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Attorney-Client Privilege at Risk in Investigations and Audits

Preserving Confidential Information, Safeguarding Work Product, and Avoiding Inadvertent Disclosure

Today’s faculty features:

TUESDAY, AUGUST 25, 2015

Stuart M. Altman, Partner, Hogan Lovells, Washington, D.C. David M. Greenwald, Partner, Jenner & Block, Chicago

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MAXIMIZING PROTECTIONS OF ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT DOCTRINE IN INTERNAL INVESTIGATIONS AND AUDITS

TUESDAY, AUGUST 25, 2015 STRAFFORD PUBLICATIONS

Stuart M. Altman David M. Greenwald Hogan Lovells Jenner & Block LLP Washington, D.C. Chicago, Illinois

stuart.altman@hoganlovells.com dgreenwald@jenner.com

6

TOPICS

• Attorney-Client Privilege

– Focus on corporate context

• Work Product Doctrine
• Waiver

– Generally – Disclosures to Government – Disclosures to Auditors

7

SCENARIO

• Anonymous Call Received By Company Helpline
• Helpline Sends Report of Call to Chief Compliance Officer
• CCO Notifies General Counsel
• General Allegations:

– European-Based Employee of U.S. Publicly Traded Company Has Been Paying Off Government Officials in Middle East to Obtain Contracts. – Employee’s Manager in U.S. Is Aware of Payments. – Company Has Been Booking Costs of Payoffs as “Commissions.”

8

ISSUES TO CONSIDER WHEN COMPANY RECEIVES COMPLAINT

• Should there be an investigation?
• If so, should the company handle it internally or with outside counsel?
• Who should be notified within the company?
• Who should authorize the investigation?
• Outside counsel: Engagement Letter

– Who engages counsel? – What is the stated purpose of engagement?

• Data Lock Down

– Where is the data likely to reside? – Are they custodians whose data should be captured immediately (e.g., through forensic imaging of laptops, pdas, voicemail, email, etc.)? – If data resides outside of U.S.: What limits apply regarding: (a) processing data; (b) transferring data; (c) limiting use for which data will be used? – Litigation Hold Notice? – Has document preservation duty been triggered?

9

ISSUES TO CONSIDER WHEN COMPANY RECEIVES COMPLAINT

• Determine Initial Scope of Investigation.
• Engage Third Parties?

– Forensics: Gathering and preserving data? – Analytics: Is there need for accounting or other technical analysis? – Public Relations? – Crisis Management? – Data Review Vendors?

10

GOALS

Establish Team and Process to:

• Preserve and review relevant data.
• Determine if there has been any wrongdoing.
• Conduct the investigation in manner that maximizes Attorney-Client Privilege

and Work Product Protection.

– Attorney-Client Privilege and Work Product Doctrine should be considered separately.

• Preserve Company’s ability to cooperate with government authorities.
• Determine corrective action, including whether or not to voluntarily disclose.
• Corrective action may include optimizing internal standards and procedures.

– Compliance Program – Training

• Action may include employee discipline up to and including termination.

11

WHAT LAW APPLIES IN U.S. FEDERAL COURT

• Attorney-Client Privilege – Choice of Law Governed by FRE 501

– State law in diversity cases (choice of law issues may be complex) – Federal law in federal question cases, including pending state claims – Note: FRE 502 governs both federal and state court proceedings.

• Work Product Doctrine – Governed by FRCP 26(b)(3) and Federal Common

Law

– Rule 26 analogues govern in State Court

• “Touch Base” Approach and Comity Considerations for communications
• ccurring outside the U.S.

12

APPLYING PRIVILEGE IN U.S. COURTS TO NON-U.S. COMMUNICATIONS

“Touch Base” Approach

• First, determine whether communication involves U.S. or foreign law.
• Foreign law governs communications relating solely to matters involving

foreign jurisdictions.

– May apply principle of “comity.” (But see Wultz v. Bank of China Ltd.,

• --F.Supp.2d---, 2013 WL 5797114 (S.D.N.Y. Oct. 25, 2013))
• When applying U.S. law, the frequent issue is whether a person acting in a

legal capacity will be treated as a lawyer for attorney-client privilege.

– Lawyer generally defined as “member of the bar of a court.” – Issue often arises whether foreign in-house lawyer or legally trained person (e.g., patent agent) qualifies. – Legally trained corporate personnel who are not members of the bar generally not deemed to be attorney for purposes of privilege.

13

ATTORNEY-CLIENT PRIVILEGE: ELEMENTS

• Client – Who is the client in a corporate setting?
• Lawyer – Acting as a lawyer, not as a business person.
• Communication – Facts alone are not privileged.
• Legal Purpose – Business advice is not privileged
• Confidentiality – Intended and maintained.

