Engineer’s Investigative Report—Sent to Outside Counsel—Not Privileged 1

The Nevada Supreme Court ruled that the attorney–client privilege did not protect from disclosure a post-accident investigative report by a manufacturer’s engineer.  The Court issued the ruling even though the investigator sent the report to the manufactureconfidential document flush awayr’s outside counsel.  Mega Manufacturing, Inc. v. Eighth Judicial District Court, 2014 WL 2527226 (Nev. May 30, 2014).  You may read the decision here.


Accident Investigation

Following an injury involving a press brake machine, the press brake manufacturer’s chief engineer conducted an investigation and sent his investigation report to the manufacturer’s outside counsel.  The engineer discussed the investigation with outside counsel before conducting the investigation.

The injured plaintiff sued and sought production of the investigation report.  The manufacturer objected, asserting the work-product doctrine and the attorney–client privilege.  The trial court rejected both objections.

Attorney–Client Privilege

One may question the court’s rejection of the attorney–client privilege.  The court applied Nevada’s privilege, which protects confidential communications between the “client’s representative and the client’s lawyer.”  While there was a factual issue whether the manufacturer or an affiliate company actually employed the engineer, there was no dispute that the engineer was the manufacturer’s representative while conducting the investigation.

Yet, the court relied upon federal common law in making its decision and noted that the Supreme Court’s Upjohn decision “largely turns on the issue of employment.”  The Nevada court therefore held the privilege inapplicable because there was some dispute whether the press brake manufacturer employed the engineer.

The court did not address several decisions finding that the privilege applied to consultants and others considered functional equivalent of employees.  See my post regarding a Google case applying the functional equivalent of employee test.

Work-Product Doctrine

The court similarly rejected the work-product doctrine because there was a factual issue whether the engineer prepared the report in anticipation of litigation.  The engineer testified that he spoke with the manufacturer’s outside counsel before conducting the investigation and sent the final report to him. But the court found this factual evidence insufficient to prove the anticipation-of-litigation element.

Other Privileges

The manufacturer also asserted the self-critical analysis privilege, but the court gave this privilege virtually no attention, stating simply that it “considered [the manufacturer’s] other arguments and conclude they lack merit.”

PoP Analysis

The court’s decision lacks a thorough analysis, but, fortunately, the court decided not to publish the opinion, meaning it has no precedential value.  Yet, the case is constructive for lawyers and corporations conducting post-accident investigations.  The evidence in this case appeared equivocal—but what if the manufacturer’s counsel had directed, in writing, that the engineer conduct the investigation because the company anticipated litigation?  And what if the engineer began his investigative report with a statement that he prepared it at the direction of counsel, on behalf of the manufacturer, and for purposes of the manufacturer’s counsel providing legal advice.  I suspect the court would have reached a different outcome.

Selective Waiver Doctrine Rejected in FCA Case: K–Mart Must Disclose Work Product Data to Relator

In a case that should teach us all a lesson, the USDC for the S.D. of Illinois ruled that K–Mart waived its work product protections over attorney-created data when it disclosed the data to HHS investigators. The Court rejected K–Mart’s selective waiver argument and compelled it to produce the data in a False Claim Act civil action. United States v. Kmart Corp., 2014 WL 2218758 (S.D. Ill. May 29, 2014).Cooperation and privilege You may read the opinion here.

Risky Decision?

In 2009, the OIG for the Dep’t of Health and Human Services conducted an investigation into K–Mart’s alleged improper Medicare claims. In response to an OIG subpoena, K–Mart produced a substantial amount of documents culled from 25 custodians, and its legal team also created and produced a subset of transaction data in a simpler format.  K-Mart and HHS entered into a confidentiality agreement prior to the production, but the agreement did not specifically address attorney–client privilege or work-product concerns.

In the False Claim Act action, K–Mart produced the custodial documents, but refused to produce the subset of data on grounds that the work-product doctrine protected this attorney-created subset from production.

Selective Waiver?                                                 

K–Mart urged the Court to apply the selective waiver doctrine, arguing that it encourages corporations to cooperate with government investigators. While finding cooperation laudable, the Court “most pointedly” reminded K–Mart that “the attorney client privilege and work product doctrines do not exist to foster full and frank conversation with the government.”

