Baylor Univ. in Major Privilege Battle over Law Firm’s Investigation Documents

A significant privilege affray is unfolding over Baylor University’s retention of the Pepper Hamilton law firm to investigate Baylor’s handling of sexual-assault complaints.

The question before the USDC in Waco is whether the attorney–client privilege protects from discovery Pepper Hamilton’s witness interviews and documents reviewed. The court’s upcoming decision may offer important lessons to organizations conducting internal investigations, including how to handle a post-investigation release of information.

You will recall that, following Pepper Hamilton’s investigation, Baylor fired its football coach, Art Briles, and demoted its president, Judge Kenneth Starr.  And while Pepper Hamilton prepared a list of “Recommendations,” available here, it did not deliver a formal written report of its investigation.  You may read more about the so-called “lack of a paper trail” in this New York Times article.

The plaintiffs in Jane Doe v. Baylor University, No. 6:16-cv-173-RP-JCM (USDC WD Tex.), a Title IX case, filed a motion to compel Baylor to “produce all materials provided to or produced by Pepper Hamilton.”  In essence, the plaintiffs seek a ruling that the attorney–client privilege does not protect the law firm’s investigation materials, and assert two arguments in support. More…

Outside Counsel Forwards Privileged Email to Adversary—Court Finds No Waiver

The USDC SDNY issued an instructive roadmap in ruling that an outside lawyer’s forwarding a privileged email to adversary counsel did not constitute privilege waiver. Andmistake concepts, with oops message on keyboard. the ruling avoided a potentially larger disaster—disclosure of other privileged documents under the subject-matter waiver doctrine. Rank Group Ltd. v. Alcoa, Inc., 2014 WL 1883505 (SDNY May 9, 2014). You may read the opinion here.

Background

Rank Group purchased Alcoa’s Chilean-based consumer packaging business, and later sued Alcoa seeking indemnification for a $10M tax liability from the Chilean government. During the transaction process, one of Rank’s outside lawyers forwarded a privileged email to Alcoa’s outside lawyer regarding the Chilean tax authority’s treatment of a loan repayment.

In the post-transaction litigation, Alcoa claimed that, by voluntarily sending the email to Alcoa counsel, Rank’s lawyer waived the privilege, and it sought production of all communications between Rank and its lawyers regarding the loan repayment and associated tax consequences.

No Authority to Waive

Rank sprang to damage-control action, and argued that its outside lawyer had no authority to unilaterally waive the company’s privilege. In support, Rank submitted affidavits from the outside lawyer’s partner and the company’s regional financial controller. Both Rank representatives stated that Rank never authorized its outside counsel to share the privileged email with Alcoa and that it considered confidential all communications between Rank and its outside lawyer.

Ruling

The Court, applying New York law, stated that the party asserting the corporate attorney-client privilege has the burden of demonstrating the privilege’s application, including that the communication (1) was between client and its counsel, (2) was and remained confidential, and (3) was made for purposes of rendering legal advice.

The burden also requires the party to show a lack of privilege waiver. The non-waiver burden means that the party asserting the privilege

 must show that [its] disclosure was unauthorized and therefore did not result in waiver of the attorney-client privilege.

The Court held that Rank met its non-waiver burden. Both its outside counsel and internal controller verified that its lawyer’s forwarding the privilege email was “unauthorized and inadvertent.” The Court found that these self-serving affirmations “are enough to carry the burden of showing that the disclosure was unauthorized.” And because of this non-waiver finding, the Court did not invoke the subject-matter waiver doctrine.

PoP Analysis

Rank and its counsel avoided a potentially serious consequence arising from the subject-matter waiver doctrine. When a party voluntarily discloses a privileged communication, the subject-matter waiver doctrine extends this waiver to all other communications pertaining to the same subject matter. The doctrine’s purpose is to prevent a party from selectively disclosing favorable information while simultaneously withholding unfavorable information under the cloak of privilege.

The Court’s decision provides a roadmap that companies should follow when someone inadvertently discloses its privileged communications to third parties. The corporate attorney-client privilege belongs to the company, not its executives or its outside lawyers, and only those authorized to waive the privilege may do so. Here, Rank proved—through two affidavits—that its outside lawyer had no authority to waive the privilege. Lawyers faced with an inadvertent privilege disclosure should follow Rank’s lead.

Good Article on Subject Matter Waiver

In November 2012, the Illinois Supreme Court adopted new Illinois Rule of Evidence 502 regarding subject matter waiver and issued its signficant subject matter waiver decision in Center Partners, Ltd. v. Growth Head GP, LLC, 981 N.E.2d 345 (Ill. 2012).  You may view new Rule 502 here and the Center Partners decision here.

In a recentIllinois article published in the Illinois Bar Journal, the authors  explain the significance of the Supreme Court’s November 2012 actions on the subject matter waiver doctrine.  See Judge Gino L. DiVito, Brian C. Hausmann, and John M. Fitzgerald, New Limits on Subject Matter Waiver of Attorney-Client Privilege, 101 Ill. B. J. 348 (July 2013).  Noting that Center Partners and Rule 502 “strengthen the privilege,” the authors conclude that the November 2012 developments provide lawyers with greater predictability of the consequences of disclosing privileged information in extrajudicial settings–such as business negotiations–and to governmental agencies.  The article, accessible here, is well worth the read.

For further reading on the subject matter waiver doctrine, see the PoP post on the Center Partners decision and a PoP post highlighting an IADC article on the decision.  You may also find interesting this PoP post referencing an article challenging the basis of the business-negotiations exception to the subject matter waiver doctrine adopted in Center Partners.