Attorney-Client privilege, work-product doctrine, and exceptions to waiver

1. Attorney-Client privilege, work-product doctrine, and exceptions to waiver Kevin Collins Chad Ennis

2. Work-product doctrine • Provides basis for withholding material • Both procedural and common-law element • Federal Rules of Civil Procedure protect an attorney's tangible "work product" from discovery • U.S. Supreme Court opinions have given rise to judicially created protections of an attorney's "mental impressions" from disclosure • “in anticipation of litigation”

3. Federal rules – tangible things Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent). But, subject to Rule 26(b)(4), those materials may be discovered if: • (i) they are otherwise discoverable under Rule 26(b)(1); and • (ii) the party shows that it has substantial need for the material to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means.

4. Judicial opinions – intangible things Written material and mental impressions prepared or formed by an attorney in the course of legal duties on behalf of a client were protected as “work product.“ • Mental impressions • Conclusions • Opinions • Legal theories • Attorney notes • Case evaluation • Compiled date

5. Attorney-client privilege – elements • Confidential • Communication between an • Attorney and a • Client • Made for the purpose of seeking or rendering legal advice

6. Key Questions • Whose the client? • Whose the attorney? • Was the communication for legal advice?

7. Quick aside: Mixed-purpose communications Some courts have looked closely at the nature of the communications among attorneys, third parties, and clients to determine if the communications at issue were sufficiently connected to the rendering of legal advice. If the ultimate goal of the client was a business goal, then the court did not protect the full range of communications that may have also included an attorney. Communications with mixed purposes may be protected if the business advice and the legal advice described in the communication are inextricably intertwined or the primary purpose of communication is legal in nature.

8. Legal counsel does not always render, and is not always expected to render, exclusively legal assistance. Often business advice needs to be mixed with legal advice, so that the legal advice is fully understood and followed by the client. Similarly, when legal documents are reviewed by a lawyer, it is common for the lawyer to correct grammatical mistakes and propose alternative language that will best serve the client's interests. When these non-legal services are mixed with legal services it does not render the legal services any less protected by the privilege. In fact, they both are protected when they are inextricably intertwined. In re Vioxx Prod. Liability Litig., 501 F. Supp. 2d 789, 802 (E.D. La. 2007).

9. Ehs examples • Evaluating waste-disposal vendors • Compliance history, internal controls, risk exposure or • Simply “how much do they cost” • Discussing schedule for completion of tasks • Permit schedule / compliance-oriented discussion or • Just “getting something off my desk” • Determining whether an event rises to the level of Title V deviation reporting • Communications after notice of non-compliance vs. routine compliance reports

10. What is not sufficient • Routine documents required by regulations or permit requirements are not privileged as a matter of course. • TPDES reports • Incident-investigation reports • Communications designed to keep attorneys informed about ongoing business matters may not be privileged unless the communication clearly indicates an implied request for legal advice • (i.e., “cc’ing a lawyer”).

11. Waiver • Attorney-Client Privilege Waiver: • The attorney-client privilege is waived when the communication is made in the presence of, or communicated to, a third party. • The question is whether confidential communications were disclosed. • Work Product Waiver: • Work-product protection is waived when protected materials are disclosed in a way that substantially increases the opportunity for potential adversaries to obtain the information. • The question is to whom was the disclosure made.

12. Exceptions to third-party waiver • Patent Agents • “Agents” of attorney • Kovel doctrine • “Agents” of client • Functional-Employee-Equivalent Doctrine • Common-interest doctrine

13. A. Patent agents • Background • A patent agent is registered to practice before the U.S. Patent and Trademark Office (USPTO), but is not an attorney • Example • In house counsel enlist a patent agent to draft and file a patent application with the USPTO • Prior Holdings • A party’s communications with a patent agent were only privileged to the extent that the patent agent was acting under an attorney’s direction

14. IP - Patent AgentS & Privilege (Cont’d) • In re Silver (Texas 2018) - Texas Supreme Court recognized “patent-agent privilege” as a form of attorney-client privilege • [B]ecause patent agents are authorized to practice law before the USPTO, they fall within [Texas Rules of Evidence] Rule 503’s definition of “lawyer,” and, as such, their clients may invoke the lawyer-client privilege to protect communications that fall within the privilege’s scope. • Caveat • The client’s communications with a registered patent agent regarding matters outside the agent’s authorized practice area might not be protected because these communications are not necessarily made to facilitate the rendition of professional legal services