14

ARE INTERNAL INVESTIGATIONS LEGAL IN NATURE?

In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014)

• Qui Tam Relator sought discovery of KBR’s internal investigation materials.
• District Court held that investigation materials were not privileged, and

instead were business in nature because the investigation had been conducted pursuant to DoD regulations and corporate compliance policy.

– District Court applied “but for” test to determine if “primary purpose” of investigation was legal. – District Court found that KBR did not prove that communications would not have been made “but for” the fact that legal advice was sought.

15

ARE INTERNAL INVESTIGATIONS LEGAL IN NATURE?

In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014)

• Appellate Court granted Petition for Writ of Mandamus, holding that the

court had committed clear error.

– District Court’s ruling could not be reconciled with Upjohn, which involved a corporate internal investigation. – Appellate Court applied broad approach to “primary purpose” test: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?” Note: Other courts may not apply as expansive an approach to “primary purpose” test, particularly where the investigation at issue can be described as “run-of-the- mill” and “ordinary business activity.”

16

WHO HAS THE PRIVILEGE?

1. Privilege within the Corporation: Who is the client? 2. Who is the lawyer? 3. Privilege Considerations During Employee Interviews (Communications) 4. Protecting Communication Amongst Management (Confidentiality) 5. Third Parties in Investigations (Confidentiality) 6. The Garner Doctrine

17

WHO ENGAGED THE LAWYER?

• Corporation through General Counsel?
• Board of Directors?
• Audit Committee?
• Special Committee in response to derivative demand?
• Parent? Subsidiary? Affiliates?
• Joint Venture?
• Joint Venturer?
• Multiple Entities?

Practice Point: It is critically important to know to what entity or persons the attorney owes duties.

18

SPECIAL COMMITTEE AS SEPARATE ENTITY

• In derivative suits, a special committee may be formed to investigate. Also

used in investigations.

– Board of directors appoints the committee – The committee must be of one or more independent and disinterested directors

• As an independent entity it can waive its attorney-client privilege
• Ryan v. Gifford, C.A. No. 2213, 2007 WL 4259557 (Del. Ch. Nov. 30, 2007)

– Special committee was formed to investigate alleged violations of stock option plans – Special committee shared its final report with the board of directors, some of whom were implicated in allegations – Special committee waived privilege because it “disclosed its communications concerning the investigation and the final report to third parties – the individual director defendants . . . whose interests were not in common with the client”

19

WHO IS THE CORPORATE “CLIENT” FOR THE PURPOSES OF THE ATTORNEY-CLIENT PRIVILEGE?

• Upjohn Approach

– Federal Question Cases

• “Subject Matter” Approach

– Most States

20

UPJOHN FACTORS:

(1) The information is necessary to supply the basis for legal advice to the corporation and was ordered to be communicated by superior officers; (2) The information was not available from “control group” management; (3) The communications concerned matters within the scope of employees’ duties; (4) The employees were aware that they were being questioned in order for the corporation to secure legal advice; and (5) The communications were considered confidential when made and kept confidential thereafter. Upjohn Co. v. United States, 449 U.S. 383, 394-95 (1981).

21

“FUNCTIONAL EQUIVALENT” TEST

• In some cases a non-employee may be considered to be the “functional

equivalent” of an employee for the purposes of privilege analysis.

• Doctrine established in In re Bieter Co., 16 F.3d 929 (8th Cir. 1994).
• Narrowly construed and not generally applied where corporation is large and

sophisticated.

• Some courts have applied doctrine even in large corporation context.

See, e.g., King Drug Co. of Florence, Inc. v. Cephalon, Inc., Civil Action

• Nos. 2:06-cv-1797, 2:08-cv-2141, 2013 WL 4836752 (E.D. Pa. Sept. 11,

2013).

22

FORMER EMPLOYEES

• For privilege to apply, the communications must involve relevant information

learned during employment which is needed by corporate counsel to advise the client. See, e.g., Allen v. McGraw, 106 F.3d 502 (4th Cir. 1997).

• Courts are skeptical where it appears counsel is trying to shape former

employee’s testimony. See, e.g., Info Systems, Inc. v. Ceridian Corp., 197 F.R.D. 303 (E.D. Mich. 2000) (except in very limited circumstances, “counsel’s communications with a former employee of the client corporation generally should be treated no differently from communications with any other third-party fact witnesses”).

23

HOW TO TREAT COMMUNICATIONS THAT OCCURRED WHEN PERSON WAS STILL EMPLOYED

• General rule: Prior privileged communications remain privileged.
• Chief Justice Burger’s concurrence in Upjohn:

– “[A] communication is privileged at least when, as here, an employee or former employee speaks at the direction of the management with an attorney regarding conduct or proposed conduct within the scope of employment.”

