Well, That Backfired. A Privilege-Waiver Tale for Internal Investigations and In-House Counsel Reply

We know that typically a company waives the privilege covering an internal-investigation memo if it discloses that memo to a government agency.  One company nevertheless wanted it both ways, so it created a second memo summarizing (the favorable) part of an in-house lawyer’s privileged internal-investigation memo, and disclosed the second memo to the feds.  Did this circumnavigation attempt avoid privilege waiver for the internal-investigation memo?

A Missouri federal court found that disclosing the second memo waived the privilege over the in-house lawyer’s memo, and ordered partial disclosure.  Sherman v. Berkadia Commercial Mortgage, LLC, 2018 WL 4300322 (E.D. Mo. Sept. 10, 2018).  You may read the opinion here.

Read This One, Not That One

When an allegation arose that Berkadia falsely certified to HUD that it complied with all HUD regulations, Berkadia retained outside counsel to conduct an internal investigation.  Based on outside counsel’s employee interviews, Berkadia’s in-house counsel drafted a memo about the investigation and underlying events.

Berkadia then prepared a second memo that summarized outside counsel’s investigation. This second memo discusssed some—but not all—details of the investigation findings, and Berkadia decided to disclose this second memo to HUD.

But I Want to Read That One

In an employee’s anti-retaliation lawsuit under the False Claims Act, the employee claimed that Berkadia’s disclosure of the second memo actually waived the privilege over the in-house lawyer’s memo summarizing the internal investigation.  He wanted the privileged memorandum to show that Berkadia had information contradicting its HUD disclosures.

Ruling—The Fairness Doctrine

The court read the in-house lawyer’s memo in camera, and agreed that it met the privilege elements: it contained communications between Berkadia’s in-house lawyer and employees, and was marked “confidential” and “subject to attorney-client privilege.”

The court referenced the at-issue waiver doctrine, which holds that one waives the privilege when it places the subject matter of the privileged communications at issue in the lawsuit.  A “closely related” concept is the fairness doctrine, which states that “a party should not be able to make use of privileged information as a sword when it is advantageous for the privilege holder[,] and then as a shield.”

The court applied this fairness doctrine to thwart Berkadia’s attempt to use the HUD-produced memo but withhold the in-house lawyer’s memo—from which the HUD memo derived—from the employee.  The court found that Berkadia waived the privilege over the in-house lawyer’s memo, and ordered the company to produce the sections that disclosed interviews with Berkadia’s employees.

PoP Analysis

While the company appropriately handled the in-house lawyer’s memo from a privilege perspective, its attempt to “disclose the memo without disclosing it” backfired.  The moral of the story is that disclosing privileged information to government entities typically waives the privilege.

While there are some instances of companies avoiding privilege waiver by entering into a NDA with the governmental entity, as discussed here and here, those situations are rare and companies must proceed with caution.  The “memo about the memo” idea was apparently not cautious enough.

A Review of Judge Kavanaugh’s Privilege Opinions

As the Senate confirmation hearings begin this week on Judge Brett Kavanaugh’s nomination to the U.S. Supreme Court, let’s review the nominee’s privilege opinions from his 12-year stint on the D.C. Circuit Court of Appeals.

By my count, Judge Kavanaugh authored 9 substantive, privilege-related opinions, each summarized below, including a few I discussed in prior PoP posts.  As you will see, Judge Kavanaugh is a strong proponent of the corporate attorney–client privilege, applies statutes’ “plain meaning,” upholds government agencies’ withholding of documents under the deliberative-process privilege, and avoids issuing advisory opinions.

Attorney–Client Privilege

In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014).  In an influential opinion for corporate internal investigations and the corporate attorney–client privilege, Judge Kavanaugh upheld the attorney–client privilege for internal investigations conducted at in-house counsel’s direction.  Judge Kavanaugh ruled that the privilege applied even where government regulations required the investigation, and non-attorneys conducted the employee interviews. And in a move that will please in-house counsel, the SCOTUS nominee rejected a narrow view of the primary-purpose test for communications pertaining to legal and business matters.

