Attorney-Client Privilege for Transactional Lawyers I

Recently I have been putting together some new materials on contract negotiations and drafting and have also been observing how privilege and work product issues must be handled in the discovery context.  It became apparent to me that one significant issue that I need to consider is how the attorney-client privilege applies to the work that transactional attorneys do in the course of a deal, particularly when they are actively involved in negotiations with representatives of the other parties to the planned transaction.  I found a nice introduction to the entire subject in the most recent issue of Business Law Today in an article that is appropriately titled “Attorney-Client Privilege: Pitfalls and Pointers for Transactional Attorneys”.  The content below and in my next post is adapted from the article.

While the attorney-client privilege is generally an important and crucial issue in the context of litigation the privilege may also be applicable to communications that occur between attorney and client with respect to a business transaction.  However, clients and there lawyers should not assume that attorney involvement in a transaction will in and of itself be sufficient to assure that a privilege can be asserted to preserve the confidentiality of all communications relating to the transaction.  In general, the value and availability of the attorney-client privilege in the transactional context will depend on the degree to which the attorney’s role expanded beyond that of a legal advisor to include negotiation of the actual business terms and conditions of the deal.  Since it is quite common for lawyers to provide their clients with both legal and business advice, often as part of the same communication (i.e., telephone call, e-mail message or written memorandum), it is essential for transactional lawyers to thoroughly understand the potential restrictions on the applicability of the privilege and explain the guidelines in advance to clients so that they are not surprised to later learn that communications they believed would be secret are instead subject to discovery if litigation regarding the transaction commences.

The general test as to whether or not a communication involving a transactional lawyer will be eligible for protection under the attorney-client privilege is whether or not the pre-dominant purpose of the communication is to convey non-legal advice from the lawyer to the client.  If the dominant purpose of a conference call or written communication is for the lawyer to provide input on business terms and conditions or negotiation strategies the communication will likely not be eligible for protection under the privilege.  Certainly many transactional lawyers are engaged, at least in part, for their skills and experience in negotiating and completing specific types of deals and this inevitably leads to attorney input on business matters.  The difficult issue that arises in that situation is how to handle “dual purpose” communications (e.g., single documents or other communications that include both legal and business advice).  The basic rule seems to be that courts will likely permit assertion of the privilege for this type of communication if advice provided by the lawyer therein is based predominantly on the attorney’s evaluation of legal issues.  It will be more difficult, if not impossible, to assert privilege in situations where the attorney serves solely as a negotiator in the course of a particular transaction or engages in other activities that would typically be carried out by a businessperson rather than an attorney.    Whether or not the services provided by the attorney are primarily legal in nature will also determine if notes, mental impressions and legal analyses and conclusions prepared by the attorney during the course of a transaction can protected from disclosure through the assertion of the work product doctrine.

Obviously in-house counsel are subject to special challenges with respect to any attempt that might be made to assert the attorney-client privilege with respect to communications between counsel and executives and managers within the organizational client relating to a proposed business transaction.  Courts have recognized that in-house counsel often serve a very different role from transactional attorneys with outside law firms that may be engaged for the sole purpose of provide legal support for a specific transaction and that in-house counsel often serve also as corporate officers and engage in day-to-day activities within the company that necessarily cross the boundary that separates law and business.  Given the permanency of the relationship between in-house counsel and his or her employer and the exposure to and participation in business activities in-house counsel should expect that a much more stringent standard will be applied by the courts before protecting communications by counsel during a transaction under the attorney-client privilege.  In my next post I’ll provide some suggestions for transactional lawyers on how they can manage expectations about the availability of the attorney-client privilege for communications that they engage in while working on a deal.

The content in this post has been adapted from material that will appear in Business Counsel Update (Summer 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

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