Protecting Attorney-Client and Attorney Work-Product Privileges

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Protecting Attorney-Client and Attorney Work-Product Privileges

Mara DavisWhere an investigation is undertaken primarilyfor business purposes, the attorney clientprivilege will not apply, and the participationof the corporation’s GS or other attorney willnot automatically cloak the investigation withan attorney-client privilege. 6 For example,in United States ex rel Parikh v. Premera BlueCross, 7 the court found that an investigationconducted by Premera’s vice president forcorporate compliance and ethics was notprotected by attorney-client privilege, eventhough the compliance officer was an attorneyand, according to Premera, was actingon behalf of the GC. In reaching its decision,the court noted that in-house counsel oftenplays a dual role of legal advisor and businessadvisor and that the company had the burdenof establishing that “the communication inquestion was made for the express purpose ofsecuring legal not business advice.” Accordingto the court, Premera failed in its burdenbecause their were no documents or othersatisfactory evidence establishing that: (1)the compliance officer was appointed by theGC to conduct a legal investigation, and (2)the employees interviewed were sufficientlyinformed and aware that they were beingquestioned so that the company could obtainlegal advice.Work-product privilegeThe work-product doctrine is codified in Rule26(b)(3) of the Federal Rules of Civil Procedure.It protects from discovery evidence thatis prepared in anticipation of litigation or fortrial. Therefore, the work-product doctrineprotects both the attorney and the client. Thework-product doctrine is overcome where aparty shows substantial need for the workproductand cannot, without undue hardship,obtain the substantial equivalent. Courts havedistinguished between work-product of afactual nature and work-product grounded inopinion. Opinion work-product that reflectsan attorney’s thought processes, opinions, andconclusions is conferred heightened protectionfrom disclosure.In the context of a corporate investigation,materials may be protected from disclosureunder the work-product doctrine if theinternal investigation was commenced inanticipation of litigation or a governmentagency investigation. 8 Factual materials thatare protected include notes and memorandaof interviews with both employee and nonemployeewitnesses, as well as documentsand evidence compiled by an attorney, whichreveal the attorney’s analysis and mentalprocesses. However, work-product will not beprotected from discovery where the documentswere prepared in the ordinary courseof business or if the documents would havebeen created in a similar form, regardless ofthe litigation. Also, evidence is not shieldedfrom production under the work-productdoctrine where the corporation would haveundertaken an internal investigation forbusiness necessity, even if no litigation wasexpected.Waiver of privileges through voluntaryor inadvertent disclosureThe attorney-client privilege may be waivedif the protected communications are revealedto third parties, intercepted, or inadvertentlydisclosed. Traditionally, any disclosure ofprivileged communications, even inadvertentdisclosure, constituted a waiver of the privilege.Today, most federal courts seek to determinethe degree of culpability when there isan inadvertent disclosure of privileged communications,and a waiver will not be deemedto have occurred unless there is evidence ofcarelessness. 9 Pending federal legislation seeksto amend Federal Rule of Evidence 502(b),which would prevent inadvertent waiver ifreasonable precautions were taken to preventdisclosure and reasonably prompt steps weretaken to retrieve the disclosed materials. 10Attorneys may use the services of experts,such as accountants, but they should proceedwith caution when disclosing privilegedmaterial to a regularly employed auditor.Arguments have been made that the attorneyclientprivilege should not apply in such casesbecause (1) the company is really seeking anaccounting service and not legal advice, and(2) the advice sought is the accountant’s,not the lawyer’s. Accordingly, many courtshave held that the disclosure of privilegedinformation to an outside auditor waives theattorney-client privilege. 11Waiver of privilege in governmentinvestigationsSince 1999, the Justice Department haspromulgated various memoranda thatarticulate the government’s policy that waiverof attorney-client privilege and disclosureof privileged corporate information to thegovernment, including results of internal investigations,is required in order to obtain thebenefits of cooperation with a governmentinvestigation, and therefore, a considerationin a corporate charging decision.The McNulty Memorandum, issued inDecember 2006, delineates the government’scurrent policy statement regarding cooperationContinued on page 28Society of Corporate Compliance and Ethics • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.orgFebruary 200825


