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It has been a two-year document-production nightmare. Grand jury subpoena after subpoena are served on your corporate client. A million or more pages later, your phone rings with an assistant U.S. attorney calling to tell you the agents have located a document in the production that seems to be an employee’s notes of a meeting with in-house counsel. Worse yet, she wants you to know that a high-level company employee testified at length about attorney-client conversations during a recent grand jury appearance. With this testimony and privileged document in hand, the assistant U.S. attorney says it is time for the company to plead guilty. The prosecutor not only plans to claim complete waiver of the attorney-client privilege due to the testimony and inadvertent production, but she also demands that the company agree to a complete waiver of the privilege (including investigative interviews) under the new Department of Justice corporate prosecution guidelines. If you say no, she will seek significantly greater penalties, including debarment and exclusion from federal programs. A journey through the twisting and conflicting evidentiary and ethical paths surrounding waiver of the attorney-client privilege thus begins. DOES THE PROSECUTOR HAVE AN ETHICAL DUTY TO GIVE THE DOCUMENTS BACK? Before addressing in court whether any waiver has occurred, you should confront the prosecutor, and the prosecutor must confront her ethical obligations. Unfortunately, there is no clear answer as to what those obligations are. Courts, state bar committees and the American Bar Association have all reached different conclusions on the question of what use counsel may make of privileged material produced by an opposing party. For example, in 1994, the ABA Committee on Ethics and Professional Responsibility concluded in Formal Opinion 94-382, that a lawyer who inadvertently receives privileged or confidential information has an ethical obligation either to refrain from reviewing it or review it only to the extent necessary to determine what his or her next proper move should be. The receiving lawyer should inform the sending lawyer of the mistake and then either follow the sending lawyer’s instructions or take the issue to court. However, some state ethics committees have found a lawyer’s ethical duty to be just the opposite. For example, the Massachusetts Bar Association issued an ethics opinion in 1999 concluding that a lawyer in a civil matter who mistakenly received privileged material from opposing counsel had no ethical obligation to return it. Relying on Model Rule 1.3′s directive that a lawyer zealously represent his or her client, the Ethics Committee declared that the receiving lawyer is obligated to reject the opposing counsel’s request for return of the privileged material. SeeMBA Committee on Professional Ethics, Opinion No. 99-4. To make matters more complicated, even in the face of this Massachusetts ethics opinion, the state’s U.S. District Court examined a case in which a paralegal at a law firm mistakenly directed an outside vendor to disclose privileged documents. The law firm receiving the privileged material almost immediately informed the sending firm of the error, segregated the documents and refrained from reviewing them further. The U.S. District Court, in seeming contradiction of the MBA’s ethics opinion, lauded the receiving law firm for its ethical conduct and yet promptly found the privilege to be waived due to gross negligence. See Amgen Inc. v. Hoescht Marion Roussel Inc.,190 F.R.D. 287, 290 n.2 (D. Mass. 2000). To add further chaos in this area, the District of Columbia Bar Legal Ethics Committee, while not addressing whether the inadvertently produced documents had to be returned, concluded that it was not an ethics violation to return an inadvertent communication, but the committee noted it had no power to prevent a malpractice claim based on such a return. SeeOpinion 265 (1995). There is little direct guidance on a prosecutor’s obligation to return inadvertently disclosed privileged materials. Under the ABA’s Model Rules of Professional Conduct, Rule 3.8 Comment, a prosecutor has the responsibility of a “minister of justice and not just an advocate.” Given the liberty interests at stake in a criminal investigation, and the higher ethical obligations of prosecutors than other litigants, one would think that at a minimum the ABA rule of prompt notice and nonuse by the prosecution until the issue is resolved should apply. The scope of the prosecutor’s ethical obligation to stop reviewing privileged documents could have enormous practical impact. One of the factors in the approach taken by many courts, discussed in more detail below, is the extent to which the disclosed information has been relied on. Thus, if a prosecutor receives information and uses it in the grand jury and elsewhere for an extended period, the prejudice to the government of returning the document is increased. For example, documents were inadvertently disclosed to the Antitrust Division of the DOJ which, with knowledge of their privileged character, copied, digested and used them in connection with its grand jury investigation. The court held that it would be