e-Commerce Attorney-Client Privileged Records Have a Right to Die Too

How Client Records Are Shielded from View

Client records are protected from court-ordered disclosure in two principle ways:

1. Attorney-client privilege against disclosure codified in federal and state statues; and
2. Federal and state privacy legislation that protects against the disclosure of attorney-held client records.

The attorney-client privilege is a court-recognized defense against the disclosure of confidential communications between lawyers and their clients. This confidentiality doctrine protects against the required disclosure of any confidential information given by a client to his or her attorney during the course of seeking professional legal advice. Coverage of these communications has been expanded to include spoken or written words, as well as acts, including e-commerce records that are intended to convey a message.

The reasoning laid out in 'The Right to Privacy,' an article published in the Harvard Law Review in 1890 by law partners Samuel Warren and Louis Brandeis is often cited as the analytical basis for the occasional judicial recognition of the concept of privacy. In the constitutional arena, the demand for life, liberty and property free from government deprivation 'without due process of law' inherently reflects a requirement of the right of privacy. In particular, client records are protected against governmental disclosure by the Fourteenth Amendment to the U.S. Constitution, which provides that no state shall 'deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws' and by the Fifth Amend-ment, which states that no person shall 'be deprived of life, liberty or property, without due process of law.'

Shedding Light ' Maybe Indiscriminately

The Aug. 9, 2006, order of the U.S. Bankruptcy Court promulgated the granting of an order authorizing the abandonment of Brobeck, Phleger & Harrison's digital records and related exhibits. The attorney-client records were in the possession of a court-appointed trustee as a result of a bankruptcy proceeding and were sought by the Library of Congress as having potential historical value.

The court, rather than taking the traditional position that attorney-client communications may be disclosed if the client affirmatively waivers the attorney-client privilege, took the position that unless a client takes specific action as specified by the court, then public disclosure would be made. Specifically, pursuant to a court order, Brobeck, Phleger & Harrison clients may elect to 'opt-out' of the disclosure of attorney-client communications by completing an option notice and submitting it to the Library of Congress.

The court order noted that the transmission of the notice of abandonment is a reasonable means of locating former Brobeck clients in an effort to advise former clients of their opportunity to decline to have their attorney-client communications made available to third parties. The court also noted that failure to respond was tantamount to waiving their attorney-client confidentiality and thus, making their records immediately available to the public.

It should be noted that the records of the Brobeck attorney-client communications were transferred in August 2006 and accessible to archivists, scholars, governmental officials and others shortly thereafter. The processing of opt-out requests continues.

Proponents of the disclosure cited as precedent the fact that client records have been included in donations made to the Library of Congress. They cited, for instance, donations by Joseph Rauh, a civil rights lawyer, and Kenneth Simpson, a New York lawyer. These donations, however, were made willingly, whereas the Brobeck, Phleger & Harrison records were disclosed unwillingly.

Proponents of the disclosure also suggest that courts have been involved in the disposition of sensitive client records following a partnership bankruptcy, particularly in a case involving the patient records of a bankrupt medical practice. They fail, however, to differentiate between the disclosure of records to the public and a court order requiring medical records to be held indefinitely by a local hospital under a set of guidelines allowing patients to retrieve the records as necessary.

Also, proponents of the disclosure may argue that the Brobeck, Phleger & Harrison records were generally not covered by the attorney-client privilege because the Brobeck firm generally took an equity interest in clients. Brobeck, like other tech-oriented firms during the dot-com boom, invested in 30 venture-capital firms and 220 companies. If a lawyer owns an equity interest in a client, then a court could view the communications between the lawyer and the client as involving non-legal matters, which are not covered by the attorney-client privilege.

Some Obligations Persist

The termination of Brobeck, Phleger & Harrison does not terminate the duties of the trustees of the firm's assets, which include the Brobeck, Phleger & Harrison client records, and these records should be protected under attorney-client privilege, according to the ABA Model Rules of Professional Conduct. Although representation should terminate when the attorney is no longer able to represent the client adequately, the lawyer's fiduciary obligations of loyalty and confidentiality continue beyond the termination of the agency relationship. (See, ABA Formal Opinion 92-369 (1992)).