• Determine if the communication met the standards of privilege while the

employee was still with the company.

– Does it satisfy Upjohn?

24

SCOPE OF COMMUNICATION WITH FORMER EMPLOYEE

• Communications that extend beyond activities occurring within the course of

the ex-employee’s employment may not be considered privileged.

• Sharing

certain information may result in waiver

• f

privileged communications.

– Disclosure of what others have said. – Disclosure of matters about which employee would have no knowledge.

See, e.g., Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999).

• Work Product Protection may apply where AC privilege does not.

25

WHO HAS THE PRIVILEGE?

1. Privilege within the Corporation 2. Who is the lawyer? 3. Privilege Consideration During Employee Interviews 4. Protecting Communication Amongst Management 5. Third Parties in Investigations 6. The Garner Doctrine

26

WHO IS THE LAWYER?

• Does the matter merit engaging outside counsel?
• May in-house counsel conduct an investigation within the privilege?

Considerations:

• If matter may lead to government involvement, outside counsel may be

perceived as more objective.

• There are additional hurdles for in-house counsel to establish privilege.
• In-house counsel may have occurrence knowledge relevant to the

investigation.

• In-house counsel will not be treated as counsel for certain government

investigations in the EU.

27

IN-HOUSE COUNSEL: HURDLES TO ESTABLISHING ATTORNEY-CLIENT PRIVILEGE

• Heightened Scrutiny Applied To In-House Counsel By Many U.S. Federal

Courts.

• Two Primary Concerns:

– Dual Roles – Legal vs. Business – Improper Assertions of Privilege – Using Attorney As Conduit; Improper Use of Privilege Logs

• Often No Presumption of Privilege.
• Clear Showing Required that Communication Made in a Legal Capacity.
• Particular Skepticism When Document Simultaneously Sent to Legal and Non-

Legal Personnel.

28

CHALLENGES FOR IN-HOUSE COUNSEL BUSINESS vs. LEGAL

In re Vioxx Products Liability Litigation, 501 F.Supp.2d 789 (E.D. La. 2007) Facts:

• Merck asserted attorney-client privilege over 30,000 documents (500,000

pages). Majority were emails with attachments. Merck’s Arguments:

• “Pervasive Regulation Theory”: because drug industry is so extensively

regulated by the FDA, virtually everything a member of the industry does carries legal problems vis-à-vis government regulators.

• “Collaborative Effort”: Emails addressed to multiple legal and non-legal

personnel are protected even though distribution indicates mixed business and legal purpose, and not primarily for legal purpose. Counsel uses responses to emails from across company to provide legal advice.

29

IN RE VIOXX PRODUCTS LIABILITY LITIGATION

Holding: Court rejected Merck’s expansive theories.

• Pervasive Regulation Theory would immunize most of the industry’s

internal communications.

• Despite nature of industry, parties must satisfy burden of demonstrating

elements of privilege.

• Collaborative Effort Theory would effectively immunize all internal

corporate communications, defeating the broad discovery authorized by the federal rules.

30

IN RE VIOXX PRODUCTS LIABILITY LITIGATION

“The structure of Merck’s enterprise, with its legal department having such broad powers, and the manner in which it circulates documents, has consequences that Merck must live with relative to its burden of persuasion when privilege is asserted. When, for example, Merck simultaneously sends communications to both lawyers and non-lawyers, it usually cannot claim that the primary purpose of the communication was for legal advice or assistance because the communication served both business and legal purposes.” 501 F.Supp.2d at 805, citing United States v. Chevron Corp., 1996 WL 444597 (N.D. Cal. 1996).

31

EU PRIVILEGE RULES REGARDING IN-HOUSE COUNSEL IN CONTEXT OF EU COMPETITION INVESTIGATIONS

Akzo Nobel Chem. Ltd. And Akcros Chem. Ltd. V. European Commission, Case C-550/07, ECJ (Grand Chamber) 14 September 2010.

• 2003 Dawn Raid of UK Premises
• Seized emails between General Manager (UK) and in-house lawyer – an

Advocaat of the Netherlands Bar.

• Both UK and Dutch law would have protected the emails under the Legal

Professional Privilege.

• ECJ held that, with respect to EU competition investigations, in-house lawyers

are not within the privilege as lawyers, because they do not have sufficient “independence” from their employer.

• Practice Tip: In the EU, it is important to engage outside counsel,

particularly for any investigations work, or other highly sensitive legal matters.

32

BUSINESS vs. LEGAL ADVICE

RECOMMENDATIONS:

• Use legal titles.
• Identify when acting as attorney.

– Expressly state purpose is to provide legal advice.

