Attorney-Client Privilege Protections for Non-Employees Criteria for the F unctional E quivalent T est By Brian A. Zemil, Litigation News Associate Editor

lthough federal courts recognize The Supreme Court held that the status Since the Bieter decision, other federal that the attorney-client privilege of an employee is not a consideration for courts have extended the functional equiva- can protect communications determining whether the attorney-client lent doctrine to communications involving between corporations and privilege applies, instead opting for a case- a wide variety of third-party independent Aindependent contractors who are the by-case analysis of the reasons for the com- contractors. The doctrine has been applied “functional equivalent” of employees, munications. The Court did not address to financial consultants Export-Import( Bank they disagree about the evidence required whether the privilege could apply to third- of the U.S. v. Asia Pulp & Paper Co.); accoun- to meet the functional equivalent test. party contractors or consultants. tants (RoDa Drilling Co. v. Siegal); construc- A federal district court in Pennsylvania The U.S. Court of Appeals for the Eighth tion consultants (American Manufacturers recently joined the debate, adopting a Circuit was the first federal appellate Mutual Insurance Co. v. Payton Lane Nursing “broad, practical approach” and rejecting court to address whether communications Home Inc.); independent credit counsel- the “stringent, multi-factor” tests used by between corporate counsel and a cor- ing consultants (In re e2 Communications, some courts. poration’s independent consultant could Inc.); invention consultants (Coorstek, Inc. v. “The case law has not yet clearly estab- fall within the scope of the attorney-client Reiber); insurance consultants (United States lished what the criteria for being deemed privilege. In In re Bieter Company, a party v. Graf ); and public relations consultants a ‘functional equivalent of an employee’ challenged a privilege claim on communi- (Hadjih v. Evenflo Co.). are so that privilege protection will attach cations between counsel and a contractor “The case law regarding the functional to communications. It is an evolving area hired to provide real estate advice. The equivalent test is following the economic of the law,” says Edna S. Epstein, Chicago, court in Bieter stated, “when applying reality that businesses regularly outsource author of The Attorney-Client Privilege and the attorney-client privilege to a corpora- work,” says Epstein. “Accordingly, the case the Work-Product Doctrine. tion or partnership, it is inappropriate to law is sweeping into the category of ‘func- distinguish between those on the client’s tional equivalent of an employee’ third The Genesis of the Functional payroll and those who are instead and for parties that in the past would have been Equivalent Doctrine whatever reason employed as independent considered mere ‘consultants,’ whose par- The functional equivalent doctrine protects contractors.” ticipation in privileged communications communications between organizations According to the Eighth Circuit, com- would have been regarded as a waiver of and non-employees who are the functional munications may fall within the privilege as the privilege,” she adds. equivalent of employees. The doctrine long as the independent consultant is the emerged after Upjohn Company v. United functional equivalent of an employee. The Approaches to Determining States, in which the United States Supreme court found that the real estate consultant Functional Equivalence Court rejected the control group test, was intimately involved on a daily basis in Recently, the U.S. District Court for the which had only protected communications the client’s business and “was in all relevant Eastern District of Pennsylvania chose to with those who could control corporate respects the functional equivalent of an follow those courts that apply a broad action. employee.” approach instead of the more narrow

