Notable Ruling on the Corporate Attorney–Client Privilege and Former Employees 1

An issue often discussed but infrequently addressed is whether the attorney–client privilege protects communications between corporate counsel, including in-house lawyers, and the company’s former employees.  One federal court—predicting Louisiana law—recently ruled that the privilege protects counsel–former-employees’ communications in certain circumstances.  Hanover Ins. Co. v. Plaquemines Parish Gov’t, 2015 WL 546699 (E.D. La. Feb. 10, 2015). You may read the decision here.

The Issue

In a massive construction lawsuit over the design and building of a community center in Bootheville, Louisiana, the parties deposed the general contractor’s Former Employeeformer vice-president and the architect’s former construction administrator.  Both were employed with their respective firms during the construction but had since left.  And each met with his former company’s lawyers to prepare for the deposition.

Deposing counsel asked about deposition-preparation conversations with their former employers’ counsel and the documents they reviewed.  Counsel for the former employers objected on attorney–client privilege grounds, and a motion to compel ensued.

The court framed the issue: “the question presented is simple, even if the answer is not: are conversations between counsel for a corporation and the corporation’s former employees entitled to the attorney–client privilege, and, if so, to what extent?”

Choice-of-Law

In this diversity case, the court first questioned whether federal or state privilege law applied, properly ruling that, under FRE 501 and the Erie Doctrine, federal courts apply state law which, here, is Louisiana’s law.  Louisiana courts have not issued a “reasoned decision” whether the privilege applies to former employees, so the federal court predicted Louisiana law in reliance upon Chief Justice Burger’s concurring opinion in Upjohn Co. v. United States, 449 U.S. 383 (1981) and opinions from the 4th and 9th Circuits. In re Allen, 106 F.3d 582 (CTA4 1997); In re Coordinated Pretrial Proceedings, 658 F.2d 1355 (CTA9 1981).

Ruling

The court found it clear that “some privilege exists” between a corporation’s counsel and its former employees, and just needed to outline its scope and parameters.  The court ruled that the privilege applies, “at a minimum,” where—

  1. The company employed the employee during the time relevant to the lawyer’s current representation;
  2. The former employee possesses knowledge relevant to the lawyer’s current representation; and
  3. The communication’s purpose is to assist the company’s lawyer in
    1. evaluating whether the employee’s conduct has bound or would bind the company;
    2. assessing the legal consequences of that conduct; or
    3. formulating appropriate legal responses to actions that others have taken or will take with regard to that conduct.

PoP Analysis

The Hanover decision provides authority for corporate lawyers—whether outside or in-house counsel—to claim privilege over communications/interviews with former employees. But corporate lawyers should not take this decision as a blanket privilege for all communications and, instead, should ensure that former-employee interviews specifically fall within the parameters. One suggestion is to discuss these parameters with the former employee before the substantive interview and perhaps have her sign a statement acknowledging the reasons for the interview and her understanding of its confidential and privileged nature.

The court applied Louisiana (the forum state) law without addressing whether Louisiana’s conflict-of-laws rules dictated the application of another state’s law.  Although likely a moot point because the communications occurred in Louisiana, judges and practitioners should always consider whether the forum state’s conflict-of-laws rules dictate that another state’s privilege law applies to the putatively privileged communication. For more information on this topic, see this post and my article titled The Application of Conflict of Laws to Evidentiary Privileges.

Important Lessons about the Settlement Privilege

Did you know there is a settlement privilege?  Not many do, primarily because few courts have adopted the privilege.  The Sixth Circuit adopted a federal common-law settlement privilege in Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976 (CTA6 2003), but other courts reject the Goodyear decision.  See, e.g., In re MSTG, Inc., 675 F.3d 1337 (Fed. Cir. 2012); Matsushita Elect. Indust. Co. v. Mediatek, Inc., 2007 WL 963975 (N.D. Cal. 2007).

MediationA recent federal-court decision highlights some of the misconceptions and misassumptions about the so-called settlement privilege, and provides lessons for in-house and outside counsel participating in settlement negotiations.  Babcock & Wilcox Power Generation Group, Inc. v. Cormetech, Inc., 2015 WL 350392 (N.D. Ohio Jan. 23, 2015).  You may access the decision here.

Brief Background

Babcock presents a classic example of how the settlement privilege arises.  Kansas City Power & Light Co. sued Babcock over its installation of a nitrogen-oxide reducing system that contained a catalyst module built by Cormetech.  KCPL and Babcock settled their dispute, and Babcock sued Cormetech for indemnification.

In discovery, Cormetech sought settlement communications between KCPL and Babcock and documents created for settlement purposes.  Babcock asserted the federal common-law settlement privilege adopted in Goodyear or, alternatively, the Ohio state-law mediation privilege.

Conflicts-of-Law Issues

The court quickly raised the issue whether federal or state privilege law applied. Because this case was a diversity action involving a state-law contract claim, federal common-law did not apply, rendering the federal settlement privilege inapplicable.  Babcock argued that privilege law is procedural, rather than substantive, thereby requiring application of federal privilege law, but the court summarily and properly discarded that legal theory.

