’s estate administrator, filed a wrongful death suit against the mother and One Hope. Discovery revealed that One Hope investigated the death and prepared a post-death “Priority Review” report that evaluated its services.

One Hope refused to produce the Priority Review report on grounds that the self-critical analysis privilege protected its disclosure. The trial court refused to recognize the privilege, held One Hope in “friendly contempt,” and set the stage for appeal.

The Ruling

The Illinois Appellate Court identified two competing concerns. On on the one hand, evidentiary privileges thwart the truth-finding process. On the other hand, the self-critical analysis privilege encourages companies to engage in critical internal investigations and permits their employees to participate candidly and honestly in the post-event critique.

But the court did not provide a satisfying analysis of these concerns. The court noted that One Hope’s argument for the privilege’s adoption resonated, but “believe[d] the overriding need to determine the truth with respect to the cause of death of an infant overrides the desire of One Hope to keep its self-evaluations confidential.”

And the court seemed perplexed whether it could even adopt a new evidentiary privilege as part of Illinois’ common law. Although noting that a 2011 amendment to the state evidence rules provides that evidentiary privileges “shall be governed by the principles of the common law as they may be interpreted by Illinois courts in the light of reason and experience,” the court nonetheless determined that “the establishment of a new [privilege] is a matter best deferred to the legislature.” (emphasis in original). Harris v. One Hope United, Inc., 2 N.E.3d 1132 (Ill. App. Ct. 2013). You may read the appellate court’s opinion here.

PoP Analysis

The Illinois Supreme Court accepted the case for review on March 26, 2014. Although some federal courts, including the USDC for the Northern District of Illinois, recognize a common-law self-critical analysis privilege, several states have not addressed the issue. The Illinois Supreme Court’s decision, therefore, could prove influential as other states consider the merits of this evidentiary privilege.

But the court will first have to decide whether evidentiary privileges may originate through normal common-law development, or whether they remain solely in the state legislature’s domain. The 2011 evidence rule tracks Federal Rule of Evidence 501 and appears on its face to permit common-law privilege development. The appellate court did not satisfactorily address this issue, but the Supreme Court should do so. The One Hope case is certainly one to watch.

HR Manager’s Internal Investigation Memo—Ghostwritten by In-House Lawyer—Not Privileged Reply

In an employment race-discriminghostwritingation case, the USDC for the Northern District of California ruled that the attorney–client privilege did not protect the HR Manager’s memo regarding his internal investigation of hotline complaints. The court issued this ruling even though the company’s in-house lawyer “ghostwrote” the memo. Thompson v. C&H Sugar Co., 2014 WL 595911 (N.D. Cal. Feb. 14, 2014). You may access the opinion here.

Thirteen African–American employees sued C&H Sugar Company and its parent corporation, American Sugar Refining, Inc., alleging that C&H failed to properly train and promote them because of their race. The employees claimed that C&H’s Packaging Department Manager, Cliff Sullivan failed to promote them, and sought in discovery an internal investigation memo regarding the company’s hotline complaints about Sullivan’s alleged discriminatory acts.

The memo, sent from the HR Manager to the HR VP, contained conclusions as to work-place dynamics and training recommendations. In an effort to buttress the privilege assertion, the company’s in-house attorney (title: Senior Director of Corporate Labor and Employee Relations) submitted a declaration stating that he “essentially ghostwrote” the memo, particularly the investigation summary and conclusion. You may read the in-house lawyer’s declaration here.


The Court found unpersuasive the in-house lawyer’s ghostwriting assertion, stating

The Court has found no support indicating that an attorney “essentially ghostwriting” a communication—whatever that means—renders that communication protected by the attorney–client privilege.

Noting that protecting communications “ghostwritten” by a lawyer did not serve the privilege’s purpose of encouraging frank communications between client and attorney, the Court found that the in-house lawyer’s declaration did not meet the burden of establishing that he, rather than the HR Manager, wrote the memo or that it was written in response to a request for legal advice.

What about the Work Product Doctrine?

The in-house lawyer also declared that he directed and supervised the HR Manager’s investigation in anticipation of litigation. And the Court held that this declaration proved that the work-product doctrine covered the investigation memo.

