In a recent decision, a federal district court for the Northern District of California was asked to resolve a discovery dispute involving the legal advice of in-house counsel which appeared in shared business documents.ⁱ Applying California privilege law, the court found redacted information in financial and business documents reflected in-house counsel’s legal advice and therefore need not be disclosed.ⁱⁱ However, applying federal waiver law, the court held privilege was waived as to information in an inadvertently disclosed memo.ⁱⁱⁱ

I. BACKGROUND

In this diversity class action, plaintiffs filed thousands of lawsuits against pharmaceutical company Gilead Sciences, Inc. (Gilead).^iv Plaintiffs allege Gilead intentionally delayed development of safer HIV drugs to maximize its monopoly of the HIV drug market.^v Plaintiffs requested production of financial business documents referred to as “Gilead’s Development Committee or Project Team documents” not authored by an attorney.^vi Gilead produced redacted versions of the documents claiming the redacted information regarding patent expiration dates and periods of patent exclusivity constituted legal advice from in-house counsel.^vii Plaintiffs argued the advice was primarily business-oriented and therefore not protected.^viii

II. ANALYSIS

A. Choice of Law

First, the court determined California’s privilege law applied.^ix The court was not persuaded by plaintiffs’ argument federal privilege law should apply because the communications at issue were relevant to some of Gilead’s affirmative defenses based on federal substantive law such as preemption or the First Amendment.^x The court noted plaintiffs’ failure to explain how the redacted information was relevant to any affirmative defense based on federal substantive law.^xi Although there were factual connections to multiple states, the court concluded California privilege law applied because a court sitting in diversity must follow the choice of law rules of the State in which it sits.^xii

B. Attorney-Client Privilege

The court discussed the absolute nature of the attorney-client privilege in California: “The privilege is absolute and disclosure may not be ordered, without regard to relevance, necessity or any particular circumstances peculiar to the case.”^xiii The court cited California Evidence Code § 954 which provides “A corporation is a person whose confidential communications with its attorney are protected by the attorney-client privilege.”^xiv Next, the court discussed the scope of the attorney-client privilege, explaining the involvement of unnecessary third persons in the communications destroys confidentiality but involvement of third persons to whom disclosure is reasonably necessary to further the purpose of the legal consultation preserves the privilege.^xv

The test for determining whether a particular communication from corporate in-house counsel is protected by the attorney-client privilege is whether the communication involves business rather than legal advice because business advice even when given by an attorney is not protected from disclosure.^xvi Plaintiffs argued the redacted information was not privileged because it was shared to assist Gilead making a business decision rather than for legal purposes.^xvii The court was not persuaded.^xviii The court distinguished the cases relied on by the plaintiffs.^xix One case applying federal law found a non-lawyer’s advice shared with an attorney was primarily for a business purpose.^xx Another case cited by plaintiffs involved in-house counsel giving business advice rather than legal analysis such as a patent’s monetary value without any analysis of the patent’s technical merit.^xxi The court also distinguished the most factually similar case where the defendant had not adequately explained legal counsel’s role, stating Gilead had adequately explained counsel’s role.^xxii

C. WAIVER

Even though the court analyzes privilege under state substantive law, waiver is governed by federal procedural law.^xxiii Gilead attempted to claim privilege as to portions of a memo it had disclosed to the plaintiffs in un-redacted form.^xxiv Plaintiffs had used the memo in their opposition to Gilead’s motion for sanctions.^xxv Gilead attempted to “claw back” the memo three months later.^xxvi The court was skeptical of the claim of privilege as to this document in the first place. Their skepticism was bolstered by Gilead’s explanation for its delay in attempting to claw back the document, claiming they “did not realize the information in the document came from in-house counsel.”^xxvii

III. TAKEAWAY

This case demonstrates the tight rope in-house counsel must walk when communicating information to corporate clients and the risk of waiver when the information gets disseminated in business related documents. Here, Gilead was successful in convincing the court information regarding patent expiration dates and periods of exclusivity provided by in-house counsel was privileged legal advice, even though the project development committee and project team documents also contained that advice. However, the circumstance in Holley is somewhat unique as seemingly factual information regarding patent expiration dates and periods of exclusivity constitutes legal advice. The court’s analysis in the Holley case emphasizes the importance for in-house counsel to make sure corporate communications contain actual legal advice and judgment and not just business advice because the line separating the two is often blurry at best.

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