Opinion ID: 199903
Heading Depth: 2
Heading Rank: 1

Heading: Kovel

Text: 37 Generally, disclosing attorney-client communications to a third party undermines the privilege. United States v. Ackert, 169 F.3d 136, 139 (2d Cir.1999) (stating that the attorney-client privilege generally applies only to communications between the attorney and the client); Weinstein's Federal Evidence, supra, at § 503.15[3]; Epstein, supra, at 168-69, 189. An exception to this general rule exists for third parties employed to assist a lawyer in rendering legal advice. Sup. Ct. Standard 503; Weinstein's Federal Evidence, supra, at §§ 503.12[3][a] and [4][b]. In Kovel, the Second Circuit held that, because the complexities of modern existence prevent attorneys from effectively handling clients' affairs without the help of others, the attorney-client `privilege must include all the persons who act as the attorney's agents.' 296 F.2d at 921 (quoting Wigmore, supra, § 2301, at 583). 6 38 This logic applies to accountants: [T]he presence of an accountant, whether hired by the lawyer or by the client, while the client is relating a complicated tax story to the lawyer, ought not destroy the privilege when the accountant is necessary, or at least highly useful, for the effective consultation between the client and the lawyer which the privilege is designed to permit. Id. at 922. The communication, however, must be made for the purpose of obtaining legal advice from the lawyer. Id. If what is sought is not legal advice but only accounting service..., or if the advice sought is the accountant's rather than the lawyer's, no privilege exists. Id.; see also United States v. Adlman, 68 F.3d 1495, 1500 (2d Cir.1995). 39 The district court concluded that  Kovel requires that either the Cavallaros, Knight, or Hale and Dorr hired Ernst & Young for the purpose of facilitating a legal communication with Hale and Dorr. Cavallaro, 153 F.Supp.2d at 57. It said that the Cavallaros must show that Ernst & Young was an agent of Hale and Dorr, Knight or the Cavallaros. Id. at 58. We know that such a showing is not sufficient to sustain the privilege: as the district court recognized, an attorney, merely by placing an accountant on her payroll, does not, by this action alone, render communications between the attorney's client and the accountant privileged. 7 Id. at 57; Kovel, 296 F.2d at 921. We need not reach the question of whether such a showing is necessary. That is, we need not determine whether, in all instances, the attorney or client (as opposed to some third party) must hire the accountant in order to sustain a privilege under Kovel. 40 Here, the record does not show that any party hired Ernst & Young to assist Hale and Dorr in providing legal advice, and we note that the agency relationship between the parties is relevant to, but not dispositive of, this question. Kovel requires that to sustain a privilege an accountant must be necessary, or at least highly useful, for the effective consultation between the client and the lawyer which the privilege is designed to permit. Kovel, 296 F.2d at 922. This requirement resolves the Kovel dispute because the evidence shows that Ernst & Young was not employed for this purpose. 41 Whether Hale and Dorr, as opposed to the Cavallaros or their sons, hired Ernst & Young is, as the district court recognized, probative when considering whether Ernst & Young was employed to help Hale and Dorr render legal advice. Typically, [a]gents of an attorney are ... retained by or at the discretion of the attorney and under the attorney's supervision. Rice, supra, § 3:5, at 30. Here, the bulk of the evidence supports the claim that, at the December 1994 meeting, and going forward, Ernst & Young acted as an agent for the sons or Camelot, but not for Hale and Dorr, the Cavallaros, or Knight. 42 No one disputes that Camelot initially hired Ernst & Young. Only one month prior to the December 1994 meeting, Ernst & Young sent Camelot a letter of engagement stating that [a]ll advice and other services we provide pursuant to this engagement are solely for the benefit of Camelot ... and are not for the benefit of anyone other than the corporation and its shareholders. Camelot's CFO, David Frac, signed the letter and returned it to Ernst & Young. Everyone also agrees that Camelot hired Ernst & Young to provide financial advice, not to assist any lawyers. Prior to the December 1994 meeting, Ernst & Young was not in any way coordinating its accounting advice with Hale and Dorr's legal advice. 