At a recent conference of the American Council of Life Insurance, the general counsel for one of the larger companies noted that her corporation was concerned about its employees' knowledge both of the attorney-client privilege, and of the limited scope of her office's representation. She noted that upon approaching employees to collect information, corporate counsel informs them that the office represents only the corporation, not them personally. Nevertheless, the employees are assured that all of their statements to counsel are protected by the attorney-client privilege. These admonitions represent only a half-truth, which in context is equivalent to a misrepresentation.

The attorney-client privilege is designed to encourage more open and candid communications from clients to attorneys by giving clients an assurance that nothing they say can later be used against them. Clients' communications with their attorneys can only be used for the clients' advantage, unless the protection is waived, and the clients control that waiver.

This theory works well for individual clients because (1) they are the persons whose speech is being encouraged, and (2) they control the protection. However, in the corporate and government contexts the second element is missing; consequently, the propriety of extending the privilege protection to both corporate and government entities is questionable. (For purposes of brevity, the entity privilege will be referred to hereafter only in the corporate context, but the comments are equally applicable to the government client.
 

A Blurred Message

When the attorney-client privilege is extended to corporations, it is being given to the fictitious legal entity -- the corporation -- not to the employees who represent and speak for the corporate entity. Consequently, the privilege (designed to encourage candid communications) is given to an entity that cannot speak, and denied to the employees who are the only means through which the entity can speak. Therefore, when these employees speak to the corporate legal counsel about matters that can give rise to liability for both the entity and themselves, they speak at their personal risk because they do not control the future assertion of that privilege. That, supposedly, is the message being conveyed when corporate counsel tells the employees that she represents the corporation, not them personally. Unfortunately, it is a message they do not understand.

To be sure, the corporate employees are indirectly protected by the entity's privilege if the entity elects to assert it in response to discovery demands, but too often the entity may benefit from waiving, rather than pursuing, its privilege protection. The best example of this was the famous decision of the Supreme Court in Upjohn Co v. United States., 449 U.S. 383 (1981).

In Upjohn the Securities & Exchange Commission struck a deal with U.S. corporations that were paying bribes to foreign government officials for lucrative government contracts. In exchange for dismissing all charges against the corporations, the SEC required each corporation to conduct a thorough internal investigation by an outside law firm, submit the firm's comprehensive report to the Commission, and sign a cease and desist order. As a result, the employees who spoke openly with corporate counsel and acknowledged their culpability in the bribery schemes had both their identities and confessions delivered to the government. They became the corporations' sacrificial lambs.

As a consequence, the corporate client not only acquired the business -- and the profits -- from their employees' bribery, they were also able to shift to those employees all civil and criminal penalties for the employees' profitable, albeit illegal, endeavors -- a bargain few corporations could refuse. And none of this would have been possible had the employees not been lured into speaking openly with corporate counsel on the belief that their communications could not be used to harm them.

This appears to be a wide-spread problem. A recent study of Fortune 100 Corporations by the Evidence Project of the American University Washington College of Law revealed that 50% of corporate executives erroneously believe that they are personally represented by corporate counsel on corporate matters that could lead to their personal liability.

Recently we have witnessed this misunderstanding in the Operation Tailwind scandal reported on CNN. April Oliver, a reporter for CNN, produced an allegedly erroneously report entitled "Valley of Death" that was broadcast. The report contending that the military targeted and killed American defectors in Laos during the Vietnam War. It was claimed that the air force did this by spraying sarin nerve gas. This resulted in a defamation law suit by the alleged leader of the operation, General John Singlaub.

When the claim was investigated by CNN's lawyer, Floyd Abrams, he allegedly never told Ms. Oliver that he didn't represent her, and promised her that her communications were protected by the attorney-client privilege and would never be printed. As a result of her statements, however, the network discharged her and chose to publish a comprehensive report (the "Abrams/Kohler Report") disclosing confidential communications of Ms. Oliver and sensitive details about her sources. The result, of course, was that the employee's career as an investigative journalist was seriously injured through the corporation's use of her words -- a result that is inconsistent with the theory upon which the attorney-client privilege is built.
 

