Privileged Information and Work Product in Litigation
Any time privileged information is disclosed, clients face significant risk that their attorney-client privilege will be waived. So, when the government asks for privileged information, it’s a rock and a hard place for in-house counsel because, once disclosed to the government, the information may become fair game to adversaries in civil suits (many courts reject what is commonly called “selective waiver”).
This issue may arise, for example, if a federal agency sends a subpoena that requires disclosure of a company’s internal investigation report, which may be privileged or work product. Dealings with agencies often make it clear that the company would be wise to cooperate with the agency and provide the requested information, even though it is privileged. Amici, in fact, argued to the Tenth Circuit that “under current enforcement standards, companies cannot risk being labeled as uncooperative; and cooperation, as defined by federal officials, requires producing privileged documents.” In re Qwest Commc’ns Int’l Inc., 450 F.3d 1179, 1187–201 (10th Cir. 2006). So, when the government makes the request, it often appears prudent to provide the agency with the requested information.
But what happens several months down the road when an adversary in a civil suit seeks production of the same report? Even assuming that the report at issue was once, in fact, privileged, can it still be withheld from discovery on that basis? All stakeholders should assume not. That is, if it is possible that the client will not want to produce the same report in a civil case later, all precautions should be taken to assert the privilege early and avoid production to the government if possible. To avoid waiver, all privileges should be asserted, and the information should not be produced without a court order.
The Ninth Circuit’s treatment of this issue in 2012 is particularly illustrative. In In re Pacific Pictures Corp., an outside business attorney (Toberoff) asked the U.S. Attorney’s Office for the Central District of California to investigate the theft of documents from his office by a former associate. 679 F.3d 1121 (9th Cir. 2012). The U.S. Attorney’s Office began its investigation and sent Toberoff a grand jury subpoena for relevant documents. The U.S. Attorney’s Office assured Toberoff that if he “voluntarily complied with the subpoena the Government would ‘not provide the . . . documents . . . to non-governmental third parties except as may be required by law or court order.’” Id. at 1125. Toberoff complied with the subpoena.
Then, in a civil suit against Toberoff and his clients, an adverse party sought production of the documents that Toberoff provided in response to the grand jury subpoena. When the magistrate judge compelled production of those documents over Toberoff and his client’s assertion of privilege, Toberoff and his clients filed a writ of mandamus. The Ninth Circuit ultimately agreed with the magistrate judge, rejecting the selective waiver doctrine.
The court recognized that the Eighth Circuit was the first to fully address and adopt the selective waiver doctrine but that the doctrine has been “rejected by every other circuit to consider the issue since.” Id. at 1127 (citing the First, Second, Third, Fourth, Sixth, Seventh, Tenth, Federal, and D.C. Circuits). The court further recognized that it had the power to extend the attorney-client privilege to protect information after it has been disclosed to the government but noted that “there have been multiple legislative attempts to adopt a theory of selective waiver . . . [and] [m]ost have failed.” Id. at 1128.
After rejecting selective waiver as a general matter, the court considered whether the specific circumstances of the case warranted a different outcome. Specifically, Toberoff and his clients asserted that the court should allow a limited selective waiver because Toberoff had entered into a “confidentiality agreement” with the U.S. Attorney’s Office. Although two courts had suggested that this more limited exception might exist, the Ninth Circuit rejected it. In re Columbia, 293 F.3d 289, 301 (2002) (discussing In re Steinhardt Partners, L.P., 9 F.3d 230 (2d Cir. 1993), and Dellwood Farms, Inc. v. Cargill, 128 F.3d 1122 (7th Cir. 1997)); In re Qwest Commc’ns Int’l, 450 F.3d at 1192–94 (describing such a rule as a “leap” but declining to reject it completely). Similarly, the Ninth Circuit rejected Toberoff’s claim that his disclosure was protected as a common interest (“joint defense”) communication: “[A] shared desire to see the same outcome in a legal matter is insufficient to bring a communication between two parties within this exception. Instead, the parties must make the communication in pursuit of a joint strategy in accordance with some form of agreement—whether written or unwritten.” In re Pac. Pictures, 679 F.3d at 1129.
