Internal corporate investigations: the waiver of attorney-client privilege and work-product protection through voluntary disclosures to the government.

• Jurisdiction: United States
• Author: Koch, Alec
• Date: 01 January 1997

1. INTRODUCTION II. INTERNAL INVESTIGATIONS AND WAIVER ISSUES III. MINORITY APPROACHES: "SELECTIVE WAIVER AND

   "SELF CRITICAL ANALYSIS

   1. Diversified Industries, Inc. v. Meredith and "Limited Waiver"

   2. "Self-Critical" Privilege IV. THE MAJORITY APPROACH: STRICT APPLICATION OF THE WAIVER

      DOCTRINE

   1. The District of Columbia Circuit's Strict View of Waiver

   2. Westinghouse Electric Corp. v. Republic of the Philippines

   3. In re Steinhardt Partners, L.P.

   4. In re Martin Marietta Corporation V. THE SUPREME COURTS LIKELY TREATMENT VI. CLARIFICATION OF INSTANCES AND SCOPE OF WAIVER VII. CONCLUSION

1. INTRODUCTION

   Internal corporate investigations by outside counsel are now commonplace. When a corporation becomes aware of wrongdoing or a government probe, an internal investigation enables the company to expose the problem and anticipate issues that could subsequently arise in a civil or criminal action. Furthermore, disclosure to the government of the results of an investigation and affirmative action to remedy the situation often will result in more lenient treatment by an enforcement agency.

   One of the most important issues in the area of internal corporate investigations is how such disclosure affects the corporation's ability to claim the protections of the attorney-client privilege and the work-product doctrine. Third parties frequently argue that the company's disclosure to the government waives these protections. These third parties often are other government agencies or plaintiffs in civil suits, particularly shareholder-derivative actions. Although some courts have held that disclosure to the government constitutes only a "selective" or "limited" waiver as to the government,(1) the majority of federal circuits to address the issue have construed the waiver doctrine strictly, holding that disclosure to the government also waives the attorney-client and work-product protections as to third party litigants.(2) As a consequence, corporations may be more reluctant to conduct internal reviews and police their own operations for fear that disclosing the results to the government will provide civil plaintiffs with a litigation roadmap.

   This Note examines this dilemma in light of the rationales for the attorney-client and work-product protections, Supreme Court precedent, and the competing approaches and policy interests involved. Part II briefly describes the internal investigation process and the applicability of the attorney-client and work-product protections to that process. Part III examines the minority approach taken by those courts that have construed the disclosure of an internal investigation report to an agency to be a waiver of the protections only as to that agency. It also reviews a largely academic proposal calling for recognition of a new self-critical analysis privilege to be applied to internal corporate investigations. Part IV discusses the majority view taken by courts that have construed the waiver doctrine strictly. Part V concludes that the Supreme Court would not, and should not, recognize a new self-evaluative privilege for internal corporate investigations or adopt the minority selective waiver approach. As discussed in Part VI, however, clarification regarding the different contexts in which a waiver occurs, as well as the scope of any such waiver, would both encourage corporate self-policing and promote effective enforcement of public and private rights.

2. Internal Investigation and Waiver Issues

   As the scope of potential criminal and civil corporate liability has expanded in recent years, government enforcement activities and potential penalties also have increased.(3) As a result, corporations confronted with evidence of misconduct frequently choose to perform an internal investigation, conducted by either outside or in-house counsel.(4) Investigations of this type became more visible during the 1970s when, in the wake of Watergate revelations about illegal corporate political contributions, the Securities and Exchange Commission (SEC) instituted a Voluntary Disclosure Program. Under this program, corporations would receive more lenient treatment if they investigated themselves, took steps to reform, and disclosed their findings.(5) The practice grew through the 1980s, as the Department of Defense instituted a similar voluntary disclosure program and other agencies increasingly emphasized corporate cooperation with investigations.(6) This trend has continued into the 1990s. The Federal Sentencing Guidelines provide incentives for corporate self-policing, and government agencies display an even greater willingness to treat cooperative companies more leniently.(7) Consequently, corporate self-investigation has become the norm, and the failure to perform such an investigation often is perceived by the public and the government as evidence of a cover-up or uncooperative posture.(8)

