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.

It appears that lawyers are increasingly taking their deposition grievances to the trial judge, including grumbles about defending lawyers’ privilege objections.  And another trial judge has responded with criticism of an attorney’s “improper and overuse” of privilege objections that thwarted deposing counsel’s inquiry into non-privileged, discoverable information.  Marksberry v. FCA US LLC, 2021 WL 2142655 (D. Kan. May 26, 2021).  You may read the opinion here.

But let’s see how improper these privilege objections really were.

Warranty Litigation

In this putative class action over lifetime warranties on Dodge Ram pickup trucks, plaintiff’s counsel took the 30(b)(6) deposition of defendant’s corporate representative.  Defense counsel asserted several privilege objections, with many worded as “cautioning the witness not to divulge substantive communications with counsel” rather than an instruction not to answer.  But the witness received the message, sometimes answering that he could not answer “outside of conversation with counsel.”

Deposition and Privilege Rules

The court noted that FRCP 30 is the starting place, and that rule “contemplates depositions will be conducted in a professional manner, with counsel and parties behaving as they would in open court.” The rule requires lawyers to assert objections “concisely in a nonargumentative manner” and is essentially a prohibition on “speaking objections”—those directly or indirectly designed to coach the witness.  And lawyers may instruct a witness not to answer a question “when necessary to preserve a privilege.”

The District of Kansas also maintains Deposition Guidelines, available here, that further supervise lawyers’ deposition conduct.  The court has used these rules, for example, to permit a UPS lawyer to hold privileged discussions during deposition breaks. Regarding privilege objections, the Guidelines provide—

When privilege or work product immunity is asserted, the witness is nevertheless required to answer questions relevant to the existence, extent, or waiver of the privilege/immunity, such as the date of a communication, who made it, to whom it has been disclosed, and its general subject matter.

For example, a lawyer cannot ask a deponent what she told her lawyer during a meeting, but the lawyer can ask who else attended the meeting to determine whether privilege waiver occurred.

And the court reminded us that “these Guidelines aren’t aspirational, but mandatory.”

Improper Objections?

Let’s take a small sample of the lawyers’ questions-and-answers to see whether the privilege objections were proper.  You may read all of the objections in this transcript.

Regarding the defendant’s legal holds, this exchange occurred:

Q.  When a legal hold is issued, how does FCA U.S. LLC determine which documents need to be preserved pursuant to that legal hold notice?

Defense Lawyer: Object to the extent that your question is calling for this witness to reveal attorney-client privileged communications and caution the witness not to reveal any communications he’s had with his counsel inside or outside the company.

The lawyer did not instruct the witness not to answer and, in fact, the witness answered the question.  Is this improper?  Did the question call for the disclosure of lawyer–client communications?  The court ruled that this objection was “clearly improper.”

The Who, When, Where Questions

Regarding the corporate defendant’s investigation, this discussion occurred:

Q.  When was the investigation performed?

Defense lawyer: Again, same caution to the witness to not reveal the substance of attorney–client communications.

A.  I do not know outside of counsel.

Q.  Do you know who performed the investigation that we’ve been discussing?

Defense Lawyer: Object to the form and I’m also going to caution the witness not to disclose the substance of attorney–client communications.

A.  I cannot answer that question.

Q.  Why are you unable to answer that question?

Defense lawyer: Same objection.

A.  Attorney–client privilege.

Q.  When were you told who performed the investigation?

Defense lawyer: Don’t answer that question on the basis of privilege. … The question is trying to seek information about the attorney–client privileged communications, so I will instruct the witness not to answer.

Q.  Are you willing to answer that question?

A.  No.

What do you think—were these privilege objections improper?  On one hand, the questions did not directly ask the witness to reveal communications—they asked the seemingly straightforward who, what, when questions.  On the other hand, did the questions indirectly ask the witness to reveal communications because his knowledge about these subjects came from counsel?

The court held that the when, what, and who questions “asked for facts” and that “underlying facts are not privileged.  Thus, the privilege objections and instructions not to answer questions were an improper and inaccurate assertion of the attorney–client privilege.”

“Looking the other way is not an option”

The court determined that it must impose sanctions because “looking the other way is not an option.”  But while the court found the lawyer’s privilege objections improper, the objections “did not rise to the level of warranting oppressive sanctions.” The court, therefore, ordered the witness to return for two more hours of deposition and for counsel to “conform his objections” to the court’s privilege rulings. And the lawyer’s client must pay 100% of costs associated with the deposition.

