To read about issues of attorney-client privilege that the BofA/Merrill investigations have raised, click here.
Generally speaking, the attorney-client privilege only protects communications between the attorney and client for the purposes of legal services, and it only protects those communications based on client confidences or legal advice. Of course, these days outside counsel increasingly consult with third parties--accountants, investment bankers, public relations specialists, marketing consultants--before being able to advise clients. Corporations and courts continue to struggle with the issue of when the presence of such third parties waives privilege.
Michele DeStefano Beardslee, associate professor at the University of Miami School of Law, takes on the emerging issue in her paper "The Corporate Attorney-Client Privilege: Third Rate Doctrine for Third Party Consultants." As its title suggests, the paper sets forth the argument that the courts still have some way to go in properly interpreting the law surrounding third-party consultants.
"When attorneys talk to third-party consultants, there's a question whether or not the attorney-client privilege will actually protect those communications," Beardslee says.
Courts have set forth a few exceptions allowing privilege even when a third party is present. One of them allows protection when the communication is necessary for legal advice. Beardslee gives the example of a lawyer communicating with a paralegal or secretary.
"There was one case where Japanese company in the U.S. was trying to field PR issues, and nobody even spoke English," Beardslee says. "The attorney sought some help from an English-speaking PR person to understand how the media works here in the U.S. That person was considered necessary for translating the client confidences."
The second exception protects communications if the third party is the "functional equivalent" of the corporate client. If in a small company, someone comes into the office every day and assumes the functional role of the client, then they're considered the client.
Beardslee doesn't find either of those exceptions appropriate.
"The current way that courts are interpreting those exceptions is wrong," she says.
Some courts interpret the first exception too broadly, protecting communication whenever it is helpful.
"It's too easy to be able to say it's helpful," Beardslee says. "You have cases on the books where a the communications in a big meeting between the lawyer, the accountant, the investment banker and the client are protected--they say it's for some legal advice and it was helpful. I think that leads to shielding too much information."
On the other side of the spectrum are courts that interpret the first exception to only protect communications that involve "translation" services and that do not solicit advice or expertise from the third party (e.g. communications with secretaries or paralegals).
"I think [that approach] is too narrow, because in today's modern times, in order to provide full service, holistic comprehensive legal advice, attorneys have to consult with outside consultants," Beardslee says. "They have to understand the business consequences in order to provide adequate, sufficient legal advice to their client, and no publicly-traded consumer-oriented company is going to want advice from a lawyer that's only legal advice--there's business advice wrapped into that."
In her paper, Beardslee recommends a multifactor nexus test for more consistency.
"Unlike the narrow approach, the nexus test embraces the role third-party consultation plays in the provision of legal advice to large corporations," she writes. "Unlike the broad approaches, it prevents the ease with which corporations can funnel communications unrelated to legal services through attorneys for protection."
The factors Beardslee suggests courts consider are as follows:
1. Whether the lawyers were skilled in the area in which they sought expert assistance. This helps determine necessity of the consultation.
2. The way that the communication sought to be privileged was conducted or distributed. If the client limited the distribution of information, it suggests the communication was in furtherance of legal advice, not simply to protect unprivileged information.
3. Whether there is "contemporaneous documentary proof supporting either party's interpretation of the facts," such as a separate retainer agreement.
4. The substance of the law involved. A very complex legal issue or one that hinges on specialized knowledge may support necessity.
To read Beardslee's full paper, click here. (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1374624)