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Hired Help Can Pose Risks to Confidentiality - When Non-Lawyer Consultants are Included in Communication, Attorney-Client Privilege Protection May Be Unavailable

Rothman, Richard A.

(August 23, 2004, New York Law Journal)

By Richard A. Rothman and Jason W. Billeck

It is increasingly common for attorneys to use investment bankers, accountants, public relations consultants, tax experts, engineers, and experts in numerous other professions to assist in representing clients in both the litigation and transactional contexts. In many circumstances, such advisors provide expertise and resources that are necessary for counsel to provide effective legal representation to the client. In addition, highly skilled advisors often have outstanding judgment and vast experience.

The problem is that while many non-lawyer advisors can often be extremely valuable, including them in communications that would otherwise be protected by the attorney-client privilege is not without risks. Specifically, the law relating to the attorney-client privilege is often unforgiving with respect to communications involving these third parties. This article examines the law relating to the extension of the privilege to communications with these third parties, and makes several recommendations for managing the risks that their inclusion may entail.

Key Second Circuit Precedent

In 1961, the U.S. Court of Appeals for the Second Circuit handed down the cornerstone case on the application of the attorney-client privilege to third-party consultants, U.S. v. Kovel. 296 F.2d 918 (2d Cir. 1961). At issue in Kovel was whether the attorney-client privilege protected communications between a law firm’s client and an accountant employed by the law firm. This issue arose after the district court held the accountant in contempt for refusing to testify before a grand jury regarding communications with the client, who was under investigation for tax violations.

On appeal, the Second Circuit rejected the government’s argument that the attorney-client privilege protects only communications with attorneys and their “non-lawyer employees with ‘a menial or ministerial responsibility that involves relating communications to an attorney.’” Id. at 921.

The court found that such a narrow view of the privilege ignores the reality that “the complexities of modern existence prevent attorneys from effectively handling clients’ affairs without the help of others.” Id.

In analyzing whether the communications with the accountant were privileged, the court compared the assistance of the accountant to that of a translator who helps the attorney understand communications from the client. In so doing, the court noted that “[a]accounting concepts are a foreign language to some lawyers in almost all cases, and to almost all lawyers in some cases.” Id. at 922. In such circumstances, “the presence of the accountant is necessary, or at least highly useful, for the effective consultation between the client and the lawyer which the privilege is designed to permit.” Id.

As a result, Kovel established the general rule that the attorney-client privilege extends to third-party communications that are made in confidence for the purpose of obtaining legal advice from the lawyer when the third party is acting as a facilitator or translator of the attorney-client communications. Id. at 922-23
Following Kovel, the Second Circuit remained largely silent on this issue for nearly 40 years. In 1999, the court seized an opportunity to emphasize the narrow protection offered to communications with third-party consultants. In U.S. v. Ackert, 169 F.3d 136 (2d Cir. 1999). the court held that communications between an investment banker and a corporation’s counsel were not privileged because the investment banker was not acting as a facilitator of communications between the client and attorney.

Ackert involved an investment banker who had approached a company with an investment proposal designed to reduce the company’s tax liability. After the pitch, the company’s counsel had several meetings with the investment banker regarding the proposal, ultimately advising the company to accept it. Later, the investment came under scrutiny by the IRS, which summoned the investment banker to testify regarding his discussions with the company’s counsel. The magistrate held that the communications between the counsel and the investment banker were privileged because the counsel was gathering information on which to base legal advice to the company.

On appeal, the Second Circuit reversed, holding that gathering information on which to base legal advice is not a ground for extending the privilege. Id. at 139. The court reasoned that Kovel applies only to situations in which the third party is acting to translate or interpret communications between the attorney and client. Id. at 139-40.

In Ackert, even though the attorney interviewed the investment banker to better advise his client, the investment banker was merely a source of information, not a conduit for communications. The court found it irrelevant that the information was important to the attorney’s ability to render legal advice to his client because the privilege only “protects communications between a client and an attorney, not communications that prove important to an attorney’s legal advice to a client.” Id. at 139. Accordingly, the court held that “[b]ecause [the investment banker’s] role was not as a translator or interpreter of client communications, the principle of Kovel does not shield his discussions with [counsel].” Id. at 140.

Many Rulings Followed ‘Ackert’

In contrast to the silence following Kovel, a number of cases followed on the heels of Ackert, testing the boundaries of the protection offered by the attorney-client privilege to communications with non-lawyer consultants. Recently, some courts appear to have accorded greater protection for communications involving such non-lawyers.

For example, the court in In re Grand Jury Subpoenas Dated March 24, 2003 265 F. Supp. 2d 321 (S.D.N.Y. 2003). extended the privilege to communications with a public relations consultant. The consultant was hired by defense counsel in an attempt to dissuade the government from seeking an indictment against their client. Later, the government subpoenaed the public relations consultant to testify before the grand jury about discussions among the consultant, lawyers and client. The consultant refused to testify, asserting that the communications were privileged.

