In The Courts

McKesson HBOC and the SEC entered into a confidentiality agreement, which stated that McKesson HBOC was conducting an internal investigation, likely culminating in the preparation of a report, and that McKesson HBOC would provide the report to the SEC upon completion. The confidentiality agreement expressly provided that McKesson HBOC had a “common interest” with the SEC “in obtaining information contained in the Report and Back-up Materials if it is able to do so without losing protection from further disclosure.” Moreover, McKesson HBOC purported not to waive work-product protection or applicable attorney-client privilege, and the SEC agreed that it would not argue that the voluntary submission of the information constituted a waiver of any privilege. The SEC also agreed to maintain the confidentiality of the information “except to the extent that the [SEC] determines that disclosure is otherwise required by federal law.”

The law firm, acting as counsel for McKesson HBOC, and the United States Attorneys' Office (USAO), entered into a similar, but separate, confidentiality agreement, by which the USAO would receive a copy of the internal investigation report. The USAO agreement provided that McKesson HBOC was not subject or target of any investigation. It further provided, however, that the USAO could use any documentation provided in any criminal proceeding, including prosecution of McKesson HBOC.

After they were charged, Bergonzi and Gilbertson were provided with some of the interview memoranda from the internal investigation. They then sought the production of the complete internal investigation report. They argued that McKesson HBOC waived any claim of privilege by producing the material to the SEC and the USAO. They further contended that the Government's subsequent production of the documents to the defendants results in a waiver of any applicable privileges that may have existed. McKesson HBOC moved to intervene, and together with the Government opposed the production of the internal investigation report.

The United States District Court for the Northern District of California held that the report was not shielded by the attorney-client privilege because the communication between McKesson HBOC and its law firm was made with the intent to relay the information to the Government. Moreover, the court found that the communication was not intended to remain confidential.

The court also rejected the Government's insistence on work-product protection. The court found that the Government and McKesson HBOC did not have a common interest to prevent waiver because “the Company and the Government did not have a true common goal as it could not have been the Company's goal to impose liability onto itself, a consideration always maintained by the Government.” Id. at 496. Because the confidentiality agreements contemplated future prosecution of the Company and permitted the Government to disclose the report “to the extent that the [SEC] determines that disclosure is otherwise required by federal law,” Id. at 491, the court held that neither McKesson HBOC nor the Government had successfully met its burden under the common-interest rule of establishing that the Government was not an adversary. Thus, the court granted the defendants' motion to compel, and ordered the production of the internal investigation report under the parameters of a protective order.

Court Holds That a Company Waived Its Privileges over an Internal Investigation Report

In United States v. Bergonzi , 216 F.R.D. 487 (N.D. Cal. 2003), the United States District Court for the Northern District of California held that a company waived its attorney-client privilege and work-product protection over an internal investigation report by disclosing the report to the Government. Although the Government and the company entered into a confidentiality agreement, they did not have a true “common interest” to prevent waiver.

In Bergonzi, the defendants, Albert Bergonzi and Jay Gilbertson, were charged with securities, wire and mail fraud arising from their role as former executives of HBO & Company (HBOC). The indictment alleged that between 1997 and April 1999, defendants and others deliberately engaged in a variety of fraudulent practices that resulted in the intentional misstatement of the publicly reported financial results of HBOC and McKesson HBOC. In light of accounting irregularities discovered by auditors in 1999, the Board of Directors of McKesson HBOC retained a law firm to conduct an internal investigation and to make recommendations regarding McKesson HBOC's accounting policies, procedures and controls. The law firm, in turn, retained an accounting firm to assist with the review.

McKesson HBOC and the SEC entered into a confidentiality agreement, which stated that McKesson HBOC was conducting an internal investigation, likely culminating in the preparation of a report, and that McKesson HBOC would provide the report to the SEC upon completion. The confidentiality agreement expressly provided that McKesson HBOC had a “common interest” with the SEC “in obtaining information contained in the Report and Back-up Materials if it is able to do so without losing protection from further disclosure.” Moreover, McKesson HBOC purported not to waive work-product protection or applicable attorney-client privilege, and the SEC agreed that it would not argue that the voluntary submission of the information constituted a waiver of any privilege. The SEC also agreed to maintain the confidentiality of the information “except to the extent that the [SEC] determines that disclosure is otherwise required by federal law.”

The law firm, acting as counsel for McKesson HBOC, and the United States Attorneys' Office (USAO), entered into a similar, but separate, confidentiality agreement, by which the USAO would receive a copy of the internal investigation report. The USAO agreement provided that McKesson HBOC was not subject or target of any investigation. It further provided, however, that the USAO could use any documentation provided in any criminal proceeding, including prosecution of McKesson HBOC.

After they were charged, Bergonzi and Gilbertson were provided with some of the interview memoranda from the internal investigation. They then sought the production of the complete internal investigation report. They argued that McKesson HBOC waived any claim of privilege by producing the material to the SEC and the USAO. They further contended that the Government's subsequent production of the documents to the defendants results in a waiver of any applicable privileges that may have existed. McKesson HBOC moved to intervene, and together with the Government opposed the production of the internal investigation report.

The United States District Court for the Northern District of California held that the report was not shielded by the attorney-client privilege because the communication between McKesson HBOC and its law firm was made with the intent to relay the information to the Government. Moreover, the court found that the communication was not intended to remain confidential.

The court also rejected the Government's insistence on work-product protection. The court found that the Government and McKesson HBOC did not have a common interest to prevent waiver because “the Company and the Government did not have a true common goal as it could not have been the Company's goal to impose liability onto itself, a consideration always maintained by the Government.” Id. at 496. Because the confidentiality agreements contemplated future prosecution of the Company and permitted the Government to disclose the report “to the extent that the [SEC] determines that disclosure is otherwise required by federal law,” Id. at 491, the court held that neither McKesson HBOC nor the Government had successfully met its burden under the common-interest rule of establishing that the Government was not an adversary. Thus, the court granted the defendants' motion to compel, and ordered the production of the internal investigation report under the parameters of a protective order.