Court Imposes “Significant Waiver” for Disclosure of Privileged Investigation to DOJ and SEC

It is often a tough dilemma.  A corporate entity conducts an internal investigation into alleged wrongdoing by corporate executives and must decide whether to disclose the investigation results to a governmental agency.  On the one hand, disclosing the investigation could significantly damage executives that are targets of a law-enforcement agency’s scrutiny.  On the other hand, refusing to share information—including privileged information—may result in harsher penalties for a non-cooperating entity.

The decision to share the results of a privileged investigation may have unintended waiver consequences, as an opinion from the federal court in New Jersey proves. In a FCPA criminal case against a company’s former CEO and CLO, the court ruled that the company’s disclosure of portions of an internal investigation to the SEC and DOJ constituted privilege waiver.  And not just a waiver of the parts actually disclosed to the federal government, but also to undisclosed documents such as interview memoranda, notes, and summaries.  United States v. Coburn, 2022 WL 357217 (D.N.J. Feb. 1, 2022).  You may read the opinion here.

Hotline Report, Internal Investigation, and Disclosure

In 2016, Cognizant Technology Solutions launched an internal investigation, later turned over to an outside law firm, following a compliance hotline tip that employees had bribed an Indian government official to secure new facilities in that country.  The Wall Street Journal, in an article available here, reported on this development, including that Cognizant self-reported the investigation and possible FCPA violations to the SEC.

And clearly Cognizant cooperated with the SEC and DOJ.  It disclosed portions of its lawyer-led, privileged investigation, including summaries of 42 detailed interviews of 19 different employees. Cognizant ultimately settled with the SEC for a $25 million civil penalty, with the SEC’s Civil Penalty noting that Cognizant voluntarily provided information from its internal investigation to the Commission.  And it later settled a shareholders’ class action lawsuit for $95 million arising from the same misconduct charges, as Reuters reported here.

An Indictment, a Subpoena, and a Privilege Objection

In 2019, the DOJ indicted the CEO and CLO, alleging that they authorized a $2 million bribe to an Indian government official.  You may read the indictment here, the DOJ’s press release about it here, and the Journal’s reporting on it here.

The CEO and CLO later subpoenaed Cognizant, seeking documents related to and underlying the internal investigation.  While the criminal defendants challenged that “some” of the investigation material “may” relate to business advice, they primarily argued that Cognizant’s disclosure of investigation materials waived the privilege as to all investigation materials.

Waiver Rules

The court readily found that the attorney–client privilege protected Cognizant’s internal investigation.  After all, the defendant CLO originally led the investigation only to turn it over to outside counsel for completion. The “real issue,” the court noted, was “the scope of any waiver of the privilege.”

A client waives the attorney–client privilege when it discloses privileged information to a third party. The privilege’s purpose is to promote frank and open communications between a client and his lawyer, and disclosing information to third parties implies that the client would have disclosed the same information to his lawyer even without privilege protection.

A client waives work-product protections when he discloses work product to a third party if that disclosure would enable an adversary to gain access to the information. This type of disclosure, the court observed, “negates the secrecy rationale” of work-product protections.  So, in sum,

Disclosure of communications may waive both attorney–client and work product protections if that disclosure undermines the purpose behind each privilege.

If a court determines waiver occurred, the next task is defining the scope of that waiver.  Waiver covers the disclosed documents, of course, but also undisclosed documents where the waiver was intentional, the undisclosed documents pertain to the same subject matter, and fairness dictates broadening waiver to the undisclosed documents.  As summarized by the court, this “subject matter waiver” typically occurs where the privilege holder uses the privilege as a sword and a shield and where the other party would be prejudiced.

Ruling: “Significant Waiver”

The court quite easily found “significant waiver” because of Cognizant’s disclosure of internal-investigation materials to the government.  First, the court held that Cognizant waived the privilege over documents, including accounts of interviews, disclosed to the DOJ, because—

By disclosing this information to the Government while under threat of prosecution, Cognizant handed these materials to a potential adversary and destroyed any confidentiality they may have had, undermining the purpose of both attorney–client and work product privileges.

Second, applying the subject-matter waiver rules, the court held that Cognizant’s voluntary disclosure of materials, or “revelation of the fruits of its investigation,” also waived the privilege over undisclosed materials that “concern the same subject matter.”  So, the court ruled that Cognizant waived the privilege over—

• All memoranda, notes, summaries, and other records of interviews.
• To the extent that Cognizant conveyed the contents of documents or communications, the underlying documents or communications themselves.
• Documents and communications reviewed and that formed any part of the basis of any written or oral presentation the DOJ.

Essentially, folks, the bulk of Cognizant’s investigation.