Judge Lewis A. Kaplan agreed, in part, noting that “advocacy of a client’s case in the public forum will be important to the client’s ability to achieve a fair and just result in pending or threatened litigation.” Id. at 330. In cases in which the attorney is not equipped to properly advise the client on media relations, hiring a consultant will be crucial to the client’s representation. Id. (“[D]ealing with the media in a high profile case probably is not a matter for amateurs.”). Moreover, once hired, the attorney and client must be able to have full, open discussions with the consultant. Id. Therefore, communications with a public relations consultant that are made for the purpose of obtaining legal advice are privileged. Id. at 331 (holding that “(1) confidential communications (2) between lawyers and public relations consultants (3) hired by the lawyers to assist them in dealing with the media in cases such as this (4) made for the purpose of giving or receiving advice (5) directed at handling the client’s legal problems are protected by the attorney-client privilege”); see also In re Copper Market Antitrust Litig., 200 F.R.D. 213 (S.D.N.Y. 2001) (holding that communications with a public relations consultant were privileged under Upjohn v. U.S., 449 U.S. 383 (1981), and its progeny because the consultant was retained by the client and served as the “functional equivalent of [the client’s] employee”).

Applying this reasoning, the court concluded that all but two communications with the consultant were privileged.The non-privileged communications were consultant regarding the media in general, not specific strategy questions regarding the client.

Other courts, however, continue to apply Kovel narrowly. For instance, in In re G-I Holdings, Inc., an attorney advising a company on restructuring hired a tax consultant to assist in understanding possible tax ramifications. 218 F.R.D. 428, 435 (D.N.J. 2003). Later, the IRS sought production of documents that had been sent by counsel to the tax consultant. The company objected, arguing that the documents were privileged.

The court disagreed, and narrowly read Kovel as limiting “the attorney-client privilege between an accountant and a client to when the accountant functions as a ‘translator’ between the client and attorney.” Id. at 434. Citing Kovel and Ackert, the court reasoned that communications with third parties fall within the privilege only if the third party is acting as a conduit between the client and attorney – a translator or facilitator – not a consultant hired to give independent tax advice. Id. at 436. Therefore, if the client hired the accountant “for [his] expertise, then [the client] sought [the accountant’s] independent tax advice, not his help as a translator defining complicated accounting concepts.” Id.

After reviewing the evidence, the court ultimately held that because the client’s in-house counsel “appears to have hired [the accountant] for his tax advice alone, [the accountant’s] communications with [the client] fall outside Kovel’s limited extension of the attorney-client privilege.” Id. at 435.

Some courts appear to have taken an even more restrictive approach in applying the attorney-client privilege to communications involving non-lawyer consultants. In Cavallaro v. U.S., 284 F.3d 236 (1st Cir. 2002). the U.S. Court of Appeals for the First Circuit held that communications between a client’s accounting firm and an attorney were not privileged because there was no evidence that the accounting firm was hired for the purpose of facilitating communications between the client and counsel. Importantly, the court also stated that, even if the accounting firm had acted as a facilitator, there was no evidence that its assistance was crucial to the communications between the cient and counsel. Id. at 247-48.

Third Parties

The court reasoned that the privilege applies to a third party only if the third party is necessary to the communication. Id. In fact, the court held that the third party must be “nearly indispensable” to the attorney-client communications to qualify for protection of the privilege. Id. at 249. The Kovel privilege, the court concluded, does not apply to third parties that are “just useful and convenient” to the facilitation of communication. Id.

Even where the attorney-client privilege is not applicable, the attorney work-product doctrine may still protect materials provided to, or in the possession of, non-lawyer consultants. See Haugh v. Schroder Investment Management North America, Inc., No. 02 Civ. 7955 DLC, 2003 WL 21998674, at *3-5 (S.D.N.Y. Aug. 25, 2003) (unreported) (finding that although documents sent to a public relations consultant by the client, as well as a document prepared by the consultant herself, were not protected by the attorney-client privilege, the documents fell within the work-product doctrine because “they were all prepared by a party, her agent, attorney or consultant in anticipation of litigation.”); Calvin Klein Trademark Trust v. Wachner, 198 F.R.D. 53, 55 (S.D.N.Y. 2000) (holding certain documents in possession of a public relations consultant that were prepared by counsel were protected by the work-product doctrine, but noting that documents prepared by the consultant in the course of giving public relations advice are not protected because “the purpose of the rule is to provide a zone of privacy for strategizing about the conduct of litigation itself, not for strategizing about the effects of the litigation on the client’s customers, the media, or on the public generally.”). Because the work-product doctrine, which protects materials “prepared in anticipation of litigation,” is not limited specifically to communications, FED. R. CIV. P. 26(b)(3). it is somewhat broader than the attorney-client privilege. In re Grand Jury Subpoenas, 265 F. Supp. 2d at 332. Of course, the protection of the work-product doctrine is not absolute. Non-opinion work-product is discoverable upon a showing of substantial need. See FED. R. CIV. P. 26(b)(3). Opinion work-product, however, is subject to a heightened standard or protection. See U.S. v. Adiman, 134 F.3d 1194, 1197 (2d Cir. 1998); but see Duplan Corp. v. Moulinage et Retorderie de Chavanoz, 509 F.2d 730, 735 (4th Cir. 1974) (holding that opinion work-product is absolutely protected).

