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…

Non-Waiver Contract Saves GC from Disclosing Privileged Info to Grand Jury

Though the Fourth Circuit has not decided the issue, most federal courts reject a selective-waiver doctrine, meaning that waiver to one is waiver to all.  But one company under a federal criminal investigation permitted an in-house lawyer to disclose privileged information to U.S. Attorneys after the DOJ agreed to a non-waiver contract.

Did the contract prevent privilege waiver? The Fourth Circuit said yes, and precluded the DOJ from calling the in-house counsel to repeat the previously disclosed privileged information before a federal grand jury.  In re: Grand Jury 16-3817 (16-4) United States of America, 2018 WL 3156935 (CA4 June 27, 2018) (available here). Let’s discuss the nuances of this interesting opinion. More…

SCOTUS Nominee’s Latest Privilege Opinion: A Win for Corporate Legal Counsel

Judge Brett Kavanaugh, President Trump’s nominee to replace Justice Kennedy on the U.S. Supreme Court, recently authored an important attorney–client privilege opinion for corporate legal counsel.

Judge Kavanaugh held that the privilege covered a General Counsel’s communications involving legal and business issues because “one of the significant purposes of [her] communications was to obtain or provide legal advice,” with an emphasis on “one.”  Federal Trade Comm’n v. Boehringer Ingelheim Pharmaceuticals, Inc., 2018 WL 3028972 (CADC June 19, 2018). You may read the decision here.

A GC’s Communications

In 2008, Boehringer, a pharmaceutical company, negotiated a patent-infringement settlement with generic-drug manufacturer Barr Pharmaceuticals.  The agreement was a so-called “reverse-payment” settlement because the patent holder (Boehringer) paid the alleged infringer rather than the other way around.

The FTC, which monitors reverse-payment settlements to ensure compliance with antitrust laws, issued a subpoena to Boehringer requesting, in part, communications involving Boehringer’s General Counsel. The requested communications allowed the GC “to analyze and navigate the treacherous antitrust issues surrounding reverse payment settlements,” but also reflected her communications with Boehringer executives regarding a possible settlement.  Boehringer argued that the attorney-client privilege protected the entirety of the communications.

Two Purposes

Noting that the attorney–client privilege “applies whether the attorney is in-house counsel or outside counsel,” Judge Kavanaugh recognized that “[t]he application of the attorney–client privilege can become more complicated when a communication has multiple purposes—in particular, a legal purpose and a business purpose.”

Judge Kavanaugh found that More…