This article was published in Law360 on August 18, 2017. © Copyright 2017, Portfolio Media, Inc., publisher of Law360. It is republished here with permission.
Internal investigations by outside counsel are an essential tool for corporations to ensure they are compliant with governing regulations and statutes, particularly when they are faced with allegations of potential wrongdoing. And protecting confidential attorney-client communications and attorney work product is crucial to secure candid participation in the investigation. A federal district court recently held, however, that a corporate defendant waived the privilege as to the subject matter of internal interview memoranda because it later published a report that quoted them. But other courts considering the issue have relied more heavily on considerations of fairness, looking at whether one party is trying to selectively disclose information for strategic advantage. Below, we review recent case law in federal and state courts and offer guidance on measures corporations can take to best safeguard their confidential and privileged internal investigations, including:
Highlighting the Dangers Posed by Disclosing an Investigative Report
In Banneker Ventures LLC v. Graham,1 the U.S. District Court for the District of Columbia ordered production of interview memoranda prepared in an internal investigation conducted by outside counsel. The case involved a breakdown of project negotiations between the Washington Metropolitan Area Transit Authority and Banneker Ventures, after which Banneker threatened, but did not immediately pursue, legal action. More than two years later, WMATA retained counsel to conduct an internal investigation to determine if additional procedures and rules were needed and to respond to public outcry for board member accountability relating to the project. WMATA published the investigative report, which quoted confidential interview memoranda. Later, Banneker initiated legal action and sought the interview memoranda, and WMATA moved for a protective order.
The court held that WMATA waived privilege by citing extensively from the interview memoranda in the published report. Finding that the subject of the interviews was the same as that already disclosed in the report, the court deemed it subject matter waiver, noting that considerations of fairness must prevent a party from selectively disclosing documents to obtain a tactical advantage. But, the court acknowledged that any privileged content relating to subjects not covered in the published report could be redacted. The court found the memoranda were not protected as attorney work product because more than two years had passed since Banneker had threatened litigation, and because documents and deposition testimony indicated the investigation was conducted for business purposes rather than in anticipation of litigation.
Likewise, other courts have found subject matter waiver in limited instances when it would be unfair to allow selective disclosure of some documents, but not others.2
Many Federal Courts Have Interpreted Rule 502 More Narrowly
Other federal courts have taken a more limited approach to subject matter waiver in line with Rule 502,3 focusing on the question of whether information disclosed will be used in a selective way that unfairly disadvantages the opponent. A district court in the Southern District of New York concluded a company did not waive attorney-client privilege or work-product protection of interview materials relating to an internal investigation, even though a written report on the investigation was produced to plaintiffs in a multidistrict litigation as part of discovery and submitted to Congress and the U.S. Department of Justice after a product recall.4 The court emphasized that the company had not used the report offensively in litigation and did not make a selective or misleading presentation that was unfair to its adversaries.The company also produced millions of pages cited in its report, including many that might otherwise be privileged. The court further acknowledged an important distinction companies should remember: attorney-client privilege protects communications rather than information. Thus, giving information to counsel does not change nonprivileged information into nondiscoverable information, nor does disclosing facts shared in an investigative report manifest an intent to disclose privileged communications regarding the investigation.
In a similar case, when a company disclosed to the U.S. Securities and Exchange Commission details and factual conclusions regarding an audit committee investigation, the Southern District of New York declined to hold in related litigation that there was subject matter waiver as to all other investigational documents. The court reasoned the company did not pick and choose documents or waive privilege for some opponents and not others.5
Likewise, the same court found there was no subject matter waiver as to documents relating to a different company’s investigation of allegations made in a television segment about the company’s products when a 30(b)(6) witness testified about the investigation.6 The court reasoned that the party asserting privilege never tried to use the deposition testimony to its advantage and noted that limited deposition testimony is unlikely to influence a decision maker.
Similarly, another recent case highlights that, even if work product is disclosed in some limited fashion, a party may preserve its protection if the disclosure is carefully tailored to maintaining secrecy.7 The Central District of California held that a report prepared by a third party about a data breach investigation was protected as work product because it was prepared, at least in part, in anticipation of litigation for use by lawyers. The court further held that the work-product protection was not waived because it was narrowly circulated within the company. The company did share the report with another party, but only in redacted form and after entering into a joint defense agreement.
A Patchwork of State Interpretations of Subject Matter Waiver
In state court litigation, companies may run into 50 different interpretations of subject matter waiver. Each state’s laws inform how attorney-client privilege and work-product protection might be waived. Given the patchwork of state law, corporations must take care to protect privileged communications and must be mindful that the laws of unexpected or multiple jurisdictions may apply.8 Further complicating matters is that states may approach the choice-of-law analysis differently. Worse yet, states have not consistently categorized privilege as substantive or procedural, which further complicates the determination of which law will govern a given dispute. But there are still common considerations of fairness that can provide some footing for corporations to assess what may or may not result in broad subject matter waiver.
Decisions Finding Subject Matter Waiver
For example, one Pennsylvania decision found subject matter waiver when a party produced “only documents beneficial” to its case, while withholding another document that contained “unflattering concessions.”9 New York has taken an approach similar to the federal rule, focusing on whether a party making a selective disclosure is only disclosing self-serving documents, while relying on privilege to withhold damaging content.10
While California uses different terminology, California Evidence Code Section 912(a) states that the right of any person to claim privilege is waived if any holder of the privilege has disclosed a “significant part” of the privileged communication to a third party. The “significant part” rule applies in situations similar to those involving subject matter waiver.