But that ruling did not end the inquiry. The Court also held that the plaintiffs demonstrated a substantial need for the investigation memo because they could not otherwise obtain the hotline-complaints information. The Court therefore ruled that the plaintiffs “demonstrated a substantial need for the investigation documents and the qualified work product doctrine must give way.”

PoP Analysis

The Thompson decision reinforces the concept that the privilege protects only confidential communications between the client and attorney made for the purposes of rendering legal advice. Here, the company’s “ghostwriting” argument established neither an attorney–client communication nor a legal-advice request.

And the decision highlights a critical distinction between the attorney–client privilege and the work-product doctrine. Once established, the attorney–client privilege is absolute, meaning that it stands regardless of the requesting party’s need for the information. The work-product doctrine, by contrast, is qualified, meaning that a party may obtain the information upon a substantial-need showing. This ruling demonstrates why in-house counsel should endeavor to establish the privilege for employee–lawyer communications rather than relying on the unequal work-product doctrine.

Court’s In Camera Examination of Attorney Leads to Crime-Fraud Exception Finding Reply

In a grand jury investigation into FCPA violations, the Third Circuit upheld a district court’s in camera examination of a corporation’s attorney and application of the crime–fraud exception to overcome Business man pledgingthe attorney–client privilege. In doing so, the appellate court held that the Supreme Court’s standard in United States v. Zolin, 491 U.S. 554 (1989), governs whether a court may conduct an in camera witness examination to determine the crime–fraud exception’s application. In re Grand Jury Subpoena, 2014 WL 541216 (CTA3 Feb. 12, 2014). You may access the opinion here.

FCPA Grand Jury Investigation

During its investigation of a consulting company and its president for alleged FCPA violations, a grand jury in the Eastern District of Pennsylvania issued a subpoena to the company’s former attorney. The U.S. Attorney’s office sought enforcement of the subpoena, arguing that the crime–fraud exception overcame the company’s attorney–client privilege assertion.

Using the government’s questions, the district court examined the company’s attorney in camera, outside the presence of government or defense counsel, and, based on this in camera testimony, ruled that the crime–fraud exception applied. The court then compelled the attorney to provide the grand jury testimony concerning attorney–client conversations.  PoP profiled the district court’s decision in this post.

Standard for In Camera Examination

The Supreme Court ruled in Zolin that a district court may review in camera otherwise privileged documents to determine whether the crime–fraud exception applies. Before conducting an in camera document review, however, the district court “should require a showing of a factual basis adequate to support a good faith belief by a reasonable person that in camera review . . . may reveal evidence to establish the claim that the crime–fraud exception applies.”

The company and its president argued that the court should apply a higher standard before conducting an in camera oral examination because, unlike documents that memorialize statements, a witness’s memory is subject to inaccuracies. The court noted that “the pliability of a witness’s memory is a substantial one” because of “dangers of inaccuracy and untrustworthiness in probing into the memory of an attorney regarding past communications that do not occur with documented communications.”

But with little explanation, the Court expressed its confidence that district courts “will be able to question an attorney witness in a way that ensures that the attorney accurately recounts the communications with the client.” So, the Court held that the Zolin document standard applies equally to determine whether to examine a witness in camera.

Application of Crime–Fraud Exception

The crime–fraud exception applies only where the client was committing or intending to commit a crime or fraud at the time he consults an attorney. The exception does not apply where the client consults the attorney and later forms the criminal or fraudulent intent.  And the attorney’s advice must further the crime, not simply relate to the crime. To be “in furtherance” of a crime, the attorney’s advice must advance, or the client must intend for the advice to advance, the client’s criminal or fraudulent purpose.  Merely informing a client of the criminality of the proposed action does not invoke the exception; rather, the client must misuse or intend to misuse the attorney’s advice.

The grand jury was investigating whether the company and its president violated the FCPA by paying significant sums to the sister of an official with a United Kingdom bank from which the company was seeking a financial investment. The president informed the attorney that he planned to pay the bank official to ensure that the financial outlay moved swiftly, but the attorney advised the president not to make the payment.

