Does a Company Waive the Privilege by Disclosing Privileged Communications to Its Investment Banker?

April 1, 2009

Because the privilege provides an absolute protection from discovery, courts consider it very fragile and easily lost. Even sophisticated corporate clients often underestimate the privilege’s fragility.

In American Hardware Manufacturers Ass’n v. Reed Elsevier, Inc., No. 03 C 9421, 2009 U.S. Dist. LEXIS 10264 (N.D. Ill. Feb. 10, 2009), defendant Reed Elsevier sought documents from the investment banking firm of Houlihan Lokey Howard & Zukin, which had assisted plaintiff American Hardware (in 2002) in connection with a proposed corporate transaction. Houlihan Lokey’s files contained a document American Hardware had obviously given the investment banker at that time — a copy of a privileged letter that American Hardware had received from its law firm Winston & Strawn. Houlihan Lokey withheld the Winston & Strawn letter from its production to Reed Elsevier, so the matter headed to court. American Hardware claimed that its 2002 disclosure of the Winston & Strawn letter to Houlihan Lokey was inadvertent. The court rejected this argument, noting that “plaintiff . . . fails to explain what specific precautions were taken to prevent disclosure of the letter” in 2002. Id. at *11-12.

It is easy to imagine what happened — some American Hardware executive probably gave the Winston & Strawn letter to Houlihan Lokey in 2002, thinking that whatever confidentiality agreement existed between them would prevent a waiver. Of course, the executive was wrong, and his or her inattention so thoroughly destroyed the privilege that some other company could now obtain the Winston & Strawn letter seven years later.