VP's Defense Needs Can't Override Corporate Privilege

Oct. 2 — A corporate executive will have to give up using an advice of counsel defense in a civil action after his company, which is a co-defendant, refused to waive the corporate attorney-client privilege, the U.S. District Court for the Southern District of New York held Sept. 22 (United States v. Wells Fargo Bank, N.A., 2015 BL 306393, S.D.N.Y., No. 12-CV-7527 (JMF), 9/22/15).

Supreme Court precedent precludes the use of a balancing test to override the company's privilege in civil litigation even when this result may seem harsh, Judge Jesse M. Furman said.

Thumbs Down to Balancing Test

The court characterized the issue as one of first impression in the Second Circuit: “whether, or under what circumstances, an employee may pursue an advice-of-counsel defense where doing so requires disclosure of privileged communications and his employer owns the privilege and refuses to waive it.”

“Although [this] result may seem harsh, it is the necessary consequence of commitment to the important policies and values underlying the attorney-client privilege.”Judge Jesse M. Furman

An employee's right to present an advice of counsel defense does not override the employer's corporate attorney-clientprivilege, the court decided. It grounded this holding on two rulings: Swidler & Berlin v. United States, 524 U.S. 399 (1998), which held that the attorney-client privilege survives a client's death even if the information sought is extremely important or if withholding it would result in extreme injustice, and Ross v. City of Memphis, 423 F.3d 596, 21 Law. Man. Prof. Conduct 466 (6th Cir. 2005), which held that a city's attorney-client privilege is not implicitly waived by a city official's assertion of an advice of counsel defense.

Whatever the balance of equities in a particular situation, “Swidler & Berlin and Ross make clear that such balancing has no role whatsoever to play in the analysis,” Furman wrote.

Furman said a contrary holding would make the corporate attorney-client privilege intolerably uncertain, turn it into a qualified privilege and create a perverse incentive for plaintiffs to sue individual employees in hopes of forcing a waiver of their employer's attorney-client privilege.

The court distinguished and criticized United States v. Grace, 439 F. Supp. 2d 1125 (D. Mont. 2006). That case involved a criminal defendant's rights under the Sixth Amendment, and its analysis did not account for Swidler & Berlin's rejection of a balancing test, Furman said.

In a footnote, the court also distinguished four other federal district court decisions which it said were the only other cases it had found on the issue presented here. Two of those were criminal cases and relied on Grace, and the other two were decided before Swidler & Berlin and contained little analysis of the issue here, Furman said.

Bank Officer Can't Use Defense

The court's ruling came in a civil fraud case by the United States against Well Fargo Bank and vice president Kurt Lofrano. The complaint alleges that in his former capacity as head of quality control at Wells Fargo, Lofrano played a critical role in helping the bank hide defective home loans from the government.

Wells Fargo sought a protective order to prevent Lofrano from disclosing any privileged communications to prove that he relied on advice from Wells Fargo attorneys when he engaged in the alleged misconduct. The parties agreed that, if successfully pursued, the advice of counsel defense would defeat the government's claims against Lofrano.

The court held that Lofrano's advice of counsel defense did not overcome Wells Fargo's right to control its attorney-client privilege.

“Although that result may seem harsh, it is the necessary consequence of commitment to the important policies and values underlying the attorney-client privilege,” Furman said. But the result may be less harsh than first appears, he said, because the communications at issue might never have been made at all without a robust commitment to the privilege.


“Moreover, in many cases, companies in Wells Fargo's position may choose to either waive the privilege or, if they choose not to do so for broader institutional reasons, indemnify their employees and pay the price themselves,” Furman said.

The U.S. Attorney's Office for the Southern District of New York represented the government. K&L Gates LLP; Fried, Frank, Harris, Shriver & Jacobson LLP; and King & Spalding LLP represented Wells Fargo. Cleary Gottlieb Steen & Hamilton LLP represented Lofrano.

Full text at http://www.bloomberglaw.com/public/document/United_States_v_Wells_Fargo_Bank_NA_No_12CV7527_JMF_2015_BL_30639.