The Ninth Circuit formally adopted a standard for determining whether a party waived protections of the work-product doctrine, and it is significantly different than the standard governing attorney–client privilege waiver. The Court held that a party waives work-protections when it discloses work-product materials to an adversary in litigation or substantially increases the chances of disclosure to an adversary. This standard means that disclosure to a “conduit to an adversary” results in waiver. United States v. Sanmina Corp. & Subsidiaries, 2020 WL 4558285 (CA9 Aug. 7, 2020).

This opinion, available here, contains significant privilege and work-product waiver issues, so let’s unpack it.

 

 

 

 

 

An Opinion, a Footnote, and Disclosure

Sanmina Corporation took a $503M worthless stock deduction based on its ownership shares in a Swiss subsidiary. It anticipated IRS scrutiny of such a large deduction—correctly, as it turned out—and retained DLA Piper. But for what purpose, exactly?

The law firm stated that Sanmina hired it to “provide an estimate of the fair market value” of 100% of its common stock of its wholly owned subsidiary. Sanmina’s Director of Tax Controversy and Tactical Support (an awesome title, by the way) added, in a declaration available here, that Sanmina sought “advice” from DLA in anticipation that the IRS would disagree with the size of its worthless tax deduction. Does this mean that Sanmina sought “legal advice” from the firm?

Whatever the purpose, DLA produced a 102-page valuation report. On page 56 of that report—in a footnote—DLA cited as support two memoranda authored by Sanmina’s in-house counsel. Note that the footnote referenced the in-house lawyers’ memos but did not disclose their content.

DLA provided the valuation report to Sanmina and Sanmina disclosed the report—with the footnote—to the IRS.  And, of course, the IRS demanded production of the in-house counsel memos.

Trial Court Ruling

No one disputed that the attorney–client privilege and work-product doctrine covered the two memos. The question was whether Sanmina waived those protections by (1) disclosing the memos to DLA and (2) disclosing the valuation report—with the referenced memos—to the IRS.

The USDC, in an opinion available here, ruled that Sanmina waived the attorney–client privilege by disclosing the two in-house counsel memos to DLA. The court determined that Sanmina retained DLA to provide a non-legal valuation report rather than to obtain legal advice. The court also found waiver of the work-product doctrine without performing a separate analysis.

Privilege Waiver but no Dual-Purpose Standard

The Ninth Circuit deliberated whether Sanmina’s disclosure to DLA—a law firm—waived the privilege. If Samina did not retain DLA for its legal services, then the firm was a third-party for privilege-waiver purposes. On the one hand, DLA’s statement that Sanmina retained it for a FMV analysis, coupled with the Tax Controversy Director’s declaration that failed to mention “legal” advice, proved DLA was a regular third party and not—in this engagement—a legal-services provider.

On the other hand, the Court noted that these same evidentiary sources provided “inferential support” that Sanmina retained DLA for legal-advice purposes. Although the Tax Controversy Director did not explicitly say the company retained DLA for “legal advice,” one can infer that because DLA is a law firm a rebuttable presumption arises that it was retained to provide legal advice.

Perhaps Sanmina retained DLA for dual-purposes—some business (valuation) and some legal. The Court noted that it had never opined on the standard to apply in dual-purpose situations, and district courts within the circuit employ differing standards (a common problem). Unfortunately, the Court declined to provide us with a dual-purpose standard.

In the end, the Court, applying a “clearly erroneous” standard of review, held that the trial court did not clearly err in determining that Sanmina retained DLA for a non-legal purpose. And without a legal purpose, Sanmina’s disclosure of privileged memos to the law firm resulted in privilege waiver.

Adoption of Standard for Assessing Work-Product Waiver

Many courts apply a different standard for evaluating work-product waiver than the standard for privilege waiver. But the Ninth Circuit has never addressed the issue. The Circuit had relied upon other authorities expressing the principle that “waiver of the attorney–client privilege by disclosure to a third party does not necessarily affect the work-product doctrine.”

This is because “the two are designed to accomplish different results.” The privilege protects confidential communications, so disclosing these communications to third parties is inconsistent with the protection. The work-product doctrine, by contrast, protects a lawyer’s strategic information from discovery by adversaries.

Based on these “unique purposes” of the work-product doctrine, the Ninth Circuit formally adopted a work-product waiver standard. Under this standard, disclosing work-product materials to a third party does not waive the protection. A party waives the protection only when it (1) discloses work-product material to an adversary or (2) “has substantially increased the opportunities for potential adversaries to obtain the information.”

The Court explained that “the voluntary disclosure of attorney work product to an adversary or a conduit to an adversary waives the work-product protection for that material.” But what is a “conduit to an adversary”?

Totality of Circumstances with Two Inquiries

Courts should base this determination on the “totality of circumstances.” This assessment means that a party waives work-product protection when his conduct reaches a “certain point of disclosure towards his adversary such that fairness requires his privilege shall cease, whether he intended that result or not.”