• Label privileged documents.
• Avoid mixing legal and business advice.
• Limit distribution (email distribution as well).
• When withholding In-House Attorney communications, take steps necessary to

make clear showing privilege applies.

33

WHO HAS THE PRIVILEGE?

1. Privilege within the Corporation 2. Who is the lawyer? 3. Privilege Consideration During Employee Interviews 4. Protecting Communication Amongst Management 5. Third Parties in Investigations 6. The Garner Doctrine

34

HOLDER OF PRIVILEGE DURING EMPLOYEE INTERVIEWS

• Corporation holds the privilege: It may choose to assert or waive in the future.
• At the beginning of an employee interview it is important to provide Upjohn

warnings.

• Instructions:

– Counsel represents the corporation, not the individual employee. – The interview is protected by the attorney-client privilege. – The corporation, not the employee, holds the privilege. – The corporation may decide to waive the privilege and disclose what it learns during the interview. – The employee should keep the substance of the interview confidential. Sandra T.E. v. South Berwyn School Dist. 100, 600 F.3d 612, 620 (7th Cir. 2010) (citing Upjohn warnings given during employee interview as evidence supporting that investigators were acting as attorneys and reversing order to disclose privileged communications).

35

HOLDER OF PRIVILEGE DURING EMPLOYEE INTERVIEWS

• Without clear Upjohn warnings, an employee may believe that counsel is also

representing the employee.

• If that belief is reasonable, courts may hold privilege applies to both the

employee and the corporation.

• Corporation may be prevented from disclosing information.
• Counsel may be at risk.

U.S. v. Nicholas, 606 F. Supp. 2d 1109 (C.D. Cal. 2009), order rev’d, 583 F.3d 600 (9th Cir. 2009) (investigative counsel failed to give Upjohn warnings to company employee, despite representing employee personally in a related case, and referring matter to disciplinary committee).

36

WHO HAS THE PRIVILEGE?

1. Privilege within the Corporation 2. Who is the lawyer? 3. Privilege Consideration During Employee Interviews 4. Protecting Communication Amongst Management 5. Third Parties in Investigations 6. The Garner Doctrine

37

PROTECTING COMMUNICATION AMONGST MANAGEMENT

• Keep disclosures to those with a need to know.
• Caution against further disclosures.
• Carefully restrict access to investigation.
• If report to senior management will occur, have counsel present the report,

preferably orally.

38

EFFECT OF PRESENCE OF THIRD PARTIES DURING INTERVIEWS

• Investigation will often involve third parties.

– Forensic Accountants – Auditors – Investigators

• Risk of privilege will be waived if third party is present unless they are

deemed an agent of counsel or an agent of the corporation.

• Limit presence of anyone who is not essential to the conduct of the interview,

including other employees of the company.

39

WHO HAS THE PRIVILEGE?

1. Privilege within the Corporation 2. Who is the lawyer? 3. Privilege Consideration During Employee Interviews 4. Protecting Communication Amongst Management 5. Third Parties in Investigations 6. The Garner Doctrine

40

USE OF THIRD PARTIES WITHOUT WAIVING PRIVILEGE

• Investigations often require the assistance of third parties.

– Forensic Accountants – Computer Forensic Specialists – Consulting Subject Matter Consultants – Public Relations Personnel

• Use of Third Party Agents should be done carefully and with knowledge of

risk of waiver.

• The primary concern relates to “representing” agents.
• Kovel Doctrine: a consulting expert retained by the attorney or client to assist

the attorney in providing legal advice to the client qualifies as a privileged agent if consulted for purpose of improving attorney’s comprehension of factual information as client’s comprehension of legal advice.

41

USE OF THIRD PARTIES WITHOUT WAIVING PRIVILEGE (cont’d)

• Courts differ on the standard required to qualify as a privileged agent.

– “necessary, or at least highly useful for the effective consultation between the client and the lawyer” – “nearly indispensible or serve some specialized purpose in facilitating the attorney- client communications” See, e.g., Cavallaro v. United States, 284 F.3d 236 (1st Cir. 2002), RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 70 (2000).

• - Public Relations and other consultants often not considered within privilege.
• Engagement Letter With Third Parties:

– Make clear that purpose of engagement is to assist counsel. – Include language regarding agreement to keep information confidential.

• Counsel should actively supervise third party work.

42

WHO HAS THE PRIVILEGE?

1. Privilege within the Corporation 2. Who is the lawyer? 3. Privilege Consideration During Employee Interviews 4. Protecting Communication Amongst Management 5. Third Parties in Investigations 6. The Garner Doctrine

43

GARNER DOCTRINE

• Attorney Client Privilege is Not Absolute in the Fiduciary Context. Garner v.

Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970).

