Important Ruling: Attorney-Client Privilege Exists for Companies in Liquidation Proceedings

Does the corporate attorney-client privilege continue to exist when a company falls into liquidation proceedings?  Although the U.S. Supreme Court provided some guidance on this issue in CFTC v. Weintraub , 471 U.S. 343 (1986), federal courts remain split on whether the privilege exists after a company ceases operations and no longer has officers, directors, or managers who can assert or waive the privilege.

Although the attorney-client priviBankruptlege is absolute, meaning that a party may not overcome the privilege once established, some courts create an exception where a company ceases to exist and no longer has officers or directors.  And of the courts applying this exception, some hold that the privilege ceases only when the company is completely dissolved–meaning liquidation proceedings are complete, while other courts see no distinction between a company in liquidation proceedings and a company that has simply stopped functioning.

The USDC for the Eastern District of California faced this issue in Wallis v. Centennial Ins. Co., 2013 WL 43441 (E.D. Cal. Feb. 1, 2013), and ruled that the privilege continues to exist while a company remains in liquidation proceedings.  In Wallis, an insured sought a declaratory judgment that two insurance companies should pay her attorneys’ fees incurred in a lawsuit covered by the companies’ insurance policies.  The insured sought to depose the companies’ attorneys, but the companies asserted the attorney-client privilege even though they were in liquidation proceedings by order of a New York state court.

The insured argued that the privilege no longer existed because both companies were dissolved and were not “going concerns.”  The companies, however, argued that the privilege simply transferred from their management to the liquidator.

Given the split of authority, the court found some merit to each party’s argument, but ultimately ruled that the attorney-client privilege continues to apply while a company remains in liquidation proceedings.  Drawing support from Weintraub, which permitted a bankruptcy trustee to waive the privilege in a bankruptcy liquidation proceeding, the court found persuasive that the insurance companies were neither formally dissolved nor “so completely non-functioning that their attorney-client privilege is extinguished.”

The court did not indicate whether the privilege remained alive after completion of the liquidation proceedings, and so the Wallis decision lends support to the narrow position that the privilege transfers to the liquidator when a company ceases day-to-day functioning and lacks officers and directors to assert or waive the privilege.

Ethics Opinion: Lawyer May Not Reveal Privileged Information When Responding to Former Client’s Internet Postings

I suppose this is happening with increased regularity—a former client unhappy with his lawyer takes his gripes to the Internet.  And the Internet postings are mostly disparaging, taking aim lawyer’s competency or his fees.  The question arises whether the lawyer may respond without violating his ethical duties of confidentiality or breaching the attorney–client privilege.

The Los Angeles County Bar Association Professional Responsibility and Ethics Committee recently addressed this situation in a Formal Ethics Opinion.  Laptop MegaphoneThe precise issue was in what manner, if any, may an attorney publicly respond to disparaging public comments by former client.  The underlying quiz in this situation was whether a lawyer could publicly respond to a former client’s Internet postings that he committed malpractice and overcharged the client.

The Ethics Committee correctly noted that, unless the former client consents to the lawyer’s response or waives the attorney–client privilege, the lawyer remains obligated to preserve the former client’s confidential and privileged information.  Under California law, courts may not create exceptions to the State’s attorney–client privilege statute, and this statute does not “permit an attorney to defend himself or herself by disclosing confidences or privileged information.”  In other words, there is no self-defense exception to California’s attorney–client privilege.

The Ethics Committee did not, however, ban the lawyer from making any response.  The Committee opined that the lawyer may respond so long as the response does not disclose confidential or privileged information, does not injure the former client in a matter involving the former representation, and is “proportionate and restrained.”

The Ethics Opinion cite is Formal Op. No. 525: Ethical Duties of Lawyers in Connection with Adverse Comments Published by a Former Client.  You may access the opinion here.

Privilege Covers Google Consultant as “Functional Equivalent of Employee” 2

For jurisdictions following the Upjohn subject-matter test, the corporate attorney–client privilege protects an employee’s communications with corporate counsel so long as the communications are confidential and made for purposes of rendering legal advice.  One question arises whether the privilege extends to corporate communications with outside consultants.

The USDC for the Northern District of California recently encountered an interesting privilege situation involving Bill Campbell, the Board Chairman for Intuit, Inc. who simultaneously served in several roles with Google,google Apple, and other technology-based companies.  Prior to 2007, Campbell served, while Intuit chairman and without a Google contract, as an advisor to Google’s management team and Board of Directors.  In 2007, Campbell entered an agreement with Google that made him a part-time Google employee.

In In re High–Tech Employee Antitrust Litigation, 2013 WL 772668 (N.D. Cal. Feb. 28, 2013), the Court had to determine whether Campbell’s email communications with Google employees—most often sent through his Intuit email address—were protected by the corporate attorney–client privilege. Questions regarding Campbell’s role prior to 2007, when he had no formal agreement with Google, complicated the analysis.

The Court followed the leading functional-equivalent-employee cases of U.S. v. Graf, 610 F.3d 1148 (9th Cir. 2011) and In re Bieter, 16 F.3d 929 (8th Cir. 1994). These cases held that there is no legitimate reason to distinguish between a company’s employee and its consultant for attorney–client privilege purposes, and that the privilege extends to consultants who are “in all relevant respects the functional equivalent of an employee.”  The Court must examine the consultant’s role and determine whether he was the primary agent who communicated with counsel, whether he acted as a corporate agent in a significant capacity, whether he managed employees, or had substantial input into the development of the litigation-related issues.

In High–Tech, the Court found that Campbell was the functional equivalent of a Google employee even while he served as Intuit’s Board Chairman.  The Court found that Campbell advised Google’s management and Board of Directors on business strategy, organizational development, and internal business processes.  The Court also found significant Campbell’s important advisory role, noting that he emailed with Google executives regarding “confidential and highly sensitive matters related to Google’s compensation practices, policies, and strategies.”

But because of Campbell’s roles with Apple, Intuit, and other companies, the Court stopped short of issuing a blanket privilege protection for all of Campbell’s email communications.  Google still had to prove that the communications otherwise fell within the corporate attorney–client privilege, meaning it had to further prove the email communications were to Google in-house or outside counsel, were intended to be, and actually were, confidential, and were for purposes of Google’s counsel rendering legal advice.