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Your blackberry chirps as you drink your morning coffee. It's the Frankfurt-based in-house counsel for your client, a U.S. multinational corporation. She has just learned information that could result in the client being investigated and sanctioned by E.U. authorities and wants your advice. Jumping to the task, you assemble a team of lawyers in the U.S. Together with in-house counsel in Frankfurt and Brussels, you analyze the situation and draft a plan to limit your client's exposure. The client is thrilled with your work and follows your suggestions. Yet even if the client is never investigated, you could find yourself trying to explain the document to an angry state court jury, unable to rely on the confidentiality of what you thought were attorney-client communications.
While U.S. counsel might assume that a U.S. court would recognize the attorney-client privilege, in complex multinational disputes, this can be a dangerous assumption. The attorney-client privilege is one of the cornerstones of the American legal system. United States courts protect attorney-client communications with more fervor than much of the world, although this is tempered by the exceptionally broad discovery allowed in U.S. litigation. Other countries strike a different balance. Many curtail the attorney-client privilege but severely limit the parties' ability to conduct discovery.
Many U.S.-based lawyers are aware that privilege regimes differ in foreign countries. But it is easy to overlook how foreign limitations on the attorney-client privilege can erode the privilege available in U.S. courts. Moreover, in complex international litigation, savvy counsel may attempt to use divergent privilege regimes to discover their opponents' confidential documents.
The Attorney-Client Privilege
In general, U.S. courts recognize as privileged the confidential communications between an attorney and a client for the purpose of obtaining or providing legal advice. Sharing the communication with a third-party generally results in a waiver of that privilege. Further, with some qualifications, U.S. courts extend the attorney-client privilege to communications between a corporation and its in-house counsel.
Across the world, the scope and availability of the attorney-client privilege varies widely. For example, the European Union and many European countries do not allow corporations to claim attorney-client privilege for communications with their in-house counsel. The European view is that the pressures of the business world prevent in-house counsel from giving independent legal advice. Naturally, this can lead to real problems when branches of the European Union investigate corporations located in E.U. countries that grant the privilege to in-house counsel. This is just what occurred in Akzo Nobel, a case currently on appeal to the European Court of Justice.
During a dawn raid of the plaintiff's Manchester, England offices, European Commission agents investigating Akzo Nobel's trade practices seized a large number of corporate documents. Notably, these included a set of emails between the company's general manager and Dutch in-house counsel, and a memorandum from the manager to his superiors containing information gathered for the purpose of obtaining outside legal advice. While England's legal advice privilege would have protected these documents in UK proceedings, the European Court of First Instance refused to recognize the privilege for either type of document. The court ruled that the emails were admissible because they were corporate communications to in-house counsel, so the attorney-client privilege did not apply. The court also declined to overrule its earlier holding that the privilege would only protect communications between corporations and outside counsel who are licensed to practice law in E.U. member states. Finally, the court held that the privilege did not protect the memorandum because it was not prepared exclusively for the purpose of seeking legal advice, but also contained general information about the company's compliance programs.
The implications of this case for corporations doing business in the European Union are significant. U.S. counsel should be aware that their communications with European colleagues and clients may not be protected in European proceedings. Further, disclosing a communication to an E.U. tribunal might be considered a third-party disclosure and could have the effect of waiving the privilege in future U.S. litigation. More insidious, however, is the danger that foreign limitations of the attorney-client privilege can destroy a party's ability to claim attorney-client privilege in U.S. courts.
Choice of Law
Foreign privilege issues generally arise in U.S. courts in one of two ways. First, the foreign legal issue could be joined to a claim implicating a question of federal law-a patent claim, for instance. Second, a party could argue that foreign privilege law should govern the admissibility of evidence relevant to a state law claim.
1. Federal Law
If the federal court has jurisdiction because the case raises a question of federal law under 28 U.S.C. § 1331, then the court will apply federal common law to questions of privilege.[1] According to the Federal Rules of Evidence, federal law generally governs the privilege issues of state law claims joined to the federal claim.[2] Under federal common law, courts employ various tests to determine whether foreign or domestic privilege law should apply. Under the most commonly applied test, the court first looks to whether the communication "touched base" with the United States. If the court finds that it has not touched base with the U.S., it will apply the law of the country with the most important contacts with or the strongest interest in the communication. This is subject to a public policy exception, in which the judge has discretion not to apply the foreign law if it would violate an important U.S. public policy.