• Based on the ultimate commonality of Interest between counsel and minority

shareholders

– Thus, a corporation cannot keep its minority shareholders from gaining access to information by claiming privilege. – Indicia of Good Cause

• Not universal rule.
• Courts are less clear on whether Garner applies to Work Product.

44

GARNER

• In re Int’l Systems and Control Corp., 693 F.2d 1295 (5th Cir. 1982).

Derivative action arising out of company’s improper payments to third parties.

– Work Product not based on fiduciary relationship; Issue is one of adversity. – Where Management and Shareholders are adverse the company should be entitled to work product protection. – See also In re Metlife Demutualization Litigation, 495 F. Supp. 2d 310 (E.D. N.Y. 2007); Sandberg v. Virginia Bankshares, Inc., 979 F.2d 332 (4th Cir. 1992).

• Key Issues:

– Is there adversity? – Did it exist at time the document was created?

• Issue in Investigatory Context

– In re Perrigo Co., 128 F.3d 430 (6th Cir. 1997).

45

WORK PRODUCT DOCTRINE

• The Work Product Protection may protect investigation materials even if the

Attorney-Client Privilege does not.

• It is important to analyze the application of the Attorney-Client Privilege and

the Work Product Protection separately.

• The Work Product Protection may apply beyond documents and tangible

things – for example, the substance of interviews even if not memorialized in notes or memoranda.

46

WORK-PRODUCT PROTECTION

• FRCP 26(b)(3) Provides Protection for

– Documents and Tangible Things – Prepared in Anticipation of Litigation or for Trial – By or For a Party or a Party’s Representative – Note: Intangible Work Product Doctrine Broader Than Rule 26

• Qualified Protection for “Ordinary” Work-Product

– Showing of “Substantial Need” and “Undue Hardship” Required

• More Protection for “Opinion” Work-Product

– Showing of “Extraordinary Need” – Some Federal Courts Provide Absolute Protection for Opinion Work Product (e.g., 4th Cir.; W.D. Md.; W.D. Mich.).

• Anticipation of Litigation: Standards

– Majority: “Because of Litigation” Test – Minority: “Primary Motivation” Test – Note: Need to consider date established for Work Product Protection aligns with preservation of data, including Litigation Hold Notices

47

RISK OF WAIVER

• WAIVER GENERALLY

– Scope Of Waiver – Types Of Waiver

• DISCLOSURE TO GOVERNMENT AGENCIES
• DISCLOSURE TO AUDITORS

48

RISK OF WAIVER

• Waiver may occur in the context of investigations either through unintentional

disclosure or through intentional disclosure of privileged material.

• Failure to protect investigation materials within the company may show lack of

intent to keep the materials confidential.

• Disclosures for business reasons may result in waiver.
• The company may wish to disclose information to government agencies

– If company does not intend to waive, it is important to provide non-privileged underlying data and other non-privileged facts. – The line between “providing facts” and disclosing the substance of privileged communications is often murky.

• If the company intends to waive as to disclosed materials only, what is the possible

scope of the waiver?

49

FRE 502: SCOPE OF WAIVER

• PRE-RULE 502:

– AC Privilege: Subject Matter Waiver – WP Protection: Waiver of WP disclosed and perhaps underlying documents; generally no subject matter waiver

• RULE 502: Subject Matter Waiver only with respect to Intentional

“Disclosure” and only in “Unusual Situations,” but applies to both AC Privilege and WP Protection.

• Rule 502 addresses only “Disclosure,” not “Use” of privileged of

protected material.

• A Rule 502(d) Order may incorporate Rule 502(a) scope for affirmative

“use” of privileged data

50

FRE 502

• Eliminates Risk that Inadvertent Waiver Will Lead To Broad Subject Matter
• Waiver. (FRE 502(a))
• Limits Scope of Waiver for Voluntary Disclosures. (FRE 502(a))
• Enables One Federal Court To Bind All Other Proceedings, State and Federal., if

Disclosures Made In Connection With Proceeding (FRE 502(d))

• Enables Parties To Establish Discovery Protocols

– Claw Back Agreements – “Quick Peek” Arrangements – Privilege Log Protocols – E-Discovery Protocols Regarding Privilege Review – Agreement on Scope of ESI Preservation – Agreement to Conduct Phased Discovery

• Consider an FRE 502(d) order in all federal litigation.

51

RULE 502(a)

(a) Disclosure made in a federal proceeding or to a federal office or agency; scope of a waiver. – When the disclosure is made in a federal proceeding or to a federal office or agency and waives the attorney-client privilege or work-product protection, the waiver extends to an undisclosed communication or information in a federal or state proceeding only if: (1) the waiver is intentional; (2) the disclosed and undisclosed communications or information concern the same subject matter; and (3) they ought in fairness to be considered together.

