United States v. Graf
610 F.3d 1148, 2010 WL 2671813, 2010 U.S. App. LEXIS 13860 (2010)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
For a corporate employee to assert a personal attorney-client privilege over communications with corporate counsel, the employee must affirmatively show that they sought legal advice in their individual capacity, that counsel agreed to represent them individually, and that the communications' substance did not concern the company's general affairs.
Facts:
- In 2000, James L. Graf, William Kokott, and Kari Hanson formed Employers Mutual LLC to provide health care benefit plans.
- Graf was not officially listed as an employee or officer, as he had previously been banned from insurance work in California, but he was heavily involved in all facets of the corporation's operations.
- Employers Mutual marketed health plans to over 20,000 people, falsely representing that the plans were insured by legitimate companies like Sun Life of Canada.
- During this period, Graf communicated with several attorneys retained by Employers Mutual and ignored their advice that the company's marketing of the plans violated state and federal law.
- Graf created a shell company, Colombia Health Network, Inc., to funnel approximately $750,000 in premiums paid to Employers Mutual for personal use, including purchasing jewelry, a sports car, and a house.
- Employers Mutual collected about $14 million in payments but paid only about $1.75 million in medical claims, leaving over $20 million in unpaid claims for thousands of members.
- In May 2001, the U.S. Department of Labor (DOL) began investigating Employers Mutual.
- Graf obstructed the DOL investigation by telling attorneys to lie to the DOL, instructing employees to hide documents, and producing false documents.
Procedural Posture:
- The U.S. Department of Labor filed a civil suit against Employers Mutual and Graf in the U.S. District Court for the District of Nevada.
- The district court appointed an independent fiduciary, Thomas Dillon, to operate the company.
- Dillon, acting for Employers Mutual, waived the company's attorney-client privilege concerning communications with its counsel.
- Graf was indicted in the U.S. District Court for the Central District of California on charges including conspiracy, mail fraud, and misappropriation.
- Graf filed a motion in limine in the district court to exclude the testimony of Employers Mutual's former attorneys, asserting he held a personal attorney-client privilege.
- After an evidentiary hearing, the district court denied Graf's motion.
- Following a jury trial, Graf was convicted on multiple counts.
- Graf moved for a judgment of acquittal under Rule 29, which the district court denied.
- Graf appealed his convictions to the U.S. Court of Appeals for the Ninth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a corporate officer or 'functional employee' hold a personal attorney-client privilege over communications with corporate counsel, thereby preventing the counsel from testifying after the corporation has waived its privilege, when the communications primarily concerned corporate matters and the officer did not clearly seek personal legal advice?
Opinions:
Majority - Tallman, Circuit Judge
No, a corporate officer or 'functional employee' does not hold a personal attorney-client privilege under these circumstances. To assert a personal privilege, an employee must satisfy the five-part 'Bevill' test, which requires showing they sought personal legal advice and that the communications were not about general corporate affairs. The court reasoned first that Graf, despite his lack of an official title, was a 'functional employee' of Employers Mutual due to his deep operational involvement and role as the primary contact with counsel. Therefore, his communications with corporate counsel presumptively fell under the corporation's privilege, not his own. The court then formally adopted the five-part test from 'In re Bevill' for determining when a corporate employee can assert a personal attorney-client privilege. Applying this test, the court found Graf failed to meet his burden. He did not demonstrate that he approached counsel for personal legal advice (factor 2), that counsel agreed to represent him in his individual capacity (factor 3), or that the substance of their conversations was unrelated to the general affairs of Employers Mutual (factor 5). All discussions with the attorneys concerned the company's business, and the attorneys testified they represented only the corporation.
Analysis:
This case is significant for formally adopting two key legal doctrines in the Ninth Circuit. First, it adopts the 'functional employee' test from 'In re Bieter Co.', extending the corporate attorney-client privilege to communications with non-employees (like consultants) who are functionally equivalent to employees in their relationship with the company. Second, and more importantly, the court adopts the five-part 'Bevill' test, establishing a clear, high standard for corporate employees seeking to assert a personal attorney-client privilege. This decision solidifies the principle that the privilege belongs to the corporation and can be waived by it, making it much more difficult for individual officers or employees to shield their communications with corporate counsel in subsequent litigation or investigations.
