Commercial Litigation and Arbitration

Privilege Trends: Limited Waiver Survives

Gregory P. Joseph*

Recent attorney-client privilege decisions from the First and Second Circuits reflect that there is vitality in the generally disfavored doctrine of limited waiver — even in jurisdictions that have historically been cool to the concept. The opinions in In re Grand Jury Proceedings (John Doe Co. v. United States), 350 F.3d 299 (2d Cir. 2003) and XYZ Corp. v. United States, 348 F.3d 16 (1st Cir. 2003) both sustain claims of ‛partial“ waiver. Each case holds that the waiver effected by an extrajudicial disclosure of privileged information is limited to the disclosure itself, and extends no further. This has potentially broad ramifications, extending as far as ‛selective“ waiver cases. This article analyzes the cases and explores some of their implications.

For purposes of this article, ‛limited“ waiver is an umbrella term that subsumes both ‛selective“ and ‛partial“ waiver. In Judge Edward R. Becker’s words: ‛‘[L]imited’ [waiver] refers to two distinct types of waivers: selective and partial. Selective waiver permits the client who has disclosed privileged communications to one party to continue asserting the privilege against other parties. Partial waiver permits a client who has disclosed a portion of privileged communication to continue asserting the privilege as to the remaining portions of the same communications.“ Westinghouse Electric Corp. v. Republic of Philippines, 951 F.2d 1414, 1423 n. 7 (3d Cir. 1991).

Epistolary Misfire. The business of appellant John Doe Co., in the Second Circuit’s opinion in In re Grand Jury, was to provide facilities for third parties to use to consummate firearm transactions. Doe received a commission on the firearms sales but was not itself a party to them. The U.S. Attorney’s office, evidently taking a dim view of the fact that Doe had no firearms license, commenced a grand jury investigation.

On learning that the grand jury had been convened, Doe’s counsel sent a 46-page letter to the prosecutors asserting that Doe acted in good faith; that they, on Doe’s behalf, had consulted with officials of the Bureau of Alcohol, Tobacco, and Firearms (‛ATF“); and that the ATF officials had confirmed to them that Doe did not need a firearms license. The letter recited that nothing contained in it was ‛intended to waive any applicable privilege or protection available under law.“

The grand jury responded by subpoenaing Doe’s counsel’s notes of the communications with ATF. In reversing a District Court order compelling production, the Second Circuit, stressed the extrajudicial nature of the communication and the absence of any prejudice to the government:

The unfairness courts have found which justified imposing involuntary forfeiture [of privilege] generally resulted from a party's advancing a claim to a court or jury (or perhaps another type of decision maker) while relying on its privilege to withhold from a litigation adversary materials that the adversary might need to effectively contest or impeach the claim. *** Doe did not offer such testimony at trial…. If the U.S. Attorney determines that it should not credit Doe’s claims…without seeing the notes taken by Does’ attorneys relating to those communications, the U.S. Attorney will simply refuse to credit Doe’s representations.

In re Grand Jury, 350 F.3d at 303-04.

The Second Circuit emphasized that: ‛The crucial issue is not merely some connection to a judicial process but rather the type of unfairness to the adversary that results in litigation circumstances when a party uses an assertion of fact to influence the decisionmaker while denying its adversary access to privileged material potentially capable of rebutting the assertion. No such unfairness was present here.“ Id. at 306.

Accordingly, under In re Grand Jury, the waiver was limited to the letter itself and did not extend even to the notes pertaining to the conversation related in the letter, much less to the entire subject matter addressed in the letter.

Privilege Palpitations. The First Circuit faced a somewhat similar fact pattern, and came to a similar conclusion, in XYZ Corp. Appellant XYZ was distributing a medical device when it learned that the device was performing erratically. Before XYZ could withdraw the device from the market, it was contractually bound to consult with its co-venturer, Smallco. In a tape-recorded telephone call involving the principals of both companies, XYZ’s outside counsel advocated withdrawal of the device. There was strong resistance from Smallco. The device was nonetheless withdrawn in short order.

The Department of Justice (DOJ) later commenced an investigation into the matter and requested that XYZ waive all claims of privilege. XYZ refused. DOJ independently obtained a tape recording of the XYZ/Smallco call and asked XYZ for permission to listen to it. XYZ consented on the condition that this not be viewed as a waiver of any privilege attaching to other communications. DOJ agreed, in writing. Thereafter, XYZ’s counsel sent two letters to DOJ addressing concerns the prosecutors had raised. Each letter recited that it should not be construed as a waiver of any privilege (including work product protection).

The government subsequently asserted that XYZ had effected a subject matter waiver by engaging in the recorded telephone conversation and sending the letters from XYZ’s counsel to DOJ. The District Judge agreed.

