June 20, 2018 Articles

Privilege in Internal Investigations: SEC v. Herrera

Maintaining privilege while obtaining cooperation credit has become a balancing act under the Herrera opinion.

Jane Shvets and Jil Simon

A recent decision by a federal magistrate judge in Florida underscores the need for counsel conducting internal investigations to consider carefully the consequences of providing oral summaries of witness interviews to government authorities. In December 2017, the court held that the common practice of providing so-called interview downloads to the government resulted in a waiver of work-product protection over the attorney-prepared memoranda of those interviews. See Order on Defendants’ Motion to Compel Production from Non-Party Law Firm, SEC v. Herrera, 2017 WL 6041750 (S.D. Fla. Dec. 5, 2017) [hereinafter Herrera Order]. In conducting the work-product waiver analysis, the court held that there was “little to no substantive distinction” between producing written interview memoranda on the one hand and providing detailed oral summaries of the information contained in those interview memoranda on the other. The Herrera opinion leaves open the question of whether attorneys’ interview notes, which are usually created contemporaneously with the interviews and form the basis for the memoranda, retain work-product protection after the interview downloads have been provided to the government.

This article provides a brief overview of the work-product doctrine and the Herrera opinion. It then explores the uneasy balance between maintaining, to the extent possible, work-product protection over internal investigation materials and cooperating with government authorities.

The article concludes by offering possible approaches to that issue in light of the government’s expectations regarding cooperation and the Herrera opinion.

Work-Product Protection


The work-product doctrine, codified in the Federal Rules of Civil Procedure and similar state procedure rules, protects from production “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative.” Fed. R. Civ. P. 26(b)(3)(A). The party seeking to prevent discovery bears the burden of demonstrating that these criteria are met.

The work-product doctrine is not absolute and can be overcome if the party seeking the documents can show a substantial need for the materials and that it cannot obtain their substantial equivalent without undue hardship. Further, because the work-product doctrine is “designed to protect an attorney’s mental processes from discovery by adverse parties,” the “protection is waived when protected materials are disclosed in a way that ‘substantially increases the opportunity for potential adversaries to obtain the information.’” Brown v. NCL (Bahamas), Ltd., 155 F. Supp. 3d 1335, 1339 (S.D. Fla. 2015) (emphasis in original) (quoting Niagara Mohawk Power Corp. v. Stone & Webster Eng’g Corp., 125 F.R.D. 578, 587 (N.D.N.Y. 1989)).

Herrera Opinion


General Cable Corporation (GCC) retained the law firm of Morgan Lewis & Bockius LLP (Morgan Lewis) when GCC learned of accounting irregularities related to its Brazilian subsidiary. After an investigation by Morgan Lewis, GCC self-reported the issues to the U.S. Securities and Exchange Commission (SEC). As part of GCC’s cooperation with the SEC’s ensuing investigation, Morgan Lewis provided the SEC with oral downloads of 12 witness interviews conducted in the course of the internal investigation. Following its settlement with GCC in December 2016, the SEC brought charges against three former GCC executives for allegedly concealing the manipulation of the accounting system of GCC’s Brazilian subsidiary. The three defendants subpoenaed Morgan Lewis, seeking interview notes and memoranda that Morgan Lewis created in the course of its internal investigation. Morgan Lewis declined to produce the documents, claiming that they were protected by the work-product doctrine.

The court considered whether GCC’s detailed oral downloads of the interviews to the SEC constituted a waiver of work-product protection. Morgan Lewis argued that there was a “meaningful distinction between the actual production” of interview notes or memoranda to the government and providing detailed oral briefings. The court, however, was not persuaded, focusing on whether the oral interview downloads constituted “sufficiently detailed” summaries of the interview memoranda such that they were a “functional equivalent” of those memoranda. The court observed that Morgan Lewis’s claim of work-product protection would have been stronger if its interview downloads to the SEC contained only “detail-free conclusions,” “general impressions,” or “vague references.” The court held that this was not the case, though it did not clarify what level of vagueness would be required to retain the work-product protection. Herrera Order at **56.

The court concluded that the oral downloads to the SEC of information contained in Morgan Lewis’s memoranda of 12 interviews waived work-product protection over those memoranda. However, the court deferred its decision as to whether those oral downloads also waived work-product protection over attorneys’ notes taken during those interviews until an in camera review of those notes could be conducted. The parties’ subsequent settlement mooted the need for such review, leaving open the waiver question as it applies to attorneys’ interview notes.

