At my first oral argument – a motion to dismiss for failure to prosecute – opposing counsel argued that the judge should not dismiss the case because his co-counsel would get his a** in a sling. The judge pointed out that the assertion was not his most attractive argument.
That came to mind today when I read United States v. Graff. The Ninth Circuit decision sets out what is necessary for an employee to claim the benefit of a company's attorney client privilege. That said, as described in the decision, defendant was not an attractive candidate for anything but the most narrow application of the attorney client privilege.
Defendant had set up an health insurance company, fraudulently marketed coverage, and diverted a significant amount of the company’s funds to buy jewelry, a sports car and a house, while some people who allegedly were insured had their credit ratings destroyed, failed to get a kidney transplant, or almost failed to get necessary chemotherapy, etc.
Defendant argued that evidence presented at trial by the corporation’s attorneys was privileged. He claimed that he had an independent relationship with the lawyers because he was not an employee of the company. As a corporate consultant, he and the company had a joint relationship with counsel; the company couldn’t waive his privilege.
He wasn’t an employee because he couldn’t be – he was banned from insurance work in the State of California. Unsurprisingly, the court determined that he was functionally an employee of the company and did not have an independent relationship with counsel. The decision sets forth what is necessary for a finding that a person who, although technically not an employee, is functionally an employee.
After determining that defendant was a functional employee, the court went on to determine if – as an individual -- he shared the attorney client privilege with the corporation. The decision adopted a five-part analysis to make this determination:
• Did the employee approach the attorneys for the purpose of seeking legal advice;
• When he did so, did he make it clear to the attorneys that he was seeking legal advice in his individual rather than in his representative capacity;
• Did the attorneys see fit to represent him personally, knowing a conflict could arise;
• Were his conversations with the attorneys in confidence; and
• The substance of the conversations with the attorneys did not concern matters within the company or the general affairs of the company.
This issue comes up frequently -- mercifully, not in a fact pattern this dramatic -- so this is an important case. Employees, and management, must understand that the lawyers represent the company – not the individuals in the executive suite.