This determination includes two inquiries. The first inquiry is one of selective disclosure—did the party engage in self-interested selective disclosure by revealing its work product to some adversaries but not others. The second inquiry is based on a reasonable expectation of confidentiality—whether the disclosing party had a reasonable basis for believing that the recipient would keep the work-product material confidential.

A Narrow Escape

The Court analyzed whether Sanmina disclosed the two in-house counsel memos to an adversary or a conduit to an adversary by providing the memos to DLA or providing the DLA report—which referenced the memos—to the IRS. Regardless whether Sanmina retained DLA for legal services, DLA certainly was not an adversary.

But was DLA a conduit to an adversary (the IRS)? Not here, the court ruled, because Sanmina reasonably expected that DLA would keep the memos confidential.  So, even though Sanmina waived the attorney–client privilege by disclosing the memos to DLA, that disclosure did not waive the work-product doctrine.

Whether Sanmina waived the work-product protection when it disclosed the DLA report to the IRS presented a tougher question. The report referenced the memos, but Sanmina did not disclose the memos’ contents. This fact was important and meant that Sanmina did not expressly waive the work-product protection.

But the report’s reference to the memos impliedly waived the protection because it was inconsistent with the maintenance of secrecy over the memos. It is unfair, the Court found, for Samina to reference the memos as supporting it valuation but prevent the IRS from examining the memos to assess their validity.

But Sanmina achieved a narrow escape. The Court ruled that the waiver extended only to the fact work-product portions of the memos and not to opinion work product. According to the Court, at this stage of the litigation fairness did not warrant expanding Sanmina’s implied waiver beyond the factual foundations contained in the memos.

POP Analysis

The Ninth Circuit has now extensively outlined the standard governing a work-product waiver analysis. But the “conduit to an adversary” portion of that standard will cause anxiety. Parties considering disclosing work product to gain an advantage cannot simply evaluate whether the recipient is an adversary.

The more complex analysis is whether one could consider the recipient a conduit to an adversary. To foreclose the conduit argument, parties should focus on the reasonable expectation of confidentiality. For example, a pre-disclosure agreement that the recipient will not further unveil the work-product material is likely persuasive in a reasonable-expectation analysis. A blind disclosure with no distribution restrictions could spell waiver trouble.

But Sanmina could have avoided the nuances of the work-product waiver standard if it ensured that its relationship with DLA was a legal-advice one. If it had proven that it retained DLA for legal services, then it would not have waived the privilege upon disclosing the two in-house counsel memos. Perhaps a well-worded engagement letter would have sufficed? Could the DLA report have explained the relationship in a more legal-advice way? And was it necessary to footnote the two privileged memos?

privilege text message

The receipt of an adversary’s privileged communications often presents a dicey situation that could lead to disqualification. In a sexual-harassment case, an EEOC trial attorney subpoenaed a country club’s former employee who showed up with her text messages from the country club’s general counsel. The EEOC lawyer gave the texts a privilege text message“quick review” and continued with the deposition. Did that review warrant disqualification?

A court said no, because the country club failed to prove that the text messages were “obviously privileged” to require EEOC counsel to do anything more.  EEOC v. Bay Club Fairbanks Ranch, LLC, 2020 WL 4201685 (July 21, 2020).  There are lessons here. Let’s identify them.

Harassment Claims and a GC’s Investigation

The EEOC brought sexual-harassment and hostile-work-environment claims against Bay Club Fairbanks Ranch, including claims that Bay Club managers allegedly offered several female employees favorable work conditions in exchange for sexual relations. Bay Club’s general counsel conducted an investigation upon which the Club relied as a potential defense to the harassment claims. In fact, the court earlier disqualified the GC from participating as trial counsel because of his potential role as a witness. You may read that disqualifying order here.

The GC also provided Bay Club with legal advice arising from his investigation. And the investigation included the GC’s text messages with former employee Donna Gonser.

EEOC Subpoena and a “Broken Record”

The EEOC subpoenaed Gonser for a deposition and requested “letters, notes, text messages, and electronic mail” sent to or received from the country club’s GC. Gonser, along with her personal attorney, appeared with a string of her text messages with the GC.

When the EEOC attorney asked Gonser to give her the texts, the country club’s trial counsel objected on privilege grounds at least three times, prompting the EEOC attorney to remark that he sounded “like a broken record.” You may read the entire production-objection exchange here.

The EEOC lawyer conducted a “quick review” of the text messages and made copies. Then, after taking a break and re-evaluating, cut a deal with defense counsel. The deal required the EEOC to maintain the text messages in a sealed envelope while defense counsel reviewed and decided whether to continue his privilege assertions. If so, they would take the issue to the court.

And, of course, they took it to the court.  The judge reviewed the text messages in camera and ruled that they were nondiscoverable because they were not part of the GC’s investigation. You may read the judge’s ruling, where he imposed sanctions for other reasons, here.

