To show that they are good citizens, public companies are often encouraged by the government to investigate wrong-doing by their employees and then to take corrective action. Often these internal investigations are conducted by outside legal counsel, who prepare a report to the board of directors, and legal counsel’s report is typically an attorney-client communication that is protected by the attorney-client privilege from compulsory disclosure to others.
The attorney-client privilege for a communication is normally waived by disclosing the communication to a third party. Regulatory agencies of the federal government (or the Department of Justice) often encourages public companies to share the report of the investigation with the regulator (or the DoJ). This, of course, makes life easier for the government as it gets the benefit of the internal investigation that has already been conducted. Such sharing, however, risks waiving the attorney-client privilege that protects the report from compulsory disclosure to others (such as private parties who might want to subpoena the report). The government and companies coopoerating with the government have argued that such sharing serves a valuable public purpose and that to encourage cooperation with governmental inquiries into corporate wrong-doing, the sharing of such report should not waive the attorney-client privilege (if one is applicable to the report). This approach is called “selective waiver,” which means that a corporation can selectively waive the attorney-client privilege in favor of the government but that such waiver won’t constitute a general waiver.
At least one court has agreed with this theory of “selective waiver,” but most have not. Recently, the Court of Appeals for the Ninth Circuit (which reviews decisions of federal district courts in California and other states) decided that a party waives the attorney-client privilege forever by voluntarily providing to the federal government documents that are protected by the attorney-client privilege. In Re Pacific Pictures Corp. (April 17, 2012 9th Cir.). In so deciding, the Ninth Circuit rejected the notion of “selective waiver” of the attorney-client privilege.
In Pacific Pictures Corp., a party from whom documents were allegedly stolen asked the United States Attorney to investigate. In response to a request from the victim, a grand jury subpoena was issued for documents that were claimed to be protected from disclosure by the attorney-client privilege. In addition, the United States Attorney provided a letter stating that if the party voluntarily complied with the subpoena the government would “not provide the . . . documents . . . to nongovernmental third parties except as may be required by law or court order.” The party then readily complied with the subpoena, making no attempt to redact anything from the documents.
An adverse party in litigation that was then pending immediately requested all documents disclosed to the United States Attorney, claiming that the disclosure of the documents waived any privilege. The district court ordered the documents produced in the litigation, and in denying a petition for writ of mandamus, the Ninth Circuit Court of Appeals upheld the order.
The court of appeals noted that voluntarily disclosing privileged documents to third parties will generally destroy the privilege, which the petitioner conceded, but the petitioner argued that the rule should not apply in this case. The primary contention was that because these documents were disclosed to the government, as opposed to a civil litigant, the disclosure did not waive the privilege as to the world at large. This is the theory of “selective waiver,” which was initially accepted by the Eighth Circuit, Diversified Industries, Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1978) (en banc), but which has been rejected by every other circuit to consider the issue since.
The Ninth Circuit Court of Appeals noted that it twice before declined to decide whether a party may selectively waive the attorney-client privilege by providing documents to the government, but the court met the issue head-on this time.
The court expressed concern about the rationale of the Eighth Circuit in adopting the rule, which was that “[t]o hold otherwise may have the effect of thwarting the developing procedure of corporations to employ independent outside counsel to investigate and advise them in order to protect stockholders.” The Ninth Circuit said that this apprehension has proven unjustified. It noted that public corporations do not require a rule of selective waiver to employ outside consultants or voluntarily to cooperate with the government.
The court noted that “selective waiver” does not serve the purpose of encouraging full disclosure to one’s attorney in order to obtain informed legal assistance, which is the basis for the privilege. The goal of encouraging voluntary disclosure to government agencies would extend the privilege beyond its intended purpose. Since Diversified Industries, there have been multiple legislative attempts to adopt a theory of selective waiver. Most have failed. Given that Congress had declined to adopt a new privilege to protect disclosures of attorney-client privileged materials to the government, the court likewise declined to do so.
The court rejected the claim that a confidentiality agreement with the government could protect disclosure of privileged materials from a waiver (assuming that the letter from the United States Attorney’s office constituted a confidentiality agreement). The court also rejected a claim that the joint-defense doctrine applied.
Since involuntary disclosure does not automatically waive the privilege, the court considered the argument that the disclosure was not voluntary, being in response to a subpoena. In light of the facts that the disclosing party solicited the subpoena and could have asserted the attorney-client privilege in response to the subpoena but chose not to do so, the court held that the disclosure was voluntary.