When a business person talks to the family lawyer about taxes or real estate or a son's drug problem, the client can be fairly sure that that conversation is privileged, that is, that it will be kept confidential by the lawyer even in the face of demands by a court to reveal what was said.
But when that same business person is talking to the company lawyer about a proposed financing scheme or marketing plan, it is far less certain that a lawyer-client privilege protects their discussions.
This issue dramatically divides corporate lawyers and law enforcement officials. The U.S. Supreme Court was expected to decide the matter last year in a case pitting Upjohn Co. against the Internal Revenue Service, but the justices came up with such a narrow ruling that it left the issue almost as murky as it was before.
The high court has promised to try again in the term starting in October, in an Ohio case involving Baxter Travenal Laboratories Inc. In the meantime, there's a great risk that when a company official confers with a company lawyer, adversaries are going to find out all the details.
The risk is ironic, because in the Upjohn case business basically won an expanded definition of who in a company could speak in confidence with a lawyer. The justices unanimously rejected the rule laid down by some appellate courts -- and backed by prosecutors -- that only those in a corporation's "control group" could have privileged communications with the legal advisers.
Any employe may be covered, the opinion said, as long as the talks were "within the scope of the employe's corporate duty."
But because the justices spelled out in such careful detail the conditions for winning legal confidentiality, "after Upjohn, corporate counsel, whether inside or outside, must be careful, precise and thorough in their efforts to properly establish and adequately maintain the privilege protection," Securities and Exchange Commission enforcement chief John M. Fedders warns.
He told an American Bar Association meeting earlier this month that since the Supreme Court ruling, lower courts have been more careful in examining claims of privilege, and that, "so far, this precision has benefited prosecutors."
The diciest problems crop up when the corporate attorney, in fact, fills many roles -- as do most staff lawyers and quite a few outside counselors. The only communications that can be kept secret from court disclosure are those seeking legal advice; conversations about business matters, which may have a legal component, are not privileged unless the legal portion is predominant.
As Jennie M. Crowley, director of litigation for Litton Industries Inc., notes, "Sorting out the distinction between rendering business advice and legal advice in the case of house counsel is particularly difficult." Meetings with business associates tend to range over all aspects of an issue. Sometimes judges will cloak in confidentiality a discussion that includes both business and legal matters, but Crowley advises that "to rely on the hope that the court will resolve the issue in favor of the attorney-client privilege where house-counsel functions in more than one capacity is not a well-placed reliance."
She ticks off a variety of jobs filled by lawyers that do not qualify for the privilege:
* Running an investigation in order to make business recommendations.
* Routinely reading carbon copies of letters sent to others.
* Advising on whether potential stock purchases look good.
* Working on technical details of patent applications.
Day-to-day corporate life also works against setting up a privileged exchange between executive and lawyer because so much business is done in meetings and by committee. Courts will let lawyers keep confidential only what was confidential originally, and judges usually feel that if any outsider was around when the conversation took place (except for the lawyer's secretary or assistants), then the secret isn't really a secret. And that can be so even if the outsider is an eavesdropper, although courts today are not likely to be that strict.
The lesson -- at least until the law is clarified -- is that if an executive has to tell the company lawyer sensitive information, the conversation should be private, confined to the subject at hand, and pegged to a specific request for legal advice. Rambling from that prescription can be dangerous.