Examination Tools Part 3: Which Communications Should Receive Privilege?
When firms are proactive in educating their staff, that training should not only define attorney-client privilege, but also help staff identify which communications can, and should, be privileged. There are firms that are careless about preserving their attorney-client privilege, even as the government and its regulators pursue their interest in eroding this right. The European Union has vigorously fought against the very existence of attorney-client privilege with in-house counsel. Even in North America, there is a clear difference with the treatment of privilege between internal and outside counsel.
Technological safeguards can be a firm’s first defense against infringements of its rights. Although it can prove difficult to maintain, a vigilant firm that actively protects its privilege will absolutely benefit when their regulator submits its next examination document request, or it receives a disgruntled customer’s subpoena.
Methods of Protecting Attorney-Client Privilege
There are many methods a prudent firm can employ to protect itself. Firms could require their in-house counsel to utilize different email accounts for business and legal discussions. This straightforward method can be an excellent first measure to both enable staff compliance with privilege policies, as well as provide a front-line defense against discovery.
Firms should require personnel to use "Attorney-Client Privileged" in email subject lines, not only for the ease in discovery but also to keep staff actively mindful of firm privilege policies. Firms should also require that staff issue reports in pdf form, which can scrub much of an editable document’s metadata. Although some state bar associations have placed proscriptions against an attorney “mining” a document’s metadata for information that could advance their case, it is unlikely to stop an attorney empowered by a federal regulator. The responsibility remains on the sender.
The Precedent for Attorney-Client Privilege in Corporate Communications
While a firm cannot rely on its staff to perform legal analysis of privilege, it can educate itself on what that analysis consists of and how it is made. There were two competing tests for attorney-client privilege in the corporate setting. In 1981 the United States Supreme Court settled the matter, for federal courts, with their analysis from Upjohn Co. v United States, 449 U.S. 383. The Upjohn test allows for privilege to exist with staff members at any level of a company, so long as the communication was:
- For the purpose of legal advice at the direction of a corporate superior for the corporation
- Within the scope of the employee’s duties
- Not disseminated beyond those who “need to know”
Such dissemination is particularly easy to track for forms of electronic communication. For firms and staff, the analysis can be more simply asked, “was legal advice sought for the company from an attorney, acting as an attorney?” Performing this test can function as a first step for personnel in protecting privilege in their communications with corporate counsel.
Other Tools for a Firm to Protect Attorney-Client Communications
There are a variety of other tools available to protect attorney-client communications between a firm and its counsel. None of this should supplant the legal advice of your counsel, but some of the following have enabled firms to be successful in maintaining privilege at all levels of personnel.
- Recognizing that the purpose of the meeting or communication must be primarily or predominately engaging the attorney to provide legal advice, it is understood that clients’ discussion of business affairs could receive the protection of privilege if they are incidental to the legal advice.
- Include a privilege clause as part of an employee’s severance package to ensure post-employment protection.
- Maintain meeting minutes in a confidential file if an attorney is present and the firm will seek to exercise its attorney-client privilege over the discussion.
- Ensure the firm’s counsel utilize claw-back provisions during discovery production. These can allow for the safe return of inadvertently disclosed communications that should receive attorney-client privilege.
- Always engage outside legal counsel immediately upon receipt of an SEC, FINRA, or another regulator’s examination letter. The initial correspondence between a firm and its regulator can set the tone for the entire examination process. The same holds true for the receipt of notice of a private lawsuit.
As mentioned at the beginning, allow your compliance consultants to be retained through your legal counsel, even if they have an ongoing agreement with the firm in place. Attorneys often rely upon consultants’ expertise to effectively represent and communicate with their client. The extension of attorney-client privilege to outside consultants is widely recognized, and consultants are often integral to the quality of counsel’s investigatory efforts and how the results are conveyed.
However, the third-party consultant must be at least “highly-useful,” serving in some specialized purpose. The SEC has had some recent success in pushing back against the extension of this privilege when the retained consultants were merely helpful or convenient. It is critical that a firm engages outside legal counsel who then retains the consultant out of necessity, and that communications of all parties are tailored to this reality.
Conclusion: Training, Compliance Guidance and Agreement Are Key
A firm that enables strong training and meaningful compliance guidance is likely to preserve and maintain its attorney-client privilege. However, this firm’s privilege will only be effective so long as its personnel understands and abides by the firm’s policies. A lapse in respecting the seriousness of attorney-client privilege can cause the protection to be meaningless under regulatory scrutiny.
It is critical that modern firms neither misuse or neglect their confidential privilege when casually communicating amongst coworkers and with the public. A firm should be able to identify what attorney-client confidentiality covers, which communications receive privilege, and what actions can waive these protections.
Attorneys, non-lawyers, and any party that the attorney-client privilege may apply to must all work together to maintain mindfulness over their privileged communications. Whether seeking advice on the latest independent examination, a regulatory inquiry, or the legal ramifications of a business decision, always perform a privilege analysis. The protection this affords can shape the outcome of a legal or administrative proceeding, and ultimately the success of your firm.
This is the final installment in a three-part series about regulatory examinations and attorney-client privilege. In part one, we discussed the sensitive nature of emails and how to protect privilege. In part two, we covered social media and other personal communications, and how privilege can be misused and potentially waived.
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About the firm:
MGL Consulting, LLC is a full-service consulting firm with a broad array of clients both domestically and internationally. Since its founding in 1984, MGL has played a leadership role in the financial services consulting industry. The firm provides compliance, registration and strategic consulting services to broker-dealers, investment advisors and commodities firms. The firm’s senior staff have specialized expertise in compliance, regulatory, operations, legal and accounting disciplines. As such, MGL also provides litigation support and expert witness services to the legal community.
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