52

RULE 502(a)

Explanatory Note: Subdivision (a). The rule provides that a voluntary disclosure in a federal proceeding or to a federal office or agency, if a waiver, generally results in a waiver only of the communication or information disclosed; a subject matter waiver (of either privilege or work product) is reserved for those unusual situations in which fairness requires a further disclosure of related, protected information, in order to prevent a selective and misleading presentation of evidence to the disadvantage of the adversary. Thus, subject matter waiver is limited to situations in which a party intentionally puts protected information into the litigation in a selective, misleading and unfair manner. It follows that an inadvertent disclosure of protected information can never result in a subject matter waiver.

53

RULE 502(d), (e), (f)

(d) Controlling effect of a court order. – A federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court – in which event the disclosure is also not a waiver in any other federal or state proceeding. (e) Controlling effect of a party agreement. – An agreement on the effect

• f disclosure in a federal proceeding is binding only on the parties to the

agreement, unless it is incorporated into a court order.

54

FRE 502(d)

“Under subdivision (d), a federal court may order that disclosure of privileged or protected information ‘in connection with’ a federal proceeding does not result in

• waiver. But subdivision (d) does not allow the federal court

to enter an order determining the waiver effects of a separate disclosure of the same information in other proceedings, state

• r federal.”

Explanatory Note to FRE 502(d) (revised 11/28/07).

55

DISCLOSURES TO FEDERAL AGENCIES

• Before disclosing information to Federal agency in informal investigation,

consider requesting:

– Agreement that FRE 502 applies to the disclosures – That disclosure of privileged documents does not waive as to undisclosed documents – That the company may claw back documents it determines are privileged – That the government will seek to have a FRE 502(d) order entered if there is a subsequent federal proceeding

• Request same agreements if responding to subpoena. If no agreement,

consider motion to quash or for protective order.

• When disclosing: characterize disclosures as not including privileged or

protected information where appropriate.

56

SCOPE OF WAIVER NOT COVERED BY FRE

• Disclosures to State offices or agencies may lead to broader waiver.
• - This creates difficulty where State and Federal agencies are conducting

simultaneous reviews

• - Question may arise regarding scope of waiver if Federal agency provides

privileged information to State agencies. FRE 502(a) should still apply, but no case law on the issue.

57

IMPLIED WAIVER – AT ISSUE WAIVER

• “At Issue” Waiver occurs where a party raises an issue the effective

rebuttal of which requires inquiry into privileged communications.

• Requires affirmative act; just denying allegations typically does not waive

privilege. See, e.g., Parker v. Prudential Ins. Co. of America, 900 F.2d 772, 776 (4th Cir. 1990) (no waiver where opponent attempted to put advice of counsel at issue).

• Examples of “at issue” waiver:

– Asserting affirmative defense of “Reasonable Investigation” – Asserting reliance on Advice of Counsel – Asserting Ineffective Assistance of Counsel – Asserting Attorney Malpractice

58

AT ISSUE WAIVER GENERALLY

Different Approaches To “At Issue” Waiver:

• Broad Approach: Hearn v. Rhay, 68 F.R.D. 574 (E.D. Wash 1975)

(1) Party asserting privilege has taken an affirmative act that (2) Makes protected information relevant to the case, and (3) Application of privilege would deny opposing party access to information vital to the defense.

• Narrower Approach: In re Erie County, 546 F.3d 222 (2d Cir. 2008)

Some showing that opposing party is relying on privileged communications as a claim or defense or as an element of a claim or defense (e.g., where state

• f mind or good faith are put at issue).

59

IN RE GM: PUBLIC REPORTS AND PRIVILEGED COMMUNICATION

• In re Gen. Motors LLC Ignition Switch Litig., No. 14‐MD‐2543 JMF, 2015 WL 221057

(S.D.N.Y. Jan. 15, 2015)

• GM hired outside law firm to conduct internal investigation into the defect and delays in

recalling the affected vehicles.

• Review of over 41 million documents and over 350 interviews.
• The investigative report provided to Board of Directors and to various government agencies,

at least one of which made the report publicly available.

• In subsequent class action plaintiff sought to compel production of underlying interview

memoranda and other work papers behind report.

• The Court found:

– that the materials at issue were conducted as pat of the company’s request for legal advice in light of the potential government investigations and civil suits facing GM. – the underlying interview material had only been shared with another law firm representing GM. – because the privilege protects communications and not facts the privilege is not waived by public disclosure of the facts.

60

DISCLOSURE TO THE GOVERNMENT SELECTIVE WAIVER

8th Circuit Established Selective Waiver Doctrine In 1977. Diversified Indus., Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977)

• Producing internal report to SEC did not waive attorney-client privilege

as to private litigants.

