I’ve been discussing some of the challenging ethical issues that can arise with respect to protection of confidential communications between a transactional lawyer and his or her client. Another issue that often arises when the attorney-client privilege is asserted with respect to sensitive information that has been shared with the other party to a prospective business transaction is whether or not the disclosure to the other party destroys the disclosing party’s right to later assert the privilege with respect to such information in a litigation setting. The potential dilemma for the disclosing party is deciding whether to disclose the information, and possibly lose the privilege, in order to pursue the potential business transaction or refusing the disclose the information to preserve the privilege and risking that the other party to the transaction will refuse to proceed since it cannot access valuable information that it deems necessary to make a decision about the proposed transaction.
Once again, the laws of each state should be reviewed to determine which rules will apply in this situation. The general rule under California law is that disclosure of a confidential communication by the client or the client’s attorney to a third party waives the attorney-client privilege with respect to the communication. However, California Evidence Code § 912(d) does allow disclosure of privileged communications without waiving the privilege if the disclosure is made in confidence and is "reasonably necessary" to accomplish the purpose for which the lawyer was consulted and California Evidence Code § 952 clearly allows disclosure of confidential communications to third parties "who are present to further the interest of the client" or those "to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted."
Much of the uncertainty in this area for California lawyers was resolved in STI Outdoor v. Superior Court [91 Cal.App. 4th 334 (2001)] where the court of appeal made it clear that the attorney-client privilege associated with confidential communications was not automatically waived by disclosure of the communications during business negotiations and that the privilege would be available provided that the disclosing party could demonstrate that the communications were otherwise eligible for the privilege, there was a reasonable expectation that the communications would be maintained in confidence, and it was reasonably necessary to disclose the communications in order to accomplish the purpose for which the lawyer was consulted. From this we can derive the following additional guidelines:
Before disclosing confidential communications to other parties make absolutely sure that the recipients have signing a confidentiality, nondisclosure, or joint defense agreement that includes specific and comprehensive restrictions on disclosure and use of the information in the communications.
Whenever possible, disclosure should be limited to those with a real “need-to-know” and a record of how the information was used by the receiving party should be created and maintained.
Information disclosed to other parties involved in a proposed transaction should be strictly limited to that which is reasonably necessary for the attorney to accomplish the purpose for which he or she was retained.
All such information should be prominently marked with legends that make it clear that the disclosing party intends to assert that it is confidential, attorney-client privileged, or joint-defense privileged.
A privilege log should be created for the communications for which protection will be asserted and declarations should also be prepared to demonstrate that the disclosures were reasonably necessary in order to accomplish the purpose for which counsel was consulted.
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.