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. SchroederIn re JDS Uniphase Corp. Sec. Litig.SEC v. RobertsMerrill 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 . . .

 

Print:
TweetLikeEmailLinkedInGoogle Plus
Photo of Aaron P. Brecher Aaron P. Brecher

Aaron Brecher focuses his practice on investigations, compliance and white collar defense as well as privacy and data security. He’s passionate about helping individuals and companies through some of their most difficult and sensitive challenges: investigations that could lead to government enforcement actions and resulting litigation.

Aaron is a co-founder and frequent contributor to Target Letter. In addition to his compliance and enforcement work, he represents clients in antitrust, intellectual property, and securities litigation as well as qui tam and False Claims Act litigation.

Before entering private practice, Aaron worked as a Law Clerk with both the U.S. Court of Appeals for the Ninth Circuit and the U.S. District Court for the Central District of California.

ICW Team

Our Investigations, Compliance and White Collar Team represents individuals and corporations in a broad range of government investigations and state and federal criminal and civil proceedings.

Areas of special emphasis include:

  • White-collar criminal and civil defense from investigation through trial,
  • Internal investigations and audits triggered by regulatory enforcement actions,
  • Investigations to assess regulatory compliance, and
  • Compliance programs to address newly promulgated regulations.

Our team members frequently appear before courts and agencies throughout the country in a wide variety of matters and at all stages of proceedings. We represent subjects and targets of investigations and prosecutions, as well as witnesses in matters involving allegations of:

  • Health care and other government program and procurement fraud,
  • Conspiracy,
  • Tax evasion,
  • Improper payments to foreign governments,
  • Computer crime,
  • Money laundering,
  • Bank and bankruptcy fraud,
  • Antitrust,
  • Unfair or deceptive trade practices,
  • Securities fraud,
  • Mail and wire fraud, and
  • Prescription drug diversion and related record-keeping failures.

An effective white-collar practice requires collaboration with attorneys in many different fields. Our ability to draw from the firm’s related experiences in taxation, immigration, securities, health care and civil litigation permit us to assemble a powerful defense team, often led by former federal and state prosecutors and regulators. Indeed, the group has been highly ranked in the U.S. News and Best Lawyers annual “Best Law Firms” survey for work defending white-collar matters.

On the regulatory compliance side — both in response to government enforcement action and to proactive and reactive client requests — our attorneys often lead high-stakes internal investigations, fraud and abuse audits, sensitive background investigations, and forensic financial and other analyses. We also have considerable experience designing compliance programs to address claimed shortcomings and “findings” identified by internal or external business operations reviews.