As a contemporary in-house counsel, you probably provide more than just legal advice to your client. You wear multiple hats; in fact, you’ve got a whole closet full. Sometimes you’re a legal advisor, sometimes a business counselor, sometimes a management consultant. Therein lies the problem when it is time to launch an internal investigation triggered by an employee complaint, a product concern, or threatened litigation. We think we know the basics: Communications between attorneys and their clients are privileged, and work prepared in anticipation of litigation is protected. Well, not so fast.

You’d better check to make sure you’re wearing the right hat before you launch your investigation because you (and your client) have a lot to lose if you grab the wrong one. In fact, where the objectivity and independence of the investigation are crucial (e.g., where the results may be provided to a regulatory body), it may be wise to pass the hat to outside counsel.

A strong grasp on the basics of each potentially applicable privilege is essential in navigating the murky waters that often surround internal investigations. The attorney-client privilege, the work-product doctrine, and self-critical evaluation privilege may provide protection, but each has strict requirements and can be inadvertently waived. Understanding the implications of waiver and knowing what you can do to more carefully preserve these privileges may save your job — and your company’s reputation.

The Attorney-Client Privilege

Generally, communications between clients and their attorneys are privileged. One of the requirements for the privilege to apply, however, is that the client must have sought legal advice, service, or assistance, as opposed to mere business advice. Accordingly, the attorney-client privilege does not protect against discovery of business advice or underlying facts merely because those facts have been communicated to an attorney.¹ Thus, while it has long been established that a corporation may assert the attorney-client privilege to protect its communications with counsel,² if a communication sought to be protected by the privilege contains both legal and business advice, the privilege only applies to the legal opinions or advice. A close call may not fall in your favor. The burden will be on you, the party asserting the privilege, to demonstrate how each document satisfies all the elements of the privilege.³

Waiver of the attorney-client privilege may occur when there is a breach of confidentiality, whether inadvertent or intentional.⁴ Accordingly, the presence of a third party during a legal consultation will waive the privilege unless that party’s presence was necessary to assist the attorney in rendering legal services.⁵ Similarly, intentional disclosure of attorney-client communications to a third party lacking a common legal interest will result in a waiver of the attorney-client privilege.⁶ Moreover, some courts have held that even if confidential work product is produced to a potential adversary under a confidentiality agreement, confidentiality has been voluntarily breached.⁷ Even disclosure of privileged information directly to a client’s independent auditor, accountant, or tax analyst may destroy confidentiality.⁸ Simply put, the prevailing view is that once a client waives the privilege to one party, the privilege is waived to all.⁹

Selective Waiver

Some courts, however, have recognized that a client may “selectively” waive the privilege under certain circumstances, most notably when disclosing to governmental entities. Unfortunately, “the case law addressing the issue of limited waiver [is] in a state of ‘hopeless confusion.’”¹⁰

In one of the earliest reported decisions to address the issue, Diversified Indus., Inc., v. Meredith, the Eighth Circuit established the selective waiver doctrine, which provides that a party may disclose attorney-client privileged information to governmental agencies conducting an investigation without waiving the attorney-client privilege to other parties (i.e. later litigants).¹¹ The Eighth Circuit reasoned that selective waiver is necessary because it encourages “corporations to employ independent outside counsel to investigate and advise them in order to protect stockholders, potential stockholders, and customers.”¹²

After enjoying initial acceptance, the Diversified decision has since been routinely criticized and eventually rejected by a majority of jurisdictions that have addressed the issue. The District of Columbia, First, Third, and Sixth Circuits have completely rejected the idea that the attorney-client privilege is not waived by virtue of the selective waiver doctrine by production to the government, even if the government and the company enter into a confidentiality agreement.¹³ The Federal, Second and Fourth Circuits have rejected the selective waiver doctrine but have not addressed it in a context in which the company and government entered into a confidentiality agreement.¹⁴ Indeed, “every other circuit to consider the matter has rejected the Eighth Circuit’s [selective waiver] approach.”¹⁵

Thus, in the context of an intentional or voluntary waiver of attorney-client privilege, counsel should assume that “when the client voluntarily discloses a confidential communication, the waiver will extend not only to the disclosed communication, but also to whatever additional communications must be provided to the third party in order to give that party a fair chance to meet the advantages gained by the privilege holder through the disclosure.”¹⁶ Accordingly, courts refer to the waiver as extending to the subject matter of the disclosed communication. A client may not selectively waive only those communications that are favorable and then resist disclosure of the remaining portions of related correspondence that may be unfavorable.¹⁷

