Ad Age recently posted an article addressing the meteoric rise and overwhelming dominance of the smartphone.  At the end of this holiday season, over 50 percent of mobile phone users will be using a smartphone.  A year from now, that figure is projected to almost double, to 90 percent of mobile users.  Moreover, smartphone capabilities are growing almost as fast as their market saturation.  I regularly use my phone as a search tool, GPS, communications device (most of which centers on e-mail) and social hub, and I do not consider myself to be a “power user.”  Despite the amazing smartphone developments of the past 5 years, there are more on the horizon.  If the experts are right, we will soon be using our phones in place of our wallets, for identification and point of sale purchases.  Phones could be used to unlock and start our cars and to open our garage doors and set our home thermostats.  This week, conference attendees will be using the DRI smartphone App to keep track of their schedule and contact other attendees.  However, like most any “smart” device, the more we use our phones the more data we generate regarding our whereabouts, activities and lifestyles.

Attorneys used to subpoena cell phone records to see if litigants were on their phones at the time of an injury or during an auto accident.  Already, Historical Cellular Reconstruction (HCR) can be used to provide the history of a phone’s probable location, regardless of whether a user was actually on their phone.  HCR is not based on GPS data, but upon data and information maintained by the cellular provider related to a particular cell phone’s connection to a given cell tower.  Although HCR does not result in pinpoint precision, it can often place a phone within a very small vicinity.  If a user’s cell phone is turned on and the GPS is in operation, the precision increases dramatically.

Now attorneys look for information and material addressing whether a litigant was texting, surfing the web, on Facebook or taking one of virtually countless actions on their cell phones during the time of a given event, or in the hours and days leading up to a significant event.  Lawyers can use cell phone records to compare the location of a litigant to their claimed location.  This is particularly relevant where litigants, such as commercial drivers, are required to routinely log their position.  Records may indicate that an allegedly injured party went to an amusement park, or that an allegedly incapacitated person made a purchase.  The possibilities already seem endless, and as smartphone services continue to expand, so will the potential for using the resulting data in litigation.  As more and more opportunities are created by smartphone data, attorneys need to remain mindful of the fact that there may be data available that will impact their case.  

On August 4, 2001, the American Bar Association's standing committee on ethics and professional responsibility issued formal opinion 11-461 entitled, "Advising Clients Regarding Direct Contacts with Represented Persons."  As a general rule under ABA model rule 4.2, a lawyer cannot communicate with a person that a lawyer knows is represented by counsel without the opposing counsel's consent to the communication.  This rule extends to the use of an intermediary as an agent to communicate with the represented person.  However, it is also sometimes useful for litigants or parties to a transaction to be able to communicate with each other even though they have their own counsel.  In such instances, the parties maintain the right to communicate directly.  Sometimes these communications may require a lawyer's assistance.

Advising your clients on this point is considered proper.  The primary question addressed in the newly issued opinion is whether a lawyer can advise and assist a client in communicating directly with a represented party without violating Rule 4.2.  The ABA Committee felt that there was tension regarding the lawyer's ability to assist the client and effectuating direct client to client contact. 

The ABA Committee had previously stated in formal opinion 92-362 that a lawyer can ethically advise a client to communicate directly with a represented adversary to determine if the adverse party's lawyer had informed them of a settlement offer.   In the new opinion, the committee states directly that "the decision to communicate directly with a representative person may be the client's idea or the lawyer's.  Some decisions and opinions suggest the counsel may be violating the rules prohibiting communication with a representative party by encouraging or failing to discourage a client speaking directly to the other party."  A concern remained under existing rules that a lawyer might run afoul of Rule 4.2 by "scripting" or "masterminding" a client's communication with a represented person.   The Committee stated that "what constitutes 'scripting' or 'masterminding' the communication is not clear, but such a standard, if too stringently applied, would unduly inhibit permissible and proper advice to the client regarding the content of the communication, greatly restricting the assistance the lawyer may appropriately give to a client."  The Committee concluded that without violating Rules 4.2 or 8.4, a lawyer can give assistance to a client regarding substantive communications with a represented party that could include what subjects are to be addressed regardless of whether the lawyer or the client proposes that the communication take place.  The lawyer may review, redraft and approve a letter or an outline for a conversation that the client wishes to use in the communications with the adversary.  The client may also request that the lawyer draft the basic terms and an agreement that he or she wishes to discuss with an adversary.   Nonetheless, some examples of overreaching do remain. 