unfair to order the government to return the documents since they had been “thoroughly examined and used” for several years. In re Grand Jury Investigation of Ocean Transp., 604 F.2d 672, 674-75 (D.C. Cir. 1979). The ruling encourages the government to look thoroughly into inadvertently disclosed documents and integrate them into its investigation. To do differently — to segregate the documents and not review them — could cause a court to order their return. With these conflicting ethical obligations at the forefront, is there a predictable legal standard in the background? Not close. CAN THE BOSS WAIVE THE COMPANY’S PRIVILEGE? You start by thinking at least the company’s privilege cannot be waived by an employee’s testimony about attorney-client conversations. However, a recent New York case suggests that even when a publicly held corporation has steadfastly and explicitly refused to waive the privilege, the controlling shareholder’s disclosure of privileged conversations in a grand jury appearance may constitute a waiver by the company. See In re Grand Jury Proceedings U.S. v. John Doe, 219 F.3d 175, 179 (2d Cir. 2000). In Doe, the corporation received a grand jury subpoena specifically requesting attorney-client communications, which the corporation refused to produce. Accordingly, the prosecutors subpoenaed in-house counsel and the controlling shareholder to the grand jury, where they answered a number of questions, some regarding privileged conversations. The government then sought to compel disclosure of all related privileged communications and documents based on “waiver.” Both the district court and the 2nd U.S. Circuit Court of Appeals applied “a fairness test” to determine waiver. The district court concluded that the conduct of the controlling shareholder constituted a blanket waiver of the privilege since he revealed privileged communications for strategic reasons. Thus, despite the corporation’s instructions not to disclose privileged information, fairness compelled a complete waiver. The 2nd Circuit remanded, insisting on a more nuanced analysis. The 2nd Circuit began by rejecting the “never-waived” view proposed by the company: Individuals can waive a corporate privilege. The court also rejected the government’s “always waived” position: The controlling shareholder does not automatically waive the privilege. Instead, the court’s “fairness test” considered numerous factors, including: � The corporation’s unmistakably clear efforts to preserve the privilege. � The fact that the witness’ statements were made in the grand jury without the aid of counsel. � The fact that the witness was subpoenaed in his individual capacity. � The extent to which the statements were made for tactical advantage. � The different interests of the testifying shareholder as compared to the company. � The extreme consequence of waiver for a defendant in a criminal case. � The limited prejudice to the government of strategic disclosure by a witness in a grand jury as opposed to a trial. � How early in the grand jury investigation the disclosure was made. In remanding, the 2nd Circuit directed the district court to consider not only whether waiver was justified but also, if so, whether the scope of the waiver should be more limited than a waiver covering the entire subject matter that was ordered below. The 2nd Circuit view reflects the current state of the law. Both as to the existence of a waiver and its scope, the benchmark is a multifaceted balancing test to determine “fairness.” WHAT’S A COURT GOING TO DO ABOUT THE DOCUMENTS? The multifaceted test of fairness is a relatively recent phenomenon. Traditionally, many courts took a “strict liability” approach, holding that inadvertent disclosure of privileged documents will always result in the waiver of the attorney-client privilege — a rule that was applied mostly, but not exclusively, in civil cases. See, e.g., In re Sealed Case, 877 F.2d 976, 980 (D.C. Cir. 1989). On the other extreme, a few courts have held that inadvertent disclosure of privileged documents never results in a waiver. This approach recognizes the harshness of the always-waived position and adopts the notion that the waiver of any privilege must be an intentional relinquishment. Such an intent does not exist when a lawyer mistakenly produces confidential material. See Mendenhall v. Barber-Greene Co., 531 F. Supp. 951, 955 (N.D. Ill. 1982). While waiver of constitutional rights, including privileges, must be “knowing,” this is a minority position for the attorney-client privilege. The subjective approach is reflected in the Proposed Federal Rule of Evidence 503, which provides that “a communication is confidential if not intended to be disclosed to third persons.” While the “never waived/always waived” approaches provide predictability in inadvertent disclosure cases, the majority position today is the “balancing test.” The “balancing test” approach imposes consequences on the grossly negligent without punishing good-faith mistakes. This rule developed partly in recognition of the new realities of litigation, largely in the context of huge document production in the IBM class actions and was then applied in cases of less enormous production. In determining whether inadvertently disclosed