Babcock correctly noted that Goodyear adopted the federal common-law settlement privilege in a diversity case involving state-law claims.  Indeed, one can criticize Goodyear for applying the wrong law—it clearly should have applied state law.  But, the Babcock court ignored that aspect, stating simply that “be that as it may, the Court in Goodyear did not discuss why it applied federal common law to the privilege asserted.”

State Mediation Privilege & Choice-of-Law Contract Provisions

Fortunately for Babcock, it added the alternative argument that Ohio’s mediation privilege applied.  Ohio’s mediation statute provides that “mediation communications will be privileged against disclosure,” Ohio Rev. Code Ann. § 2710.02, and the court found that this state-law privilege protected the KCPL/Babcock communications from discovery.

Interestingly, the KCPL/Babcock settlement agreement contained a choice-of-law provision stating that Missouri law governed the agreement.  The Babcock–Cormetech dispute was in Ohio, and the parties argued and applied the Ohio mediation privilege even though the underlying mediation occurred in Missouri and the resulting settlement agreement designated Missouri law as governing.

Because Cormetech failed to advance Missouri law, the court simply did not “consider whether Missouri law applies to the privilege asserted here.”  This is disappointing from an academic standpoint as it deprives us from obtaining guidance on choice-of-law contractual provisions concerning privilege law.

PoP Analysis

The Babcock decision presents several practice tips for lawyers involved in settlement negotiations.

  • Always assume a third-party may later seek your settlement-related communications;
  • Know whether your state jurisdiction has a statutory mediation privilege or common-law settlement privilege;
  • Do not rely solely on FRE 408 (or state-law equivalent) disclaimers as privilege-protectors—these rules pertain to admissibility only;
  • Label settlement communications with opposing counsel and settlement neutrals as “privileged and confidential”;
  • If your state has a mediation privilege, then identify that authority (statute or common law) in your communications;
  • Ensure that all settlement-related communications and documents are confidential when delivered and kept confidential thereafter;
  • In the resulting settlement agreement, insert the appropriate choice-of-law provision and expressly state that this provision includes the chosen law’s mediation or settlement privilege.

Attorney–Client Privilege Does Not Protect Secret Recording of Class–Counsel’s Client-Recruitment Meeting

In a FLSA collective action case, a Tennessee federal court ruled that the attorney–client privilege did not protect a secret recording of class-counsel’s recruitment meeting. The privilege did not apply even though each attendee signed a registration sheet declaring that, “[b]y signing in, you acknowledge that you are here to seek legal advice concerning your right to overtime pay.”  Pierce v. Wyndham Vacation Resorts, Inc., 2014 WL 4748309 (E.D. Tenn. Sept. 23, 2014).  Youcamera_spying_big_brother_4265 may read the court’s opinion here.

Pre-suit Meeting & Registration

Class-action plaintiffs’ counsel represented two sales representatives of Wyndham Vacation Resorts.  Before filing a FLSA collective action, plaintiffs’ counsel held a meeting with approximately 40 other Wyndham sales representatives in an effort to recruit them to the putative class.

Plaintiffs’ counsel required each attendee to sign a registration sheet, and this sheet contained the following declaration: “By signing in, you acknowledge that you are here to seek legal advice concerning your right to overtime pay from Wyndham.”  Counsel also claimed that they opened the meeting by stating their understanding that all attendees were seeking legal advice and, if not, they should leave.  No one left.  For counsel’s full description of the meeting, you may read his affidavit here.

Secret Recording

Counsel considered that an attendee may record the meeting, telling the crowd that this was an “attorney–client meeting” and that everything said is “confidential.”  Counsel jokingly stated that, if anyone was recording the meeting, he will later find that person and “beat you to within an inch of your life.”

One of the attendees, however, secretly recorded the meeting.  Class counsel exerted confidence in their legal ability, stating, amidst applause, that their firm has over 300 lawyers and is “ready for whatever the Defendants might bring to bear.”  Counsel claimed they had “done a lot of these cases” and did not “remember ever losing one.”

Privilege Ruling

The question was whether the attorney–client privilege protects the recording.  As the court had federal question (FLSA) jurisdiction, federal common law supplied the rule of decision.  After listening to the recordings, the court ruled that plaintiffs’ counsel failed to show that the recording contained client communications made for purposes of rendering legal advice.  The recording revealed simply that class counsel discussed their own qualifications, the lawsuit in general, and the FLSA opt-in procedure.  The attendees responded with “applause, laughter, and an occasional wisecrack.”

And the registration sheet—declaring the meeting was for purposes of rendering legal advice—did not persuade the court otherwise.  The court found this “sign-in sheet statement” neither controlling nor instructive on the privilege question.  The court noted that a client’s privilege acknowledgement is no substitute for actually establishing the attorney–client’s essential elements, and determined that it was “inappropriate to so rule in this case.”