Rather than disclosing attorney-client privileged e-commerce records to third parties, the Brobeck, Phleger & Harrison court should have applied traditional client file-retention rules. The question of how long a lawyer must retain client files of cases that are closed is one that is regularly resolved. Model Rule 1.16(d) states: 'Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law.'

Of the states that have adopted new rules since the ABA's adoption of the Model Rules, the following have either made significant changes in the recordkeeping requirements of Rule 1.15(a) or have specifically modified the rule's suggested time period for preserving records of account funds and property. These states have six-year records-retention periods:

• Alabama;
• Alaska;
• Colorado;
• Florida;
• Georgia;
• North Dakota; and
• South Carolina

States with seven-year records-retention periods are:

• Illinois;
• Mississippi; and
• Nevada.

Other states have modified the required holding period by adjusting the start time. For example, New Hampshire's rule incorporates the New Hampshire Supreme Court's stipulation with respect to required recordkeeping, and uses a retention period of six years after final distribution, rather than measuring the period from the date of the conclusion of the representation. New Jersey uses a records-retention period of seven years after the event recorded, rather than measuring the period from the date of the conclusion of the representation.

e-Commerce Not Given Equal Consideration

No state retention law singles out e-commerce related records in its rules, nor does any state address the e-commerce question in an informal opinion, despite the fact that the question of what should be retained and when items may be destroyed is well considered. Weigh, for example, California Opinion 2001-157 (undated), which states that a lawyer must retain original papers and property received from a former client, including estate-planning documents, according to the law of deposits and the Probate Code. Other client papers and property in civil cases, including correspondence, pleadings, deposition transcripts, exhibits, physical evidence and experts' reports, may be destroyed, absent a prior contrary agreement, after the lawyer uses reasonable means to notify the client of their intended destruction and the lawyer gives the client a reasonable time to respond. If the lawyer is unable to locate the former client, the lawyer then may destroy items, the retention of which is not required by law and is not reasonably necessary to the client's future legal representation.

Similarly, Maine Opinion 187 (11/5/04) requires that a lawyer must preserve and, on request deliver to the client, all client property and any material not otherwise available to the client that another lawyer or the client would reasonably need to take up representation in the matter. Materials provided by the client, such as money, securities, promissory notes, tax returns, the client's own notes and finished work product that the client has paid for, constitute client property that must be preserved and returned on request. Items that are 'valuable' to the client would include all:

• Pleadings;
• Correspondence;
• Research memorandums;
• Notes; and
• Drafts of documents that might still be used.

The issue of electronic records has also been addressed by opinion letters. Opinions haven't required that electronic records such as the ones at issue in the Brobeck case be kept indefinitely; rather, the opinion letters specifically allow for the destruction of e-records. Maine Opinion 185 (4/1/04), permitting a lawyer to operate an electronic file-storage business for other lawyers and law firms, states that as part of the business, the lawyer may destroy files after culling from them documents that should be retained, and scanning the remainder into an electronic format that will remain accessible. Culling is itself a legal service, so the business will be governed by the Code of Professional Responsibility. Clearly, the fact that the Brobeck documents were electronic was not the basis for treating the e-commerce records differently from how traditional attorney-client records are treated.

Records Disposal Is Well Established

Opinions, such as Maryland Opinion 2005-01 (10/13/04), clearly state that the owners of attorney-client records have a right to destroy old files. That opinion states that a lawyer should determine which part of the file constitutes property of the client. If five years have passed since termination of representation of the client, no originals are in the files and the lawyer has offered to return the file to the client but has received no response from the client, then the lawyer can dispose of the files. If five years have not passed since termination of representation, then the lawyer must retain the files for five years and should use reasonable efforts to deliver the property to the client or third party.

Likewise, Pennsylvania Ethics Opinion 2002-27 (3/22/02) states that a lawyer is not required to pay storage costs for retaining the files of a competent former client who has refused to respond to the lawyer's requests to take responsibility for the files, and who has been notified that the records will be destroyed unless removed within a reasonable time.

e-Commerce records may have less legal protection from disclosure than traditional commerce records ' a situation that might cause some concern for e-commerce company principals, their counsel and customers ' even after the companies, and the law firms representing them, no longer exist.

