Avoiding Waiver of the Attorney-Client and Work Product

Privileges

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Robert J. Malionek, Latham & Watkins LLP

Avoiding Waiver of the Attorney-Client and Work Product

Privileges

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Prepared By:Robert J. Malionek, Latham & Watkins LLP

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Protecting the Attorney-Client and Work Product Privileges:

Establishing Privilege and Avoiding Waiver

Robert J. Malionek

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• Attorney-Client Privilege• Work Product Privilege• Other Specific Issues• Exceptions to Waiver of Privileges• Issues Specific to In-House Counsel

Overview

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• History/Importance/Purpose• Elements• Waiver• Tips to Avoid Disclosure• Corporate Family and Organizational Issues

Overview: Attorney-Client Privilege

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• Historical shift: o In re Colton: “In the eighteenth century, when the desire for truth

overcame the wish to protect the honor of witnesses and several testimonial privileges disappeared, the attorney-client privilege was retained, on the new theory that it was necessary to encourage clients to make the fullest disclosure to their attorneys….” 201 F. Supp. 13, 15 (S.D.N.Y. 1961).

• As exception to liberal discovery of facts, courts frequently say the privilege is to be strictly construed.

History/Importance/Purpose

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1. A communication;2. Made between privileged persons;3. In confidence;4. For the purpose of seeking, obtaining, or providing

legal assistance to the client.

Elements

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Proposed Rule 503(b): “A client has a privilege to refuse to disclose and to prevent any other person disclosing a confidential communication made for the purpose of facilitating the rendition of professional legal services to the client, between:1. himself or his representative and his lawyer or the

lawyer’s representative, or 2. his lawyer and the lawyer’s representative, or 3. by him or his lawyer to a lawyer representing another in

a matter of common interest, or 4. representatives of the client or between the client and a

representative of the client, or5. lawyers representing the client.”

Attorney-Client Privilege Defined

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• Even wordless actions may constitute a communication.

• The privilege protects only the contents of the communication from compelled disclosure, not the facts communicated.

o J.P. Foley & Co., Inc. v. Vanderbilt, 65 F.R.D. 523, 526 (S.D.N.Y. 1974)

o In re Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032, 1037 (2d Cir. 1984)

1. A communication

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• Plaintiffs allege that a corporation committed fraud by making material misrepresentations regarding its financial condition when plaintiffs made loan to the corporation.

• Plaintiffs sued the auditors, alleging the plaintiffs relied upon an audit report regarding financial status.

• Auditors sought to depose an individual, Foley, to learn what occurred during the negotiations between plaintiffs and corporation.

• Foley refused to answer a number of questions based on the fact that those questions dealt with whether Foley consulted with his attorney regarding specific documents.

• Will a court uphold his refusal?

1. A communication: POLL

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• No. • J.P. Foley & Co., Inc. v. Vanderbilt, 65 F.R.D. 523, 526

(S.D.N.Y. 1974).

• Privilege pertains solely to the substance of communications, not inquiry into their subject matter

• Foley must answer questions asking about whether he consulted with his attorney regarding certain documents.

1. A communication

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• “Privileged persons” include: the client, the client’s attorney, the communicating agents of either the client or the attorney, and the agents of the attorney for purposes of the representation and who may assist the attorney in providing legal advice

• Generally covers communications from client to attorney, from attorney to client, and communications about legal advice among client representatives or between the client’s attorneys

2. Made between privileged persons

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• Communication must be made in confidence • With no intention that it thereafter be revealed to third

parties

3. In confidence

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• Must have been made primarily for the purpose of obtaining legal advice or services. Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).

• But-for test• “Not predominantly another purpose” test• Dual purpose documents

• Class of matters on which legal advice is appropriate is expanding.

4. For the purpose of seeking, obtaining, or providing legal assistance to the client

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• Who may raise it?o Either the client personally or the attorney, as the client’s

agent, can assert the privilege.

• Who may waive it?o Only the client.o But in many situations, it may not be clear who is or should be

authorized to speak on behalf of a client.

Who owns the privilege?

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• Purposeful or voluntary disclosure• Partial disclosure• Involuntary or compelled disclosure• Failure to object to disclosure

Ways of Waiving

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• Label privileged documents as such• Segregate privileged documents in their own files• Establish policies to limit access to privileged materials• Shred privileged documents when they are no longer

needed• Take immediate remedial steps if unauthorized

individuals gain access to privileged materials

= Act consistent with an expectation of confidentiality

Waiver: Tips to Avoid Disclosure

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• Upjohn: Supreme Court rejected the “control group” test regarding who is/acts for a corporate client.

