HR Manager’s Internal Investigation Memo—Ghostwritten by In-House Lawyer—Not Privileged

In an employment race-discriminghostwritingation case, the USDC for the Northern District of California ruled that the attorney–client privilege did not protect the HR Manager’s memo regarding his internal investigation of hotline complaints. The court issued this ruling even though the company’s in-house lawyer “ghostwrote” the memo. Thompson v. C&H Sugar Co., 2014 WL 595911 (N.D. Cal. Feb. 14, 2014). You may access the opinion here.

Thirteen African–American employees sued C&H Sugar Company and its parent corporation, American Sugar Refining, Inc., alleging that C&H failed to properly train and promote them because of their race. The employees claimed that C&H’s Packaging Department Manager, Cliff Sullivan failed to promote them, and sought in discovery an internal investigation memo regarding the company’s hotline complaints about Sullivan’s alleged discriminatory acts.

The memo, sent from the HR Manager to the HR VP, contained conclusions as to work-place dynamics and training recommendations. In an effort to buttress the privilege assertion, the company’s in-house attorney (title: Senior Director of Corporate Labor and Employee Relations) submitted a declaration stating that he “essentially ghostwrote” the memo, particularly the investigation summary and conclusion. You may read the in-house lawyer’s declaration here.

Ruling

The Court found unpersuasive the in-house lawyer’s ghostwriting assertion, stating

The Court has found no support indicating that an attorney “essentially ghostwriting” a communication—whatever that means—renders that communication protected by the attorney–client privilege.

Noting that protecting communications “ghostwritten” by a lawyer did not serve the privilege’s purpose of encouraging frank communications between client and attorney, the Court found that the in-house lawyer’s declaration did not meet the burden of establishing that he, rather than the HR Manager, wrote the memo or that it was written in response to a request for legal advice.

What about the Work Product Doctrine?

The in-house lawyer also declared that he directed and supervised the HR Manager’s investigation in anticipation of litigation. And the Court held that this declaration proved that the work-product doctrine covered the investigation memo.

But that ruling did not end the inquiry. The Court also held that the plaintiffs demonstrated a substantial need for the investigation memo because they could not otherwise obtain the hotline-complaints information. The Court therefore ruled that the plaintiffs “demonstrated a substantial need for the investigation documents and the qualified work product doctrine must give way.”

PoP Analysis

The Thompson decision reinforces the concept that the privilege protects only confidential communications between the client and attorney made for the purposes of rendering legal advice. Here, the company’s “ghostwriting” argument established neither an attorney–client communication nor a legal-advice request.

And the decision highlights a critical distinction between the attorney–client privilege and the work-product doctrine. Once established, the attorney–client privilege is absolute, meaning that it stands regardless of the requesting party’s need for the information. The work-product doctrine, by contrast, is qualified, meaning that a party may obtain the information upon a substantial-need showing. This ruling demonstrates why in-house counsel should endeavor to establish the privilege for employee–lawyer communications rather than relying on the unequal work-product doctrine.

Major Ruling: Court Limits Attorney–Client Privilege For Healthcare Provider Corporations 2

In a major decision that affects healthcare-provider corporations, the Washington Supreme Court significantly limited attorneys’ ability to custom_doctor_choices_13788engage in privileged conversations with the provider corporation’s employed physicians and other medical staff. The Court held that, except in narrowly tailored circumstances, the State’s common-law prohibition of defense attorneys’ ex parte communications with a plaintiff-patient’s non-party physicians supersedes the corporation’s attorney–client privilege with its employed physicians. Youngs v. Peacehealth, 316 P.3d 1035 (Wash. 2014). You may access the opinion here.

Battle of the Privileges

Washington’s physician–patient privilege statute precludes a physician from revealing her patient’s communications, but the patient automatically waives this privilege “as to all physicians or conditions” 90 days after filing a personal injury or wrongful death case. RCW § 5.60.060(4)(b). In Loudon v. Mhyre, 756 P.2d 138 (Wash. 1988), the Washington Supreme Court prohibited defense attorneys from holding ex parte communications with a plaintiff-patient’s non-party treating physicians.

But Washington also follows the corporate attorney–client privilege adopted by the U.S. Supreme Court in Upjohn Co. v. United States, 449 U.S. 383 (1981), which provides that a corporation’s attorneys may have privileged communications with a corporate employee regardless of the employee’s position in the corporate hierarchy. And when healthcare-provider corporations employ physicians, the Upjohn rule allows the provider-corporation’s attorneys to have privileged communications with its physicians.

The Loudon no-contact rule (derived from the physician–patient privilege) and the corporate attorney–client privilege conflict in medical practice actions against the provider-corporations. When a patient sues a provider-corporation, the attorney–client privilege protects the corporate attorney’s communications with employed treating physicians, but Loudon simultaneously prohibits the corporate attorney from having ex parte interviews with these same treating physicians.