The attorney–client privilege protects from compelled disclosure communications between a client and its lawyer, but not facts. Forty years ago, Justice Rehnquist told us that, for privilege purposes, “a fact is one thing and a communication concerning that fact is an entirely different thing.” Upjohn Co. v. United States, 449 U.S. 383, 395–96 (1981). So, how does this fact-versus-communication distinction apply when a client attaches a document (fact) to an otherwise privileged email (communication)? On the one hand, a document (fact) is a document (fact); but on the other hand, a document (fact) attached to an email (communication) is a communication. And that’s a fact.

Federal district courts—the forum where we see the most published privilege-related opinions—take two approaches.  A perfect illustration arose in early 2021 when federal courts in Utah and Minnesota came to different conclusions on this important issue.

Utah

In Doe v. Intermountain Health Care, Inc., 2021 WL 151090 (D. Utah Jan. 16, 2021) (available here) (opinion amended on unrelated grounds available here), an IHC employee sued the company and its third-party administrator over failing to pay certain insurance benefits. During discovery, IHC refused to produce certain emails and their attachments, claiming that the attorney–client privilege protected both.

IHC admitted that the email attachments, standing alone, did not contain privileged information. The company argued, however, that the privilege covers them because revealing the content of those attachments would reveal the substance of privileged communications. It cited three primary cases in support: Hilton-Rorar v. State & Fed. Commc’ns, 2010 WL 1486916 (N.D. Ohio Apr. 13, 2010); Barton v. Zimmer, 2008 WL 80657 (N.D. Ind. Jan. 7, 2008); and Muro v. Target Corp., 250 F.R.D. 350 (N.D. Ill. 2007).

The court disagreed and held that IHC must independently establish privilege protection for each attachment. Even if the privilege covers the email, “attachments to the email are not privileged unless the attached document is privileged when the client created it.” The court relied almost entirely on Fisher v. United States, 425 U.S. 391 (1976), where SCOTUS rejected the privilege for tax-related documents even though the taxpayer’s lawyer possessed them.

The court rejected IHC’s reliance on Hilton-Rorar, Barton, and Muro because those cases “ignored Fisher.” And it feared that allowing a client to claim privilege over pre-existing, non-privileged documents by simply attaching them to an email to a lawyer “could shield quantities of highly relevant and fully discoverable documentary evidence through the simple expedient of conveying copies to its attorney.”  In short—

A document that was not privileged in the client’s hands cannot magically become privileged merely by sending it to an attorney in search of legal advice.

Circumventing Fisher, the court found, “cannot be that easy.”

Minnesota

The court in Willis Electric Co., Ltd. v. Polygroup Trading Limited, 2021 WL 568454 (D. Minn. Feb. 16, 2021) (available here), saw things differently when presented with the identical email-attachment issue. In this patent-infringement case, the defendant (Polygroup) asked the court to compel the plaintiff (Willis) to produce an email from a Willis employee to Willis’s patent counsel.  Polygroup also sought production of the photo and video attachments to that email.

The court found that the privilege protected the email but that the photos and videos were not independently privileged.  The question, though, was whether the privilege nevertheless protected these images because the employee attached them to the privileged email. Implementing Upjohn’s privilege ruling, the court noted that most lower courts agree that “an otherwise-discoverable attachment is not automatically cloaked in privilege.” (emphasis by the court). But courts differ on what privilege protection, if any, email attachments should receive.

One approach is the view that, even if the attachments are not privileged, “the act of sending the attachments is privileged.” The other approach—the one adopted by the Utah court in Intermountain Health—is that each attachment must independently qualify for privilege protection.

The Minnesota court adopted the “act of sending” approach and expressly rejected the Utah court’s analysis in Intermountain Health for three reasons.

First, the court “respectfully believed” that the Intermountain Health court misread the decisions cited by IHC—Hilton-Rorar, Barton, and Muro.  Those opinions did not, as the Utah court claimed, wrap the attachments’ underlying contents in privilege. Rather, those courts protected “a party from having to disclose that those specific documents were sent to counsel in connection with a request for legal advice.”

Second, the court did not read Fisher as prohibiting any protection for email attachments. And third, requiring production of attachments “creates a risk that an opponent may reverse engineer the substance of a client’s request for legal advice.”

But Remember this Distinction

Now, the Minnesota court’s ruling does not mean that attachments to emails are not independently discoverable.  Under this ruling, the privilege only protects “the instance of a document attached to a communication with counsel.” A copy of the same document—if the discovery request covers it—is independently discoverable.  Indeed, the Minnesota court held that the privilege protected the email and its attachments but that the attachments—if housed separately elsewhere—were discoverable.

On which side of the duel does your jurisdiction reside?