Outside Counsel Forwards Privileged Email to Adversary—Court Finds No Waiver

The USDC SDNY issued an instructive roadmap in ruling that an outside lawyer’s forwarding a privileged email to adversary counsel did not constitute privilege waiver. Andmistake concepts, with oops message on keyboard. the ruling avoided a potentially larger disaster—disclosure of other privileged documents under the subject-matter waiver doctrine. Rank Group Ltd. v. Alcoa, Inc., 2014 WL 1883505 (SDNY May 9, 2014). You may read the opinion here.

Background

Rank Group purchased Alcoa’s Chilean-based consumer packaging business, and later sued Alcoa seeking indemnification for a $10M tax liability from the Chilean government. During the transaction process, one of Rank’s outside lawyers forwarded a privileged email to Alcoa’s outside lawyer regarding the Chilean tax authority’s treatment of a loan repayment.

In the post-transaction litigation, Alcoa claimed that, by voluntarily sending the email to Alcoa counsel, Rank’s lawyer waived the privilege, and it sought production of all communications between Rank and its lawyers regarding the loan repayment and associated tax consequences.

No Authority to Waive

Rank sprang to damage-control action, and argued that its outside lawyer had no authority to unilaterally waive the company’s privilege. In support, Rank submitted affidavits from the outside lawyer’s partner and the company’s regional financial controller. Both Rank representatives stated that Rank never authorized its outside counsel to share the privileged email with Alcoa and that it considered confidential all communications between Rank and its outside lawyer.

Ruling

The Court, applying New York law, stated that the party asserting the corporate attorney-client privilege has the burden of demonstrating the privilege’s application, including that the communication (1) was between client and its counsel, (2) was and remained confidential, and (3) was made for purposes of rendering legal advice.

The burden also requires the party to show a lack of privilege waiver. The non-waiver burden means that the party asserting the privilege

 must show that [its] disclosure was unauthorized and therefore did not result in waiver of the attorney-client privilege.

The Court held that Rank met its non-waiver burden. Both its outside counsel and internal controller verified that its lawyer’s forwarding the privilege email was “unauthorized and inadvertent.” The Court found that these self-serving affirmations “are enough to carry the burden of showing that the disclosure was unauthorized.” And because of this non-waiver finding, the Court did not invoke the subject-matter waiver doctrine.

PoP Analysis

Rank and its counsel avoided a potentially serious consequence arising from the subject-matter waiver doctrine. When a party voluntarily discloses a privileged communication, the subject-matter waiver doctrine extends this waiver to all other communications pertaining to the same subject matter. The doctrine’s purpose is to prevent a party from selectively disclosing favorable information while simultaneously withholding unfavorable information under the cloak of privilege.

The Court’s decision provides a roadmap that companies should follow when someone inadvertently discloses its privileged communications to third parties. The corporate attorney-client privilege belongs to the company, not its executives or its outside lawyers, and only those authorized to waive the privilege may do so. Here, Rank proved—through two affidavits—that its outside lawyer had no authority to waive the privilege. Lawyers faced with an inadvertent privilege disclosure should follow Rank’s lead.