The Privileged Few

Inside counsel, even counsel who are bound by codes of ethics and subject to professional discipline, are unable to effectively deal with conflicts between their professional legal obligations and the aims of their client-employers. They are, in other words, incapable of exercising any professional independence, given their employment relationship with their client. So said the European Court of Justice in its recent decision, Akzo Nobel Chemicals v. Commission, Case C-550/07 P that held that the "legal professional privilege" does not apply to communications between organizations and their in-house attorneys.

In 2003, the European Commission formally launched an antitrust investigation into, among others, Akzo Nobel Chemicals and one of its subsidiaries. During the course of that investigation, the Commission seized, over protest, emails that had been exchanged between the subsidiary's general manager and a member of Akzo's legal department who served as its coordinator for competition law. That lawyer was a "legal advisor" to Akzo and never held a management position. He was a member of the Netherlands bar, which imposed on him professional and ethical rules, and his employment agreement with Akzo stated that his allegiance to his employer would be trumped by his obligations of independence and compliance under the rules of the Netherlands bar.

Nevertheless, the Akzo court held that the seizure was unprotected by the legal professional privilege because the privilege "does not cover exchanges within a company or group with in-house lawyers." Quoting a nearly thirty-year-old decision, the Akzo court explained that the privilege applies only to communications that "emanate from 'independent lawyers,' that is to say 'lawyers who are not bound to the client by a relationship of employment.'" The court cited in-house counsel's "economic dependence" and "the close ties with his employer" -- the latter referring, apparently, to counsel's role in executing employers' commercial policies -- in concluding that in-house lawyers do "not enjoy a level of professional independence comparable to that of an external lawyer."

That decision, which essentially reaffirms the ECJ's 1982 decision in AM & S Europe v. Commission, Case 155/79, was not unexpected. Nor is it beyond criticism. It was founded expressly on assumptions about in-house counsel's integrity that will undoubtedly be untrue for many scrupulous attorneys -- attorneys whose legal advice would be the same regardless of whether they receive payment directly or indirectly from their client.

For U.S. in-house counsel, the consequences of the decision may not be so severe. For European Commission investigations, communications with any U.S. counsel, internal or external, would never qualify for the privilege unless counsel also was admitted to practice in the E.U. Accordingly, while the decision may aggrieve European inside counsel by placing them in a separate class as their external compatriots, in the eyes of the Court of Justice, all U.S. lawyers fall into a single, non-privilege-generating class. Moreover, and according to various commentators, the decision only applies when the Commission (or a national authority assisting the commission) conducts an investigation under E.U. law. That means that if U.S. counsel is not involved in activities that fall within the Commission's investigatory powers -- most prominently, the Commission's authority to investigate antitrust and competition law violations -- then there is little cause to be concerned. But that may be cold comfort, as it may be much more difficult to navigate the often conflicting and unclear privilege rules of the various E.U. member states.

When U.S. counsel communicates regarding activities that might fall within the Commission's investigatory powers, then the analysis can become more complicated. For example, suppose that counsel operates in a U.S. jurisdiction that extends the privilege to communications with in-house lawyers. Suppose further that the privilege is ordinarily unavailable where there is no reasonable expectation that the communication will remain confidential. Does the mere possibility that the communication might be the subject of a Commission investigation in Europe therefore waive the privilege, even within the U.S. jurisdiction? And what steps should counsel take to preserve the privilege? Must external E.U. counsel's advice actually be solicited on every topic? Is it enough, and necessary, to copy E.U. external counsel on every memorandum and email? Is there a more sensible (and less costly) solution?

Criticisms aside, the Akzo court's opinion should serve as a clear and unmistakable warning to inside counsel who conduct any activities that may be subject to the European Commission's jurisdiction. When conducting such activities, it is important to first consult with experts in European privilege law to ensure that proper steps are taken to shield communications that should remain protected from the Commission's investigatory powers. After all, in these economic times, when the public in both the United States and in Europe are clamoring for greater government investigation into business activities, in-house counsel can never be too careful.

Read Matthew Ingber's previous column. Read Matthew Ingber's next column.

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Matthew Ingber

Matthew Ingber is a litigation partner at Mayer Brown.

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