Protecting Attorney-Client Privileges ...continued from page 25by corporate defendants. The McNulty Memorandumconsiders waiver of privileges as arelevant consideration, but “waiver of attorneyclientand work product protections is not aprerequisite to a finding that a company hascooperated in the government’s investigation.”Prosecutors can request a waiver only “whenthere is a legitimate need for the privilegedinformation,” not when “merely desirable orconvenient.” The McNulty Memorandumrequires prosecutors to obtain authorizationfrom the Deputy Attorney General to requesta waiver of a corporation’s privileged attorneyclientcommunications or non-factual attorneywork product. 12Such waivers, however, pose certain litigationrisks to corporations, as courts generally deemwaivers of privilege to the government as awaiver of privilege to third parties. Generally,courts will find waiver of attorney-client privilegeas to third parties, regardless of whetherthe disclosure was made pursuant to a confidentialityagreement. 13 By contrast, wavier ofthe work product privilege to the governmentmay not automatically waive the privilege as tothird parties. Although courts are split on thisissue, a confidentiality agreement between thecorporation and the government that is in effectat the time of disclosure may provide someprotection from disclosure to third parties ofattorney work-product.Self-Critical Evaluation Privilege in CivilLitigationGiven the strong public policy interest in fosteringlegal compliance through self-examination,corporations may use the self-critical evaluationprivilege in certain limited circumstancesto protect compliance work from disclosurein civil litigation. The self-critical evaluationprivilege was developed through common lawand seeks to protect the free flow of informationthat stems from a self-evaluation by a corporationwhen the self-evaluation affects the publicinterest. The privilege generally covers subjectiveevaluations and not objective data. When applyingthe privilege, courts look to balance theneed for the discovery with the policy reasonsfor non-disclosure. 14 In applying the self-criticalevaluation privilege, courts have reasoned thatthat materials should be shielded from discoverybased upon public policy or the public interest,ensuring candor, preventing a chilling effect oncandid evaluations, expectations of confidentiality,and actions that could undermine thepurpose of government requirements.Courts have applied the self-critical evaluationprivilege to shield from discovery informationproduced as a result of an internalself-evaluation in the following contexts:Title VII and Equal Employment Opportunity(EEO), hospital review committees,university tenure decisions, work accidents,communications to an in-house companymediator, securities fraud class actions, andclaims agent evaluations.Courts have declined to invoke the selfevaluationprivilege and have permitteddiscovery, upon finding: (1) the review failedto meet the purposes of the self-evaluationprivilege, (2) non-disclosure was contrary topublic policy or enforcement of the law, (3)an absence of a confidential relationship thatmerited protection, (4) disclosure was soughtby a government agency, (5) an industry wassubject to public scrutiny, (5) consultantreports were not government-mandated, (6)a lack of statutory or constitutional basis, and(7) the company relied on self-evaluation asan affirmative defense.Recommendations for ProtectingAttorney PrivilegesThe following is a list of recommendationsfor protecting privileged information fromdiscovery by prosecutors or civil litigants,and avoiding claims that the privileges havebeen waived:n Management should consult with counselprior to initiating any internal investigations.While all routine investigationscannot be conducted under the directionof general counsel, sensitive investigationsshould be.n Give “Upjohn warnings” to all employeesinterviewed during internal investigations.That is, inform all employees, in writingwhen possible, that interviews are beingconducted and records are being collectedfor the purpose of providing legal adviceto the corporation.n Business decisions should be distinguishedfrom giving legal advice. Use your legaltitle and include statements in correspondenceand memoranda that indicate thatyou are responding “to your request forlegal counsel” or similar language thatindicates that the memorandum is beingprepared as part of a request to providinglegal counsel to the corporation.n Reports and other memoranda should becirculated on a “need to know” basis.n Protect e-mail and electronic