ONE LEDGEMONT LLC v. TOWN OF LEXINGTON ZONING BOARD OF APPEALS and 95 HAYDEN LLC.

Following the taking of evidence at trial the court afforded counsel the opportunity to address in written submissions the question whether various documents, production of which had been sought by plaintiff from private defendant 95 Hayden LLC, might qualify, as the defendant asserted, for the protections of the attorney-client privilege. Having reviewed those submissions, the court now rules on the question reserved at the trial.

The documents at issue are set forth on the privilege logs generated by counsel during discovery; the disputed documents are those in which communications (in the form of emails, some with attachments) from 95 Hayden’s counsel in connection with its July 2012 acquisition of Two Ledgemont LLC were directed to Mr. Charles Batchelder, among others. The plaintiff argues that the provision of these documents not just to the private defendant, its affiliated entity, Hobbs Brook Management, and to their officers and full-time employees, but to Mr. Batchelder as well, defeats any claim of the privilege. Mr. Batchelder is not an officer and is not a paid employee of 95 Hayden or Hobbs Brook. Unless his relationship with them warrants treating him as the functional equivalent of an employee of the Hobbs Brook entities, Mr. Batchelder’s inclusion on the distribution list for these emails renders them no longer confidential within the protection of the attorney-client privilege, and not immune from production or use at trial on that ground.

As 95 Hayden appears to concede, the Massachusetts Supreme Judicial Court has not expressly recognized the so-called “functional equivalent” basis for qualifying for the attorney- client privilege. Our courts have recognized somewhat different ways in which one who is not a direct principal or employee of a party might participate in attorney communications--which otherwise would be privileged--without costing those communications their privileged status. A leading example is the so-called “Kovel” doctrine, see United States v. Kovel, 296 F.2d 918, 921- 22 (2d Cir. 1961), imported into our state decisional law, see Commissioner of Revenue v. Comcast Corp., 453 Mass. 293 , 305 (2003), referring to Kovel as addressing a “derivative privilege.” It is clear that where a non-employee plays a role as a necessary agent of the attorney or the client, the privilege is not lost simply because someone not an employee took part in the privileged communications. If the non-employee is someone whose involvement is needed to enable effective communication between the lawyer and the client, to allow the provision of the legal advice, the inclusion of the non-employee does not, without more, render the communication outside the privilege. Comcast, at 307.

The defendant does not appear to rest its claim of privilege on a strictly Comcast-style relationship among Mr. Batchelder, the Hobbs Brook entities, and the transactional counsel involved in the acquisition. Rather, 95 Hayden urges the court to expand Comcast, and apply the “functional equivalent” analysis to the facts of Mr. Batchelder’s role. 95 Hayden asks the court to rule that, as the functional equivalent of a Hobbs Brook employee, Mr. Batchelder’s presence on the distribution list for these emails to and from deal counsel does not impair the privileged treatment these emails would enjoy otherwise.

95 Hayden points the court to a line of decisions recognizing the functional equivalent doctrine, principally emanating from the Federal courts. The leading exemplar is In re Bieter, 16 F.3d 929 (8th Cir. 1994). The court there concluded that “...when applying the attorney-client privilege to a corporation or partnership, it is inappropriate to distinguish between those on the client’s payroll and those who are instead, and for whatever reason, employed as independent contractors.” Id., at 937. The Bieter court relied on the need for effective communication between the client and its lawyers, and recognized that a narrow test, hampering communication by counsel with non-employees, may “lead to attorneys not being able to confer confidentially with nonemployees who, due to their relationship to the client, possess the very sort of information that the privilege envisions flowing most freely.” Id., at 938. This concern is acute when the nonemployee possesses a “significant relationship to the [client] and the [client]’s involvement in the transaction that is the subject of legal services.” Id.

While this functional equivalent analysis is not yet chiseled deeply into the decisions of Massachusetts’ appellate courts, there is good reason to conclude that our Supreme Judicial Court, if and when presented with the occasion, would apply and follow this line of Federal Court jurisprudence. Our law sees the attorney-client privilege as “so highly valued that, while it may appear to ‘frustrate the investigative or fact-finding process ... [and] create[] an inherent tension with society’s need for full and complete disclosure of all relevant evidence during implementation of the judicial process,’ ... it is acknowledged that the ‘social good derived from the proper performance of the functions of lawyers acting for their clients ... outweigh[s] the harm that may come from the suppression of the evidence.’” Comcast, 304 Mass. at 304, quoting Commonwealth v. Goldman, 395 Mass. 495 , 502 (1985). The Comcast court, of course, reminds that while the high societal value of the attorney-client privilege justifies its recognition, respect for the judicial process and its need for broad access to useful evidence requires a narrow construction of the privilege, and the imposition of the burden of establishing the privilege on the party seeking its protection. Id.

The Comcast decision parsed the role of accountants engaged to give Massachusetts tax advice to the client corporation, and concluded that the client’s communications with those accountants, themselves not clothed with a legal counselor’s privilege, could not qualify, derivatively or otherwise, for attorney-client privilege. The court went on to address the qualification of the client-accountant communications under the “work product doctrine,” something not at issue in the pending case, and concluded that they were properly treated as work product, prepared in anticipation of litigation. Comcast at 319.

