Reflecting the courts’ increasing willingness to focus on function—not form—in determining privilege issues, an Oklahoma federal court has ruled that the attorney-client privilege protects communications between an accountant, acting as the “functional equivalent” of an employee, and a client’s outside counsel.
The U.S. District Court for the Northern District of Oklahoma’s ruling in RoDa Drilling Co. v. Siegal follows a growing number of decisions applying an ad hoc approach to determine whether the attorney-client privilege extends beyond the corporate payroll.
The privilege-related issues in RoDa Drilling emerged when the defendants moved to compel the production of various emails and attachments. These communications involved an accountant, hired as an independent contractor, and RoDa Drilling’s attorneys. The court agreed with the defense that no special privilege protected communications with accountants under New York or federal law.
After reviewing the communications in camera, the court looked to cases from New York and the Eighth Circuit to uphold RoDa Drilling’s claim of attorney-client privilege because the communications were primarily of a legal character, and the accountant was the “functional equivalent of a RoDa employee.”
The court opined that, due to his extensive involvement in the deal at issue in the case, “the accountant functioned as an employee, representative or agent of RoDa in seeking and receiving legal advice for RoDa such that his communications with counsel are afforded the same attorney-client privilege as if he were a RoDa employee.”
Other Potential Contractors that Could Be a “Functional Equivalent”
The reasoning that the court in RoDa Drilling employed is not limited to accountants. For example, in In re Bieter, a case cited in RoDa Drilling, the Eighth Circuit extended the attorney-client privilege to communications between a client’s attorneys and an independent contractor who represented the client in a real estate transaction.
The Bieter court saw “no principled basis to distinguish [the consultant’s] role from that of an employee, and his involvement in the subject of the litigation makes him precisely the sort of person with whom a lawyer would wish to confer confidentially in order to understand Bieter’s reasons for seeking representation.”
Nevertheless, counsel looking to extend the scope of the attorney-client privilege may want to carefully consider the factors in each individual case. For example, the current economic environment may force a departure from In re Copper Market Antitrust Litigation, where the court found that a public relations firm working for a copper company was deemed a functional equivalent. “In the present economic environment, I would not expect a court to find a public relations representative of a bank to be the functional equivalent of a client’s employee, and therefore the privilege would not apply,” opines Vernon Dunbar, Greenville, SC, cochair of the ABA Section of Litigation’s Business Tort Litigation Committee.
Waiver of the Privilege in RoDa Drilling
In an interesting twist, the court in RoDa Drilling ordered the production of certain, otherwise privileged documents because the accountant testified on certain topics at an injunction hearing and waived the privilege. “The decision to order disclosure identifies a potential ethical pitfall—one where counsel fails to appreciate the privilege at its inception and as a result fails to take steps to insure its protection and preservation,” says Dunbar.
As a result, “the decision presents an enormous challenge to counsel when preparing a witness for deposition because it requires us to move beyond traditional notions of attorney-client privilege and fully analyze all communications for possible privilege assertions,” Dunbar says.
“When engaging in discussions with someone other than the direct client about issues related to a legal matter, attorneys should conduct themselves as if a privilege does not exist but nevertheless assert the privilege as to the communication to serve as an abundance of caution and to avoid any potential ethical traps,” advises Bart Greenwald, Louisville, KY, cochair of the Section’s Business Tort Litigation Committee.
“One way to ensure that email communications are predominantly of a legal character may be to have the ‘re:’ line read: ‘seeking legal advice on subject matter x’,” notes Dunbar.
Regardless of how an attorney characterizes an email, they “have dramatically changed the day-to-day practice of law, and not for the better—privilege problems would be alleviated if attorneys did not memorialize in communications meaningful conversations with material witnesses,” observes Greenwald.