May 2008
Attorney-Client Privilege in a Modern Corporate Setting
By Brickford Y. Brown and Philip R. Strunk
It goes without saying that in corporate America, millions of employees are provided internet access and e-mail accounts as part of their jobs. E-mail and internet are considered essential elements of office life. These invariably lead to personal communications between employees and their friends, families, or anyone else with a laptop and a mind to hop on the internet. Most employers regulate this process to one extent or another, but generally allow personal use of office computers. And generally, this is no problem. The vast majority of these exchanges are perfectly unobjectionable, and so tolerated by the employer. But what happens when office computers are used for personal exchanges between employees and their attorneys? What privileges apply to that communication? More importantly, is the employer entitled to access to those communications simply because they were made using company property?
Recently, in Banks v. Mario Industries of Virginia, Inc., the Supreme Court of Virginia resolved this issue in the Commonwealth. In a lawsuit alleging breach of fiduciary duty and tortuous interference with business relations, the Court considered whether an attorney-client communication is privileged where the associated documents were prepared on a computer owned by the plaintiff employer. In this instance, a sales agent named Cook, employed by Mario Industries, a lighting manufacture and supply company, decided to compete with his employer by founding his own business. Cook made preparations for his new venture over a period of several months during which time he breached his fiduciary duty on numerous occasions. Not surprisingly, he misappropriated information Mario Industries had kept confidential, including yearly sales totals, profit margins, trade secrets, contact information for key suppliers and customer lists. With this in hand, Cook prepared a memorandum for his attorney seeking legal advice about his resignation and his new business venture. Regrettably for him, Cook prepared this memorandum on a computer owned and issue by Mario Industries.
After Cook resigned, representatives for Mario Industries performed a forensic analysis of his computer, discovering the pre-resignation memorandum and other incriminating evidence. Not only did the employer recover the content of the memo, but also learned the date and time the memo was prepared, when it was printed and when Cook deleted the file. At trial, Mario Industries introduced the pre-resignation memo into evidence over Cook’s objections of privilege. Cook appealed, claiming that the memo was exclusively prepared for the purpose of seeking legal advice and therefore privileged as an attorney-client communication.
The Supreme Court of Virginia was not impressed by his arguments. The court cited portions of Mario Industries’ employee handbook, which permitted employees to use their work computers for personal business but advised that they enjoyed no expectation of privacy on office-issued equipment. Because the pre-resignation memo was drafted and printed on a computer owned by his employer, in an environment where he had no expectation of privacy, the court held that the Cook had waived his privilege and the memo was properly admitted by the trial court. This was a particularly painful outcome for Cook as the court also sustained a jury verdict in excess of $1.5 million.
The court’s decision in Banks v. Mario Industries was largely predicated on the existence of an employee handbook which specifically addressed issues of privacy. The opinion did not delve deeply into the issue of privilege, and did not consider arguments of inadvertent production. Instead the court simply found an implied waiver of the attorney-client privilege as a result of Cook’s conduct. Thus, the issue seems resolved in Virginia.
While other courts have produced identical results on the same facts, there are examples where courts have found that an attorney-client communication made from an office computer retains its privilege. In Curto v. Medical World Communication, Inc., the District Court upheld a magistrate’s ruling that attorney-client communications recovered from the computer of a terminated employee were privileged, even though the former employee had signed a privacy policy explicitly waiving her right of privacy in any materials placed on a work computer. In this instance, Curto, who worked from her home, used her work computer to communicate with her attorney. When she was terminated and forced to return the computer to her employer, she deleted all personal information from the computer. Yet another forensic examination of the hard drive produced copies of Curto’s correspondence with her attorney, causing her to assert claims of attorney-client privilege and attorney work-product.
Though the court recognized that voluntary disclosure of privilege communications generally results in a waiver, it applied an inadvertent disclosure analysis consisting of five elements. The first four factors of this test are those commonly associated with inadvertent disclosure. In this context, courts will consider the reasonableness of the precautions taken by the producing party to prevent inadvertent disclosure, the volume of discovery versus the extent of the specific disclosure, the length of time taken by the producing party to rectify the disclosure and the overarching issue of fairness. In addition, because the disclosure occurred on a work computer, the court added a fifth element to this list: whether or not there was enforcement of the employer’s computer usage policy.
Ultimately the court agreed with the magistrate judge’s findings. Curto took reasonable precautions to protect her privilege, requested return of the documents in a reasonable time, and the overarching issues of fairness weighed in her favor. More significantly, because the employer did not regularly enforce its computer usage policy, the court found that the employees were given a false sense of security in their personal use of company equipment. Unlike the decision in Banks v. Mario Industries, the existence of a handbook provision addressing the employee’s expectation of privacy did not vitiate the attorney-client privilege.
The significant distinction between Curto’s case and that of Cook is that the court in Curto treated the disclosure of privileged communications as inadvertent. By entertaining this argument and applying the inadvertent disclosure analysis, the court brought into play considerations such as reasonableness and fairness. The Supreme Court of Virginia declined to consider this approach, opting instead to apply a bright-line rule that there was simply no expectation of privacy in the use of company computer equipment. Given our dependence on e-mail for all manners of communication, and the frequency with which this activity takes place on company-owned equipment, this issue is sure to present itself again and again.
There are clear lessons to be taken from these opinions, different as they may be. For employers, the take away is obvious. Businesses have long acknowledged the need for employee handbooks that address personal use of corporate computer equipment. These policies and procedures should advise employees that they have no expectation of privacy in their work computers and that any information transmitted via the employer’s network is the employer’s property. Equally important, however, is the employer’s obligation to regularly enforce its computer usage policy. A failure to do so could weaken a corporate defendant’s waiver argument in opposition to claims of attorney-client privilege.
For employees, the lesson of these cases is equally simple. If you are considering using your office computer to store confidential information or engage in a privileged discussion with your attorney, don’t.
For further information, please contact Brick Brown or Phil Strunk, or any of the firm’s other lawyers.