Corporate Counsel and the Attorney-Client Privilege

Posted on June 4, 2008

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The issue of the confidentiality of communications between corporate
counsel and their clients is complex, although many clients- and their
attorneys, I am afraid- do not see it this way.  Many believe that
involving an attorney in a transaction gives the client the
attorney-client privilege, and therefore the right to suppress any
communications regarding the transaction.  However, the issue of
whether the attorney-client privilege applies is slightly more
complicated.

The Alabama Rules of Evidence govern this attorney-client privilege. Rule 502(b) states that a “client has a privilege to refuse to disclose and to prevent any other person from disclosing a confidential communication made for the purpose of facilitating the rendition of professional legal services to the client, (1) between the client or a representative of the client and the client’s attorney or a representative of the attorney, or (2) between the attorney and a representative of the attorney, (3) by the client or a representative of the client or the client’s attorney or a representative of the attorney to an attorney or a representative of an attorney representing another party concerning a matter of common interest, (4) between representatives of the client and between the client and a representative of the client resulting from the specific request of, or at the express direction of, an attorney, or (5) among attorneys and their representatives representing the same client.” (Alabama Rules of Evidence Rule 502(b) (2004)). In Exxon Company vs. Dept. of Conservation and Natural Resources, 859 So. 2d 1096 (Ala 2002), the Alabama Supreme Court took this rule one step further, holding that “the attorney-client privilege applies to all lawyers who are acting as lawyers, whether they are employed in-house or by an outside firm.” As such, the privilege is clearly applicable to in-house counsel in Alabama.

The Exxon decision took notice that corporate counsel often wears many hats.  We find this to be true in our practice because we are often called upon to serve as both a legal and business advisor, especially with start-up companies.  The reason for this duality is that it is often much more convenient and effective for clients to ask questions of corporate counsel since they typically already hired the counsel for a set fee.  One of the first questions that we, as attorneys, should ask when dealing with a company is who the client is, or which employees and representatives of the company constitute clients.  Courts apply two separate and distinct tests to answer this question, and they are:

  • Control group test- This test states that only communications between the attorney and controlling executives and managers are protected by privilege.
  • Subject matter test- The case of Upjohn Co. vs. U.S., 449 U.S. 383 (1991), expanded the control group test to include consideration of the subject matter involved.  This test states that employees with pertinent information about the subject matter involved may be deemed a client regardless of their position or rank within the company. 

Thankfully, Alabama has followed the U.S. Supreme Court and applies the subject matter test (see Ex Parte Alfa Insurance Company, 631 So. 2d (Ala. 1993)). This means the subject matter of the communication is vital to the client and attorney when deciding with which discussions should be conducted.  Attorneys should be mindful that not all employees of the company automatically constitute clients of the company’s attorney, however.

The next question is what types of communications are protected by the attorney-client privilege.  First and foremost, attorneys and clients must be aware that an attorney’s advice on personal or business matters is not protected by the attorney-client privilege.   There is often a fine line between legal and business advice, however, so how do we ever know with certainty what is protected?  Generally, an attorney is not protected when the advice is not sufficiently legal in nature and could have been provided by a non-attorney.  This general rule raises a conflict for corporate counsel, however, because they are often called upon to give business and legal advice simultaneously.

So should attorneys stop giving business advice altogether? My answer would be no.  An attorney’s business advice is often invaluable to a client, and there are ways that corporate counsel can attempt to preserve the privilege. One method we utilize is labeling written communications with “legal advice” or something similar.  In addition, when providing legal advice, corporate counsel should make a record of that fact and should set out the attorney’s recommendations, as well as their basis in law, within the document, e-mail or whatever method of communication is being utilized.  Additionally, if an attorney wants to protect the attorney-client privilege with regard to a particular communication, then it should only involve legal advice. Mixing law with business in the same writing is sometimes unavoidable, however.  When business advice and legal advice are in the same correspondence, the attorney should attempt to ensure that the primary purpose of the communication remains the provision of legal advice. 

CONCLUSION

Clients and attorneys should not merely assume that the attorney-client privilege applies in all situations where an attorney’s advice is involved.  Instead, as shown above, the attorney client privilege is restricted in scope by the courts as it applies to corporate counsel. As a result, corporate counsel must be mindful of the type of advice they are giving and the person the advice is aimed at within the company.  Being aware of the pitfalls is a big step in the right direction toward protecting and preserving the attorney-client privilege (wherever possible) for your own clients. 

Elizabeth Ritter, Goodrich Law Firm, LLC

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