The attorney-client privilege is one of the most sacrosanct and inviolable, allowing full and frank dialogue between client and counsel.

The recent decision in BSP Software LLC v. Motio, Inc., 1-12-cv-02100 (ND Ill. July 9, 2013) DN 141, Order has broad implications for this well-established privilege, and important lessons-learned for when it might be waived.

Last month, the BSP Court determined, after an in camera review, that a certain email chain listed on BSP’s Privilege Log was not privileged, and had to be produced to Motio. The Court further determined that four other email chains that had been withheld were privileged in the origin. BSP then moved for a ruling that it did not waive the attorney-client privilege by disclosing the protected material in the four email chains to individuals BSP refers to as its “advisory board.” In the decision before us, the Court denied this motion.

The ruling hinged on BSP’s “advisory board,” which was not a formal board of directors and was not employed or paid by BSP. This advisory board was comprised of four individuals (one of whom is an attorney, but was not providing any legal advice) and BSP disclosed certain information to it for purposes of obtaining “business and financial advice” relative to pursuing the lawsuit versus Motio. BSP urged that this advisory board was the “functional equivalent” of a formal board of directors, and thus, it did not waive privilege as to the subject material.

In its ruling, the Court noted that the “functional equivalent” test has not been adopted by the Seventh Circuit, and has been treated skeptically within the Northern District of Illinois. Accordingly, the Court doubted the wisdom of adopting the functional equivalent test for two reasons:

  • First, the Court believed application of the test would increase uncertainty as to when disclosure to non-employees on an advisory board would waive the privilege; and
  • Second, the Court felt that over time, the functional equivalent test could expand the scope of the attorney-client privilege by eroding the circumstances in which it may be waived.

As to the former concern, the Court noted the detailed factual scrutiny carried out by the courts endorsing the functional equivalent test. The upshot of this to the Court was that it would not be productive to increase the level of scrutiny about whether a communication to a third party would waive the privilege. Moreover, the Court failed to see the need to employ a functional equivalent test when a corporation such as BSP could create a formal board of directors.

Regarding the second concern, the Court noted no matter how well-structured a multi-factor test is, the exception had the potential to swallow the rule; this would be directly contrary to the Seventh Circuit’s repeated admonition about carefully circumscribing the scope of the attorney-client privilege.

Applying these concerns and the multi-factor test to the facts before it, the Court found that BSP’s submissions failed to demonstrate that its working relationship with the advisory board was on matters critical to the company’s position in litigation, but rather, was for business and financial advice. Moreover, this group had no real decision making power or primary responsibility for a key corporate job, or possessed information that no one else at BSP would possess.

Whither the Privilege or Has the Privilege Withered?

For practitioners, key takeaways include carefully circumscribing communications and documents, which would otherwise be privileged, to employees and executives of a business entity, i.e., a board of directors; and at least discussing in advance with counsel when considering to disseminate such communications and documents to outside representatives such as an external “advisory board” or other such consultants.

Gibbons will continue to monitor developments on this issue.

Robert E. Rudnick is a Director in the Gibbons Intellectual Property Department. Ralph A. Dengler, a Director in the Gibbons Intellectual Property Department, co-authored this post.