Attorney-Client Privilege and Cross-Border Investigations

From Discovery Grows Privilege

Discovery in U.S. courts is broader than in virtually any other jurisdiction. The breadth of U.S. discovery is familiar to any U.S. litigator ' Rule 26(b)(1) of the Federal Rules permits a party to seek discovery of any “nonprivileged matter that is relevant to any party's claim or defense.”

The attorney-client privilege and the work product doctrine, on the other hand, are intended “to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). Indeed, U.S. courts have held that the attorney-client privilege is “absolute,” and is therefore broader than the protection that is accorded by some “privacy” statutes. Golden Trade, S.R.L. v. Jordache Inc., 143 F.R.D. 514 (SDNY 1992).

Thus, in a sense, the privilege acts as a counter-balance to, and limitation on, the widely permissive discovery available to litigants (and to prosecutors) in the United States. And, in the corporate context, communications between executives (and non-executives) and counsel may also be privileged. But can there be a reasonable ability to predict with any degree of certainty whether the privilege applies, when the rules of the game change?

Courts overseas simply do not have the same standards as exist here; and this was made abundantly clear in Akzo Nobel Chem. v. Comm'n, (C-550/07). Feb. 9, 2010. There, European Commission (EC) investigators raided a UK company as part of an antitrust investigation, seizing internal records, including communications with counsel. The European Court of Justice (ECJ) held that the attorney-client privilege does not protect communications with in-house counsel, as they are not (at least in this context) considered sufficiently independent from their employers. How does this affect the reasonable expectations of U.S. employers that their communications with overseas counsel will be protected by the privilege? Does Akzo Nobel dash these expectations on the shoreline?

Judge Shira A. Scheindlin's decision in an important case involving the attorney-client privilege may shed light on what a U.S. court's view of the matter could be. In Gucci America Inc. v. Guess? Inc., 2010 U.S. Dist. LEXIS 65871 (SDNY June 29, 2010), communications between the company and its in-house counsel became subject to disclosure. Imagine the company's surprise when it learned that its lawyer, Jonathan Moss, was an inactive member of the California bar.

The Magistrate Judge held that an attorney must be “actually authorized to engage in the practice of law” for communications to be privileged; he held that Gucci could not have reasonably believed that its employee was engaged to practice law (it had never undertaken any effort to ascertain his credentials), and ordered the discovery to go forward.

Judge Scheindlin, however, reversed. The court acknowledged the time-honored test of United States v. United Shoe Machinery Corp., 89 F.Supp. 357, 358-59 (D. Mass. 1950), requiring that for the privilege to apply, the person to whom communication was made must be a member of the bar of a court. Nevertheless, the court held that the Magistrate Judge's more narrow ruling was contrary to law and unduly restrictive.

Gucci had clearly intended the communications to be privileged, and the court held that it should not be penalized because of the attorney's inactive status. As the court recognized, “[t]he purpose of the privilege is to protect the client's communication, and to encourage full and frank disclosure when seeking legal advice, which is why the client holds the privilege and only the client can assert or waive it.”

The test of whether privilege applies in this context remains “whether the client had a reasonable belief that it was communicating with an attorney.” Gucci proved it had a reasonable belief Mr. Moss was an attorney by citing to the legal services he provided and his law degree, among other factors.

Which Law Applies?

When deciding whether the U.S. or foreign law of privilege applies to a discovery controversy, U.S. courts generally utilize principles of comity, or the “touching base” approach. The Gucci court noted that this focuses on the jurisdiction with the “predominant interest,” “the place where the allegedly privileged relationship was entered into,” or “the place in which that relationship was centered at the time the communication was sent.”

In determining whether the privilege protects communications that occurred overseas or involved foreign attorneys, courts will generally defer to the law of the country that has the “predominant” or “most direct and compelling interest” in whether those communications should remain confidential. The jurisdiction with the predominant interest typically is either the place where the allegedly privileged relationship was formed or where the relationship was centered at the time of the communication.

