By Carol O’Riordan and Jay Shah
How should courts go about deciding, in close cases, whether an internal memorandum constitutes privileged legal advice or discoverable business advice? Bhandari v. Artesia Gen. Hospital, the New Mexico case discussed in our previous post, is illustrative. It involved an employment dispute between a hospital corporation and two doctors employed by the hospital — Bhandari and her husband.
At a meeting to discuss the husband’s possible firing, the hospital and the Bhandaris reached an agreement whereby the husband could resign rather than be fired if his wife resigned as well — even though she was not the subject of any personnel action. During litigation over their termination, it was revealed that the hospital’s in-house general counsel had prepared a memorandum in advance of the meeting that essentially scripted how to obtain the husband’s resignation during the meeting. The parties disputed whether this memorandum constituted legal or business advice, since the hospital’s ability to assert privilege depended on the status of the memorandum.
The court found that the hospital’s in-house counsel was acting in his capacity as a business advisor as well as a legal advisor, but that the purpose of his talking points memorandum was to secure a desirable business goal for the hospital. The court thus affirmed the trial court’s ruling that the document was not privileged because the legal purposes of the memo did not outweigh the business purposes.
The appellate court reiterated the proposition that attorney-client privilege exists in order to allow clients to disclose information to their attorneys without fear of these statements becoming evidence that could be used against them. Consequently, attorney-client privilege protects communications between an attorney and client made for the purposes of rendering legal advice to the client. Therefore, that privilege does not extend to business advice or other forms of non-legal advice.
Since the line between business advice and legal advice can sometimes be blurred, the court – following decisions from other states – stated a basic assumption that in-house counsel is presumed to be providing business advice while outside counsel is presumed to be providing business advice. The court did not limit its analysis, however, to the status of the attorney, and stated that other considerations included “the nature of the advice given, the context, content, and purpose of the communication.”
When the business and legal purposes of the communication are inextricably intertwined and the primary purpose cannot be ascertained, a court “should conclude the communication is for a business purpose, unless evidence clearly shows that the legal purpose outweighs the business purpose.” This means that the party asserting privilege in a situation of mixed business and legal advice faces a doubly heavy burden: not merely the burden of proving that the privilege applies, but also the burden of proving that the legal purposes of that communication outweighed the business purposes.