The Victor

The Court resolved this privilege battle largely in favor of patient confidentiality. Wanting to avoid forcing the injured plaintiff-patient “to suffer the additional injury of privacy invasion,” the Court rejected the argument that the corporate attorney–client privilege completely trumps the physician–patient privilege. The Court instead adopted a so-called “modified version of the Upjohn test,” ruling that, in medical malpractice actions, a provider-corporation’s attorneys may have ex parte communications with its non-party treating physicians so long as:

1. The communications meet the general prerequisites for establishing the privilege (confidential and for purposes of rendering legal advice);
2. The communication is with a physician who has direct knowledge of the event triggering the malpractice action; and
3. The communications concern the facts of the alleged negligent incident.

To the Victor Go the Spoils

The Court’s decision greatly affects the provider-corporation attorney’s ability to communicate with (non-party) employed physicians who treated the plaintiff-patient either before or after the negligent event. The Court prohibited ex parte communications with employed physicians concerning the plaintiff-patient’s pre-event medical condition or post-event recovery. Under this ruling, a hospital sued for malpractice cannot have its attorney interview its own employees without plaintiff’s counsel’s presence.

PoP Post-Battle Analysis

The Court’s decision provides an unsatisfying analysis of the interaction between these two evidentiary privileges in medical malpractice actions. The Upjohn Court held that the corporate attorney–client privilege covers the company lawyer’s communications with company employees, regardless of their employment position. The Youngs Court identified silent topics to parse the Upjohn decision, stating that Upjohn “did not articulate a fixed set of criteria by which to determine what specific conversations with lower-level employees must remain privileged.” And seizing upon Upjohn’s purported failure to detail “specific conversations,” the Youngs Court limited the corporate attorney–client privilege to specific conversations about the negligent event at issue.

The Court’s handling of the common-law at-issue waiver doctrine, reinforced by the physician–patient privilege statute that automatically waives the privilege “as to all physicians or conditions,” is not reassuring. A plaintiff-patient’s medical condition, including pre- and post-event conditions, becomes relevant when she files suit, but the Court essentially said that the Loudon no-contact rule applies despite this waiver.

The Youngs decision significantly limits the corporate attorney–client privilege for provider corporations that employ physicians. The privilege effectively does not exist unless the employed physician has direct knowledge of the medical event giving rise to the malpractice action. It will be interesting to see how the new Youngs rule applies in practice and how this decision affects other state courts that have yet to address this battle-of-the-privileges issue.

Court Rejects Privilege for Attorney’s Due-Diligence Investigation

In litigation over an alleged breach of an exclusive-rights acquisition agreement, the SDNY ruled that the attorney–client privilege did not protect portions of the acquiring company’s lawyer’s due diligence investigation.  Vector Capital Corp. v. Ness Technologies, Inc., 2014 WL 171160 (S.D.N.Y. Jan. 9, 2014).   I"m afraid it's bad news....You may access the opinion here.

Vector entered into an exclusive agreement to negotiate the acquisition of Ness Technologies, Inc., but later sued claiming that Ness failed to provide relevant information during Vector’s due diligence investigation.  Ness sought production of documents that Vector’s attorneys obtained during the due diligence phase, but Vector objected on grounds that the attorney–client privileged protected this information from discovery.

In this diversity action, the SDNY correctly applied New York state law governing application of the attorney–client privilege in this situation.  See my article for a detailed review of rules and issues pertaining to conflict-of-privilege-laws.

The documents at issue were communications between Vector and its outside counsel made during the due diligence investigation.  The communications contained factual information that Vector’s outside counsel obtained from Ness and third parties.  But the communications also contained outside counsel’s analysis of the factual information and legal advice based on that information.

Upon in camera review of the communications, the court ruled that, in obtaining due diligence information, Vector’s outside counsel was acting “principally for the business purpose of determining whether the acquisition was a sound investment.”  And the court offered this cautionary proclamation regarding an attorney’s due diligence work:

This fact-acquisition process in the course of a business transaction is no more protected by privilege when conducted by an attorney than if conducted by an accountant, engineer or head of a business unit. The factual information presented is not privileged merely by the use of an attorney as a conduit for the information.

The court ordered production of the communications, but allowed Vector to redact the communications’ legal-analysis portions because the attorney–client privilege protected that information.

PoP Analysis.  The permitted redaction is hardly a victory in this situation.  Had the court determined that outside counsel’s communications were “predominantly legal,” then it likely would have ruled that the privilege protected from disclosure all portions of the communications.

Counsel involved in due diligence investigations should relay the information in one of two ways: (1) with a short transmittal letter or email that contains little, if any, commentary; or (2) communications that are marked “privileged and confidential,” with an opening statement that the communication is confidential and for the purpose of rendering legal advice to the company. Statements such as these should help persuade courts reviewing communications in camera that the privilege applies. For more information on establishing and protecting the corporate attorney–client privilege, see this article.