Following our recent post on disclosures to the EPA, this week we’re going to look at disclosures to outside auditors, often in the context of internal investigations, and steps to take to limit any waiver of attorney work-product protection. Here we go . . .
Work-product protections are not automatically waived by disclosure to third parties. Rather, they are waived when such disclosures are to an adversary or increase the likelihood of disclosure to an adversary. As usual in the world of law, there is a split of authority over whether the disclosure of work-product to an independent auditor, such as a Big Four accounting firm, waives work-product protection.
Most courts have concluded that disclosures to outside auditors do not have the requisite adversarial relationship for waiver. See, e.g., SEC. v. Schroeder; In re JDS Uniphase Corp. Sec. Litig.; SEC v. Roberts; Merrill Lynch & Co. v. Allegheny Energy, Inc.
However, other courts have concluded that disclosures to outside auditors do amount to a waiver. See, e.g., Middlesex Ret. Sys. v. Quest Software, Inc.; Medinol, Ltd. v. Boston Scientific Corp.; Samuels v. Mitchell.
The only federal appellate court to have ruled on the question is the D.C. Circuit in United States v. Deloitte LLP, which concluded that work product protections are not waived by disclosure to independent auditors.
But relying on the “majority view” or one appellate court’s opinion is not a risk most people want to take. So to protect against the risk of waiving work-product protection, or if you’re in a minority jurisdiction, here are certain concrete steps that attorneys can take to help protect against waiver of the work-product doctrine:
- Ensure that disclosures made to the auditors are oral rather than written.
- Be aware that auditors’ notes concerning oral communications with counsel may be discoverable if there is a later determination that there has been a waiver.
- Request that the audit team confine their notes only to those facts that are essential to performing their audit function.
- Answer only those specific questions asked by the auditors.
- Do not volunteer to disclose work-product such as interview memoranda or any written report of the privileged investigation.
- Answer auditors’ questions by providing facts that have been gathered during the investigation, which are not privileged regardless of their form and thus would not constitute a waiver.
- Focus on the process underlying the investigation—the number of witnesses interviewed, length of those interviews, and the general thoroughness of the investigation—to assure auditors of the robust nature of the investigation or a client’s internal controls while minimizing the risk of waiving privilege.
- Discuss the auditors’ confidentiality obligations in advance of any oral report.
- If there is not already a confidentiality agreement in place, then one should be put in place.
- The confidentiality agreement should ensure that any information sent to the auditors is confidential and that the auditors will not further disclose that information.
- Specify that the confidential information is subject to work-product protection.
- Document the legal basis for the work-product protection when the work-product is transferred to the auditors.
- The agreement with the auditors should include a provision that if litigation arises and the auditor is subpoenaed,your in-house or outside counsel will review any auditor work papers that may contain privileged material before they are produced.
- Finally, ensure that other indicia of anticipated litigation, such as a litigation hold, are in place to strengthen the case that you both reasonably anticipate such a dispute and are taking steps to safeguard your information.
Finally, remember, even after all precautions have been taken, there is a limit to one’s control over events . . .