In-house lawyers perform a variety of functions, including contract negotiator, compliance advisor, business strategist, and litigator. In this fast-paced and varied environment, it is often difficult to analyze (much less predict) how a court might view a privilege claim. These challenges can be exacerbated by the large volume of documents in complex disputes, ever-increasing costs of discovery, and the high stakes of litigation. In this article, we provide practical best practices for in-house counsel to implement now to prepare documents and files for future litigation.

General Privilege Principles

The attorney-client privilege is frequently described as one of the oldest privileges, and most in-house attorneys have a strong working knowledge of core privilege concepts. Under New York law, privilege attaches to "a confidential communication made between the attorney or his or her employee and the client in the course of professional employment." N.Y. C.P.L.R. §4503(a)(1). Corporations may invoke the attorney-client privilege, and "[t]he privilege applies to communications with attorneys, whether corporate staff counsel or outside counsel." Rossi v. Blue Cross & Blue Shield of Greater N.Y., 73 N.Y.2d 588, 591-92 (N.Y. 1989). New York law also protects from disclosure "[t]he work product of an attorney" and other materials "prepared in anticipation of litigation or for trial by or for another party, or by or for that other party's representative (including an attorney, consultant, surety, indemnitor, insurer or agent)." N.Y. C.P.L.R. §3101(c), (d).

New York in-house counsel cannot always assume that New York law will govern privilege determinations, however. Depending on the litigation forum and choice of law analysis, privilege issues might be governed by another state's law, federal common law, or even foreign law. Although many U.S. jurisdictions follow similar privilege principles, there are some significant differences in the details. For example, under federal common law, courts analyze an attorney's communication with a lower-level corporate employee by applying the five factors in Upjohn Company v. United States, 449 U.S. 383 (1981).

But only a handful of states have adopted the Upjohn factors, and other states apply a variety of different tests, including the "control group" and "subject matter" tests. An in-house attorney's communication with a lower-level employee who is a key witness might be privileged under the Upjohn test and the "subject matter" test, but it might not be privileged under the "control group" test.

Disputes involving foreign companies or foreign transactions can present even more challenging privilege issues, especially given different definitions of "legal advice" and "attorney" found globally. For example, the European Court of Justice has held that communications with in-house counsel are not protected by privilege, because in-house lawyers are not "independent" advisors. Akzo Nobel Chems., Ltd. v. European Comm'n, Case C-550/07 P (Sept. 14, 2010).

Practical Guidance for In-House Counsel

Regardless of the eventual forum of a suit, in-house attorneys can take several proactive steps to prepare files for litigation.

Incorporate choice-of-law clauses in contracts. As discussed above, privilege law can vary by jurisdiction. Ex ante, it is often impossible to predict which privilege law might apply. In fact, in some circumstances the same document might be relevant to disputes in multiple jurisdictions applying different privilege principles. Because of this, corporate in-house legal teams should include consistent choice-of-law clauses in their contracts and develop a deep understanding of corporate privilege principles in the chosen jurisdiction. In addition, in-house counsel should be prepared to spot potential privilege issues in transactions and disputes touching on multiple states or foreign jurisdictions.

Separate business and legal communications. In-house attorneys often perform a variety of business and legal functions, and the line between legal and business communications can be fuzzy. For example, an in-house attorney may be performing a non-legal business function if asked to analyze pricing terms in a contract. But the pricing analysis might be a legal function if it requires assessment of legal requirements, such as permitted general and administrative costs under government contract regulations.

While purely business communications are not privileged, mixed business and legal communications may be privileged in whole "[s]o long as the communication is primarily or predominantly of a legal character." Rossi, 73 N.Y.2d at 594. Nonetheless, mixed business and legal communications can lead to unpredictable results. In-house lawyers should separate business and legal communications as much as possible, and they should counsel their internal clients on privilege implications flowing from counsel's multiple roles in the organization.

Limit distribution of privileged communications. Courts sometimes find that a communication is not privileged if it involves employees who do not "need to know" the legal advice as part of their job duties. Scholtisek v. Eldre Corp., 441 F. Supp. 2d 459, 463-65 (W.D.N.Y. 2006); William Tell Servs., LLC v. Capital Fin. Planning, LLC, 999 N.Y.S.2d 327, 332 (N.Y. Sup. Ct. 2014). In-house counsel should carefully limit distribution of legal advice within the organization and instruct recipients not to disseminate the advice further.