   Counsel conducting an internal investigation chiefly gather information in two ways: (1) document collection and review and (2) employee interviews.(9) This process should be as thorough as possible so that counsel can anticipate the issues that will be raised in a government probe or private lawsuit. Furthermore, lawyers should conduct the investigation so that the company can utilize the attorney-client and work-product protections.(10) If the investigation is performed by other personnel, the company will not be able to claim that the results are so shielded.(11)

   The attorney-client privilege protects from disclosure confidential communications between a client and his lawyer.(12) Protecting these communications is said to encourage the client to provide his attorney with the truthful information necessary for him to receive fair and effective representation--information that the client might be reluctant to relate if he were afraid that his communications could be relayed to other parties.(13) Furthermore, this freer consultation leads to more voluntary compliance with and more effective administration of the law.(14) These justifications for the privilege are utilitarian in nature and are thought to outweigh the normal presumption that "the public . . . has the right to every man's evidence."(15)

   The work-product doctrine(16) was developed by the Supreme Court in Hickman v. Taylor(17) and protects from disclosure "all written materials obtained or prepared by an adversary's counsel with an eye toward litigation." Nevertheless, the seeking party can overcome this doctrine if she can show that she has a "substantial need" for the information and that she cannot obtain the material without "undue hardship."(18) The seeking party must show that the information is no longer otherwise available, that it would be an undue hardship to obtain the information, or that some other adequate reason justifies obtaining the information from opposing counsel.(19) When the sought materials contain the opinions of the preparing attorney, they are entitled to heightened protection.(20) This so-called "opinion work-product" includes the personal recollections of an attorney, memoranda, handwritten notes, legal opinions, and litigation strategy.(21)

   The protections of the work-product doctrine are therefore different than those provided by the attorney-client privilege.(22) In one sense, the work-product doctrine is broader in that it applies to materials that are not based on confidential communications with a client and to materials prepared by nonlawyers acting on behalf of the lawyer or client.(23) In another sense, however, the work-product doctrine is narrower than the attorney-client privilege because it provides only qualified protection. While the attorney-client privilege is absolute, work-product may be obtained upon a showing of "substantial" or "extraordinary" need for the material, depending on whether the work-product contains attorneys' opinions and on whether the information can be obtained from other sources without "undue hardship."(24) Moreover, the work-product doctrine applies only to materials prepared in anticipation of litigation, but the attorney-client privilege applies to confidential communications regarding any legal services.(25)

   In Upjohn Co. v. United States,(26) the Supreme Court addressed the applicability of the attorney-client privilege and the work-product doctrine to internal corporate investigations. The Court held that notes and memoranda prepared by the company's counsel after interviewing employees during an internal corporate investigation were protected by both the attorney-client privilege and the work-product doctrine.(27) Inasmuch as the notes reflected communications with the lawyer, they were protected by the attorney-client privilege; to the extent that the notes did not reflect communications, they still "reveal[ed] the attorneys' mental processes in evaluating the communications" and were entitled to heightened protection as opinion work-product.(28) The government had to show more than just "substantial need" and "undue hardship" to compel production of the attorneys' mental impressions, and a "far stronger showing of necessity and unavailability by other means" would have to be demonstrated to compel disclosure.(29)

   Because the effect of privileges is to withhold relevant information from an adversary, courts have limited their application through the doctrine of implied waiver.(30) Voluntary disclosure of one part of a communication will waive the attorney-client privilege not just for that matter, but for all related communications on the same subject matter.(31) Like the attorney-client privilege, work-product protection may be waived. Voluntary disclosure of work-product by the client, attorney, or other authorized party will waive the protection if the disclosure "substantially increas[es] the possibility that an opposing party could obtain the information."(32) Most courts hold that disclosure of work-product to an adversary waives the protection as to other...