United States: Preserving Privilege In A Crisis

Global Crisis Management Series: This post is part 2 in a series concerning topics further elaborated on in Cleary Gottlieb's Global Crisis Management Handbook—a desk reference for spotting issues and avoiding common mistakes when faced with a crisis. The current version is available here.

Choices made at the outset of a crisis can play a critical role in a company's ability to maintain future privilege claims. Recent cases highlight the risks of:

  1. Sharing privileged communications with third-party consultants;
  2. Conducting witness interviews through non-lawyers; and
  3. Discussing the crisis with a former employee.

I. Third-Party Consultants

Two recent cases held that companies waived their attorney-client privileges by sharing information with third-party consultants.

In Universal Standard Inc. v. Target Corporation—a trademark and unfair competition case—communications among the clothing company, Universal Standard, its counsel, and its PR firm, BrandLink, were found to be not privileged despite the communications bearing directly on the issues in the litigation.[1] The court focused on two key facts: (1) Universal Standard, not its counsel, hired BrandLink and (2) BrandLink was hired for business reasons, months before the litigation commenced.[2] As BrandLink was not retained by counsel "to implement a specific legal strategy" or "engag[e] in a legal task" where public relations expertise was crucial, the court held that communications involving BrandLink were not privileged.[3]

In the second case, In re Restasis (Cyclosporine Ophthalmic Emulsion) Antitrust Litigation, the court likewise rejected a privilege claim over communications between a pharmaceutical company (Allergan) and its two FDA regulatory experts, one of whom was a lawyer.[4] As in Universal Standard, the court focused on the fact that the company, not counsel, had retained the experts.[5] The court held that neither consultant "was needed to explain concepts unfamiliar to Allergan's counsel" and that far from translating concepts to Allergan's lawyers, the consultants "spoke the same language as these lawyers."[6]

In other circumstances, courts have upheld privilege claims involving third-party consultants. In those cases, the courts were persuaded that the consultants were necessary for counsel "to perform some of their most fundamental client functions."[7] For example, a public relations firm can help counsel shape public opinion, which in turn may affect the government's attitude toward the client. And a regulatory consultant can help counsel understand a specialized discipline in a way that is important for the rendering of legal advice. Regardless of the circumstances, it is generally advisable for the consultant to be retained by counsel, not the client.

II. Internal Investigations

Two recent cases highlight the risk to privilege protections when internal witness interviews are conducted by non-lawyers.

In CSX Transportation v. Columbus Downtown Development Corp., which concerned the alleged faulty construction of a bridge, the court held that audio recordings of interviews conducted by the defendant's safety director were covered by the work-product doctrine because the investigation had been initiated by the CEO in anticipation of litigation.[8] The holding was of little help to the company, however, because the court also held that plaintiffs showed substantial need for and undue hardship in obtaining that information—since the interviews had been done closer in time to the events, when memories were fresh.[9] Had the interviews been conducted by counsel, plaintiffs would not have been able to access them, regardless of their arguments concerning need or hardship.

In a recent case involving an internal FCPA investigation conducted by outside counsel, Cicel (Beijing) Science & Technology Co., Ltd. v. Misonix, Inc., the court held that underlying notes from the interviews were protected by the attorney-client privilege because the primary purpose of the interviews was to enable outside counsel to provide legal advice, even though another firm was eventually engaged to handle the follow-on litigation.[10] Also at issue were communications solely involving non-attorneys, which purportedly were undertaken to assist counsel in the internal investigation. There the court showed less deference in ordering in camera review of the documents because Misonix failed to adequately demonstrate that the communications were made "pursuant to [counsel's] directive," although the outcome of that review is not yet publically available.[11]

Both CSX and Cicel emphasize the importance of counsel's role in conducting witness interviews. In CSX, the failure to involve counsel in conducting the internal investigation meant that only the lesser work product protection applied—a protection that plaintiffs succeeded in overcoming. In Cicel, outside counsel adequately recorded the purpose of their internal investigation, but still the court more closely scrutinized those communications when solely non-lawyers communicated purportedly at counsel's direction because that was not sufficiently memorialized.

III. Former Employees

Communicating with a client's former employees poses risks for the attorney-client privilege. Often former employees are critical witnesses in crises but the company does not have or does not want to have a common interest protection with that former employee. In those cases, companies should weigh the benefits of talking with the employee against the risks inherent in waiver.

A recent example arises out of In re Twitter Inc. Securities Litigation, where plaintiffs successfully defeated defendant Twitter's privilege claims over communications between Twitter's counsel and its former COO in preparing the former COO for a deposition.[12] The court rejected the purported common interests in "preparing adequately" for the deposition and ensuring the COO testified "fully and accurately."[13] The court held that that the common interest must be in the litigation itself and that the COO's testimony that he "did not 'care one way or the other who prevails in this litigation'" meant that he held no such common interest.[14]

As the Twitter case demonstrates, intuitively appropriate actions such as helping to prepare a former employee for a deposition run the risk of waiver. As such, communications with former employees, who are less likely to "maintain[] substantially the same cause" as their former employer, should be undertaken only after the risks and benefits have been carefully considered.[15]

Taken together, these decisions highlight the care that must be taken in the early and often frantic days of a crisis. By thinking through these issues, counsel can avoid unnecessary waivers and maximize the company's ability to maintain its attorney-client privilege.

Footnotes

[1] No. 18 Civ. 6042 (GWG), 2019 WL 1983944 (S.D.N.Y. May 6, 2019).

[2] Id. at *9.

[3] Id.

[4] 352 F. Supp. 3d 207 (E.D.N.Y. 2019).

[5] Id. at 212.

[6] Id. at 211-12.

[7] In re Grand Jury Subpoenas, 265 F. Supp. 2d 321, 330 (S.D.N.Y. 2003) (finding communications with a PR firm to be privileged); see also In re Riddell Concussion Reduction Litig., 13 Civ. 7585 (JBS), 2016 WL 7108455 (D.N.J. Dec. 5, 2016) (finding certain communications privileged where the PR firm "provided information needed by Riddell's attorneys to render legal advice"). In certain circumstances, courts may also find communications with third parties privileged where the third party is the "functional equivalent" of an employee of the company. See, e.g., In re Copper Market Antitrust Litig., 200 F.R.D. 213 (S.D.N.Y. 2001).

[8] No. 16 Civ. 557 (KAJ), 2019 WL 1760069, at *4-6 (S.D. Ohio Apr. 22, 2019).

[9] Id. at *5-6.

[10] No. 17 Civ. 1642 (ADS), 2019 WL 1574806 (E.D.N.Y. Apr. 11, 2019).

[11] Id. at *12.

[12] No. 16 Civ. 05314 (JST), 2019 WL 2127820, at *2 (N.D. Cal. May 10, 2019).

[13] Id.

[14] Id.

[15] Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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