Forced Waiver of the Corporate Attorney-Client Privilege

Communications between corporate counsel and directors and officers are shielded by the attorney-client privilege. However, corporate counsel should be aware that the traditional protection granted privilege is now being weakened. There is a growing line of cases allowing individual defendants—largely former officers and directors—to force an involuntary waiver of the corporate privilege in order to use privileged materials for their personal defense.

When under fire by prosecutors, the Securities and Exchange Commission, or civil plaintiffs, corporate officers and directors often raise a good-faith defense based on their reliance on the advice of counsel. A traditional advice-of-counsel defense requires defendants to show that they presented all material facts to their attorney and acted in accordance with counsel’s advice. However, even when that is not possible, reliance on counsel may still be asserted as part of a defense of good faith and lack of fraudulent intent. Unlike the traditional defense, the defense of good faith may be asserted even when defendants have not specifically consulted with an attorney, but instead relied on the involvement of attorneys in corporate decision-making—for example, regarding disclosure issues.

In either scenario, defendants must present supporting evidence—oral or documentary—of attorney involvement. That information is typically privileged–and the privilege, as noted earlier, usually belongs to the corporation.

Criminal Matters

A number of courts have proven willing to order disclosure of privileged evidence where it is necessary to the defense, particularly in the criminal context. The leading case is United States v. W.R. Grace, 439 F. Supp. 2d 1125 (D. Mont. 2006). In a prosecution for environmental violations, former officers and employees of W.R. Grace & Co, arguing reliance on counsel, sought to introduce documents and testimony over which W.R. Grace asserted the attorney-client privilege.

The Grace court applied a balancing test, weighing the corporation’s legitimate privilege against (i) the right to present evidence found in the Sixth Amendment and (ii) the due process rights in the Fourteenth Amendment. The court held that a corporate defendant’s attorney-client privilege would have to be “sacrificed in limited instances” where a defendant’s constitutional rights outweighed the privilege, and that “in weighing the competing interests it is the exculpatory value of the lost evidence to the accused that weighs most heavily on the scale of fair trial.”

Other courts, including the Seventh, Ninth, and Eleventh Circuits, and federal district courts in Arizona and New York, have made similar rulings and statements, generally relying upon the Sixth Amendment’s Confrontation Clause—the right to present evidence, the right to cross-examine, the right to present a complete defense, and “fundamental fairness.”

Civil Matters