United States v. Stein
98 A.F.T.R.2d (RIA) 8016, 463 F. Supp. 2d 459, 2006 U.S. Dist. LEXIS 87369 (2006)
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Rule of Law:
An employee's subjective belief that they are being personally represented by their employer's counsel is insufficient to create an individual attorney-client privilege; the employee must demonstrate that the communications concerned purely personal matters that were distinct and segregable from the employer's interests.
Facts:
- Carol Warley was a partner at the accounting firm KPMG LLP.
- In 2003, the IRS began investigating KPMG's tax shelter activities, which included work done by Warley.
- KPMG retained outside law firms and used its in-house counsel to manage the investigation.
- Attorneys retained by KPMG interviewed Warley in 2003 regarding her work for the firm.
- Warley was never explicitly told that the attorneys represented only KPMG or that the attorney-client privilege belonged solely to the firm.
- A KPMG partnership agreement stated that the General Counsel acted on behalf of all partners, except in disputes between a partner and the firm.
- In prior lawsuits, counsel retained by KPMG had jointly represented both the firm and Warley, when she was a witness.
- In 2004, to avoid indictment, KPMG waived its attorney-client privilege and provided the government with documents detailing Warley's communications with its attorneys.
Procedural Posture:
- The United States government initiated a criminal prosecution against Carol Warley in the U.S. District Court for the Southern District of New York.
- During the prosecution, the government indicated its intent to use as evidence documents obtained from KPMG, which detailed communications between Warley and KPMG's attorneys.
- Warley filed a motion in the district court for relief from the government's alleged violation of her attorney-client privilege, seeking to suppress the evidence.
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Issue:
Does a partner in a firm hold an individual attorney-client privilege over communications with the firm's counsel regarding matters within the scope of her employment, which the firm cannot waive, when she subjectively believed she was personally represented but the communications were not exclusively about her personal legal matters?
Opinions:
Majority - Kaplan, District Judge.
No. A partner in a firm does not hold an individual attorney-client privilege over communications with the firm's counsel regarding her employment where the communications were not exclusively about her personal legal matters. The burden of proving privilege lies with the party asserting it, and Warley's subjective belief that she was personally represented is insufficient. Under the Second Circuit's standard in Teamsters, a personal privilege only attaches when an individual seeks legal advice on 'personal matters.' Here, Warley’s communications were about events within the scope of her work as a KPMG partner, clearly implicating KPMG’s interests. Even under a broader standard, Warley failed to show that the communications focused on her personal interests alone and were segregable from those of KPMG. The partnership agreement and prior joint representations were not persuasive, as there was no evidence Warley actually relied on them in forming her belief, and the prior representations occurred in a different context where she was only a witness.
Analysis:
This decision reinforces the high barrier for employees seeking to claim a personal attorney-client privilege over communications with corporate counsel. It clarifies that an employee's subjective belief is not enough; there must be objective evidence that the communication was for personal legal advice on matters segregable from the company's business. The ruling serves as a strong reminder that corporate counsel's primary duty is to the entity, not its individual employees. Consequently, it underscores the importance for corporate counsel to provide clear warnings (often called 'Upjohn' or 'corporate Miranda' warnings) to employees during internal investigations to avoid ambiguity about who the lawyer represents.
