Southern District of New York Examines “Functional Equivalent” Doctrine

December 28, 2005

One of the most promising recent trends in privilege law is courts’ willingness to treat as full-time company employees (for privilege purposes) independent contractors who are the “functional equivalent” of full-time employees. Because not many courts have analyzed the contours of this doctrine, every case should be of interest.

In Export-Import Bank of the United States v. Asia Pulp & Paper Co., No. 03 Civ. 8554 (LTS)(JCF), 2005 U.S. Dist. LEXIS 28671, at *25 (S.D.N.Y. Nov. 8, 2005 ), the court explained that in determining whether a consultant meets the functional equivalent standard, courts “look to whether the consultant had primary responsibility for a key corporate job, . . . whether there was a continuous and close working relationship between the consultant and the company’s principals on matters critical to the company’s position in litigation, . . . and whether the consultant is likely to possess information possessed by no one else at the company.” Defendant claimed that its financial advisor deserved protection under the functional equivalent doctrine. The court rejected defendant’s contentions, noting that the financial consultant (1) apparently never used an office made available to him in defendant’s premises, and (2) was able to “start and build a successful consulting business” despite spending 80 – 85% of his time working on a restructuring deal for defendant. Id. at *26.

The stakes in this debate can be enormously high – consultants who fail to meet this test are considered outside the attorney-client relationship, so that communications with them do not deserve privilege protection, and sharing privileged communications with them causes a waiver. It is no wonder that wise companies monitor this developing trend.