Protection of privileged information and work product is a perennial concern, for counsel and clients alike. The attorney-client privilege enables clients to seek legal advice from counsel without fear of having their thoughts, concerns or secrets revealed to the outside world. Further, because of the privilege, clients can discuss with counsel even the most sensitive, embarrassing or, sometimes, incriminating matters—information that clients might not otherwise share—thereby enabling clients to receive more accurate, reasoned and essential advice.
If such communications (or related work product) were to end up in the hands of an opponent or prosecutor, the results could be devastating. Consequently, court decisions concerning privilege and work product can be especially important for lawyers and their clients. This article highlights some of the significant decisions of the past year concerning the attorney-client privilege and the work product doctrine, and practices to consider in the wake of such decisions.
The Delaware Chancery Court this past fall addressed for the first time the question of whether, in a merger governed by Delaware law, the seller retains control over its pre-closing privileged communications—and held that the privilege passes to the surviving corporation as a matter of law absent an agreement to the contrary.1
In Great Hill Equity Partners IV v. SIG Growth Equity Fund I, the seller claimed that it retained control of the privilege attaching to its pre-merger communications with counsel, which the buyer (who was suing for fraudulent inducement in connection with the merger) had discovered on computer systems acquired during the merger. The merger agreement, however, did not include any provision to that effect. Moreover, it was undisputed that the rights acquired in the merger were those set forth in the agreement and the Delaware General Corporation Law (DGCL).
Accordingly, Chancellor Leo Strine turned to the DGCL and, based on the plain meaning of section 259, held that the DGCL contained “a clear and unambiguous default rule: all privileges of the constituent corporations pass to the surviving corporation in a merger.”2 Given the absence of a contractual provision to the contrary, Strine concluded that any privilege attaching to the seller’s pre-closing communications with counsel had been transferred to the buyer.
He also warned that “any parties worried about facing this predicament in the future [should] use their contractual freedom…to exclude from the transferred assets the attorney-client communications they wish to retain as their own.”3 In light of Great Hill, merger parties should strongly consider provisions that address the ownership of privileged pre-merger communications post-closing.
In U.S. Bank National Association v. PHL Variable Insurance, Magistrate Judge James Francis in the Southern District of New York addressed the “unsettled question” of whether the work product doctrine protects the identities of persons interviewed by an attorney (or his agent) in anticipation of litigation, and answered that question in the affirmative.4
This issue arose when the plaintiff’s 30(b)(6) witness testified that counsel had conducted interviews of the defendant’s former employees concerning the conduct at issue, but refused to testify further about counsel’s investigations. The defendant moved to compel testimony identifying those who ordered or conducted the investigations, were contacted, or were present during any interviews, and the dates of any interviews, as well as testimony as to whether any documents had been collected from third parties.
Focusing on whether the work product doctrine may protect the identities of interviewees, the court noted the mixed authority from other jurisdictions on this issue. However, it also cited to cases in the Southern District that have observed that such disclosures “have the potential to reveal counsel’s opinions, thought processes, or strategies.”5 Given the plaintiff’s representation that counsel’s decisions as to whom to interview included “a strategic component,” the court found that the interviewees’ identities were protected work product.6 The other factual information sought by the defendant, however, was not deemed work product.
In light of U.S. Bank, clients should ensure that counsel drive the investigation, including determinations as to who is to be interviewed and the information to be sought from interviewees. Further, litigants should consider probing whether opposing counsel was adequately involved in any investigation, and, if not, seeking appropriate discovery.
This past year, a number of courts sanctioned parties that failed to provide adequate privilege logs. Such sanctions included court-ordered waivers of any applicable privilege or protection. A high-profile example of this hazard occurred in the defamation case brought by athletic trainer Brian McNamee against former baseball superstar Roger Clemens.
In McNamee v. Clemens, McNamee sought to compel production of all communications between Clemens, his public relations strategist and/or his sports agent, including communications involving Clemens’ counsel, that Clemens had withheld based on broad assertions of privilege and work product.7 Despite being alerted to the fact that the failure to produce a privilege log violated applicable rules, Clemens did not produce a privilege log until more than a month later, and did so only after the court had ordered that the documents be produced for in camera review. Additionally, the log, when finally produced, was woefully deficient. Accordingly, the court concluded that any privilege or protection had been waived.
While the court took the added step of reviewing in camera the documents at issue (and concluded that “the vast majority” were not, in any event, privileged or protected),8 this case demonstrates that courts are willing to find waiver where an appropriate privilege log is not timely provided. Counsel and their clients would therefore be well-advised to take care in preparing privilege logs in compliance with applicable rules, keeping in mind the very real risk of waiver for failing to do so.
In Gruss v. Zwirn, the Southern District of New York addressed an issue which, it explained, had not been addressed in any precedential decision by the U.S. Court of Appeals for the Second Circuit: whether voluntary disclosure to the government of privileged material waives the privilege “as to underlying documents and vis-à-vis third parties,” where the disclosing party and the government enter into a confidentiality agreement like the one at issue there.9 Judge Paul Gardephe held that it does.