The committee references several of them in its opinion stating that they include "assisting the client and securing from the represented person an enforceable obligation, disclosure of confidential information, or admissions against interest without the opportunity to seek the advice of counsel.  To prevent such overreaching, a lawyer must, at a minimum advise her client to encourage the other party to consult with counsel before entering into allegations, making admissions or disclosing confidential information.  If counsel has drafted a proposed agreement for the client to deliver to her represented adversary for execution, counsel should include in such agreement conspicuous language on the signature page that warns the other party to consult with his lawyer before signing the agreement."  

Corporate officers may assert their personal attorney-client privilege over matters discussed with corporate counsel not related to their role as officers of the corporation.  In some instances, however, the personal legal problems of employees are inextricably intertwined with those of the corporation.  The case of United States v. Norris, 722 F. Supp. 2d 632, 637 (E.D. Pa. 2010), affirmed, 2011 WL 1035723 (3rd Cir. Mar. 23, 2011) is the latest example of the importance of knowing who counsel actually represents and the consequences of getting it wrong.

Ian P. Norris was the one-time CEO of Morgan Crucible Company plc (“Morgan”), a British carbon and ceramic products manufacturer.  In April 1999, a United States subsidiary of Morgan, Morganite, came under investigation by the United States Department of Justice Antitrust Division (“DOJ”) for allegedly participating in a price-fixing conspiracy.  During the course of the DOJ’s investigation, Morganite was served with a federal grand jury subpoena.  Morgan retained an outside law firm to handle the response to the subpoena and to conduct an internal investigation.  The firm assigned a partner (Keany) to work on the grand jury matter.

During interviews with Norris and other Morgan executives, Keany discovered that Norris’s subordinates had drafted meeting notes concerning the alleged “price-fixing meetings” with business competitors.  Although Morgan had no duty to produce foreign-based documents, Keany recommended producing the notes to the DOJ because they supported Morgan’s position that any such meetings were convened for lawful reasons.  Norris agreed, and Keany produced the meeting summaries with Morgan’s blessing in December 2000.

Four years later, a federal grand jury indicted Norris for “concoct[ing] an elaborate scheme to mislead and obstruct [the DOJ’s] investigation.”  Following his extradition to the United States to stand trial, the government moved in limine for an order permitting Keany to testify against Norris.  The government argued that Morgan had waived its attorney-client privilege as to communications with Keany regarding his previous representation of the company.  Norris claimed that Keany had represented him individually, and that Norris therefore had a personal claim of privilege regarding his communications with Keany.

To determine whether Norris could assert the attorney-client privilege, the United States District Court for the Eastern District of Pennsylvania applied the five-part test adopted In the Matter of Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986).  In Bevill, the Third Circuit held that

a corporate officer must satisfy the following test to assert a personal claim of attorney-client privilege as to communications with corporate counsel: First, they must show they approached [counsel] for the purpose of seeking legal advice. Second, they must demonstrate that when they approached [counsel] they made it clear that they were seeking legal advice in their individual rather than in their representative capacities. Third, they must demonstrate that the [counsel] saw fit to communicate with them in their individual capacities, knowing that a possible conflict could arise. Fourth, they must prove that their conversations with [counsel] were confidential. And, fifth, they must show that the substance of their conversations with [counsel] did not concern matters within the company or the general affairs of the company.

 Bevill, 805 F.2d at 123.

After holding an evidentiary hearing, the court found that Norris had failed to satisfy the Bevill factors.  The court reasoned that (1) Morgan had retained Keany to represent it (not Norris) during the grand jury investigation; (2) Keany never believed he was representing Norris individually and had even advised Norris to get his own counsel; and (3) all of Keany’s communications with Norris concerned his role as Morgan’s CEO as well as Morgan’s conduct and exposure in the grand jury investigation.  Accordingly, the court granted the government’s motion and allowed Keany to testify.

