- Attorney-Client Privilege: A Critical Topic for In-House Counsel of Multinational Companies
- October 28, 2008 | Author: Nathaniel J. Zylstra
- Law Firm: Faegre & Benson LLP - Minneapolis Office
Whether documents are privileged, and therefore shielded from disclosure to investigators or opposing parties in litigation, can be a complex question, with the answer having a significant impact on the outcome of a case. Especially for multinational companies, the rules governing attorney-client privilege are therefore critical. It is particularly important for in-house counsel to be aware of the rules, because the privilege rules for their communications vary significantly by jurisdiction. In some, in-house counsel are never able to assert the privilege for their communications, while in others in-house counsel are able to take advantage of full privilege protection. And in still other jurisdictions, the rules are differentiated and remain unsettled.
The European Union's Court of First Instance (CFI) recently issued an important decision on the scope of the attorney-client privilege in European Commission investigations, called the Akzo Nobel case (Akzo Nobel Chemicals Ltd. and Akcros Chemicals Ltd. v. Commission of the European Communities), which again addresses these issues. The legal dispute revolved around an antitrust investigation and related raid by the European Commission at the UK offices of Akcros and its subsidiary, Akzo. The commission, which was investigating possibly anticompetitive behavior, seized a number of disputed documents, including a manager's memo to his superiors that was researched and written for the purpose of seeking outside legal advice; the manager's handwritten notes; and emails between the manager and an in-house lawyer at Akzo who was based in The Netherlands. Long-established EU law holds that communications with an in-house counsel are not entitled to legal privilege.
But to confuse matters, the Akzo Nobel case deals only with privilege under European Union law, and not with the privilege regimes of the EU's 27 member states. Under those individual state regimes, in-house counsel in some cases may be, and in others may not be, able to rely on a privilege. Nevertheless, with this decision, the CFI continues to deny legal privilege under EU law to in-house lawyers. As a result, in-house counsel of multinational companies—regardless where the company is headquartered or where the attorney is located—should remember that communications with employees and executives in Europe may not be privileged under any circumstances.
In assessing whether a particular communication would be privileged, and if applicable, determining how to protect it, in-house counsel of multinational operations have to anticipate whether the communication could be involved in a U.S., EU, or EU-member state investigation and/or court proceeding. Counsel must familiarize themselves with applicable regimes, ask which law applies, and finally try to protect communications as effectively as possible.
U.S. Privilege Law for In-House Counsel
Under U.S. privilege law, in-house counsel are treated like any independent attorney for purposes of considering whether their communications are privileged. In other words, the standard test of privilege applies: The issue is whether communications with counsel are made in confidence for the purpose of receiving legal advice.
U.S. in-house counsel must be careful about protecting the privilege, and using it in appropriate situations. For example, in addition to giving legal advice, in-house attorneys may consult on business issues, but communications on business advice are not privileged. Companies also must be judicious in their assertion of privilege, because merely routing communications through an attorney does not make them privileged if they are not truly for the purpose of seeking the attorney's legal advice. U.S. courts carefully police this practice, and look askance on any attempt to expand the privilege beyond its proper boundaries. But if in-house counsel assert the privilege appropriately, they will be able to protect their legal communications under U.S. law.
EU Privilege Law for In-House Counsel
As described above, the European Union and EU member states have a variety of privilege regimes, all of which must be kept in mind when considering which communications may be privileged in Europe.
Under EU law, it has been established for nearly 30 years that communications between "clients" in a business and their in-house lawyers in the context of an investigation by the European Commission are not covered by legal privilege. This policy has been justified on the basis that the "bond of employment" does not make in-house lawyers sufficiently independent from the client to warrant being accorded the same privilege protection as external lawyers.
In Akzo Nobel, the CFI reconfirmed its position from the 1982 case of AM & S v. Commission of the European Communities that communications with in-house counsel do not enjoy legal privilege (except memos from in-house counsel to an external attorney for the purpose of defending the company). The CFI again refused to extend the attorney-client privilege to in-house lawyers. The judgment confirms the European Commission's view that documents created by in-house counsel, whether or not they are members of a bar, are not subject to legal privilege and can be viewed and read by Commission officials in an investigation under EU law. Therefore, the rule of prevailing EU-case law is that requests for advice to, and advice from, in-house counsel are not privileged in European Commission investigations and EU court proceedings.
On the other hand, as a general rule, the CFI treats documents as privileged if they originate from an independent lawyer and are drafted for the purpose of exercising the client's right of defense. To this end, internal communications reporting the privileged advice of external counsel are also privileged. But commentary on such advice by in-house counsel or other employees of the company probably is not privileged. Finally, preparatory documents that are not meant to be sent to external counsel may also enjoy legal privilege if they have been created for the purpose of seeking legal advice from an external lawyer in the exercise of a company's right of defense.