The Restatement of Foreign Relations Law '442 lists factors courts should consider, including:

• Importance of the documents to litigation;
• Respective interests of the U.S. and foreign national;
• Degree of specificity of request;
• Whether the information originated in the U.S.;
• Availability of alternate means to get the information;
• Hardship of compliance; and
• Good faith of party resisting discovery.

The Hague Convention is a multi-lateral treaty through which signatories agree to permit limited cross-border discovery of documents and testimony. Many signatories reject the U.S. approach of discovery and have opted out of provisions permitting common law pretrial discovery.

While U.S. courts often consider and make use of the procedures available under the Hague Convention when determining whether to permit overseas discovery, some courts are equally dismissive of these limitations, stating that following them is neither mandatory nor “even necessarily the means of first resort.” (Madanes v. Madanes, 199 F.R.D. 135, 140 (SDNY 2001). Instead, U.S. courts often require parties before them to abide by the Federal Rules of Civil procedure, regardless of whether the information that is sought is located overseas.

How to Resolve Conflicts

How do U.S. courts resolve the conflicts between U.S. discovery and overseas laws, and in particular the application of the privilege? An excellent discussion of these issues is found in Aktiebolag v. Andrx Pharmaceuticals Inc., 208 F.R.D. 92 (SDNY 2002). There, a U.S.-based party sought discovery of documents located in Germany and Korea. The court considered the issue utilizing the above “comity” approach. As to the German documents, the issue was easy. The court held that German law applied, and as German law would respect the privileged nature of the documents, declined to order production.

The more challenging inquiry, though, focused on documents located in Korea. Korean law does not recognize an attorney-client privilege. Instead, “testimonial immunity” protects lawyers from revealing client secrets, but unlike the U.S. attorney-client privilege, this immunity may not be invoked by clients. Nor does Korean law recognize the work-product doctrine.

Under principles of comity, the court thus might logically have decided to order production of the documents. But the court recognized that doing so would in fact violate principles of comity because Korean law does not permit compulsory document production. Thus, as the court recognized, “where virtually no disclosure is contemplated, it is hardly surprising that Korea has not developed a substantive law relating to attorney-client privilege and work product that is co-extensive with our own law.”

Another interesting privilege case arose out of a family spat between siblings located in the United States and Argentina. In Madanes v. Madanes, 981 F.Supp. 241 (SDNY 1997), this family feud resulted in RICO charges over sharing family assets. One attorney in Argentina had represented all the siblings with respect to the disputed family assets.

The brothers sought discovery from the shared attorney, who resisted disclosure on the basis of the privilege. But the court rejected the argument, holding that the attorney had violated Argentine professional ethics and committed a breach of fiduciary duty through his conduct and that the requested documents were, therefore, not privileged.

Cross-Border Implications

Gucci reflects the importance, in the United States, of a client's reasonable expectations that a communication will be privileged. But human resources professionals and U.S. in-house counsel who consult with overseas counsel should not assume that their communications will be protected by U.S. privilege law. Prior to seeking advice, companies should seek guidance from outside counsel, whether in the U.S. or overseas, regarding the privileged nature of communications, and should take all reasonable steps to assure that communications are indeed subject to all measures to assure their confidentiality.

Philip M. Berkowitz, a member of this newsletter's Board of Editors, is a shareholder at Littler Mendelson and U.S. practice group leader, international employment law. Kristen O'Connor, an associate at the firm, assisted in preparing this article, which also appeared in the New York Law Journal, an ALM sister publication of this newsletter.

Employment-related lawsuits and investigations of alleged employee misconduct frequently involve employees or witnesses located overseas. A U.S.-based human resources representative who consults with in-house or outside counsel located overseas might logically expect that the conversation will be privileged, as may normally be expected in the U.S.

Often, though, the privileged nature of these communications may not be assumed. Indeed, basic assumptions that govern the application of the privilege in the U.S. ' for example, that communications with in-house counsel may be shielded ' may not be accepted in a foreign jurisdiction.

