The Supreme Court of Washington recently held that the right of the attorney-client would not cover the corporate attorney’s interactions with former employees of the company, even if the communications relate to activities that happened during employment and beyond the scope of employment. As a result, insurers should be vigilant to interview and consult with former employees in connection with coverage and bad-faith lawsuits where the insured or former employees are located in Washington State.
In Newman case, the plaintiff suffered a permanent brain injury during a football match in 2009 and sued the school district for negligence. The school district lawyers investigated coaches who were no longer hired by the district, and then represented the coaches at their depositions. Although the opinion of the Supreme Court does not include a clear timeline, it seems that at least some of the pre-deposition interviews had taken place before the former coaches had hired the lawyers to represent them individually.
The defendant then requested the disclosure of correspondence between the defense attorney and the former coaches. The court ruled that the conversations that had taken place before the former coaches had individually hired the defense counsel were not privileged.
The Supreme Court of Washington noticed that the Washington State had embraced the U.S. Supreme Court Ruling of Upjohn Co. v. United States, 449 U.S. 383 (1981). Upjohn dismissed the “control group test” that held only top management to be able to count as a “client” for the purpose of deciding whether an “attorney-client” privilege had been applied. SCOTUS took a versatile exam to determine if contacts with non-managing staff were privileged. It investigated a variety of factors, including whether the communications at issue: (1) were made to corporate superiors; (2) were made to corporate employees; (3) were made to corporate counsel acting as such; (4) were matters of concern beyond the scope of the employee’s duties; (5) revealed factual details “not available to senior management;” (6) revealed factual information;
While Upjohn did not regulate the breadth of the attorney-client privilege at the state court (or at the federal court with respect to state-law claims), the decision also had an immense effect on state law. Since Upjohn, corporate counsel usually offer “Upjohn warnings” to workers questioned in the course of an internal investigation, in particular to ensure knowledge of the factors (7) and (8) above. Upjohn refused to determine whether his “flexible test” applied to interactions with former employees on activities beyond the scope of employment.
But the Supreme Court of Washington refused to do so in Newman. It argued that persons who are no longer employed by a corporate client cannot qualify themselves as “clients” unless they individually hire corporate counsel to represent them. The court noted that Upjohn was focused on the right of the company to compel its employees to report the material details of their duties as well as the role of an employee as an agent of the corporation. These causes, the court said, are not present with respect to former workers. The court argued that, while they may only have information that are vital to the protection of the company, the former employees are no different from any other third party witness in that regard.
Newman’s vigorous, 18-page dissent argued that the majority’s bright-line temporal restriction violated the basic objective of the Upjohn test, which was to “facilitate the flow of relevant and necessary information from low-level employees to counsel.” As observed in Upjohn, a company is an inanimate entity that can function only through its employees and agents. If all staff who are familiar with the events in question leave the organization, the corporate lawyers would not be able to obtain confidential information from their own client about those events and to offer guidance on the basis of that information. The dissent pointed out that former workers are in a different position than other third party witnesses in so far as they were competent representatives of the company with regard to the time span and subjects at issue in the conflict.
Newman’s decision is important for insurers, as previously working claims-handlers often become plaintiffs in cover-up or bad-faith lawsuits. Where Washington law applies, insurers are encouraged to determine whether former claims-handlers retain corporate counsel to represent them personally. This course of action may not be possible where there is a conflict of interest, in particular where the former employee has personal exposure or where the company is likely to fault the employee personally. However, this case is unusual in the sense of insurance policy and bad faith. In traditional insurance litigation, a former employee should be entitled to retain corporate counsel to defend him or her personally.
This begs the question: when do the insurers need to take measures to reduce Newman’s effects? In other words, when does the rule of Washington apply? The choice of law problems is notoriously thorny and difficult to foresee, and no Washington case has applied the choice of law laws to questions related to the rights of the attorney-client.
The best course is therefore to take the required measures where either the former employee or the insured is situated in Washington, and definitely where coverage litigation is still pending in Washington.