The Complications of Full Disclosure

Ordinarily, disclosure of a privileged communication to a person outside the attorney-client relationship waives the attorney-client and work-product privileges as to all parties. Several government agencies, including the DOJ and the SEC, have policies that “reward” individuals and companies under investigation for cooperating with their investigations.

Although both agencies' policies state that obtaining attorney-client privileged material is not required to obtain cooperation credit, there is no doubt that willingness to provide privileged material increases the chances of getting favorable cooperation benefits, including a declination of proceeding, a possible deferred prosecution or non-prosecution agreement. Cooperation can also yield reduced penalties. The dilemma, however, is how to effectuate that cooperation and try and protect the privilege so as to prevent third parties from seeking and obtaining otherwise privileged documents.'

One way in which individuals and companies proceed is by entering into confidentiality agreements with the government, whereby the agency agrees to maintain the confidentiality of the disclosed privileged material and not to argue that the disclosure of privileged material constituted a waiver of the attorney-client privilege and work product protection. This has been referred to at times as “selective waivers” of privilege.'

There are a number of considerations you should weigh in deciding whether to proceed in this fashion, because the prevailing law is against preservation of the privilege. Although this law is not new, there are recent developments that warrant a renewed assessment as to what steps should be taken.'

'

In particular, the SEC recently announced that it would no longer automatically allow companies and individuals to settle SEC investigations and lawsuits without admitting liability. The SEC and the DOJ, through the Southern District of New York's U.S. Attorney's Office, have also stated that no institution is too big to charge, increasing the chances that a corporation could be charged criminally. Given these recent pronouncements ' which could mean that, at the end of the day, your company might decide to litigate a case against either the SEC or the U.S. Attorney rather than settle ' a fresh look is required of the issue of selective waiver, and of the decision-making process for an individual or company under investigation to disclose (or not to disclose) privileged material.'

Selective Waiver May Not Preserve the Privilege

The seminal case involving selective waiver is Diversified Industries Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1978). There, Diversified hired outside counsel to respond to bribery allegations. An internal report was prepared and subsequently produced to the SEC. The Eighth Circuit held that this disclosure constituted only a “limited waiver,” which allowed the corporation to rely on the attorney-client privilege and withhold the report from private litigants.'

As additional federal courts began to address the issue, however, the protections of the selective waiver have somewhat fallen away. Indeed, numerous federal appellate courts have rejected the selective waiver doctrine to varying degrees, holding, in effect, that a waiver of a privilege to one is a waiver to all. See, e.g., United States v. Massachusetts Institute of Technology, 129 F.3d 681 (1st Cir. 1997); In re Steinhardt Partners L.P., 9 F.3d 230 (2d Cir. 1993); In re Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988).

Some circuit courts have also ruled that, despite a confidentiality agreement between the government and the disclosing entity, the attorney-client privilege and work-product protection had been waived. See, e.g., In re Pacific Pictures Corp., 679 F.3d 1121 (9th Cir. 2012); In re Quest Communications International Inc., 450 F.3d 1179 (10th Cir. 2006); In re Columbia/HCA Healthcare Corp. Billing Practices Litigation, 293 F.3d 289 (6th Cir. 2002); Westinghouse Electric Corp. v. Republic of the Philippines, 951 F.2d 1414 (3rd Cir. 1991).'

The adversarial nature of the relationship between the disclosing entity and the government agency is critical to the selective waiver analysis. In effect, courts have determined that a disclosing party's voluntary submission of privileged material to a government agency in an adversarial posture waives work product protection and the attorney-client privilege. The determinative fact in analyzing the adversarial nature of the relationship is whether the disclosing entity knows it is the subject of a government investigation. As noted in Steinhardt, where a party is simply responding to a request to assist the government agency in performing its routine regulatory duties, an adversarial relationship does not exist.

On the other hand, disclosing information to escape or limit liability can indicate an adversarial relationship. Moreover, the presence of an adversarial relationship does not depend on the existence of litigation, and the fact that a disclosing entity cooperates voluntarily does not transform the relationship from adversarial to friendly.'

