Contributed by Isabella C. Lacayo
At a time where business is increasingly global and borderless, foreign clients may be laying the tracks for a very unfortunate situation if litigation in the United States strikes. I’m talking about attorney-client privilege and work product protection – two doctrines that we attorneys adore, and sometimes take for granted.
As The Wall Street Journal pointed out in a very interesting article this week (a related post was included in The Wall Street Journal’s law blog), some U.S. courts have recently ruled that foreign companies’ communications with an in-house attorney are not protected from disclosure. In those cases, the foreign in-house attorneys were not licensed to practice law the way U.S. in-house attorneys generally are and, thus, the privilege was not found to attach to their communications. But, the result is complicated by the fact that many countries do not require in-house attorneys to have licenses the way the U.S. does, yet those in-house attorneys do very similar work, such as oversee internal investigations.
A recent decision in the protracted case of Wultz v. Bank of China Limited, 11 Civ. 1266 (SAS) (GWG), in the Southern District of New York may serve as a wake-up call to foreign companies who may end up defending lawsuits in the U.S. The case is quite complicated, but essentially the family of an American man who was killed in a terrorist attack in Israel in 2006 sued Bank of China, among others, for knowingly facilitating the attack by holding and disbursing the funds used to finance it. If you are not familiar with the case, it is worth reading about because it reveals some very interesting foreign relations issues (this Slate article describes the background of the case and the ensuing international drama).
In 2008, a lawyer for the family issued a demand letter to Bank of China, stating the family’s intention to sue Bank of China in U.S. federal court for its role in the terror attack. Upon receipt, Bank of China launched internal investigations. Bank of China began additional investigations when the complaint was filed in 2009. In the litigation, plaintiffs have sought production of all communications that did not involve a U.S. attorney and related to those investigations. Bank of China refused to produce any documents relating to the investigations, asserting attorney-client privilege and work product protection. But, last month, Magistrate Judge Gorenstein found against Bank of China and issued an Opinion and Order granting plaintiffs’ motion to compel the production of those documents. Importantly, Judge Scheindlin had previously ruled, in August 2014, that the Bank of China employees that launched and oversaw the investigations were not lawyers for purposes of privilege. See Opinion and Order at 3 n.3. Therefore, Bank of China was already fighting an uphill battle to protect the documents in question.
Judge Gorenstein noted that, under federal common law, the attorney-client privilege protects communications “‘(1) between a client and his or her attorney (2) that are intended to be, and in fact were, kept confidential (3) for the purpose of obtaining or providing legal advice.’” See Opinion and Order at 10 (quoting United States v. Mejia, 655 F.3d 126, 132 (2d Cir. 2011)). Bank of China argued it was proper to withhold the documents that plaintiffs sought because they related to the investigations of the claims in the demand letter and the complaint. Bank of China also asserted that, in collecting information concerning the allegations, the employee that launched the investigation “expected” that outside counsel would use and analyze the findings for the purposes of assessing the merits of the allegations and developing a litigation strategy if necessary. Id. at 5. The court, however, found that there is no case law “suggesting that a person’s collection of information is protected merely because the person harbors a plan to provide the information later to an attorney” but that “case law holds just the opposite.” Id. at 12. Perhaps fatal to Bank of China’s assertion of privilege was Judge Gorenstein’s finding that “there is no evidence that any external U.S. counsel actually directed or was otherwise consulted for legal advice regarding the investigation.” Id. Indeed, Judge Scheindlin had ruled in November 2013 that in order to “assert privilege over any documents pertaining to the internal investigation into plaintiffs’ demand letter, [Bank of China] must show that the communications were made as part of an internal investigation that proceeded at the direction of counsel for the purpose of obtaining legal advice.” See Wultz v. Bank of China Ltd., 2013 WL 6098484, at *1 (S.D.N.Y. Nov. 20, 2013).
With respect to the applicability of the work product doctrine, Bank of China had a better chance because “it is not in fact necessary that the material be prepared by or at the direction of an attorney” to receive protection. Opinion and Order at 18; see also Fed. R. Civ. P. 26(b)(3)(A) and accompanying Advisory Committee Notes. The court applied the test set forth in United States v. Adlman, 134 F.3d 1194 (2d Cir. 1998), which requires determination of whether the materials would have been prepared in essentially similar form irrespective of litigation. See Opinion and Order at 17. The court thus asked: “would [Bank of China] have generated the materials listed on the privilege log in similar form had it not anticipated litigation?” Id. at 20. And, the court found that Bank of China had simply “not met its burden of showing that the materials are protectable as work product” because it “provided virtually no evidence on the question of what [Bank of China] ‘would have’ done had it learned of the [ ] allegations under circumstances where the knowledge was not coupled with the threat of litigation.” Id. at 22. And, while the plaintiffs did not bear the burden of proof, plaintiffs plausibly suggested that Bank of China “might have conducted the identical investigation even if litigation had not been threatened – for example, to protect its reputation or to comply with its regulatory obligations.” Id. at 21.
The ramifications of losing a discovery battle like this one are huge and companies abroad that have any chance of being hailed into U.S. courts must take note. Learning from the Wultz case, there are several steps that foreign companies can take to help protect their communications and documents, including educating legal and non-legal employees about:
– the breadth of discovery in the U.S. which is very different from other countries;
– the attorney-client privilege and the work product doctrine in U.S. litigation and how protections may be secured or waived; and
– the importance of contacting and retaining U.S. counsel when the possibility of litigation in the U.S. arises.
Obviously, these steps must be taken proactively and foreign clients should invite U.S. counsel to help them establish best practices before any communications and documents are deemed discoverable.