Work-Product Doctrine

The work-product doctrine “is distinct from and broader than the attorney-client privilege.”¹⁸ The work-product doctrine protects from discovery materials prepared in anticipation of litigation.¹⁹ In a majority of jurisdictions, the privilege can apply where litigation is not imminent, “as long as the primary motivating purpose behind the creation of the document was to aid in possible future litigation.”²⁰ Protection extends to documents and tangible things, including a lawyer’s research, analysis of legal theories, mental impressions, notes, and memoranda of witness statements.²¹

Most courts have recognized that internal corporate investigations are conducted in anticipation of litigation and thus enjoy work-product protection. The Supreme Court in Upjohn Co. v. U.S., while not expressly stating so, assumed that counsel’s notes of an internal investigation as to possibly illegal foreign payments were in anticipation of litigation.²² The Upjohn opinion supports treating internal investigations of corporate misconduct as having been done in anticipation of litigation, even when no action had as yet been filed or threatened.

Documents prepared for business reasons, as opposed to anticipation of litigation, are not entitled to protection. Accordingly, in U.S. v. Gulf Oil Corp. the court held that documents concerning a declaratory judgment action and prepared by counsel at the request of the company’s accountants were not work product.²³ The court reasoned that the documents were not created to assist in litigation but rather “for the business purpose of compiling financial statements which would satisfy the requirements of the federal securities laws” and thus were not entitled to the privilege.

Moreover, disclosure to the government or regulatory agencies such as the FDA may waive privileges related to the subject of the investigation. Waiver of work-product protection, however, generally is not construed as broadly as waiver of attorney-client privilege.²⁴

When evaluating the scope of work-product protection, or the implications of waiver, courts draw sharp distinction between “fact” work product and “opinion” work product. So-called “fact” work product, the “written or oral information transmitted to the attorney and recorded as conveyed by the client,”²⁵ may be obtained upon a showing of substantial need and inability to otherwise obtain without material hardship.²⁶ However, absent waiver, a party may not obtain the “opinion” work product of his adversary; i.e., “any material reflecting the attorney’s mental impressions, opinions, conclusions, judgments, or legal theories.”²⁷

Furthermore, many of the reasons for disallowing selective waiver in the attorney-client privilege context also apply to the work-product doctrine.²⁸ Applying this logic to circumstances in which a corporation had disclosed work product to a governmental entity pursuant to a confidentiality agreement, the courts have held that the disclosure was still a waiver of work-product immunity.²⁹ Similarly, courts have routinely rejected the argument that governmental entities merely investigating potential wrongdoing are not “adverse” for purposes of waiver.³⁰

In contrast to waiver of the attorney-client privilege, the waiver of work-product immunity will generally be limited to the materials actually disclosed.³¹ The case law related to waiver, particularly in the context of governmental investigations is rapidly evolving with conflicting cases throughout the nation. However, a number of district courts have held that a broader or subject matter waiver of work-product immunity occurs when:

[I]t would be inconsistent with the purposes of the work product privilege to limit the waiver to the actual documents disclosed […for example,] when the facts relevant to a narrow issue are in dispute and have been disclosed in such a way that it would be unfair to deny the other party access to other facts relevant to the same subject matter.³²

As noted by one court, for instance, complete subject matter waiver of work product has been found where a party deliberately disclosed work product in order to gain a “tactical advantage.”³³

Applying similar reasoning, other courts have found subject-matter waiver only if “facts relevant to a particular, narrow subject matter have been disclosed in circumstances in which it would be unfair to deny the other party an opportunity to discover other relevant facts with respect to that subject matter.”³⁴ Similarly, in cases when the party making the disclosure uses the disclosed matter to its advantage in some way, then the opposing party should have the option of using other documents dealing with the same subject matter that may cast a different light on the issue.³⁵

Self-Critical Analysis Privilege

Less frequently, corporations seek protection by claiming a self-critical evaluation privilege. The self-critical analysis privilege is a relatively recent common law development, finding its origins approximately thirty years ago in a case involving medical peer review procedures.³⁶ Although enjoying initial acceptance and limited expansion, currently the self-critical analysis privilege is not widely accepted and is not uniformly applied.