15. IP - Patent AgentS & Privilege (Cont’d) • Patent agent privilege for USPTO Proceedings • November 7, 2017 – • the USPTO issued a Final Rule recognizing that communications between U.S. and foreign patent practitioners and their clients that are reasonably necessary and incident to the scope of the patent practitioners’ authority shall receive the same protections of privilege under Federal Law as if the communication were between a client and a U.S. attorney. 82 Fed. Reg. 51570-75 (Nov. 7, 2017). • Effective December 7, 2017 – • the privilege extends to communications during all aspects of USPTO practice, including traditional prosecution as well as PTAB proceedings. See 82 Fed. Reg. at 51571 (“the purpose of the rule is to protect any communication with authorized counsel from discovery in PTAB, not just communication about the instant proceedings”).

16. B. “Agent” of Lawyer • In a way, the Kovel doctrine expands who qualifies as “lawyer” • Allows third parties to be present in otherwise privileged conversations between client and lawyer without waiving privilege

17. Kovel doctrine Courts have extended the attorney-client privilege to protect communications involving third parties whose presence was necessary for the attorney to provide legal advice to the client. • Criminal tax fraud case • Lawyer needed help to understand client’s tax situation • Lawyer hired Kovel, a former IRS agent • Kovel was subpoenaed to testify but refused on ground of privilege • Court analogized lawyer’s problem to the need for an “interpreter” to translate foreign language • The “presence of the accountant is necessary, or at least highly useful, for the effective consultation besteen the client and lawyer, which the privilege is designed to permit.” • Doctrine has expanded to various “interpretation functions” of complex areas

18. Limits on kovel • Some courts strictly interpret Kovel and limit its application to the “translation function,” thus, doctrine does not apply when: • Attorneys communicate directly with third-party consultant outside presence of client and • Clients communicate directly with third-party consultant outside presence of attorney • Third-party consultant has “specialized knowledge” that attorney cannot acquire on own

19. United States v. Ackert • Ackert was employed by Goldman, Sachs and Co., an investment banking firm. • Ackert and a Goldman Sachs sales representative pitched an investment proposal to Paramount that was expected to reduce Paramount’s tax liability. • After the meeting, Meyers, Paramount’s senior VP and tax counsel, conducted legal research and analysis to advise Paramount about tax implications of the investment proposal. • Meyers contacted and met with Ackert multiple times to discuss the transaction so that Meyers could advise his client. • Paramount entered into the proposed investment but used another investment banker. Paramount paid Goldman, Sachs a fee for services rendered in connection with its proposal.

20. MoreAckert background • Seven years later, IRS conducted an audit of Paramount and issued a summons to Ackert seeking his testimony about the 1989 investment proposal. • Citing Kovel, Paramount asserted attorney client privilege with respect to questions concerning any conversations Ackert had with Meyers or in Meyers’ presence. • IRS sought an order directing Ackert to appear and answer its questions. • After an in camera interview with Ackert, the magistrate judge ruled in favor of Paramount on the basis that Meyers had been collecting information from Ackert in order to give legal advice.

21. Ackert Decision • Second Circuit reversed, distinguishing between communications with a third party that are helpful or important to an attorney’s legal advice from communications with a third party for the purpose of translating communications between attorney and client. • “Meyers was not relying on Ackert to translate or interpret information given to Meyers by his client. Rather, Meyers sought out Ackert for information Paramount did not have about the proposed transaction and its tax consequences. Because Ackert’s role was not as a translator or interpreter of client communications, the principle of Kovel does not shield his discussions with Meyers. “

22. PR FIRM: In re Grand Jury Subpoenas Dated March 24, 2003 • Target of grand jury investigation hired a PR firm to assist in influencing the outcome of the investigation. Government subpoenaed the PR firm to produce documents testify before the grand jury regarding communications with the target. • PR firm asserted the attorney-client privilege on behalf of the target, arguing that the purpose of its public relations campaign was to counter unbalanced and inaccurate press reports about the target. • Court upheld the assertion of privilege, recognizing the need for lawyers to be able to engage in frank discussion of facts and strategies with the lawyers’ public relations consultants • Court held communications between target (the client) and PR firm without the attorney may be privileged but only if made for purpose of obtaining legal services.

