Examples of privileged legal communications arising beyond conventional corporate silos are replete with the current business world. Litigants (and courts) have appreciated for years that bankers, analysts and advisors may have ample consequences for legal problems and plans and, as a consequence, such contacts with them could be covered by the right of attorney-client privilege. More recently, corporations have expanded their reliance on outside agencies to complete activities that were once reserved for in-house workers in the face of demand to improve productivity.
In a similar way, firms are gradually looking to joint ventures as they aim to take advantage of synergies with other businesses, sometimes even rivals, to conduct activities that businesses have historically completed on their own. For instance, businesses that produce a compound in the pharmaceutical industry regularly enter into co-promotion arrangements with other pharmaceutical companies to support and sell the licensed substance. Usually, one or two joint committees composed of staff from each organization are formed by the firms in the co-promotion arrangement to manage duties ranging from general strategic management to review and acceptance of promotional materials. These committees are actively pursuing and receiving legal advice in the heavily regulated pharmaceutical industry, and firms and their lawyers should be vigilant in determining whether such conversations are privileged and, in turn, secured.
This dynamic business partnerships, when presented with retrospect (during litigation), demand a thorough assessment of possible relevant privilege assertions. This paper looks at two of the more recent developments in claiming and retaining a right over non-corporate employee communications: 1) that third parties are considered practical equals to company employees or act as lobbyists for company attorneys in order to preserve an attorney-client relationship; and 2) that joint ventures maintain sufficient mutual interest with a company.
The Usage and Functional Equivalent Doctrine to Third Party Agents
As in any assertion of privilege, it is necessary to note that there are two elements to correctly assert and preserve the privilege with third parties: 1) ensure that interactions with third parties and business attorneys (whether company counsel or outside counsel) are protected by the privilege of the attorney-client and/or work-product; and 2) maintain the privilege by preventing any claim of waiver.
Traditional black-letter law teaches the right will be waived by the participation of an outside, or third, party to an otherwise protected contact. However, two exceptions to this provision have been found by the courts: 1) where a third party is interested in aiding an attorney in recognizing and explaining complex concepts, and 2) where a third party is so deeply incorporated into the business that he or she can be regarded as an employee’s practical counterpart.
Third parties that help grasp and interpret complex concepts
Courts have long understood that without the aid of messengers, clerks and secretaries who are not themselves prosecutors, few lawyers will practice, and thus these third parties would not breach privilege. The use of these quasi-legal third parties does not vary substantially from the use of a language translator by an attorney when interpreting documents. Courts have taken the leap from the need to translate foreign languages to the need to understand principles, such as complex financial terminology or accounting definitions, that could be just as unfamiliar to many attorneys. Courts have consistently ruled that third parties who support an advocate in offering appropriate legal counsel to a client should not violate rights by applying a mixture of organization principles and the interpretive principle. Attorneys need to be able to provide confidential communications with investment bankers to have appropriate legal advice in today’s market place.
The Related Practical Doctrine
Another factual predicate supporting allegations of entitlement is when a third person is so embedded in the business that he or she becomes a practical counterpart of an employee. “Under the substantive equal doctrine, correspondence between attorneys of a corporation and its independent contractor deserve immunity where “the contractor is a de facto employee of the company by assuming the roles and responsibilities of a full-time employee.” Exp.-Imp. Bank of the United States of America v. Asia Pulp & Paper Co., 232 F.R.D. 103, 1133 (S.D.N.Y. 2005). Thus, where a lawyer has a close working relationship with an organization and plays a comparable function to that of an employee, private interactions that are made for the purpose of receiving or offering legal advice may be entitled to the attorney-client privilege.
As discussed above, the functional equivalent doctrine varies from privilege depending on the interpreter principle. The Southern District of New York clarified that if the third party was contracted by a corporation and acts as an employee, the functional equivalent doctrine would apply; while in the case where a third party is employed to support a lawyer to represent a company, there is no evidence that the third party performed any business functions for the client or entered into communications In Copper Mkt re. Litigation of the Antitrust., 200 F.R.D. 213, 220 n44 (S.D.N.Y. 2001).
Agreements on joint venture and co-promotion
Another exception to the black-letter provision where the involvement of a third party waives the right of attorney-client or work-product is the common-interest privilege doctrine. When protected messages are shared between parties participating in such joint ventures, the common-interest right is usually invoked. The fundamental elements of the common-interest right must be known so that attorneys can adequately organize contact networks to preserve the privilege.
As a provisional matter, the common-interest right is not an independent ground for immunity and, thus, in order to apply for protection, all communications must conform with the specific provisions of the attorney-client and/or work-product privilege. Although the statute varies by state, courts usually mandate a party to prove that the parties had a mutual legal interest for the privilege to attach, in addition to the basic attorney-client or work-product privilege requirements.
Final words
In the attempt to claim and secure the privileged correspondence of your business or customer, the Ambac decision and the latest practical equivalent cases are the tip of the spear. As market forces continue to push enterprises to pursue efficiencies through outsourcing traditional in-house operations or partnering in joint projects to support or grow a commodity, proponents should be cautious not to waive any right by adequately structuring the contact networks between manufacturers, third parties and joint venture partners. Before exchanging privileged communications with a provider or joint venture partner, having a cautious approach to recognizing the privilege laws of the applicable jurisdiction, which most certainly would be the rules of the state in which the communications were made, will save a lot of hassle in the future. Likewise, litigation counsel must be vigilant in claiming these rights through discovery, in order to advise opposing counsel and the courts on the recent changes in the law.