The attorney-client privilege for in-house counsel when negotiating contract.

Author:Van Deusen, Mark C.
Position:Case Note
 
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Traditionally, corporate executives in need of legal advice turned to private, outside law firms. Today, however, executives increasingly are seeking legal advice from "corporate" or "in-house" attorneys.(1) Studies estimate that ten percent of all practicing attorneys work for corporations.(2) The work of these attorneys has changed significantly in recent years. They routinely perform more substantive work, including litigation.(3) Corporations have found that in-house counsel can provide fast, effective legal advice for less cost than outside law firms because an in-house counsel has greater knowledge of the corporation and the issues that it routinely faces.(4)

Corporations turn to in-house counsel, as they do with all attorneys, in part because of the assurance that the attorney-client privilege will guard from public view communications between attorneys and corporate executives.(5) For in-house counsel, however, defining and maintaining that privilege involves unique risks and problems.(6) In-house counsel often perform dual roles, acting as both executives and attorneys.(7) Additionally, attorneys without formal business duties often intermingle business advice with legal advice.(8) Although courts have held that the attorney-client privilege does not protect business advice provided by an attorney,(9) these same courts have failed to articulate clearly when the privilege protects communications containing mixed legal and business advice.(10) Apart from vague generalities and vacuous oracular statements,(11) courts have failed to establish a useful set of principles that would enable attorneys and clients to determine when the attorney-client privilege will shield mixed legal and business communications.(12) An in-house counsel's plight is even more precarious because courts are reluctant to presume that the attorney-client privilege will protect an in-house counsel's communications--a presumption enjoyed by outside attorneys.(13) Given the difficulty defining what is a protected mixed business and legal discussion and the apparent judicial prejudice against in-house counsel, corporations and their in-house counsel confront great uncertainty about the scope of the attorney-client privilege.

An effective evidentiary privilege cannot exist in a sea of uncertainty. As then-Justice William Rehnquist stated in his majority opinion in Upjohn Co. v. United States:(14) "An uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all."(15) The uncertainty surrounding the attorney-client privilege for in-house counsel threatens to vitiate the benefits of the privilege for corporate clients and to lessen the benefits corporations receive from maintaining in-house legal departments.(16)

The uncertainty faced by in-house counsel was highlighted by the Georgia-Pacific Corp. v. GAF Roofing Manufacturing Corp.(17) decision. Georgia-Pacific held that the attorney-client privilege did not apply to conversations between corporate officers and an in-house counsel who negotiated a complex environmental liability provision of a commercial contract.(18) This decision sent shock waves through the corporate legal community,(19) raising new concerns about an attorney's ability to serve as a negotiator while retaining the protections of the attorney client privilege.(20)

This Note examines the Georgia-Pacific decision and argues that courts should adopt a new standard for determining when the attorney-client privilege protects a mixed business and legal discussion between a client and an in-house counsel serving as a negotiator. After exploring the history and rationale for the attorney-client privilege,(21) this Note identifies the unique problems faced by corporations and in-house counsel.(22) This discussion is followed by an outline of the decisions applying the attorney-client privilege to corporations and in-house counsel.(23) Next, this Note examines the role of the attorney-negotiator(24) and focuses on the few cases that have applied the attorney-client privilege in this context.(25) The next section discusses Georgia-Pacific and its variance from established precedent, arguing that the uncertainty evident in the decision beckons a new legal standard.(26) This Note concludes by articulating a new test for determining when an attorney-negotiator should be covered by the attorney-client privilege: the "significant amount" standard.(27) Because this new standard will provide certainty to corporations and in-house counsel, it will better fulfill the policy behind the corporate attorney-client privilege: encouraging corporations to seek legal advice so that in-house counsel can practice "preventive law."(28)

THE HISTORY AND RATIONALE OF THE ATTORNEY-CLIENT PRIVILEGE

The attorney-client privilege is the oldest common law privilege granting confidentiality to communications.(29) Commentators have traced the privilege's roots to the Roman Republic,(30) and it was established firmly in Anglo jurisprudence by the reign of Elizabeth I in the 1600s.(31) The privilege shields communications between a client and his attorney from discovery, providing an environment within which a client can discuss candidly his legal problems.(32) Wigmore defined the privilege 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 instance

permanently protected (7) from disclosure by himself or by the

legal adviser, (8) except the protection be waived.(33)

The privilege was based originally on "the oath and the honor of the attorney" and the notion that the attorney as a gentleman would not reveal the confidences of his clients.(34) By the eighteenth century, the privilege had begun to fall out of favor because judges believed it was an impediment to the judicial search for truth--a concern that lingers today.(35)

By the nineteenth century, the privilege regained vigor as courts recognized its utilitarian benefits.(36) Wigmore suggested that the privilege regained its lost prominence because the privilege "promote[s] freedom of consultation of legal advisers by clients."(37) The U.S. Supreme Court approved of the "encouragement of open discussion" rationale in Upjohn, in which the Court stated:

[The attorney-client privilege's] purpose 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 recognizes that sound legal advice or advocacy serves

public ends and that such advice or advocacy depends upon the

lawyer's being fully informed by the client.(38)

Although commentators and courts have recognized the theoretical benefits of the privilege for decades, the privilege is constrained by a tension between the more ephemeral goal of encouraging a free flow of information between client and attorney and the very concrete impediments the privilege poses to the discovery process.(39) The benefits of the privilege are indirect, but "its obstruction is plain and concrete."(40) As one commentator notes: "a tension exists between the secrecy required to effectuate the privilege and the openness demanded by the fact-finding process."(41)

Nevertheless, the privilege itself does not hide facts from a court; it only protects communications between an attorney and a client.(42) As the Supreme Court noted in Upjohn: "The privilege only protects disclosure of communications; it does not protect disclosure of the underlying facts by those who communicated with the attorney...."(43) The privilege may make a court's discovery of relevant facts more cumbersome, but the privilege does not forever shield the facts from the judge and jury--it only requires more vigorous lawyering.(44) As Justice Jackson noted in his concurring opinion in Hickman v. Taylor:(45) "Discovery was hardly intended to enable a learned profession to perform its functions on wits borrowed from the adversary."(46)

Courts have dealt unsuccessfully with the thorny task of striking a balance between clients' interest in confidential communications and the justice system's interest in full disclosure.(47) As John William Gergacz states in Attorney-Corporate Client Privilege:"it is clear that too much information protected by the privilege doctrine will be an obstacle to justice; as will too great a client risk of attorney disclosure."(48) Owing to this uncertainty, judges have been reluctant to expand the privilege, and Wigmore encouraged courts to confine it to "the narrowest possible limits consistent with the logic of its principle."(49)

THE UNIQUE ROLE OF CORPORATIONS AND IN-HOUSE COUNSEL

When corporations have sought to enforce the privilege, courts have been even more reluctant to shield communications from the discovery process.(50) A fundamental source of judicial ambivalence to protecting corporate-attorney communications is the nature of corporations.(51) They are inanimate, artificial entities lacking human qualities respected by the legal system, such as personal dignity and privacy.(52) Chief Justice John Marshall's classic definition of the corporation touches on this difference:

A corporation is an artificial being, invisible,

intangible, and existing only in contemplation of law. Being

the mere creature of law, it possesses only those properties

which the charter of its creations confers upon it, either

expressly, or as incidental to its very existence. These are

such as are supposed best calculated to effect the object for

which it was created. Among the most important are immortality,

and, if the expression may be allowed, individuality.... (53)

A crucial difference between a corporation and a natural individual arises in the context of confidentiality. A corporation has...

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