Complying with SEC filing requirements: do you risk waiving a privilege.

AuthorHardin, Julie

A product defect can have serious financial implications for a product manufacturer, supplier, distributor, or retailer, prompting widespread litigation or a product recall. Mass litigation, or even a few serious lawsuits, can be "material events" potentially affecting a company's financial standing. Companies falling within the territorial realm of the Securities Exchange Commission ("SEC") are required to disclose material events that could potentially impact their financial position, both to the SEC and to the public. (58) Companies typically satisfy disclosure requirements resulting from certain material events by filing a report on Form 8-K or Form 6-K. (59) A Form 8-K is a "current report" by which a public company alerts the SEC to material corporate events about which shareholders should have notice. (60) The Form 6-K is the report used by certain foreign companies that are not subject to a Form 8-K filing. (61)

Often times attorneys aiding companies in preparing reports on Form 8-K or Form 6-K create or rely on otherwise privileged documents in making the required disclosures. For example, a company and its attorneys may use privileged documents to estimate and compute a reserve figure--an amount set aside to cover potential litigation or other costs caused by a material event. That reserve amount is publicly disclosed via the required SEC report, but the underlying documents relied on to calculate the amount are generally not made public. Making public only the reserve number typically gives lawyers comfort that the underlying documents on which they relied will remain confidential, but a recent case out of Houston put that comfort to the test. (62)

  1. By Reporting a Reserve Figure to the SEC, Does a Company Waive Privilege as to the Confidential Documents it Relied on to Calculate the Figure?

    Plaintiffs in the case entitled In re BP Products, argued that the underlying documents that supported BP Products' reserve figure lost any privilege once the figure was made public through a Form 6-K filing with the SEC. (63) The estimated liability--or reserve figure--was computed by an in-house attorney who relied on confidential information (e.g., legal and factual analyses of the claims and lawsuits) to arrive at an estimate. That confidential information was never disclosed to the SEC. The trial court nonetheless agreed with plaintiffs' subject matter waiver argument, reasoning, in part, that BP Products "waived any privilege or protection that may once have attached to the subject matter ... by voluntary disclosure to the federal government...." (64) Although the court of appeals ultimately instructed the trial court to vacate its ruling, companies should take note--and tread carefully when disclosing information outside the company.

    It may seem obvious that the work product privilege should protect an attorney's methodology in computing a reserve amount, which presumably is derived from that attorney's opinions, mental impressions, and thought processes about potential litigation. (65) Certainly an attorney's written evaluation of a case to arrive at a settlement offer would be protected. So why would the protection be any different for numerous individual evaluations used to compute an aggregate figure, especially when that figure is required to be reported to the SEC? Assuming the underlying evaluations are privileged, the answer seems to turn on whether and with whom the confidential information is shared. (66)

    In refusing to conclude that BP Products waived privilege as to the underlying methodology used to compute its reserve figure, the court of appeals relied on the fact that the figure itself was all that was disclosed. (67) The court emphasized that there had been no disclosure of the underlying methodology outside BP personnel. In fact, the court of appeals relied solely on that fact in distinguishing a Fifth Circuit case in which waiver was found. (68)

  2. Does a Company Waive Privilege as to the Documents it Relies on to Calculate a Reserve Figure by Giving Those Documents to its Outside Auditors?

    In United Stated v. El...

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