Preserving and piercing privileges in an oil and gas practice

1. PRODUCTION, PRIVILEGES,
AND PRACTICE
(PRESERVING AND PIERCING
PRIVILEGES
IN AN OIL AND GAS PRACTICE)
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2. Overview of Topics
 Elements and scope of the attorney-
client privilege and the work product
doctrine.
 Waiver of privileges.
 Common privilege issues in an oil and
gas practice:
– Dealings with the government;
– Title opinions; and
– Selling assets.
 Tips for preserving and piercing
privileges.
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3. Attorney-Client Privilege Under
Texas and Federal Law
 Tex. R. Evid. 503 defines the scope of the
privilege under Texas law.
 Federal common law defines the scope of the
federal privilege.
 Elements of the Texas privilege and the
federal privilege are essentially the same.
 Choice of law in federal court:
– Federal privilege law applies in federal
question and admiralty cases.
– State law governs privileges in diversity cases.
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4. Elements of the Attorney-Client
Privilege
1. Communication between:
– A client, someone who sought to become a
client or a representative of a client; and
– An attorney or a representative of an attorney;
2. Communication made for the purpose of
obtaining legal advice or services;
3. Communication intended to be confidential
and made confidentially, i.e., outside the
presence of third-parties; and
4. The privilege has not been waived.
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5. Scope of the Attorney-Client
Privilege
 Privilege extends to the complete
communication between client and attorney.
 In re ExxonMobil (14th Court of Appeals
2003)—when a document evidences a
privileged communication, the privilege
extends to the entire document.
 Cannot cloak a fact with privilege merely by
communicating it to an attorney.
 Party asserting the privilege has the burden of
proving it.
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6. Client is a Corporation – Control
Group Test
 Control Group Test (minority rule):
– Employee is in a position to control or take a
substantial part in a decision made by the
corporation upon advice of counsel.
 Upjohn case (1981)—U.S. Supreme Court rejects
control group test in favor of case-by-case
determination.
 Texas stops using the control group test in 1998.
 Exxon case (Ala. 2002): Must Exxon produce in-
house counsel’s analysis of the consequences of
paying lower royalties to Alabama?
– Holding: No. It was only circulated to “those
directly involved in the royalty-payment
decision,” who were control group members.
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7. Client is a Corporation – Subject
Matter Test
 Subject Matter Test (majority rule):
– Employee makes a communication at the
direction of his supervisors;
– Attorney’s advice is sought on the subject matter
of the employee’s communication;
– Subject matter of the communication is within
the scope of the employee’s duties; and
– Communication is not disseminated.
 Rule in Texas since 1998.
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8. In-house Counsel Communications
 Can be difficult to determine which
communications are privileged as in-house
counsel often give a mixture of legal and
business advice.
 Variety of tests for determining which
communications are privileged:
1. Was communication designed to meet
problems that are “predominantly legal?”
2. Was in-house counsel engaging in activities
typically performed by attorneys?
3. Does in-housel counsel work in the legal
department or in a business group?
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9. Erosion of Privilege for In-house
Counsel Communications
1. Many courts presume that communications
involving a mixture of legal and business
advice are not privileged.
2. Sarbanes-Oxley:
– Authorizes outside counsel to disclose
privileged information to SEC; and
– Outside auditors are asking for greater access
to privileged information.
3. Many courts hold that disclosure of
privileged information to government
agencies waives the privilege.
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10. Work Product Doctrine
 Material prepared, mental impressions
developed, and/or communications made by a
party or the party’s representative in
anticipation of litigation.
 Texas has a two part test for determining “in
anticipation of litigation:”
– Reasonable person would have concluded that
there was a substantial chance of litigation; and
– The party resisting discovery believed that there
was a substantial chance of litigation.
 The Fifth Circuit asks whether the primary
purpose behind the creation of the document
was to aid future litigation.
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11. Core vs. Non-Core Work Product
 Two types of work product:
1. Core work product—legal memoranda,
summaries of witness interviews, investigatory
reports, audit letters, etc.
2. Non-core work product—everything else.
 Under Texas law, core work product is never
discoverable. Under federal law, it is “afforded
near absolute protection.”
 Under Texas and federal law, non-core work
product is discoverable upon a showing of
substantial need and undue hardship.
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12. Waiver of Privileges
 Intentional disclosure waives privilege:
– In re ExxonMobil (14th Court of Appeals 2003)—
Exxon ordered to produce title opinions because
they had been shown to leaseholders.
– In re BP Products (1st Court of Appeals 2006)—BP
did not disclose methodology or materials used
to compute a reserve figure for potential liability.
