Court Issues Tough Decision on In-House Counsel and the Attorney-Client Privilege 1

Many in-house counsel and legal commentators posit that courts are increasingly eroding the corporate attorney-client privilege, particularly as it applies to in-house counsel.  A relatively recent decision from a Wisconsin federal court may buttress that sentiment.

In Solis v. Milk Specialties Co., 854 F. Supp. 2d 629 (E.D. Wis. 2012), the Labor Department filed a petition to enforce an administrative subpoena requiring Milk Specialties Company (MSC) to produce two reports: (1) MSC’s Five Year Strat Plan and (2) Dust Review Report.  The genesis of these documents is important.  On April 12, 2010, MSC and OSHA settled an OSHA citation against MSC for allegedly violating a general duty clause through existence of combustible dust hazards without proper ventilation. In January 2011, MSC’s in-house counsel asked MSC’s VP for Enviromental Health & Safety to begin a review process that resulted in the Strat Plan and Dust Review Report.  MSC argued that OSHA took the position that MSC must comply with NFPA standards in order to meet OSHA standards under the general duty clause.

In July 2011, OSHA issued a new citation based on an employee complaint, and in August 2011, OSHA initiated another investigation following a fire incident resulting from a dust explosion in a machine.  The adminstrative subpoena was issued in the fire investigation and covered the Strat Plan and Dust Review Report.  The Dust Review Report contained cost estimates for equipment in order to become NFPA compliant, and the Stat Plan provided the Environmental VP’s opinion on additional steps MSC could take to become NFPA compliant.

The Court rejected MSC’s claim that these two reports were protected from subpoena by the attorney-client privilege.  The Court correctly stated that, to gain protection under the privilege, MSC had the burden of showing that the documents were prepared for purposes of rendering legal advice, but noted that “carrying that burden is more difficult for in-house counsel because counsel is often involved in business matters as well as legal.”

Even though the two reports were prepared at the request of MSC’s attorney, the Court ruled they were neither legal advice nor prepared to secure legal advice. MSC argued that the two reports provide a basis for in-house counsel to render advice as to mitigating the risks of additional litigation and financial exposure if OSHA’s NFPA standards were required.  Rejecting this argument, the Court stated:

Without further explanation, it appears the only advice [the in-house lawyer] could provide to MSC, as a result of [the VP’s] opinions, is how to come into compliance with OSHA’s understanding of regulatory requirements.  This is, at bottom, business advice. . . . [I]t would not constitute legal advice if [the VP] had independently informed MSC’s management of how to comply with regulations; coming from the mouth of an attorney does not change that.

PoP Analysis.  This decision shows the difficulty in convincing a court that communications from executives to in-house lawyers are protected by the attorney-client privilege.  Here, the in-house counsel asked a VP to prepare reports about complying with certain regulatory standards so the company could respond to OSHA arguments; yet, the Court found the reports to be business advice.  While the opinion is silent on this issue, one wonders whether the Court would have reached a different result if the reports (1) began with an introduction that they were produced at the request of counsel; (2) that the reports are confidential; and (3) that they were prepared so that in-house counsel could provide legal advice to the company.  Because of the overwhelming amount of cost-related data, perhaps the Court would have reached the same decision; but implementing these type of explanatory statements on the reports and transmittal emails, will go a long way in convincing a judge reviewing reports in camera that the attorney-client privilege applies.

Must Read IADC Article–Subject Matter Waiver and the Attorney-Client Privilege 3

The subject matter waiver doctrine associated with evidentiary privileges, most notably the attorney-client privilege, is relatively underdeveloped yet has frightening consequences.  And while some courts have considered the subject matter waiver doctrine in the context of disclosures during civil litigation, even fewer have addressed waiver where disclosures occurred outside the litigation context.  For example, it is common for clients and lawyers to disclose some privileged information during negotiations in business transactions; and if

Illinois Supreme Court

subsequent litigation ensues over the transaction the question becomes whether those limited pre-litigation disclosures result in waiver of the privilege with respect to all documents concerning the same subject matter.

In their article, The Perils of Oversharing: Can the Attorney-Client Privilege be Broadly Waived by Partially Disclosing Attorney Communications During Negotiations?, 79 Def. Counsel J. 265 (July 2012), lawyers Andrew Kopon, Jr. of Kopon Airdo, LLC in Chicago, and Mary-Christine Sungaila of Snell & Wilmer in Orange County, provide a comprehensive analysis of the scope of the subject matter waiver doctrine.  The article discusses how courts have handled subject matter waiver in settings outside the litigation context, such as settlement negotiations, public or media disclosures, grand jury investigations, patent disputes, SEC filings, and general business transactions. And, using the pending Illinois Supreme Court case of Center Partners, Ltd. v. Growth Head GP, LLC, (the intermediate appellate court’s decision published at 957 N.E.2d 496 (Ill. App. Ct. 2011)), the article highlights how the Court’s upcoming decision may shape the subject matter waiver discussion in this underdeveloped yet important area.

The article may be found here.  My thanks to Mr. Kopon and Ms. Sungaila, and the well-respected International Association of Defense Counsel (IADC), for permitting access to the article through this post.