Great Article on the Taxpayer Privilege Reply

Tax-Related Privilege • Tags: , , ,

Yes, there is a taxpayer privilege.  It is narrow, to be sure, but it exists.  On July 22, 1998, President Clinton signed into law the Internal Revenue Service Restructuring and Reform Act of 1998. taxpayerThis amendment of the Internal Revenue Code, which included the so-called Taxpayer Bill of Rights, contained provisions intended to enhance taxpayers’ rights with the IRS.  Included in this amendment was a limited evidentiary privilege that protects confidential communications between taxpayers and non-lawyer tax practitioners, including accountants.  The amendment is codified at 26 U.S.C. § 7525.

For a detailed look at the taxpayers’ privilege, you should read Washington, D.C. lawyer Christine S. Hooks’ well written article, The Tax-Related Privilege You May Have Already Waived.  Published in the March 2013 issue of The Federal Lawyer, and accessible here with permission, Ms. Hooks’ article explains the privilege’s relation to the attorney-client privilege and defines who qualifies as a tax practitioner for purposes of establishing the privilege.  The article addresses the privilege’s scope and its exceptions.  And, importantly, Ms. Hooks discusses how easily one can waive the privilege without careful attention to its application.

The article is a must-read for those dealing with tax-related communications, whether to an attorney or to a non-lawyer tax practitioner.  My thanks to Ms. Hooks and the Federal Bar Association for permission to reprint the article in this post.

Protecting Witness Statements from Discovery Reply

Attorney-Client Privilege, In-House Counsel, Work Product Doctrine • Tags: , ,

A critical part of an attorney-led investigation involves interviewing witnesses, whether corporate-employee witnesses, outside consultants, or independent, third-party witnesses.  Corporate counsel must determine whether to document the witness’s interview and, if so, whetherwitness by summary memorandum, audio- or video-recording, signed witness statements, or otherwise.  The questions become whether documented witness statements are discoverable and how in-house and outside corporate counsel should handle these statements to maximize the potential for protection.

Several issues arise in answering these questions.  While the corporate attorney-client privilege may (depending on your jurisdiction) protect counsel’s employee-interview notes, does it also protect a signed an employee’s signed statement? The work-product doctrine, which is a preclusion doctrine rather than an evidentiary privilege, may protect a lawyer’s summary memoranda of witness interviews, but the protection is not absolute and may give way upon a sufficient showing of need.  And federal and state civil procedure rules may differ, causing a witness statement to be discoverable in a state forum even if not in a federal forum.

In my article, Protecting Witness Statements from Discovery, recently published by InsideCounsel, I explore all these issues.  The article, accessible here, distinguishes the too-often-conflated work-product doctrine and the attorney-client privilege.  It also outlines legal arguments for protecting witness statements of corporate employees and independent witnesses, and concludes with a set of practice tips for in-house or outside counsel when dealing with witness interviews.  My thanks to InsideCounsel for permission to repost my article in this blog.

Court Refuses to Expand Privilege for Intracorporate Communications Reply

Attorney-Client Privilege, In-House Counsel • Tags: , ,

It’s a simple concept: the attorney–client privilege generally protects from compelled disclosure a client’s communications to his client.  And under the Upjohn subject matter test, the corporate attorney–client privilege generally protects corporate employees’ communications to the company’s in-house counsel. Upjohn Co. v. United States, 449 U.S. 383 (1981).

The question arises whether the privilege applies to communications between corporate employees regarding a legal matter, yet occurring without an in-house lawyer present. corporateemployeesWhile not a frequently addressed subject, several courts have applied the privilege to intracorporate communications if the communications’ purpose is to facilitate the rendition of legal services.  For a collection of cases, see Alexander C. Black, What Corporate Communications are Entitled to Attorney–Client Privilege, 27 A.L.R.5th 76 § 44 (1995).  But Magistrate Judge Stephanie A. Gallagher of the U.S. District Court for the District of Maryland recently refused to expand the privilege to communications among corporate employees and inventors of a patent owned by the corporation.  Prowess, Inc. v. Raysearch Labs. AB, 2013 WL 509021 (D. Md. Feb. 11, 2013).