After a seven-day trial, a jury convicted Norris of conspiracy to obstruct justice.  Norris appealed his conviction to the Third Circuit.  In affirming the conviction, the court of appeals swiftly rejected Norris’s privilege claim.  In one paragraph, the court concluded “that Norris failed to meet his burden in asserting his privilege pursuant to the [Bevill] test,” and that there was “no clear error in the District Court’s holding based on the facts elicited in the evidentiary hearing.”  Norris is currently serving 18 months in the CI Rivers Correctional Institution in Winton, North Carolina.

Norris may have a chilling effect on communications between executives and counsel during internal investigations.  Corporate officers are likely to become more circumspect in their discussions with counsel regarding some matters for fear that disclosure would eviscerate any individual claim of attorney-client privilege they might have as to others.  This will be problematic for companies going forward, especially where, as in Norris, we see government regulators more aggressively policing fraud and anticompetitive behavior in the private sector.

A little more than a year ago I criticized the Pennsylvania Supreme Court (highest court) for its decision in the case of Nationwide v. Fleming, which effectively ruled the attorney-client privilege applies only to information given to the attorney by the client.  Prior to the decision in Fleming, the statutory privilege had been broadly construed over time by Pennsylvania courts to encompass two-way communications between attorney and client – the way it should be.  The expectation was that the Supreme Court would take the opportunity in Fleming to definitively expand the privilege (subject to some other exceptions/limitations).  Instead, the Supreme Court’s ruling left the privilege completely in a state of limbo.
 
About six months ago I reported that the highest court in Pennsylvania heard argument in Gillard v. AIG, where the full court would be revisiting this critical issue.  A slew of amici filers including the Philadelphia County, Allegheny County (Pittsburgh) and Pennsylvania Bar Associations weighed in, all in support of a broader application of the privilege that would protect all communications between attorney and client.
 
I am pleased to report the Supreme Court, in a 5-2 majority opinion in the Gillard case, has held that “in Pennsylvania, the attorney-client privilege operates in a two-way fashion to protect confidential client-to-attorney or attorney-to-client communications made for the purpose of obtaining or providing professional legal advice.”  The majority agreed with other courts that have struggled with unraveling attorney advice from client input and have, in turn, stressed the need for greater certainty to foster frankness of communications between lawyers and their clients.
 
Thankfully, the court has finally given us some long-overdue clarity on this issue.
 
Supreme Court Justice Seamus McCaffery authored one of two dissenting opinions, criticizing the majority for “legislating from the bench.”  Interestingly, Justice McCaffery (when he was previously a Superior Court Judge) authored the intermediate appellate court opinion in Fleming which the Gillard decision effectively overrules.  With due respect to Justice McCaffery, I can’t agree with him on this one.  The Pennsylvania Supreme Court is charged with the responsibility of regulating my conduct as a lawyer.  Wouldn’t the privilege fall squarely within that responsibility? 
 
(An interesting story about McCaffery:  he originally gained fame in Philadelphia as "the Eagles Court judge," sentencing drunk Eagles fans in a makeshift courtroom in the bowels of the old Vet stadium.  This tidbit is often cited among the criticisms of Philadelphia sports fans.  This notoriety helped propel him to election to the Superior Court, and ultimately to the Supreme Court, where he now serves.)

A recent article in the Law Technology News discussed the growing uncertainty surrounding the privilege protection for unencrypted attorney-client e-mail.  The article also mentions other privilege issues surrounding remote storage, smartphone backup, and virtual office function, which increases the number of people who have access to attorney communication and work product. 

Communication through the growing channels of technology (Twitter and Facebook) will continue to cause uncertainty until the Courts, State Bars and ABA issue formal opinions on which of these channels are privileged.  Because of this uncertainty, attorneys should look to State Bars and the ABA for ethical guidance regarding client communications to ensure they remain privileged and protected.  If there is any uncertainty, it is always best to protect your client and your communication - write a letter or pick-up the phone.  We know those communications are privileged and protected.