Noting “evident confusion” about the primary-purpose test and stating that the district court’s “but for” analysis was “not appropriate for attorney–client privilege analysis,” Judge Kavanaugh articulated this standard: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?” In other words, Judge Kavanaugh rejected the sole-causation test in favor of a broader test that, “sensibly and properly applied, … boils down to whether obtaining or providing legal advice was one of the significant purposes of the attorney-client communication.”  You may read the opinion, and my full analysis of it, at this blog post.

Federal Trade Comm’n v. Boehringer Ingelheim Pharmaceuticals, Inc., 892 F.3d 1264 (D.C. Cir. 2018).  In his last privilege opinion prior to his SCOTUS nomination, Judge Kavanaugh faced the issue of what privilege standard applied to a General Counsel’s communications that involved both legal and business advice.  Judge Kavanaugh, applying his Kellogg decision, eschewed a narrow, but-for standard, and ruled that the privilege covered a General Counsel’s communications involving legal and business issues because “one of the significant purposes of [her] communications was to obtain or provide legal advice,” with an emphasis on “one.”  You may read the opinion, and my earlier analysis, at this blog post.

South Carolina v. United States, No. 12–203, U.S. District Court for the District of Columbia, August 10, 2012.  In this case, Judge Kavanaugh sat on a three-judge panel at the D.C. District Court under §5(a) of the Voting Rights Act.  In South Carolina’s declaratory-judgment action that its voting-related statutory modifications are entitled to preclearance under the Voting Rights Act, the question arose whether the attorney–client privilege protected documents prepared by an attorney for the South Carolina legislature.  Two judges said no—narrowly applying the privilege and finding that the attorney’s work was policy-related, not legal related.

Judge Kavanaugh dissented.  More…

Commentary on The Yates Memorandum

In 2015, then Deputy Attorney General Sally Yates issued a DOJ memorandum on the subject of Individual Accountability for Corporate Wrongdoing, available in full here.  Known as the Yates Memorandum, the DOJ issued this directive to focus on holding individuals responsible for the illegal acts of the corporations for which they worked.

The memorandum, along with DAG Yates’ subsequent remarks, has generated much debate about whether the DOJ was, at least implicitly, returning to a culture of pressuring companies to waive the attorney-client privilege and work-product doctrine.  Now almost three years old and subject to modification under the Trump Administration, Professor Gideon Mark published an excellent article tracing the DOJ memoranda preceding the Yates Memo, and expressing concern over privilege waiver:

[T]he Yates Memorandum is likely to result in continued waivers of the attorney-client privilege and attorney work product protection, even if the DOJ does not make express requests. Waivers no doubt aid the DOJ in criminal and civil investigations, but they also undermine and weaken the attorney-client relationship and the ability of corporations to effectively negotiate with the DOJ during enforcement actions.

Professor Mark proposes tweaks to the memo, including making explicit that DOJ will not implicitly require privilege waiver for cooperation credit.

Still, the Yates Memorandum could benefit from some tweaking. If the DOJ is serious that it does not seek waivers of the attorney-client privilege or attorney work product doctrine, then it probably should make that explicit. Currently, the Memorandum merely states that the DOJ does not require waivers. This is a very different situation from one in which companies nevertheless feel compelled to waive in order to obtain cooperation credit. Similarly, the DOJ should make clear that participation in a joint defense agreement will have no negative impact on whether, or to what extent, a company receives cooperation credit.

The article is a good read, and not just because it cites my article, co-authored with Ty Howard, titled In-House Counsel: Protecting the Privilege in a Post-Yates Memorandum World, 31 Corporate Counsel, No. 3, June 2016 (available here).  You may access Professor Mark’s article, The Yates Memorandum, 51 U.C. Davis L. Rev. 1589 (2018), here.