The Court noted that the majority of federal circuits reject the selective waiver doctrine, and found that K–Mart should have known that producing the attorney-created data to the government waived any work-product protections. In fairly strong language, the Court said that “it is incumbent upon attorneys anticipating or involved in litigation to take appropriate steps to closely guard confidential information” and that “K–Mart should not be permitted to ‘pick and choose’ to which adversary it waives work product protection and which adversary does not.”

The Court commented that “disclosure of protected attorney work product is a strategic litigation decision” and found that K–Mart made a strategic calculation that the benefit of appearing cooperative with a government investigation outweighed the risk of waiver.

Would a Confidentiality Agreement Work?

The Court noted one federal-court decision, Lawrence E. Jaffee Pension Plan v. Household Int’l, Inc., 244 FRD 412 (N.D. Ill. 2006), held that the defendant did not waive work-product protections upon disclosure to the SEC because it had a confidentiality agreement with the SEC stating that disclosure did not waive the privilege and work-product protections.

But the K–mart case is different. While K–Mart secured a confidentiality agreement with HHS, it did not mention privilege or work-product protections. And the Court indicated that, even if the agreement mentioned those protections, the agreement would not affect its decision.

PoP Analysis

This case illustrates the peril companies under investigation face when responding to government subpoenas or document requests. While some federal statutes provide selective waiver protections in financial services investigations, the majority view under federal common law is that there is no selective waiver doctrine—disclosure of documents to an investigative body waives the privilege in existing or subsequent civil actions. And while it is certainly better to have a confidentiality agreement with the government agency, those agreements may not withstand the waiver tide.

HR Manager’s Internal Investigation Memo—Ghostwritten by In-House Lawyer—Not Privileged

In an employment race-discriminghostwritingation case, the USDC for the Northern District of California ruled that the attorney–client privilege did not protect the HR Manager’s memo regarding his internal investigation of hotline complaints. The court issued this ruling even though the company’s in-house lawyer “ghostwrote” the memo. Thompson v. C&H Sugar Co., 2014 WL 595911 (N.D. Cal. Feb. 14, 2014). You may access the opinion here.

Thirteen African–American employees sued C&H Sugar Company and its parent corporation, American Sugar Refining, Inc., alleging that C&H failed to properly train and promote them because of their race. The employees claimed that C&H’s Packaging Department Manager, Cliff Sullivan failed to promote them, and sought in discovery an internal investigation memo regarding the company’s hotline complaints about Sullivan’s alleged discriminatory acts.

The memo, sent from the HR Manager to the HR VP, contained conclusions as to work-place dynamics and training recommendations. In an effort to buttress the privilege assertion, the company’s in-house attorney (title: Senior Director of Corporate Labor and Employee Relations) submitted a declaration stating that he “essentially ghostwrote” the memo, particularly the investigation summary and conclusion. You may read the in-house lawyer’s declaration here.

Ruling

The Court found unpersuasive the in-house lawyer’s ghostwriting assertion, stating

The Court has found no support indicating that an attorney “essentially ghostwriting” a communication—whatever that means—renders that communication protected by the attorney–client privilege.

Noting that protecting communications “ghostwritten” by a lawyer did not serve the privilege’s purpose of encouraging frank communications between client and attorney, the Court found that the in-house lawyer’s declaration did not meet the burden of establishing that he, rather than the HR Manager, wrote the memo or that it was written in response to a request for legal advice.

What about the Work Product Doctrine?

The in-house lawyer also declared that he directed and supervised the HR Manager’s investigation in anticipation of litigation. And the Court held that this declaration proved that the work-product doctrine covered the investigation memo.

But that ruling did not end the inquiry. The Court also held that the plaintiffs demonstrated a substantial need for the investigation memo because they could not otherwise obtain the hotline-complaints information. The Court therefore ruled that the plaintiffs “demonstrated a substantial need for the investigation documents and the qualified work product doctrine must give way.”

PoP Analysis

The Thompson decision reinforces the concept that the privilege protects only confidential communications between the client and attorney made for the purposes of rendering legal advice. Here, the company’s “ghostwriting” argument established neither an attorney–client communication nor a legal-advice request.

And the decision highlights a critical distinction between the attorney–client privilege and the work-product doctrine. Once established, the attorney–client privilege is absolute, meaning that it stands regardless of the requesting party’s need for the information. The work-product doctrine, by contrast, is qualified, meaning that a party may obtain the information upon a substantial-need showing. This ruling demonstrates why in-house counsel should endeavor to establish the privilege for employee–lawyer communications rather than relying on the unequal work-product doctrine.