 Offensive use of privileged information by party
seeking affirmative relief waives privilege.
 Marathon Oil case (Dallas Court of Appeals
1994)—no waiver when defendant relies on
privileged information to rebut a plaintiff’s
cause of action.
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13. Waiver of Privileges (continued)
 Inadvertent disclosure may waive privilege.
 Under TRCP 193.3(d), there is no waiver if:
– Party amends discovery response within 10 days of
discovering disclosure and identifies material
inadvertently disclosed.
 Under the federal common law, courts look at
precautions taken, time to rectify error, and
other factors.
 FRCP 26(b)(5)(b): Holder of privilege must
notify opposing party of inadvertent disclosure,
and opposing party must return or destroy the
privileged information.
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14. Common Oil & Gas Privilege Issues:
Litigation Involving the Government
 Executive privilege excuses government from
disclosing information when disclosure is against
the public’s interest
 Deliberative process privilege protects
documents:
– Generated before adoption of an agency policy; and
– Reflect the “give-and-take-” within the agency.
 Chevron case (Cl. Ct. 2008): Government
communications regarding finalizing ownership
interests in oil rights.
– Communications do not involve policy-making.
– Communications do not concern defense, international
relations, law enforcement, etc.
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15. Common Oil & Gas Privilege Issues:
Disclosure to the Government
 Most courts do not allow selective waiver:
– Company discloses information to government.
– In unrelated litigation, private party claims
company has waived privilege.
– Waiver? Yes, in 3rd, 6th, 10th, and D.C. Circuits.
 Pressuring companies to waive privilege:
– Holder/Thompson Memorandum—DOJ will
consider willingness of companies to waive
privilege .
– McNulty Memorandum—DOJ may only request
waiver when there is a “legitimate need.”
 Attorney-Client Privilege Act of 2007.
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16. Common Oil & Gas Privilege Issues:
Title Opinions
 Title opinions are protected by the attorney-
client privilege.
– When a lease is assigned, the assignee gains the
benefit of the privilege.
 Title opinions are protected by the work
product doctrine when prepared in anticipation
of litigation.
 Privileges can be waived if title opinions are
disclosed to third parties.
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17. Common Oil & Gas Privilege Issues:
Selling Assets
 When a corporation is sold:
– The successor entity acquires all of the
privileges possessed by the sold corporation.
 When specific assets are sold:
– The seller retains its privileges.
 A seller may permit prospective buyers to
review privileged documents.
– Even if the prospective buyers sign
confidentiality agreements, the disclosure of the
privileged documents to the prospective buyers
may waive the seller’s privileges.
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18. Tips For Preserving Privileges
1. List the purpose of the communication, e.g.,
“this is being sent at the request of counsel for
the purpose of facilitating legal advice.”
2. Identify senders or recipients of
communications by name and position, e.g.,
General Counsel, attorney, consulting expert,
etc.
3. Avoid jokes, cynicism, overstatements, and
insensitive comments.
4. Stamp documents and e-mails as privileged.
Use bold and red.
5. Minimize the number of distributees.
6. File separately or label folders as containing
privileged documents.
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19. Tips For Preserving Privileges
(continued)
6. Restrict physical access to privileged
documents.
7. Cull and pull privileged documents before
making documents available to prospective
buyers or similar parties.
8. When producing documents to government
agencies or prosecutors, enter into explicit
non-waiver/confidentiality agreements.
9. Adequately staff and time large privilege
reviews to avoid inadvertent waiver.
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20. Tips for Piercing Privileges
1. Check to see if documents/communications were
treated confidentially – who was present, to whom were
the documents distributed, where were they kept. etc.
2. Request that a party asserting a privilege provide a
privilege log, which includes the following information:
– The author, the recipient, and the cc’s (including their
positions or titles);
– All other persons to whom the document or
communication was later disseminated or disclosed
(including their positions or titles);
– Any agreement under which the document was provided to
its recipients;
– The original date of the document and the date of any
modifications;
– Where the document was maintained and where it was
found; and
– The privilege being asserted.
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21. PRODUCTION, PRIVILEGES,
AND PRACTICE
(PRESERVING AND PIERCING PRIVILEGES
IN AN OIL AND GAS PRACTICE)
Questions?
David Ammons
Phone: (214) 389-5304
E-mail: DAmmons@diamondmccarthy.com
www.diamondmccarthy.com
MaryAnn Joerres
Phone: (214) 389-5309
E-mail: MJoerres@diamondmccarthy.com
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