Jeff MacHarg & Ashley Barton Chandler

In this order from Buckley LLP v. Series 1 of Oxford Ins. Co. NC LLC, Chief Judge Bledsoe dealt with dueling motions to compel.  Both sides claimed that their hybrid business-legal communications were privileged.  After an exhaustive review – Judge Bledsoe concluded that both sides were right, and wrong, and certain materials had to be produced.

Key takeaway: to protect intertwined business-legal communications, seeking (or providing) legal advice must be the “primary purpose.”  If the “primary purpose” isn’t legal—it probably isn’t privileged—even if lawyers are involved.

The Underlying Coverage Dispute

This is a coverage suit between a law firm, Buckley LLP, and its insurer, Oxford.  After misconduct was alleged against one of Buckley’s founding partners, Buckley’s Executive Committee followed the firm’s handbook and hired an outside law firm—Latham & Watkins LLP—to investigate.  While the investigation was underway, the partner accused of wrongdoing retired, taking his revenue with him.

Buckley filed a claim under a key-man policy with Oxford for loss of income caused by this attorney’s departure.  Oxford’s general counsel reviewed the claim, and ultimately denied it.  Coverage litigation followed.

As we previously reported, motions practice started early—with an Oxford motion to strike aspects of Buckley’s venomous complaint, which Judge Bledsoe denied.

Dueling Motions to Compel “Privileged” Communications

Both sides were suspicious of the other’s privilege decisions. This led to dueling motions to compel.

Buckley focused on the communications of Oxford’s general counsel who made the claim decision.  According to Buckley, the GC’s communications were not privileged because she was not providing legal advice when making the business decision to deny the claim.

Oxford, in turn, focused on the investigation conducted by Latham & Watkins.  Oxford argued that certain communications between Buckley and Latham were neither privileged nor work product because the investigation’s primary purpose was business-related.

Judge Bledsoe concluded that they were both partly right, and partly wrong.

Communications with general counsel were not automatically privileged.

Oxford’s GC explained that she never takes off her legal hat, that her claim decision was a legal one, and thus her materials and communications are privileged.  Not so, said Judge Bledsoe.

Judge Bledsoe noted that in house counsel, and general counsel in particular, wear many hats: claims reviewer, adjuster, supervisor, investigator, monitor, etc.—none of which are primarily legal.  Claims processing is a core business function of any insurer—involving factual investigation, policy review, and ultimately a decision.  This is far from a solely legal inquiry.  Thus, communications of and with Oxford’s GC are not automatically privileged.

In deciding which communications of Oxford’s GC, if any, were privileged, Judge Bledsoe reaffirmed and applied the “primary purpose” test.  Under this test, when it comes to hybrid, business-legal communications, if the primary purpose of the communication is business, then the communication is not privileged.

After an in camera review, Judge Bledsoe concluded most of the communications with Oxford’s GC were not privileged because they were made in her business role of reviewing the underlying claim.

Communications with law firm conducting an internal investigation are not automatically privileged.

Since Latham’s investigation was required by firm policy, Oxford argued that certain communications between Buckley and its investigator—Latham—were neither privileged nor work product because they involved business, not legal, issues.  Judge Bledsoe agreed.

Internal investigations are not automatically privileged—even if the investigations are handled by outside counsel.  The key questions are whether the investigation was related to rendition of legal services and whether the legal advice was a significant purpose of the investigation.

Judge Bledsoe concluded that since the investigation was required by the law firm’s policy, the investigation was primarily a business, not a legal, activity.  The fact that Buckley hired a law firm to investigate does not convert this business activity to a legal one.  The engagement letter—which broadly and vaguely stated the purpose of the investigation was to provide legal advice—could not create privilege protections for otherwise non-privileged communications.

After an in camera review, Judge Bledsoe ordered production of a swath of Latham-Buckley communications, including emails that were marked by the author as “Privileged and Confidential.”  Judge Bledsoe concluded that many of these emails, even those with privileged markings, were non-substantive (e.g., scheduling), primarily in furtherance of the investigation, and/or were unrelated to rendition of legal services.  Judge Bledsoe did note, however, that some of the Latham-Buckley communications were primarily for seeking or providing legal advice and thus were properly withheld.

Materials that are not prepared because of litigation are not work product.

Judge Bledsoe also ruled that several Buckley-Latham communications were not work product because they were not prepared because of the prospect of litigation.  Employee misconduct is routinely investigated.  Where the materials would be created irrespective of litigation, they are not work product.  Judge Bledsoe noted that none of the communications discussed the prospect of litigation, and none of the other Buckley witnesses testified that they believed the investigation would result in litigation.  The only evidence of anticipated litigation was the affidavit of the Latham attorney, but Judge Bledsoe was unconvinced.  Among other things, nobody explained how the investigation (or communications) would have differed had litigation not been anticipated.  In other words: litigation or no litigation, the investigation would have been the same.  Since the investigation was predominantly a business function and not done in anticipation of litigation, many of the communications with Latham were not protected as work product.

Some Lessons:

  • In-house counsel beware: Even if you always wear your “lawyer hat,” your communications are not automatically privileged.
  • “Privilege” headers can help, but the best way to protect communications is to make clear that the writer is either seeking or providing legal advice.
    • So, if you are the client writing to a lawyer,  try to make your request for legal advice explicit: “I would like your legal advice on the following . . .”
    • And if you are a lawyer responding to a client, do the same: “Here is my response to your request for legal advice.”
    • If nothing else, this will help keep privilege front of mind.
  • Use the phone.  This allows for better, two-way communication and, with the exception of calendar invites, is less likely to lead to privilege and production disputes.
  • Draft your engagement letters carefully. A broadly drafted engagement letter does little to inform whether a particular engagement is a business or legal engagement.  Here, for example, perhaps the result would have been different if Latham’s engagement letter expressly noted anticipated litigation.
  • When it comes time for redactions and privilege logs: be reasonable. Not all communications between attorney and client are substantive or privileged.  Judge Bledsoe ordered the production a number of emails discussing meetings and scheduling issues—none of which remotely involved the provision of legal advice.

Final Note on Appeal-ability:

Because this opinion affected a substantial right, it is immediately appealable.  To account for the notice of appeal period, Judge Bledsoe gave the parties thirty-five (35) days to comply with the Court’s order.  In setting this compliance period, Judge Bledsoe also took note of another tool in litigants’ arsenal: a motion to reconsider.  Such a motion could provide swifter resolution than a full-blown appeal, but Judge Bledsoe reminded counsel that the permitted grounds for reconsideration are quite narrow.  Litigators, therefore, take note: a motion to reconsider may result in quicker action from a court, but it should be used only with careful consideration of the grounds.