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The pros and cons of asserting a “good faith” defense

In certain types of cases, including antitrust and patent matters, “good faith” is a commonly asserted defense. However, claiming “good faith” is not without risk– doing so may force a defendant to reveal attorney-client communications. Companies faced with impending litigation need to consider the advantages and disadvantages of relying on a good faith defense particularly in light of a recent federal court decision on attorney-client privilege.

Attorney-client privilege protects communications between an attorney and a client in connection with providing legal representation. Generally, these communications are confidential and protected from discovery, even if they are relevant. However, there are exceptions. One such situation is where disclosure of the attorney-client communications is necessary in order for an opposing party to properly challenge the defense. For example, in the case of a good faith defense, the opposing party will seek attorney-client communications to determine if the defendant’s attorney provided advice regarding potential improper conduct, thereby negating good faith.

The United States District Court for the Southern District of New York recently discussed the applicable standards to apply to claims of attorney-client privilege where good faith is asserted. The case of Namenda Direct Purchaser Antitrust Litigation concerned a claim of antitrust violation, in which the defendant asserted, in part, that it acted with good faith. The Plaintiffs claimed that this defense placed defendant’s attorney-client communications at issue. The Court found that merely asserting a good faith defense does not mean the privilege is waived. However, the party asserting privilege bears the burden to show both that the privilege applies and that it has not been waived.

A party can show that the privilege has not been waived using either objective or subjective criteria, which does not involve attorney-client communications, to establish their good faith defense. Objective criteria include providing historical information, expert testimony or other non-privileged evidence (ex. documents). A party can establish good faith by subjective criteria with evidence such as an analysis performed by consultants or other non-privileged advisers to show that their good faith claim was based on valid business judgment. In Namenda, the Court required the defendant to provide a list of all “subjective beliefs” that they would rely on in their defense, so that the Court could evaluate whether attorney-client communications had to be divulged.

For defendants facing litigation, Namenda highlights the importance of evaluating your situation and asking these questions:

  • Do you have a strong good faith defense?
  • Can you prove it with objective or subjective criteria?
  • What are the risks of waiving attorney-client privilege?

In the end, defendants need to balance the strength of their claim against the risks of losing the privilege. In-house counsel should discuss these issues with an experienced litigator before responding to a complaint.

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