The Third Circuit upheld the district court’s finding that this communication fell within the crime–fraud exception. Although noting that this was a “close case,” the district court found that the president used the attorney’s advice regarding direct payment to the bank official to circumvent the FCPA by making the payment to the official’s sister. The court applied the crime–fraud exception and required the attorney to testify before the grand jury about his confidential, privileged conversations with his client.

Major Ruling: Court Limits Attorney–Client Privilege For Healthcare Provider Corporations Reply

In a major decision that affects healthcare-provider corporations, the Washington Supreme Court significantly limited attorneys’ ability to engage in privileged conversations with the provider corporation’s employed physicians and other medical staff.custom_doctor_choices_13788 The Court held that, except in narrowly tailored circumstances, the State’s common-law prohibition of defense attorneys’ ex parte communications with a plaintiff-patient’s non-party physicians supersedes the corporation’s attorney–client privilege with its employed physicians. Youngs v. Peacehealth, 316 P.3d 1035 (Wash. 2014). You may access the opinion here.

Battle of the Privileges

Washington’s physician–patient privilege statute precludes a physician from revealing her patient’s communications, but the patient automatically waives this privilege “as to all physicians or conditions” 90 days after filing a personal injury or wrongful death case. RCW § 5.60.060(4)(b). In Loudon v. Mhyre, 756 P.2d 138 (Wash. 1988), the Washington Supreme Court prohibited defense attorneys from holding ex parte communications with a plaintiff-patient’s non-party treating physicians.

But Washington also follows the corporate attorney–client privilege adopted by the U.S. Supreme Court in Upjohn Co. v. United States, 449 U.S. 383 (1981), which provides that a corporation’s attorneys may have privileged communications with a corporate employee regardless of the employee’s position in the corporate hierarchy. And when healthcare-provider corporations employ physicians, the Upjohn rule allows the provider-corporation’s attorneys to have privileged communications with its physicians.

The Loudon no-contact rule (derived from the physician–patient privilege) and the corporate attorney–client privilege conflict in medical practice actions against the provider-corporations. When a patient sues a provider-corporation, the attorney–client privilege protects the corporate attorney’s communications with employed treating physicians, but Loudon simultaneously prohibits the corporate attorney from having ex parte interviews with these same treating physicians.

The Victor

The Court resolved this privilege battle largely in favor of patient confidentiality. Wanting to avoid forcing the injured plaintiff-patient “to suffer the additional injury of privacy invasion,” the Court rejected the argument that the corporate attorney–client privilege completely trumps the physician–patient privilege. The Court instead adopted a so-called “modified version of the Upjohn test,” ruling that, in medical malpractice actions, a provider-corporation’s attorneys may have ex parte communications with its non-party treating physicians so long as:

1. The communications meet the general prerequisites for establishing the privilege (confidential and for purposes of rendering legal advice);
2. The communication is with a physician who has direct knowledge of the event triggering the malpractice action; and
3. The communications concern the facts of the alleged negligent incident.

To the Victor Goes the Spoils

The Court’s decision greatly affects the provider-corporation attorney’s ability to communicate with (non-party) employed physicians who treated the plaintiff-patient either before or after the negligent event. The Court prohibited ex parte communications with employed physicians concerning the plaintiff-patient’s pre-event medical condition or post-event recovery. Under this ruling, a hospital sued for malpractice cannot have its attorney interview its own employees without plaintiff’s counsel’s presence.

PoP Post-Battle Analysis

The Court’s decision provides an unsatisfying analysis of the interaction between these two evidentiary privileges in medical malpractice actions. The Upjohn Court held that the corporate attorney–client privilege covers the company lawyer’s communications with company employees, regardless of their employment position. The Youngs Court identified silent topics to parse the Upjohn decision, stating that Upjohn “did not articulate a fixed set of criteria by which to determine what specific conversations with lower-level employees must remain privileged.” And seizing upon Upjohn’s purported failure to detail “specific conversations,” the Youngs Court limited the corporate attorney–client privilege to specific conversations about the negligent event at issue.