privileged materials waive the attorney-client privilege, these courts consider the totality of the circumstances and balance several factors similar to those enumerated by the 2nd Circuit in Doe. See Amgen, 190 F.R.D. at 291 (D. Mass. 2000). HOW MUCH OF THE PRIVILEGE DID YOU WAIVE? The reported cases frequently find some waiver when privileged documents are produced or testimony given. It is now your job to limit the scope. Again, there is little predictability here. The general rule is that waiver encompasses the “subject matter” of the communication. But what does that mean? Interpretations of “subject matter” vary from case to case. The subjective intent of the client or attorney who disclosed the confidential information should, and often does, matter. The easy case is when an individual tries to tell a misleading story through intentional selective disclosure of privileged information. A broad subject matter waiver inevitably follows since, in the interests of fairness, a party cannot use the privilege simultaneously as a shield and a sword. See Rivera v. Kmart, 190 F.R.D. 298, 304 (D. P.R. 2000). When a disclosure to the government is accidental, however, fairness should dictate a narrow scope of the waiver. This rule has already been applied by courts in civil cases. For example, in ICI Americas Inc. v. John Wanamaker of Philadelphia, 1989 WL 38647, at *3 (E.D. Pa. April 18, 1989), the court held that it would be “patently unjust” to allow the defendant “wholesale access” to the plaintiff’s documents after the plaintiff inadvertently disclosed four privileged documents during a 3,300-page production. When applying this rule to criminal matters, one recognizes there is no prejudice to the government from an inadvertent disclosure. How is it unfair to the government that it already know more than it should? Yet the Justice Department’s formal policy on the attorney-client privilege in corporate prosecutions seems based on a notion that all information somehow belongs to the government and every procedural opportunity or tactical advantage should be exploited. DOES THE DOJ POLICY MAKE IT ALL MOOT? You can fight over the privilege and scope of any waiver but, ultimately, the government will demand corporate capitulation on the privilege anyway. In a June 16, 1999, memorandum titled “Federal Prosecution of Corporations” from Deputy Attorney General Eric Holder to all U.S. attorneys, the DOJ announced that among the factors to be considered in charging a corporation is “its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of the corporate attorney-client and work product privileges.” Waiver of the privilege is now a routine part of discussing a corporate resolution. One prosecutor recently expressed a reluctance to settle without a waiver because she “did not know what the government was giving up” by not insisting on disclosure. Giving up? Privileged information used to belong to the client; now it apparently belongs to the government. Not only does the DOJ’s policy unjustly exploit the inherent imbalance of power between the government and the “investigated” in any criminal investigation, but it also serves to discourage the acquisition of legal advice by corporations in the first place. Indeed, it may well result in less written legal advice. A SENSIBLE RULE FOR INADVERTENT DISCLOSURE Inadvertent disclosure of privileged information should result in only a limited waiver permitting use of the information to prepare for trial (such as to propound questions, identify witnesses, etc.), but not as admissible evidence. This simple rule recognizes that courts almost always find some waiver in such cases, and that it is impossible as a practical reality to get the information out of counsel’s mind once received. A limited waiver of this kind would deter sloppiness without punishing it unduly. In contrast, a broad subject matter waiver should be found in the case of intentional disclosure, to prevent unfair advantage from selective disclosure of privileged information. Under this simple rule, attorney-client privilege would retain its vitality as a cloak that helps companies comply with the law. The rule also would remove the ethical dilemma for recipients of privileged information. There would be no need to notify the other side or seek court approval because investigative use would be proper and zealous representation would not be compromised. CONCLUSION Practically speaking, upon realizing there has been an inadvertent disclosure, counsel’s best strategy is to take immediate remedial steps, appeal to the prosecutor’s ethical sensibilities, insist that documents be returned and marshal the relevant arguments focused on the unfairness of finding a waiver in a particular case or why a broad waiver would be unfair. But with the DOJ’s new focus on forcing waivers as part of resolving corporate investigations, it may simply be a case of “waive me now or waive me later” for the attorney-client privilege. Joseph F. Savage, Jr. is a partner specializing in complex business litigation and white collar criminal defense in the Litigation Practice Group at Boston’s Testa, Hurwitz & Thibeault, LLP. Melissa M. Longo is an associate at the firm.

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