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.

For my 400th post, let’s discuss a decision from my home state addressing a sometimes forgotten distinction in the area of waiver. Courts generally find waiver of, for example, a contract provision, a claim, or a constitutional guarantee, when there is a voluntary relinquishment of a known right. But just like the concept of success means different things to different people, the concept of waiver means different things for the attorney–client privilege and the work-product doctrine.

One court illustrated this for us.  In a squabble over whether a party influenced a witness to delete cell-phone evidence, the court found that the privilege or work-product doctrine covered 7 emails.  The emails were circulated among various lawyers for the parties, but the court found waiver for some but not for others. Let’s discuss why.  Kenco Group, Inc. v. Kennedy, 2021 WL 6335214 (E.D. Tenn. Sept. 29, 2021). Available here.

A Campaign of Disparagement

A company and its former CEO resolved their disputes, and the settlement agreement contained a non-disparagement clause.  The company later sued the CEO claiming that he “embarked on a campaign of disparagement” against the company and others as part of a scheme to regain control of the company. And it sued the CEO’s former lawyer for allegedly aiding him in this scheme.  An arbitrator ultimately found in favor of the CEO.

Surreptitious Recordings

The company filed a federal-court action to set aside the arbitrator’s decision.  Part of the company’s argument was the CEO, along with his attorney, improperly influenced the CEO’s father and founder of the company.  As part of this alleged scheme, the CEO allegedly had the father’s caretaker surreptitiously record the father’s conversations with others and then instructed the caretaker to delete the recordings.

The privilege and work-product issues arose during a court battle over retrieving these recordings from the caretaker’s cell phone.

Email CCs

A forensic examination of the cell phone revealed several recordings and documents that the caretaker produced, but she withheld 7 emails that she claimed the attorney–client privilege or work-product doctrine protected from discovery.  These emails, though, were between the defense lawyers, the caretaker’s lawyer, and the caretaker herself.

So, does this sharing of thoughts and communications constitute a waiver of the work-product and privilege protections?

Privilege Waiver

We know that confidentiality is one of the tenets of the attorney–client privilege.  The privilege’s purpose is to encourage clients to communicate openly and freely with their attorneys so the lawyer can render optimal legal advice. The encouragement arises primarily from the confidentiality element—if the communication isn’t confidential when made and kept confidential thereafter, the privilege’s purpose evaporates. So, disclosure of a confidential client communication waives privilege protection.  For further discussion of this concept, particularly in the corporate counsel context, see my column, A Need to Know, published in Today’s General Counsel magazine.

Work Product Waiver

In Kenco, Magistrate Judge Steger, who wrote the opinion on witness statements and work product profiled in one of my most-read posts, explained that the waiver rule for the work-product is different—because the doctrine’s purpose is different. The doctrine protects two types of information created in anticipation of litigation. First, it protects opinion work product, which covers documents reflecting the attorney’s mental impressions, opinions, and legal strategies. Second, it protects fact work product, which is “written or oral information transmitted to the attorney and recorded as conveyed by the client.”

The doctrine’s purpose, therefore, is “to allow an attorney to assemble information, sift what he considers to be relevant from irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference” from her adversary.  Or, as Justice Jackson said in Hickman v. Taylor, 329 U.S. 495, 516 (1947):

A common law trial is and always should be an adversary proceeding. Discovery was hardly intended to enable a learned profession to perform its functions either without wits or on wits borrowed from the adversary.

Because of this purpose, Judge Steger recognized that disclosing work-product to a third party waives the protection, but only if “the third party is an adversary.”

Although not relevant to the facts in Kenco, a party also waives work product if the disclosure otherwise substantially increases the opportunity for potential adversaries to obtain the information.

Rulings

Judge Steger reviewed the 7 emails in camera.  Six of the emails were various exchanges between a defense lawyer and the caretaker’s lawyer, with copies to another defense lawyer or the caretaker herself.  The emails generally discussed the facts of the case or the status of imaging the caretaker’s cell phone. The court found it self evident that the lawyers created and exchanged these emails because of litigation, so the work product doctrine protected them.  And even though the lawyers copied other lawyers, including the lawyer for the non-party caretaker, the court found no waiver because “these attorneys do not represent clients whose positions are adverse.”

The seventh email, however, was different.  It was an email from the caretaker’s lawyer to the caretaker—his client.  It was clear that the email was an attorney–client communication for the purpose of receiving legal advice, so the privilege protected it.

The problem, though, was that the lawyer copied a lawyer for a third party.  This disclosure to a third-party attorney breached the confidentiality tenet, and Judge Steger found that, “since the communication was shared with a third party, … the attorney–client privilege was waived.”

One of the greatest frontier lawyers, Abraham Lincoln, once made the thought-provoking statement that, if asked to chop down a tree within six hours, he would spend the first four hours sharpening his axe. The future president’s message, of course, was that preparation—long, disciplined preparation—was essential to accomplishing a task. In-house lawyers should consider Lincoln’s adage when confronted with the task of maintaining privilege protection for Board reports and legal-advice portions of the Board’s meeting minutes.

In my Privilege Place column, published in Today’s General Counsel Magazine, I discuss the privilege preparation that in-house lawyers should consider when reporting to the company’s Board of Directors and advising on how to structure the meeting minutes.  You may read my article as part of the entire issue at this link, or my specific article via this PDF.