In the Akzo Nobel case, the CFI also concluded that the concept of legal privilege under EU law is distinct from the privilege law of the EU member states. Therefore, the legal privilege enjoyed by an in-house counsel under national law cannot be used as a shield in a European Commission investigation, but could possibly be relied upon in an investigation by a national authority under member state laws.
EU Member States' Privilege Regimes
The privilege rules of the EU member states are not uniform. There is not room in this article to describe all 27 member states' privilege laws, which range from comprehensive recognition of privilege for in-house counsel's communication to complete denial. And if the enormity of difference among member states were not confusing enough, some member state jurisdictions have unsettled approaches within their legal systems.
In Germany, for example, the issue of privilege for in-house counsel is not clearly resolved either by statutory law or judicial decisions. In fact, there is no general principle recognizing legal privilege under German law. However, attorney-client communications are protected by several seizure prohibitions that are connected to an individual's right to refuse testimony and are the source of an external attorney's obligation of secrecy. Thus, it is generally understood that German procedural laws give privilege to communications between company employees or managers and external attorneys.
But the terms under which an in-house attorney is allowed to claim privilege are still strenuously debated by German legal commentators, and a judge would have a great deal of discretion to decide the issue. While it is not possible here to trace every commentator's legal opinion, it is generally assumed that in-house attorneys may assert the privilege under certain circumstances: They are members of the bar, allowed to work independently, exempted from instructions of their company, and giving legal (not business) advice. In addition, in case of an investigation, some courts demand that the documents are in the sole possession of the in-house lawyer (e.g., in a locked cabinet, with no one else having access) to remain protected by the privilege.
Which Law Applies?
Of course, U.S. rules typically apply to U.S. proceedings, EU privilege rules apply to European Commission investigations and EU court proceedings, and so forth. Even so, the fact that in-house counsel communications do not receive broad attorney-client privilege under EU law is not just of concern to lawyers based in Europe. The same rules may apply to U.S. lawyers.
First, if a U.S. company is involved in a European Commission investigation, the EU privilege rules may apply to the communications of U.S.-based counsel with European businesspeople. Second, in some situations, U.S. courts may consider applying European privilege law. Generally, U.S. courts will apply a "center of gravity" or "grouping of contacts" test to determine which law applies, with the goal of determining which country has the predominant interest in the matter. The country with the predominant interest is the place where the allegedly privileged relationship was entered into or the place in which that relationship was centered at the time the communication was made. If the court determines that a foreign country has the predominant interest in the matter, it may apply the foreign privilege law.
U.S. courts fairly regularly apply foreign law concerning privilege. Often, they do so to expand the privilege—for instance, to protect communications by non-attorney patent agents that may not be protected under U.S. law. But no legal principle restricts courts from applying a more narrow view. As one federal district court observed in a case in which it considered which law to apply (Louis Vuitton Malletier v. Dooney & Bourke, Inc.), the result "would be straightforward" in holding information to be non-privileged if the court had decided that French law applied. That court ultimately applied U.S. privilege law, but its decision illustrates that U.S. courts have not adopted a rule against applying foreign privilege law.
Protecting the Privilege In Europe
So what should in-house counsel do to best protect the attorney-client privilege? First, be aware of the different rules that may apply. Communications that would be privileged under U.S. rules may not be privileged under European rules. If your company may be involved in litigation in European courts, or has significant EU business, the narrower European rules may apply. Second, if European rules may apply, remember that there is no harmonization among EU member states, and pay attention to the local rules that likely will apply. Third, take appropriate steps to preserve confidentiality. For example, if privilege is important, use outside counsel to protect the privilege, and consider whether it is necessary or appropriate to provide in-house advice. The outside counsel should be substantively involved to ensure that courts protect the privilege. Generally, be aware that your communications are not automatically privileged, and take care that your communications can safely be disclosed.
If your company is involved in a situation where narrower privilege rules apply, here are some suggestions to maintain as much protection as possible:
- Have a separate filing system for privileged documents (both hard copy and electronic filing) that is clearly marked and appropriately protected.
- When seeking external legal advice in writing, make it clear that your document is composed exclusively for that purpose.
- Clearly mark any documents as privileged (e.g., "Strictly Private & Confidential—External Lawyer/Client Correspondence—Legally Privileged").
- Update compliance programs, raid manuals, and document handling procedures to reflect the narrowest procedural rules contained in Akzo Nobel.