Extracted from Law360
While companies have always had an eye on their public image, now more than ever they may be faced with the prospect of engaging a public relations firm to help them navigate the uncertainty of operating in a COVID-19 world.
Last month, FOMO Corp., which partners with several companies providing rapid COVID-19 tests, disinfection products and personal protective equipment, engaged public relations firm Schenck Strategies to execute a nationwide media relations program aimed at expanding their companies' market positioning in targeting businesses and facilities across the U.S. trying to stay open and safe during the pandemic.[1]
Those businesses are themselves hiring public relations firms to protect their businesses during the pandemic — from restaurants and retail stores trying to increase foot traffic[2] to counties and health care providers trying to get people vaccinated.[3]
But lawsuits related to COVID-19 are on the rise,[4] including suits specifically targeting public statements made by companies regarding the implementation of safety precautions and procedures to protect against the spread of COVID-19.[5] Companies may soon find themselves on the receiving end of such lawsuits — and their communications with PR firms at the center of a legal challenge.
Come discovery, opposing counsel will seek all communications involving the company's PR firm, including those with the company's in-house and outside counsel — communications you thought were protected by attorney-client privilege.
But more likely than not, opposing counsel will get the communications, publicly revealing those highly sensitive and candid assessments of your company's legal risks you worked so hard to preempt — and potentially exposing your company to a new round of lawsuits from litigants and shareholders alike.
In a time when trial by media is inevitable and public messaging is critical, how can companies best protect themselves in court — and in the court of public opinion — without stepping on a privilege land mine?
To be entitled to privilege protection, an attorney's communications with a PR firm must fall within one of two recognized exceptions to the general rule that disclosing privileged information to a third party waives the privilege: (1) the necessity test, i.e., the PR firm is necessary to facilitating legal services; or (2) the functional equivalent test, i.e., the PR firm is so integrated into the company's business that they are the functional equivalent of an employee in communicating with counsel.
However, whether and to what extent communications with a PR firm will satisfy these tests is notoriously unpredictable, depending not just on the nature of the specific communication but also on the nature of the PR firm's role and its relationship with both the company and counsel, whether there is an actual or real threat of litigation, and the jurisdiction evaluating the communications, to name just a handful of considerations.
As a result, there are few areas of privilege law as unsettled and marked with as much outcome disparity as the question of whether attorney-client privilege applies to communications with PR firms and what communications will then enjoy the protection.
In the context of pending or threatened litigation, companies will be best positioned to assert protection over their communications when the PR firm is hired by outside counsel to engage in functions necessary to achieving a specific litigation goal and when they are communicating with counsel for the express purpose of seeking and rendering legal advice related to that goal.[6]
However, the goalposts for satisfying this necessity test are notoriously ill-defined and increasingly difficult to meet in a typical civil litigation context.[7]
This is particularly true in New York, where courts have effectively confined the exception to situations in which the PR firm is absolutely necessary to assisting counsel in high-profile matters like a grand jury investigation, where issues of public perception could affect the administration of justice.[8]
Counsel should therefore carefully evaluate the reason a PR firm is needed in a litigation. If the PR firm is being engaged to perform specific legal tasks that only it can do, the communications are more likely to be protected.
However, if the PR firm is there to manage the effects of litigation for a company — like messaging or running media campaigns concerning the litigation, or anticipating public reactions to taking particular legal actions in a lawsuit — the communications are not likely to be protected.[9]
That said, even when communications are not themselves protected by attorney-client privilege, materials related to pending or threatened litigation prepared by the PR firm at counsel's direction may still be protected as work product.[10]
If litigation is ongoing, it is highly advisable for outside counsel to hire the PR firm and to hire one that specializes in litigation or crisis management, rather than simply relying on the PR firm that handles the company's regular business needs.
If the same PR firm is being utilized for legal-related PR work, counsel should enter into separate engagements with the firm for legal work and for nonlegal work.
Under all circumstances, detailed record-keeping is king. Ensure that the engagement letter clearly describes the PR firm's role in improving the company's ability to receive or implement legal advice. Have bills go through counsel and ensure that the billing descriptions include how the PR firm's work helped counsel provide legal advice. Likewise, ensure that any communications involving the PR firm clearly relay the legal advice being sought of counsel and that counsel is providing substantive legal advice in response.
Companies will be best positioned to meet the functional equivalent test if their PR firm (1) has primary responsibility for a key corporate job; (2) has a continual and close working relationship with the company's principals on matters critical to the company's position in litigation; and (3) possesses information possessed by no one else at the company.[11]
This too is a fact-specific inquiry and will require companies to make a detailed factual showing of the specific nature and circumstances of the PR firm's engagement and operation within your company.
Companies can best position themselves to make this showing by ensuring that their engagement letter clearly lays out the PR firm's roles and responsibilities within the company, including that the PR firm is required to take instruction from and consult with the company's management and attorneys, must maintain confidentiality of all company information — including information from company attorneys — and that all of its work product belongs to the company.[12]
In-house counsel should be particularly mindful of communicating with a PR firm when no litigation is pending — particularly when the PR firm was hired by the company to handle PR related to the company's regular business operations.
In such circumstances, the PR firm is engaged in activities that serve a business function, not a legal function, and its communications with the legal team for review and signoff on corporate talking points or press releases — even if done with the idea of avoiding some theoretical future litigation — are likely not protected.
