Commercial Litigation and Arbitration

Privilege and Work Product Developments 2010

Privilege and Work Product Developments 2010

Gregory P. Joseph*

A recent decision by the D.C. Circuit highlights two cert-worthy issues concerning the scope of work product protection. This article discusses this and other interesting recent opinions dealing with attorney-client privilege and the work product doctrine.

Audit-Generated Documents and Work Product. U.S. v. Deloitte, 610 F.3d 129 (D.C. Cir. 2010) holds that work product protection extends to an auditor-created document that was prepared in the course of determining appropriate litigation reserves and contains the legal advice of counsel to the audit client. The D.C. Circuit employed a content-based approach to work product, declaring the “question is not who created the document or how they are related to the party asserting work-product protection, but whether the document contains work product — the thoughts and opinions of counsel developed in anticipation of litigation.” The Deloitte Court reasoned that the document was created “because of litigation” (the test for work product in most Circuits), even if it was created in the course of an audit. Deloitte. is also the first Circuit opinion to address whether disclosing work product to an auditor constitutes waiver. The Court concluded that the auditor’s duty to preserve the confidentiality of client communication supported a reasonable expectation that the information would not be disclosed to the adversary, and, therefore, no waiver occurred.

Contrast with Deloitte the First Circuit’s decision in United States v. Textron Inc., 577 F.3d 21 (1st Cir. 2009), which holds that tax accrual workpapers prepared by lawyers and others to support calculation of tax reserves are not entitled to work product protection. The First Circuit reasoned that: “It is not enough to trigger work product protection that the subject matter of a document relates to a subject that might conceivably be litigated,” observing that the test under Rule 26(b)(3) is whether the materials were “prepared for litigation or trial[.]” These materials, the Court wrote, were prepared for an audit, which is legally required of all public companies. It concluded that: “Every lawyer who tries cases knows the touch and feel of materials prepared for a current or possible (i.e., ‘in anticipation of’) law suit.... No one with experience of law suits would talk about tax accrual work papers in those terms.”

Whether work product protection covers reserve-related workpapers has bedeviled courts for years. The proper interpretation of Rule 26(b)(3) in this context is worthy of Supreme Court review because it has implications for every material litigation of every public company. It would also behoove the Supreme Court to address definitively the extent to which Rule 26(b)(3) occupies the field of work product protection, at least insofar as it pertains to documents and electronically stored information (the Rule does not address oral work product, which lower courts have left to common law development). Nor has the Supreme Court ever addressed whether the “because of litigation” test is the proper test under Rule 26(b)(3), and that is the subject of a Circuit (the Fifth Circuit applies a unique “primary motivating purpose” test). Equally important, Deloitte and Textron illustrate different understandings of the “because of litigation” test. Deloitte considers it sufficient that underlying litigation was the precipitating factor requiring reserves and, therefore, creation of the workpapers. Textron looks at the audit as a legally-mandated intervening event as the precipitating factor that required the workpapers, thus resulting in no work product protection. This is essentially a proximate cause analysis on which the courts disagree.

A fundamental question is why an adversary should have an avenue to discover work product; whether there is a reasonable expectation of confidentiality for information provided to an independent auditor; and whether sound public policy (as reflected, inter alia, the securities laws) is furthered by discouraging unfettered discussion of litigation between counsel to audit clients and auditors about risk and exposure. Textron does not end communication with auditors, but it changes it. It dictates more guarded, higher level discussions that reference as few specifics as possible. There are separate issues concerning the discoverability and admissibility of reserve-related information on which courts are also split (e.g., is a reserve an admission or merely a recognition of exposure?), many of which presuppose access to reserve workpapers.

Reliance on Fact of Consultation vs. Advice of Counsel. A trustee in CFIP Master Fund v. Citibank, 2010 U.S. Dist. LEXIS 97771 (S.D.N.Y. Sept. 18, 2010), asserted as a defense that it acted in good faith, in part by consulting with outside counsel. The Court held evidence of the fact of consultation with counsel did not effect a waiver of attorney-client privilege because “[t]he focus of [the] ‘good faith’ defense is on the nature of the inquiry that [the trustee] undertook, not the substance of the legal advice that was eventually provided.” If, however, the party consulting with counsel relies on the substance of the advice conveyed, the result is different. See Henry v. Quicken Loans, 263 F.R.D. 458 (E.D. Mich. 2008) (“when a party asserts a defense of good faith ... and affirmatively offers testimony that the party consulted with their attorney as factual support for the defense, and when counsel's advice in some way supports the defendant's good faith belief, the defendant has put his counsel's advice ‘at issue’ and thereby waives the attorney client privilege”).

