Tennessee Court of Appeals Rules on Functional Equivalent Test for Attorney-Client Privilege - Articles

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Posted by: Ward Nelson on Oct 25, 2018

Before last September, no Tennessee state court precedent existed regarding whether the attorney-client privilege is waived by disclosure to a third party who is integrally involved in the matter at issue.  However, the Tennessee Court of Appeals recently addressed this issue in Waste Administrative Services, Inc. v. the Krystal Company (“WASI”), No. E2017-01094-COA-R9-CV, 2018 WL 4673616 (Tenn. Ct. App. Sept. 27, 2018). The WASI Court held that a third-party consultant’s communications with a company’s counsel was protected by the attorney-client privilege because the consultant was acting as the “functional equivalent” of a company employee. Id. at *4-5. The WASI Court cited favorably the following discussion of this functional equivalent test:

To determine whether a consultant should be considered the functional equivalent of an employee, courts look to whether the consultant had primary responsibility for a key corporate job, whether there was a continuous and close working relationship between the consultant and the company’s principals on matters critical to the company’s position in litigation, and whether the consultant is likely to possess information possessed by no one else at the company.

Export-Import Bank of the United States v. Asia Pulp & Paper Co., 232 F.R.D. 103, 113 (S.D.N.Y. 2005) (internal citations omitted).

In applying the functional equivalent test, the WASI Court considered “how the parties actually conducted themselves,” and held that the consultant’s communications with counsel were protected because he was given a “circumscribed role” at the company, “took a leading role” and was “a central player” with respect to the subject matter at issue, and engaged in activities which “could scarcely be distinguishable from those of a [company] employee.” Id. at *5-6.

Ward Nelson is an attorney at Miller & Martin in Chattanooga. He concentrates in the areas of corporate, healthcare, and transportation law, primarily for merger and acquisition transactions and contract negotiations.