23. Tax Consultant: United States v. Chevron Texaco Corp. • Defendant sought advice from Price Waterhouse on the structure of a transaction. • Defendant’s legal department discussed structure, purpose and tax consequences of transaction. • Defendant, relying on Kovel, withheld documents exchanged as privileged. • Magistrate judge distinguished between an accountant being hired merely to give additional legal advice about complying with the tax code from being hired to assist in understanding financial information. • Recommended the court hold that Kovel only applied if the consultation with the third party was necessary to effectuate legal advice.

24. Human Resources: Scott v. Chipotle Mexican Grill, Inc. • Action involved violations of the Fair Labor Standards Act and class action claims under the New York Minimum Wage Act. • The defendant had reached out to its legal counsel for advice on the classification of apprentices. • After counsel had provided legal advice on the classification question, defendant retained a human resources consultant to conduct a “job function analysis.” 94 F.Supp. 3d at 592. • Defendant produced some of consultant’s interview notes without asserting privilege objection. • Results/conclusions of job function analysis were communicated in memorandum to counsel, which defendant withheld as privileged.

25. Scott v. Chipotle Mexican Grill, Inc. (cont’d) • Court held the attorney-client privilege did not protect the memorandum: • Report did not provide any specialized knowledge that the attorney could not have acquired or understood on his/her own. • None of the communications between HR consultant and employees were designated privileged. • Defendant’s own HR team could have easily performed the analysis. • Legal counsel did not use the HR memorandum to render legal advice as the law firm’s legal advice was provided before receiving HR memorandum.

26. Kovel doctrine in context • Public-relations (Martha Stewart) • Unique facts • Law firm engaged PR firm to shape public opinion / counter unbalanced press • Legal goal to influence outcome of investigation • Human Resources (Chipotle) • Class-action lawsuit under New York Minimum Wage Act • HR assisted in job-function analysis, which was withheld as privileged • Court disagreed because analysis did not provide specialized knowledge that the attorney could not have acquired or done on her own • Tax Consultant (Chevron) • D sought advice from Price Waterhouse on structuring transaction • Legal discussed structure purpose, and tax consequences of deal and withheld docs • Court ordered production and distinguished between “assisting with legal advice to help client achieve compliance” and “understanding a financial transaction.”

27. B. “Agent” of client • Functional-Employee-Equivalent doctrine expands who qualifies as “client” • Allows third parties to be present in otherwise privileged conversations without waiving privilege

28. Functional-employee-equivalent doctrine • Protects communications among attorneys, organizations, and non-employees, who serve as “functional equivalent” of an employee • Factors that courts consider in applying test are whether: • Consultant had primary responsibility for a key corporate job • Consultant filled role for organization that was understaffed • There was a “close and continuous working relationship” between consultant and organization’s principals on issues interrelated with legal issues • Consultant was sole source of information important to organization • People both “inside” and “outside” organization treated consultant as if consultant represented organization

29. Disagreements over doctrine • Courts disagree over evidence necessary to meet functional-employee-equivalence doctrine • Courts also disagree whether “functional-employee-equivalence test” is in lieu of – or in addition to – the “necessity test” to determine whether attorney-client privilege protects communications • This disagreement is function of misapplying a specific court case (Sumitomo)

30. Functional-employee-equivalent doctrine in context • Landmen (Endeavor Energy) • PR Firms Mixed results • Yes, when truly fulfilling unstaffed role, especially in context of foreign company operating in U.S. and subject to intense media scrutiny post incident (this is the “necessity test” mentioned previously) (Sumitomo) • Yes, when “shaping public opinion” as part of legal strategy to avoid indictment (Martha Stewart) • But “no” when shaping a social-media campaign to induce settlement in civil lawsuit (Behunin) • No, especially when the “necessity element” appears to be missing and communications including PR firm are not related to rendering of legal advice (Bousamra)

31. Landman: Endeavor Energy Res. v. Gatto & Reitz • Plaintiff filed a claim against defendant alleging improper distribution of funds held in escrow. • In discovery, defendant sought deposition responses from, and documents provided to, a “contract landman” hired by plaintiff as an independent contractor. • Court held extending the privilege to a consultant performing a role similar to that of an employee reflected the reality that corporations conduct business with independent contractors retained for specific purposes. • Court held that the contract landman “easily qualifies” as the functional equivalent of an employee, noting landman was routinely performing same work as employees.

