Contractual Waiver of Corporate Attorney-Client Privilege

By Kressel, Mark A. | The Yale Law Journal, November 2006 | Go to article overview

Contractual Waiver of Corporate Attorney-Client Privilege


Kressel, Mark A., The Yale Law Journal


NOTE CONTENTS

INTRODUCTION

  I. THE LEGAL FRAMEWORK
     A. The Advice of Counsel Defense
        1. Use of the Defense in Practice
        2. The Doctrinal Nature of the Defense
     B. The Impasse
     C. Current Federal and State Jurisprudence

 II. POSSIBLE SOLUTIONS
     A. The Impasse as Agency Cost
     B. Ex Post Solutions
        1. Piercing the Privilege
        2. Motion in Limine
        3. Doctrinal Solutions: The Constitutional Right to a Defense
     C. Ex Ante Solutions
        1. Multiple Clients or Multiple Lawyers
        2. Contracting for Waiver of Privilege

III. CONTRACTING SOLUTIONS IN DEPTH
     A. Are Contractual Waivers of Privilege Enforceable?
     B. The Corporation's Incentives
     C. Default and Mandatory Rules
        1. Default Rules
        2. Mandatory Rules
     D. The Terms of the Agreement

CONCLUSION

INTRODUCTION

The succession of shocking corporate scandals since 2002, coupled with increased scrutiny from Congress, the Department of Justice (DOJ), and the Securities and Exchange Commission (SEC), has increased public interest in holding corporate directors and executives personally liable for corporate malfeasance. (1) The DOJ may initiate a suit as a prosecutor for criminal fraud or as a civil plaintiff under the False Claims Act, (2) and since 2002, the number of federal civil fraud charges has increased by as much as 30%. (3) The Office of the Attorney General created the Corporate Fraud Task Force (CFTF) in July 2002 to prosecute criminal corporate malfeasance and to "restore confidence to the marketplace." (4) By late 2005, the CFTF reported that since its inception it had secured over 700 corporate fraud convictions, including convictions of more than 100 corporate CEOs and presidents, 80 vice presidents, and 30 CFOs. (5)

When a corporate director finds herself under investigation for fraud for corporate actions that she approved or implemented, (6) one defense she may wish to raise is her good faith reliance on the advice of the corporation's counsel that the actions were legal. (7) Generally, when a defendant raises this "advice of counsel defense," the court requires her to waive the attorney-client privilege with respect to the legal opinions upon which she relied. However, the corporate director who hopes to raise this defense faces a unique challenge: she is not actually the holder of the attorney-client privilege, because the corporation was the client who retained the counsel's services. Although society expects and even requires directors to rely on the legal advice of their corporation's counsel, (8) courts have consistently held that the corporation is the sole holder of the attorney-client privilege (9) because to hold otherwise would eviscerate the privilege. (10) Therefore, if a director, sued in her individual capacity, wishes to raise an advice of counsel defense and the corporation refuses to waive its privilege, the legal system reaches an impasse in which two fundamental doctrines are at loggerheads: the defendant director's right to defend herself and the corporation's right to maintain its attorney-client privilege.

This Note examines possible solutions to this impasse and argues that the best solution is to encourage directors and corporations to contract ex ante: the corporation will waive its attorney-client privilege if the director, sued in her individual capacity, needs to raise an advice of counsel defense. The default privilege rule should hold all attorney-corporation communications to be presumptively privileged by the corporation; in other words, the default should preserve the current law on establishing attorney-client privilege. (11) When the parties have contracted for waiver of the privilege, however, courts should enforce such contracts. Furthermore, courts should encourage the director and corporation to contract for waiver by enforcing a mandatory exclusionary rule. …

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