Sealing The Deal

January 01, 2017
How Attorney-client Privilege Affects Outside Consultants

By Jacqueline D. Yu, Esq., LL.M.

It’s a standard plot device in “Law and Order”-type TV dramas: The cops want to know something the bad guy has told his lawyer, but they can’t make the lawyer give up the information because of attorney-client privilege. Remarkably, this screenwriting gambit assumes that the audience will understand not only what that privilege is, but also the powerful shield of confidentiality it imparts.

But what those TV viewers—along with most CPAs, consultants, investment bankers and other business advisers—don’t know is under specific circumstances, the attorney-client privilege can also extend to communications between these advisers, their client and the client’s attorney, including documents prepared by them for the attorney’s use on behalf of the client.

Attorney-client Privilege
The attorney-client privilege, which traces back to the 16th Century, is intended to ensure that a client who seeks advice from an attorney need not fear that his or her secrets will be disclosed. The privilege requires that several elements be present:
  • There needs to be a communication between a client and an attorney made with the intent that it be kept confidential for the purpose of providing legal assistance to the client.
  • The protection of privilege extends only to communications, not to facts (United States v. Construction Products Research).
  • The communication must be made to facilitate the rendering of legal services to the client. Business and personal advice are not covered by the privilege (Coleman v. Am. Broadcasting Cos.).
Therefore, when an attorney serves in a non-legal capacity, such as a preparer of tax returns or as a business adviser, his or her communications and work papers may not be deemed as one protected by privilege and work product doctrine, respectively. 

The party asserting the privilege must establish that the communication relates to legal advice and not business matters. At that point, the burden of proof shifts to the party seeking to overcome the privilege.

Work-product Doctrine 
The Federal Rules of Civil Procedure says that the work-product doctrine applies to “documents and tangible things … prepared in anticipation of litigation.” The protection has been extended to intangible work product, which is broader than the attorney-client privilege, but it is a qualified protection, unlike the attorney-client privilege, which is absolute.

The Rules of Civil Procedure distinguishes between two types of work product:
  • “Fact” work product is discoverable upon a showing of need and hardship. 
  • “Opinion” work product, which is described as “the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation,” has near absolute protection.
Agents and Non-agents
The attorney-client privilege and work product doctrine can, in certain circumstances, protect communications with, and the work of, a CPA, business manager, consultant or other adviser who is working either as an agent of the attorney or client, or in a third-party capacity.

CPAs have been included under attorney-client privilege in situations where their role was to assist the attorney with rendering legal services to the client. In United States v. Kovel, a gutsy accountant named Kovel risked prison time to protect communications between him, a client and the client’s attorney. 

A law firm hired Kovel to help advise a client who was under grand jury investigation. The grand jury subpoenaed Kovel, who refused to answer questions about his meetings with the client. Kovel was held in contempt of court and sentenced to one year in prison. The verdict was appealed to the Second Circuit, where the contempt decision was reversed. The appellate court held that the protection of privilege extended to communications between an accountant and an attorney, because the accountant’s assistance was necessary to help the attorney understand the client’s situation in rendering competent legal advice.

On the other hand, where the accountant’s role is primarily as a tax preparer or business adviser that is independent of the client’s legal matter, the application of the attorney-client privilege and work-product privilege does not apply (United States v. Richey).

The court’s reasoning in Kovel and Richey has been extended to agents and non-agents alike—such as appraisers, investment bankers, financial advisers, business managers, public relations consultants and engineers. The privilege applies when a lawyer seeks assistance of such advisers to understand the information that is necessary for the attorney to render competent legal services. It does not apply where these professionals are merely employed or engaged to gather data, generate a report or advise on a client’s business and financial matters.

With regard to agents, the Diversified Industries, Inc. case held that the attorney-client privilege applies to communications of the client’s employees in certain circumstances where such communications involve the client’s legal matter.

With regard to non-agents, the District Court for the Northern District of California in McCaugherty saw no reason that advisers hired by the client in a non-employee capacity should not enjoy the same protection as the client’s employees.

Similarly, the Eighth Circuit Court of Appeals upheld application of attorney-client privilege to communications between an attorney and independent contractor—in this case, a real estate consultant who was hired by the client to advise him on development of land that was in a legal dispute (In re Bieter Co.).

The Bieter decision extended the attorney-client and work-product privileges to certain communications and work product of independent contractors when the independent contractor serves a vital, substantial and continuous role in the client’s operations and acts substantially like an employee, and the communications or work product furthers the provision of legal services.

Even further in Miller v. Maulmark, the court extended attorney-client privilege to an insurance agent, who provided information that was useful for purposes of the attorney-client meeting and was responsible for the retention of the attorney for the client. The court reasoned that it is well established that the mere presence of someone other than the client at a meeting between an attorney and his or her client does not void the confidentiality required for a valid claim of privilege.

As a general matter, the court held in Miller that “the privilege is not destroyed when a person other than the lawyer is present at a conversation between the attorney and his or her client if that person is needed to make the conference possible or to assist the attorney in providing legal services.”

A similar reasoning was cited in the Ninth Circuit Court case, United States v. Landof, in which the court stated, “the mere presence of a third party at an attorney-client meeting does not necessarily destroy the privilege.”

Recommended Procedures
Engagement Letters: The letter should set forth the scope and purpose of the work. If the subject matter of the engagement may evolve into litigation, the attorney should specify that his or her services are being requested in connection with a matter in which litigation is anticipated. If the engagement involves several issues, each matter should be covered by its own engagement letter.

Separate Billing File: Keep a separate billing file for each matter, with details of the time and expense incurred and work performed. In circumstances where the professional may have dual roles (especially in situations involving an accountant or business manager), the professional should keep a separate billing file for services related to the client’s legal matter (e.g., tax or estate planning) and those involving the client’s non-legal matters (e.g., tax return preparation or financial management).

Instructions to Protect Privileged Documents and Communications: The professional should be instructed that all documents generated during the course of the protected legal matter (i.e., notes, spreadsheets, internal memos, etc.) be labeled as privileged. The professional should be advised not to disclose any document generated or communications made during the course of the legal matter to anyone without first consulting with the attorney.  
Jacqueline D. Yu , Esq. LL.M. is an attorney at Valensi Rose, LLP. 
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