The development of this privilege has primarily remained at the federal level. Although some state courts recognize the self-critical analysis privilege, the majority have either refused to recognize the privilege or have not addressed the issue.³⁷ While there remain a number of federal district courts which at least recognize the possible existence of the doctrine, today there are only a few circuits which have embraced the self-critical analysis privilege. The Ninth Circuit is among the minority which has continued to recognize the privilege and in Dowling v. American Hawaii Cruises, Inc., articulated the most often cited criteria that must be established by the party seeking protection.³⁸ First, the information must result from a critical self-analysis undertaken by the party seeking protection; second, the public must have a strong interest in preserving the free flow of information respecting the subject matter; third, the information must be of the type that the free flow would cease if the privilege is not recognized. Lastly, any document produced as a result of the self-critical analysis must be produced in the expectation of confidentiality, and it must actually have been kept confidential.³⁹

Even within those limited courts which recognize the privilege, these criteria are strictly applied, and the scope has been consistently narrowed.⁴⁰ For example, examining the first prong of this four part test, one district court has explained that “the touchstone of self-critical analysis is that it is an ‘in house’ review undertaken primarily, if not exclusively, for the purpose of internal quality control.”⁴¹ The same court explained that where documents had also been prepared in order to defend a lawsuit and perhaps to “marshal evidence to present to the media in an effort to ease any public concern,” the privilege was wholly inapplicable because there was no meaningful risk of chilling the flow of information.⁴² Instead, the court suggested that the work-product doctrine “applies the appropriate framework.”⁴³

Whether asserting the privilege pursuant to statute or the common law privilege of self-critical evaluation, those documents which are prepared primarily for the purposes of in-house evaluation and compliance with regulatory programs stand the best chance of attaining privileged status. Any attempt by a corporation to characterize the fruits of an investigation as being motivated primarily by anything other than the anticipation of litigation, however, could have a negative impact on the ability to assert the work-product privilege, which is the broader and more established privilege.⁴⁴

Minimizing Risk

As the duties of in-house counsel expand, the risk associated with their sometimes amorphous role grows. Reducing any ambiguity greatly enhances the potential for preserving privileges. Investigations conducted purely by in-house counsel increase the risk of inadvertent waiver. In the case of potentially serious allegations or where objectivity is crucial, outside counsel working closely with corporate counsel may be the wisest choice. If outside counsel is retained, a well-drafted engagement letter should clearly identify the purpose of seeking legal advice relating to potential litigation. To further earmark investigations as privileged — and certainly in cases where outside counsel is not involved — the board or high-ranking management should formally request legal advice from in-house counsel.  Regardless, both in-house and outside counsel should separate legal advice from business advice wherever feasible. Attorney-client communications should be clearly labeled, and confidential exchanges should be labeled as such.

Although the investigation may incorporate an internal team made up of non-lawyers, the team should be clearly identified and include only those necessary to complete a thorough investigation. All responsibilities and communications should be channeled through counsel. Furthermore, written communications and email should be minimized with strict instructions regarding distribution. Information gathered from or by third-parties for investigatory purposes should be gathered at the request of counsel. Drafts should be kept at a minimum and should be clearly labeled. Inadvertent mistakes made early in the investigation, though innocent, may not be able to be undone. Taking these basic steps at the initiation of an investigation will go far in laying the groundwork for a successful assertion of privilege in the future.

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[1] “[H]iring lawyers to do consultants’ work does not bring a privilege into play,” Burden Weeks v. Welch, 319 F.3d 897, 899 (7th Cir. 2003); see also, U.S. v. Evans, 113 F.3d 1457, 1463 (7th Cir. 1997).

[2] Upjohn Co. v. U.S., 449 U.S. 383, 390, 101 S. Ct. 677, 66 L. Ed.2d 584 (1981).

[3] Hodges, Grant & Kaufmann v. U.S., 768 F.2d 719, 721 (5th Cir.1985).

[4] See Ferko v. Nat’l Ass’n For Stock Car Auto Racing, Inc., 218 F.R.D. 125, 134 (E.D. Tex.2003).

[5] Evans, 113. at 1464.

[6] In re Auclair, 961 F.2d 65, 69 (5th Cir.1992); Ferko, 218 F.R.D. at 134.

[7] Republic of Philippines v. Westinghouse Elec.Corp., 132 F.R.D. 384, 390 (D.N.J. 1990).

[8] See U.S. v. El Paso Co., 682 F.2d 530, 539 (5^th Cir.1982); Ferko, 218 F.R.D. at 134-35.

[9] See, e.g., Westinghouse, 951 F.2d at 1424.

[10] In re Columbia/HCA Healthcare, 293 F.3d 289 (6^th Cir. 2002), quoting In re M & L Business Machine Company, Inc., 161 B.R. 689, 696 (D. Col. 1993).

[11] 572 F.2d 596, 611 (8th Cir. 1977).

[12] Id.