The protection afforded to communications with non-lawyer consultants is an evolving area of the law, the boundaries of which are often hard to identify and may differ by jurisdiction. Counsel and client alike must be aware that there is a significant risk that when they bring an investment banker, public relations consultant, or other non-lawyer advisor into a strategy session or other communication, their discussions and any documents created relating to them may not be privileged – and that issues of a broader waiver may also arise.

The more indispensable a consultant is to the attorney’s ability to render legal advice, the more likely it is that a court will find such communications to be privileged. Of course, however, counsel will not know at the time how a court could resolve the issue – and may not even know which jurisdiction’s law will ultimately govern a privilege dispute that subsequently arises.

In the face of these risks, there are several steps that can be taken to minimize the risk that communications with non-lawyer consultants that are necessary to the rendition of legal advice will be protected by the privilege.

First, the order of communications is important. There is a greater risk that communications with a non-lawyer consultant will be found to be non-privileged if the client communicates with the non-lawyer advisor before communicating with his attorney.

In Kovel, the court noted that no privilege exists when a client communicates first to his own accountant and only later consults with his attorney on the same matter. Kovel, 296 F.2d at 922. Rather, the privilege is more likely to apply when the attorney “retains an accountant as a listening post, or [when the client] consults the lawyer with his own accountant present.” Id. The Kovel court recognized that the distinction is “a rather arbitrary line,” but one that “is the inevitable consequence of having to reconcile the absence of a privilege for accountants and the effective operation of the privilege of client and lawyer under conditions where the lawyer needs outside help.” Id.; see also In re Grand Jury Subpoenas, 265 F. Supp. 2d at 331 (noting that the client would not have enjoyed any privilege for her own communications with the public relations firm if she had hired the firm directly, even if her object in doing so had been purely to affect her legal situation).

Second, and most importantly, to the extent it is important to maintain the privilege for communications involving non-lawyer consultants, carefully limit their role – and presence. Kovel and subsequent courts have emphasized that “[w]hat is vital to the privilege is that the communication be made in confidence for the purpose of obtaining legal advice from the lawyer.Kovel, 296 F.2d at 922 (emphasis added).

Counsel should carefully consider, on an ongoing basis, whether a consultant’s services – and presence in discussions or review of information – are necessary to counsel’s ability to represent the client.

On a general level, if maintaining the privilege is deemed to be important, the consultant’s role shouldbe limited to providing those services that are necessary for the lawyer to function effectively. See U.S. v. Adiman, 68 F.3d 1495, 1500 (2d Cir. 1995) (holding that a memorandum prepared by an accountant for a company’s attorney was not privileged because the accountant’s firm had rendered a wide variety of services to the company that went far beyond what was necessary to assist the attorney in rendering legal advice). On a more granular level, counsel should constantly consider whether the consultant’s presence or involvement is necessary for the consultant to perform that specific role. And although it may be awkward to exclude a trusted and talented non-legal advisor from communications or review of certain information, that is sometimes the only prudent course.

Third, the court in G-I Holdings indicated that bills and retainer agreements may help determine whether the third party’s role involved facilitating communications between the attorney and client. G-I Holdings, 218 F.R.D. at 436. The privilege is more likely to apply if bills and retainer agreements expressly articulate that the consultant’s role is to serve as a translator/facilitator of communications between the attorney and client and to provide services that are genuinely necessary to the rendition of legal advice.

Notably, the court in G-I Holdings placed importance on the fact that a party characterized the work of a third party as “consulting work on the 1990 transaction.” Id. The court relied on this description in holding that the privilege did not apply because the third party was “a consultant, not a translator or facilitator.” Id.

The bottom line is that including non-lawyer consultants in communications that later become the subject of discovery requests is increasingly common and often necessary, but entails risks that can be difficult to assess and manage in advance. The precautions noted above will help to limit those risks to some extent, but will not provide anything approaching absolute assurance that a court will not subsequently find communications involving a non-lawyer advisor to have been non-privileged. Finally, in light of the uncertainty in the law, the most important thing counsel can do is to carefully limit the retention and involvement of consultants to those matters where they are truly necessary to assist the attorney in rendering legal advice). G-I Holdings, 218 F.R.D. at 436. Id. Id.

Reprinted with permission from the August 23, 2004 edition of the New York Law Journal © 2004 ALM Properties, Inc. All Rights Reserved. Further duplication without permission is prohibited.

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