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Nov. 1 — A corporation’s attorney-client privilege doesn’t shield post-employment communications between the company’s attorneys and former employees, a deeply divided Washington Supreme Court decided Oct. 20 ( Newman v. Highland Sch. Dist. No. 203 , 2016 BL 349702, Wash., No. 90194-5, 10/20/16 ).
The court held 5-4 that the corporate attorney-client privilege doesn’t cover interviews with employees whose employment has already ended when the interviews take place, although privileged discussions between corporate counsel and current employees remain privileged even if they later leave the company.
The case presented an issue of first impression for the court. The issue was left open in Upjohn Co. v. United States, 449 U.S. 383 (1981), the leading case on the scope of the corporate attorney-client privilege.
Two lawyers who discussed the case with Bloomberg BNA said the majority got it wrong.
“It’s definitely a troubling decision,” Amar D. Sarwal said in an interview with Bloomberg BNA. He’s vice president and chief legal strategist of the Association of Corporate Counsel in Washington, D.C.
“The decision is a bad idea for Washington, and bad for other courts to follow,” Sarwal said.
Both Sarwal and McGuireWoods LLP partner Thomas E. Spahn said the majority decision is inconsistent with Upjohn and that the dissent’s analysis is correct.
“The decision takes the distinct minority view,” Spahn said. He’s the author of The Attorney-Client Privilege and the Work Product Doctrine: A Practitioner’s Guide (3d ed. 2013).
ACC’s members are concerned about the decision, Sarwal said. “We certainly don’t want other courts to follow it,” he said.
The majority opinion reflects a misunderstanding of how a corporation—which is a legal fiction—gains and retains knowledge, Sarwal said. A company’s knowledge is in the minds of its employees acting on its behalf, he said.
As the dissent says, the attorney-client privilege should cover corporate counsel’s communications with former employees relating to their time at the company, Sarwal said.
Some of the best sources of information might be people who have left the company, he said.
Spahn said lawyers shouldn’t assume that current and former employees are the same for purposes of the corporation’s attorney-client privilege. Lawyers tend to have a false assurance that current and former employees are treated exactly alike for privilege purposes, he said.
Spahn said that although the attorney-client privilege generally protects company lawyers’ communications with former company employees, most courts follow the nuanced approach of Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999). Under that standard, the privilege can protect communications relating to the former employee’s time at the company, but not the time since then.
Spahn said the Newman case highlights the need for lawyers to consider the work product doctrine as well as the attorney-client privilege. People sometimes fight over the privilege when they should have raised the work product doctrine, he said.
He cited as an example Winthrop Res. Corp. v. CommScope, Inc., No. 5:11-CV-172, 2014 BL 315829 (W.D.N.C Nov. 7, 2014), which applied the Peralta standard and upheld a magistrate judge’s ruling that the attorney-client privilege didn’t prevent the opponent from asking certain questions about discussions between a company’s lawyer and a former executive of the company. The company waived its work product argument by not presenting that argument to the magistrate judge, the court held.
In Newman, lawyers for Highland School District No. 203 interviewed several former coaches while preparing for trial in a brain-injured high school quarterback’s personal injury suit.
The court held that Highland can’t shield from discovery its post-employment communications with the former coaches.
The purpose of the privilege—to foster full and frank communications between counsel and the corporate client—is best served by limiting the scope of the privilege to the duration of the employer-employee relationship, Justice Debra L. Stephens said for the 5-4 majority.
Limiting the privilege to communications that take place during the period of employment preserves a predictable legal framework for the privilege, she said.
A corporation’s perceived need to know what its former employees know doesn’t justify frustrating the truth-seeking mission of the legal process, Stephens said.
Stephens said former employees categorically differ from current employees for privilege purposes because former employees generally are no longer agents of the corporation. Without an ongoing agency relationship, an ex-employee is like any other third-party fact witness, she said.
The Restatement (Third) of the Law Governing Lawyers §73 cmt. e (2000) recognizes that, in general, privileged communications are temporally limited to the duration of a principal-agent relationship, Stephens said.
In a footnote, she acknowledged that some courts have recognized that the attorney-client privilege can extend to former employees in situations where a continuing agency duty exists.
Justices Charles W. Johnson, Mary E. Fairhurst, Steven González and May I. Yu concurred in the majority opinion.
Justice Charles K. Wiggins dissented, disagreeing with the majority’s bright-line rule that cuts off the corporate privilege at the termination of employment and excludes all post-employment communications with former employees even when they have relevant personal knowledge and even though their communications would have been privileged if their employment had continued.
Under the flexible approach articulated in Upjohn for determining the scope of the corporate communications, “postemployment communications consisting of a factual inquiry into the former employee’s conduct and knowledge during his or her employment, made in furtherance of the corporation’s legal services, are privileged,” Wiggins said.
The majority’s position is at odds with Upjohn's functional analysis, which looks to the nature of the communications to see whether the purposes underlying the attorney-client privilege would be furthered by its extension to the communications at issue, Wiggins said.
Wiggins said Upjohn's functional framework supports extending the attorney-client privilege to communications with former employees for purposes of factual investigation.
Former employees, just like current employees, may possess relevant information pertaining to events that occurred during their employment, which corporate counsel needs to advise the client, Wiggins said. That information doesn’t lose relevance simply because their employment has ended, he said.
Other courts have relied on Upjohn to justify extending the privilege to cover at least some communications with former employees, Wiggins said. He cited a 1981 decision and a 1989 decision from the Ninth Circuit, along with a 1997 Fourth Circuit decision and Peralta.
However, courts don’t have to treat former employees exactly like current employees for purposes of the corporate privilege, Wiggins said.
He advocated this test drawn from Peralta: “Did the communications with the former employee, whenever they occurred, ‘relate to the former employee’s conduct and knowledge, or communication with defendant’s counsel, during his or her employment?'"
Chief Justice Barbara A. Madsen and Justices Susan J. Owens and Sheryl Gordon McCloud concurred with Wiggins.
Northcraft Bigby & Biggs P.C. represented Highland School District. Adler Giersch P.S., Nelson Blair Langer Engle PLLC and Smith Goodfriend P.S., represented Matthew Newman and his parents.
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Full text of opinion at http://src.bna.com/jw1.
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