Prowess, Inc. licensed a patent from the University of Maryland–Baltimore (UMB).  The patent inventors were UMB employees.  During discovery, Raysearch sought communications between the patent inventors and Prowess employees.  Prowess claimed the corporate attorney–client privilege protected these communications because they occurred at the direction of Prowess’ attorneys.

Judge Gallagher agreed that the privilege may apply to intracorporate communications, but noted that, while the patent inventors had a relationship with Prowess, they were not Prowess employees.  And on this basis, she ruled that, because the inventors were third parties, Prowess employees’ communications with the inventors “cannot be considered ‘intracorporate.’”  Judge Gallagher rejected the privilege and ordered disclosure of the conversations between Prowess employees and the patent inventors.

PoP Analysis. Judge Gallagher’s ruling comports with the maxim that evidentiary privileges should not be lightly created nor expansively construed.  United States v. Nixon, 418 U.S. 683, 710 (1974). Extending the corporate attorney–client privilege to communications between corporate employees and third parties—despite the relationship—goes too far even if these discussions will assist in-house counsel.

The Kovel doctrine may prove a better alternative to gain privilege protection for this type of communication.  Originating in United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), the doctrine holds that clients may involve certain experts (accountants in Kovel) to assist an attorney’s understanding of certain concepts.  And so long as necessary for counsel to render legal advice, the Kovel doctrine extends the attorney–client privilege to these discussions.

Important Ruling: Attorney-Client Privilege Exists for Companies in Liquidation Proceedings Reply

Attorney-Client Privilege, In-House Counsel, Waiver • Tags: , , , ,

Does the corporate attorney-client privilege continue to exist when a company falls into liquidation proceedings?  Although the U.S. Supreme Court provided some guidance on this issue in CFTC v. Weintraub , 471 U.S. 343 (1986), federal courts remain split on whether the privilege exists after a company ceases operations and no longer has officers, directors, or managers who can assert or waive the privilege.

Although the attorney-client priviBankruptlege is absolute, meaning that a party may not overcome the privilege once established, some courts create an exception where a company ceases to exist and no longer has officers or directors.  And of the courts applying this exception, some hold that the privilege ceases only when the company is completely dissolved–meaning liquidation proceedings are complete, while other courts see no distinction between a company in liquidation proceedings and a company that has simply stopped functioning.

The USDC for the Eastern District of California faced this issue in Wallis v. Centennial Ins. Co., 2013 WL 43441 (E.D. Cal. Feb. 1, 2013), and ruled that the privilege continues to exist while a company remains in liquidation proceedings.  In Wallis, an insured sought a declaratory judgment that two insurance companies should pay her attorneys’ fees incurred in a lawsuit covered by the companies’ insurance policies.  The insured sought to depose the companies’ attorneys, but the companies asserted the attorney-client privilege even though they were in liquidation proceedings by order of a New York state court.

The insured argued that the privilege no longer existed because both companies were dissolved and were not “going concerns.”  The companies, however, argued that the privilege simply transferred from their management to the liquidator.

Given the split of authority, the court found some merit to each party’s argument, but ultimately ruled that the attorney-client privilege continues to apply while a company remains in liquidation proceedings.  Drawing support from Weintraub, which permitted a bankruptcy trustee to waive the privilege in a bankruptcy liquidation proceeding, the court found persuasive that the insurance companies were neither formally dissolved nor “so completely non-functioning that their attorney-client privilege is extinguished.”

The court did not indicate whether the privilege remained alive after completion of the liquidation proceedings, and so the Wallis decision lends support to the narrow position that the privilege transfers to the liquidator when a company ceases day-to-day functioning and lacks officers and directors to assert or waive the privilege.

Ethics Opinion: Lawyer May Not Reveal Privileged Information When Responding to Former Client’s Internet Postings Reply

Attorney-Client Privilege • Tags: ,

I suppose this is happening with increased regularity—a former client unhappy with his lawyer takes his gripes to the Internet.  And the Internet postings are mostly disparaging, taking aim lawyer’s competency or his fees.  The question arises whether the lawyer may respond without violating his ethical duties of confidentiality or breaching the attorney–client privilege.

The Los Angeles County Bar Association Professional Responsibility and Ethics Committee recently addressed this situation in a Formal Ethics Opinion.  Laptop MegaphoneThe precise issue was in what manner, if any, may an attorney publicly respond to disparaging public comments by former client.  The underlying quiz in this situation was whether a lawyer could publicly respond to a former client’s Internet postings that he committed malpractice and overcharged the client.