Traditionally, the forced disclosure of attorney-controlled confidential client records for the stated purpose of disclosure to the general public is unprecedented. But the U.S. Bankruptcy Court's Aug. 9, 2006, order of the abandonment of e-commerce records contradicts traditional protections afforded to attorney-client records (United States Bankruptcy Court Northern District of California San Francisco Division, case number 03-32715-DM7).

The court order is contrary to the expansion of principles relating to the attorney-client privilege that has occurred during the last 30 years. It's also contrary to recent trends toward protecting the privacy of individuals.

How Client Records Are Shielded from View

Client records are protected from court-ordered disclosure in two principle ways:

1. Attorney-client privilege against disclosure codified in federal and state statues; and
2. Federal and state privacy legislation that protects against the disclosure of attorney-held client records.

The attorney-client privilege is a court-recognized defense against the disclosure of confidential communications between lawyers and their clients. This confidentiality doctrine protects against the required disclosure of any confidential information given by a client to his or her attorney during the course of seeking professional legal advice. Coverage of these communications has been expanded to include spoken or written words, as well as acts, including e-commerce records that are intended to convey a message.

The reasoning laid out in 'The Right to Privacy,' an article published in the Harvard Law Review in 1890 by law partners Samuel Warren and Louis Brandeis is often cited as the analytical basis for the occasional judicial recognition of the concept of privacy. In the constitutional arena, the demand for life, liberty and property free from government deprivation 'without due process of law' inherently reflects a requirement of the right of privacy. In particular, client records are protected against governmental disclosure by the Fourteenth Amendment to the U.S. Constitution, which provides that no state shall 'deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws' and by the Fifth Amend-ment, which states that no person shall 'be deprived of life, liberty or property, without due process of law.'

Shedding Light ' Maybe Indiscriminately

The Aug. 9, 2006, order of the U.S. Bankruptcy Court promulgated the granting of an order authorizing the abandonment of Brobeck, Phleger & Harrison's digital records and related exhibits. The attorney-client records were in the possession of a court-appointed trustee as a result of a bankruptcy proceeding and were sought by the Library of Congress as having potential historical value.

The court, rather than taking the traditional position that attorney-client communications may be disclosed if the client affirmatively waivers the attorney-client privilege, took the position that unless a client takes specific action as specified by the court, then public disclosure would be made. Specifically, pursuant to a court order, Brobeck, Phleger & Harrison clients may elect to 'opt-out' of the disclosure of attorney-client communications by completing an option notice and submitting it to the Library of Congress.

The court order noted that the transmission of the notice of abandonment is a reasonable means of locating former Brobeck clients in an effort to advise former clients of their opportunity to decline to have their attorney-client communications made available to third parties. The court also noted that failure to respond was tantamount to waiving their attorney-client confidentiality and thus, making their records immediately available to the public.

It should be noted that the records of the Brobeck attorney-client communications were transferred in August 2006 and accessible to archivists, scholars, governmental officials and others shortly thereafter. The processing of opt-out requests continues.

Proponents of the disclosure cited as precedent the fact that client records have been included in donations made to the Library of Congress. They cited, for instance, donations by Joseph Rauh, a civil rights lawyer, and Kenneth Simpson, a New York lawyer. These donations, however, were made willingly, whereas the Brobeck, Phleger & Harrison records were disclosed unwillingly.

Proponents of the disclosure also suggest that courts have been involved in the disposition of sensitive client records following a partnership bankruptcy, particularly in a case involving the patient records of a bankrupt medical practice. They fail, however, to differentiate between the disclosure of records to the public and a court order requiring medical records to be held indefinitely by a local hospital under a set of guidelines allowing patients to retrieve the records as necessary.

Also, proponents of the disclosure may argue that the Brobeck, Phleger & Harrison records were generally not covered by the attorney-client privilege because the Brobeck firm generally took an equity interest in clients. Brobeck, like other tech-oriented firms during the dot-com boom, invested in 30 venture-capital firms and 220 companies. If a lawyer owns an equity interest in a client, then a court could view the communications between the lawyer and the client as involving non-legal matters, which are not covered by the attorney-client privilege.