Waivers Do Not Just Apply to the Specific Document or Communication Disclosed

It is important to also note that waivers may not apply just to an individual document or communication disclosed. Waiving privilege, even where unintentional, may have a larger impact on the breadth of information disclosed. Federal Rule of Evidence 502(a) states that where there is a waiver of the attorney-client privilege or work-product protection, “the waiver extends to an undisclosed communication or information ' concern[ing] the same subject matter.” Of course, a court will conduct a thorough fact-specific inquiry, guided by considerations of fairness, to determine what constitutes the “same subject matter” before ruling on whether or not the information should be produced.”'

The Dilemma: To Disclose or Not to Disclose

In light of a continuing possibility left open in Steinhardt ' which declined to adopt a per se rule against selective waiver ' that a confidentiality agreement may save the privilege, you and your outside counsel should very seriously discuss the pros and cons of disclosure to the government. You should, on the one hand, assess the possible benefits obtained by disclosure, with the hope that the privilege can be maintained, versus the risk that disclosing privileged material to the government may open up that material for further disclosure to third parties, such as class action plaintiffs or competitors, who might benefit if they were to learn the contents of the privileged materials.'

You also should consider what you would be willing to accept to resolve a matter. If there is no doubt that the government will require an admission or is very likely to charge your company, you may decide that you are not going to provide privileged material to the government ' not only because you do not want the government to have the material, but also because you do not want to risk waiver.'

If you decide that it is worth taking the risk of disclosure, however, you nonetheless should take a number of steps to try to protect against some or all of the privileged material being disclosed.

What You Can Do to Try and Preserve the Privilege

First, you should carefully consider what to disclose, and should attempt not to disclose (if possible) attorney-client privileged communications or documents protected by the work product doctrine. If disclosure of some privileged material is necessary, it should be limited to the barest of minimum material.

Second, if disclosure is imperative, you should obtain a written confidentiality agreement with the government before disclosing any privileged information. Although a number of decisions have found that a confidentiality agreement does not protect the privilege, it is possible that a court will uphold a non-waiver in a confidentiality agreement in your case, so you should take prudent actions. Try to fashion the agreement in such a way that you can argue that, at the time of disclosure, your client and the government were not adversaries.

Additionally, the confidentiality agreement should state that confidentiality will continue to be maintained, and should specifically prohibit the government from disclosing information to the public, as well as to other private litigants. The agreement should expressly reserve your right to assert all applicable privileges and protections with respect to any third party, even after the pending investigation has concluded. It should further provide that privileges extend not only to the disclosed documents, but to the underlying notes, documents and any other communications on which they are based. Last, the agreement should note that the disclosing party is providing the information in reliance on the confidentiality agreement.

Proceed with Caution

Given the potentially devastating consequences of an unintentional waiver of privileges, and in light of the current case law, a person or company deciding to voluntarily disclose privileged information to the government should proceed with the understanding that disclosing privileged materials to the government may waive privileges across the board. This is true even if the disclosing party and the government have entered into a confidentiality agreement. Indeed, the government may require a provision in the agreement that allows it to disclose material that it has received pursuant to a confidentiality agreement if disclosure is required by law or would be in furtherance of the government's performing its official duties.

Moreover, the disclosure may later be interpreted as a waiver that extends beyond the specific documents disclosed to the government, to include any documents on the same general subject matter as the disclosed documents. Thus, when a party discloses privileged material to the government, its disclosure may also result in disclosure to the rest of the world.

Marjorie J. Peerce, a member of this newsletter's Board of Editors, is a partner in Ballard Spahr Stillman & Friedman LLP. Her practice focuses on complex business litigation and white collar criminal defense. Laura P. Wexler is an associate with the firm.

When does disclosure to the government potentially waive the attorney-client privilege or work product protection, and is the risk of waiver worth the disclosure?

