An attorney-client privilege dispute between Elizabeth Holmes and Boies Schiller Flexner looms over the Theranos founder’s criminal fraud trial set to kick off Aug. 31, but attorneys say the saga also serves as a cautionary tale for the legal community.
In a trial expected to last about 13 weeks in the San Jose courtroom of U.S. District Judge Edward Davila of the Northern District of California, lawyers from Williams & Connolly and a San Francisco solo practitioner are set to defend Holmes against the government’s allegations that the former executive defrauded investors, doctors and patients with faulty blood-testing technology.
David Boies, Boies Schiller’s managing partner and chairman, and partner Heather King could also be central players in the courtroom drama. Boies and King, Theranos’ former general counsel, are listed as possible witnesses in court documents. A magistrate judge found that 13 emails on the government’s exhibit list were not protected by Holmes’ attorney-client privilege with the firm.
Some lawyers say the haziness of the high-profile firm’s relationship with Holmes has caused the rest of the industry to sit up and stress the fundamentals. Schiff Hardin partner Adam Diederich in Chicago said the attorney-client privilege dispute certainly got the attention of attorneys, who expect the advice and information they provide clients to remain confidential.
“It’s pretty clear something fell through the cracks, but it’s not directly known exactly what happened here,” Diederich said. “So I think most law firms and lawyers who are aware of this are going to be more careful, with this in mind, to document the scope of the relationship.”
Holmes argued that Boies—who also served on the defunct company’s board of directors—and his firm had acted as counsel not just to the company but to Holmes in an individual capacity. She claimed they had represented her starting in 2011 in an intellectual property dispute, according to case filings. In a 2018 interview in the U.S. Attorney’s Office in San Francisco, Boies told federal investigators he represented solely the company up until the summer of 2016, according to a memo on the docket.
Boies represented Theranos as it came under fire from reporting by The Wall Street Journal’s John Carreyrou, who unwound the alleged scheme at the center of the government’s case against Holmes and Theranos’ former president and chief operating officer, Ramesh “Sunny” Balwani, who is set to stand trial beginning Jan. 11.
Federal prosecutors asserted that Holmes could not pass the circuit court’s test to show that counsel was communicating to her in an individual capacity or that the communications’ dealt with matters particular to Holmes instead of the general affairs of the company, whose assignee had waived Theranos’ corporate privilege to specific documents.
Noticeably absent from the record is a Boies Schiller engagement letter—with Theranos or Holmes. Boies himself had told investigators he was “virtually certain” that there must be an engagement letter establishing the legal relationship with Theranos, as required by the firm. Holmes has admitted in court documents that she has no knowledge of an engagement letter directed toward her or Theranos, or one delineating or limiting Boies’ representation to Holmes or the company.
In a June order, U.S. Magistrate Judge Nathanael Cousins of the Northern District of California found Holmes was “unable to point to any documents supporting this allegedly obvious joint representation.”
Emily Ward, a white-collar associate at Smith, Gambrell & Russell in Atlanta, said if she were to merely speculate about the possible effects of the 13 emails on the trial, the communications—which have been described in filings as related to Theranos’ response to the media, investors and regulators—it’s possible the testimony of Boies and King could speak to the intent or aspects of the alleged scheme to defraud.
“If there were any sort of false or misleading omissions in communications to investors and regulators, that could be part of the prosecution’s case, but of course, we’re just guessing until we know what’s in those emails,” Ward said.
Ward said the lack of any engagement letter is a little surprising, “especially for parties that are as sophisticated as one of the more preeminent law firms in the country and Theranos.”
On the other hand, she said, not having an engagement agreement with regard to each specific area in which a law firm is offering advice is not that surprising. “When senior executives or officers within a company have a question, they might just run down the hall to their in-house counsel or call up their friend who’s the outside counsel, and there’s not going to be an engagement agreement for each one-off situation where legal advice is given,” she said. “So you can see how something like this may have organically developed, but it is definitely a risk to not have an engagement agreement when you do have both the corporate and personal legal interest at issue.”
Kevin Allen, of Eckert Seamans Cherin & Mellott in Pittsburgh, said the lack of an engagement letter was uncommon but not unheard of. “To the extent that it happens, it’s my experience, typically, just a delay, where the engagement letter would just catch up to the actual engagement,” he said. “A firm may be doing work for some finite period of time without an engagement letter yet having been issued, but I think particularly in larger law firms and prominent law firms that have systems in place, in my experience, it’s unusual.”
Allen said that Boies’ role on the board and the “multiple hats” he wore in connection to Theranos further complicated the privilege issue. “Then the question becomes, ‘OK, person who holds a law degree but is on the board of directors, when you were talking and there were communications with you, which hat were you wearing?’” he said. “It doesn’t mean that a lawyer who is on the board can never have confidential, privileged communications, but it just makes it more complicated.”
To maintain clear lines of communication when an attorney is acting both as a business adviser and legal representative, Ward suggested keeping a separate email account or only discussing certain personal matters when that person is physically in their law office.
Ward said prior to its representation of Theranos, Boies Schiller was regarded as one of the top law firms in the country—and still is—but it has lost more than hundred attorneys since.
“I think this is a cautionary tale because it’s just a quick reminder that whether it’s the most powerful law firm in the country, or a solo practitioner that hung up their own shingle, all types of lawyers and all types of law firms need to make sure that they are documenting everything having to do with attorney-client privilege and making sure their clients understand who they represent, especially when you’re talking about a corporation that has founders, executives and other employees,” she said.
When a company is built around a founder, as was the case with Theranos, it can be even more difficult to have a clear demarcation between individual representation and the company, Ward said.
“I think that that’s something that we will continue to see litigated over the next 10 or 20 years with all of these dot-com and app companies,” she said. “There’s going to be a question as these companies grow: When did lawyers start representing the company as opposed to the founders who were just trying to make it work?”