Advice of Counsel Affirmative Defense May Waive Attorney-Client Privilege

/in /by

Attorneys should be aware that they risk waiving attorney-client privilege by asserting an advice of counsel affirmative defense. In an antitrust litigation, the U.S. District Court for the District of Idaho recently granted plaintiffs’ motion to compel certain defendants to produce documents identified on their privilege logs because they had waived attorney-client privilege by asserting an affirmative defense that they acted in on the advice of counsel.

In civil litigation, parties often create “privilege logs” describing documents or other items they have withheld from discovery because they are privileged, for example by the attorney-client privilege, or because they fall under the work product doctrine. Under Rule 26(b)(5) of the Federal Rules of Civil Procedure:

When a party withholds information otherwise discoverable by claiming that the information is privileged . . . the party must . . . describe the nature of the documents, communications, or tangible things not produced or disclosed—and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.

The party asserting the privilege has the burden of proving it. Tornay v. U.S., 840 F.2d 1424, 1426 (9th Cir. 1988). To establish that documents are protected by the attorney-client privilege, the party asserting the privilege must prove each element of the following eight-part test:

  1. Where legal advice of any kind is sought;
  2. from a professional legal adviser in his capacity as such;
  3. the communications relating to that purpose;
  4. made in confidence;
  5. by the client;
  6. are at his instance permanently protected;
  7. from disclosure by himself or by the legal adviser;
  8. unless the protection be waived.

In re Grand Jury Investigation, 974 F.2d 1068, 1071 n.2 (9th Cir. 1992).

In In re Fresh & Process Potatoes Antitrust Litig., 2014 U.S. Dist. LEXIS 50828 (D. Idaho Apr. 11, 2014), the plaintiffs claimed that the eighth element of the test applied—that the privilege had been waived—and that the defendants were required to produce the documents for which it was waived in discovery. The plaintiffs moved to compel production of certain documents listed on the defendants’ privilege logs, asserting that, among other things, privilege had been waived through certain defendants’ assertion of the affirmative defense that they acted in reliance on advice of counsel. Id. at *16.

In this antitrust case, certain defendants asserted that they had a good faith belief their conduct was permissible under federal antitrust law and the Capper-Volstead Act (a law that lists permissible collective conduct that does not risk antitrust liability) based upon their counsel’s advice. Id. at *20. The defendants argued that this affirmative defense waived the attorney-client privilege for documents and information relating only to the defendants’ belief in the legality of the precise conduct that the plaintiffs challenged. Id. at *21. Conversely, the plaintiffs argued that the affirmative defense waived the attorney-client privilege for a wide range of topics. Id. at 23. The Court agreed with the plaintiffs, particularly because the parties had previously agreed to a privilege waiver stipulation that was not as “narrowly tailored” as the defendants claimed it to be. Id. at *24-26.

The Court reasoned that a party asserting a defense of advice of counsel should be required to produce all documents relied upon or considered by counsel in forming its advice, otherwise, “a litigant may use the attorney-client privilege as a shield, and deprive the opposing party of the opportunity to test the legitimacy of the defendant’s claim.” Id. at *28 (citing Aspex Eyeware, Inc. v. E’lite Optik, Inc., 276 F. Supp. 2d 1084, 1092 (D. Nev. 2003)). The Court stated that, “[t]o hold otherwise would . . . deprive Plaintiffs of the broader context in which the advice was given.” Id. at *31. The Court elaborated:

It would be patently unfair for a party to assert that they relied upon the advice of counsel, yet deprive the opponent of the opportunity to understand why the advice was given, what other alternatives were looked at, why certain advice was rejected, and how the advice was interrelated to other business decisions. . . . Plaintiffs are entitled to understand and ask questions about the validity of counsel’s advice, and Defendants may not use the assertion of the privilege both ‘as a sword and a shield.’

Id. at *31-32 (citing Gorzegno v. Maguire, 62 F.R.D. 617, 621 (S.D.N.Y. 1973).

As a result, defendants should be cautious in asserting an advice of counsel affirmative defense because they could waive attorney-client privilege across the board. On the other hand, plaintiffs should be aware that they are entitled to obtain broad discovery when defendants assert this affirmative defense.