The recent Illinois state court decision in Roth v Aon Corporation determined that the attorney-client privilege can apply to emails and drafts of documents in connection with the preparation of filings for the US Securities and Exchange Commission (SEC).
Although this state court decision is not binding precedent in all jurisdictions, the principles from the case are widely accepted in virtually all states. The decision therefore provides important insight for all public companies as to steps to take to maintain the confidentiality of internal discussions about the content of final SEC filings.
The facts of the case
The plaintiffs in Roth were a class of investors who alleged that Aon had failed to disclose information relating to a so-called contingent commission kickback and steering scheme. As part of the discovery process, the plaintiffs attempted to compel production of an internal email and memo which had been inadvertently produced during discovery and subsequently retracted by the defendant. The plaintiffs argued that the email and memo were business communications not protected by the attorney-client privilege because they did not specifically state that legal advice was sought and that the privilege does not protect documents that subsequently are made public.
The email and its attached memo were sent internally from the chief financial officer to other executives, including the general counsel. The attachment contained a memo with an expanded draft of the ‘Compensation for Services’ section of Aon’s Form 10-K (the annual report required to be filed with the SEC by most US public companies). Aon later filed the 10-K in final form with the SEC but excluded some information that had been in the draft. The email asked recipients to comment on the language of the draft.
The court first determined that, because legal advice was sought, the content of the email and attachment were protected by the attorney-client privilege. The essential elements necessary to invoke the privilege include communications from the client (in this case, the company) to is attorney (here, the general counsel) for the purpose of seeking legal advice.
Form 10-K requires detailed financial and legal information pertaining to the company, and thus the defendant argued that legal advice was necessary to properly comply with the SEC disclosure requirements.
The court agreed with the defendant’s argument that determining the scope of SEC disclosures and how to best comply with SEC requirements involve core legal issues and are not business decisions; however, in doing so, the court made it clear that the mere fact that an attorney was one of the recipients does not, on its own, make the content privileged. Rather, the privilege applied because legal advice was sought. In addition, the court held that the draft of the filing remains privileged even though the revised final version of the document was filed publicly.
The court also clarified the scope of the attorney-client privilege within the corporate environment. As a general matter, the privilege may be considered waived if a non-client third party is privy to the communications; with corporations, however, determining the precise scope of who is deemed a ‘client’ sometimes remains unclear. In its holding, the court acknowledged the fact that in corporations there may be many people with relevant information who are consulted in order to reach an informed decision.
Lessons to be learned
The Roth case provides the following guidance for corporations to better protect the privacy of communications involving attorneys in connection with drafting SEC filings:
Limiting the range of recipients of emails, memos and other documents makes it less likely that an inadvertent waiver of privilege will occur.
Particularly sensitive emails, memos and documents might specifically state that legal advice is sought. For example, all such communications could be labelled ‘Attorney-client privileged communications’.
In order to qualify, the communication must come from the client to an attorney (or vice versa). If emails or memos are not addressed to an attorney (as at least one of the recipients), then the privilege will not apply.
Maintaining the attorney-client privilege in order to encourage full and frank discussions between the attorney and the client is one of the cornerstones of the US legal system. Although the privilege was extended to corporate clients long ago, to this day its full parameters remain unclear.
Thus, it is of the utmost importance that corporations take all known precautions to prevent an inadvertent waiver of their privileged communications.
Andrew Merken is a partner and Alison Conboy an associate at US law firm Burns & Levinson LLP
This article first appeared in Legal Strategy Review, Issue 4