The perils of oversharing: can the attorney-client privilege be broadly waived by partially disclosing attorney communications during negotiations?

• Author: Kopon, Andrew, Jr.

Acme Co. and Biz Corp. enter into negotiations to purchase the assets of Collaborative, Mc. One of these assets is the equity of a partnership that serves as general partner of Partnership, L.P. As part of that process, Acme Co. and Biz Corp. negotiate the terms of the purchase transaction, and in doing so, disclose their respective attorneys' views concerning the legal implications of the transaction, the tax implications of the partnership structure, the legal significance of the contracts under negotiation, and the rights and obligations of the parties to the transaction. Following the asset purchase, Partnership, L.P. sues Acme Co. and Biz Corp. for breach of fiduciary and contractual duties. During discovery, Partnership, L.P., though not a party to the asset purchase transaction, seeks to compel communications that Acme Co. and Biz Corp. shared among each other in negotiating to purchase the assets of Collaborative, Inc. Partnership, L.P. also seeks production of other, non-disclosed privileged communications, arguing that by discussing legal issues during negotiations, Acme Co. and Biz Corp. waived the attorney-client privilege with respect to all attorney-client communications concerning the purchase transaction. It sustained, the requested production would include over 1,500 documents that would otherwise be privileged. Is the court likely to order disclosure of this information? The answer is unclear. As courts continue to navigate the application and scope of the subject-matter waiver doctrine outside of litigation, attorneys and their clients must proceed cautiously to avoid inadvertent waiver.

Most clients believe that if they discuss something with their attorneys, those discussions are unquestionably confidential and subject to the attorney-client privilege. Attorneys know that the attorney-client privilege has limits, but rely on the basic premise that attorney client communications are privileged unless the client waives that privilege.

Less understood, however, is the developing subject-matter waiver doctrine, which, if broadly applied, can undermine both the scope and fundamental nature of the privilege. Until recently, the subject-matter waiver doctrine has not been invoked outside the context of testimonial disclosures. More and more, however, parties are claiming that partial disclosure of attorney-client communications in the context of real estate transactions and patent disputes, for example, should similarly result in waiver of the privilege as to related subject matter. This article provides background on the subject-matter waiver doctrine, outlines the various ways different jurisdictions have applied the doctrine to communications and intentional disclosures made outside the litigation context, and provides guidelines for applying the doctrine (1) using as a case study Center Partners, Ltd. v. Growth Head GP, LLC, (2) a case pending in the Illinois Supreme Court which will provide the first opportunity for a State high court to weigh in on this developing area of the law.

1. Background

   1. The Attorney-Client Privilege

      To understand the subject-matter waiver doctrine, it is important to first revisit the legal underpinnings of the attorney-client privilege. The attorney-client privilege is one of the oldest privileges known to the common law. The privilege ensures that a client may provide information to his or her attorney, in confidence, with the knowledge that such information is protected, and neither the client nor the attorney may be forced to disclose the information that has been shared to their judicial adversaries. (3) Indeed, an attorney's ability to advise a client is directly dependent upon that client's willingness to engage in such full and frank discussions. In this vein, the attorney-client privilege serves both the immediate needs of the individual client and public ends by ensuring sound and fully-informed legal advice and advocacy.

      The privilege extends both to information relayed by the client to the attorney, and to advice and communications from the attorney to the client, made for the purpose of securing legal advice. (4) Further, the privilege attaches to material shared between the attorney and client both inside and outside of litigation. (5) Thus, when an individual seeks legal counsel from ah attorney in any context, the communications between the two ate protected, provided all of the elements (6) of the privilege are satisfied. If the information or material shared is later deemed to be relevant to a legal proceeding, is sought in discovery, or is the subject of a subpoena of other judicial inquiry, the privilege may be invoked to avoid disclosure. (7)

   2. The Subject-Matter Waiver Doctrine

      The subject-matter waiver doctrine functions as a restraint on both the protection offered by the privilege and the scope of waiver if otherwise privileged information is disclosed. Like the attorney-client privilege, the subject-matter waiver doctrine is a long-standing and widely-recognized principle of law.

      Illinois, for example, first recognized the subject-matter waiver doctrine in People v. Gerold, a 1914 decision. (8) In Gerold, the defendant was prosecuted for embezzling money while in corporate office. The defendant happened to be a former client of the attorney retained by the State to direct the prosecution. In his defense, the defendant testified that the prosecutor had used their prior relationship to gain information that was later used in the prosecution of the criminal case. The prosecutor then testified as a witness, disputing the testimony of the defendant. The defendant objected to the prosecutor's testimony, asserting that the attorney-client privilege barred the prosecutor from testifying about confidential communications. The Court, however, ruled that, by testifying to the conversations himself, the defendant had waived the attorney-client privilege not only as to the matters that the defendant chose to disclose, but also as to any other conversations with the attorney concerning the same subject matter. (9)

      As Gerold shows, the subject-matter waiver doctrine prevents a party to a lawsuit from transforming the attorney-client privilege from a defensive protection into ah offensive weapon by using it to reveal only portions of confidential matters favorable to its case, while hiding portions which might be harmful. Other courts have similarly invoked the subject-matter waiver doctrine as a means of preventing parties from partially disclosing otherwise privileged communications with their attorneys to gain a tactical of strategic advantage in litigation; i.e., to prevent the simultaneous use of the privilege as both a "sword" and "shield." (10) Where a party voluntarily discloses some privileged information during litigation, he is deemed to have waived his ability to invoke the privilege if he is compelled to produce or testify about undisclosed communications concerning the same subject matter. (11)

      While courts have most often addressed subject-matter waiver in the context of partial disclosures made during litigation, they have recently been called to determine the scope and application of the doctrine outside of litigation as well. There area myriad of situations in which clients may be called upon to make limited or partial disclosures of privileged information for purposes other than to gain a tactical advantage in litigation. The scope and application of the subject-matter waiver doctrine in these extrajudicial contexts is less clear and attorneys should be cautious in advising their clients about the potential impact of making such non-judicial disclosures. Here are a few contexts in which the subject-matter waiver doctrine might arise and some courts' responses to a subject-matter waiver argument.

      1. Settlement Negotiations

         Parties often rely on the presumption that matters discussed during settlement negotiations are, generally speaking, not available for use as evidence in a case. Accordingly, they may make limited disclosure of privileged information to effect a settlement. For example, in AMCA International Corporation v. Phipard, (12) which involved a dispute over the defendant's assignment of certain patent rights to the plaintiff, a memorandum/opinion letter prepared by the plaintiff's corporate counsel was disclosed to the defendant during settlement negotiations. Based on this disclosure, the defendant sought to discover all prior and subsequent communications between the plaintiff and its counsel concerning the interpretation of the contracts at issue, without regard to whether those communications were prepared during of prior to the pending litigation. The...