Critically, like most courts, the Ninth Circuit treated a response to a subpoena as a “voluntary” disclosure of privileged information. The court explained that “without the threat of contempt, the mere existence of a subpoena does not render testimony or the production of documents involuntary.” Id. at 1130.
Courts typically treat documents protected by the attorney work-product doctrine similarly, although it is usually discussed separately as an independent doctrine. For example, in Gruss v. Zwirn, the U.S. District Court for the Southern District of New York found in 2013 that “[a]s with the attorney-client privilege, waiver of work product protection can occur where a party discloses the substance of attorney work product to a government entity.” No. 09 Civ. 6441 PGG MHD, 2013 WL 3481350, at *5–13 (S.D.N.Y. July 10, 2013); see also In re Martin Marietta Corp., 856 F.2d 619, 625 (4th Cir. 1988). In Gruss, attorney work product, including interview notes and summaries, “were deliberately, voluntarily, and selectively disclosed to the SEC via . . . PowerPoint presentations.” 2013 WL 3481350. The underlying notes and summaries were, thus, discoverable in a civil suit because the privilege was waived. In that instance, the adverse party did not seek anything that would be considered “opinion work product,” so the court did not address whether that privilege (which may be afforded additional protection) also would have been waived.
Selective waiver has not been addressed as thoroughly by most state courts, but those that have considered the issue have mostly followed the prevailing trend of federal courts to reject selective waiver. See, e.g., McKesson Corp. v. Green, 279 Ga. 95, 610 S.E.2d 54, 56 (2005) (rejecting selective waiver of work-product protection where materials were disclosed to government, despite confidentiality agreement); McKesson HBOC, Inc. v. Superior Court, 115 Cal. App. 4th 1229, 9 Cal. Rptr. 3d 812, 819, 821 (2004) (rejecting selective waiver of attorney-client privilege and work-product protection where materials were disclosed to government, despite confidentiality agreement); State v. Thompson, 306 N.W.2d 841, 843 (Minn. 1981) (finding “no occasion” to apply selective waiver and suppress testimony where the attorney-client privilege was waived through disclosure of investigation reports, notes, and statements to attorney general and grand jury). In Texas, for instance, the Dallas Court of Appeals found “that the weight of authority does not favor recognition in Texas of a doctrine of selective waiver of privilege, as more recent federal opinions have pointed out.” In re Fisher & Paykel Appliances, Inc., 420 S.W.3d 842, 851 (Tex. Ct. App., Dallas 2014) (no petition). Accordingly, the court held that
if an attorney prepares a narrative or analysis specifically for a report that is submitted to a regulator, even if that narrative includes a discussion of litigation or potential claims or incidents that the entity is required to report to its regulator, the adversarial nature of the proceeding dictates that it is not a communication protected by either the attorney-client or work product privilege.
Id. at 851–52. The court also found that documents compiled in response to a regulatory request would not be shielded by the work-product doctrine merely because an attorney compiled them.
Most courts to address selective waiver do consider competing policy arguments, including that it is important to foster cooperation with the government. But apart from the Eighth Circuit, the consensus is that policy considerations do not favor selective waiver. In fact, when a proposal was made to incorporate selective waiver into the Federal Rules of Evidence, the defense bar was generally opposed, asserting that selective waiver would only enhance government investigatory abilities and might hamper full disclosure to corporate attorneys. Cf. In re Initial Pub. Offering Sec. Litig., 249 F.R.D. 457, 462–65 (S.D.N.Y. 2008).
Several commentators have suggested that Federal Rule of Evidence 502(d) offers a solution that might enable privileged documents to be produced without the risk of waiving privilege. On its face, Rule 502(d) does appear to make that possible: “A federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court—in which event the disclosure is also not a waiver in any other federal or state proceeding.”
