Attorney–Client Privilege

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 . . .

 

Henry Friendly still has my vote for the title of greatest American judge who ever served at any level. It’s the country’s misfortune that he never served on the U.S. Supreme Court. He did, however, spend nearly thirty years on the United States Court of Appeals for the Second Circuit, writing more than 1,000 opinions and carving out a reputation as one of the country’s most influential jurists. On March 10, 1986, thirty-two years ago today, Friendly died.

I’ve written at some length elsewhere about my definitely-not-unhealthy devotion to a long-deceased judge on an intermediate appellate court who, with a few exceptions, did not weigh in on the most hotly contested constitutional questions of the day. But Friendly’s reputation was built on his alarming analytical acuity, the lucidity of his writing, and his record of pragmatic decisions. He also had a great eye for talent: his law clerks included Chief Justice John Roberts, federal appellate judges Merrick Garland, A. Raymond Randolph, William Bryson, Pierre Leval, and Michael Boudin, and a slew of influential lawyers and academics including Bruce Ackerman, Larry Kramer, and Ruth Wedgewood.

For purposes of this blog, Friendly wrote several decisions addressing the scope of the attorney–client privilege and reviewing convictions for white collar crimes in an era when prosecutions for such crimes were relatively rare. Two of those decisions are discussed below and recounted in detail in David Dorsen’s excellent biography of Friendly.

Continue Reading This Day in White Collar History: Remembering Henry Friendly

Upjohn's Friable Pills photoOn January 13, 1981, the Supreme Court decided Upjohn Co. v. United States. Thirty-seven years later, it’s hard to think of a judicial decision that has had a more significant effect on internal investigations. The Court’s opinion made no mention of any particular warning procedure, instead focusing on the application of the attorney–client privilege to corporate clients. But it prompted the near-universal practice of lawyers who are conducting internal investigations advising corporate employees that they represent the company, rather than the employee, and that the company may waive the privilege at any time. There are countless articles highlighting the importance of providing the Upjohn warning while conducting internal investigations. I won’t rehash those points here. Instead I want to introduce a few fun factoids about the case itself, and the players involved in litigating it.

Continue Reading This Day in White Collar History: The Supreme Court Decides <em>Upjohn</em>