Compliance » New Year Reminders for General Counsel: From Compliance to Confidentiality

New Year Reminders for General Counsel: From Compliance to Confidentiality

By Gary S. Parsons

New year reminder for general counsel concept, 2024 goals list on notebook

Gary S. Parsons is a partner at Brooks Pierce. He is known as a “litigator’s litigator,” having tried hundreds of cases in courtrooms across North Carolina. gparsons@brookspierce.com

January 10, 2024

The new year is a good time for reminders and refocusing on creating better habits. Privilege and related concepts are frequent concerns for general counsel and now is a great time to review some of the basics.

Legal or Business Advice 

Most in-house lawyers are familiar with the premise that for privilege to apply, the lawyer must be providing primarily legal, as opposed to business, advice. Communications regarding business matters and management decisions are not privileged, unlike those seeking or supplying legal advice.

Some courts presume that a lawyer working in the corporation’s legal department is providing legal advice. When the lawyer works primarily in management, the opposite is presumed. In either event, the presumption is rebuttable, and the party asserting the privilege has the burden of proof to establish its applicability.   

The fundamental test is whether the attorney’s performance depends principally on their knowledge of or application of legal requirements, rather than their expertise in matters of business decisions.

Compliance 

The privilege’s applicability to chief compliance officers is a subject of much debate. It is often argued that placing compliance in its own department, separate from the legal department, will dilute the attorney-client privilege and lead to greater transparency during corporate investigations and responses to government inquiries. The Securities and Exchange Commission’s (SEC) view has been that compliance officers are not really acting as lawyers or providing legal advice, so their communications are not privileged.

The courts, however, have held that communications that include both business and legal advice can be privileged, so long as one of their primary purposes was obtaining legal advice. That is true regardless of whether an internal investigation was conducted pursuant to a company compliance program required by law or pursuant to company policy.

Work Product – Internal Investigations 

Work product immunity applies only to documents prepared in anticipation of litigation or for trial. Because events are often documented with the general possibility of litigation in mind, the mere fact that litigation eventually ensues does not, by itself, cloak materials with work product immunity.

The document must be prepared because of the prospect of litigation, when the preparer faces an actual or potential claim following an actual event. Materials prepared in the ordinary course of business, pursuant to regulatory requirements or for other non-litigation purposes are not prepared in anticipation of litigation.

In the case of investigative reports, the decision turns on whether the report would have been prepared even if litigation was never filed.  One court found it critical that the law firm conducting the investigation did not mention anticipated litigation in its engagement letter, none of the firm’s communications mentioned anticipated litigation, and no client representative testified that litigation was feared or contemplated.

Client Confidentiality – The Ethical Rules 

American Bar Association (ABA) Model Rule 1.6 extends a lawyer’s duty of nondisclosure to all information acquired during the professional relationship. It is not limited to matters communicated in confidence or subject to privilege.

If a lawyer is called to testify about information concerning a client’s representation, they must assert all nonfrivolous privilege claims. If the tribunal rules that the lawyer must disclose information received during the representation, the lawyer must then consult with the client about whether the client wishes to appeal.

The ethics rules require careful sharing of information among the business’s officers and employees. Information cannot be shared with employees unless the client expressly authorizes disclosure or the disclosure is impliedly authorized to carry out the representation. Over-disclosure can result not only in waiver of confidentiality but an ethical violation that could lead to professional discipline.

Closing Thoughts 

Evolution in the law has made what was once simple increasingly complex. Privilege issues that were once considered well-established are now being litigated with increasing frequency and aggression. This places greater stress on legal departments and their members to be ever vigilant to document when a task involves legal advice in internal communications and engagement letters with outside counsel. It also requires vigilance in limiting information flow to those who truly need to know it to do their jobs.

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