That said, the addendum to the advisory committee notes includes a “Statement of Congressional Intent” that explains that Rule 502(d) does “not provide a basis for a court to enable parties to agree to a selective waiver of the privilege, such as to a federal agency conducting an investigation, while preserving the privilege as against other parties seeking the information.” Therefore, despite the broad wording of Rule 502(d), it is not intended to enable selective waiver, and the few courts to address the issue have resisted that application. Ringelberg v. Vanguard Integrity Prof’ls-Nev., Inc., No. 217CV01788JADPAL, 2018 WL 555694, at *4 (D. Nev. Jan. 24, 2018) (“With respect to defendants’ request that the court enter an order providing that the intentional production of privileged documents shall not constitute a waiver, the court categorically rejects defendants’ non-waiver arguments.”); In re Processed Egg Prods. Antitrust Litig., No. 08-MD-02002, 2014 WL 6388436, at *7 (E.D. Pa. Nov. 17, 2014) (“Court’s 502(d) Order does not give parties a blank check to disseminate privileged information without waiving privilege.”); United States v. Hatfield, No. 06-CR-0550 (JS), 2010 WL 11515679, at *2 (E.D.N.Y. July 13, 2010) (“[A]lthough the Court does not interpret the Addendum as an absolute restriction on the Court’s authority, it sees no reason to disregard it absent highly compelling circumstances.”).
In short, once information is disclosed to the government, the attorney-client privilege and attorney work-product doctrine likely cannot be used to prevent disclosure of that information in a civil suit—despite attempts to cloak the initial disclosure with a confidentiality agreement or joint defense agreement. At the least, all stakeholders should be aware of the significant risk of waiver whenever information is disclosed to the government.
Privileged and Confidential Information Under FOIA
Unlike in discovery, where parties must show at least that requested and unprivileged information is relevant to litigation, under FOIA “any person” may obtain records in the possession of a federal agency without showing any need for such information. 5 U.S.C. § 522(a)(3)(A); see also EPA v. Mink, 410 U.S. 73, 86 (1973) (observing that FOIA does not “permit inquiry into the particularized needs of the individual seeking the information, although such an inquiry would ordinarily be made of a private litigant”). This means that much information that a company provides to the government could be subject to a FOIA request—and therefore to broad public dissemination.
But there is a backstop. Specifically, Congress carved out from FOIA certain information under “Exemption 4” of the statute. This exemption protects from FOIA requests any information that is “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” 5 U.S.C. § 522(b)(4). The relevant question for counsel ordinarily will be whether the information disclosed qualifies as trade secrets or as commercial information. If the information disclosed to the government is commercial and privileged, then that information will be protected from disclosure under FOIA even if it would not be protected from discovery during litigation. If the information is commercial but not privileged, counsel will want to show that the information is nonetheless confidential.
Courts have adopted a notably narrow definition for trade secrets covered by Exemption 4. Under federal trade secrets law, and the trade secrets laws of many states, a trade secret is any information that gives its owner a competitive advantage over those who do not know the secret, if the owner has taken reasonable steps to keep the information secret. See 18 U.S.C. § 1839(3); Uniform Trade Secrets Act § 1(4). By contrast, in the absence of a definition in FOIA for trade secrets, two federal circuits have determined that a trade secret for purposes of FOIA is “a secret, commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort.” Anderson v. Dep’t of Health & Human Servs., 907 F.2d 936, 944 (10th Cir. 1990) (emphasis added); Pub. Citizen Health Research Grp. v. Food & Drug Admin., 704 F.2d 1280, 1288–89 (D.C. Cir. 1983) (emphasis added). In other words, even if a company has trade secrets protected from misappropriation under federal and state trade secrets laws, a company might not possess trade secrets protected from disclosure to the general public under FOIA. Thus, counsel should proceed with caution with respect to disclosing trade secrets to the government and not assume that such information will be shielded automatically by Exemption 4.
For example, in one federal circuit case, a consumer health advocacy group sought clinical test information submitted to the Food and Drug Administration (FDA) by manufacturers of disks implanted in people’s eyes to correct their vision after cataract removal. Pub. Citizen, 704 F.2d at 1283. The FDA required manufacturers to give the information for a government study into safety and efficacy. The D.C. Circuit Court of Appeals concluded that Exemption 4 did not cover the requested clinical test materials because the information—namely, reports and memoranda relating to patients’ reactions to the disks—was insufficiently related “to the productive process” as it did not entail a “plan, formula, process, or device.” Id. at 1290.