The Ethics Committee correctly noted that, unless the former client consents to the lawyer’s response or waives the attorney–client privilege, the lawyer remains obligated to preserve the former client’s confidential and privileged information.  Under California law, courts may not create exceptions to the State’s attorney–client privilege statute, and this statute does not “permit an attorney to defend himself or herself by disclosing confidences or privileged information.”  In other words, there is no self-defense exception to California’s attorney–client privilege.

The Ethics Committee did not, however, ban the lawyer from making any response.  The Committee opined that the lawyer may respond so long as the response does not disclose confidential or privileged information, does not injure the former client in a matter involving the former representation, and is “proportionate and restrained.”

The Ethics Opinion cite is Formal Op. No. 525: Ethical Duties of Lawyers in Connection with Adverse Comments Published by a Former Client.  You may access the opinion here.

Privilege Covers Google Consultant as “Functional Equivalent of Employee” Reply

Attorney-Client Privilege, Waiver • Tags: , , ,

For jurisdictions following the Upjohn subject-matter test, the corporate attorney–client privilege protects an employee’s communications with corporate counsel so long as the communications are confidential and made for purposes of rendering legal advice.  One question arises whether the privilege extends to corporate communications with outside consultants.

The USDC for the Northern District of California recently encountered an interesting privilege situation involving Bill Campbell, the Board Chairman for Intuit, Inc. who simultaneously served in several roles with Google,google Apple, and other technology-based companies.  Prior to 2007, Campbell served, while Intuit chairman and without a Google contract, as an advisor to Google’s management team and Board of Directors.  In 2007, Campbell entered an agreement with Google that made him a part-time Google employee.

In In re High–Tech Employee Antitrust Litigation, 2013 WL 772668 (N.D. Cal. Feb. 28, 2013), the Court had to determine whether Campbell’s email communications with Google employees—most often sent through his Intuit email address—were protected by the corporate attorney–client privilege. Questions regarding Campbell’s role prior to 2007, when he had no formal agreement with Google, complicated the analysis.

The Court followed the leading functional-equivalent-employee cases of U.S. v. Graf, 610 F.3d 1148 (9th Cir. 2011) and In re Bieter, 16 F.3d 929 (8th Cir. 1994). These cases held that there is no legitimate reason to distinguish between a company’s employee and its consultant for attorney–client privilege purposes, and that the privilege extends to consultants who are “in all relevant respects the functional equivalent of an employee.”  The Court must examine the consultant’s role and determine whether he was the primary agent who communicated with counsel, whether he acted as a corporate agent in a significant capacity, whether he managed employees, or had substantial input into the development of the litigation-related issues.

In High–Tech, the Court found that Campbell was the functional equivalent of a Google employee even while he served as Intuit’s Board Chairman.  The Court found that Campbell advised Google’s management and Board of Directors on business strategy, organizational development, and internal business processes.  The Court also found significant Campbell’s important advisory role, noting that he emailed with Google executives regarding “confidential and highly sensitive matters related to Google’s compensation practices, policies, and strategies.”

But because of Campbell’s roles with Apple, Intuit, and other companies, the Court stopped short of issuing a blanket privilege protection for all of Campbell’s email communications.  Google still had to prove that the communications otherwise fell within the corporate attorney–client privilege, meaning it had to further prove the email communications were to Google in-house or outside counsel, were intended to be, and actually were, confidential, and were for purposes of Google’s counsel rendering legal advice.

Tips for Preventing or Limiting In-House Counsel Depositions Reply

Attorney-Client Privilege, In-House Counsel • Tags: , , ,

Deposing in-house lawyers was once considered taboo, but has now become a litigation trend.  And these depositions are not limited to an in-house corporate lawyer in business litigation over a deal gone bad; trial lawyers increasingly seek to depose in-house litigation managers as well.  When these deposition requests arise, lawyers should appropriately consider the significant attorney-client privilege issues that will inevitably become center stage.

Several questions arise in this situation.Business man pledging  Is there anything in-house and outside counsel can do to prevent the deposition from occurring?  How should counsel handle the privilege-related issues if the deposition goes forward? How can in-house counsel avoid becoming a deposition target in the first place?