documentation.Whenever possible, use encryptiontechnology. Maintain separate files ofmaterials protected by attorney-client andattorney work product privileges. Usemacros, metadata, or other methods toclearly identify the author and recipientof e-mails and faxes and that indicate thematerial is privileged. Include a messagethat states the sender should be contactedif the material is inadvertently delivered toan unintended recipient.n When using experts such as accountants,consider retaining special consultants,rather than firms or individuals who alsoprovide routine business advice or services.n When providing confidential material to thegovernment, if possible obtain (1) an expressconfidentiality agreement that the govern-Continued on page 34February 200828Society of Corporate Compliance and Ethics • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org


Body and Soul: Points of Convergence between Ethics and Compliance ...continued from page 31Indeed, an ethics-based message may be moreappealing to employees, who often do notlike programs that appear to be aimed mainlyat “catching” people, than a narrow, compliance-basedone. Messaging in this mannercan thus positively impact the likelihood ofemployees reporting/raising compliance (aswell as ethics) issues.Third, following the old adage that what’s measuredis what counts, companies should measureethics-related, as well as compliance-related,conduct. Such conduct should be included inpersonnel evaluations, employee surveys, andprogram assessments (self or external).Body and soulBaron Thurlow, an English jurist of the 18thcentury, memorably expressed an early, traditionalview of corporate social responsibility:“You never expected justice from a company,did you? They have neither a soul to lose, nora body to kick.” Clearly we now do expectmore, but exactly how to pursue “justice”from modern corporations is still somethingof a challenge, albeit more of a practical thanmetaphysical one.However, and in the interests of meeting thatchallenge, one might still borrow from BaronThurlow to say that an ethics-based approachcan give compliance “soul” by harnessing internalpolicies and procedures for more nobleends than the lowest common denominatorof mere law abidance. And, operating withina compliance program framework can give anethics approach “body” by utilizing effectiveorganizational initiatives, and not just aspirationaltalk. Ethics in companies can be seenas less of a luxury and more of a necessity,which in reality, it always has been. nThis article is based on a presentation at the 2007SCCE annual conference, “Joining Hands: TheConvergence of Compliance, Ethics and Risk.”1 This discussion on the differences and tensions between ethics andcompliance draws in significant measure from Tansey-Martens andBarry, “Has Compliance Killed Ethics?”, ethikos, July-August 2006,which was based upon interviews with various academics and practitionersin the fields of compliance and ethics.2 For more information see Francesca Chiara Bevilacqua, “CorporateCompliance Programs under Italian Law”, ethikos, November/December2006.3 For more information see Murphy, “Compliance Guidance from theUnited Kingdom,” ethikos, May/June 2007.4 AS 3806 (2006) (published by SAI Global).5 For more information see Petry, “Corporate Culture and CompliancePrograms,” in Kaplan, Murphy, Swenson: Compliance Programs andthe Corporate Sentencing Guidelines (West Thomson, 2007).6 Rushworth M. Kidder: Moral Courage (HarperCollins, 2005)Protecting Attorney-Client Privileges...continued from page 28ment shall maintain security and controlover the documents, and (2) an agreementthat the government entity will appear andsupport the corporation’s efforts to preservethe privilege in any third party action. n1 Best in Show, Cross-Industry Corporate Compliance Survey Results,Enst & Young, 2003. See also, Universal Conduct, An Ethics andCompliance Benchmarking Survey, The Conference Board 2006.2 2007 Chief Legal Officer Survey, Altman Weill, Inc, LexisNexisMartindale-Hubbell.3 Upjohn v. United States, 449 U.S. 383 (1981).4 Id. At 394-395.5 United States. v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961). To extendattorney client privilege to an accountant retained as an expert to assistthe attorney, the accountant’s services, “must be nearly indispensable orserve some specialized purpose in facilitating the attorney-client communications.Mere convenience is not sufficient.” Cavallaro v. UnitedStates, 284 F.3d 236, 249 (1st Cir. 2002).6 In re Grand Jury Subpoena Duces Tecum, 731 F.2d 1032, 1036-1038(2d Cir. 1979).7 2006 West Law 3733783 (W.D. Wash. 2006)(not published inF.Supp.2d).8 Upjohn, supra, at 3979 See, e.g., United States v. Gangi, 1 F. Supp.2d 256, 264 (S.D.N.Y. 1998).10 On December 11, 2007, Senator Patrick Leahy, Chair of the SenateJudiciary