The First Circuit reversed, holding that the extrajudicial disclosure of privileged information generally does not effect a subject matter waiver of privilege:

Virtually every reported instance of an implied waiver extending to an entire subject matter involves a judicial disclosure, that is, a disclosure made in the course of a judicial proceeding…. Accordingly, we hold…that the extrajudicial disclosure of attorney-client communications, not thereafter used by the client to gain adversarial advantage in judicialproceedings, cannot work an implied waiver of all confidential communications on the same subject matter.

XYZ Corp., 348 F.3d at 24. The First Circuit stressed that: ‛Where a party has not thrust a partial disclosure into ongoing litigation, fairness concerns neither require nor permit massive breaching of the attorney-client privilege.“ Id. at 25.

Analysis. Both In re Grand Jury and XYZ Corp. can in part be viewed as more protective of advocacy than of privilege. The Second Circuit concluded its opinion with the observation that: ‛Doe did not place the matter at issue, so as to cause forfeiture of privileges by reason of unfairness, merely by stating its claim to opposing counsel, especially when the statement was accompanied by explicit insistence on retention of privileges.“ In re Grand Jury, 350 F.3d at 306 (emphasis added).

Similarly, the First Circuit held that, in the XYZ/Smallco telephone conversation, XYZ’s counsel ‛did not provide confidential advice during the call but, rather, merely helped to advocate XYZ's position to its co-venturer.“ XYZ Corp. 348 F.3d at 23. (The First Circuit made no similar finding with respect to the letters from XYZ counsel to the government, which were also in the nature of advocacy pieces.)

In fairness, though, this advocacy/advice distinction is really a matter of characterization. In both cases, appellant’s counsel revealed to a third party counsel’s advice to the client, and for that reason both District Judges found waiver. Moreover, neither the First nor the Second Circuit rested its analysis on the advocacy/advice distinction. Both focused, instead, on the extrajudicial nature of the disclosure and the absence of prejudice to the adversary in confining the waiver to the words spoken or written. Both refused to find subject matter waiver or permit discovery into other privileged or protected data relating to the matters disclosed.

This common thread of decision — in two opinions rendered just eight days apart — has potentially significant implications. The ‛selective“ waiver scenario commonly involves disclosures of privileged information occurring extrajudcially, and certainly outside of the litigation in which waiver is asserted. Ordinarily, the disclosure has previously been made to the Securities and Exchange Commission (SEC) or DOJ in connection with an investigation, and subsequently a third party (e.g., shareholder plaintiff) seeks to obtain the documents disclosed. (See the thorough review of the selective waiver cases in In re Columbia/HCA Healthcare Corp. Billing Practices Litig., 293 F.3d 289 (6th Cir. 2002).)

Under the decisions in In re Grand Jury and XYZ Corp., while the documents disclosed to the SEC or DOJ may be subject to discovery (these opinions do not address selective waiver but neither Circuit is hospitable to it), no further discovery into the subject matter is permissible. This is an important limitation on discovery, and may have a significant bearing on the question whether the firm authoring disclosed documents must be disqualified in the later litigation.

The First and Second Circuit’s approval of partial waiver is also important in related settings. For example, in a carefully reasoned decision, Judge Shira A. Scheindlin recently concluded that Wells submissions submitted to the SEC are subject to discovery. In re Initial Pub. Offering Sec. Litig., 21 MC 92 (SAS), 2003 U.S. Dist. LEXIS 23102 (S.D.N.Y. Dec. 24, 2003). Since Wells submissions would appear to differ little from the advocacy-oriented letters submitted in In re Grand Jury and XYZ Corp., the logical conclusion is that none of the underlying drafts or related materials are subject to discovery.

It should be noted that the waiver analyses of both In re Grand Jury and XYZ Corp. more strongly resemble a traditional work-product waiver analysis than an attorney-client privilege waiver analysis. Traditionally, disclosure of work product does not effect a broad subject matter waiver (the waiver is usually confined to work product underlying or relating to that which was disclosed, such as the notes of an interview as to which testimony is given — e.g., United States v. Nobels, 422 U.S. 225, 229 (1975)). In contrast, waiver of the attorney-client privilege does generally extend to the entire subject matter.

Both In re Grand Jury and XYZ Corp. stand for the proposition that, in the context of extrajudicial disclosures of privileged information that do not prejudice an adversary, ‛‘there may be no waiver or only a narrow one,’“ as Judge Miriam Goldman Cedarbaum wrote in the widely-publicized decision concerning Martha Stewart’s email to her daughter, United States v. Stewart, 287 F. Supp. 2d 461, 469 (S.D.N.Y. 2003).

The facts-and-circumstances approach taken by the First and Second Circuit, with their emphasis on the relationship between waiver and prejudice to the adversary, may cause some courts to re-think the general judicial hostility to ‛selective“ waiver altogether.

Finally, as a practice pointer, both In re Grand Jury and XYZ Corp. rely heavily on counsel’s express recitation that no waiver is intended or to be implied. That lesson should not be lost on practitioners.

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