Untangling Corporate Privilege: Deciphering the Complex Weave of Waivers

The principles that govern waivers for corporate entities are like a woven tapestry. In one direction we find patterns that result in implied privilege waiver, such as advice-of-counsel or at-issue waiver.

In another direction, we see yarns of voluntary waiver that may intersect with other implied waiver threads, such as subject-matter waiver.

Without a careful understanding of these patterns, the final tapestry may produce a loss of privilege.

Corporate entities too often display a reactive approach to privilege waiver, seeing only the final tapestry rather than the fabrics from which it arose. That is understandable because the final waiver result is simple to grasp, but the underlying waiver rules leading to it are intricate and complex.

Waivers of all colors

For instance, if a corporate entity elects to defend a cause of action by asserting that it acted in accordance with its lawyer’s advice, then this advice-of-counsel defense typically waives the privilege over communications about that legal advice.

If a company conducts a privileged investigation, but then relies on that investigation in a wrongful termination suit, at-issue waiver ensues.

When a corporate entity decides to voluntarily disclose a privileged document, then the subject-matter waiver doctrine, another thread of the implied waiver fabric, may be triggered.

The subject-matter waiver doctrine generally provides that a company’s voluntary disclosure of a privileged document not only waives privilege protection over that document but also over undisclosed privileged documents that pertain to the same subject matter.

An in-house lawyer should understand the subject-matter waiver doctrine and assess its scope and consequences before approving the disclosure of a document. In other words, take a proactive approach rather than a reactive one.

A question of scope

There is substantial legal authority on these implied-waiver doctrines that allow in-house counsel to understand and apply them. However, there is comparatively little legal authority on the scope of voluntary waiver, the primary issue being who within the company has the authority to waive the privilege.

For example, if an in-house lawyer conveys legal advice to a division manager, and that manager—without approval from the in-house lawyer—forwards that advice to a third party, is that waiver? Did that manager have the authority to waive the privilege?

Certainly, a corporate entity’s governing board has the authority to waive the privilege, but in reality, privilege-waiver decisions rarely reach those bodies. Courts generally hold that a company’s in-house and outside counsel have implied authority to waive the entity’s privilege.

Waivers and the C-suite

A CEO typically has inherent authority to waive the privilege, as one top executive learned the hard way. In pre-suit discussions with a competitor, a CEO revealed that the company’s lawyers had concluded that the competitor’s conduct constituted patent infringement.

During discovery in the subsequent patent infringement case, the trial judge ruled that the CEO’s disclosure of the lawyer’s conclusions was substantial enough to constitute a privilege waiver. The court did not even discuss the CEO’s authority to have made those revealing statements, assuming the authority existed because of his position.

The identification of lower-level employees with the authority to waive the privilege invokes agency-law principles. Courts may require corporate entities to prove that an employee disclosing privileged communications did not have the actual or apparent authority to do so.

The question will ultimately center on whether the scope of the employee’s duties encompassed the authority to waive the privilege. For example, a court will likely find a privilege waiver where an employee tasked with leading an acquisition discloses privileged communications about that transaction to third parties.

By contrast, a court would likely rule that a subordinate employee handling due diligence requests had no authority to disclose privileged communications to a third party.

Taking action

So, how can we look beyond the finished tapestry and see the weave of waiver? Let’s become proactive rather than reactive. Consider a general policy that identifies those positions in the corporate hierarchy that have the authority to waive the privilege.

When a significant project arises—mergers, contract negotiations, government investigations, or HR investigations—in-house counsel should consider expressly identifying the person who has sole authority to waive the privilege or expressly retain that authority for herself.

General training of key employees about establishing and maintaining the privilege will at least alert those employees to the threads that can lead to privilege waiver.