• Court relied on public policy analysis to encourage corporate self-

policing.

61

SELECTIVE WAIVER

Recent Trend Is Clearly Against Selective Waiver.

• D.C. Circuit 1981

Permian Corp. v. U.S., 665 F.2d 1214 (D.C. Cir. 1981)

• 4th Circuit 1988

In re Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988)

• 3d Circuit 1991

Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414 (3d Cir. 1991)

• 1st Circuit 1997

U.S. v. Massachusetts Institute of Technology, 129 F.3d 681 (1st Cir. 1997)

• 6th Circuit 2002

In re Columbia/HCA Healthcare Corp. Billing Practices Litig., 293 F.3d 289 (6th Cir. 2002)

• 10th Circuit 2006

In re Quest Communications Int’l Inc. Sec. Litigation, 450 F.3d 1179 (10th Cir. 2006)

• 9th Circuit 2012

In re Pacific Pictures Corp. v. District Court, 679 F.3d 1121 (9th Cir. 2012)

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SELECTIVE WAIVER

Hope For Selective Waiver

• 2d Circuit 1993

In re Steinhardt Partners, L.P., 9 F.3d 230 (2d Cir. 1993) (confidentiality agreement may protect privilege).

• Delaware Chancery 2002

Saito v. McKesson HBOC, Inc., 2002 WL 31657622 (Del. Ch. 2002) (adopts selective waiver doctrine).

• S.D.N.Y. 2010, 2007, 2005

Police and Fire Retirement Syst. Of the City of Detroit v. SafeNet, Inc., 2010 WL 935317 (S.D.N.Y. Mar. 12, 2010) (no waiver of either AC privilege or WP protection based on confidentiality agreement); In re Cardinal Health, Inc. Sec. Litig., 2007 WL 495150 (S.D.N.Y.

• Jan. 26, 2007) (no waiver of WP protection even in absence of confidentiality agreement); In

re Natural Gas Commodity Litig., 2005 WL 1457666 (S.D.N.Y. June 21, 2005) (no waiver of work product protection based on confidentiality agreement). But see In re Initial Public Offering Sec. Litig., 249 F.R.D. 457 (S.D.N.Y. 2008) (rejecting selective waiver).

• D. Arizona 2010

Bickler v. Senior Lifestyle Corp., 266 F.R.D. 379 (D. Ariz. 2010) (under Arizona law, no waiver where disclosure of internal investigation materials to Arizona regulator).

63

EVOLUTION OF GOVERNMENT PRESSURES ON PRIVILEGE

• DOJ – Holder Memo (1999)
• SEC – Seabord Report (2001)
• DOJ – Thompson Memo (2003)
• USSC – Organizational Guidelines (2004)
• DOJ – McCallum Memo (2005)
• USSC – Reversal (April 2006)
• United States v. Stein, 435 F.Supp.2d 330 (S.D.N.Y. 2006)
• DOJ – McNulty Memo (December 2006)
• DOJ –Revisions to United States Attorney’s Manual; McNulty Memo

Withdrawn (August 2008)

• SEC – Enforcement Manual released (October 2008)
• SEC – Enforcement Manual revised (January 2010)

64

DOJ AND SEC GUIDELINES

U.S. ATTORNEY’S MANUAL

• Cooperation requires disclosure of relevant facts known by a corporation.

(§9-28.720)

• “To receive cooperation credit . . . The corporation need not produce, and

prosecutors may not request, protected notes or memoranda generated by the lawyer’s interviews.” (§9-28.720(a) n.3) SEC ENFORCEMENT MANUAL (2010)

• A corporation seeking cooperation credit must make timely disclosure of

“all [relevant] facts within the party’s knowledge.” (§4.3)

• “The staff should not ask a party to waive the attorney-client privilege or

work product protection without prior approval of the Director or Deputy Director.” (§4.3)

65

SELECTIVE WAIVER

RECOMMENDATIONS

(1) Obtain agreement that waiver as to Government is limited only to documents disclosed. (2) Enter into Confidentiality/Non-Waiver Agreement with Government with respect to third parties. (a) Confidentiality will be maintained; prohibit disclosure to private parties and

• ther government agencies.

(b) Reserve rights to assert privileges as to third parties. (c) Agreement made in reliance on confidentiality. (d) If applicable, state parties acting cooperatively and not as adversaries. (e) Include non-waiver/“claw back” provision. (3) Disclose the minimum. (a) Non-privileged underlying documents. (b) Work product rather than attorney-client materials. (4) Consider how to disclose. (5) Keep track of what is not disclosed.

