Corporate Investigations, Attorney-client Privilege, and Selective Waiver: Is a Half-privilege Worth Having at All?

• Publication year: 2006
• Citation: Vol. 30 No. 01

SEATTLE UNIVERSITY LAW REVIEWVolume 30, No. 1FALL 2006

Corporate Investigations, Attorney-Client Privilege, and Selective Waiver: Is a Half-Privilege Worth Having at All?

Colin P. Marks(fn*)

I. Introduction

Imagine that a federal agent approached you at work and informed you that you were under investigation for fraud and embezzlement. After recovering from the initial shock, and possibly a mild heart attack, you would likely seek the services of an attorney. Imagine, however, that this same federal agent then told you that you could attempt to avoid indictment by cooperating, and in that vein, waiving your attorney-client privilege, including past and future communications with your attorney. You would likely be outraged at the federal agent's attempt to force a waiver of one of the longest standing common-law privileges. Yet this very situation is occurring every day to corporations in modern governmental investigations.

Beginning in 1999, the Department of Justice (DOJ) articulated new policies establishing factors it would consider when deciding whether to charge corporations.(fn1) One of the factors the DOJ will consider is whether the corporation under investigation has "cooperated," which often includes waiver of the attorney-client privilege. The Securities Exchange Commission (SEC) and other governmental agencies appear to be following suit. Waiver of the attorney-client privilege in the context of a governmental investigation, however, usually also means waiver as to third parties, thus opening companies to larger liability in the context of third-party civil suits. As a result, corporations face a Hobson's choice: they either waive the privilege to avoid possible indictment, thereby essentially making the privileged materials available to third parties, or assert the privilege, thus risking an indictment or stiffer penalties from an agency such as the SEC.

As a possible solution to this Hobson's choice, some commentators have advocated the adoption of a "selective" or "limited" waiver of the privilege, whereby waiver to a governmental agency would not waive the privilege to third-party litigants. Selective waiver is even being proposed as an amendment to the Federal Rules of Evidence.(fn2) Though adoption of selective waiver may have, at first blush, some appeal, does it do anything more than simply remedy a corporation's fear that waiver of privilege to the government also waives privilege to third parties? In other words, does selective waiver address any of the other various issues and problems that arise with waiver of the attorney-client privilege, such as the erosion of open and frank communications with counsel? If the purpose of the attorney-client privilege is to promote open and frank communications between a client and an attorney to, in part, promote compliance with the law, then does a policy that encourages disclosure of attorney-client materials to the government destroy the underlying purpose of the privilege in the first place? In that sense, is a half privilege worth having at all?

This article will explore both the various problems that arise with a policy that essentially mandates waiver of the attorney-client privilege as well as the limited appeal of the selective waiver theory as a compromise position. It concludes that selective waiver is inadequate in addressing the many problems created by policies that coerce waiver and that a more desirable solution is to eliminate or amend the governmental policies that coerce waiver. Part II of this article explains and explores the metes and bounds of the attorney-client privilege and work-product protection. Part III explains the development of the selective waiver theory, as well as its relation to the current charging policies of the DOJ. In Part IV, the various problems that arise from the DOJ's policy are explored. Part V then discusses the adequacy of selective waiver in addressing these problems, and ultimately concludes that selective waiver essentially eviscerates the purposes of attorney-client privilege and work-product protection and thus has limited appeal. Finally, Part VI concentrates on what efforts are underway to rectify the situation and what efforts can be made in the future to restore the sanctity of the attorney-client privilege to its pre-1999 status.

II. A Review of the Attorney-Client Privilege and Work-Product Protection

Before delving into the problems and perils of waiving the attorney-client privilege and work-product protection, a brief review of the metes and bounds of these privileges is useful. This is no mere academic exercise, as the policies underlying the privilege and protection are fundamental to understanding the erosive effect of coerced waivers upon the privilege. An understanding of both is also important in understanding to what degree privileged or protected materials are even necessary in a government investigation of a corporation.

A. Attorney-Client Privilege

The attorney-client privilege is one of the oldest existing legal privileges. Dating back to ancient Rome, the attorney-client privilege was initially used as a means to prevent an attorney from being called as a witness in his client's case.(fn3) The attorney-client privilege has evolved over the years and now protects certain communications between the attorney and client and allows "unrestrained communication and contact between an attorney and client in all matters in which the attorney's professional advice or services are sought, without fear that these confidential communications will be disclosed by the attorney, voluntarily, or involuntarily, in any legal proceeding."(fn4) The policy underlying this privilege is that open and frank communications with an attorney facilitates compliance with the law. Thus, the privilege exists to promote full disclosure by the client and to foster a relationship of trust between the attorney and the client.(fn5)

However, the attorney-client privilege is just that-a privilege. The privilege represents a balance between the truth-seeking function of the judicial process and the benefit that can be gained through open and frank communications with one's attorney.(fn6) Thus, it has been said that the attorney-client privilege should be "strictly confined within the narrowest possible limits consistent with the logic of its principle."(fn7)

In asserting the attorney-client privilege, a party must understand which governing law will influence the court's decision regarding whether the privilege is applicable. In diversity cases, for instance, federal law mandates that state law governs the attorney-client privilege.(fn8) However, where the court's jurisdiction is premised upon a federal question, the attorney-client privilege is defined by federal common law.(fn9) Thus, the elements of the attorney-client privilege are satisfied (and thereby permanently protected from disclosure unless waived) when legal advice of any kind is sought from a professional legal advisor, in his capacity as such, and the communications relating to that purpose are made in confidence by the client.(fn10) More generally stated, in order to claim protection by the court under the attorney-client privilege, a party must show: (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.'(fn11)

There are a few notable nuances and exceptions to the privilege. To begin, one of the most important nuances pertains to the element of confidentiality. Disclosure of communications to third parties can lead to a waiver of the attorney-client privilege, as is discussed more fully below. It is also worth noting that the communication must be for the purpose of securing legal advice. Simply advising an attorney or in-house counsel of events to keep them up-to-date may not qualify as a privileged communication. This can become particularly problematic in companies where an in-house counsel also serves in a business role, potentially requiring a hard look into whether the communication was being made for a business or legal purpose. "Business communications are not protected merely because they are directed to an attorney, and communications at meetings attended or directed by attorneys are not automatically privileged as a result of the attorney's presence."(fn12)

Additionally, in cases where in-house counsel serve a dual legal/business role, courts will look at the nature of the communication to determine whether its primary purpose was to obtain or provide legal assistance.(fn13) For example, in United States v. Lipshy, the question was whether the Vice President and General Counsel of Zale Corporation acted in a business or legal capacity when he conducted interviews of company officers and employees.(fn14) The interviews were conducted to investigate allegations involving improper reimbursements for political campaign contributions.(fn15) After reviewing the applicable standard for the attorney-client privilege, the court noted that when the in-house counsel serves a dual legal/business role, the privilege would apply where the in-house counsel is "performing services of a legal nature when he made or received the communication."(fn16) The court then concluded that because the investigation was conducted for the purpose of obtaining information needed to advise on legal issues...