Consequently, if a U.S.-based client seeks advice from its foreign counsel, does the client have reasonable grounds for assuming the conversation is privileged? Is this assumption sufficient grounds to permit the client to assert the privilege, even if it is based on a mistaken understanding of foreign law?

From Discovery Grows Privilege

Discovery in U.S. courts is broader than in virtually any other jurisdiction. The breadth of U.S. discovery is familiar to any U.S. litigator ' Rule 26(b)(1) of the Federal Rules permits a party to seek discovery of any “nonprivileged matter that is relevant to any party's claim or defense.”

The attorney-client privilege and the work product doctrine, on the other hand, are intended “to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” Upjohn Co. v. United States , 449 U.S. 383, 389 (1981). Indeed, U.S. courts have held that the attorney-client privilege is “absolute,” and is therefore broader than the protection that is accorded by some “privacy” statutes. Golden Trade, S.R.L. v. Jordache Inc. , 143 F.R.D. 514 (SDNY 1992).

Thus, in a sense, the privilege acts as a counter-balance to, and limitation on, the widely permissive discovery available to litigants (and to prosecutors) in the United States. And, in the corporate context, communications between executives (and non-executives) and counsel may also be privileged. But can there be a reasonable ability to predict with any degree of certainty whether the privilege applies, when the rules of the game change?

Courts overseas simply do not have the same standards as exist here; and this was made abundantly clear in Akzo Nobel Chem. v. Comm'n, (C-550/07). Feb. 9, 2010. There, European Commission (EC) investigators raided a UK company as part of an antitrust investigation, seizing internal records, including communications with counsel. The European Court of Justice (ECJ) held that the attorney-client privilege does not protect communications with in-house counsel, as they are not (at least in this context) considered sufficiently independent from their employers. How does this affect the reasonable expectations of U.S. employers that their communications with overseas counsel will be protected by the privilege? Does Akzo Nobel dash these expectations on the shoreline?

Judge Shira A. Scheindlin's decision in an important case involving the attorney-client privilege may shed light on what a U.S. court's view of the matter could be. In Gucci America Inc. v. Guess? Inc., 2010 U.S. Dist. LEXIS 65871 (SDNY June 29, 2010), communications between the company and its in-house counsel became subject to disclosure. Imagine the company's surprise when it learned that its lawyer, Jonathan Moss, was an inactive member of the California bar.

The Magistrate Judge held that an attorney must be “actually authorized to engage in the practice of law” for communications to be privileged; he held that Gucci could not have reasonably believed that its employee was engaged to practice law (it had never undertaken any effort to ascertain his credentials), and ordered the discovery to go forward.

Judge Scheindlin, however, reversed. The court acknowledged the time-honored test of United States v. United Shoe Machinery Corp. , 89 F.Supp. 357, 358-59 (D. Mass. 1950), requiring that for the privilege to apply, the person to whom communication was made must be a member of the bar of a court. Nevertheless, the court held that the Magistrate Judge's more narrow ruling was contrary to law and unduly restrictive.

Gucci had clearly intended the communications to be privileged, and the court held that it should not be penalized because of the attorney's inactive status. As the court recognized, “[t]he purpose of the privilege is to protect the client's communication, and to encourage full and frank disclosure when seeking legal advice, which is why the client holds the privilege and only the client can assert or waive it.”

The test of whether privilege applies in this context remains “whether the client had a reasonable belief that it was communicating with an attorney.” Gucci proved it had a reasonable belief Mr. Moss was an attorney by citing to the legal services he provided and his law degree, among other factors.

Which Law Applies?

When deciding whether the U.S. or foreign law of privilege applies to a discovery controversy, U.S. courts generally utilize principles of comity, or the “touching base” approach. The Gucci court noted that this focuses on the jurisdiction with the “predominant interest,” “the place where the allegedly privileged relationship was entered into,” or “the place in which that relationship was centered at the time the communication was sent.”

