Cover Your Notes: Confidentiality Depends on Role of Accountant

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By William F. Hargens, J.D.

A business owner calls a meeting to discuss the tax consequences of a particular business transaction. The business owner asks the business's attorney to attend and provide some guidance at the meeting. The business owner also asks that the business's outside accountant attend the meeting. Two years later, the business is involved in litigation related to the transaction, and the plaintiff seeks to discover the outside accountant's notes from the initial meeting.

What now?

Most people are aware, to varying degrees, of the existence of the attorney-client privilege. It is generally understood that a client may invoke the attorney-client privilege to protect confidential communications made to the client's lawyer for the purpose of obtaining legal services.

Those well-versed in the protections afforded by the attorney-client privilege might also know that the privilege applies to confidential communications between representatives of the client and the client's lawyer. However, extension of the attorney-client privilege to confidential communications made by representatives of the client raises an important question – exactly who qualifies as a client's "representative" for purposes of the privilege?

Officers and employees of a corporation are obvious answers. What is less obvious is the extent to which outside accountants qualify as representatives of a client.

Many clients, especially businesses, enjoy long-standing relationships with their respective accounting firms and naturally think of them as acting in a representative capacity. Surprisingly, the case law is far more convoluted.

For example, in a case out of the 7th U.S. Circuit Court of Appeals, the court found that an outside accountant's handwritten notes taken at a meeting at which a lawyer was present were not privileged (U.S. v. Brown, 478 F.2d 1038 (7th Cir. 1973)). The purpose of the meeting was to discuss the tax consequences of a potential business transaction. The notes in question consisted of six pages of handwritten notes prepared by the outside accountant concerning the accounting assistance rendered by the accountant at the meeting.

The court noted that "although the attorney-client privilege may in some instances extend to communications to accountants providing assistance to an attorney . . . what is vital to the privilege is that the communication be made in confidence for the purpose of obtaining legal advice from the lawyer. 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."

The court concluded that, because the client, rather than the lawyer, asked the accountant to attend the meeting",notes taken by an accountant at such a meeting should not be considered privileged simply because an attorney is present at the meeting."

The take-away?

CPAs should not automatically assume that an outside accountant's notes taken during a meeting with their client and the client's attorney will be protected by the attorney-client privilege. If outside accountants are asked to attend a meeting at which a lawyer will be present, it would be prudent for them to ask up front what their role at the meeting will be – to provide accounting services to the client or to assist the lawyer in the provision of legal services.

Sometimes the line between those two types of services is difficult to discern, so accountants would be well-served to exercise caution regarding what they record in notes taken during a meeting and should be especially wary of recording communications by an attorney that could eventually prove harmful to the client's interests if discovered in a subsequent dispute between the client and a third party.

When in doubt, consult with legal counsel before you put pen to paper.

About the author:

William F. Hargens, J.D., executive vice president of McGrath North Mullin & Kratz, PC LLO, in Omaha, Neb., has specialized in litigation, including defense of accounting malpractice actions, for 30 years. He is listed in Best Lawyers in America and America's Leading Lawyers for Business Chambers USA and is a Fellow in the Litigation Counsel of America. Contact Hargens at (402) 633-1474 or [email protected]. © McGrath North Mullin & Kratz, PC LLO. Used with Permission.

About CPA Mutual:

CPA Mutual was formed in 1986 to serve the accountants' professional liability sector. The company has expanded over the decades to include coverage for outside defense cost, aggregate limits and deductibles, electronic data coverage, employment practices liability, and limited liability for small firms that do not provide attestation services. Our focus is and has always been the CPA market. Our goal is to exceed your expectations! For more information, please contact William Thomson, [email protected], (800) 543-3029.

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