August 2021 Newsletter – When Your Lawyer is Not Your Lawyer: Attorney-Client Privilege Inside Small Companies

When Your Lawyer is Not Your Lawyer: Attorney-Client Privilege Inside Small Companies

By: Ray Hafner

We recently heard a terrifying, but all too common story from a colleague who practices high stakes litigation.  During a lawsuit over some land and lease acquisitions, a small E&P company was ordered by a court to turn over every single e-mail related to the transaction at issue after finding that the attorney-client privilege did not cover any of the company’s communications.

At the time the company’s employees were drafting and sending the e-mails, they made sure to include the head of the legal department on all e-mail correspondence, thinking that including her would ensure the documents were protected by attorney-client privilege and would never be produced in any litigation.  There was one slight problem: The “Head of Legal” was not a lawyer.  Because of the court’s decision, several unflattering e-mails were produced to the opposing side and the company was forced to settle on unfavorable terms.

This story, and similar misunderstandings of what attorney-client privilege (“ACP” or “Privilege”) actually means, highlight two common situations for the unwary small company: Does Privilege apply to communications including a non-lawyer employee who is responsible for the company’s legal affairs?  And does the Privilege apply to an attorney acting in a non-attorney role, such as a landman or a director of business development?

What is Attorney-Client Privilege?

First, a quick primer on what attorney-client privilege means.  Legal doctrine has long recognized the need for clients to speak openly and freely with their lawyers without fear that what they say can be disclosed.  Over time this became known as attorney-client privilege and is today considered one of the most sacrosanct rules protecting clients in need of legal advice.  Absent certain rare circumstances or criminal activity, an attorney representing a client may never disclose the information she learns from a client to anyone else without the client’s permission.  This duty of confidentiality extends forever, even after the representation has ended or the client has died.

But only certain communications qualify for ACP, and communications that do not meet each and every element are frequently required to be disclosed – in litigation, or under subpoena, or to the government – despite the client’s desire they remain confidential.  The four essential elements of the Privilege in nearly every jurisdiction are:

(1) A communication, (2) made between privileged persons (attorney and client) (3) in confidence (4) for the purpose of seeking, obtaining, or providing legal assistance to the client.

The first element is simple.  The information to be protected must be in the form of communication, such as conversations, e-mail, writings, memos, phone calls, instant messages, text messages, sign language, morse code, etc.

The second element is the most important and is the primary reason certain communications are found to be not privileged.  The communication must be between a client and their attorney.  If a third-party is present and that third-party is not a client, their attorney, or working for the client or attorney, then it is not considered privileged and may be disclosed.  Frequent situations that waive privilege are sending the communication to an unrelated party, including an unrelated party on an e-mail that is meant to be privileged, or having a conversation in public where others may listen, such as at a restaurant.

The third element requires that the communication and information contained therein are intended to be kept confidential.  In most cases involving a communication between an attorney and a client, this element will be clear.

Finally, the substance of the communication must be related to seeking, obtaining, or providing legal advice or assistance to the client.  Off topic conversations such as sports, travel, and personal information is usually not protected by the Privilege.

If even one of these elements is missing, a court can and will order the communications produced or made public.

Situation No. 1: We have a head of legal who is responsible for all of the company’s legal affairs, but they are not a lawyer.

It is extremely common for small companies to not hire an in-house attorney and instead rely on outside counsel.  Usually, the company will have one or two employees in charge of the company’s legal affairs, such as the CFO, Land Manager, or an operations employee.  In this situation, when executives communicate with a non-attorney head of Legal Affairs, the communications are never protected unless they are occurring at the direction of licensed legal counsel.  In other words, there is no privilege unless an outside attorney told the head of the legal department to make the communication for the purposes of providing legal assistance.  Even then, the privilege may be challenged.

This is exactly the situation in which the poor company at the start of this article found itself.  Following a transaction, a dispute arose between the parties.  The head of the legal department and other employees at the company discussed the dispute at length for several months while attempting to reach a resolution.  When a lawsuit was filed later that year, the opposing party sent discovery requests seeking all communications between the company’s employees regarding the dispute.  Despite the fact that all the employees intended for the communications to be kept confidential, the absence of a licensed lawyer on the communications was fatal to their claim of Privilege.

How can this situation be avoided?  First, the best practice is simply to not put into writing anything you would be uncomfortable reading about in the newspaper.  Save those discussions for the phone or in-person meetings.  Second, the company described above should have involved outside legal counsel as soon as they realized they had a legal problem.  If the outside attorney had been included on those communications, they would have been absolutely privileged.

Every small company should have an attorney on stand-by with whom they can discuss the company’s legal matters.  Using an outsourced Legal Department, such as R. Reese & Associates, can save clients from damaging and expensive, but entirely avoidable, situations.

Situation No. 2: Our Land Manager is a licensed attorney, but he is primarily involved in the company’s regular business and operations.

In many cases, E&P companies have a licensed attorney working as an employee in the Land Department.  This is where that fourth element comes into play: for the privilege to apply the communication must be seeking, obtaining or providing legal advice.  Regular business e-mails about the company are not privileged even where one of the participants is an attorney.

This is further complicated by the fact that courts will inquire into whether the person on the communication was wearing their “Business Hat” or their “Lawyer Hat”.  In high stakes litigation, this will subject privileged communications between an employee who is an attorney and other employees to increased scrutiny on the exact purpose of the communication.  Even where the communication is arguably seeking or providing legal advice, courts may order the communications disclosed.

The best practice is to presume that communications with an employee who happens to be an attorney, but is not the company’s full-time General Counsel, may be discoverable in litigation.  For important legal matters, the best advice is to consult with an outside attorney about the matter.  Even when an outside attorney is not included on an e-mail, if the e-mail is being sent at the direction of the outside attorney, it will likely be protected by the Privilege.

Companies that do not have enough legal matters to warrant a full-time general counsel can get the most value by using an outsourced Legal Department, such as RR&A.  The company gets the benefit of being able to request legal advice whenever the need arises, for a fraction of the cost of hiring a full-time general counsel.

If you have any questions or would like to know more about the attorney-client privilege, contact RR&A today.

Raymond “Ray” Hafner
Email: rhafner@rreeselaw.com
Phone: 832-831-2289

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