In re Grand Jury Subpoena

Brief Fact Summary.

Based on a private joint defense agreement, officers and outside counsel of a closely held corporation claim individual privilege in communications involving the corporation in their corporate capacities.

Synopsis of Rule of Law.

Individual officers in a corporation, in their corporate capacities, may not claim individual attorney-client and work product privileges in communications with corporate counsel regarding the corporation.

Facts.

Individuals and corporations in this matter were referred to by fictitious names because of the secrecy of grand jury matters.  Oldco pled guilty to conspiracy to defraud the Internal Revenue Service (IRS) and agreed to cooperate with the government’s investigation of current and former officers, employees, and customers.  As part of this cooperation, Oldco expressly waived applicable attorney-client and work product privileges.  Not long after, a federal grand jury issued a subpoena duces tecum to Oldco’s parent corporation, Newparent, Inc., for records relating to Oldco.  Although Oldco was now owned by Newparent, at the time covered by the investigation, Oldco was a closely held corporation run by Roe and Moe.  Lawyer was Oldco’s principal outside counsel.  These three people intervened and filed a motion to quash the subpoena.  Lawyer claimed that he represented Oldco, Roe, and Moe jointly after a longstanding joint defense agreement; and this agreement provided that all communications among the three clients were jointly privileged and could not be released without unanimous consent.  The district court denied the motion to quash.  Roe, Moe, and Lawyer appealed.

Issue.

May individual officers in a corporation, in their corporate capacities, claim individual attorney-client and work product privileges in communications with corporate counsel regarding the corporation?

Held.

(Selya, J.)  No.  Individual officers in a corporation, in their corporate capacities, may not claim individual attorney-client and work product privileges in communications with corporate counsel regarding the corporation even if the officers and corporation share a joint defense agreement.  When a federal grand jury subpoena is issued to a corporation to obtain a subsidiary’s records, an individual privilege in those records exists only to the extent that communications made in a corporate officer’s personal capacity can be separated from those made in his corporate capacity.  Privileges are created by the operation of law, and private agreements cannot enlarge their scope.  Because the officers were claiming the privilege based on a joint defense agreement, their claim for privilege could not survive the corporation’s waiver of these privileges.

Discussion.

When an attorney represents an entity rather than an individual, many times there are questions regarding to whom any professional duties are owed.  Individual officers of a corporation may assert an individual privilege in any communications only to the extent that communications regarding individual acts and liabilities can be separated from discussions regarding the corporation.  This makes sense as a corporation is an incorporeal entity and must communicate with counsel through individuals.  Importantly, when representing a corporation, the attorney represents the corporation and not the individual officers, shareholders, or directors.  The rule applied by the court in this case is the majority rule.  Model Rule 1.13(a) states, “A lawyer employed or retained by the organization represents the organization acting through its duly authorized constituents†and goes on to specifically define the duties of these lawyers.  Even so, under Model Rule 1.13(g), a lawyer representing an organization may also represent a constituent of that organization, as long as the representation does not create a conflict of interest under Model Rule 1.7.  This can present a real problem in situations where a lawyer has represented an entity for a long time, and might begin to feel greater loyalty to that corporation’s constituents rather than the corporation itself.