32. PR Firm: In re Copper Mkt. Antitrust Litig. (Sumitomo) • Foreign corporation was embroiled in high-profile scandal involving both regulatory and civil litigation aspects. • Corporation had no experience with publicity issues in high-profile cases. Further, only 2 of 3 executives in corporation’s communications department spoke English, and their language skills were not sufficient for media relations. • Corporation hired PR firm to assist with media relations in connection with the scandal and litigation. • PR firm conferred frequently with the corporation’s U.S. litigation counsel and general counsel in preparing press releases and other materials which incorporated the lawyers’ advice.

33. Sumitomo (cont’d) • Court held that the PR firm was the functional equivalent of the corporation’s employee. • The Court rejected the argument that third party consultants came within the scope of the privilege only when acting as conduits or facilitators of attorney-client communications: • [I]n this case, RLM is the functional equivalent of a Sumitomo employee. Accordingly, the analysis set forth in Kovel and its progeny concerning whether the privilege applies to communications made to third parties for the purpose of facilitating attorney-client communications is inapposite.

34. PR Firm: BouSamra v. Excela Health • Plaintiff and another physician held staff privileges at defendant’s facility. During the course of a peer review, Defendant discovered that the physicians provided unnecessary treatments. • Defendant hired outside counsel to advise it regarding disclosing physicians’ names. Outside counsel wrote an opinion letter. • Defendant retained a public relations firm to advise it on potential public statements about the physicians and forwarded the legal analysis to the PR firm. • After defendant publicly disclosed the physicians’ names, plaintiff sued. In discovery, plaintiff sought outside counsel’s opinion and related emails.

35. BouSamracont’d • Court held PR firm input was not required in order for outside counsel to provide legal advice: • PR firm not involved in the legal issue in question. • PR firm provided no input into that decision. • Outside counsel never communicated with PR firm. • Court also held PR firm was not functional equivalent of an employee: • Defendant had a staffed PR department. • PR firm was hired for crisis management on discrete assignments. • PR firm controlled staffing and methodology of its projects. • Court also held work-product privilege did not protect the legal opinion sent to the PR firm because the opinion was not sent to help outside counsel in preparing for litigation.

36. PR Firm: Behunin v. Superior Court • Lawsuit by plaintiff against the defendant family involving an unsuccessful business deal. • To induce settlement, Behunin’s attorney hired a PR firm to create a social media campaign to induce the Schwab family to settle. • The Schwabs sued for defamation and invasion of privacy and requested information exchanged between Behunin, Behunin’s attorney and the PR firm. • Court held Behunin had not proven the communications were reasonably necessary for counsel’s representation and determined the information was not privileged.

37. hypothetical Consider whether communications between your company and oft-used consultants are privileged. • Does your answer change if facility “cc’s lawyer” in its communications with consultant? • How about if lawyer is present on phone in “listen-only mode”? • What about full discussion among facility, consultant, and lawyer, and the lawyer asks specific legal questions? • Does your answer change if legal department – and not facility – engages third-party consultant?

38. C. Common Interest Doctrine • AKA – • “Community of interest” rule; “Co-client” privilege; “Joint prosecution” privilege; “Joint defense” privilege. • “The joint defense privilege was adopted as an exception to [the] waiver rule, under which communications between a client and his own lawyer remain protected by the attorney-client privilege when disclosed to co-defendants or their counsel for purposes of a common defense.” United States v. Stepney. • Courts now recognize the doctrine as also applying to parties in civil litigation. • Generally speaking, the common interest doctrine applies when the parties – 1) share a common interest; 2) the communication is confidential; 3) the communication is in furtherance of the common legal interest; and 4) the communication is related to pending or reasonably anticipated litigation.

39. Common Interest Doctrine (cont’d) • Courts have applied the Common-Interest Doctrine inconsistently. • Hard line test requires that the parties’ “common interest” is nearly “identical.” More flexible test requires that the parties’ “common interest” must be closely aligned. • Jurisdictions also differ as to whether litigation is necessary to invoke the common interest doctrine or whether the doctrine also applies in the transaction context.

