Attorney-Client Privilege

Evidence of past communications among company counsel and personnel can be critical to a former officer defending against a government investigation or company-initiated lawsuit. It can help establish what the ex-officer knew and when he knew it to support a defense of lack of guilty knowledge, or it may be used to mount an advice-of-counsel defense. In addition, where a company is cooperating with the government and has turned over privileged documents, access to the documents can give the former officer valuable insight into the government's case. Even where the company has produced privileged materials to the government, it typically will claim that that production was made pursuant to a limited privilege waiver and will refuse to share the materials with the ex-officer.

The New York Appellate Division recently held that the attorney-client privilege may not be used to prevent a former corporate officer from gaining access to privileged communications between a company and its outside counsel. People v. Greenberg, 851 N.Y.S.2d 196 (1st Dep't, Feb. 19, 2008). Greenberg involved a civil suit brought by the N.Y. Attorney General against Maurice 'Hank' Greenberg, the former CEO of AIG, and Howard Smith, the company's former CFO. The suit alleged that the defendants had authorized 'sham' transactions and other schemes that created an inaccurate picture of AIG's financial performance. Both defendants asserted advice-of-counsel defenses and served subpoenas on AIG seeking access to legal memoranda that were prepared during their tenures at the company. AIG refused to produce the requested documents on grounds of attorney-client and work product privileges.

While the lower court denied Greenberg and Smith's motion to compel, the Appellate Division reversed and held that they were entitled to view the privileged materials. The court first noted that Greenberg and Smith, as former directors, would have a qualified right to inspect AIG's books and records to the extent it was necessary to protect their 'personal responsibility interests.' Because Greenberg and Smith were asserting advice-of-counsel defenses, the court held that they met this requirement.

The court next observed that the control over the attorney-client privilege enjoyed by a corporation and its current board of directors under New York law, see Tekni-Plex, Inc. v. Meyer & Landis, 89 N.Y.2d 123, 136 (1996), was not the dispositive question in this case. Rather, the court found the issue to be whether Greenberg and Smith were entitled to view the privileged documents notwithstanding their lack of control over the privilege. The court held that they were, because: 1) their conduct as directors had been called into question; and 2) they were privy to the legal advice during their tenures as directors. The court specifically noted, however, that while a former director may be entitled to view privileged information from the time he served as a director, the former director is also obligated to keep such information confidential because the privilege belongs to the corporation.

The holding in Greenberg is consistent with holdings of other courts on this issue. See, e.g., Wechsler v. Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 994 F. Supp. 202, 212 n.5 (S.D.N.Y. 1997); Moore Bus. Forms, Inc. v. Cordant Holdings Corp., 1996 Del. Ch. LEXIS 56, *12 (Del. Ch. June 4, 1996). Thus, while it is common for a corporation to refuse to make privileged materials available to a former officer or director, the law actually supports a right of access, at least where the officer or director would have had access to the materials during the term of employment, and where the materials are relevant to some defense that the officer or director may assert in litigation.

Use of Corporate E-mail and Computers

Another contentious question is the extent to which use of corporate e-mail accounts or computers to communicate with personal attorneys waives the attorney-client privilege of an employee. Because companies monitor e-mails sent or received through company accounts, so the employee may lack the reasonable expectation of confidentiality that is generally a prerequisite to claiming privilege. Even communications sent over personal e-mail accounts like Yahoo! Or GMail arguably may not be deemed sufficiently confidential because companies may monitor Web sites visited by employees.

This issue has been litigated with increasing frequency in recent years. A leading case is the bankruptcy court's decision in In re Asia Global Crossing Ltd., 322 B.R. 247 (Bankr. S.D.N.Y. 2005). There, several former corporate officers asserted privilege over e-mails that were subpoenaed by a bankruptcy trustee. The trustee moved to compel production, arguing that any privilege attaching to the e-mails was waived because the former officers communicated with their personal counsel through the company's e-mail system. The court upheld the privilege assertion, noting that the prevailing view is that lawyers and clients may communicate through unencrypted e-mail without waiving attorney-client privilege, even though others may have access to that e-mail. See, e.g., New York C.P.L.R. ' 4548; Cal. Evid. Code ' 917(b).

The court then set out a four-factor test for determining whether employees have a reasonable expectation of privacy in their e-mails: '1) does the corporation maintain a policy banning personal or other objectionable use; 2) does the company monitor the use of the employee's computer or e-mail; 3) do third parties have a right of access to the computer or e-mails; and 4) did the corporation notify the employee, or was the employee aware, of the use and monitoring policies.'

