July 2006
Volume 2, Number 4
Table of Contents

Managing Cooperation While Minimizing Exposure: As Courts Tighten The Noose On The Selective Waiver Doctrine, Congress May Extend A Lifeline

By Matthew M. Oliver

Relying on the “selective waiver” doctrine has always been a risky strategy.  Faced with a request from the government to disclose otherwise privileged documents and information resulting from an internal investigation, corporate counsel faced the difficult choice between full cooperation with the government and arming plaintiffs’ lawyers with a roadmap to the conduct at issue.  The selective waiver doctrine provided a potential way out of this dilemma, allowing corporations in some limited circumstances to argue that providing information to the government furthered societal interests to such a degree that any waiver of the attorney-client privilege or work product protection should not extend to plaintiffs in private litigation.  Although this argument met with some initial success, it never was fully embraced by the courts on a scale wide enough to give corporate counsel substantial comfort. 

The selective waiver debate took on increased significance as the government increased its focus on prosecuting corporate crime in the wake of numerous, well-publicized corporate scandals.  The Department of Justice’s 1999 Holder Memorandum and 2003 Thompson Memorandum formalized the requirements for corporate cooperation, and included as a factor a corporation’s willingness to waive privilege.  Changes to the U.S. Sentencing Guidelines in 2004 applicable to the sentencing of organizations provided similar incentives for corporations to waive privilege in order to qualify for a reduction in sentence 1 . Paradoxically, as government requests to waive privilege became the norm, the courts became increasingly reluctant to embrace the selective waiver doctrine.  Thus, corporate counsel were once again faced with the stark choice of being perceived by the government as uncooperative or potentially placing the corporation at a disadvantage in civil litigation, with little room to navigate between these two extremes.

Most recently, the trend of judicial hostility towards the selective waiver doctrine has continued, with the Tenth Circuit joining the majority of Courts of Appeal that have rejected the selective waiver concept in the context of disclosures made to the government.  The recent appellate decision in the Qwest Communications Securities Litigation 2 found the company’s selective waiver arguments unpersuasive, holding that class action plaintiffs were entitled to discovery of otherwise privileged documents disclosed by the company to the Department of Justice and the Securities and Exchange Commission in response to subpoenas.  While certain courts in the past had reasoned that selective waiver could be available when the disclosure to the government was made pursuant to a confidentiality agreement, the Tenth Circuit in Qwest found the terms of the confidentiality agreements between Qwest and the SEC and the DOJ insufficiently restrictive of the government’s ability to use the information at issue. 3  

Despite the negative trend, hope is on the horizon.  At its April meeting, the Advisory Committee on Evidence Rules approved for publication and comment proposed new Federal Rule of Evidence 502, which, if ultimately approved and codified, would supplant the Qwest decision and its predecessors and cement the selective waiver doctrine as the law in the federal courts.  The proposed rule provides, in relevant part, that “[a] voluntary disclosure [of privileged information] does not operate as a waiver if . . . (3) the disclosure is made to a federal, state, or local governmental agency during an investigation by that agency, and is limited to persons involved in the investigation.”  Under this rule, corporations would have much greater ability to protect themselves in civil litigation, while maintaining the ability to cooperate as fully as desirable with government investigations.

Not all corporate counsel are thrilled with the protections afforded under the proposed rule, however.  Concerns have been expressed that the new rule will only exacerbate what many perceive to be the problematic trend of government prosecutors and regulators routinely demanding privilege waivers.  Indeed, by eliminating one of the primary arguments that corporations have relied upon to justify a refusal to waive privilege, the proposed rule may only embolden prosecutors who no longer will be receptive to the argument that privilege cannot be waived due to potential repercussions in civil litigation.  On balance, the freedom that the new rule will provide to corporations dealing with governmental investigations should outweigh the potential burdens, but only time will tell whether it is a panacea or simply another step in the erosion of corporate privilege.

Matthew M. Oliver is Counsel in the Litigation Department of Lowenstein Sandler PC, and a member of the firm’s White Collar Criminal Defense and Securities Litigation and Enforcement Practice Groups.

1 Earlier this spring, the Sentencing Commission voted to delete the language at issue from the Application Note to the Guidelines because of criticism and concerns that it could be misinterpreted to require privilege waivers.

2 In re Qwest Communications Int’l, Inc. Sec. Litig., -- F.3d --, 2006 WL 1668246 (10th Cir. June 19, 2006).

3 As a practical matter, merely convincing the government to enter into any confidentiality agreement was a coup for the corporate defense bar; an expectation that defense lawyers can dictate the terms of such agreements and prohibit the government from using information in ways critical to its investigative functions misperceives the parties’ relative bargaining power.

 

 

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