In-House Lawyer Quandary: Business Advice or Implementation of Legal Advice as Part of a Business Decision?

Oh, the privilege land mines that often accompany an in-house lawyer’s legal advice. When an in-house lawyer’s putatively privileged communications landed in a business document, the question arose whether the company waived the privilege. To win the issue, the in-house lawyer first had to hurdle federal–state choice-of-privilege laws and then confront the issue whether a legal-advice communication remains privileged if ultimately embedded in a business-related document. Holley v. Gilead Sciences, Inc., 2021 WL 2371890 (N.D. Cal. June 10, 2021).  You may read the decision here. Let’s discuss how this turned out.

Legal Advice Embedded in a Business Document

In this CAFA case, the putative class claimed that Gilead Sciences, Inc. timed its development of a certain HIV drug to avoid losses that would occur when the patent on an existing drug expired. Gilead produced documents authored by its Development Committee, which consisted of non-lawyer types like toxicologists. Various Gilead Project Teams contributed information for the Development Committee’s documents.

Gilead assigned in-house IP lawyers to the Project Teams and the at-issue documents contained these lawyers’ legal advice regarding patent expiration and exclusivity periods.  Gilead redacted the legal-advice portions of these business documents, and the class plaintiffs moved to compel their disclosure.

The privilege question before the court, therefore, was whether the attorney–client privilege protected an in-house lawyer’s advice that appears in business documents shared with non-lawyers.

Choice of Privilege Laws

Before deciding that issue, the court in this diversity-jurisdiction case had to determine whether federal or state privilege law applied.  Although FRE 501 provides that state privilege law generally applies in diversity-jurisdiction cases, the class plaintiffs claimed that federal privilege law applied because the at-issue documents were relevant to Gilead federal-law-based affirmative defenses.

But it is rare for federal privilege law to apply in diversity-jurisdiction cases, and the court quickly determined that the case was not “one of the uncommon situations where Federal privilege law governs the application of the attorney–client privilege in a diversity case.”  With that settled, the question remained which state’s privilege law to apply?

The court correctly noted that FRE 501’s privilege application of state law includes that state’s choice-of-privilege-law rules, including in CAFA cases. California applies a government-interest analysis to determine which state’s privilege law governs a privilege challenge.  Under this rule, California’s privilege law applies unless there is a “true conflict of governmental interests” and California’s privilege law “severely impairs” another state’s interest.

This case had factual connections to multiple states, but the class plaintiffs failed to introduce any evidence that another state had a greater interest in any particular communication.  So, California’s privilege law, rather than federal privilege law, applied.

Legal Advice/Business Advice Distinction

With that settled, the court then determined whether California privilege law protected an in-house lawyer’s legal advice embedded in a Gilead business document. Typically, disclosure of privilege communications to third persons is a confidentiality breach that waives the privilege. California’s privilege statute, however, states that a party does not waive the privilege if it is disclosed to third persons to whom disclosure is reasonably necessary to further the purpose of the legal advice.

The communication must pertain to legal advice because the privilege does not cover an in-house lawyer’s business-related communications.  But if the communications primarily contain legal advice, then the lawyer may share them with non-lawyer business persons to facilitate the implementation of that advice.  The court found that—

Plaintiff’s contention that the redacted information is not privileged because it was shared to assist with Gilead making a business decision rather than for legal purposes is unpersuasive.

The issue, in contrast, was Gilead’s “utilization of an attorney’s legal advice for a business purpose.”

Rulings—But is it Legal Advice?

The court therefore generally ruled that the Gilead in-house lawyers did not waive the privilege because of the Development Committee’s inclusion of the in-house lawyer’s advice in its documents. But the in-house lawyer still had to prove that the at-issue communications, in fact, included legal advice regarding Gilead’s patent expirations and exclusivity periods.

The court noted that “the first relevant inquiry is whether the document contains a discussion of legal advice or strategy of counsel.”  Gilead’s in-house lawyer submitted an affidavit to meet this standard, and I would post it but it is under seal.

Suffice it to say, however, that Gilead won some and lost some. The true take-away is the detail with which the court analyzed each document and the legal-advice subparts in each.

For example, the court found that the privilege covered an entire redaction because it clearly contained the lawyer’s advice on the likely success of patent applications, patent expirations, and exclusivity periods.  But on another document, the court analyzed each bullet point, ruling:

The first sentence of the first bullet point and the first sentence of the third bullet point do not reflect any legal advice as opposed to generally reciting a broad business strategy; there is nothing in the record to support a finding that Gilead has met its burden of proving that those sentences are protected by the attorney–client privilege.

So, in sum, the court’s distinction is an important one.  An in-house lawyer does not waive a legal-advice communication because a business person includes that advice in a business-strategy document. But the in-house lawyer must always prove the legal-advice component down to the most minute detail.

That is a land mine that will never cease.