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

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.