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Litigation Alert >> New York Federal Court Reminds Litigants of the Limits of the Attorney-Client Privilege

January 6, 2015

Few principles are held as sacred in the American legal system as the attorney-client privilege. As one court has put it, the policy underlying the attorney-client privilege is “to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.”

The privilege protects from disclosure to an adverse party in litigation or other proceedings communications between lawyers and their clients that were both:

1) intended to be confidential and
2) made for the purpose of obtaining or providing legal advice.

Not all discussions between a client and its attorney (including both in-house and outside counsel), therefore, are shielded from disclosure by the attorney-client privilege. Merely including counsel on business-oriented communications, for example, will not necessarily prevent an adversary or a competitor from later seeing these communications. It is the nature of the communication that will determine if the privilege attaches: Is it a confidential communication that seeks or provides legal counsel?

It is critical to remember that the burden of establishing privilege rests with the party asserting it, and documents or information shared with counsel are not presumptively privileged. A recent decision from the United States District Court for the Southern District of New York demonstrates why companies must be mindful of the limited scope of the attorney-client privilege.

Background
The decision comes from a lawsuit between MasterCard International and International Cards Company, Ltd. (ICC), a former member of MasterCard’s network. ICC, a Jordanian financial institution, joined the MasterCard network in April 2000, receiving the rights to issue MasterCard credit cards, acquire merchants on MasterCard’s behalf, and use MasterCard’s trademarks. ICC alleges that MasterCard was relatively unknown in Jordan at that time, but due to ICC’s efforts, thirteen years later MasterCard had become successful and widely recognized there. Nonetheless, in April 2013 MasterCard terminated its agreement with ICC – for pretextual reasons, according to ICC – leading ICC to sue MasterCard.

The parties began engaging in discovery in the lawsuit, but they found themselves in a dispute over MasterCard’s assertion of the attorney-client privilege over certain documents. ICC argued that MasterCard was attempting to use the privilege as a basis to withhold from ICC documents that encompassed mere business advice and business strategy information, which ICC argued it should be entitled to discover. At the court’s instruction, each side identified ten exemplar documents for the court’s private review, and MasterCard submitted unredacted copies of all of the documents for Magistrate Judge Sarah Netburn’s eyes only.

Decision
Judge Netburn ruled on the parties’ discovery dispute, and ordered MasterCard to disclose most of the allegedly “privileged” information reflected in the exemplar documents.

As Judge Netburn held, New York courts have confined the attorney-client privilege to “the narrowest possible limits,” because the privilege works against litigants’ otherwise broadly construed right to see the other side’s relevant documents. Noting that corporate communications raise particular complications when they include members of in-house counsel, who are sometimes merely copied on messages, the court emphasized that the attorney-client privilege protects only the solicitation and provision of legal advice, not business advice or discussions. The court also stressed that disclosure of otherwise privileged communications to third parties – and in some instances, even to lower-level company employees if they are not in a position to act on the legal advice rendered – may result in a waiver of the privilege.

Many of the documents Judge Netburn reviewed were mixed-purpose documents, which included both business and legal information. Taking the documents one by one, the judge found that much of the email-related information withheld by MasterCard was not privileged – despite the presence of various members of in-house counsel on these communications – because the purpose of the emails was not to render or solicit legal advice but to discuss business matters. While the judge did allow MasterCard to redact certain limited portions of these communications, she found that in many cases the connection to legal advice was too tenuous to support an assertion of privilege. The judge took a similar approach to MasterCard’s internal records and reports, such as conference call minutes and notes reflecting the participation of in-house counsel. To those documents, she allowed very limited redactions to the portions clearly referencing legal advice from counsel, but she otherwise ordered the production of the documents.

Conclusion
Based on her findings as to the exemplar documents, Judge Netburn ordered MasterCard to review all previously withheld or redacted documents, using her decision as a guide, and to produce any documents that did not contain communications seeking or reflecting “direct legal advice” from in-house lawyers. This ruling emphasizes the need for companies to be careful before assuming that everything they say in counsel’s presence will be shielded from eventual disclosure.

 

Bottom Line

Companies and executives often assume that anything they say while counsel is present will be a privileged communication protected from disclosure to any third party. The MasterCard decision underscores that this is an erroneous assumption. Communications that do not concern the solicitation or provision of legal advice may not be protected from disclosure. As Magistrate Judge Netburn stated in her ruling: “A corporation cannot be permitted to insulate its files from discovery simply by sending a ‘cc’ to in-house counsel.”

Author(s)

NEAL H. KLAUSNER
Partner/Co-Chair
212.468.4992
nklausner@dglaw.com
Litigation

DAVID S. GREENBERG
Senior Attorney
212.468.4895
dgreenberg@dglaw.com
Litigation