You Can’t Always Get What You Want Reply

When it comes to dictating customized procedures for retrieving inadvertently disclosed privileged information, the proverb is, as The Rolling Stones would say, “You can’t always get what you want.”

Federal Rule of Evidence 502(b) and FRCP 26(b)(5)(B) provide a framework for handling the inadvertent disclosure of privileged information.  FRE 502(b) puts the onus on the producing party to prove that the disclosure was actually inadvertent, and that it took reasonable steps to prevent disclosures and to correct the error.

Don’t like shouldering this burden?  Then read FRE 502(d), which allows parties to enter an Order bypassing FRE 502(b) and declaring that the inadvertent disclosure does not constitute privilege waiver.  But I digress.

So what if a party desires its own claw-back procedures and moves for a protective order that incorporates them—must the opposing party agree? Should the Court adopt those procedures over objection?  More…

Tennessee Court Adopts Functional-Equivalent Doctrine

Can a non-employee, third-party consultant have a privileged communication with a company’s in-house counsel?  In a matter of first impression, the Tennessee Court of Appeals said yes, adopting the functional-equivalent doctrine to apply the privilege to consultants whose conduct and behavior comport with company employees.

The court issued the ruling over the consultant’s employer’s objection and even though the governing contract stated that the consultant is not “an agent, legal representative, or partner … for any purpose.”  Waste Admin. Servs., Inc. v. The Krystal Co., 2018 WL 4673616 (Tenn. Ct. App. Sept. 27, 2018) (Swiney, J.).  You may read the opinion here.

Functional-Equivalent Doctrine

Although many states, including Tennessee, have not fully defined the attorney–client privilege’s scope in the corporate counsel–employee context, a developing corollary is whether the privilege covers communications between a company’s lawyer, including in-house counsel, and its non-employee consultants.

Various courts apply the so-called functional-equivalent doctrine to uphold the privilege over a consultant’s communications with corporate counsel when that consultant is acting as the “functional equivalent” of an employee.  Courts reason that, in today’s corporate world, there is no good reason to deny the privilege when a company outsources employee functions to third-party specialists.  I previously discussed cases where courts applied the doctrine in C-Suite situations (see this post) and refused to apply the doctrine to public-relations firms (see this post).

Two Contracts—But Does it Matter?

So, what about Tennessee?  Krystal contracted with Waste Administrative Services (WASI) to provide (you guessed it) waste-management services.  A few years later, Krystal contracted with Denali Sourcing Services to examine and ultimately reduce its expenses.  Krystal and Denali memorialized their consulting relationship with a Statement of Work which noted that Denali was not “an agent, legal representative, or partner [of Krystal] for any purpose.”

The SOW did not expressly cover waste management, but generally covered procurement projects “submitted via email.”  Krystal’s CEO emailed Denali employee David Jungling asking him on “take the lead” on assessing Krystal’s relationship with WASI.  A question arose whether and how Krystal could terminate its WASI contract, and Jungling emailed Krystal’s CLO about the matter. More…

Well, That Backfired. A Privilege-Waiver Tale for Internal Investigations and In-House Counsel

We know that typically a company waives the privilege covering an internal-investigation memo if it discloses that memo to a government agency.  One company nevertheless wanted it both ways, so it created a second memo summarizing (the favorable) part of an in-house lawyer’s privileged internal-investigation memo, and disclosed the second memo to the feds.  Did this circumnavigation attempt avoid privilege waiver for the internal-investigation memo?

A Missouri federal court found that disclosing the second memo waived the privilege over the in-house lawyer’s memo, and ordered partial disclosure.  Sherman v. Berkadia Commercial Mortgage, LLC, 2018 WL 4300322 (E.D. Mo. Sept. 10, 2018).  You may read the opinion here.

Read This One, Not That One

When an allegation arose that Berkadia falsely certified to HUD that it complied with all HUD regulations, Berkadia retained outside counsel to conduct an internal investigation.  Based on outside counsel’s employee interviews, Berkadia’s in-house counsel drafted a memo about the investigation and underlying events.

Berkadia then prepared a second memo that summarized outside counsel’s investigation. This second memo discusssed some—but not all—details of the investigation findings, and Berkadia decided to disclose this second memo to HUD.

But I Want to Read That One

In an employee’s anti-retaliation lawsuit under the False Claims Act, the employee claimed that Berkadia’s disclosure of the second memo actually waived the privilege over the in-house lawyer’s memo summarizing the internal investigation.  He wanted the privileged memorandum to show that Berkadia had information contradicting its HUD disclosures.

Ruling—The Fairness Doctrine

The court read the in-house lawyer’s memo in camera, and agreed that it met the privilege elements: it contained communications between Berkadia’s in-house lawyer and employees, and was marked “confidential” and “subject to attorney-client privilege.”

The court referenced the at-issue waiver doctrine, which holds that one waives the privilege when it places the subject matter of the privileged communications at issue in the lawsuit.  A “closely related” concept is the fairness doctrine, which states that “a party should not be able to make use of privileged information as a sword when it is advantageous for the privilege holder[,] and then as a shield.”

The court applied this fairness doctrine to thwart Berkadia’s attempt to use the HUD-produced memo but withhold the in-house lawyer’s memo—from which the HUD memo derived—from the employee.  The court found that Berkadia waived the privilege over the in-house lawyer’s memo, and ordered the company to produce the sections that disclosed interviews with Berkadia’s employees.

PoP Analysis

While the company appropriately handled the in-house lawyer’s memo from a privilege perspective, its attempt to “disclose the memo without disclosing it” backfired.  The moral of the story is that disclosing privileged information to government entities typically waives the privilege.

While there are some instances of companies avoiding privilege waiver by entering into a NDA with the governmental entity, as discussed here and here, those situations are rare and companies must proceed with caution.  The “memo about the memo” idea was apparently not cautious enough.