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Two recent federal appellate decisions have limited the attorney-client privilege traditionally available to officers, directors, and corporations sharing information in their joint defense. In the first case, the federal court of appeals in Boston rejected the claim of a joint defense privilege by two officers of a company after the corporation itself had waived the privilege. In the second case, the federal court of appeals in New Orleans held that the joint defense privilege does not protect privileged documents shared among co-defendant corporations before litigation was filed. Together, these cases illustrate that the various privileges of a corporation must be zealously guarded before either the company or its officers incorrectly assume that a claim of privilege will be sustained. OFFICERS AND CORPORATIONS The case out of the 1st U.S. Circuit Court of Appeals, In Re Grand Jury Subpoena( Custodian of Records, Newparent, Inc.), No. 01-1975 (Nov. 8, 2001) (” Newparent“), involved a grand jury investigation of the participation of “Oldco” in an extensive kickback scheme. Oldco had entered a plea agreement under which Oldco pled guilty to a conspiracy to defraud the Internal Revenue Service for its activities before it was acquired by Newparent. As part of the settlement, Oldco also explicitly waived its attorney-client and work-product privileges. Subsequently, a federal grand jury subpoenaed all documents related to the kickback scheme, including privileged documents. Prior to Newparent’s acquisition of Oldco, “Richard Roe” had served as its chairman and chief executive officer; “Morris Moe” had served as its executive vice president and a director; and “A. Nameless Lawyer” was its outside counsel. Roe, Moe and Lawyer intervened in the grand jury proceeding, seeking to quash the subpoena on the grounds that Lawyer had concurrently represented Roe, Moe and Oldco pursuant to an oral joint defense agreement and the subpoenaed materials were therefore subject to privilege. THE ATTORNEY-CLIENT AND JOINT DEFENSE PRIVILEGE The attorney-client privilege generally protects confidential communications between a client and his attorney. In the corporate setting, the company’s attorney represents the corporation and not its individual officers. Therefore, the privilege belongs to, and can be waived by the corporation. The corporate counsel can also jointly represent an officer or employee individually. However, this dual representation is disfavored due to potential conflicts of interest. Accordingly, the individual must prove that he enjoyed an attorney-client relationship with the corporate attorney. In Newparent, the government argued that all communications between Lawyer and Roe and Moe related exclusively to Lawyer’s representation of the Oldco and, therefore, Oldco could unilaterally waive the privilege. The court of appeals adopted a more flexible view, reasoning that the individuals could assert the privilege, but only if the communication between corporate officer and the counsel “specifically” focuses on the officer’s personal rights and responsibilities. Thus, Lawyer could have represented Roe and Moe individually, but that relationship would give them control over the privilege only as to those communications divorced from the rights and responsibilities of the corporation itself. Applying this standard, the court concluded that Oldco had complete control over the privileges over communications between Oldco, Roe and Moe with Lawyer. Finally, the 1st Circuit explicitly rejected the assertion by Roe and Moe of a work product privilege over the documents. Generally, the work product rule protects against discovering the work of an attorney during or in anticipation of litigation. Here, however, the court held that any joint defense agreement would not prevent the disclosure of work product with the approval of the party — here, Oldco — on whose behalf the work was originally performed. Further, the court noted that a private party like Oldco could not unilaterally extend its privilege to Roe and Moe beyond the privilege normally recognized by law, because “Such an agreement would contravene public policy (and, hence, would be unenforceable).” CORPORATIONS AS CO-DEFENDANTS The 5th U.S. Circuit Court of Appeals addressed equally important issues in In Re: Santa Fe International Corp., No. 01-40421 (Nov. 7, 2001). In Santa Fe, the defendant appealed a district court decision rejecting the company’s claim of attorney-client privilege over certain documents. The appellate court upheld the ruling, finding that the defendant had waived the attorney-client privilege by sharing the disputed document with other companies. Further, the court reasoned that the defendant and the other companies could not validly claim a joint defense privilege because the sharing occurred well before there was an actual prospect of litigation. BACKGROUND Santa Fe and other offshore drilling companies were defendants in an antitrust suit filed by their employees alleging a conspiracy to fix the employees’ wages. Plaintiffs had moved to compel the defendants to produce certain documents that had been prepared, before the lawsuit was filed, by Santa Fe’s general counsel. The plaintiffs contended that the privilege had been waived when, before the lawsuit was filed, Santa Fe’s general counsel shared the documents with the general counsel or human resources personnel of other companies that were subsequently named as defendants. The district court had ruled that sharing of the documents is “the precise genesis of antitrust” and had found that by sharing the documents, Santa Fe had waived the privileges. Furthermore, the district court found there was no joint defense privilege because Santa Fe and the other companies were not acting under an actual or perceived threat of litigation when the documents were shared. THE JOINT DEFENSE PRIVILEGE On appeal, the Court of Appeals recognized that only two types of communications are protected by the joint defense privilege: (1) communications among co-defendants and their counsel in actual litigation, and (2) communications among “potential” co-defendants and their counsel. The court acknowledged that precedent had not clearly defined the term “potential co-defendants,” but reasoned that the term should be construed narrowly because the protection of materials against discovery is generally disfavored. Accordingly, the court concluded that parties were “potential co-defendants” only if there was “a palpable threat of litigation at the time of the communication.” Here, Santa Fe admitted that at the time the materials were exchanged, however, the company did not perceive any threat of antitrust litigation. Therefore, the appellate court endorsed the district court’s determination that the lack of any “temporal” connection between the document exchange and actual or threatened litigation was “striking.” Based on this reasoning, the court concluded that there was no justification, within the reasonable bounds of the attorney-client privilege, for competitors to exchange privileged documents in the absence of an actual, imminent, or directly foreseeable lawsuit. CONCLUSION Together, these decisions offer three important lessons. First, officers and directors must assume that the corporation has independent control of the privileges and that the corporation can elect to waive the privileges at its discretion, even if it is to their personal disadvantage. Second, corporate counsel should not assume that privileged materials can be shared with others outside the company without losing the privilege. The privilege may be waived even when the communications is between corporate counsel. In addition, a joint defense privilege will not attach until the recipient is a co-defendant in litigation or there at least is a palpable threat of such litigation. Third, if two or more clients jointly retain an attorney, they should consider whether they should enter a written joint defense agreement. A written agreement might better protect the rights of each individual party to assert a privilege and it may help minimize a court’s typical suspicion that a joint defense agreement was an afterthought to protect materials otherwise vulnerable to discovery. Even then, however, an attorney’s representation of two or more parties may compromise the privileges, and each party may be jeopardizing the normal protections that would be present when each party retains her own counsel. Mark J. Biros is a partner in the Washington, D.C., office of Proskauer Rose LLP. He can be reached at 202-778-1104 or [email protected]. Thomas H. Brock, senior counsel in the D.C. office, can be reached at 202-778-1106 or [email protected]. Proskauer Rose LLP, www.proskauer.com, is an international law firm with more than 540 attorneys who handle a full spectrum of legal issues worldwide.

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