Non-Lawyer’s Draft Report Protected as Non-Core Work Product. In response to a gender discrimination claim, the defendant U.S. Army in Nelsen v. Geren, 2010 U.S. Dist. LEXIS 89039 (D. Or. Aug. 27, 2010), assigned a non-lawyer to conduct an internal investigation. Her report was held to be work product because “Rule 26(b)(3) protects from discovery documents that are prepared in anticipation of litigation by a party or ‘its representative,’ which includes individuals other than attorneys.” However, after finding the defendant had waived the protection other than for core work product, the Geren Court rejected the notion that “the mental impressions, conclusions, or opinions of a party representative who is not an attorney are protected core work product.”

Subject Matter Waiver by Press Release. The plaintiff in E.I. duPont de Nemours & Co. v. Kolon Indus., 2010 U.S. Dist. LEXIS 77075 (E.D. Va. July 30, 2010), shared documents with federal law enforcement officials and issued a press release revealing information it received from them. Sharing did not effect a waiver of work product protection because the government was not an adversary, and the plaintiff reasonably expected that the government would not disclose the information further. The press release did effect a subject matter waiver of work product protection, however, because “public disclosure ... destroys any expectation of privacy for the disclosed information.”

At Issue Waiver. The claim in Ill. Central R.R. v. Harried, 2010 U.S. Dist. LEXIS 20938 (S.D. Miss. Feb. 11, 2010) was fraudulently-induced settlement, and the defendants argued that this placed at issue all advice the plaintiff received from its counsel in deciding whether to settle. The Court held that the plaintiff’s claim relied on false information provided by the defendants and did not place at issue advice received from its own counsel. (A similar result was reached in Morande Auto. Group v. Metropolitan Group, 2009 U.S. Dist. LEXIS 19804 (D. Conn. Mar. 12, 2009).) That did not insulate all attorney-client communications, however. The Harried Court found that the privilege did not extend to facts incorporated in the communications between counsel and client because those had been placed at issue, and the “documents that show factual information [plaintiff] relied upon in deciding to settle ... are discoverable.”

Factual Content of Privileged Emails. Echoing in a different context that the privilege does not protect against discovery of the underlying facts, Hilton-Rorar v State & Fed. Commc’ns, 2010 U.S. Dist. LEXIS 36121 (N.D. Ohio April 13, 2010) cites numerous authorities holding that merely attaching a document, including another email, to an email between client and attorney does not confer protection on the attachment. The email containing the attachment is privileged, but the unprivileged attachment must be separately produced. “To find otherwise, would essentially exempt from protection all business communications.”

Privilege and Email: Third Party Access. One question in Green v. Beer, 2010 U.S. Dist. LEXIS 87484 (S.D.N.Y. Aug. 24, 2010) was whether the privilege was waived by a son’s receipt of email from his parents’ counsel on his parents’ behalf, as they lacked technical proficiency in the use of email. The Green Court found no waiver under New York law, relying on CPLR § 4548, which provides that: “No communication ... shall lose its privileged character for the sole reason that it is communicated by electronic means or because persons necessary for the delivery or facilitation of such electronic communication may have access to the content of the communication.”

Privilege Passes with Asset Sale of Business. Defendant Kenra, Ltd., purchased substantially all of the assets, and continued the operation, of Kenra, LLC. The plaintiff in Gilday v. Kenra, Ltd., 2010 U.S. Dist. LEXIS 106310 (S.D. Ind. Oct. 4, 2010) argued that the attorney-client privilege did not pass with the sale of assets, but required acquisition of the entity. The Gilday Court concluded that “[a]cquisition of substantially all of a corporation's assets and continuity of business operations support transfer of the privilege.”

Sharing Work Product with Third Party Who Later Must Produce it. Although Williams & Connolly v. SEC, 2010 U.S. Dist. LEXIS 78570 (D.D.C. Aug. 4, 2010) dealt with Freedom of Information Act exception 5, the court relied on work product case law, which is incorporated within that exception. Williams held that the SEC did not waive protection by providing handwritten notes of SEC lawyers to the Department of Justice, even though DOJ was later required to produce the notes under the Federal Rule of Criminal Procedure 16. The Williams Court relied on Martin v. DOJ, 488 F.3d 446 (D.C. Cir. 2007), which held that the Federal Deposit Insurance Corporation did not waive work product protection over a document that it provided to the Department of Justice, which then disclosed it to another party in litigation.

Foundation for Crime-Fraud Exception. To successfully invoke the crime-fraud exception to the attorney-client privilege, under U.S. v. Boender, 2010 U.S. Dist. LEXIS 20670 (N.D. Ill. Mar. 8, 2010), the moving party must show “‘some foundation in fact’” that the exception has been triggered. The key foundation is the criminal intent of the client, even if the wrongdoing was not successfully accomplished. “[T]he wrongdoing ‘need only have been the objective of the client's communication.’ ... [I]t is the intent of the client, rather than the intent of the lawyer, that governs whether the crime-fraud exception applies.”


Mr. Joseph, of Gregory P. Joseph Law Offices LLC, New York, is the President of the American College of Trial Lawyers and a past Chair of the Section of Litigation of the American Bar Association. He can be reached at © 2010 Gregory P. Joseph.

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