Some Obligations Persist

The termination of Brobeck, Phleger & Harrison does not terminate the duties of the trustees of the firm's assets, which include the Brobeck, Phleger & Harrison client records, and these records should be protected under attorney-client privilege, according to the ABA Model Rules of Professional Conduct. Although representation should terminate when the attorney is no longer able to represent the client adequately, the lawyer's fiduciary obligations of loyalty and confidentiality continue beyond the termination of the agency relationship. (See, ABA Formal Opinion 92-369 (1992)).

Rather than disclosing attorney-client privileged e-commerce records to third parties, the Brobeck, Phleger & Harrison court should have applied traditional client file-retention rules. The question of how long a lawyer must retain client files of cases that are closed is one that is regularly resolved. Model Rule 1.16(d) states: 'Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law.'

Of the states that have adopted new rules since the ABA's adoption of the Model Rules, the following have either made significant changes in the recordkeeping requirements of Rule 1.15(a) or have specifically modified the rule's suggested time period for preserving records of account funds and property. These states have six-year records-retention periods:

• Alabama;
• Alaska;
• Colorado;
• Florida;
• Georgia;
• North Dakota; and
• South Carolina

States with seven-year records-retention periods are:

• Illinois;
• Mississippi; and
• Nevada.

Other states have modified the required holding period by adjusting the start time. For example, New Hampshire's rule incorporates the New Hampshire Supreme Court's stipulation with respect to required recordkeeping, and uses a retention period of six years after final distribution, rather than measuring the period from the date of the conclusion of the representation. New Jersey uses a records-retention period of seven years after the event recorded, rather than measuring the period from the date of the conclusion of the representation.

e-Commerce Not Given Equal Consideration

No state retention law singles out e-commerce related records in its rules, nor does any state address the e-commerce question in an informal opinion, despite the fact that the question of what should be retained and when items may be destroyed is well considered. Weigh, for example, California Opinion 2001-157 (undated), which states that a lawyer must retain original papers and property received from a former client, including estate-planning documents, according to the law of deposits and the Probate Code. Other client papers and property in civil cases, including correspondence, pleadings, deposition transcripts, exhibits, physical evidence and experts' reports, may be destroyed, absent a prior contrary agreement, after the lawyer uses reasonable means to notify the client of their intended destruction and the lawyer gives the client a reasonable time to respond. If the lawyer is unable to locate the former client, the lawyer then may destroy items, the retention of which is not required by law and is not reasonably necessary to the client's future legal representation.

Similarly, Maine Opinion 187 (11/5/04) requires that a lawyer must preserve and, on request deliver to the client, all client property and any material not otherwise available to the client that another lawyer or the client would reasonably need to take up representation in the matter. Materials provided by the client, such as money, securities, promissory notes, tax returns, the client's own notes and finished work product that the client has paid for, constitute client property that must be preserved and returned on request. Items that are 'valuable' to the client would include all:

• Pleadings;
• Correspondence;
• Research memorandums;
• Notes; and
• Drafts of documents that might still be used.

The issue of electronic records has also been addressed by opinion letters. Opinions haven't required that electronic records such as the ones at issue in the Brobeck case be kept indefinitely; rather, the opinion letters specifically allow for the destruction of e-records. Maine Opinion 185 (4/1/04), permitting a lawyer to operate an electronic file-storage business for other lawyers and law firms, states that as part of the business, the lawyer may destroy files after culling from them documents that should be retained, and scanning the remainder into an electronic format that will remain accessible. Culling is itself a legal service, so the business will be governed by the Code of Professional Responsibility. Clearly, the fact that the Brobeck documents were electronic was not the basis for treating the e-commerce records differently from how traditional attorney-client records are treated.

Records Disposal Is Well Established

Opinions, such as Maryland Opinion 2005-01 (10/13/04), clearly state that the owners of attorney-client records have a right to destroy old files. That opinion states that a lawyer should determine which part of the file constitutes property of the client. If five years have passed since termination of representation of the client, no originals are in the files and the lawyer has offered to return the file to the client but has received no response from the client, then the lawyer can dispose of the files. If five years have not passed since termination of representation, then the lawyer must retain the files for five years and should use reasonable efforts to deliver the property to the client or third party.

Likewise, Pennsylvania Ethics Opinion 2002-27 (3/22/02) states that a lawyer is not required to pay storage costs for retaining the files of a competent former client who has refused to respond to the lawyer's requests to take responsibility for the files, and who has been notified that the records will be destroyed unless removed within a reasonable time.