Investigations and Cooperation


In A Resource Guide to the U.S. Foreign Corrupt Practices Act, the U.S. Department of Justice (DOJ) and the SEC set out their standards for judging a company’s cooperation with the government in the context of Foreign Corrupt Practices Act (FCPA) matters. The DOJ and the SEC also have published additional guidance on their criteria for assessing a company’s cooperation. All of these materials emphasize the authorities’ expectation that a company will disclose all relevant information obtained in the course of an internal investigation, including information obtained in interviews.

The resource guide sets out the authorities’ expectation that a cooperating company will be “willing[] to provide relevant information and evidence” and take a “proactive . . . rather than reactive” approach to cooperation. Similarly, the U.S. Attorneys’ Manual states that a company seeking cooperation credit “must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the [DOJ] all facts relating to that misconduct.” USAM 9-28.700 (updated Nov. 2017).

In its 2017 FCPA Corporate Enforcement Policy, the DOJ stated that even when a company does not self-disclose, it may be eligible for a reduced fine if it fully cooperates and timely and appropriately remediates. The DOJ “will assess the scope, quantity, quality, and timing of cooperation based on the circumstances of each case” to determine whether that cooperation sufficiently exceeds the threshold requirements set out in the U.S. Attorneys’ Manual to justify an additional fine reduction. Such cooperation must include “attribution of facts to specific sources” beyond “a general narrative of the facts,” though the DOJ specifically noted that it does not require attribution where that would violate attorney-client privilege. USAM 9-47.120 (Nov. 2017).

The SEC’s 2001 Seaboard Report likewise includes “provid[ing] . . . [SEC] staff with all information relevant to the underlying violations” as one of the hallmarks of cooperation.

The Way Forward


The government has consistently maintained that it does not require companies to waive privilege to obtain cooperation credit. It has taken the view that companies can provide the authorities with information learned in witness interviews without waiving either the attorney-client privilege or work-product protection; that said, it has also taken the view that facts are not privileged. The uneasy accommodation of these two positions has resulted in the practice of using oral interview downloads as a mechanism for sharing the facts with government authorities (and thus cooperating) while seeking to maintain work-product protection over interview memoranda and related documents.

That balancing act has been upset by the Herrera opinion, which may lead companies and their counsel to look for alternative ways of sharing, with the government, information obtained in witness interviews.

One possible approach, post-Herrera, would be for counsel to provide the authorities with a high-level synthesis of information obtained from several witness interviews or from witness interviews and other sources of information (such as documents). Under Herrera,that approach should preserve the work-product protection over interview notes and memoranda because the oral download presumably would not be the functional equivalent of the more detailed and specific interview materials. However, it is questionable whether that approach would satisfy the government and constitute, in its view, full cooperation by the company.

As usual, much is likely to depend on the facts of the particular case and the importance of attributing particular statements to particular interviewees to the government’s case. For example, if the extent of a witness’s involvement in alleged misconduct is that employee’s approval of certain payments, that information could be shared with the government via relevant documents or in a summary fashion. However, if a witness had stated in his interview that a senior executive of the company orally approved a certain allegedly problematic transaction, it would be difficult to present that information to the government without specifically attributing the incriminating statement to the witness.

Where detailed interview downloads are likely to be necessary for the company to receive full cooperation credit, company counsel could consider creating a separate interview download document containing the information that would be provided to the government in an oral download—and nothing else. Based on the Herrera opinion, it is almost certain that any work-product protection over that interview download document would be waived once the oral download occurred, but this approach may make it more likely that other interview-related documents (such as attorneys’ notes and memoranda) would retain the protection. Whether this method is advisable depends on the circumstances of each case, specifically, whether the interview memoranda contains information that would not be disclosed to the government in an oral download; if the interview download document is essentially identical to the interview memoranda, they would be functional equivalents, which would result in a waiver of work-product protection under the Herrera rationale.

Conclusion


Government authorities will almost certainly continue to seek interview downloads from cooperating companies. Counsel should be aware that this practice may lead to waiver of work-product protection over documents related to the downloaded interviews, including interview memoranda and, quite possibly, underlying notes of the interviews. As such, corporate defense counsel should tread carefully when providing such downloads to the government and fully consider the pros and cons of the disclosure and the form that it should take.

Jane Shvets is a partner at Debevoise & Plimpton in London, United Kingdom. Jil Simon is an associate at Debevoise & Plimpton in Washington, D.C.