• Suggests a need-to-know limitation on sharing privileged information with employees.

• Even former employees who were involved in communications protected within the company’s privileges are bound by privilege if those communications were within the scope of their employment.

• In re F.A. Potts & Co., 30 B.R. 708 (E.D. Pa. 1983)

Corporate Family and Organizational Issues: Communications/Former Agents

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• Company A was sold by its sole shareholder to a third party. Company A and seller were represented by same counsel.

• It was a subsidiary merger whereby Company A merged with and into an acquisition vehicle and ceased to exist.

• Following the acquisition, the acquisition vehicle brought an arbitration against the seller for breach of the seller’s reps and warranties regarding environmental compliance.

• Seller retained the same counsel that had represented it and Company A during the merger.

• The acquisition vehicle asserted privilege as to all confidential communications between seller’s outside counsel and Company A.

• Privileged?

Corporate Family and Organizational Issues: Mergers POLL

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• Answer: Two types of communications:1. General Business Communications: Surviving company

succeeds to Company A’s privilege regarding general business communications.

2. Communications Relating to the Transaction: Surviving company does not succeed to privilege regarding communications relating to the transaction if the transaction structure aligned the seller and Company A as its subsidiary.

• Tekni-Plex, Inc. v. Meyner and Landis, 220 A.D 2d 326 (N.Y. Ct. App. 1996)

• Contrast with Mergers under Del. GCL section 259

Corporate Family and Organizational Issues: Mergers

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• The mere sale of assets may not transfer the privilege. o There is no clear principle as to what determines whether a

transaction constitutes a sale of assets versus a continuation in another form of an entire business enterprise.

• Postoria v. A.G. Paintball Holdings, Inc., Del. Ch. LEXIS 120 (Del. Ch. Aug. 20, 2008)

Corporate Family and Organizational Issues: Asset Deals

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• Generally, right to assert or waive corporate privilege passes from management to the trustee in bankruptcy.

o Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343 (1985)

o In re I Successor Corp., 321 B.R. 640 (Bankr. S.D.N.Y. 2005)

• Does the corporate attorney-client privilege continue to exist after a company ceases operations?

o Wallis v. Centennial Ins. Co., 2013 WL 43441 (E.D. Cal. 2013)o Official Committee of Administrative Claimants v. Moran, No.

11-3300, 2011 WL 3422821 (N.D. Ill. 2011)o PCS Nitrogen, Inc. v. Ross Development Corp., No. 09-3171,

2011 WL 3665335 (D.S.C. 2011)

Corporate Family and Organizational Issues: Bankruptcy and Dissolution

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• Definition• “In Anticipation of Litigation”• Distinguished from Attorney-Client Privilege• History/Importance/Purpose• Waiver• Working with Consulting and Testifying Experts

Overview: Work Product Privilege

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• FRCP 26(b)(3)(A): materials prepared “in anticipation of litigation”

o Must show a threat of litigation and a motivational component.o Circuit split regarding “in anticipation of litigation.”o Not merely prepared in the ordinary course of business.

o Work product protection varies among jurisdictions

Defined

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• Fifth Circuit: “primary motivating purpose” test.• Galvan v. Miss Power Co., 2012 U.S. Dist. LEXIS 165558 (S.D. Miss.

Nov. 20, 2012)

• All other circuits look at whether the document at issue was created “because of” existing or expected litigation.

• Spirit Master Funding, LLC v. Pike Nurseries Acquisition, LLC, 2012 U.S. Dist. LEXIS 165334 (N.D. Ga. Nov. 20, 2012)

• First Circuit: “prepared for use in possible litigation.”• United States v. Textron, 577 F. 3d 21, 27 (1st Cir. 2009).

“In Anticipation of Litigation”

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• Work product privilege is broader in scope and reach (and harder to waive).

• Work product protection can be overcome upon a showing of great need.

• Disclosure to a third party does not necessarily constitute waiver of work product privilege (unless to an adversary or a “conduit” to adversaries).

o Duplan Corp. v. Deering Milliken, Inc., 540 F.2d 1215 (4th Cir. 1976)

o In re F.A. Potts & Co., 30 B.R. 708 (E.D. Pa. 1983)

Distinguished from Attorney-Client Privilege

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• Hickman v. Taylor, 329 U.S. 495, 512-13 (1947).o Materials collected by counsel in the course of preparation for

possible litigation are protected.o That protection is qualified—an adversary may obtain

discovery on showing of sufficient need.o Protection is greatest for attorney’s mental impressions.

o Purpose: preserve the adversarial system

History/Importance/Purpose

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• Who may raise it?• Either the client personally or the attorney, as the client’s

agent, can assert the privilege.