The Court’s handling of the common-law at-issue waiver doctrine, reinforced by the physician–patient privilege statute that automatically waives the privilege “as to all physicians or conditions,” is not reassuring. A plaintiff-patient’s medical condition, including pre- and post-event conditions, becomes relevant when she files suit, but the Court essentially said that the Loudon no-contact rule applies despite this waiver.

The Youngs decision significantly limits the corporate attorney–client privilege for provider corporations that employ physicians. The privilege effectively does not exist unless the employed physician has direct knowledge of the medical event giving rise to the malpractice action. It will be interesting to see how the new Youngs rule applies in practice and how this decision affects other state courts that have yet to address this battle-of-the-privileges issue.

Important Article on Interstate Litigation and Conflict-of-Privilege-Laws Reply

Frequent readers of this blog know that I highlight rulings and articles pertaining to conflict-of-privilege-laws.  I have published articles outlining some of the privilege-law conflicts and relatedone_on_one_challenge_300_clr_8069 issues, including this article and this one.  Although conflict-of-laws rules often reduce lawyers to blank stares and cause courts to engage in issue avoidance, the increasing prevalence of electronic communications requires that these rules become part of the standard privilege conversation.

Conflict-of-privilege laws occur vertically and horizontally.  If a Tennessee-based in-house lawyer communicates with a company employee in Oregon, will a state court apply Tennessee or Oregon privilege law? Federal Rule of Evidence 501 mandates application of state law in diversity cases, but does not identify which state’s law, forcing federal courts to look to the forum state’s conflict-of-privilege-laws rules for guidance.

Section 139 of the Restatement (Second) of Conflict of Laws, published in 1971, serves as the most prominent source for conflict-of-privilege-law rules.  This section adopts a “most significant relationship” test, yet strains the reader’s eye, fails to adequately protect the policies supporting evidentiary privileges, and produces decisions that are inconsistent and unpredictable.

In their excellent article, When Privilege Fails: Interstate Litigation and the Erosion of Privilege Law, 66 Ark. L. Rev. 613 (2013), Virginia Law Professors Graham C. Lilly and Molly Bishop Shadel provide a thorough analysis of Section 139’s shortcomings.  You may access the article here.  Drawing on the Illinois federal court’s ruling in In re Yasmin & Yaz (Drospirenone) Mktg., Sales Practices & Prods. Liability Litig., 2011 WL 1375011 (S.D. Ill. Apr. 12, 2011), the authors explain the fallacies and adverse consequences associated with the Restatement’s approach, such as:

[T]he Second Restatement’s proffered solution subordinates privileges to the goal of fuller evidentiary disclosure, a philosophy that may create issues by upsetting a party’s reasonable expectations of, and reliance on, the attorney–client privilege.

The drafters of section 139 have not justified this core position allowing a general policy of evidentiary disclosure to trump the specific policy concerns that led to recognizing privilege in the first place.

The authors argue that ALI should reform the Restatement’s position to recognize the ease with which lawyers communicate across state and international lines in this digital age.  And they argue that a revised rule should establish “that, when a jurisdiction with the most significant relationship to a communication confers a privilege, the forum should honor the privilege unless special reasons strongly justify applying the forum’s no-privilege rule.” This certainly would move the conflicts issue in the right direction.

Lawyers facing conflict-of-privilege-laws issues will find a relative dearth of case law, and should consult this article to understand the issues and improve their position for arguing for a more privilege-friendly conflicts rule.  My thanks to the editors of the Arkansas Law Review for permission to republish the article in this blog.

Corporation Successfully Invokes Privilege Against Directors/Shareholders Reply

The Massachusetts Supreme Judicial Court upheld a closely held corporation’s assertion of the attorney–client privilege over its litigation-related documents in a case involving board members’ direct and derivative claims against the company and other board members.  The Court ruled that the privilege protected these documents because the plaintiff-directors wereboard of directors sufficiently adverse to the corporation.  Chambers v. Gold Medal Bakery, Inc., 983 N.E.2d 683 (Mass. 2013).  You may access the opinion here.

