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A pending case in the 9th U.S. Circuit Court of Appeals may cause corporations to hesitate before cooperating with government investigators and turning over the results of internal investigations and audits. A California federal district court in United States v. Bergonzi, 216 F.R.D. 487 (N.D. Calif. 2003), was faced with the question of whether two former officers of McKesson Corp. could obtain the report of an internal investigation, including the related backup material and interview memoranda, which McKesson had already disclosed to the Securities and Exchange Commission (SEC) and the U.S. attorney’s office in connection with their investigation of the company. The district court rejected McKesson’s arguments that the attorney-client privilege and the work-product doctrine protected the report from disclosure and held that the report, including the audit and interview memoranda, must be produced to the defendant officers. Id. at 502. Oral argument was held in the 9th Circuit on Sept. 15, 2004, and a decision has not been issued to date. This article discusses the California district court decision and rulings of other circuits, and it analyzes how the 5th Circuit might rule if faced with the same issue. In April 1999, McKesson announced that its auditors had found accounting irregularities, setting off a number of private securities fraud actions as well as an investigation against the defendants, who are former executives of a company acquired by McKesson. Id. at 490. “In light of these accounting problems,” McKesson’s board of directors authorized an audit committee to conduct an internal investigation and make policy recommendations. Id. The audit committee retained Skadden, Arps, Slate, Meagher & Flom for legal advice, which in turn retained PricewaterhouseCoopers LLP (PWC) to help with the audit. Id. Within weeks, Skadden and PWC met with the SEC and entered into a confidentiality agreement “which stated that the Company was conducting an internal investigation, likely culminating in the preparation of a Report, . . . that [it] would provide this Report to the SEC when completed” and that it “has a ‘common interest’ with the SEC ‘in obtaining information contained in the Report and Backup Materials if it is able to do so without losing protection from further disclosure.’ ” Id. at 491. The agreement also recognized that access to the report and backup materials would assist the SEC “ in carrying out its law enforcement responsibilities.” Id. Skadden then entered into a similar agreement with the U.S. attorney’s office. Id. During its investigation, Skadden conducted interviews of current and former employees and prepared its report based on these interviews. Days after the SEC issued a formal order of investigation of McKesson, Skadden presented its report to the audit committee and provided copies of both the report and related interview memoranda to the SEC and the U.S. attorney’s office. Id. After the individual defendants were ultimately indicted for securities, mail and wire fraud, McKesson discovered that the government had inadvertently produced four interview memoranda to the defendants and moved to intervene on the ground that the documents produced were privileged. The defendant officers moved for production of the report and all backup material, arguing that McKesson waived all claims of privilege by producing the materials to the government. Id. The court agreed and ordered that the materials be produced. The court held that “communications between client and attorney for the purpose of relaying communication to a third party [are] not confidential and not protected by the attorney-client privilege.” Id. at 493. Although the agreements indicated a desire to keep the report confidential, they also made clear-prior to its preparation-that the report would be disclosed to the government. Id. “Thus, the court is not persuaded that the Company intended the communications to remain confidential, as it must have in order for the privilege to apply in the first instance, and finds that the Company failed to meet its burden of persuading the Court that the attorney-client privilege applies to the documents sought by Defendants.” Id. at 494. The court found that the privilege never attached and therefore there was no privilege to waive. Id. In contrast, the court found that the report did initially fall within the work-product protection because it was prepared in response to securities fraud suits being filed against the company and individual employees. Id. However, the court found that the protection was waived because McKesson did not share a common interest with the government when it shared documents with it. The company had argued that by “engaging Skadden to conduct a review to determine, among other things, whether any individuals violated the federal securities laws in connection with the merger, it shared common interests with Government.” Id. at 495. But the defendants argued that the company and the government were adverse, “specifically pointing to language in the [U.S. attorney's office] agreement which contemplated future prosecution of the company.” Id. The court found that the two could not have a “true common goal” because “it could not have been the Company’s goal to impose liability onto itself, a consideration always maintained by the Government,” and because the agreement between McKesson and the government was “not unconditional.” Id. at 496-97. Ultimately, the court rejected McKesson’s “selective waiver” argument, reasoning that “it is inherently unfair to permit an entity to choose to disclose materials to one outsider while withholding them from another on grounds of privilege.” Id. at 497. Thus, the court held, once work- product protection is waived as to one adversary, it is waived as to all. Id. at 498. The issue in other circuits Several other federal courts of appeals have already addressed this issue. The D.C., 1st, 3d and 6th circuits have completely rejected the idea that the attorney-client privilege or work-product doctrine protection are not waived by virtue of the “selective waiver” or “limited waiver” doctrine by production to the government, even if the government and the company enter into a confidentiality agreement. See. e.g., In re Columbia/ HCA Healthcare Corp. Billing Practices Litig., 293 F.3d 289, 307 (6th Cir. 2002); United