Consider this hypothetical: You are the General Counsel of a company that has received grand jury and SEC subpoenas. You have retained outside counsel to interview employees and prepare a report of its findings. Both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have asked the company, through counsel, to disclose the fruits of its investigation to them. You ask your outside counsel for advice.

Disclosing Privileged Communications in Cooperation with a Government Agency

Ordinarily, disclosure of a privileged communication to a person outside the attorney-client relationship waives the attorney-client and work-product privileges as to all parties. Several government agencies, including the DOJ and the SEC, have policies that “reward” individuals and companies under investigation for cooperating with their investigations.

Although both agencies' policies state that obtaining attorney-client privileged material is not required to obtain cooperation credit, there is no doubt that willingness to provide privileged material increases the chances of getting favorable cooperation benefits, including a declination of proceeding, a possible deferred prosecution or non-prosecution agreement. Cooperation can also yield reduced penalties. The dilemma, however, is how to effectuate that cooperation and try and protect the privilege so as to prevent third parties from seeking and obtaining otherwise privileged documents.'

One way in which individuals and companies proceed is by entering into confidentiality agreements with the government, whereby the agency agrees to maintain the confidentiality of the disclosed privileged material and not to argue that the disclosure of privileged material constituted a waiver of the attorney-client privilege and work product protection. This has been referred to at times as “selective waivers” of privilege.'

There are a number of considerations you should weigh in deciding whether to proceed in this fashion, because the prevailing law is against preservation of the privilege. Although this law is not new, there are recent developments that warrant a renewed assessment as to what steps should be taken.'

'

In particular, the SEC recently announced that it would no longer automatically allow companies and individuals to settle SEC investigations and lawsuits without admitting liability. The SEC and the DOJ, through the Southern District of New York's U.S. Attorney's Office, have also stated that no institution is too big to charge, increasing the chances that a corporation could be charged criminally. Given these recent pronouncements ' which could mean that, at the end of the day, your company might decide to litigate a case against either the SEC or the U.S. Attorney rather than settle ' a fresh look is required of the issue of selective waiver, and of the decision-making process for an individual or company under investigation to disclose (or not to disclose) privileged material.'

Selective Waiver May Not Preserve the Privilege

The seminal case involving selective waiver is Diversified Industries Inc. v. Meredith , 572 F.2d 596 (8th Cir. 1978). There, Diversified hired outside counsel to respond to bribery allegations. An internal report was prepared and subsequently produced to the SEC. The Eighth Circuit held that this disclosure constituted only a “limited waiver,” which allowed the corporation to rely on the attorney-client privilege and withhold the report from private litigants.'

As additional federal courts began to address the issue, however, the protections of the selective waiver have somewhat fallen away. Indeed, numerous federal appellate courts have rejected the selective waiver doctrine to varying degrees, holding, in effect, that a waiver of a privilege to one is a waiver to all. See, e.g., United States v. Massachusetts Institute of Technology , 129 F.3d 681 (1st Cir. 1997); In re Steinhardt Partners L.P., 9 F.3d 230 (2d Cir. 1993); In re Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988).

Some circuit courts have also ruled that, despite a confidentiality agreement between the government and the disclosing entity, the attorney-client privilege and work-product protection had been waived. See, e.g., In re Pacific Pictures Corp., 679 F.3d 1121 (9th Cir. 2012); In re Quest Communications International Inc., 450 F.3d 1179 (10th Cir. 2006); In re Columbia/HCA Healthcare Corp. Billing Practices Litigation, 293 F.3d 289 (6th Cir. 2002); Westinghouse Electric Corp. v. Republic of the Philippines , 951 F.2d 1414 (3rd Cir. 1991).'

The adversarial nature of the relationship between the disclosing entity and the government agency is critical to the selective waiver analysis. In effect, courts have determined that a disclosing party's voluntary submission of privileged material to a government agency in an adversarial posture waives work product protection and the attorney-client privilege. The determinative fact in analyzing the adversarial nature of the relationship is whether the disclosing entity knows it is the subject of a government investigation. As noted in Steinhardt, where a party is simply responding to a request to assist the government agency in performing its routine regulatory duties, an adversarial relationship does not exist.