Published in Litigation News, Volume 38, Number 1, Fall 2012. © 2012 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. multi-factor tests used by other courts. In What evidence is required for the functional equivalent test? Attorney-Client Privilege Protections for Non-Employees In Re Flonase, purchasers of Flonase and Courts applying broad, practical approach a generic manufacturer filed an antitrust • In Re Flonase Antitrust Litigation, No. 08-CV-3149 (E.D. Pa. July 2, 2012). case alleging that Flonase’s manufacturer, Criteria for the F unctional E quivalent T est • Banco Do Brasil v. 275 Washington St. Corp., No. 09-11343-NMG, 2012 U.S. Dist. LEXIS 51358 (D. Mass. Apr. 12, 2012). GlaxoSmithKline (GSK), engaged in anti- By Brian A. Zemil, Litigation News Associate Editor • United States v. Graf, 610 F.3d 1148 (9th Cir. 2010). competitive conduct designed to delay the • RoDa Drilling Co. v. Siegal, 552 F.3d 1203 (10th Cir. 2009). entry of cheaper, generic versions of the • Stafford Trading, Inc. v. Lovely, No. 05-C-4868, 2007 U.S. Dist. LEXIS 13062 (N.D. Ill. Feb. 22, 2007). drug into the marketplace. • MLC Auto., LLC v. Town of S. Pines, No. 1:05-cv-1078, 2007 U.S. Dist. LEXIS 2841 (M.D.N.C. Jan. 11, 2007). The parties disputed whether the attor- • In re e2 Communications, Inc., No. 02-30574-BJH-11, 2006 Bankr. LEXIS 4575 (Bankr. N.D. Tex. June 15, 2006). ney-client privilege attached to commu- • Neighborhood Dev. Collaborative v. Murphy, III, 233 F.R.D. 436 (D. Md. 2005). nications between GSK and its third-party • Western Res., Inc. v. Union Pac. R.R. Co., No. 00-2043-CM, 2002 U.S. Dist. LEXIS 1911 (D. Kan. Jan. 31, 2002). consultant, Swiftwater Group. Their con- • Fed. Trade Comm’n v. Glaxosmithkline, 294 F.3d 141 (D.C. Cir. 2002). tract characterized Swiftwater as an inde- • In re Copper Market Antitrust Litig., 200 F.R.D. 213 (S.D.N.Y. 2001). pendent contractor hired to work with GSK • In re Bieter Co., 16 F.3d 929 (8th Cir. 1994). to develop the Flonase brand maturation Courts applying stringent, multi-factor approach plan. Swiftwater’s projects included work- • A.H. ex rel. Hadjih v. Evenflo Co., Inc., No. 10-cv-02435-RBJ-KMT (D. Colo. May 31, 2012). ing with GSK’s legal department and the • Steinfeld v. IMS Health, Inc., No. 10-cv-3301, U.S. Dist. LEXIS 142288 (S.D.N.Y. Dec. 9, 2011). FDA to obtain regulatory approval. • LG Elec. v. Whirlpool Corp., 661 F. Supp. 2d 958 (N.D. Ill. 2009). Both parties agreed that the attorney- • Exp.-Imp. Bank of the U.S. v. Asia Pulp & Paper Co., 232 F.R.D. 103 (S.D.N.Y. 2005). client privilege would extend to Swiftwater • In re Bristol-Myers Squibb Sec. Litig., 2003 U.S. Dist. LEXIS 26985 (D.N.J. June 25, 2003). if it acted as the functional equivalent of an akin to the “control group” test rejected in Isbister, Baltimore, Publication and Content employee at GSK. A special master initially Upjohn. Officer of the ABA Section of Litigation. issued a decision ruling that the Swiftwater The district court analyzed other “While no magic incantation exists to documents were not privileged. courts’ decisions applying a broad, practi- ensure a consultant is covered by the privi- GSK moved for a de novo review of the cal approach, which focuses on whether lege, a party can improve the chances of special master’s ruling. Finding in favor of non-employees possess a significant rela- maintaining the privilege if it includes in GSK, the district court noted that the U.S. tionship to the client and engage in trans- the consulting contract some explanation Court of Appeals for the Third Circuit had actions for which legal advice is necessary. of how the consultant’s work will assist the not adopted a definition for the functional The district court adopted this approach party with legal matters and why the work equivalent test and that other federal “based on the principles espoused in cannot be conducted in-house,” says Ian H. courts do not agree on the necessary pred- Upjohn, and the widespread use of inde- Fisher, Chicago, cochair of the Section of icates for extending the attorney-client pendent consultants by corporations.” Litigation’s Trial Evidence Committee. “The privilege to a corporation’s independent Applying the broad, practical approach, contract should expressly recognize that the contractors. the court concluded that Swiftwater’s consultant will work with the party’s attor- Some federal courts have developed representatives were the functional neys and that the party expects the commu- somewhat stringent, multi-factor tests, equivalents of employees of GSK, because nications to be confidential,” adds Fisher. which include the following factors identi- Swiftwater actively created and imple- “A contractual provision with an inde- fied inIn Re Bristol Myers Squibb Securities mented the Flonase maturation plan and pendent contractor will not control the Litigation: delved into legal and regulatory issues outcome of a privilege challenge, but it that necessitated consultation with GSK’s may help define the parameters of the rela- [W]hether the consultants were incorpo- counsel. tionship so that third parties can behave rated in the staff to perform a corporate appropriately when handling legal matters function which is necessary in the context Practice Tips for a client,” says Joan K. Archer, Kansas of actual or anticipated litigation; pos- In cases in which a privilege challenge City, MO, cochair of the Section’s Pretrial sessed information needed by attorneys exists for a non-employee, “counsel will Practice and Discovery Committee. in rendering legal advice; possessed need to marshal the facts and make a “Clients should also consider educat- authority to make decisions on behalf of detailed showing to establish that the ing independent contractors regarding the company; and were hired because independent contractor is the functional the proper way to communicate in writing the company lacked sufficient internal equivalent of an employee. Those facts with counsel by including references to resources and/or adequate prior experi- should identify the specialized roles confidentiality and stating the legal pur- ence within the consultant’s field. that the contractor performed for the pose for the communication,” says Archer. k company, demonstrate that those roles Nevertheless, “much depends on how art- The district court rejected this definition, required working closely with employ- fully counsel are able to make their case deeming it “narrow” and “too restrictive” ees and counsel, and demonstrate that lly boo e lly and how ‘strict constructionist’ on the privi- for the modern workplace and concluding those roles required communications that lege a particular court may be,” cautions that it contained an authority requirement were treated confidentially,” says John B. Epstein.

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Published in Litigation News, Volume 38, Number 1, Fall 2012. © 2012 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.