Applying these factors, the court ruled that privilege had not been waived because evidence of the corporation's e-mail monitoring policy was ambiguous. In particular, the court noted that while there was some evidence of policies stating that e-mails were not private, the individuals in question, including the former General Counsel, contended that they were not aware of any such policies. Finally, there was no evidence that the company had ever enforced such policies. Because the evidence was not clear, the court ruled that the officers had not waived privilege.

More recently, a federal magistrate judge ruled that an employee did not waive attorney-client privilege by communicating with personal counsel over a corporate e-mail system. Mason v. ILS Technologies, LLC, 2008 U.S. Dist. LEXIS 28905 (W.D.N.C. Feb. 29, 2008). The ruling noted that there was no evidence that the company had conveyed its e-mail monitoring policy to the employee, and the employee submitted an affidavit asserting that he was unaware of the policy.

Reaching a different conclusion, a federal district court in New Jersey affirmed a magistrate judge's ruling that an employee had waived attorney-client privilege through use of a company e-mail system. Kaufman v. SunGard Investment Systems, 2006 U.S. Dist. LEXIS 28149 (D.N.J. May 9, 2006). Because there was no dispute that the company could search and monitor the employee's e-mail and that the employee had agreed to abide by the company's e-mail policy, the court held that the employee had no reasonable expectation of privacy in his e-mail.

All three cases discussed above turned on whether the former employees had a reasonable expectation of privacy in their e-mail. If, as in Kaufman, the company's e-mail monitoring policy is clear and the company notifies the employee of the policy, it appears that the employee has no reasonable expectation of privacy and therefore waives any attorney-client privilege when using the e-mail system. In contrast, if the policy is ambiguous, or if it is unclear whether the company notified the employee of the policy, then courts may be reluctant to find waiver.

Steven F. Reich ([email protected]), a member of this newsletter's Board of Editors, is co-chair of the Criminal Defense and Investigations practice group at Manatt, Phelps & Phillips, LLP, New York, where Arunabha Bhoumik is an associate.

After officers or directors of a publicly traded company are accused of wrongdoing and are terminated or resign, they may find themselves defending against government investigations or civil litigation. When this happens, the interests of ex-officers likely will be adverse to their former employer. The company might cooperate with a government investigation of former officers or even sue the officers itself.

This article examines two issues that can arise when a company and its former officer or director are adverse to each other and one seeks access to potentially privileged documents of the other. First, the article reviews the circumstances under which the former officer may access communications between the company and its counsel that occurred during the period of the officer's employment. Second, the article examines whether the ex-officer may assert the attorney-client privilege against a former employer who seeks access to communications that the officer had with his or her personal lawyer over the company's computer or e-mail system.

Access to Communications Between a Company and Its Counsel

Evidence of past communications among company counsel and personnel can be critical to a former officer defending against a government investigation or company-initiated lawsuit. It can help establish what the ex-officer knew and when he knew it to support a defense of lack of guilty knowledge, or it may be used to mount an advice-of-counsel defense. In addition, where a company is cooperating with the government and has turned over privileged documents, access to the documents can give the former officer valuable insight into the government's case. Even where the company has produced privileged materials to the government, it typically will claim that that production was made pursuant to a limited privilege waiver and will refuse to share the materials with the ex-officer.

The New York Appellate Division recently held that the attorney-client privilege may not be used to prevent a former corporate officer from gaining access to privileged communications between a company and its outside counsel. People v. Greenberg , 851 N.Y.S.2d 196 (1st Dep't, Feb. 19, 2008). Greenberg involved a civil suit brought by the N.Y. Attorney General against Maurice 'Hank' Greenberg, the former CEO of AIG, and Howard Smith, the company's former CFO. The suit alleged that the defendants had authorized 'sham' transactions and other schemes that created an inaccurate picture of AIG's financial performance. Both defendants asserted advice-of-counsel defenses and served subpoenas on AIG seeking access to legal memoranda that were prepared during their tenures at the company. AIG refused to produce the requested documents on grounds of attorney-client and work product privileges.

While the lower court denied Greenberg and Smith's motion to compel, the Appellate Division reversed and held that they were entitled to view the privileged materials. The court first noted that Greenberg and Smith, as former directors, would have a qualified right to inspect AIG's books and records to the extent it was necessary to protect their 'personal responsibility interests.' Because Greenberg and Smith were asserting advice-of-counsel defenses, the court held that they met this requirement.

