CEO Failed to Prove Attorney-Client Privilege, Court Finds

3rd Circuit ruling reminds GCs to notify employees that the company's lawyers don't represent them personally.

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In 1999, U.K.-based industrial materials company Morgan Crucible faced accusations of involvement in an international price-fixing scheme in the carbon products industry. During the federal antitrust investigation, Winthrop, Stimson, Putnam & Roberts (now Pillsbury Winthrop Shaw Pittman) represented Morgan Crucible. CEO Ian Norris spoke candidly with Winthrop attorney Sutton Keany, thinking attorney-client privilege protected his conversations.

But that wasn’t the case. Keany merely represented the company, not Norris, meaning no attorney-client privilege existed.

When Norris was extradited from the U.K. in 2010 to face trial in a U.S. district court, Keany testified against him on behalf of the government. Norris was convicted of obstruction of justice, fined and sentenced to 18 months in prison. Norris appealed, arguing that the court made a mistake in permitting Keany to testify because Keany represented him.

The 3rd Circuit ruled March 23 that Norris failed to prove that Keany represented him, and therefore his conversations were not protected by attorney-client privilege.

U.S. v. Norris reminds corporate counsel that all employees must be informed that the lawyers they talk to during an investigation represent the company, not them personally. Failing to do so can lead employees to unintentionally disclose information that could be used against the company or the individual.

Are You My Lawyer?

Norris highlights the confusion that can arise during corporate investigations when attorney-client relationships are not clearly defined. Experts say it’s imperative that in-house counsel identify the scope of outside counsel’s representation of individual employees. Executives may not be aware that assumptions about representation aren’t likely to hold up in court.

“There is no guarantee that a witness’s assumptions about the existence of an attorney-client relationship by itself will be upheld,” says Marcellus McRae, a white-collar defense partner at Gibson Dunn. “This ruling may signal a tougher environment for an individual trying to block disclosure by asserting privilege.”

Norris had assumed privilege because he believed Keany represented him personally based on an e-mail Keany sent to Morgan employees, stating that the Department of Justice was notified that Winthrop represented Morgan employees. But in his testimony, Keany said he told Norris he did not represent him personally and had advised him to get his own attorney.

“When an executive is told by an attorney, ‘I don’t represent you,’ that means get a lawyer to advise you on whether you have to talk, what you have to say and what your options are,” McRae says. “Norris could have rescheduled the interview with Keany in order to have an opportunity to speak with his own counsel.”

Patricia Pileggi, a white-collar defense partner at Schiff Hardin and insidecounsel.com columnist, says there were mixed signals about who Keany was representing. Outside counsel must clear up any confusion. Additionally, in-house counsel must make it clear that they don’t represent the company’s employees either.

“The reality is when an employee is speaking with a company attorney, it could potentially be the equivalent of the employee speaking to a prosecutor, which is why corporate lawyers need to be precise and document the fact that they’ve told employees and executives who they represent,” Pileggi says.

In his appeal, Norris strove to prove Keany did indeed represent him. He relied on the aforementioned e-mail as well as various internal memos. But the 3rd Circuit determined that Norris failed to meet the burden of establishing representation and attorney-client privilege based on the five-factor test established in in re Bevill, Bresler & Schulman Asset Management Corp. That test says a party must show he approached counsel for the purpose of seeking legal advice; a party must demonstrate that when he approached counsel he made it clear that he was seeking legal advice as an individual rather than the representative capacity; a party must demonstrate that counsel saw fit to communicate with the client in the clients’ individual capacities, knowing that possible conflicts could arise; a party must prove that his conversations with counsel were confidential; and a party must show that the substance of his conversations with counsel did not concern matters within the company or the general affairs of the company.

“Norris wasn’t able to satisfy the first few prongs of Bevill,” says Duane Morris Partner Marco Gonzalez. “His argument was too vague and ambiguous. The judge says it wasn’t enough. The message to corporate lawyers is early on in the case, executives and attorneys should do certain things to prevent this confusion from happening.”

Best Practices

The Norris ruling could have a chilling effect on employee cooperation and communication with inside counsel.

“Executives may be reluctant to talk out of fear that the company will turn around and waive attorney-client privilege and disclose the conversation to the government, resulting in the executive facing obstruction of justice,” says Aaron Danzig, a former federal prosecutor and partner at Arnall Golden Gregory.

In the wake of Norris, experts suggest a variety of best practices for corporate lawyers that can clarify their scope of representation as well as outside representation. It is wise, for instance, to provide employees with an Upjohn warning, or a corporate Miranda warning, at the beginning of any interview by in-house counsel.

“Corporate lawyers need to advise employees or corporate officers that they are representing the company and not the employee, and that although the conversation may be privileged, the privilege belongs to the company, not the employee,” says Pileggi.

For further clarity, Danzig advises putting corporate Miranda waivers in writing and asking the executive or employee to sign it in the presence of a witness.

“The danger is that employees may be scared off and may not talk to you without hiring a separate attorney for themselves,” says Danzig.

In the event that an employee or executive has separate counsel, experts recommend creating a written joint defense agreement (JDA).

“A JDA is especially useful in circumstances where corporate executives have separate, individual counsel from the company they work for because it protects communications between an individual and another’s attorney when the communications are part of an ongoing and joint effort to set up a common defense strategy,” says Gonzalez.

Juliette Fairley

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