Mark communications as privileged and/or work product. Many in-house attorneys include headers or footers on their communications designating them as "privileged and confidential," "attorney work product," or something similar. Although these designations may not technically have any legal significance, they can help ensure that a document is handled appropriately. Before litigation, the markings encourage recipients to treat the document as confidential, minimize distribution within the company, and avoid distribution outside the company. During litigation, the markings increase the chances that the document is appropriately coded as privileged in a large-scale document review. The benefits of marking fade, however, if in-house attorneys are known to mark all communications as privileged even where they clearly are not.

Anticipate whether the company might later waive privilege. Corporations may waive privilege in certain disputes, particularly where intent is an element of the claim. For example, to defend against an allegation of willful patent infringement, corporations will sometimes rely on an attorney's opinion that a patent is invalid, unenforceable, or not infringed. Similarly, to overcome the scienter element in a civil False Claims Act suit, corporations will sometimes rely on an attorney's opinion that the conduct at issue would not result in the submission of a false claim to the government.

In-house attorneys should take extra care in preparing communications relating to a subject matter that might be the subject of strategic waiver. If the company later waives privilege, in-house counsel should anticipate scrutiny of both the opinion and the attorney's factual and legal investigation, as well as arguments by the opposing party for the broadest possible waiver. In some circumstances, this may mean that the waiver will extend to all communications on the same subject matter, meriting even greater care. Village Bd. of Village of Pleasantville v. Rattner, 515 N.Y.S.2d 585, 586 (N.Y. App. Div. 1987); Fed. R. Evid. 502(a).

Take special precautions in internal investigations. In-house attorneys are often responsible for investigating alleged misconduct, and many internal investigations conclude with a report that the company expects will be privileged. To increase the chances that communications related to an investigation are treated as privileged, in-house counsel should begin each interview with the following Upjohn warnings:

(1) I am an attorney for the company, and I do not represent you.

(2) Our communications are privileged, but that privilege belongs exclusively to the company.

(3) The company may waive the privilege and disclose our communications to third parties, including the government, without your permission.

Not only are these disclaimers a best practice for privilege purposes, they are ethically required in New York. N.Y. Rules of Prof'l Conduct R. 1.13(a).

Although underlying facts do not become privileged merely because they are communicated to an attorney, factual background information in an investigation report can be privileged where it provides the basis for legal analysis. Spectrum Sys. Int'l Corp. v. Chemical Bank, 78 N.Y.2d 371, 378-80 (N.Y. 1991); Robinson v. Time Warner, Inc., 187 F.R.D. 144, 146 (S.D.N.Y. 1999). Still, to increase the protection and reduce doubt about how an investigation report will be handled in litigation, in-house counsel should ensure that any report captures mental impressions and legal analysis and is not a mere recitation of facts provided by a witness.

Institute timely litigation holds. A company has a duty to preserve relevant documents when it reasonably anticipates litigation. Failure to do so can lead to sanctions for spoliation of evidence. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003); VOOM HD Holdings LLC v. EchoStar Satellite L.L.C., 939 N.Y.S.2d 321 (N.Y. App. Div. 2012). The standards for the duty to preserve and work product protection are very similar, as both turn on the company's anticipation of litigation. As such, in-house counsel should consider putting a litigation hold in place any time they prepare or receive a document they expect to be covered by the work product doctrine.

Conclusion

Although in-house attorneys reasonably expect the attorney-client privilege and the work product doctrine to protect communications from disclosure, surprises frequently arise. In-house counsel can minimize those surprises by taking the practical steps outlined herein.

Brian Iverson is a member in the Washington, D.C. office of Bass, Berry & Sims, where he litigates a wide range of high-stakes disputes across the nation. He can be reached at [email protected]. Robert Counihan is a partner in Fenwick & West's New York office. He focuses his practice on patent litigation and commercial disputes, as well as transactional matters related to intellectual property rights and IP portfolio analysis. He can be reached at [email protected].