One example of a close shave where the public policy exception saved a party from losing attorney-client privilege was a patent case between Astra Aktiebolag and Andrx Pharmaceuticals, Inc.[3] There, the Southern District of New York examined several sets of communications between the plaintiff's outside and in-house counsel. The court ruled that Korea had the predominant interest with respect to certain communications, so Korean privilege law should apply to them. Unfortunately for the plaintiff, Korea does not recognize the attorney-client privilege, so the court had every right to require disclosure. However, the plaintiff argued that it would never have had to produce the communications in a Korean court because discovery is very limited in Korean proceedings. The court accepted this reasoning and stated, "that to apply Korean privilege law, or the lack thereof, in a vacuum-without taking account of the very limited discovery provided in Korean civil cases-would offend the very principles of comity that choice-of-law rules were intended to protect."[4] Thus, the court held the Korean communications were privileged and not discoverable.
Invoking the public policy exception does not save every party, however. In Odone v. Croda Int'l., PLC, the defendant was forced to reveal communications with its British patent agent regarding its British patent despite the fact that the communications would have been privileged under British law.[5] The court held that U.S. privilege law should apply because the communication concerned whether to name the plaintiff, a U.S. citizen, as the co-inventor on the British patent. Since U.S. courts have never extended the attorney-client privilege to communications with patent agents, the defendant was ordered to produce confidential communications.
2. State Law
Whether a case is being heard in state or federal court, state law may govern whether a court will follow foreign or domestic privilege laws. For example, when a federal court has diversity jurisdiction over a case, it will follow the choice-of-law rules of the state in which it sits.[6] If the privilege question arises in a state court, that state will apply its own choice-of-law rules. So, a case pending before either a Minnesota state court or the District of Minnesota would follow Minnesota's choice-of-law rules to determine what privilege law should apply to a particular communication. In this example, Minnesota's choice-of-law rules would apply even if the communication in question were between a Japanese corporation and its Californian outside counsel.
Fortunately, the states tend to follow one of two approaches to evidentiary choice-of-law questions. About nine states follow the 'territorial approach'-they simply apply their own evidentiary privilege rules and ignore any outside considerations.[7] The majority of the states, however, follow the "most significant relationship" analysis suggested by the Restatement (Second) Conflict of Laws § 139 (1971).[8] This analysis is similar to that employed by the federal courts, except that it tends to favor admission of the communication. Take, for example, a case where the U.S. state court determines that the foreign country has the most significant relationship to the communication. Under the Restatement analysis, if the communication would be privileged in the foreign country but not in the U.S. state, it should be admitted, absent some special reason why the court should not enforce the forum policy. Similarly, if the communication were privileged in the U.S. state, but not in the foreign country, the communication should be admitted unless the court decides this would violate the strong public policy of the forum.
Lessons Learned: Revisiting the Hypothetical
It is extremely difficult to forecast whether a party will be able to rely on the attorney-client privilege before litigation is even considered. However, ignoring the ease with which the attorney-client privilege can be lost in international business transactions can be extremely costly.
It may be helpful to return to the opening hypothetical for a moment. Our lawyer may have waived the attorney-client privilege in several ways. If the case were before a Minnesota state court or federal court sitting in diversity, Minnesota choice-of-law rules would determine whether the court follows the E.U.'s or the state's privilege rules. Applying the Restatement's choice-of-law analysis, the court could easily find the E.U. to have the most significant relationship to the communications. While some of the lawyers involved were based in the U.S., the communication concerned compliance with E.U. rights and obligations.
Since E.U. courts deny the protections of the attorney-client privilege to in-house counsel, a court following the Restatement analysis should admit all of those communications. Similarly, since the E.U. only recognizes the attorney-client privilege for lawyers licensed in E.U. member-states, the U.S. attorneys' communications with the client should be admitted in the U.S. court. Our lawyer would surely urge the court to deviate from the Restatement analysis in the interest of public policy. This might be persuasive-at least for the communications made by U.S. lawyers. On the other hand, our lawyer's opponents could point out that our lawyer is a sophisticated party who surely knew the limitations of the attorney-client privilege in the E.U. Accordingly, our lawyer could not have made the communications with the expectation of privacy necessary to establish the attorney-client privilege even under U.S. law. No matter what the court finally decides, the client is not going to be pleased to take the risks caused by our lawyer's communications.
Tactics for Preserving Attorney-Client Privilege
1. Consider where you are most likely to face litigation and work with counsel to tailor corporate policies accordingly. For example, patent, trademark, copyright, and most employment claims will be filed in federal court. In that case, policies that ensure the relevant communications "touch base" with the United States will increase the likelihood the court will allow you to claim U.S. evidentiary privileges.
2. Generally, foreign courts are most likely to allow corporations to claim attorney-client privilege for communications with outside counsel, so use outside counsel as much as possible for sensitive legal issues.
3. Consider including choice-of-law provisions in contracts that specifically designate which country's law should govern privilege questions.
