Lisa Zeiderman, Esq., CDFA, CFLManaging Partner at Miller Zeiderman, LLP, is a New York-based marriage and family law attorney.
Small businesses often face confidentiality issues that can arise in any business or financial dispute, especially in the event of a lawsuit or lawsuit. Unfortunately, if you own your business, the potential for a lawsuit is something to consider.
When engaging a lawyer, it is important, among other things, to understand which communications are confidential and which are not. The nature of the privilege associated with the attorney-client relationship can get tricky, especially when third-party communications are introduced.
How can you and your company work with a lawyer and other outside professionals, such as accountants, to ensure that you do not risk exposure to what you believe to be confidential communications, fodder for discovery and testimonials during litigation?
I note first of all that you should always speak directly to an attorney who is fully aware of the challenge you face for legal advice on this matter and any others. In the meantime, here’s some basic information to guide you.
What is Attorney-Client Privilege?
A critical element of the attorney-client privilege is that the attorney-client relationship must be proactively established and that the client’s confidential communications with the attorney must be for the purpose of obtaining legal advice or services. In addition, clients may reasonably assume that communications with attorney’s employees will be treated confidentially and used solely for the benefit of the client.
There is legal precedent that says that an attorney cannot be compelled to disclose what was said to her within the sanctity of the attorney-client relationship, with the exception that the attorney’s conduct was directly at issue.
Know who is in the room before discussing sensitive information.
As a business owner, you depend on your attorney to protect your confidential information and communications, but you also need to be aware of what could result in a waiver of that very special attorney/client privilege. Your lawyer must make every effort to ensure that your confidential information is preserved. In general, when communication takes place between a client and counsel and a third party is known to be present, such communication is not privileged. For example, if you bring your trusted friend to the strategy meeting with your attorney, the communications that take place with your attorney in front of your friend are no longer confidential. Your friend may be subpoenaed to testify about what was said at the meeting, revealing your strategy session with your lawyer.
It is also important that you and your employees are aware of your environment. If you or someone on your team speaks openly about a sensitive subject in a common reception area where others are present, such as the waiting room of your law firm, that communication is not covered by the protection of the privilege. Remember that not everyone in the waiting room is part of your lawyer’s office. You don’t have a privilege with those other people sitting in the waiting room.
What is the Kovel rule and how does it apply?
As part of your litigation strategy, your attorney may determine that certain experts are needed to help your attorney understand your case and to ensure that a court also understands your case. Your lawyer can therefore engage certain experts on your behalf using a Kovel agreement. The Kovel agreement is executed by the expert (for example a forensic accountant) and your lawyer. You are likely responsible for the experts’ fees, but by executing the Kovel agreement, if done correctly, your attorney can retain the privileges between their firm and the expert’s firm. The key to communication that comes under the Kovel rule lies in the principle of “necessity.” For the Kovel Rule to apply, the party claiming the privilege must show that disclosure to the third party was required for the client to obtain well-founded legal advice. An example might be hiring an accountant to help the client explain a complicated tax issue so that the lawyer can properly represent him or her.
The precedent has made it clear that the element of necessity for the Kovel rule must be more than mere convenience. This third party must prove to be “essential” in facilitating or clarifying lawyer-client communication.
For example, information that the third-party professional collects as a counselor should be distinguished from information obtained from that professional as one accountant. Information from the Kovel command can be protected, but information obtained from a control relationship cannot.
The difference lies in whether the communication was intended to provide legal advice or to provide services to the client.
Understand the limits.
When engaging attorneys and outside consultants and advisors to assist with potential litigation, keep in mind that the preservation of confidential privileged information is not absolute, even when an agreement is made stating that such information will be privileged. Understanding the boundaries of the Kovel Privilege is critical to protecting you and your company’s information.
As a small business owner, knowing as much as you can allows you to hire the best people to do the work you need, while doing everything you can to protect your most valuable asset: confidential and privileged information between you and your lawyer.
The information provided here is not legal advice and is not intended to be a substitute for advice from legal counsel on any specific matter. For legal advice, you should consult a lawyer about your specific situation.