• Who may waive it?• Work product is (often) prepared by an attorney, but usually

for the client’s benefit. Generally, both may waive.

Who owns the privilege?

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• Only disclosures that are “inconsistent with the adversary system” are deemed to waive work product protection.

• Voluntary disclosure to an adversary (or a conduit to an adversary) does result in a waiver. United States v. MIT, 129 F.3d 681, 687 (1st Cir. 1997).

• Parties who share a sufficient interest may share work product-protected documents without waiver.

o Burlington Indus. v. Exxon Corp., 65 F.R.D. 26 (D. Md. 1974)

• Disclosure to a non-adversary third-party does not necessarily waive work product protection.

Waiver: Disclosure

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• Plaintiffs claim that Company A failed to disclose the true extent of its financial exposure to tort claims involving a mechanical heart valve.

• In litigation, plaintiffs sought documents drafted by Company A’s counsel evaluating the reserves for the heart valve litigations.

• Plaintiffs argued that Company A had waived work product protection because it had disclosed the reserve documents to its outside auditor.

• Waiver?

Waiver: POLL

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• Answer: • No.

• In re Pfizer Sec. Litig., No. 90 Civ. 1260(SS), 1993 WL 561125 (S.D.N.Y. 1993)

• But see Medinol v. Boston Scientific Corp., 214 F.R.D. 113 (S.D.N.Y. 2002)

Waiver

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• Documents prepared for both a business purpose and a possible litigation purpose.

• Would the documents have been prepared in substantially identical form even had there been no litigation purpose?

Waiver: Dual Purpose Documents

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• Pre-2010:• Attorneys were not able to communicate freely with their

experts for fear that attorney-client communications or communications between experts would become discoverable.

• 2010 Amendments:• Rule 26(b)(4)(C): Protects communications between an

attorney and a specially retained testifying expert.• Facts and assumptions are not protected.

Working with Consulting and Testifying Experts: Communications

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• Pre-2010:• Because drafts of expert reports were fully available to

opposing counsel, attorneys were reluctant to exchange mark-ups with experts.

• 2010 Amendments:• Draft reports protected from disclosure.

Working with Consulting and Testifying Experts: Drafts of Expert Reports

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• Inadvertent Disclosure• Affirmative Use (Sword vs. Shield Doctrine)• Subject Matter Waiver of Privilege

Overview: Other Specific Issues

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• In FDIC v. Singh, 140 F.R.D. 252 (D. Me. 1992), the court observed that disclosure was generally treated in one of three ways:

1) Non-voluntary disclosure = not a waiver. 2) Inadvertent disclosure = waiver if no reasonable precautions

taken.3) Any disclosure = waiver because no longer confidential.

• Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 290 (S.D.N.Y. 2003):• Parties may enter into “so-called ‘claw-back’ agreements that

allow the parties to forego privilege review altogether in favor of an agreement to return inadvertently produced privileged documents.”

Inadvertent Disclosure: Pre-2006

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2006:• FRCP 16(b): Parties may enter into claw-back and other

agreements regarding privilege.• FRCP 26(b)(5)(B): If notified of an inadvertent production, a party

must promptly return, sequester, or destroy the specified information

2008:• FRE 502(b): “disclosure of electronically stored information,

otherwise covered by privilege, does not operate as a waiver if the disclosure was inadvertent and the holder of the privilege or protection took ‘reasonable steps’ to prevent the disclosure pursuant to Rule 26(b)(5)(B).”

Inadvertent Disclosure: Rule Amendments

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• Defendant possessed a tape recording of a conversation between himself and a government informant.

• The two parties spoke in Spanish, and defendant’s counsel had his secretary make a written translation of the tape in English.

• Defendant’s counsel made reference to the conversation transcript in his cross-examination of the government informant.

• Is the transcript protected under the work product doctrine? If so, has that protection been waived?

Affirmative Use: POLL

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• Yes, the transcript is work product. • And yes, referencing the transcript in cross-

examination was a waiver.• United States v. Salsedo, 607 F.2d 318 (9th Cir. 1979)

• When one party relies on work product as a basis for a claim or defense, the protection is waived.

• Chavis v. North Carolina, 637 F.2d 213 (4th Cir. 1980)

Affirmative Use: Work Product Privilege

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• When a litigant affirmatively places the subject of its own privileged communications at issue in litigation, the protection is waived.

o In re Keeper of the Records, 348 F.3d 16 (1st Cir. 2003)o Hearn v. Rhay, 69 F.R.D. 574 (E.D. Wash. 1975)

Affirmative Use: Attorney-Client Privilege

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• Waiver of the privilege with regard to some communications generally waives the privilege as to all other communications relating to the same subject matter.