40. Dresser-Rand Co. v. Schutte & Koerting Acquisition Co. (S.D. Tex. 2017) • Company sued competitor and two former employees alleging misappropriation of trade secrets. • After filing lawsuit, plaintiff approached U.S. Attorney’s Office in an attempt to have that office initiate a criminal prosecution of former employees. • Plaintiffs voluntarily turned over a forensic expert’s report to the federal prosecutors. • Plaintiff then sought to withhold from discovery expert’s report and correspondence with the prosecutors on the ground of the joint prosecution privilege.

41. Dresser-Rand(cont’d) • Court recognized that work-product privilege protects the work-product of consulting experts. • Court also noted that the joint prosecution privilege has been found to exist in the context of False Claims Act litigation where it has been inferred that a common interest exists between a FCA relator and the Government in prosecuting such claims. • However, relying in-part on the sword-shield doctrine whereby the privilege is waived when a party selectively presents certain materials to an adversary to prove a point, the court ruled that no common interest existed between the civil litigants and a potential criminal prosecution. • Because plaintiffs made a “calculated disclosure to further the government’s inclination to prosecute” they waived any privilege attached to the information voluntarily divulged to the government.

42. Schaeffler v. United States • Company sought to restructure and refinance eleven-billion Euro loan agreement with a consortium of banks. In doing so, Company retained Ernst & Young to advise on federal tax implications and possible future litigation with IRS. • IRS audited the company and sought E&Y work-product. • District court ruled that company waived attorney-client privilege by sharing E&Y analysis with the consortium of banks because the banks’ interest was commercial rather than legal. • Second Circuit reversed.

43. Schaeffler(cont’d) • Second Circuit held that the banks’ common interest with the company was of a sufficient legal character to prevent waiver by sharing communications. • “[I]t is … unnecessary that there be actual litigation in progress for the common interest rule of the attorney-client privilege to apply.” 806 F.3d at 40. • “The communications regarding tax opinions were … ‘made in the course of an ongoing common enterprise’ and ‘intended to further the enterprise.’” Id. at 42. • Parties may share a “common interest” even if they are not parties in ongoing litigation.

44. Schaeffler(cont’d) • Second Circuit also ruled that work-product doctrine applied to E&Y tax advice memorandum because it “was specifically aimed at addressing the urgent circumstances arising from the need for a refinancing and restructuring and was necessarily geared to an anticipated audit and subsequent litigation, which was on this record highly likely.” Id. at 44.

45. The Regents of the University of California, et al. v. Affymetrix, Inc., (S.D. Cal. June 19, 2018) • Patent infringement case. University obtained documents from third party, a company defendant used to design and manufacture product. • At issue was an email that third party produced in response to subpoena and then sought to claw back due to privilege. • Scientist at defendant sent an email to the company’s general counsel and copied an third party employee. • At the time the email was sent, defendant and third party were negotiating, but had yet to execute, a license and supply agreement.

46. Affymetrix (cont’d) • The court noted the rule that sharing privileged material with third parties destroys the confidentiality of the communication and the privilege protection that is dependent upon that confidentiality. • The protection of the privilege under the community of interest rationale is not limited to joint litigation preparation efforts. • It is applicable whenever parties with common interest join forces for the purpose of obtaining more effective legal assistance.

47. Affymetrix (cont’d) • Neither party disputed that the email in question sought legal advice. It was the inclusion of an employee at third party and his relationship to defendant that fell into “a somewhat nebulous area.” • The common interest rule is an exception to ordinary waiver rules designed to allow attorneys for different clients pursuing a common legal strategy to communicate with each other. • Ultimately, the court determined that because both parties were not represented by counsel, the common interest doctrine did not apply.

48. For more information Chad Ennis Senior Counsel Chad.Ennis@bracewell.com 512.494.3622 Kevin is a former federal prosecutor from the Eastern District of Texas. He assists companies during internal investigations, crisis response, and lawsuits in the state and federal courts. Chad is a former federal prosecutor from the Middle District of Louisiana. He handles cases before the federal district courts, the Trademark Trial and Appeal Board, and the Federal Circuit. Kevin Collins Partner Kevin.Collins@bracewell.com 512.494.3640