It is not unusual for business people and/or in-house counsel to consult with accountants or other non-party experts when contemplating a potential business transaction. As the defendants in The C Company, Inc. v. Hackel recently learned, however, trying to protect such communications from disclosure based on the attorney-client privilege can be difficult, if not impossible.
In The C Company, attorney Todd Goldberg represented Michael Hackel and Dining-In, Inc. in connection with a 2008 transaction with The C Company and Nicholas Cercone. During negotiations, an employee of The C Company emailed a draft agreement to the company’s outside accountant, and asked him to evaluate the tax implications of the contemplated transaction. The accountant provided that advice, after which Attorney Goldberg and the accountant exchanged their own emails so that Attorney Goldberg could better understand the accountant’s viewpoint. After litigation related to the transaction was filed by The C Company and Cercone, they sought to discover all of the foregoing communications, and the defendants took the position that such communications were protected by the attorney-client privilege. In analyzing the matter, the Superior Court Judge began by stating that:
Massachusetts recognized the so-called “derivative” attorney-client privilege. Under this doctrine, the attorney-client
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As most attorneys know, a privileged communication only can be waived by the client, and when the client is an individual, it is obvious who controls that ability to waive. Things become murkier, however, when the client is a company. While controlling the privilege generally resides with the board of directors and/or those controlling the business entity, who can access privileged communications when a former senior manager becomes adverse to the company is far less clear.
Until the end of 2016, John Mooney was the CEO of Pri-Med LLC, and John Wheelock was its senior vice president in charge of sales. Mooney and Wheelock also each owned 5% equity in Pri-Med and were entitled to have that equity repurchased at the appraised value of the company as of December 31, 2016. When the buy-out time arrived, however, Mooney and Wheelock claimed that the company and various individuals took steps to depress Pri-Med’s value so as to decrease the amount they would be paid.
Litigation ensued, and one of the items requested during discovery was communications amongst the defendants concerning Pri-Med’s 2015 and 2016 valuation. The defendants refused to produce those communications, however, claiming that they were protected from disclosure … Keep reading
While companies, like people, are entitled to protect privileged communications with their counsel, companies only can act through individuals. So what happens when the former CEO wants to disclose a privileged communication he had with his company’s corporate counsel? As SEC v. Present highlights, if the company does not want that communication disclosed, the former CEO may be barred from making such a disclosure.… Keep reading
One of my law school classmates asked me several month ago about the merits of entering into a joint defense agreement with another party to protect communications he had with that party’s counsel in connection with a potential dispute with a third company. He was concerned that entering into such a joint defense agreement might make his client and its ally look guilty. I told him that no formal agreement was necessary; the key was whether the communications concerned a matter of common interest to the parties communicating. Last week, I happened to come across The Hilsinger Co. v. Eyeego, LLC, which put a new spin on what the judge in that case referred to as the “Community of Interest Privilege.”… Keep reading
Communications between attorneys and clients that are not private, and/or communications between attorneys and third parties, cannot be protected from disclosure by the attorney-client privilege. When the client is an individual, it generally is easy to discern if a communication is private, and it usually is obvious if an attorney is communicating with a third party. When the client is a corporation or some other entity, however, it can be much less clear as to whether a particular person will be deemed to be the client or a third party. One scenario where this issue routinely arises is when company counsel communicates with an individual who is an independent contractor or some other person working closely with the company, but who is not an employee.… Keep reading
In the course of its decision in Chambers v. Gold Medal Bakery, Inc., the Supreme Judicial Court of Massachusetts highlights a number of important rules related to the attorney-client privilege, as well as various rights and duties of officers and directors in closely held corporations. While it is important to understand the detailed facts of Chambers in order to gain a full appreciation of its multitude of specific rulings, the overarching story is a familiar one that has played itself out over and over again (with the most notorious example being Demoulas v. Demoulas).… Keep reading
In Commodity Futures Trading Comm’n v. Weintraub, the United States Supreme Court noted that:
[W]hen control of a corporation passes to new management, the authority to assert and waive the corporation’s attorney-client privilege passes as well. New managers installed as a result of a takeover, merger, loss of confidence by shareholders, or simply normal succession, may waive the attorney-client privilege with respect to communications made by former officers and directors. Displaced managers may not assert the privilege over the wishes of current managers, even as to statements that the former might have made to counsel concerning matters within the scope of their corporate duties. [Emphasis added.]
While the foregoing may not seem too surprising to some, what if I told you that the new owners of a business can waive the privilege with respect to communications that the former owners had with company counsel solely to use those communications as evidence against the former owners in litigation? Well, that is exactly what the Delaware Court of Chancery recently allowed to happen in Great Hill Equity Partners v. Sig Growth Equity Fund, LLP.… Keep reading
As I have discussed in other blog posts, communications with in-house counsel that are not for the purpose of obtaining legal advice are not privileged. But what happens when outside counsel is hired to investigate a claim of harassment in the workplace and a second outside counsel is hired to provide legal advice? Anyone who thinks that the subsequent communications involving those outside counsel will automatically be privileged had better read the recent decision by Magistrate Judge Kenneth P. Neiman (District of Massachusetts) in Koss v. Palmer Water Department.… Keep reading
In Hedden v. Kean University, the New Jersey Appellate Division ruled that an email sent by the University’s women’s basketball coach to the school’s in-house counsel was privileged even though a copy also was sent to the University’s Executive Vice President of Operations and later disclosed to the NCAA. The opinion, as well as the strong dissent, address several key aspects of the privilege that in-house counsel are well advised to keep in mind.… Keep reading