In determining whether the privilege protects communications that occurred overseas or involved foreign attorneys, courts will generally defer to the law of the country that has the “predominant” or “most direct and compelling interest” in whether those communications should remain confidential. The jurisdiction with the predominant interest typically is either the place where the allegedly privileged relationship was formed or where the relationship was centered at the time of the communication.

The Restatement of Foreign Relations Law '442 lists factors courts should consider, including:

• Importance of the documents to litigation;
• Respective interests of the U.S. and foreign national;
• Degree of specificity of request;
• Whether the information originated in the U.S.;
• Availability of alternate means to get the information;
• Hardship of compliance; and
• Good faith of party resisting discovery.

The Hague Convention is a multi-lateral treaty through which signatories agree to permit limited cross-border discovery of documents and testimony. Many signatories reject the U.S. approach of discovery and have opted out of provisions permitting common law pretrial discovery.

While U.S. courts often consider and make use of the procedures available under the Hague Convention when determining whether to permit overseas discovery, some courts are equally dismissive of these limitations, stating that following them is neither mandatory nor “even necessarily the means of first resort.” ( Madanes v. Madanes , 199 F.R.D. 135, 140 (SDNY 2001). Instead, U.S. courts often require parties before them to abide by the Federal Rules of Civil procedure, regardless of whether the information that is sought is located overseas.

How to Resolve Conflicts

How do U.S. courts resolve the conflicts between U.S. discovery and overseas laws, and in particular the application of the privilege? An excellent discussion of these issues is found in Aktiebolag v. Andrx Pharmaceuticals Inc. , 208 F.R.D. 92 (SDNY 2002). There, a U.S.-based party sought discovery of documents located in Germany and Korea. The court considered the issue utilizing the above “comity” approach. As to the German documents, the issue was easy. The court held that German law applied, and as German law would respect the privileged nature of the documents, declined to order production.

The more challenging inquiry, though, focused on documents located in Korea. Korean law does not recognize an attorney-client privilege. Instead, “testimonial immunity” protects lawyers from revealing client secrets, but unlike the U.S. attorney-client privilege, this immunity may not be invoked by clients. Nor does Korean law recognize the work-product doctrine.

Under principles of comity, the court thus might logically have decided to order production of the documents. But the court recognized that doing so would in fact violate principles of comity because Korean law does not permit compulsory document production. Thus, as the court recognized, “where virtually no disclosure is contemplated, it is hardly surprising that Korea has not developed a substantive law relating to attorney-client privilege and work product that is co-extensive with our own law.”

Another interesting privilege case arose out of a family spat between siblings located in the United States and Argentina. In Madanes v. Madanes , 981 F.Supp. 241 (SDNY 1997), this family feud resulted in RICO charges over sharing family assets. One attorney in Argentina had represented all the siblings with respect to the disputed family assets.

The brothers sought discovery from the shared attorney, who resisted disclosure on the basis of the privilege. But the court rejected the argument, holding that the attorney had violated Argentine professional ethics and committed a breach of fiduciary duty through his conduct and that the requested documents were, therefore, not privileged.

Cross-Border Implications

Gucci reflects the importance, in the United States, of a client's reasonable expectations that a communication will be privileged. But human resources professionals and U.S. in-house counsel who consult with overseas counsel should not assume that their communications will be protected by U.S. privilege law. Prior to seeking advice, companies should seek guidance from outside counsel, whether in the U.S. or overseas, regarding the privileged nature of communications, and should take all reasonable steps to assure that communications are indeed subject to all measures to assure their confidentiality.

Philip M. Berkowitz, a member of this newsletter's Board of Editors, is a shareholder at Littler Mendelson and U.S. practice group leader, international employment law. Kristen O'Connor, an associate at the firm, assisted in preparing this article, which also appeared in the New York Law Journal, an ALM sister publication of this newsletter.