Two of Gold Medal Bakery, Inc.’s board members (and shareholders) sued the company and its other two board members alleging direct claims of breach of fiduciary duty as well as shareholder derivative claims that pertained to wrongful concealment of financial information and overall mismanagement.  This suit followed an earlier suit that settled, both of which had an implicit if not explicit goal of obtaining a favorable buyout of the plaintiff-directors’ shares.

The plaintiff-directors subpoenaed all of Gold Medal’s corporate records from the company’s law firm.   The discovery special master overruled all privilege objections and ordered production of all documents, reasoning that the law firm could not assert the privilege against directors or shareholders, that the plaintiff-directors and the company were effectively “joint clients” to which the privilege did not apply, and, applying the Garner v. Wolfinbarger, 430 F.2d 1093 (CTA5 1970) test, that the plaintiffs as shareholders showed good cause why they should have access to the privileged communications.

On interlocutory appeal, the Supreme Court reversed and ruled that the attorney–client privilege protected discovery of corporate documents related to the two plaintiff-directors’ lawsuits.  The court first distinguished between privileged communications and general corporate financial records, stating that the privilege does not protect the latter.  The court noted that “inability to access legal advice provided to a corporation regarding a directors’ own litigation against a company is one thing; inability to access basic corporate information is quite another.”

The default rule is that directors have equal access to legal advice rendered to the corporation or other board members because all of them have responsibility for the company’s management.  But this default rule assumes that board members’ interests are not adverse to the company.  When the directors’ interests are adverse to the corporation, then the corporation “is entitled to receive legal advice in confidence and without having to share that advice with the director whose interests are adverse.”

There is no factor or set of factors that govern whether a board member’s interest is sufficiently adverse to preclude discovery of the company’s privileged communications.  The adverse-interest determination is necessarily a fact-specific question, and courts recognize that board members may have mixed interests, particularly when the case involves shareholder derivative claims.  But in Chambers, the court found that the plaintiff-directors’ interests relating to the two lawsuits, with at least partial aim at forcing a favorable buy-out, were sufficiently adverse to receive attorney–client privilege protection.

Court Rejects Privilege for Attorney’s Due-Diligence Investigation Reply

In litigation over an alleged breach of an exclusive-rights acquisition agreement, the SDNY ruled that the attorney–client privilege did not protect portions of the acquiring company’s lawyer’s due diligence investigation.  Vector Capital Corp. v. Ness Technologies, Inc., 2014 WL 171160 (S.D.N.Y. Jan. 9, 2014).   I"m afraid it's bad news....You may access the opinion here.

Vector entered into an exclusive agreement to negotiate the acquisition of Ness Technologies, Inc., but later sued claiming that Ness failed to provide relevant information during Vector’s due diligence investigation.  Ness sought production of documents that Vector’s attorneys obtained during the due diligence phase, but Vector objected on grounds that the attorney–client privileged protected this information from discovery.

In this diversity action, the SDNY correctly applied New York state law governing application of the attorney–client privilege in this situation.  See my article for a detailed review of rules and issues pertaining to conflict-of-privilege-laws.

The documents at issue were communications between Vector and its outside counsel made during the due diligence investigation.  The communications contained factual information that Vector’s outside counsel obtained from Ness and third parties.  But the communications also contained outside counsel’s analysis of the factual information and legal advice based on that information.

Upon in camera review of the communications, the court ruled that, in obtaining due diligence information, Vector’s outside counsel was acting “principally for the business purpose of determining whether the acquisition was a sound investment.”  And the court offered this cautionary proclamation regarding an attorney’s due diligence work:

This fact-acquisition process in the course of a business transaction is no more protected by privilege when conducted by an attorney than if conducted by an accountant, engineer or head of a business unit. The factual information presented is not privileged merely by the use of an attorney as a conduit for the information.

The court ordered production of the communications, but allowed Vector to redact the communications’ legal-analysis portions because the attorney–client privilege protected that information.

PoP Analysis.  The permitted redaction is hardly a victory in this situation.  Had the court determined that outside counsel’s communications were “predominantly legal,” then it likely would have ruled that the privilege protected from disclosure all portions of the communications.

