A Derivative Privilege: Court Protects Counsel’s Use of Consultant During Internal Investigation

It’s a comforting concept—the privilege protects from compelled disclosure communications between a company’s lawyer and employees pertaining to legal advice.  Comfort fades and privilege anxiety elevates, though, when the entity’s counsel employs a third-party consultant to assist in investigating an issue to provide the client with legal advice. A federal court has eased that anxiety by ruling that a “derivative privilege” shielded in-house and outside counsel’s communications with a subject-matter expert retained to assist with an internal legal evaluation. Parsons v. Columbia Gas Transmission, LLC, 2021 WL 1894244 (S.D. W. Va. May 11, 2021).  You may read the opinion here.

The Initiative

Way back in 2012 and 2014, Columbia Gas Transmission defended litigation in Ohio over its use of natural gas storage fields.  According to CGT, that litigation spawned its Storage Initiative, an investigation into its other property interests.  CGT’s in-house counsel retained outside counsel, and outside counsel retained a title services company to analyze title opinions regarding CGT’s rights and title to properties within its natural gas storage fields. The Initiative also sought a determination whether CGT should institute condemnation litigation to secure its property title interests.

Take Me Home, Country Roads

A group of West Virginia property owners sued CGT for trespass, unjust enrichment, inverse condemnation, and other claims arising from CGT’s use of their property for natural gas storage.  The plaintiffs learned of the Storage Initiative and moved to compel its production. CGT asserted that the attorney–client privilege protected the investigation because in-house counsel retained outside counsel to analyze the property rights and provide a legal analysis of what CGT should do to ensure its property interests.

The property owners countered that the need for legal advice did not motivate the Initiative. Rather, they argued, the Initiative was a part of CGT’s normal course of business to comply with a statute requiring CGT to either purchase or condemn property interests necessary to operate its storage fields.

The property owners also argued that CGT lost any privilege protection because its outside counsel retained a title services company—a non-lawyer consultant—to prepare the title reports that the lawyers used to determine CGT’s property interests.

A Derivative Privilege

The court found it “immaterial” that CGT, working through counsel, retained a third-party consultant rather than simply use its employees to perform the ground-level property title analysis.  CGT retained outside counsel to evaluate its legal rights in certain properties which included reviewing the source materials—property records.  Counsel’s election to use a third party to review those records did not vitiate the privilege because “fact finding which pertains to legal advice counts as professional legal services.”

The use of a consultant, therefore, did not void the privilege for communications involving the consultant, outside counsel, and in-house counsel.  The court held that, “when either the client or the lawyer utilizes a professional consultant in the course of seeking or providing legal services, a ‘derivative’ attorney–client privilege protects those communications.”

Limitation

But not all communications. According to the court, the privilege protects those communications between the consultant and in-house or outside counsel that relay substantive information about CGT’s title interests. The privilege does not protect communications that are merely “transmittal letters” or that simply inform counsel that they uploaded documents to a database.

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