• “Same subject matter” varies from case to case.• Generally, courts try to construe the scope of the

waiver as narrowly as possible consistent with fundamental fairness to both parties.

Subject Matter Waiver

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• McCarthy v. Belcher, 340 N.W.2d 848, 850 (Mich. Ct. App. 1983), appeal denied, 419 Mich. 871 (1984).

• When plaintiff testified as to his examination by a Dr. Wu (a privileged communication), the privilege was waived as to the entire content of that examination.

• Fort James Corp. v. Solo Cup Corp., 412 F.3d 1340, 1349-50 (Fed. Cir. 2005), cert. denied, 126 S. Ct. 1768 (2006).

• In patent infringement suit, plaintiff produced a product development engineering report which included the statement “legal counsel has advised a bar was not established during experimental trials…”

• Broad subject matter waiver occurred.

Subject Matter Waiver: Examples

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• Common Interest Exception• Kovel Doctrine• Selective Waiver

Overview: Exceptions to Waiver of Privilege

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• An exception to waiver through disclosure to a third party

• Common Scenarios:o When parties share an attorney and that attorney conveys

information between partieso When parties have a joint defense to an action or are co-

parties

o Circuit split regarding whether or not litigation must be pending for exception to apply.

Common Interest Exception

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• A/C: Requires a common legal interest.o Parties need not be fully aligned in a given litigation (although

they often are).

• WP: Parties who share only a business interest may nonetheless share work product-protected documents without losing the protection.

Common Interest Exception: A/C Privilege vs. Work Product Protection

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• United States v. Kovel addressed whether the attorney-client privilege could extend to an attorney’s advisors.

o An accountant, working for an attorney, accepted a finding of contempt, rather than answer questions that were believed to invade the privilege.

o The Court of Appeals reversed the trial court’s contempt order— holding that the privilege could extend to such an agent acting under the direction of an attorney.

• In general, agents and subordinates working under the direct supervision and control of an attorney, or who facilitate legal advice, are included within the scope of the attorney-client privilege.

• Use Kovel agreement

Kovel Doctrine

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• Under the selective waiver doctrine, documents could be selectively disclosed but still retain their privileged nature as to third party litigants.

• Diversified Industries, Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977) (first emergence of selective waiver)

• Although there is a circuit split on the issue, selective waiver is dying/dead.

• Tenth Circuit: In re Qwest Comm. Int’l, Inc., 450 F.3d 1179 (10th Cir. 2006)

• Ninth Circuit: In re Pacific Pictures Corp., 2012 WL 1293534 (9th Cir. 2012)

• Second Circuit: Gruss v. Zwirn, 09-CV-6441 (S.D.N.Y. 2013) acknowledging In re Steinhardt Partners, L.P., 9 F.3d 230 (2dCir. 1993)

Selective Waiver

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• Identifying the Corporate Client• Legal vs. Business Advice• Situations Unique to In-House Counsel• Suggestions

Overview: Issues Specific to In-House Counsel

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• Control Group Test: Required that the communication be made to a person within the company who is deemed a client by law.

o Essentially designated only upper-level management as the client of corporate counsel.

• Upjohn: Rejected the control group test.o Created a less structured definition of the corporate client

looking to what motivated the lawyer to seek out information or impart advice.

Who is the client for purposes of attorney-corporate client privilege?

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• In-house counsel often serve different roles.• Must be wearing a legal hat for the attorney-client

privilege to attach to a communication.• Courts can be skeptical of assertions of privilege

regarding communications that mix business and legal advice.

o An attempt to cloak an entire conversation business with privilege by inviting in-house counsel is futile. North Pacifica, LLC v. City of Pacifica, 274 F. Supp. 2d 1118, 1128-29 (N.D. Cal. 2003).

o Mere negotiator/business advice. Costco v. Superior Court, 47 Cal. 4th 725, 743 (2009).

Legal vs. Business Advice

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• Internal Audit• External Audit• Corporate Investigations• Disclosure to Government Entities• Communications with an Insurer

Situations Particular to In-House Counsel

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• Draw clear distinctions between legal and business advice

• Set up policies in advance of conducting investigations• Maintain “Need to Know” policy regarding privileged

materials• Obtain a privilege preservation agreement if disclosing

to an outside party is required

Suggestions for In-House Counsel

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Questions?

Robert J. Malionek

LATHAM & WATKINS LLP885 Third Avenue New York, NY 10022-4834 Direct Dial: +1.212.906.1816 Fax: +1.212.751.4864 Email: robert.malionek@lw.comhttp://www.lw.com

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Notes