43 The Cavallaros say that things changed at the December 1994 meeting. At that meeting, they say, it was clear to all parties that Ernst & Young began assisting Hale and Dorr with respect to providing advice on transfer tax issues. They claim that Ernst & Young continued in this role, as an assistant to Hale and Dorr on transfer tax and, later, merger issues, through 1995. More specifically, the Cavallaros argue that Ernst & Young assisted Hale and Dorr in providing legal advice, and improved that advice, by, [a]mong other things, ... review[ing] the factual basis of Hale and Dorr's analysis to help determine whether it was consistent with the accounting records that Ernst & Young had reviewed. The district court properly rejected the argument. 44 The district court found that [t]he Cavallaros have not produced any contemporaneous documentation to suggest that, as of December 19, 1994, Ernst & Young's professional relationship with the Cavallaro parents changed in a way that would trigger a privilege. Cavallaro, 153 F.Supp.2d at 59. The Cavallaros urge that the district court overlooked some evidence. First, that the bill for Ernst & Young's services rendered through December 31, 1994, refers to services rendered to both Camelot and Knight. Second, that Ernst & Young mailed this bill to Mrs. Cavallaro at Knight. Third, that Lawrence Goodman testified that, in 1994, Ernst & Young was involved in providing tax advice to Camelot, Knight, and the Cavallaros. The district court did not mention this evidence, but it does not change the outcome here. None of it is contemporaneous documentation of the relationship between the parties at the meeting. The bill was presumably drafted after services were rendered. The parties never formally commemorated this purportedly changed relationship. Mr. Goodman's statement was made after the fact, in the midst of litigation, with little support in the contemporaneous record. The district court did not clearly err when it found as it did. 45 But all of this is slightly off-topic. The agency question aside, the evidence is strong that Ernst & Young acted to provide accounting advice rather than to assist Hale and Dorr in providing legal advice. Cf. United States v. Judson, 322 F.2d 460, 462-63 (9th Cir.1963) ( Kovel exception covers documents created by an accountant at an attorney's request for the purpose of advising and defending the client). Prior to the December 1994 meeting, Ernst & Young provided accounting advice to Camelot independent of Hale and Dorr. After that meeting, the evidence supports the conclusion that Ernst & Young and Hale and Dorr continued to work on their respective, separate tracks, albeit in a more coordinated way. 46 We are skeptical of the Cavallaros' claim that Ernst & Young was present to assist attorney Hamel of Hale and Dorr, who was a senior partner of over twenty years' experience, and a specialist in trusts and estates, including, necessarily, consequent tax advice. Recognizing that an attorney's experience alone is not prima facie evidence that an accountant was not necessary, or at least highly useful, Kovel, 296 F.2d at 922, to the lawyer in providing legal assistance, we note that when a party hires an accountant to provide accounting advice, and only later hires an attorney to provide legal advice, it is particularly important for the party to show that the accountant later acted as an agent necessary to the lawyer in providing legal advice. See Rice, supra, § 3:5, at 33-34 (noting that when the client has previously employed the agent independent of the attorney-client relationship, to perform the same services that he will perform for the attorney[,] .... [t]his creates a risk that the agent's retention by the attorney is simply a subterfuge); id. at 35 n. 66 (citing Swarthmore Radiation Oncology, Inc. v. Lapes, No. 92-3055, 1994 U.S. Dist. LEXIS 1970, at -12 (E.D.Pa. Feb. 18, 1994)). The Cavallaros have failed to make a sufficient showing here. 47 Contrary to the Cavallaros' assertion that a mere finding that an accountant was useful is all that is required under Kovel, [t]he available case law indicates that the `necessity' element means more than just useful and convenient. The involvement of the third party must be nearly indispensable or serve some specialized purpose in facilitating the attorney-client communications. Mere convenience is not sufficient. Epstein, supra, at 187. The Cavallaros' claim that Ernst & Young had the capacity to benefit the quality of the legal advice that Hale and Dorr would render and that, [a]mong other things, Ernst & Young double-checked Hale and Dorr's legal advice to make sure it was consistent with the accounting records that Ernst & Young had reviewed is not enough to show that Ernst & Young was necessary, or at least highly useful, in facilitating Hale and Dorr's provision of legal advice. That ends the matter.