Attorney-Client Privilege Traps and Advice for Executives and Employees | Rothwell, Figg, Ernst & Manbeck, CP

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Elizabeth Holmes, former CEO of the now defunct blood testing technology company Theranos, recently learned a hard lesson about the complexities and pitfalls of solicitor-client privilege. Following a June 3, 2021 ruling by the U.S. District Court for the Northern District of California, critical communications between Holmes and Boies Schiller – Theranos’ attorney from 2011 to 2016 – may be admissible at his trial federal criminal law in late August on charges of fraud and conspiracy. The ruling is yet another warning to business leaders and employees about the importance of understanding when solicitor-client privilege applies to communications between an employee and a company lawyer.

The lawyer retained by a company represents the company and not its members of management or its employees. However, a legal person can only communicate and carry out transactions through its management or employees. Therefore, the client-lawyer relationship in the business context is in fact established by these intermediaries, which adds complexity to the distinction between privileged communications under solicitor-client privilege from communications of a personal nature and not protected by privilege.

In most companies, close relationships are generally established between employees and internal or external boards, giving rise to both personal and professional exchanges. Given this dynamic, employees may be legitimately confused about the privileged status of their communications with lawyers. Often, employees have the mistaken impression that they are “the client” of the corporate lawyer and have expectations of solicitor-client privilege. Therefore, an employee may share sensitive and confidential information, believing that all communications with a lawyer are confidential.

Last week, US trial judge Nathanael M. Cousins ​​discovered that Elizabeth Holmes had made exactly this mistake. Holmes mistakenly believed that his communications with David Boies and the Boies Schiller law firm were protected by solicitor-client privilege. In rejecting these claims of privilege, Justice Cousins ​​ruled that communications between the former CEO of Theranos and Boies Schiller’s lawyers are subject only to solicitor-client privilege. Because the company has waived its privilege, the communications are not subject to Holmes’ individual privilege and may be admissible in his trial in August.

Cousins ​​J. relied on the test enumerated in United States v. Graf, 610 F.3d 1148 (9th Cir. 2010) to assess Holmes’ claim for privilege. As part of the test, the executive or individual employee seeking to assert a personal claim of solicitor-client privilege must prove:

  • they contacted a lawyer for legal advice;
  • they made it clear that they were seeking legal advice as an individual rather than as a representative;
  • the lawyer saw fit to communicate with the individual on an individual basis;
  • their conversations with lawyers were confidential; and
  • the substance of the conversations with the lawyer did not concern internal business matters or general business affairs.

Notably, all the factors must be respected, and the fifth factor itself presents a significant obstacle as it requires that all legal communications be completely independent of the company. To further complicate matters, the Graf test is not a universal standard. Holmes unfortunately relied on the “subjective belief” test – which is instead assessed on the client’s belief in an attorney-client relationship – but Cousins ​​J. refused to adopt this standard, all the more so. that Holmes initially took the position that the law firm jointly represented her as an individual and the company, but subsequently asserted that the communications at issue concerned her individual legal matters rather than the affairs of the company.

This inspiring story highlights the importance of understanding the limits of solicitor-client privilege within a business. Thus, it may be helpful for company management and employees to keep the following tips in mind:

  • the company lawyer represents the company and not the individuals who work for the company;
  • the company’s legal counsel is not ethically authorized to provide advice that is incompatible with the interests of the company;
  • the company may choose to disclose communications between an employee and the company’s lawyer;
  • solicitor-client privilege may not protect communications between an employee and the company’s lawyer; and
  • persons who work for the company should seek independent advice on any matter that is not legal advice concerning the interests of the company or the actions of the company or, if they decide to contact a legal advisor from company for legal advice, they should ensure that they can answer affirmatively the five factors of the Graf test.

Corporate counsel should clearly communicate the limits of solicitor-client privilege at the start of the relationship and over time during engagement, as they should not expect employees to be familiar with it. complex area of ​​law. Nonetheless, Cousins ​​J. did not consider Boies Schiller’s failure to inform Holmes as a consequence when he decided to reject his claims of privilege. Therefore, company management and employees should keep the aforementioned tips in mind when speaking to a corporate lawyer to avoid making the same mistake as Holmes.

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