Does Advice-of-Counsel Defense Waive Privilege for In-House Lawyers?

Aa a general rule, clients waive the attorney–client privilege when they assert an advice-of-counsel defense and, consequently, must produce their lawyer’s advice-related communications.  The waiver’s scope, however, is not as well-known.  Does the waiver apply to communications with outside counsel and in-house lawyers?

The Utah federal court faced this specific question and narrowly construed the scope of waiver.  The court held that a client’s advice-of-counsel defense waived the privilege over its communications with outside counsel, but that the waiver did not extend to its communications with in-house counsel.  Hoopes v. Owners Ins. Co., 2018 WL 1183374 (D. Utah Mar. 6, 2018).  You may read the decision here.

Bad-Faith Claim

A Geico insured struck an 11-year-old pedestrian on Main Street in Heber City, causing severe injuries to the minor. Geico paid its insurance limits, but the minor’s mother filed breach-of-contract and bad-faith claims against her uninsured-motorist carrier when it failed to promptly settle that matter.

The UIM carrier had retained outside counsel to investigate and opine on coverage and payment issues.  The carrier asserted the advice-of-counsel defense and agreed that the defense waived the privilege over its communications with outside counsel.  The carrier, however, refused to produce communications between its claims adjuster and in-house lawyer.

Sword and Shield

The mother moved to compel the claims-adjuster–in-house lawyer communications, essentially arguing that waiver is a broad concept and must include all advice-related communications, including those with in-house counsel. More…

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?”


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).


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.

Does Assertion of § 260 Good-Faith Defense in FLSA Action Waive the Attorney-Client Privilege?

In a FLSA collective action against PetSmart, a Delaware federal magistrate judge ruled that PetSmart’s assertion of the good-faith affirmative defense, authorized by 29 USC § 260, did not constitute waiver of the attorney-client privilege.  The judge drew a distinction between PetSmart’s state-of-mind and advice-of-counsel assertions, and issued the ruling even though PetSmart’s decision-maker
flipboard_discussion_text_10528made the exemption decision after “conversations with the legal department.”  McKee v. PetSmart, Inc., 2014 WL 5293703 (D. Del. Oct. 15, 2014). You may read the court’s decision here.

FLSA and the Good-Faith Defense

In a FLSA, wage-and-hour action, the plaintiffs may recover liquidated damages if the employer willfully misclassified employees as exempt from overtime wages.  29  USC § 216.  An employer may avoid these damages, however, if it proves that it had a reasonable basis for making the decision, even if the decision proved inaccurate. Employers routinely assert this good-faith defense in FLSA actions.

Privilege Waiver?

In McKee, the plaintiffs (operations managers at PetSmart) took the deposition of PetSmart’s director of compensation and asked him the bases for his exemption decision.  The director testified that he relied on store visits and conversations with various PetSmart employees, including its legal department.  But PetSmart’s counsel objected on privilege grounds and instructed the director not to answer questions regarding communications with the legal department about his exemption decision.

Plaintiffs’ counsel specifically asked the director the basis for PetSmart’s good-faith defense, and the director stated that he relied on his due diligence, which included discussions with operations managers and field managers.  The director never said he relied on advice of PetSmart’s in-house lawyers.  You may read the director’s testimony and counsel’s objections here.

State-of-Mind v. Advice-of-Counsel

The magistrate judge denied plaintiffs’ attempt to compel the director to divulge his conversations with the legal department.   The court drew a fine-line distinction between the director’s state-of-mind in making the exemption decision and his (lack of) reliance on advice-of-counsel.  Citing Third Circuit precedent, the court noted that PetSmart did not lose the privilege’s protection simply because its director of compensation’s state-of-mind was at issue.  See Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 32 F.3d 851, 864 (CTA3 1994).

The judge, however, seemed willing to find waiver if the evidence showed that the director relied on advice-of-counsel, stating that such evidence would “create a path to disclosure of privileged communications, which plaintiffs find vital to their case on the issue of willfulness.”  In this regard, the court ordered PetSmart to produce a PowerPoint presentation on exempt status that the director reviewed.

But the judge did not mention that the director testified in a prior deposition that PetSmart did rely on the advice of its in-house lawyers in determining the employees’ exempt status.  You may read this testimony here and determine whether you agree with the judge’s conclusions whether PetSmart relied on the advice of its counsel in making the exemption decision.

District Court Review

On October 29, 2014, the plaintiffs filed objections to the magistrate judge’s opinion, taking issue with the judge’s factual and legal support for the decision.  You may read the objections here.

PoP Analysis

As it currently stands, the McKee case provides guidance for counsel seeking to penetrate or defend the attorney-client privilege when the § 260 good-faith defense is at issue in a FLSA case.  If the exemption decision-maker testifies that he relied on legal counsel in making the decision, the the advice-of-counsel waiver will allow disclosure of privileged communications.  On the other hand, if the decision-maker does not rely on counsel’s advice, even if he communicated with counsel, then his state-of-mind is all that is at issue, and, according to the magistrate judge, there is no state-of-mind privilege waiver in the Third Circuit.

We await the district court’s decision.