A variety of recent, seemingly disparate, court decisions in Pennsylvania and New Jersey provide a striking reminder to general counsel to affirmatively, and preferably in writing, advise employees, executives, and other corporate agents that the general counsel represents the institution only, rather than the agents in their individual or personal capacities.
In Pennsylvania, several state appellate courts determined that when the general counsel appeared at proceedings on the executives' behalves, while failing to explain to the executives, or to a grand jury, any limitations on the scope of representation, the executives could reasonably believe that the general counsel was their personal attorney. As such, the courts suppressed certain statements made by the general counsel given such statements' status as attorney-client privileged.
Conversely, in New Jersey, the District Court determined that despite a factual dispute over whether the general counsel warned an executive that the general counsel only represented the institution, the court found that the executive’s conversations pertained to company, and not personal, matters and held that the executive's conversations with the general counsel were not atttorney-client privileged.
The factual background of the Pennsylvania cases involve criminal investigations of executives of a higher educational institution in the aftermath of sexual abuse scandals. In each of the cases, the general counsel appeared on behalf of the university and the executives in a grand jury proceeding. Subsequently, the executives were charged with perjury in connection with their grand jury testimony. The charges, in turn, were significantly based on the grand jury testimony of the general counsel. See Commonwealth v. Curley, 2016 PA Super 13 (Pa. Super. Ct. 2016); Commonwealth v. Schultz, 2016 PA Super 12 (Pa. Super. Ct. 2016); Commonwealth v. Spanier, 2016 PA Super 14 (Pa. Super. Ct. 2016).
Each of the executives thereafter brought actions to quash the grand jury presentment, claiming they had been denied effective counsel, as they each alleged they believed the general counsel had represented them in their individual capacities.
The Pennsylvania state appellate courts reversed and dismissed the criminal charges against the executives, finding that the general counsel had an attorney-client relationship with the executives and that such a privilege was violated through her testimony against the executives in the grand jury proceeding. The appellate courts stated that the right to counsel is personal and designed to ensure that the party offering testimony does not provide incriminating testimony and, thus, counsel must properly explain the limitations of any representation. As said limitations were not adequately communicated to the executives, the courts found that the executives were deprived of their personal counsel during their grand jury testimony.
Notably, although the executives were aware that the general counsel represented the university, the court found that such knowledge does not necessarily mean that the general counsel is only representing the executives in their capacities as agents for the university.
The courts also noted that certain communications between a corporate attorney and a corporate employee may be personally privileged. Rather, the courts distinguished discussions between general counsel and executives for the purposes of 1) business operations and internal investigations and 2) the executive’s personal legal issues, in these cases, the individual subpoenas to the executives.
New Jersey Case
In the New Jersey case, the federal government filed criminal charges against a former CEO of a publicly-traded company, alleging he defrauded investors with hidden investment fees. The government issued a subpoena seeking information, including attorneys’ notes, arising from two meetings the CEO had with the law firm serving as outside general counsel to the company. See United States v. Blumberg, 2017 WL 1170851 (D.N.J. Mar. 27, 2017).
The CEO sought to quash the subpoena claiming that (1) the law firm represented both the company and the CEO, (2) attorney–client privilege belonged to the CEO, and (3) he did not waive such attorney-client privilege. The CEO also provided sworn statements arguing that no warning was provided to him that the law firm did not represent him in his individual capacity.
The company in turn claimed that its lawyers provided warnings to the CEO that it did not represent him personally, thereby negating any argument that its attorneys had an attorney–client relationship with him, and provided sworn statements from several lawyers, and contemporaneous meeting notes, stating such a warning was provided.
While the New Jersey court did not make a determination as to whether the warnings were or were not, in fact, given, the court instead, applied a five-factor test, the so-called Bevill test, see In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3rd Cir. 1986), to determine whether the CEO could successfully claim privilege over the meetings.
Specifically, the CEO was required to demonstrate that he 1) went to the company counsel to seek legal advice, 2) made it clear he was seeking legal advice in his individual capacity, 3) the attorney communicated despite knowing a conflict of interest may arise, 4) the conversations were confidential, and 5) the substance of conversations with counsel did not concern the general affairs of the company.
As the CEO was unable to present sufficient evidence that his communications related to anything other than company affairs, despite his alleged personal reason in attending the meeting, the court determined that the CEO could not assert attorney-client privilege over the communications with the company's counsel.
The instant cases confirm the importance of warnings to advise executives, employees, and other agent of an institution that the corporate/general counsel represents the institution and is not the personal attorney of the members/executives/directors of the institution. Such warnings are more formally known as "Upjohn" warnings, which arose from the United States Supreme Court opinion in Upjohn Co. v. United States, 449 U.S. 383 (1981).
In light of the Blumberg decision, general counsel should assess whether a written "Upjohn" acknowledgement, signed by the agent, is needed to ensure the claims are not made later that the general counsel also represented the agent in their individual capacity.
Particularly given the Blumberg decision, general counsel must be vigilant to provide an accurate and timely Upjohn warning and ensure that any dual representation issues are resolved. Moreover, as reflected in the Pennsylvania decisions, general counsel must be cognizant that participating in legal proceedings or investigations raises ethical hazards when the general counsel knows, or has reason to know, that an agent of the corporation may face individual legal liability.
Conversely, employees, executives, and agents of institutions must be aware of the limitations on the representation of the general counsel, whether an Upjohn warning is issued or not and, that most importantly, the general counsel is not their personal attorney.