Federal and state courts provide divergent views on the subject.  Some follow the so-called Shelton rule, originating in Shelton v. American Motors Co., 805 F.2d 1323 (8th Cir. 1986), which permits a protective order preventing in-house counsel depositions unless the party seeking the deposition shows (1) that no other means exist to obtain the information; (2) the information sought is relevant and non-privileged; and (3)  the information is crucial to the party’s case preparation.

Many courts, notably the Second Circuit, decline to follow Shelton and prefer to review all relevant facts and circumstances before deciding whether to permit a deposition, such as the deposition need, the lawyer’s role in the matter on which discovery is sought, and the risk of encountering privilege and work-product issues. In re Subpoena Issued to Dennis Friedman, 350 F.3d 65 (2d Cir. 2003).

In my recent article, Preventing or Limiting In-House Depositions, published by Inside Counsel, I explore the still-developing law on this important issue.  I also provide tips on how in-house counsel can lessen their chances of becoming a deposition target, how to address the privilege-related issues, and whether the in-house lawyer needs separate counsel.

You may access the article at this link.   My thanks to Inside Counsel for publishing the article and allowing access through this post.

Is Mediation Privilege Absolute or Qualified? Reply

Mediation or Settlement Privilege • Tags: ,

Many incorrectly assume that all evidentiary privileges are absolute, meaning that a party seeking privileged information may not override the privilege despite the level of need.  But several evidentiary privileges are qualified, meaning that a party may obtain privileged information upon a sufficient showing of need.  For example, the attorney-client privilege is absolute and inviolable once established.  But the work-product doctrine is qualified, and a party may obtain the protected information upon a showing of substantial need and an inability to obtain the material elsewhere.

What about the mediation privilege?  mediationThe Uniform Mediation Act, published by the National Conference of Commissioners on Uniform State Laws and accessible here, includes a qualified mediation privilege.  This uniform act provides that a mediation communication is privileged from discovery unless the party seeking discovery shows that the evidence is not otherwise available, that there is a need for the evidence that substantially outweighs the interest in protecting confidentiality, and that the mediation communication is sought or offered in a criminal proceeding or in a proceeding to rescind or reform or a defense to avoid liability on a contract arising out of the mediation. Unif. Med. Act § 6(b).  Some states have adopted the Uniform Mediation Act, including its qualified privilege, while others have adopted it with some modifications.  Other states forego the uniform act in favor of their own mediation rules or statutes.  And in these states, the privilege may arise by statute or in the common law, and may be absolute or qualified.

A recent Indiana Supreme Court decision highlights this distinction.  In Horner v. Carter, 981 N.E.2d 1210 (Ind. 2013), copy available here, a husband sought to modify a divorce settlement agreement and attempted to offer his mediation statements as evidence.  In rejecting evidence of mediation statements, the Court followed the Indiana Alternative Dispute Resolution Rules, accessible here, which include an absolute mediation privilege. Rule 2.11 provides:

Mediators shall not be subject to process requiring the disclosure of any matter discussed during the mediation, but rather, such matter shall be considered confidential and privileged in nature. The confidentiality requirement may not be waived by the parties, and an objection to the obtaining of testimony or physical evidence from mediation may be made by any party or by the mediators.

Interestingly, the Court noted the distinction between Indiana’s absolute privilege and the Uniform Mediation Act’s qualified privilege, and expressly “decline[d] to follow [the uniform act's] approach to mediation confidentiality at this time.”  Perhaps Indiana will amend its mediation privilege rule to make it a qualified privilege, but at this time the privilege remains absolute.  Practitioners should note this decision, avoid assumptions of an absolute mediation privilege, and know where your state falls on the absolute vs. qualified issue.

Court Refuses to Recognize “Compliance Officer Privilege” in Qui Tam Action Reply

Attorney-Client Privilege • Tags: , , ,

The growing number of corporate compliance officers, most with law degrees and housed in the corporate legal department, will increasingly raise the issue whether some evidentiary privilege protects from compelled disclosure corporate communications with the CCO.  A Texas federal court, interpreting a Texas state statute, refused to find a statutory “compliance officer privilege” that protectscomplianceofficer a CCO’s communications.  U.S. v. Austin Radiological Associates, Inc., 2013 WL 113668 (W.D. Tex. Mar. 18, 2013).