For example, in 2014 in Church & Dwight Co. Inc. v. SPD Swiss Precision Diagnostics, the U.S. District Court for the Southern District of New York held that a manufacturing company waived the attorney-client privilege when its in-house counsel communicated directly with the company's marketing firm about how to publicly convey that the U.S. Food and Drug Administration had authorized the sale of its product.[13]
The court held that even though the release of an FDA-regulated product required the company to relay counsel-approved information to its marketing firm, counsel should not have been involved in those communications.[14]
Instead, "[l]egal concerns expressed to [the client] need to be adopted by [the client] and then transmitted to the consultants as corporate concerns and policies independent of the explicit advice previously received."[15]
When dealing with a PR firm in the regular course of business, there are certain steps a company can take to protect itself and its privilege.
First, all companies should be mindful about the flow of communication when dealing with third-party consultants like PR firms. Counsel should be particularly vigilant about its involvement and should avoid directly communicating with PR firms unless such communications are necessary for counsel to render legal advice to the company.
This message should be conveyed not only to members of the company's legal team but also to those within the company who regularly communicate with PR firms, as well as the PR firms themselves.
Second, all companies must remember that the PR firm and its consultants are not employees of the company; they are third parties whose very involvement in a communication typically waives the privilege unless they can fit within a set of carefully drawn and exceedingly narrow exceptions.
This remains true even when a company hires a PR firm to assist with its image — the PR firm remains an third party that does not typically receive the same type of protections as employees of a company.
Moreover, when litigation is not yet pending, showing a legal need for a PR firm's services becomes more difficult. To protect communications, in-house counsel must remain vigilant in what is conveyed to the PR firm and by whom the information is conveyed.
With the law in this area being so fact- and jurisdiction-specific, there is no one-size-fits-all approach to ensuring that communications with a PR firm enjoy privilege protection. However, the tips and tricks outlined here will help to best position your company to protect itself at a time when it needs it most.
[1] https://www.streetinsider.com/Globe+Newswire/FOMO+CORP.+Engages+Schenck+Strategies+as+PR+Agency+of+Record+to+Promote+Awareness+of+Disinfection+Solutions/17855693.html.
[2] See, e.g., https://abc11.com/small-business-pandemic-pr-firm-raleigh/9562864/).
[3] See, e.g., https://voiceofoc.org/2021/01/will-you-take-the-covid-vaccine-orange-county-is-hiring-a-pr-firm-to-reassure-public/).
[4] See https://www.law360.com/articles/1283023/retailers-should-look-out-for-refund-claims-after-covid-19; https://www.law360.com/articles/1337920/how-retailers-may-limit-holiday-legal-risks-amid-covid-19.
[5] https://www.law360.com/articles/1331641.
[6] See, e.g., In re Grand Jury Subpoenas Dated March 24, 2003, 265 F. Supp. 2d 321 (S.D.N.Y. 2003).
[7] See Egiazaryan v. Zalmayey , 290 F.R.D. 421, 432 (S.D.N.Y. 2013) (citing series of cases discussing the "very narrow holding" of In re Grand Jury Subpoenas and its limited application to situations where PR firms are assisting lawyers during high-profile grand jury investigations); but see Stardock Systems, Inc. v. Reiche , Civil No. 17-07025-SBA, 2018 U.S. Dist. LEXIS 204438, at *8-10 (N.D. Cal. Nov. 30, 2018) (relying on In re Grand Jury Subpoenas in finding PR firm's role necessary in civil litigation context, where PR firm assisted in litigation strategy and communications involved giving and receiving legal advice regarding appropriate response to lawsuit).
[8] See Egiazaryan, 290 F.R.D. at 432.
[9] See id.; In re Signet Jewelers Ltd. Sec. Litig. , 332 F.R.D. 131 (S.D.N.Y. 2019); see also Wollesen v. West Central Cooperative , Case No. 16-CV-4012, 2018 U.S. Dist. LEXIS 20864, at *18 (N.D. Iowa Feb. 8, 2018) (while PR firm's initial communications with shareholders, employees and public at large regarding pending litigation served a "solely communicative purpose" and were not protected, PR firm's subsequent role on tasks related to litigation itself, like providing input on litigation strategy, were protected).
[10] See, e.g., Pemberton v. Repub. Servs., Inc. , 308 F.R.D. 195, 201 (E.D. Mo. 2015).
[11] See Export-Import Bank v. Asia Pulp & Paper Co., Ltd. , 232 F.R.D. 103, 113 (S.D.N.Y. 2005) (identifying these as the three primary factors for satisfying "functional equivalent" test).
[12] See NECA-IBEW Pension Trust Fund v. Precision Castparts Corp. , Case No. 3:16-cv-01756-YY, 2019 U.S. LEXIS 168088 (D. Or. Sept. 27, 2019).
[13] Church & Dwight Co., Inc. v. SPD Swiss Precision Diag. , 2014 U.S. Dist. LEXIS 175552 (S.D.N.Y. Dec. 19, 2014).
[14] Id. at *7-9.
[15] Id. at *9; see also LG Elecs. U.S.A., Inc. v. Whirlpool Corp. , 661 F. Supp. 2d 958, 964 (N.D. Ill. 2009) ("Whirlpool does not contend that its in-house counsel cannot understand proposed advertisements and marketing plans without [advertising] agency assistance – its counsel communicates directly with the agencies as a matter of expediency").