Court Denies Former CEO Access to Privileged Communications

by Robert P. Rudolph

The attorney-client privilege is a well-established concept that protects certain communications between a client and his/her attorney, preventing the attorney from being compelled to disclose those communications or testify about them in court. The attorney-client privilege solidifies the trust which is the hallmark of the attorney-client relationship. However, a client can provide informed consent, allowing his/her attorney to disclose information protected by the attorney-client privilege. What happens when the attorney is representing a corporation? Who has the right to provide consent and allow privileged information to be disclosed, the company or the employee?

In SEC v. Howard B. Present, United Stated District Court Judge Leo T. Sorokin decided that a former company CEO was not entitled to privileged attorney-client communications from the investment firm he co-founded and served as CEO of for eight years.

The former CEO wanted to present an “advice of counsel” defense to fraud claims brought against him by the Securities and Exchange Commission after he left the company. He argued that the disclosure of privileged communications he had with the company’s outside counsel while he was CEO was necessary in order to show that he lacked the required element of intent the SEC needed to establish for a finding of liability. He contended that he regularly consulted with outside counsel as CEO and that the privileged communications were critical evidence, without which he would suffer substantial prejudice.

The former CEO asserted that the privileged communications demonstrated he reasonably relied upon the work, advice, professional judgement and opinion of counsel for the company when making decisions. The company refused to waive the attorney-client privilege it maintained with outside counsel in light of potential litigation the company was facing in the foreseeable future. The company filed an emergency motion to quash subpoenas issued by both the SEC and counsel for the former CEO and sought a protective order prohibiting discovery or disclosure of its privileged documents and communications.

This case made clear that a corporate employee cannot waive the privilege of the company, nor can an ex-employee. The court allowed the motion and prohibited disclosure of the company’s privileged information. In his decision, Judge Sorokin recognized the tension which exists between the legal rules that encourage a corporate official to seek legal advice about his/her actions on behalf of the corporation, and protect those communications from disclosure, but at the same time prevent a corporate official from defending himself/herself personally based on the advice received if the company refuses to waive privilege.

Judge Sorokin ruled it was the company’s privilege to waive, which the company refused to do. The SEC investigation commenced while the CEO was still employed by the company and he was on notice of his potential personal exposure. The court found that both as a CEO and sophisticated businessman, he understood that the company, not he personally, held the attorney-client privilege, and at the time he was CEO, he was in a position to either waive the privilege or obtain in his personal capacity the right to waive the privilege in the future, which he chose not to do. These circumstances mitigated any fairness considerations advanced by the CEO. While it may seem unfair, ordering disclosure, even under a protective order, would have divested the company from control over its privileged information and exposed that information to the SEC and others, contrary to the fundamental purposes of privilege. This case underscores the importance of understanding who maintains the attorney-client privilege in the corporate setting, especially if you believe you may have personal liability.


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