66

VOLUNTARY WAIVER DISCLOSURE TO AUDITORS

Under Federal Common Law, the Attorney-Client Privilege Will Generally Be Waived Through Disclosure To An Auditor.

• Accountants acting as auditors are not acting as agents of counsel.
• NOTE: Several states protect accountant-client communications to

varying degrees by statute. See TESTIMONIAL PRIVILEGES, Chapter 3. Disclosure of Unredacted Board Minutes May Waive the Attorney- Client Privilege. See, e.g., First Federal Sav. Bank of Hegewisch v. U.S., 55 Fed. Cl. 263 (2003); U.S. v. South Chicago Bank, 1998 WL 774001 (N.D. Ill. 1998).

67

DISCLOSURE TO AUDITORS WORK PRODUCT

• Two Types of Documents:

– Audit letters – Pre-existing protected materials

• Are audit letters protected work product?

– Jurisdictions that apply the “Because Of Litigation” standard generally protect audit letters. – Where the “Primary Motivation” test is applied, audit letters may not be protected. – First Circuit’s “For Use In Litigation” standard would not protect audit letters. United States v. Textron, 577 F.3d 21 (1st Cir. 2009)

68

DISCLOSURE TO AUDITORS

• Work-Product: Pre-Existing Materials
• Test: Does disclosure to an auditor substantially increase the opportunity for potential

adversaries to obtain the information?

• One Federal Appellate Court decision: Disclosure does not waive WP protection.

United States v. Deloitte LLP, 610 F.3d 129 (D.C. Cir. 2010).

• District Courts Are Split, But Majority Have Found No Waiver.

– No Waiver: In re Pfizer Inc. Sec. Litig., 1993 WL 561125 (S.D.N.Y. 1993); Merrill Lynch & Co., Inc. v. Allegheny Energy, Inc., 229 F.R.D. 441 (S.D.N.Y. 2004); American Steamship Owners Mutual P&I Assoc., Inc. v. Alcoa Steamship Co., Inc., 2006 WL 278131 (S.D.N.Y. Feb. 2, 2006); Lawrence E. Jaffe Pension Plan v. Household Intern., 237 F.R.D. 176 (N.D. Ill. 2006); In re JDS Uniphase Corp., 2006 WL 2850049 (N.D. Cal.

• Oct. 5, 2006); Regions Financial Corp. v. United States, 2008 WL 2139008 (N.D. Ala.

May 8, 2008) – Waiver: United States v. Hatfield, No. 06-CR-0550, 2010 WL 183522 (E.D.N.Y. Jan. 8, 2010); In re Raytheon Sec. Litig., 218 F.R.D. 354 (D. Mass. 2003) (and subsequent unpublished order); Medinol, Ltd. v. Boston Scientific Corp., 214 F.R.D. 113 (S.D.N.Y. 2002)

69

REQUESTS BY AUDITORS RECOMMENDATIONS

(1) Negotiate Engagement Letters That Protect The Company. (a) Agreement to keep audit materials confidential (b) Agreement to give advance warning prior to disclosure in response to government or third party subpoena (2) Negotiate With Auditors. (a) Identify what information they really need. (b) Find a way to provide that information without disclosing privileged information. (c) Escalate issue to Relationship Partner or National Office. (3) Disclose Factual Information Rather Than Privileged Communications.

70

BEST PRACTICES FOR PRESERVING PRIVILEGE

71

BEST PRACTICES FOR PRESERVING PRIVILEGE

• What Can Be Done Before A Problem Arises?

– Train in-house counsel to understand relevant scope of privilege

• What jurisdictions do you deal with?
• Who within the company deals with legal?

– Establish policies and procedures to get counsel involved early in process

• Guidelines for involving counsel

– Employee Training: What is and is not going to stay confidential if things go bad

• Make sure everyone understands legal v. business distinction
• Dangers of email

72

BEST PRACTICES FOR PRESERVING PRIVILEGE

• Investigation Planning

– Retaining Outside Counsel: Does it help preserve privilege? – Structure and design of investigation

• Controlled access

– Documentation – What to tell employees

73

BEST PRACTICES FOR PRESERVING PRIVILEGE

• In-House Counsel, Management and Third Parties During the Investigation

– Keeping communication within the legal umbrella

• Who needs to know what is being done?
• How do you deal with reports and updates?

– Coordinating PR and IR functions – Coordinating with employees and individual counsel

74

BEST PRACTICES FOR PRESERVING PRIVILEGE

• Documentation and Handling of Confidential Information

– Don’t overdo it: Limiting assertions and overreaching – Process and controls – Segregation: Fact v. Opinion

• How to Deal with Waiver Requests

– New Evidentiary rules and protections

• Managing Joint Defense Arrangements

– Benefits – Dangers