Counsel involved in due diligence investigations should relay the information in one of two ways: (1) with a short transmittal letter or email that contains little, if any, commentary; or (2) communications that are marked “privileged and confidential,” with an opening statement that the communication is confidential and for the purpose of rendering legal advice to the company. Statements such as these should help persuade courts reviewing communications in camera that the privilege applies. For more information on establishing and protecting the corporate attorney–client privilege, see this article.

10 FAQs about the In-House Attorney-Client Privilege Reply

As discussed in several posts,FAQ, question blackboard including this one and this one, courts apply a heightened scrutiny when in-house lawyers assert the attorney-client privilege.  And because of this heightened scrutiny, in-house lawyers often have several questions about the privilege’s application to their daily routines.  In my latest article, FAQs about the In-House Attorney-Client Privilege, In-House Defense Quarterly, at 7 (Winter 2014), I address 10 privilege-related questions often raised by in-house counsel.

The questions presented are:

  1. When are employee-in-house communications privileged?
  2. Will a boilerplate contractual choice-of-law provision ensure the company receives its preferred privilege law?
  3. Will the privilege cover in-house counsel’s communications with employees of corporate owners, subsidiaries, or affiliates?
  4. Are employees’ communications with a foreign-based in-house lawyer privileged?
  5. Does the privilege apply if the in-house lawyer is not licensed in the state where he or she works?
  6. Who in the company has authority to waive the privilege?
  7. Does the privilege protect communications to the company’s lawyer-lobbyist?
  8. Does the privilege cover conversations between two non-lawyer employees?
  9. May in-house lawyers communicate with outside consultants under the privilege umbrella?
  10. Is an email discussing business and legal issues privileged?

You may access the article here.  My thanks to DRI, the publisher of the fine In-House Defense Quarterly journal, for allowing the republication of my article on this blog.

Court Rejects Privilege for Insurer’s Claims File and Attorney Communications Reply

In litigation over an insurance company’s denial of a claim, a New York Appellate Court ruled that the attorney–client privilege did not protect the insurer’s claims file and attorney communications.  Melworm v. Encompass Indemnity Co., 977 N.Y.S.2d 321 (App. Div. 2013).  You may access the opinion here.

The Melworm case involved an inSlide1surance claim over boat damage.  The insured sued for breach of contract after the insurer denied the claim, and sought in discovery the insurer’s electronic claims diary prepared by an employee.  The insured also sought the insurer’s attorney’s communications during his investigation into the claim.

The insurer asserted the attorney–client privilege over the claims file and attorney communications, but the Court rejected the privilege claims after an in camera review of the documents.  The Court noted that the payment or rejection of claims is part of the regular business of an insurance company, and stated:

Reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim are thus not privileged and are discoverable, even when those reports are mixed/multi-purpose reports, motivated in part by the potential for litigation with the insured.

The Court ruled that the insurer’s employee and attorney prepared the diary entries and letters as part of the insurer’s claim investigation and were not “primarily and predominantly of a legal character.”  This “regular course of business” versus “predominantly legal” analysis went against the insurer in this instance.  For other PoP profiles of court decisions in this area, see this post, and this one.

Excellent Article on (lack of) Federal Medical Peer Review Privilege 1

All 50 states have adopted a statutory evidentiary privilege that protects from compelled disclosure materials generated as part of the medical peer review process.  But federal law applies in federal court cases premised on federal-question jurisdiction, and a significant question arises whether healthcare providers receive similar peer-review protections under federal law.

Indoctor peer review his excellent article, Odd Man Out? The Medical Peer Review Privilege in Federal Litigation, The Federal Lawyer, at 52 (Dec. 2013), Major Charles G. Kels reviews the current state of federal peer-review privilege law.  Major Kels notes that federal statutory protections provide little protection and that three federal circuit courts of appeals and a majority of federal district courts refuse to recognize a federal common law peer-review privilege.  And an alternative privilege, the self-critical analysis privilege, produces an “inherently uncertain venture.”

Major Kels provides practical tips for navigating these undefined privilege waters and advocates for congressional action or the adoption of a federal common law privilege.  Major Kels’ article is comprehensive and commended to in-house and outside counsel representing health care providers.

You may access the article here.  My thanks to Major Charles Kels and The Federal Lawyer for permission to repost the article in this blog.