The court next observed that the control over the attorney-client privilege enjoyed by a corporation and its current board of directors under New York law, see Tekni-Plex, Inc. v. Meyer & Landis , 89 N.Y.2d 123, 136 (1996), was not the dispositive question in this case. Rather, the court found the issue to be whether Greenberg and Smith were entitled to view the privileged documents notwithstanding their lack of control over the privilege. The court held that they were, because: 1) their conduct as directors had been called into question; and 2) they were privy to the legal advice during their tenures as directors. The court specifically noted, however, that while a former director may be entitled to view privileged information from the time he served as a director, the former director is also obligated to keep such information confidential because the privilege belongs to the corporation.

The holding in Greenberg is consistent with holdings of other courts on this issue. See , e.g. , Wechsler v. Squadron, Ellenoff, Plesent & Sheinfeld, LLP , 994 F. Supp. 202, 212 n.5 (S.D.N.Y. 1997); Moore Bus. Forms, Inc. v. Cordant Holdings Corp., 1996 Del. Ch. LEXIS 56, *12 (Del. Ch. June 4, 1996). Thus, while it is common for a corporation to refuse to make privileged materials available to a former officer or director, the law actually supports a right of access, at least where the officer or director would have had access to the materials during the term of employment, and where the materials are relevant to some defense that the officer or director may assert in litigation.

Use of Corporate E-mail and Computers

Another contentious question is the extent to which use of corporate e-mail accounts or computers to communicate with personal attorneys waives the attorney-client privilege of an employee. Because companies monitor e-mails sent or received through company accounts, so the employee may lack the reasonable expectation of confidentiality that is generally a prerequisite to claiming privilege. Even communications sent over personal e-mail accounts like Yahoo! Or GMail arguably may not be deemed sufficiently confidential because companies may monitor Web sites visited by employees.

This issue has been litigated with increasing frequency in recent years. A leading case is the bankruptcy court's decision in In re Asia Global Crossing Ltd., 322 B.R. 247 (Bankr. S.D.N.Y. 2005). There, several former corporate officers asserted privilege over e-mails that were subpoenaed by a bankruptcy trustee. The trustee moved to compel production, arguing that any privilege attaching to the e-mails was waived because the former officers communicated with their personal counsel through the company's e-mail system. The court upheld the privilege assertion, noting that the prevailing view is that lawyers and clients may communicate through unencrypted e-mail without waiving attorney-client privilege, even though others may have access to that e-mail. See, e.g., New York C.P.L.R. ' 4548; Cal. Evid. Code ' 917(b).

The court then set out a four-factor test for determining whether employees have a reasonable expectation of privacy in their e-mails: '1) does the corporation maintain a policy banning personal or other objectionable use; 2) does the company monitor the use of the employee's computer or e-mail; 3) do third parties have a right of access to the computer or e-mails; and 4) did the corporation notify the employee, or was the employee aware, of the use and monitoring policies.'

Applying these factors, the court ruled that privilege had not been waived because evidence of the corporation's e-mail monitoring policy was ambiguous. In particular, the court noted that while there was some evidence of policies stating that e-mails were not private, the individuals in question, including the former General Counsel, contended that they were not aware of any such policies. Finally, there was no evidence that the company had ever enforced such policies. Because the evidence was not clear, the court ruled that the officers had not waived privilege.

More recently, a federal magistrate judge ruled that an employee did not waive attorney-client privilege by communicating with personal counsel over a corporate e-mail system. Mason v. ILS Technologies, LLC, 2008 U.S. Dist. LEXIS 28905 (W.D.N.C. Feb. 29, 2008). The ruling noted that there was no evidence that the company had conveyed its e-mail monitoring policy to the employee, and the employee submitted an affidavit asserting that he was unaware of the policy.

Reaching a different conclusion, a federal district court in New Jersey affirmed a magistrate judge's ruling that an employee had waived attorney-client privilege through use of a company e-mail system. Kaufman v. SunGard Investment Systems, 2006 U.S. Dist. LEXIS 28149 (D.N.J. May 9, 2006). Because there was no dispute that the company could search and monitor the employee's e-mail and that the employee had agreed to abide by the company's e-mail policy, the court held that the employee had no reasonable expectation of privacy in his e-mail.

All three cases discussed above turned on whether the former employees had a reasonable expectation of privacy in their e-mail. If, as in Kaufman, the company's e-mail monitoring policy is clear and the company notifies the employee of the policy, it appears that the employee has no reasonable expectation of privacy and therefore waives any attorney-client privilege when using the e-mail system. In contrast, if the policy is ambiguous, or if it is unclear whether the company notified the employee of the policy, then courts may be reluctant to find waiver.

Steven F. Reich ([email protected]), a member of this newsletter's Board of Editors, is co-chair of the Criminal Defense and Investigations practice group at Manatt, Phelps & Phillips, LLP, New York, where Arunabha Bhoumik is an associate.