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Say you’re an executive for a large corporation, and an issue pops up. You do what you normally do — ask your in-house attorney for an opinion. The opinion comes to you in the form of a memo, stamped “attorney-client privileged.” You follow the advice and file the memo. Things normally proceed that way at most companies, but in a lawsuit in Alabama, a judge ruled that the in-house memo was discoverable. Was it? That’s the issue at stake in a case now before the Alabama Supreme Court. There’s money involved, too — $3.5 billion, the judgment levied against defendant Exxon Mobil Corporation. While the verdict is enormous, the privilege issue is equally dramatic. The American Corporate Counsel Association, ever vigilant for privilege issues affecting its constituents, filed an impassioned amicus brief. “By relegating the in-house lawyer to a limbo status on the all-important issue of privilege, that ruling offends basic notions of justice and deprives corporate America of its counsel of choice — the in-house lawyer,” says the brief. The high-profile suit involves oil and gas royalties that Exxon pays to the state of Alabama. A state jury concluded last December that Exxon fraudulently underpaid Alabama, and awarded the state $87.7 million in compensatory damages and $3.42 billion in punitive damages. The punitive award was by far the largest ever in the state and one of the biggest nationally. The memo issue is at the crux of the case. The note was written by Exxon in-house attorney Charles Broome in 1993 and addressed to one of the Irving, Texas-based company’s project managers. According to Exxon’s brief to the high court, Broome assessed “the strengths and weaknesses of various interpretations of the royalty clause” in a lease allowing the energy company to extract oil and gas from state-owned offshore areas. The lawyer proposed that Exxon adopt an interpretation favorable to the company, though he said he was skeptical about whether that spin would hold up in court. Alabama used the memo to show Exxon’s intent to cheat the state out of royalties. Alabama’s outside counsel, Robert Cunningham, Jr., of the Mobile firm Cunningham, Bounds, Yance, Crowder & Brown, says that his client has no quarrel with the proposition that companies can keep internal memos from in-house attorneys confidential. But in this case, he argues, Exxon itself breached the memo’s confidentiality by distributing it to employees who had no need to receive it. American University College of Law professor Paul Rice, who has written on attorney-client privilege, says that the state’s arguments are grounded in good law. Exxon, which is claiming the privilege, must prove confidentiality, something that “is usually done through supporting affidavits by people with personal knowledge,” he says. The privilege may be waived “by inappropriate distribution within the corporate structure,” even if the document never left a company’s walls. Union Bank of California GC John McGuckin, who contributed to the ACCA brief, admitted that ACCA did not investigate whether the Exxon memorandum was distributed strictly on a need-to-know basis.

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