In another federal circuit case, which also involved the FDA, an individual who sued Dow Corning Corp. for injuries allegedly caused by Dow’s liquid silicone wanted information that Dow gave to the agency. Anderson, 907 F.2d at 939. Although the individual had obtained the information through discovery, she sued the FDA under FOIA so that she would not be bound by the protective order in her lawsuit against Dow. At issue was, inter alia, manufacturing information; preclinical and clinical test data; and marketing, sales, and customer information. The Tenth Circuit adopted the D.C. Circuit’s narrow definition of trade secrets and remanded to the trial court to determine whether the specific requested information fit the narrow definition.
More recently, the Seventh Circuit punted on the proper definition of trade secrets under Exemption 4. Henson v. Dep’t of Health & Human Servs., 892 F.3d 868, 877 (7th Cir. 2018). At issue was information relating to the raw materials used to manufacture a glucose monitor, the raw materials used in the testing process, and the pump’s battery film. The court observed that two Exemption 4 tests could apply: (1) the trade secrets test adopted by the D.C. and Tenth Circuits or (2) the test applied by the D.C. Circuit to determine whether commercial information is confidential. Under either test, the Seventh Circuit said, the information at issue was exempt from FOIA disclosure; as to the trade secrets test, the court explained that it was met because the information related to “materials used to make the monitor and its battery film.” Id. at 877.
A handful of U.S. district courts have likewise applied the narrow definition of trade secrets in deciding whether FOIA’s Exemption 4 applies. See, e.g., Freeman v. Bureau of Land Mgmt., 526 F. Supp. 2d 1178 (D. Or. 2007) (TBD); Herrick v. Garvey, 200 F. Supp. 2d 1321 (D. Wyo. 2000) (TBD).
The main reason that courts have narrowly construed trade secrets under FOIA’s Exemption 4 is because, otherwise, courts see Exemption 4’s provision for “commercial . . . information . . . [that is] confidential” as seemingly redundant. Anderson, 907 F.2d at 944; Pub. Citizen, 704 F.2d at 1288. Namely, information will be exempt from FOIA disclosure not only if it is “commercial or financial” and “privileged” but also if it is “commercial or financial” and “confidential.” For counsel, the potential redundancy is helpful because it provides a second chance to protect information from FOIA disclosure.
Establishing that information is commercial is relatively easy. For information to be commercial, it must pertain or relate to “commerce”; at the every least, this includes information with “commercial value” or information that would “jeopardize . . . commercial interests or reveal information about . . . ongoing operations.” Detention Watch Network v. U.S. Immigration & Customs Enf’t, 215 F. Supp. 3d 256, 262 (S.D.N.Y. 2016) (quoting N.Y. Pub. Interest Research Grp. v. U.S. E.P.A., 249 F. Supp. 2d 327, 334 (S.D.N.Y. 2003)). The information must be from a nongovernment person or entity. Courts have held that government contracts reflecting the business information of private contractors, and government-created documents reflecting the terms of loans made by the Federal Reserve to private banks, are not from a “person” because such materials were generated within the government. Detention Watch Network, 215 F. Supp. at 262–63; Bloomberg, L.P. v. Bd. of Governors of the Fed. Reserve Sys., 601 F.3d 143, 148 (2d Cir. 2010). But it is not necessary that the person or entity providing the information to the government have a commercial interest in the information; for example, a nonprofit industry group whose members were utility companies was held to have provided commercial information to the Nuclear Regulatory Commission. Critical Mass Energy Project v. Nuclear Regulatory Comm’n, 830 F.2d 278, 281 (D.C. Cir. 1987), vacated on other grounds, 975 F.2d 871 (D.C. Cir. 1992) (en banc). Exemption 4 is “sufficiently broad to encompass financial and commercial information concerning a third party.” Bd. of Trade v. Commodity Futures Trading Comm’n, 627 F.2d 392, 402 (D.C. Cir. 1980), abrogated on other grounds, U.S. Dep’t of State v. Wash. Post Co., 456 U.S. 595 (1982).
