Weil, Gotshal & Manges LLP
Hired Help Can Pose Risks to Confidentiality - When Non-Lawyer Consultants are Included in Communication, Attorney-Client Privilege Protection May Be Unavailable
(August 23, 2004, New York Law Journal)
By Richard A. Rothman and Jason
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
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
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
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]
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.
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
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.”
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.
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.