April 15, 2015 Top Story

Widely Shared Antitrust Compliance Policy Ordered Disclosed

Internal distribution is insufficient to protect privilege

Joseph Callanan

Companies risk disclosure of widely distributed and improperly safeguarded internal antitrust compliance polices as a business document that is not protected as a confidential attorney-client communication. CertainTeed Gypsum, Inc. must produce its antitrust compliance policy, which the company sought to protect as privileged, the U.S. District Court for the Eastern District Pennsylvania ruled in Domestic Drywall Antitrust Litigation. Though the protocol “is based on legal advice, the policy is primarily a business policy” because the company distributed the compliance plan to many employees, the court found.

Allegations that manufacturers of gypsum board—so-called drywall—conspired to fix and raise prices form the basis of this multi-district, class action, antitrust litigation. The plaintiffs sought production of CertainTeed’s antitrust compliance policy. CertainTeed refused, arguing that the plan represented attorney-client communications and that the company kept the policy confidential by never distributing it beyond company staff.

Widespread Internal Distribution Waived Privilege

The court’s rationale as to the antitrust policy’s non-privileged nature relied both on the law of privilege in the U.S. Court of Appeals for the Third Circuit and CertainTeed’s usage of the document. While CertainTeed based its legal argument on cases generally applying prior privilege holdings, the plaintiffs cited specific cases where extra-jurisdictional courts found legal compliance documents, including an “antitrust compliance manual,” not privileged. The court rejected CertainTeed’s argument that Third Circuit privilege law was narrower than other circuits.

CertainTeed also argued the company only distributed the compliance plan to its employees. Instead, the court found persuasive that CertainTeed freely provided the guidelines within the company. “CertainTeed distributed the policy to more than 120 employees who attended a training session and made it available to numerous employees on an internal Internet site,” the court wrote. The court found “no evidence CertainTeed labeled the document as confidential or privileged” or ever described the policy as privileged to the personnel receiving it.

To Prevent Disclosure, Treat Documents as Privileged 

Pervasive distribution of a document—although only within the company and never outside of it—will undoubtedly waive any privilege, according to several Section leaders. “[G]eneral dissemination of the legal advice to all employees without appropriate efforts to maintain confidentiality clearly vitiates the privilege,” according to Jeffrey G. Close, Chicago, IL, cochair of the ABA Section of Litigation’s Pretrial Practice & Discovery Committee. “The lesson here for in-house lawyers is to be aware that the risk of disclosure in subsequent litigation does appear to increase when an antitrust policy document is shared broadly within a company,” states P. John Brady, Kansas City, MO, cochair of the Section of Litigation’s Commercial & Business Litigation Committee.

Balancing Document Usage and Privilege Preservation 

To increase the chance of preserving the privilege, lawyers should talk with clients about whether to designate a compliance document as privileged before disseminating it and prior to the initiation of litigation, assert several Section leaders. “Working through these issues with antitrust counsel before any litigation arises may be the most important takeaway,” says Brady. One of the key issues to consider is whether the client intends the compliance policy to be privileged legal advice or business advice.

“[N]ot every sensitive document that counsel prepares for its client is protected by the attorney-client privilege,” declares Riesmeyer. “[B]e sure that a legal compliance policy really does provide legal advice and does not simply state a company’s business practices or policies,” states Siegel.

“[P]olicies need to be sufficiently ‘legal’ to preserve the privilege. It is really where business and legal advice come together, and this opinion demonstrates the difficulty in separating these two aspects of client counseling,” adds Elizabeth S. Fenton, Wilmington, DE, cochair of the Section’s Business Torts & Unfair Competition Committee. If the client’s decision is that the compliance guidelines should be protected, then “[p]rivileged documents should be treated with the care employers reserve for their trade secrets,” says Close.

Finally, a non-privileged compliance plan distributed company-wide has advantages.   “[T]he benefits of distributing an antitrust compliance policy widely within the company, even if it means the policy is more likely to be disclosed in subsequent litigation, [include] sentence mitigation for antitrust violations under the U.S. Sentencing guidelines, applications for leniency [by being] the first company to report its participation in a criminal antitrust conspiracy, and preventing antitrust violations in the first instance,” concludes Brady.

Joseph Callanan is an associate editor for Litigation News.

Keywords: antitrust, compliance policy, privilege, attorney-client communication, business advice

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