Committee, introduced S. 2450, a bill adding new EvidenceRule 502 to the Federal Rules of Evidence. The legislation addresseswaiver of the attorney-client privilege and work product protection andis identical to proposed Evidence Rule 502, which was approved by theJudicial Conference of the United States and transmitted to Congressfor its consideration in September 2007.11 See, e.g., Chevron v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir.1992); Ferko v. National Association for Stock Car Auto Racing, Inc.,218 F.R.D. 125, 134 (E.D. Tex. 2003).12 As of the date of this article, there is legislation pending before Congressentitled the “Attorney Client Privilege Protection Act of 2007” (S.186,HR 2013), which would prohibit the government from requiring waiverof attorney client privilege as a condition of cooperation. In 2006, theU.S. Sentencing Commission deleted language from the ApplicationNotes to the Sentencing Guidelines which would have permittedsentencing courts, in limited circumstances, from considering the waiverof attorney client privilege as a factor in corporate sentencing.13 Only one court has upheld the “selective waiver” of attorney clientprivilege to the government while preserving the privilege as to thirdparties. Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 611 (8thCir. 1978)(en banc).14 For extensive discussions of the Self Critical Evaluation Privilege, seeCorporate Legal Compliance Handbook, 5.08, Banks and Banks(Aspen Publishers 2006); Note, The Privilege of Self Critical Analysis,96 Harv. L. Rev. 1083 (1983).Professional Liability Insurance:...continued from page 121 See, Working for Integrity, Society of Corporate Compliance andEthics, 2006; and Ethikos and Corporate Conduct Quarterly, January/February 2006.2 See “Practices of Business Consultants” Special Advisory Bulletin, Officeof Inspector General, Department of Health and Human Services,June 2001.3 Paul D. Krause, “Professional Liability Insurance Including "E&O" and"D&O" Policies,” 673 PLI/Lit 77, 90 (April 2002).4 Emerald Partners v. Berlin, 787 A.2d 85 (Del. 2001).5 18B Am. Jur. 2d Corporations § 1583 (2007).6 See “D&O Insurance: What Directors and Officers Should BeThinking About in the Sarbanes-Oxley World,” Fried Frank, ClientMemorandum, March 11, 2003.7 John Copeland, “Corporate Directors get ‘SOX’ed by Insurers” Journalof Insurance, Risk & Public Risk Management, Spring 2005.8 Towers Perrin, 2006 Directors and Officers Liability Survey, p. 53, April2007 (reporting that 49% of the claims against participating publiccompanies were brought by shareholders).9 See Mitchell Auslander and Leah Campbell, “Coverage for CorporateGeneral Counsel Under Directors and Officers Liability InsurancePolicies” Willkie Farr & Gallagher LLP, March 27, 2007, for discussionof issues regarding applying D&O coverage to the general counsel andother in-house attorneys. Claims against in-house counsel generallycombine allegations of corporate officer wrongdoing with legal malpractice.10 USSC Federal Sentencing Guidelines for Organizations, §8B2.1. EffectiveCompliance and Ethics Program, (b)(2).11 USSC Federal Sentencing Guidelines for Organizations, Commentaryto §8B2.1.12 OCEG (http://www.oceg.org/) is a nonprofit organization that providesthought leadership on corporate culture and the integration of governance,risk management, and compliance processes.13 Pamela A. MacLean, “Record Number of General Counsel Charged in2007” The National Law Journal, Oct. 2, 2007.14 Sue Reisinger, “Aiming Lower” Corporate Counsel, April 1, 2006.15 United States v. Sulzbach, Case No. 07-61329 (US District Court,Southern District of Florida, Sept. 18, 2007). For a period of time, theformer general counsel was also the chief compliance officer serving in adual role.16 Memorandum Opinion and Order, United States v. Caputo, No.1:03-CR00126, p. 26 (N.D. Ill. Oct. 16, 2006). The Chief ComplianceOfficer was also the Vice-President of Regulatory Affairs.17 See the criminal complaint brought in California involving the Hewlett-Packard pretexting incident, Felony Complaint, DA No: 061027481,Oct. 4, 2006.18 AIS Health Business Daily, Hospital Compliance Officer Indicted forAlleged Mail Fraud and Awarding Compliance Consulting Contracts toHerself, Nov. 1, 2007.19 For a discussion of the potential benefits of adopting an E&C program,see Jeffrey M. Kaplan, “The Sentencing Guidelines: The First TenYears,” Ethikos and Corporate Conduct Quarterly, November/December2001.20 For discussion on the HCCA Code see Joe Murphy, “Ethics forEthicists? A Code for Ethics and Compliance Professionals” Ethikos andCorporate Conduct Quarterly, March/April 2004.February 200834Society of Corporate Compliance and Ethics • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org

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