United States v. Graf: Standard established for attorney-client privilege between corporate employee and counsel

Jul 14, 2010

On Wednesday, July 7th, the Ninth Circuit Court of Appeals affirmed a ruling that James Graf, a consultant who worked as a functional employee, held no joint attorney-client privilege with the company’s attorneys. The Court also held that Graf held no personal attorney-client privilege over his communications with the corporate attorneys where he failed to show that he sought personal legal advice and meet the other requirements necessary to establish that privilege.

James Graf was the founder of Employers Mutual LLC, a corporation that purported to sell health care benefits coverage to over 20,000 buyers but in reality defrauded individuals and small businesses who purchased the company’s health plans. As a result of previous violations of California State insurance laws and his subsequent ban from insurance work, Graf was not listed as an employee of Employers Mutual.

The Nevada District Court selected an independent fiduciary, Thomas Dillon, to run Employers Mutual after Graf was removed by the U.S. Department of Labor. Dillon also waived the Employers Mutual’s attorney-client privilege as to all communications between the company and its legal counsel to which Graf responded with a motion to exclude the testimony based on attorney-client privilege.

The Court denied this motion, reasoning that Graf did not have a personal attorney-client relationship with the attorneys because he had not sought legal advice from them. Additionally, the Court concluded that Graf’s belief that Employers Mutual’s attorneys represented him personally was insufficient to create a personal privilege because the belief was either unreasonable or was not expressed to those attorneys.

The court cited Upjohn Co. v. United States, 449 U.S. 383 (1981), In re Bieter Co., 16 F.3d 929 (8th Cir. 1994), and In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3d Cir. 1986).

The case is: United States v. Graf, 9th Cir.; July 7th, 2010; 07-50100.