In Austin Radiological, a former employee of Austin Radiological Associates (ARA) brought a qui tam action under the False Claims Act alleging ARA retained Medicare overpayments, wrongfully billed Medicare, and wrongful discharge.  She sought discovery from ARA’s compliance officer, but ARA objected asserting a “compliance officer privilege” under Texas Health & Safety Code § 161.032(e).  This statute provides, in part, that

The records, information, and reports received or maintained by a compliance officer retain the protection provided by this section only if the records, information, or reports are received, created, or maintained in the exercise of a proper function of the compliance officer . . .

The question whether this statutory section created an evidentiary privilege depended upon the court’s statutory interpretation.  Upon review, the court determined that this section incorporated another section (Texas Gov’t Code § 552.005) stating that the “protection provided by this section” did not “create new privileges from discovery.”  The court therefore rejected a statutory “compliance officer privilege” and ordered the CCO’s documents produced.

PoP Analysis.  This decision raises several issues for in-house lawyers and corporate compliance officers.  First, the court and parties applied Texas state law even though the presence of a federal claim could have provided an opportunity to argue for a common law compliance privilege.  Second, the case is silent regarding whether the compliance officer was a lawyer working in ARA’s legal department.  If so, then perhaps an argument that the corporate attorney-client privilege protected the compliance officer’s communications would have proved more successful.  While a few cases address a compliance officer’s privilege in the attorney-client privilege context, the cases are fact-specific and rely on a traditional analysis whether the compliance officer was acting in a legal versus a business capacity.  See, e.g., Leazure v. Apria Healthcare, Inc., 2010 WL 3397685 (E.D. Tenn. Aug. 26, 2010); U.S. ex rel. Parikh v. Premera Blue Cross, 2006 WL 3733783 (W.D. Wash. Dec. 15, 2006).

And finally, this case reminds us that statutory confidentiality rules are not the equivalent of evidentiary privileges.  As courts note, “[c]onfidential does not necessarily mean privileged,” In re Grand Jury Subpoena Dated Dec. 17, 1996, 148 F.3d 487, 492 (5th Cir. 1998), and “confidentiality and privilege are two separate, albeit overlapping, legal concepts.”  Gaumond v. Trinity Repertory Co., 909 A.2d 512, 518-19 (R.I. 2006).

Thought-Provoking Article on Protecting Multi-National Corporations’ Attorney-Client Privilege Reply

Attorney-Client Privilege, Conflict of Laws • Tags: ,

In-house lawyers for corporations with headquarters, divisions, facilities, or offices in the United States and a European Union country often exchange privileged information.  For example, an in-house lawyer based at a corporation’sWisconsin U.S. facility may provide a legal opinion based on U.S. law to her in-house counterpart in the corporation’s German facility for use in a global legal strategy .  And while many lawyers assume these communications are perfectly privileged, that is not necessarily the case.  Cross-border communications raise many privilege and conflict-of-privilege law questions that should trouble in-house counsel.

In his thoughtful article, The Privilege Stops at the Border Even if a Communication Keeps Going, 80 S.C. J. Int’l L. & Bus. 297 (2012), David S. Jones identifies the conflict-of-law and related issues that arise when U.S. based lawyers exchange ostensibly privileged communications with their E.U. colleagues.  The article provides a timely review of the major E.U. decision in Akzo v. Nobel  Chemicals Ltd. v. European Comm’n,  which held that in-house attorneys have no attorney-client privilege (legal professional privilege) and that no privilege exists for attorneys who are not members of an E.U. member state bar.  Mr. Jones discusses how a U.S. federal or state court should analyze the conflict-of-privilege law issues in determining whether to apply the restrictive E.U. law to U.S.-based communications.

The scope of evidentiary privileges in E.U. countries is a continually emerging issue for multi-national corporations.  Mr. Jones’ article, which is available at this link, provides a thorough overview of the issues and identifies key points that lawyers and judges should consider when addressing these often first-impression issues.  It is well worth the read.  And for those wanting a conflict-of-privilege law analysis between federal and state and between states, check out my chapter, The Application of Conflict of Laws to Evidentiary Privileges, published in DRI’s Evidentiary Privileges for Corporate Counsel.

My thanks to the South Carolina Journal of International Law and Business and Scholar Commons for permission to link Mr. Jones’ article in this post.