How Far Does the “Functional Equivalent” Standard Extend?

March 23, 2016

Many previous Privilege Points have addressed the corporate-friendly “functional equivalent” doctrine, under which non-employees who essentially act as employees are inside privilege protection. An equal number of Privilege Points have explained that disclosure even to friendly client consultant/agents normally waives privilege protection (although not work product protection). One might think that these two types of non-employees would be easy to distinguish, but some courts blur the line.

In Fosbre v. Las Vegas Sands Corp., Case No. 2:10-cv-00765-APG-GWF c/w Case No. 2:10-cv-01210-APG-GWF, 2016 U.S. Dist. LEXIS 5422 (D. Nev. Jan. 14, 2016), the court addressed Sands’ privilege claims for its communications with Goldman Sachs employees who helped it deal with the 2007-2008 financial crisis. After describing Goldman Sachs’ relationship with Sands as “that of a financial advisor in developing its complex financial strategy,” the court surprisingly found that “Goldman Sachs’ personnel performing these duties were the functional equivalent of [Sands] employees.” Id. at *19. The court required Sands to supplement its privilege log and demonstrate that the individual Goldman Sachs employees (among other things) “understood the communications were for purposes of obtaining legal advice and were intended to be confidential.”Id. at *45.

Most courts would not go this far — instead finding that disclosing of privileged communications to Goldman Sachs employees waived privilege protection. But corporations and their lawyers should consider claiming that friendly third parties such as financial advisors are inside privilege protection under an expansive “functional equivalent” doctrine.