On the other hand, disclosing information to escape or limit liability can indicate an adversarial relationship. Moreover, the presence of an adversarial relationship does not depend on the existence of litigation, and the fact that a disclosing entity cooperates voluntarily does not transform the relationship from adversarial to friendly.'

Waivers Do Not Just Apply to the Specific Document or Communication Disclosed

It is important to also note that waivers may not apply just to an individual document or communication disclosed. Waiving privilege, even where unintentional, may have a larger impact on the breadth of information disclosed. Federal Rule of Evidence 502(a) states that where there is a waiver of the attorney-client privilege or work-product protection, “the waiver extends to an undisclosed communication or information ' concern[ing] the same subject matter.” Of course, a court will conduct a thorough fact-specific inquiry, guided by considerations of fairness, to determine what constitutes the “same subject matter” before ruling on whether or not the information should be produced.”'

The Dilemma: To Disclose or Not to Disclose

In light of a continuing possibility left open in Steinhardt ' which declined to adopt a per se rule against selective waiver ' that a confidentiality agreement may save the privilege, you and your outside counsel should very seriously discuss the pros and cons of disclosure to the government. You should, on the one hand, assess the possible benefits obtained by disclosure, with the hope that the privilege can be maintained, versus the risk that disclosing privileged material to the government may open up that material for further disclosure to third parties, such as class action plaintiffs or competitors, who might benefit if they were to learn the contents of the privileged materials.'

You also should consider what you would be willing to accept to resolve a matter. If there is no doubt that the government will require an admission or is very likely to charge your company, you may decide that you are not going to provide privileged material to the government ' not only because you do not want the government to have the material, but also because you do not want to risk waiver.'

If you decide that it is worth taking the risk of disclosure, however, you nonetheless should take a number of steps to try to protect against some or all of the privileged material being disclosed.

What You Can Do to Try and Preserve the Privilege

First, you should carefully consider what to disclose, and should attempt not to disclose (if possible) attorney-client privileged communications or documents protected by the work product doctrine. If disclosure of some privileged material is necessary, it should be limited to the barest of minimum material.

Second, if disclosure is imperative, you should obtain a written confidentiality agreement with the government before disclosing any privileged information. Although a number of decisions have found that a confidentiality agreement does not protect the privilege, it is possible that a court will uphold a non-waiver in a confidentiality agreement in your case, so you should take prudent actions. Try to fashion the agreement in such a way that you can argue that, at the time of disclosure, your client and the government were not adversaries.

Additionally, the confidentiality agreement should state that confidentiality will continue to be maintained, and should specifically prohibit the government from disclosing information to the public, as well as to other private litigants. The agreement should expressly reserve your right to assert all applicable privileges and protections with respect to any third party, even after the pending investigation has concluded. It should further provide that privileges extend not only to the disclosed documents, but to the underlying notes, documents and any other communications on which they are based. Last, the agreement should note that the disclosing party is providing the information in reliance on the confidentiality agreement.

Proceed with Caution

Given the potentially devastating consequences of an unintentional waiver of privileges, and in light of the current case law, a person or company deciding to voluntarily disclose privileged information to the government should proceed with the understanding that disclosing privileged materials to the government may waive privileges across the board. This is true even if the disclosing party and the government have entered into a confidentiality agreement. Indeed, the government may require a provision in the agreement that allows it to disclose material that it has received pursuant to a confidentiality agreement if disclosure is required by law or would be in furtherance of the government's performing its official duties.

Moreover, the disclosure may later be interpreted as a waiver that extends beyond the specific documents disclosed to the government, to include any documents on the same general subject matter as the disclosed documents. Thus, when a party discloses privileged material to the government, its disclosure may also result in disclosure to the rest of the world.

Marjorie J. Peerce, a member of this newsletter's Board of Editors, is a partner in Ballard Spahr Stillman & Friedman LLP. Her practice focuses on complex business litigation and white collar criminal defense. Laura P. Wexler is an associate with the firm.