[13] See Permian Corp. v. U.S., 665 F.2d 1214, 1220 (D.C. Cir.1981); U.S. v. Mass. Inst. of Tech., 129 F.3d 681, 686 (1st Cir. 1997); Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1424-25 (3rd Cir. 1991); In re Columbia/HCA Healthcare Corp Billing Practices Litigation, 293 F.3d 289 (6th Cir. 2002).

[14] Genentech, Inc., v. U.S. Int’l Trade Comm’n, 122 F.3d 1409, 1417 (Fed. Cir. 1997); In re John Doe Corp., 675 F.2d 482, 489 (2d Cir. 1982); In re Martin Marietta Corp., 856 F.2d 619, 623-24 (4th Cir. 1988).

[15] In re Syncor ERISA Litig., 229 F.R.D. 636, 646 (C.D. Cal. 2005). More importantly, the court found that neither the attorney-client privilege nor the work-product doctrine applied to some of the documents in question “since those documents were created with the intent to disclose them to the Government, if necessary, to benefit Syncor in any governmental investigation; thus, they were never privileged.” Id. at 645 (citations omitted).

[16] Rice, Attorney-Client Privilege in the United States, Second Edition at §9:79, pp. 357-359 (West Group, 1999).

[17] Id. at 360-361; see also U.S. v. Rakes, 136 F.3d 1, 5 (1st Cir. 1998) (the restriction against selective waiver is a matter of public policy). Proposed Federal Rule of Evidence 502, which was passed by the Senate in February 2008, would limit subject matter waiver in the event that a party discloses information covered by attorney-client privilege or attorney work-product doctrine, particularly if disclosure is inadvertent. While prior drafts of Proposed Rule 502 provided for selective waiver where communications or information is disclosed to governmental entities, that provision was striken in the face of significant opposition.

[18] In re Antitrust Grand Jury, 805 F.2d at 163, quoting United States v. Nobles, 422 U.S. 225, 238 n. 11, 95 S. Ct. 2160, 2170 n. 11, 45 L.Ed.2d 141 (1975).

[19] Fed. R. Civ. P. 26(b)(3); In re Grand Jury Proceedings, 601 F.2d 162, 171 (5th Cir. 1979).

[20] El Paso, 682 F.2d at 542.

[21] Ferko, 218 F.R.D. at 136, citing Dunn v. State Farm Fire & Cas. Co., 927 F.2d 869, 875 (5th Cir.1991).

[22] Upjohn Co. v. U.S., 449 U.S. 383, 398–403 (1981).

[23] U.S. v. Gulf Oil Corp., 760 F.2d 292 (Emer. Ct. App. 1985).

[24] Picard Chemical, Inc., Profit Sharing Plan v. Perrigo Co., 951 F. Supp. 679, 689 (W.D. Mich. 1996), citing In re Grand Jury, 106 F.R.D. 255, 257 (D.N.H. 1985); Handgards, 413 F. Supp. at 929. See also Permian, 665 F.2d at 1219 (“We conclude, then, that while the mere showing of a voluntary disclosure to a third person will generally suffice to show waiver of the attorney-client privilege, it should not suffice in itself for waiver of the work-product privilege.”); Freeport-McMoran Sulphur, LLC v. Mike Mullen Energy, 2004 WL 1237450, *8 (E.D. La. June 2, 2004); In re Broadcom Corp. Securities Litigation, 2005 WL 1403513 *3 (C.D. Cal.), citing Handgards, Inc., v. Johnson & Johnson, 413 F. Supp. 926, 929 (N.D. Cal. 1976); Key v. U.S. Bancorp Disability Income Plan, 1988 WL 114929 *3 (D. Or. Oct.27, 1988).

[25] In re Antitrust Grand Jury, 805 F.2d at 163.

[26] See, e.g., Toledo Edison Co. v. Technologies, Ind., 847 F.2d 335, 339-40 (6th Cir. 1988).

[27] In re Antitrust Grand Jury, 805 F.2d at 163-64 (citations omitted). See, e.g., In re Qwest Commc’ns Int’l, 450 F.3d 1179, 1186 (10th Cir. 2006); In re EchoStar Commc’ns Corp., 448 F.3d 1294, 1302 (Fed.Cir.2006); Tenn. Laborers Health & Welfare Fund v. Columbia/HCA Healthcare Corp., 293 F.3d 289, 294 (6th Cir. 2002); Baker v. General Motors Corp., 209 F.3d 1051, 1054 (8th Cir.2000); Better Gov’t Bureau v. McGraw, 106 F.3d 582, 607 (4th Cir. 1997); Sporck v. Peil, 759 F.2d 312, 316 (3d Cir. 1985).