The defendants in Gruss had previously voluntarily disclosed to the Securities and Exchange Commission the results of an internal investigation regarding certain financial irregularities (which were attributed to the plaintiff, who then resigned, filing the instant suit). The defendants’ disclosures, however, had been made pursuant to an agreement that provided that the SEC would maintain the confidentiality of the information received “‘except to the extent that [it] determine[d] that disclosure is required by law or would be in furtherance of the Commission’s discharge of its duties and responsibilities.’”10
Gardephe concluded that this language effectively gave the SEC the “discretion to disclose the submitted materials whenever it chooses”—and, thus, that the confidentiality agreement was “illusory.”11 As a result, when the plaintiff in the instant litigation sought production of materials underlying the presentations made to the SEC—i.e., counsel’s notes and summaries of the witness interviews reportedly summarized in the presentations—the court concluded that the agreement did not shield such materials from disclosure. The court added that the defendants, when making their presentations to the SEC, had “deliberately, voluntarily, and selectively” disclosed privileged communications and work product and that any privilege or protection had therefore been waived not just as to the presentations but as to any underlying materials as well.12
Gruss provides a powerful lesson to counsel negotiating confidentiality agreements with government agencies to which they contemplate disclosing privileged material. At a minimum, counsel should be cognizant of the fact that the contractual language criticized in Gruss may be viewed as gutting any promise of confidentiality.13 In addition, the case serves as a reminder that counsel and their clients should be prepared for the possibility that attorney notes and memoranda of witness interviews or investigations may not be immune from discovery where voluntary disclosures are made to the government.
FRE 502: Underutilized Tool
Despite its potential for resolving conflicts and reducing the uncertainty associated with document production, Federal Rule of Evidence 502 remains underutilized.14 One of the significant protections available to (but infrequently sought by) litigants under FRE 502 is the 502(d) order,15 whose utility may be illustrated by the case of Solis v. Bruister.16 The defendants there were found to have waived privilege and work product protection on multiple grounds (including for failure to produce a timely and adequate privilege log). However, the court, citing FRE 502(d), stated that the defendants’ waiver was limited to the case at bar and, thus, that the compelled disclosure would not effect a waiver in “any other federal, state, administrative, or other proceeding.”17
While parties in a similar predicament should request the same protection, litigants may seek a 502(d) order in other situations. For instance, counsel should consider at the outset of litigation whether it would be beneficial to obtain a 502(d) order limiting the scope of any waiver that may result from disclosure of privileged information (due to inadvertence or otherwise) during the course of document production.
The above decisions underscore the consequence of protecting privilege and work product. Parties and counsel who find themselves in situations such as those in Great Hill, Clemens and Gruss, for instance, can only hope that there are no “smoking guns” in the materials that they are required to produce.
Adam S. Lurie is a partner, Lambrina Mathews is special counsel and Salvatore N. Astorina is an associate in the litigation department of Cadwalader, Wickersham & Taft.
1. Great Hill Equity Partners IV v. SIG Growth Equity Fund I, 80 A.3d 155, 159 (Del. Ch. 2013).
2. Id. at 159 (emphasis in original).
3. Id. at 161.
4. U.S. Bank Nat’l Ass’n. v. PHL Variable Ins., Nos. 12 Civ. 6811, 13 Civ. 1580, 2013 WL 5495542, at *9-10 (S.D.N.Y. Oct. 3, 2013).
5. Id. at *9.
6. Id. at *10.
7. McNamee v. Clemens, No. 09 CV 1647, 2013 WL 6572899, at *1, 8 n.14 (E.D.N.Y. Sept. 18, 2013).
8. Id. at *4.
9. Gruss v. Zwirn, No. 09 Civ 6441, 2013 WL 3481350, at *5 (S.D.N.Y. July 10, 2013).
10. Id. at *1-2.
12. Id. at *13.
13. It should also be noted that the form confidentiality agreement in the SEC Enforcement Manual available online at the time this article was submitted for print (the “SEC Manual”) contains virtually identical language. See SEC Enforcem’t Man. §4.3.1 (2013). However, the SEC Manual also indicates that parties producing privileged materials to the SEC or Department of Justice may be deemed to have waived any privilege attaching to such disclosures, even where made pursuant to a confidentiality agreement. Id.
14. See, e.g., Swift Spindrift, Ltd. v. Alvada Ins., No. 09 Civ. 9342, 2013 WL 3815970, at *4 (S.D.N.Y. July 24, 2013) (“remarkably few lawyers seem to be aware of the Rule’s existence despite its enactment nearly five years ago”). Indeed, a survey of publicly available federal court decisions issued between Sept. 19, 2008 (FRE 502′s effective date) and Dec. 31, 2013, reveals a total of approximately 400 decisions citing to FRE 502, including little more than 100 decisions issued in 2013. Further, with regard to FRE 502(d), for instance (discussed infra), fewer than 90 decisions were located and, of the 22 such decisions issued in 2013, only six cases referenced the entry of a 502(d) order.
15. “A federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court—in which event the disclosure is also not a waiver in any other federal or state proceeding.” Fed. R. Evid. 502(d).
16. Solis v. Bruister, Nos. 4:10-cv-77-DPJ-FKB, -95-DBJ-FKB, 2013 WL 493374 (S.D. Miss. Jan. 22, 2013).
17. Id. at *5.