Comcast does not address directly the question now raised–whether the use of an independent consultant or contractor, having a close, long-standing, pivotal role in the business transactions of the client company, might be treated for privilege purposes, when included in the confidential dialogue among the company and its lawyers, as the functional equivalent of a payroll employee. The court views Mr. Batchelder’s position and role in the business life of the Hobbs Brook companies as functional equivalents to those which would be held by someone getting a paycheck from the entity directly. The testimony at trial convinced me of this. Mr. Batchelder was not an ordinary broker or outside real estate advisor and consultant. He had an unusual role, as principal of Wyman Street Advisers, which gave him exclusive leasing and advisory opportunities and responsibilities with the Hobbs Brook companies that were of long duration, highly deferential, and made him a key decision leader for the most senior management. Mr. Batchelder dealt with the principals of the Hobbs Brook companies exclusively on nearly all of their regional real estate portfolio acquisition and development opportunities. Because of his exclusive arrangements, Mr. Batchelder garnered a large amount of his compensation from the Hobbs Brook companies alone, and gave them unprecedented veto power over his ability to serve other clients and participate in other deals. No other broker or adviser had any real role in how Hobbs Brook acquired, ran, leased, improved, developed, and disposed of its real estate assets. Mr. Batchelder played an inside and central role in advising about and doing all of that. He presents very much, when his role is considered, as the same as one who was a high level principal or employee of those companies. He appears, in many respects, like the real-estate advisor in Bieter, perhaps more so.

Given Mr. Batchelder’s central and important role as the real estate counselor guiding Hobbs Brook in much of its land dealings, his presence on the distribution list of transaction emails to and from the company’s law firm ought not, by itself, strip away any otherwise applicable privilege. The court concludes that the Supreme Judicial Court, if it were to consider this question, would decide that Mr. Batchelder’s unique role made him a necessary partner in the provision of legal advice to Hobbs Brook about how the transaction, which the lawyers were helping shape with that advice, ought have been structured. Without Mr. Batchelder’s involvement, the lawyers’ advice may have been deficient, and based on less than the best input from the client. This conclusion holds even though the disputed emails appear to be those from the lawyers to Mr. Batchelder, and not any flowing in the opposite direction. That Mr. Batchelder well would (and could) have extracted, from the communications the attorneys sent him, the facts and concerns the lawyers needed the client to address and respond to, and then could have participated in making that happen, by conferring with the senior management of the company, seems more than plausible. Mr. Batchelder in this way, as the functional equivalent of an employee, would have facilitated the “effective consultation” between client and attorney, with no loss of the privilege. See Comcast at 307.

It is not often that the ability arises to treat someone who is not a principal or employee of an entity, as so close to one as to merit the extension of the privilege to communications in which that person participates. Not all (or even many) real estate brokers and advisors who work with corporate clients will be able to be part of the entity’s dialogue with its lawyers without undoing the privilege. Where the relationship with the company is one the non-employee has with many other clients or customers; is single-purpose and limited in scope, duration, and responsibility; or does not put the non-employee in a high-level, trusted decision-making or guiding role, equivalent to that of an employee, the non-employee does not hold the status necessary to keep communications involving him or her privileged. Cf., Banco do Brasil, S.A. v. 275 Washington Street Corp., No. 09-11343-NMG, 2012 WL 1247756 (D. Mass., April 12, 2012).

Here, however, the court is convinced it is dealing with the rather rare situation where Mr. Batchelder, though not a direct employee of the client company, stood in a position equivalent to one, given his unique business and professional relationship with the company, with its broad real estate holdings and business, and with its senior management. His receipt of the emails back and forth among the company and its lawyers does not, without more, strip away any privilege that otherwise would shield the emails from production and use at trial.

That conclusion, of course, does not necessarily end the inquiry into whether or not the disputed emails enjoy any privilege. All of the elements of the privilege must exist for the privilege to apply, and the defendant, as the party invoking the privilege, bears the burden of demonstrating those elements. The court will ask counsel to confer promptly, in light of the ruling made in this Order, to see if they agree on the next steps to be taken to determine whether some or all of the disputed documents will be produced. Counsel are to consider, for example, whether the documents might be produced subject to a stipulation that preserves the privilege, to expedite plaintiff’s counsel’s review of the disputed documents. Failing that, counsel are to address whether an in camera review of the documents should be made, and, if so, whether there is any reason that review should not be by the judge who presided at trial. In addition, counsel are to consider whether, should some or all of the disputed documents be produced because they do not qualify for the privilege, those documents would be admitted as trial exhibits, and whether any further witness testimony would be indicated to admit or explain the proffered exhibits.

Counsel are to report the outcome of their discussions on these points in a written submission to be received by the court by July 8, 2014. If counsel report that they require no further action by the court, the court then will proceed to schedule closing argument in the case. Otherwise, counsel are to appear Wednesday, July 16, 2014 at 10:00 a.m. to be heard on their report, on how the court should deal with the disputed emails, and on the resolution of the trial in light of them.

So Ordered.