Whether information is confidential is an issue that until recently was mired in uncertainty and turned on whether disclosure of the information under FOIA would result in “substantial competitive harm” to the business that provided the information to the government. Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct. 2356, 2360 (2019). Last year, the U.S. Supreme Court abrogated years’ worth of circuit precedent by holding that it is not necessary to show “substantial competitive harm” to meet Exemption 4’s confidentiality requirement. Rather, information is sufficiently confidential under FOIA if it is “customarily and actually treated as private by its owner and provided to the government under an assurance of privacy.” Id. at 2366. But the Supreme Court left open the question of whether an assurance of privacy from the government is necessary to claim confidentiality.
A handful of district courts have already applied the Supreme Court’s new rule. These early decisions suggest that the confidentiality test will be met where companies took reasonable precautions to keep the information private, in the same vein as is required under federal and state trade secrets laws, such as by asking recipients of the information (including employees) to sign confidentiality agreements; designating in writing that materials are confidential; using secure, password-protected IT networks for the information; and limiting access to the information to a need-to-know basis. Similarly, disclosure of information without the use of such precautions will undermine claims of confidentiality. Compare Am. Small Bus. League v. U.S. Dep’t of Def., No. C 18-01979 WHA, 2019 WL 6255353, at *4 (N.D. Cal. Nov. 24, 2019) (confidentiality test met where privacy precautions taken), with Animal Legal Def. Fund v. U.S. Food & Drug Admin., 2020 WL 243408 (9th Cir. 2020) (remanding for further proceedings where there was “insufficient evidence as to what specific steps each producer took to keep its information confidential” and it appeared that some information was “voluntarily publicly disclosed . . . in ways that undermine confidentiality”), and Ctr. for Investigative Reporting v. U.S. Dep’t of Labor, 2019 WL 6716352, at *6 (Dec. 10, 2019) (questioning whether confidentiality test was met where summary of information claimed to be confidential was published in annual report).
To establish that reasonable precautions were taken, a company should be prepared to provide sworn statements on how the company customarily and actually protects the information claimed to be confidential. Ctr. for Investigative Reporting v. U.S. Customs & Border Prot., No. CV 18-2901 (BAH), 2019 WL 7372663, at *12–13 (D.D.C. Dec. 31, 2019) (quoting Ctr. for Auto Safety v. Nat’l Highway Traffic Safety Admin., 244 F.3d 144, 148 (D.C. Cir. 2001)). Importantly, it is not enough to state that “the industry as a whole” treats such information as confidential; rather, the company must testify regarding how the company itself treats the information. Id. (Procedurally, a FOIA litigant will likely sue the government agency withholding information under Exemption 4, and the company that owns the disputed information would intervene in that lawsuit. See, e.g., Food Mktg. Inst., 139 S. Ct. at 2361–62.)
Counsel should take care to ensure that any declarations or affidavits establish with reasonable specificity how Exemption 4’s elements are met; declarations or affidavits that raise factual questions due to, for example, discrepancies or vagueness might open the door to discovery into the company’s claims of confidentiality. For example, a federal court in California allowed such discovery where a declaration by Lockheed Martin not only indicated that the company allowed “selective disclosure” of disputed information for public relations purposes but also appeared to contain factually inconsistent statements. Am. Small Business League v. U.S. Dep’t of Defense, 2019 WL 4416613, at *2–3 (N.D. Cal. Sept. 15, 2019).
Finally, counsel should be aware that litigants might try to use FOIA for discovery purposes. Generally, federal courts have said that FOIA cannot be used to expand a private litigant’s rights in a way inconsistent with discovery rules. See United States v. Weber Aircraft Corp., 465 U.S. 792, 801 (1984) (“[R]espondents’ contention that they can obtain through the FOIA material that is normally privileged would create an anomaly in that the FOIA could be used to supplement civil discovery. We have consistently rejected such a construction of the FOIA.”). Furthermore, under Exemption 4’s carveout for “commercial or financial information obtained from a person and privileged or confidential,” it appears that disclosure of privileged information does not waive privilege for FOIA purposes.
Conclusion
Providing information to the government is increasingly arising as an issue for corporate counsel. Being mindful of the extent to which privileged or confidential business information, whether trade secrets or otherwise, retains its privileged or confidential status upon such disclosure will inform the types of precautions that counsel can take to avoid problems of waiver in future litigation or under future FOIA requests.