In one case, the plaintiffs moved to compel production of documents written by the defendant’s expert witness, arguing they encompassed the same subject matter as the expert testimony. The court held that disclosing a “significant part” of the privileged communication to an expert regarding damages waived privilege with respect to all communications with that expert regarding damages.11 As in other jurisdictions, the court highlighted that the defendants were trying to use the expert testimony to “prepare and bolster the testimony of their other damages expert,” while simultaneously using the “cloak of attorney-client privilege to conceal her communications with company officials ... effectively denying their opponents highly relevant evidence for effective cross-examination.”
Decisions Holding No Broad Subject Matter Waiver
One Pennsylvania court expressed doubt that broad subject matter waiver had been explicitly adopted in the commonwealth, but, to the extent the concept has been recognized, any application would be limited to parties seeking disclosure from litigation adversaries.12 If parties are not adversaries, there is little detrimental effect of selective disclosure, and, therefore, “fairness” reasons for imposing subject matter waiver are not at issue.
A New York court declined to apply a “broad reaching theory” of subject matter waiver over privileged communications regarding interpretation of a lease provision when a party disclosed an attorney memorandum on the topic during a meeting with the adversary.13 The court emphasized that broad application of waiver would undermine the purpose of the attorney-client privilege for allowing free-flowing information between counsel and client and the party asserting privilege had acted in a manner consistent with retaining confidentiality of the other documents at issue.
Despite the fact-dependent nature of privilege, complicated by the diversity of approaches across jurisdictions, corporations can take effective measures to best protect confidential attorney-client communications and attorney work product relating to internal investigations. Corporations should identify the applicable law, create a record that an investigation is undertaken in anticipation of litigation, limit any disclosure to the greatest extent possible, and avoid using privilege unfairly as both a sword and a shield in litigation.
1 2017 U.S. Dist. LEXIS 74155 (D.D.C. May 16, 2017).
2 See, e.g., In re Symbol Techs. Inc. Sec. Litig., 2017 U.S. Dist. LEXIS 50530 (E.D.N.Y. Mar. 31, 2017) (finding subject matter waiver when one party attempted to use the privilege both offensively and defensively in order to gain a strategic advantage); Lerman v. Turner, 2011 U.S. Dist. LEXIS 715 (N.D. Ill. Jan. 5, 2011) (limiting subject matter waiver to situations in which the privilege holder seeks to use the disclosed material for advantage but deny its adversary access to privileged materials that could put the disclosed material in context).
3 Federal Rule of Evidence 502(a), which took effect on Sept. 19, 2008, prescribes the prerequisite findings for a court to find subject matter waiver: (1) the waiver must be intentional; (2) the disclosed and undisclosed information concern the same subject matter; and (3) they ought in fairness to be considered together. The advisory committee notes further suggest that subject matter waiver is “reserved for those unusual situations in which fairness requires a further disclosure of related, protected information, in order to prevent a selective and misleading presentation of evidence to the disadvantage of the adversary.”
4 In re GM LLC Ignition Switch Litig., 80 F. Supp. 3d 521 (S.D.N.Y. 2015).
5 See Freedman v. Weatherford Int’l Ltd., 2014 U.S. Dist. LEXIS 102248 (S.D.N.Y. July 25, 2014).
6 Mitre Sports Int’l Ltd. v. HBO Inc., 304 F.R.D. 369 (S.D.N.Y. Jan. 13, 2015).
7 In re Experian Data Breach Litig., No. ACV 15-01592 AG (DFMs) (C.D. Cal. May 18, 2017).
8 In re People of the State of New York v. PriceWaterhouseCoopers LLP, 150 A.D.3d 578 (N.Y. App. Div. 1st Dep't May 23, 2017) (holding that, in deciding privilege issues, New York applies the law of the place where the evidence will be introduced at trial or where the discovery proceeding is located).
9 Nationwide Mut. Ins. Co. v. Fleming, 605 Pa. 468 (Pa. 2010). The Eastern District of Pennsylvania noted the lack of Pennsylvania law on subject matter waiver, but ultimately concluded “when one party intentionally discloses privileged material with the aim, in whole or in part, of furthering that party’s case, the party waives its attorney-client privilege with respect to the subject-matter of the disclosed communications.” Murray v. Gemplus Int’l, S.A., 217 F.R.D. 362 (E.D. Pa. 2003).
10 See Deep Woods Holdings LLC v. Pryor Cashman LLP, 2016 N.Y. Misc. LEXIS 2144 (N.Y. Sup. Ct. June 8, 2016); U.S. Bank N.A. v. Lightstone Holdings LLC, 2016 N.Y. Misc. LEXIS 1356 (N.Y. Sup. Ct. Apr. 12, 2016) (a waiver occurs when a party discloses a portion of a privileged communication but withholds other communications that are not as beneficial to the party’s position).
11 QST Energy Inc. v. Mervyn's, 2001 U.S. Dist. LEXIS 23266 (N.D. Cal. May 11, 2001).
12 Bagwell v. Pa. Dep't of Educ., 103 A.3d 409 (Pa. Commw. Ct. Oct. 31, 2014).
13 Charter One Bank FSB v. Midtown Rochester LLC, 738 N.Y.S.2d 179 (N.Y. Sup. Ct. Feb. 5, 2002).
Donna Fisher and Matthew Hamilton are partners in Pepper Hamilton’s Health Sciences Department, a team of 110 attorneys who collaborate across disciplines to solve complex legal challenges confronting clients throughout the health sciences spectrum. Katrina Long is an associate in the Health Sciences Department.
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