States v. Mass. Inst. of Tech., 129 F.3d 681, 684 (1st Cir. 1997); Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414 (3d Cir. 1991); Permian Corp. v. United States, 665 F.2d 1214, 1222 (D.C. Cir. 1981); cf. Burden-Meeks v. Welch, 319 F.3d 897, 899 (7th Cir. 2003) (suggesting that the court would follow the majority view and reject the “selective waiver” or “limited waiver” doctrine). The 6th Circuit’s decision in In re Columbia/HCA Healthcare Corp. (the most recent decision in this line of cases) is particularly helpful, as it catalogues and analyzes the other courts’ decisions and includes a forceful dissent. The Federal, 2d and 4th Circuits have rejected the “selective waiver” doctrine but have not addressed it in a context in which the government and the company have entered into a confidentiality agreement. Genentech Inc. v. U.S. Int’l Trade Comm’n, 122 F.3d 1409, 1415 (Fed. Cir. 1997); In re Steinhardt Partners L.P., 9 F.3d 230 (2d Cir. 1993); In re Martin Marietta Corp., 856 F.2d 619, 623 (4th Cir. 1988). The 8th Circuit alone has unqualifiedly adopted the “selective waiver” doctrine. Diversified Indus. v. Meredith, 572 F.2d 596 (8th Cir. 1978) (en banc). Notably, courts of appeals considering this issue with respect to internal investigations have taken varying approaches. See, e.g., In re Steinhardt, 9 F.3d at 230; Diversified Indus., 572 F.2d at 596. However, the majority rule clearly provides, particularly absent a strong confidentiality agreement, that disclosure to the government will destroy the protections of the attorney-client privilege and work- product doctrine. The 5th Circuit has not yet addressed this issue, but given its precedent on attorney-client privilege and work-product protection, the prospects of obtaining access to internal investigation reports appear rather strong, notwithstanding one district court decision indicating otherwise. The 5th Circuit has held that “[w]hen relayed to a third party that is not rendering legal services on the client’s behalf, a communication is no longer confidential, and thus it falls outside of the reach of the privilege.” Nguyen v. Excel Corp., 197 F.3d 200, 207 (5th Cir. 1999). The “disclosure of any significant portion of a confidential communication waives the privilege as to the whole.” United States v. El Paso Co., 682 F.2d 530, 538 (5th Cir. 1982). Further, such a waiver extends to all communications on the same subject matter. See, e.g., Aspex Eyewear Inc. v. E’Lite Optik Inc., 2002 U.S. Dist. Lexis 13118, at 9 (N.D. Texas 2002). The 5th Circuit has also stated quite clearly that “[a] communication divulged to ‘strangers’ or outsiders can scarcely be considered a confidential communication between attorney and client.” United States v. Gordon-Nikkar, 518 F.2d 972, 975 (5th Cir. 1975). Thus, “[a] communication that would otherwise be privileged loses its protection if it is shared with a third party who does not have a common legal interest.” Robinson v. Texas Auto. Dealers Ass’n, 214 F.R.D. 432, 445 (E.D. Texas 2003). However, in what appears to be an isolated case, a Texas district court opinion-from Judge Patrick Higginbotham, who now sits on the 5th Circuit-held that a company’s disclosure of documents to the SEC did not justify discovery of the documents. In re LTV Sec. Litig., 89 F.R.D. 595, 605, 615 n.13 (N.D. Texas 1981). (The 5th Circuit has since noted that a district court “held that [a company] did not waive its [work-product doctrine] claim by making certain disclosures to the SEC” and noted that “[t]his holding is not disputed.” In re Int’l Sys. & Controls Corp. Sec. Litig., 693 F.2d 1235, 1238 (5th Cir. 1982).) With regard to the work-product doctrine the 5th Circuit has held that, “because the work product privilege looks to the vitality of the adversary system rather than simply seeking to preserve confidentiality, it is not automatically waived by the disclosure to a third party,” even when the third party does not share a common legal interest. In re Grand Jury Subpoena, 220 F.3d 406, 409 (5th Cir. 2000). At the same time, the “work product privilege is waived when the attorney requests the witness to disclose the information or when the attorney discloses the information to the court voluntarily or makes no objection when it is offered.” Shields v. Sturm, Ruger & Co., 864 F.2d 379, 382 (5th Cir. 1989). On the other hand, one court has held that a wholesale subject-matter waiver of work-product protection should only be found when it would be inconsistent with the purposes of the work-product doctrine to limit the waiver to the actual documents disclosed and, in particular, when the facts relevant to a narrow issue are in dispute and have been disclosed in such a way that it would be unfair to deny the other party access to other facts relevant to the same subject matter. Varel v. Banc One Capital Partners Inc., 1997 U.S. Dist. Lexis 4711, at 9 (N.D. Texas 1997). But when the subject matter has been disclosed to gain a tactical advantage-which presumably could include leniency in a government investigation-courts recognize waiver of whole subject areas. Id. Internal investigation reports are not necessarily work product when the investigation was conducted for a business, and not a purely legal, purpose (see, e.g., Navigant Consulting Inc. v. Wilkinson, 220 F.R.D. 467 (N.D. Texas 2004)), but all “gray areas” should be resolved in favor of protecting the documents. Texas Auto Dealers Ass’n, 214 F.R.D. at 446. On balance, the decided cases suggest that the 5th Circuit, if faced with this issue, would likely reach the same decision as the district court in Bergonzi and require production of such materials when they have already been disclosed to the government. The task would be to convince a district court that the reasoning of Bergonzi is consistent with the 5th Circuit’s general approach to waiver of the attorney-client privilege and work-product protection or to argue that Higginbotham’s approach was the more correct, or as he put it, “fair” approach, depending on whether you are seeking protection for or production of internal investigation materials. Kara Altenbaumer-Price is a litigation associate at Dallas’ Hughes & Luce. She practices in the areas of white-collar defense, appellate and telecommunications. David Horan, a former associate at the firm, did much of the research for this article.

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