Disqualifying Event?

The country club then moved to disqualify the EEOC trial attorney because she read the putatively privileged text messages. And this motion required a balancing of an attorney’s ethical obligations with the prejudice that flows for disqualifying an attorney.

The court explained that lawyers “are held to a reasonable standard of professional conduct when confidential or privileged materials are inadvertently disclosed.” When an attorney receives documents that “obviously appear to be subject to an attorney–client privilege,” she “should refrain from examining the materials any more than is necessary to ascertain if the materials are privileged.”

Obviously Privileged

The court stated that documents are “obviously privileged” when “their titles indicate confidentiality or their content clearly discusses privileged material.” As an example, the court said that documents are obviously privileged when they include these headings:

ATTORNEY-CLIENT COMMUNICATION/ATTORNEY WORK PRODUCT, DO NOT CIRCULATE OR DUPLICATE

The country club conceded that the GC’s text messages did not include these or similar labels but argued that the GC’s participation alone rendered the texts “obviously privileged.” The court disagreed, finding these facts more persuasive:

  • The texts did not contain privilege or confidential labels;
  • The texts were sent to Gonser’s personal phone;
  • The GC investigated the claim, so his participation did not automatically raise any “legal advice” eyebrows;
  • The country club did not include the texts on any privilege log; and
  • The country club did not object until the morning of the deposition.

Quick Review is Fine

When does a receiving attorney’s review go too far? The court held that an attorney fails to refrain from reviewing putatively privileged documents “further than absolutely necessary to discover privilege” when the review continues after “confidentiality becomes apparent.”

Here, the court found appropriate the EEOC lawyer’s handling of the issue. There was no proof that she did anything other than “quickly review” the text messages, as explained in her declaration. And, during a deposition break, she agreed to seal the texts until the judge could rule on their privileged status.

peer review privilege

While there is no federal common-law peer-review privilege, each state has adopted a privilege with varying standards and protections. But a question relevant to all jurisdictions is whether, in a medical-malpractice case, the peer review privilegepeer-review privilege protects from discovery a physician’s credentialing or training records. A Florida court upheld the privilege even though the plaintiff specifically alleged that the hospital was negligent in the credentialing process. Tarpon Springs Hosp. Found., Inc. v. White, 286 So. 3d 879 (Fla. Ct. App. 2019). You may read the decision here.

Adverse Medical Incident

Donna White sued Tarpon Hospital Springs Foundation and one of its internal-medicine physicians for medical malpractice following her husband’s death. One of the allegations was that the hospital’s negligent credentialing process allowed the internist to treat Mr. White. And it was this treatment that led to the adverse medical incident.

In discovery, she asked the hospital to produce records showing “each and every time” the internist “became board eligible by the American Board of Internal Medicine.” The hospital claimed that the peer-review privilege protected this training or credentialing information from disclosure. The trial court disagreed and ordered production.

The hospital appealed.

Florida’s Peer-Review Privilege

One of Florida’s medical peer-review protections, Section 395.0191(8), precludes discovery, in a medical-malpractice case, a hospital governing board’s “investigations, proceedings, and records” used when considering a physician’s staff privileges. The privilege’s purpose is to “provide that degree of confidentiality necessary for the full, frank medical peer evaluation which the legislature sought to encourage.”

The privilege applies to “any document considered by the committee or board as part of its decision-making process.”  But importantly, the privilege does not prevent the discovery of documents from original sources.

A Constitutional Right?

A 2004 amendment to Florida’s constitution imposed limits on the peer-review privilege’s reach. Article X, § 25(a) permits patient access to “any records made or received in the course of business by a healthcare facility or provider.” These records, however, must relate to an “adverse medical incident.”

Ms. White, of course, argued that a patient’s right to access medical records trumps the peer-review privilege over credentialing considerations. The question, then, was whether the hospital’s credentialing records of the allegedly at-fault internist related to an adverse medical event.

And Ms. White had a plausible argument that it did—her negligent credentialing claim.

No Privilege but a Remedy

The court rejected Ms. White’s argument. The discovery request clearly fell within the peer-review privilege because it required disclosure of documents the hospital considered in its “hiring and credentialing” of the internist. And her negligent-credentialing claim did not overcome the privilege because the credentialing issue did not pertain to a specific adverse medial event.

Peer-review documents relate to an adverse medical incident when they “relate to a specific incident involving a specific patient that caused or could have caused injury to or death of that patient.” And here, the internist’s credentialing—or even training—records did not relate to the specific event of her husband’s death.

So, the privilege protected the hospital’s records from discovery. But Ms. White has a potential remedy. The credentialing records that the hospital reviewed came from outside sources. And while this fact alone does not obviate the privilege, Ms. White is free to “acquire the desired documents from sources other than the hospital board.”