The Corporation As The Bad Guy

When the corporation's interests are furthered by waiving the privilege claim (for example, exposing the reporter and her sources as a defense, or the corporate employees who bribed foreign government officials as part of a settlement with the SEC), corporate executives have no choice but to agree to the waiver because of the fiduciary duty that they owe to the shareholders. Despite their possible sympathy for the individual employees who are being "hung out to dry", they must act in the best interests of the corporate entity. Otherwise, those executives will expose themselves to personal liability for negligently managing the corporation's assets.

This being true, how then does the privilege work in the corporate context? If the Upjohn and the Tail Wind experiences are any indication, it works through the ignorance of corporate employees. Had Ms. Oliver and the culpable Upjohn employees known that they were signing their own confessions when they spoke with corporate counsel, they would never have been candid, and might have refused to speak at all without their personal attorneys being present to work with corporate counsel in a joint defense arrangement. This arrangement would have changed the entire dynamic. Under such an arrangement, neither the corporation nor the individual employees could have waived the privilege protection without the consent of the other.

While not openly acknowledging this dilemma, the corporate counsel with whom I have spoken seem to understand how and why the corporate privilege works. Consequently, when approaching corporate employees who possess helpful, but incriminating, information, they feel ethically obligated to give the same warning that the Life Insurance Company does -- that they do not represent the employees individually. Because this warning is a bomb shell that discourages the open communications that are needed, they, like the insurance company, attempt to diffuse it by coupling the notification with the assurance that everything the employees say is still protected by the attorney-client privilege.

While both statements are technically accurate, the second is terribly misleading, and perhaps a conscious misrepresentation. What is the purpose in warning laymen that there is no attorney-client relationship between themselves and the corporate attorney if, in the same breath, they are told that the most significant benefit from such a relationship -- the attorney-client privilege -- is still applicable? To the uninformed layperson this is little more than legal double-talk -- a verbal shell game in which only the lawyers know that there is no pea to be found.
 

The Cold Hard Truth

The truth is that corporate counsel does not represent that employee and there also is no privilege protection for that employee. There is only a privilege protection for the corporate entity from which the employee may indirectly benefit, but there is no assurance that that benefit will ever be realized because (1) the privilege may never be asserted, (2) the employee has no input into that decision, and (3) its exercise cannot be for the sole benefit of that employee.

It is said that a little knowledge can be a dangerous thing. That is certainly true for corporate employees. Perhaps corporate counsel should say nothing at all about the attorney-client relationship when they approach employees. If, however, ethical considerations are thought to give rise to a need to educate, the assurance that their communications are protected by the attorney-client privilege should be omitted. If included, however, it must be made clear that the privilege is the corporation's, not the employees, and that its exercise will be totally within the discretion of corporate management.

Corporate employees are not like arrestees who, when exposed to a custodial interrogation environment, must be given adequate warnings of their constitutional rights. While corporate employees may be coerced to speak when confronted by corporate counsel, the coercive power is only economic -- the "talk or walk" ultimatum. Nevertheless, if the law is not equally concerned about the informed choices being made by corporate employees since neither the coercive powers of the state nor constitutional rights of an accused are involved, shouldn't the law at least draw a line at misrepresentations by corporate counsel that permit corporations to play on, and benefit from, the ignorance of their employees?

1. Mr. Rice is a professor of law at the American University Washington College of Law. He is the author of two treatises on the attorney-client privilege, P.R. Rice, Attorney-Client Privilege in the United States (West Group 2^nd ed. 1999) and P.R. Rice, Attorney-Client Privilege: State Law (Rice Publishing 2000). Web page: acprivilege.com. His most recent book is Best Kept Secrets of Evidence Law: 101 Principles, Practices & Pitfalls (Anderson 2001). I would like to acknowledge both the substantive and editorial input of my colleague and friend Walter Effross. Thanks to Stefanie Birbrower for her research on the Operation Tailwind litigation.