Start-ups often need legal advice when getting their business off the ground. But could those discussions with your attorney come back to bite you in a lawsuit?
In most cases, the attorney-client privilege ensures that anything you tell your attorney will be held in strict confidence. As explained by the U.S. Supreme Court, the purpose is 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.” In other words, the rationale behind the attorney-client privilege is that clients should be able to have open conversations with their attorney without worrying that what they say might be later disclosed without their consent.
Establishing Attorney-Client Privilege
Four elements are generally required for establishing privilege. There must be (1) a communication (2) between counsel and client (3) made confidentially (4) for the purpose of obtaining or rendering legal advice.
The privilege only protects the essence of the communications actually exchanged by the client and attorney and only extends to information provided for the purpose of obtaining legal representation. For instance, business advice provided to a startup by its attorney may not qualify. For this reason, it is often advisable to separate legal and business issues when requesting input from your attorney. It is also good practice to make it clear when you are seeking legal advice.
Attorney-Client Privilege in the Corporate Context
When attorneys represent businesses, they owe allegiance to the corporate entity and not to shareholders, directors, officers, employees, representatives, or other individuals connected with the corporation. Therefore, when retaining counsel, it is imperative that the legal representation agreement is between the startup and the attorney rather than the founders and the attorney.
Likewise, attorneys can’t represent any of the officers, directors or employees of the corporation as individuals with respect to their corporate activities if their interests diverge from those of the corporation. So, if a startup's founders need legal advice, it is wise to retain separate counsel.
Because corporate attorney-client privilege protects the business entity, this means that information provided to the attorney by employees, officers, and directors may not always be privileged. In the seminal case of Upjohn v. United States, the U.S. Supreme Court held that communications made by mid or low-level employees within the scope of their employment to the corporation's attorney for the purposes of aiding counsel in providing legal advice were protected by attorney-client privilege.
Communication between the attorney and the lower-level individuals is protected so long as the communication (1) was made at the direction of the corporate officials, (2) the matters discussed were within the employee’s duties and were not available from the upper-level employees, (3) the purpose of the inquiry was to obtain legal advice, and (4) the communication was intended to be kept confidential.
Waiving Attorney-Client Privilege
The attorney-client privilege belongs to the client and may be waived at any time. For instance, the client may provide informed consent to his or her lawyer to reveal confidential information or information otherwise protected by the privilege.
It is also important to note that waiver is not always intentional and can occur when the communication at issue loses its confidential nature. For instance, if a privileged communication is shared with third parties, such as family or friends, the privilege may be deemed waived. In addition, those persons can be required to testify regarding the conversation.
Confidentiality is key to maintaining the attorney-client privilege. Confidential communications are those "communications which the client either expressly made confidential or which he could reasonably assume under the circumstances would be understood by the attorney as so intended."
As discussed in greater detail in a prior article, advances in information technology have greatly complicated the protection of privileged attorney-client communications. Discrete attorney-client communications, particularly in large organizations, not infrequently become part of lengthy email strands or “strings,” which consist largely of non-privileged, business communications. These email “strings” may now be forwarded to numerous recipients with one click of a computer mouse, greatly increasing the risk of attorney-client communications being sent to third parties or to employees who are outside the scope of the privilege.
To reduce the risk of “waiving” or losing the privilege that would otherwise attach to the attorney-client communications, startups can adopt and implement a requirement that all attorney-client email communications must bear a legend identifying them as such and that careful consideration must be given before forwarding these communications. Given the fallibility of human nature, computer programs and applications can be installed which will prevent privileged material so legended from being forwarded by the recipient.
Exceptions to the Attorney-Client Privilege
There are also a number of exceptions to the attorney-client privilege. For instance, the crime-fraud exception allows a lawyer to disclose information communicated by the client in an attempt by the client to use the lawyer’s services to commit or cover up a crime or fraud. Examples include asking an attorney to help conceal assets potentially subject to seizure, destroy evidence, and tamper with witnesses. If the crime-fraud exception applies, prosecutors can subpoena the attorney and require him or her to disclose the contents of the communication at issue.
Preserving attorney-client privilege can be challenging, particularly in the digital world. Start-ups should ensure that everyone interacting with counsel understands how it works and what steps must be taken to protect it.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.