CEO, CFO, COO ... cube dweller? Attorney-client privilege and corporate communication: whose communications should Massachusetts law protect?

AuthorFlynn, Lisa Borelli
PositionChief executive, financial, and operating officers

"[S]o numerous and complex are the laws by which ... citizens are governed, so important is it that they should be permitted to avail themselves of the superior skill and learning of those who are sanctioned by the law as its ministers ... without publishing those facts, which they have a right to keep secret, but which must be disclosed to a legal adviser ... to enable him successfully to perform the duties of his office, that the law has considered it the wisest policy to encourage and sanction this confidence, by requiring that on such facts the mouth of the attorney shall be for ever sealed." (1)

  1. INTRODUCTION

    "The attorney-client privilege is the oldest of the privileges for confidential communications." (2) The privilege is essential to the success of the attorney-client relationship and the ability of an attorney to provide competent representation to clients. (3) There must be, however, a balance between protecting client confidences and fulfilling the truth-seeking function of the discovery process. (4) Over the past several decades, courts have struggled to find this balance in the application of attorney-client privilege to corporations. (5)

    Courts have faced unique issues in applying attorney-client privilege--a privilege generally associated with communication between persons--to the form of the corporation, technically a legal fiction. (6) Yet, a corporation as a fictional entity can only act through its employees. (7) The dilemma thus arose of how far down into the corporate structure to apply the privilege. (8) Courts developed two main tests for defining the privilege's scope in the corporate setting: the narrow "control group" test and the broader "subject matter" test. (9)

    In Upjohn Co. v. United States, (10) the Supreme Court rejected the "control group" test, pronouncing it too narrow an application of privilege law with regard to corporations. (11) Upjohn gives broader protection to confidential communications by employees who supply information to corporate counsel that is relevant to a particular legal action. (12) Upjohn, however, is binding only in federal question cases that use federal common law to decide privilege questions. (13) Upjohn does not bind state courts and many states do not follow it, having adopted the control group test, a modified subject matter test, or no definitive approach at all. (14) Massachusetts has not considered how to apply the privilege within a corporation, but has confronted like questions with respect to corporations--namely the issue of ex parte contact with employees of a corporation in connection with professional ethics matters. (15)

    Part II of this Note discusses the current state of attorney-client privilege law with respect to corporate communications. (16) It first provides a brief overview of privilege law and introduces the public policy argument that the pursuit of truth in litigation demands restriction of attorney-client privilege rather than expansion to cover more communications, especially within the corporate context. (17) It then outlines the development of the two basic tests for determining the scope of corporate privilege and discusses the Upjohn decision and its effect on the approaches of various states. (18) Part II goes on to explain Massachusetts's approach to an analogous issue and introduces Commissioner of Revenue v. Comcast Corp., (19) a case the Massachusetts Supreme Judicial Court (SJC) recently decided that involved questions of privilege with respect to corporate communications involving third-party consultants. (20) While the SJC did not specifically address the scope of attorney-client privilege within the corporate structure in this case, its discussion demonstrates that determining the boundaries of corporate privilege is an unresolved issue in Massachusetts. (21)

    Part III of this Note analyzes which test best balances the valued function of attorney-client privilege with the essential truth-seeking function of discovery. (22) Finally, it argues which test Massachusetts should adopt when it addresses the precise question of the scope of attorney-client privilege in the corporate context. (23)

  2. HISTORY

    1. Attorney-Client Privilege: A Brief Background

      Attorney-client privilege allows a client to refuse to disclose--and prevents his attorney from disclosing--confidential communications the client made in seeking or obtaining legal advice. (24) While historically the policy-based thrust behind the privilege centered on the confidential relationship between attorney and client, the present-day concern focuses on promoting "full and frank communication between attorneys and clients," as stated by the Supreme Court in Upjohn. (25) A central criticism of the attorney-client privilege is that it allows attorneys to conceal information harmful to their clients' cases and frustrates the truth-seeking purpose of the legal process. (26) While this may be true, the value society places on the privilege may outweigh the harm resulting from suppression of evidence. (27) In order to balance these competing policies, it is generally accepted that privileges should be narrowly construed based on the circumstances surrounding the communication. (28)

      Both federal and state courts recognize testimonial privilege law as an exception to the duty to disclose information relevant to a matter at hand. (29) State law governs privileges at the state level as well as in federal diversity cases, and federal common law governs in federal question cases. (30) The attorney-client privilege is as follows:

      (1) Where legal advice of any kind is sought, (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his insistence permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived." (31)

      The lawyer's ethical responsibility to maintain confidences extends to potential clients and current clients, both during and after representation. (32)

      An attorney may not disclose confidential information unless the client consents or waives the privilege, the law requires the attorney to disclose, or the attorney must disclose to prevent a crime or fraud. (33) If the privilege applies, it is absolute absent one of the aforementioned circumstances. (34) The client is the holder of this absolute privilege, not the attorney. (35) Thus, it is the client, as proponent of the privilege, who has the burden of demonstrating its application in a particular case. (36) This personal and individualized element of attorney-client privilege is what complicates its application to a fictional entity, such as a corporation. (37)

    2. Introduction to Attorney-Client Privilege and the Corporate Form

      Attorney-client privilege is available to corporations as well as individuals. (38) The Seventh Circuit applied attorney-client privilege to corporations in the landmark case Radiant Burners, Inc. v. American Gas Ass'n. (39) In reversing the trial court, the appellate court set the stage for general application of the privilege to corporations. (40) This, however, led to an ongoing struggle to determine the scope of the privilege in the corporate context. (41)

      Much difficulty arises in the application of attorney-client privilege to a fictional legal entity. (42) Attorney-client privilege applies to the corporation itself, which is an artificial entity, and not directly to the individuals who control the entity's operation, such as directors, officers, managers and shareholders. (43) As such, there is a general assumption that a corporation's attorney represents the entity itself and not the entity's employees or agents. (44) A corporation, however, can only act through its human agents. (45) Due to the corporation's unique nature, courts have struggled to determine to whom within an organization the privilege applies. (46)

    3. Overview of the Control Group and Subject Matter Tests

      Prior to the Supreme Court's decision in Upjohn, two primary tests existed for determining the scope of the attorney-client privilege within the corporate structure: the control group test and the subject matter test. (47) Under the original control group test, as laid out in City of Philadelphia v. Westinghouse Electric Corp., (48) the privilege applied to those within a corporation who had control of, or participated in, the decision-making process with corporate attorneys. (49) Under the control group test, the attorney-client privilege essentially encompassed only officers and directors of corporations--those employees who had authority to speak on behalf of the entity. (50)

      The subject matter test developed because of judicial dissatisfaction with the limitations of the control group test. (51) In Harper & Row Publishers, Inc. v. Decker, (52) the Seventh Circuit declined to follow the control group test and instead adopted the subject matter test. (53) The court decided that corporate attorney-client privilege extended to corporate agents outside of the control group, and thus deemed the control group test inadequate. (54) The court instead focused on two factors: whether an employee communicated to corporate legal counsel under order from superiors, and whether the subject matter related to the employee's corporate duties. (55) If the corporation could satisfy these requirements, courts would consider the corporate employee "sufficiently identified with the corporation", such that corporate attorney-client privilege protects the employee's communications. (56)

      Following Harper & Row, the Eighth Circuit adopted a modified form of the subject matter test in Diversified Industries, Inc. v. Meredith. (57) The modification addressed concerns that the Seventh Circuit's test concentrated on fitting the communicator within the protection of the corporate privilege by identifying him or her with the corporate persona rather than focusing on...

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