Lawyers for Civil Justice (LCJ), a coalition of DRI, FDCC, and IADC has opposed a proposed Financial Accounting Standards Board Accounting Standard FASB Topic 405 Disclosure of Certain Loss Contingencies which would require wide ranging additional disclosures by corporations about pending and potential litigation, including more information obtained from outside counsel about their assessment of strategy and litigation risk in ongoing litigation. Action by FASB is expected before the end of the year.

These proposed changes have far reaching ramifications, not the least of which is the threat to the attorney client privilege and disclosure of strategic information which would benefit counsel suing corporations, even when the loss would be fully insured.  LCJ's position is set forth in a letter to the FASB by its President John Martin, a former DRI President. See LCJ Comment Letter 283.
 
In addition to the opposition by LCJ, over 300 other comments were received, generally in opposition to the changes; see Comments on Proposed Changes to Loss Contingency Disclosures.

Watch this blog, it will keep you informed of any action by FASB on these proposals.

Eric Sieracki's defense against the SEC argues that he lacked scienter (the knowledge of the illegality of an act or conduct; the guilty knowledge). He had relied on the advice of his lawyers. (see Memorandum In Support Of Sieracki Summary Judgment Motion. http://pdfserver.amlaw.com/cc/Sieracki_Memorandum092110.pdf)

In general, an "advice-of-counsel" defense consists of three elements: 1) the defendant's good faith reliance on counsel's advice of; 2) the defendant's lack of knowledge that counsel's advice was erroneous, and 3) the defendant's full disclosure of all relevant facts to counsel, or counsel's actions as determined by the facts of his or her own investigation. (Jacqueline M. Jauregui, "Advice Of Counsel." Federal Defense and Corporate Counsel Quarterly, Summer 2000) The SEC said in its brief that an "advice-of-counsel" defense requires a party to show he requested advice about the legality of an action, received advice that was legal, and relied on it in good faith.  (See SEC's Memorandum In Opposition To Sieracki's Summary Judgment Motion.)

Sieracki cannot use both an "advice-of-counsel" defense and an assertion of attorney-client privilege. The SEC states,

when asked in deposition whether he consulted Countrywide lawyer Mike Udovic regarding credit risk disclosures, Sieracki asserted the attorney-client privilege. SF 549. It is well settled that “[t]he privilege which protects attorney-client communications may not be used both as a sword and a shield.” Bittaker v. Woodford, 331 F.3d 715, 719 (9th Cir. 2003) (quoting Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir. 1992)).  (See SEC's Memorandum In Opposition To Sieracki's Summary Judgment Motion, p. 11.)

Forced Reliance

An officer or director of a corporation cannot know all of the complexities of the corporation, including the complexity of laws that govern it. Officers and directors must rely on a wide range of advisors who provide counsel, including attorneys. Officers and directors may not have the opportunity to verify the advice they receive; they may not possess the skills or have access to the knowledge that an advisor relied upon. It seems that in light of the growing complexity of knowledge, an "advice-of-counsel" defense must be a viable option. In order to allow this defense it may be necessary for corporations to include contractual provisions for defense. (see Mark A. Kressel, "Making the Advice of Counsel Defense Available for Corporate Directors." The Yale Law Journal Online, February 7, 2007.)

On Friday 1/29/10, the Pennsylvania Supreme Court (highest court) issued an opinion in the case of Nationwide v. Fleming affirming the decision of the Superior Court (intermediate appellate court), that ruled the attorney-client privilege applies only to information given to the attorney by the client.

The 2007 Superior Court decision (924 A.2d 1259) offered the following analysis:

"In sum, under our statutory and decisional law, attorney-client privilege protects from disclosure only those communications made by a client to his or her attorney which are confidential and made in connection with the providing of legal services or advice. The privilege extends to communications from an attorney to his or her client if and only if the communications fall within the general statutory definition. Consistent with this statute, the privilege protects confidential communications from an attorney to his or her client only to the extent that such communications contain and would thus reveal confidential communications from the client." More...