Elizabeth Holmes: A Lesson in Attorney-Client Privilege

Joint Employer Rule

When an attorney works with a company, either in-house or as outside counsel, that attorney often wears many hats. They’ll attend meetings, be copied on all sorts of emails, and give both legal and business-related advice. Given this dynamic and the multiple lines and types of communication, employees may be confused about their relationship with corporate counsel and may mistakenly believe their communications are protected by attorney-client privilege. This confusion can lead to serious implications for the later invocation of the attorney-client privilege both for the company and the employee. Most recently, these blurred lines led to a loss of attorney-client privilege in the Elizabeth Holmes case.

Elizabeth Holmes: Loss of Privilege

Elizabeth Holmes, founder of the now-defunct Theranos, faces a federal jury trial this August on criminal charges of defrauding investors, doctors, patients, and insurers. The former CEO recently learned a harsh lesson on the complexities of attorney-client privilege. Holmes asked the court to keep her communications with Boies Schiller Flexner LLP (Boies Schiller), Theranos’ counsel from 2011 to 2016, out of her upcoming trial. The communications at issue discussed how Theranos should respond to investors, regulators, and the media, and also covered potential legal actions that Holmes could pursue against the Wall Street Journal. Holmes argued that Boies Schiller represented both her and Theranos on a variety of legal issues, but in a recent ruling, the U.S. District Court for the Northern District of California disagreed, holding that the communications between Holmes and Boies Schiller are subject to corporate privilege only and may be admissible at her personal trial.

The District Court’s decision highlights a crucial issue for corporate attorneys – making sure their client, and their client’s employees, understand the limits of the attorney-client privilege.

Tests for Attorney-Client Privilege

Generally speaking, the attorney-client privilege protects communications between an attorney and a client from compelled disclosure. In a corporate setting, the company (and not the individual employee) is the client. For the privilege to attach, the attorney’s advice must be legal in nature and for the company’s benefit as a whole. This means the privilege does not extend to business advice or advice relating to individual employees whose interest may be different than that of the company.

In her argument, Holmes cited the “subject belief” test along with the First Circuit’s decision in FDIC v. Ogden Corp. (2000), which determines if an attorney-client relationship exists by assessing whether the client reasonably believed there was such a relationship.

However, the District Court in Holmes’ cases rejected this argument, finding that the Graf test is the applicable legal standard. In United States v. Graf (2010), the Ninth Circuit laid out a five-prong test which a corporate officer or employee must show in order to have a personal attorney-client relationship:

  • they approached counsel for the purpose of seeking legal advice;
  • they made it clear that they are seeking legal advice in their individual, rather than in a representative, capacity;
  • the counsel saw fit to communicate with the individual in their individual capacity;
  • their conversations with counsel were confidential; and
  • the substance of the conversations with counsel did not concern matters within the company or the general affairs of the company.

The Graf test presents significant challenges to those who are claiming attorney-client privilege. Not only do they have to meet all five factors, but they also may have difficulty proving all of their legal communications were unrelated to the company’s general legal affairs. The Graf test can also present ethical issues because it can conflict with attorney rules of professional conduct in certain situations.

Clarifying the Scope of the Attorney-Client Privilege

Elizabeth Holmes’ case presents a cautionary tale to attorneys working with corporate clients. To mitigate the potential blurring of the line between employee and client, it is incumbent on lawyers to make sure their clients (and non-clients!) understand the scope of representation.

Straightforward engagement letters that clearly spell out who the client is and the boundaries of attorney-client privilege are a necessity.

Additionally, when the in-house or outside counsel directly interact with employees, especially during internal and government investigations, Upjohn warnings should make it clear: 1) the attorney-client privilege over communications between the attorney and the employee belongs solely to, and is controlled by, the company, and 2) the company may choose to waive the privilege and disclose what the employee tells the attorney to any third party, including a government agency. Attorneys should also regularly remind clients – and their employees – about the difference between attorney-client privilege and corporate privilege, and recommend individual counsel if needed.

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