[28] In re Columbia/HCA, 293 F.3d at 306 (“Other than the fact that the initial waiver must be to an ‘adversary,’ there is no compelling reason for differentiating waiver of work product from waiver of attorney-client privilege.”).

[29] Brady, 238 F.R.D. 444-45.

[30] U.S. v. Bergonzi, 216 F.R.D. 487 (N.D. Cal. 2003).

[31] Brady, 238 F.R.D. at 444. See Varel v. Banc One Capital Partners, Inc., 1997 WL 86457, at *9 (N.D. Tex. 1997).

[32] S.E.C. v. Brady, 238 F.R.D. 429, 444 (N.D. Tex. 2006)(citing Varel, 1997 WL 86457 at *3). See also Brady, 238 F.R.D. at 444 (citing U.S. v. Nobles, 422 U.S. 225, 228, 95 S. Ct. 2160, 45 L.Ed.2d 141 (1975)); In re United Mine Workers, 159 F.R.D. 307, 310-12 (D.D.C.1994).

[33] Varel v. Banc One Capital Partners, Inc., 1997 WL 86457 at *9, citing United States v. Nobles, 422 U.S. 225, 228, 95 S. Ct. 2160, 45 L.Ed.2d 141 (1975); In re United Mine Workers, 159 F.R.D. at 310-12, citing cases.

[34] Hercules, Inc., v. Exxon Corp., 434 F. Supp. 136 (D. Del. 1977).

[35] In re Grand Jury Subpoena, 341 F.3d 331, 336-37 (4^th Cir. 2003)(finding the party waived the attorney-client privilege with regard to the entire subject matter of the disclosure).

[36] Bredice v. Doctor’s Hospital, 50 F.R.D. 249 (D.D.C. 1970), aff’d, 479 F.2d 920 (D.C. Cir. 1973).

[37] See, e.g., Wells Dairy, Inc., v. Am. Industrial Refrigeration, 690 N.W.2d 38 (Iowa 2004)(“We decline to judicially extend the self-critical analysis privilege …”); Payton v New Jersey Turnpike Auth., 691 A2d 321 (N.J. 1997)(the self-critical analysis privilege does not exist in the common law); Univ. of Kentucky v. Courier-Journal & Louisville Times Co., 830 SW2d 373 (Ky. 1992); Scroggins v. Uniden Corp. of Am., 506 NE2d 83 (Ind. App. 1987) (Indiana courts only recognize statutory privileges, thus no common-law privilege for self-critical analysis exists); Southern Bell Tel. & Tel. Co. v. Beard, 597 So2d 873 (Fla. App. 1992) (all privileges in Florida are statutory, thus no common-law privilege for self-critical analysis exists); Combined Communications Corp., Inc., v. Public Service Co. of Colo., 865 P2d 893 (Colo. App. 1993) (stating that self-critical analysis privilege does not exist in Colorado, although applied self-critical analysis to facts of case and held that it did not apply); Cloud v. Superior Ct., 50 Cal. App. 4th 1552 (1996) (self-critical analysis privilege not in evidence code, and therefore does not exist in California); Grimes v. DSC Communications Corp., 724 A2d 561 (Del. Ch. 1998); Harris-Lewis v. Mudge, 1999 WL 98589 (Mass. Super. 1999); Office of Consumer Counsel v. Dept. of Pub. Util. Control, 665 A2d 921 (Conn. Super. 1994); Lamitie v. Emerson Elec. Co.- White Rodgers Div., 142 AD 2d 293 (N.Y. App. 1988).

[38] Dowling v. American Hawaii Cruises, Inc., 971 F.2d 423, 425-426 (9th Cir. 1992).

[39] Id. But see Union Pac. R.R. v. Mower, 219 F.3d 1069, 1076 (9th Cir. 2000) (stating that the Ninth Circuit has never adopted the privilege).

[40] See Ludwig v. Pilkington N. Am., Inc., 2004 WL 1898238 at *1-2 (N.D. Ill. 2004), reviewing cases.

[41] In re Air Crash Near Cali., Colombia on December 20, 1995, 959 F. Supp. 1529 (S.D. Fla. 1997).

[42] Id.

[43] Id. at 1533.

[44] See Lawndale Restoration v. Accordia of Illinois, 853 N.E.2d 791 (Ill. App. 2006) (finding that because the party seeking the privilege first claimed the documents were prepared for the purposes of self evaluation, then those documents were not entitled to the work-product privilege as they were not prepared in anticipation of litigation).

Finis