Recent Cases Highlight Waiver Risks of Sharing Any Protected Material with Outside Auditors

May 7, 2003

Clients or lawyers sharing privileged communications with their outside auditors should always have known that such disclosure waives the attorney-client privilege. Accord First Federal Savings Bank of Hegewisch, 55 Fed. Cl. 263 (Fed. Cl. 2003) (holding that a company waived the attorney-client privilege by disclosing unredacted board of directors minutes to its outside auditor KPMG). However, there has been some debate about whether sharing work product with an outside auditor waives that separate protection (given the more forgiving standard governing the disclosure of work product to a friendly third party). 

A recent case found that such disclosure did waive the work product protection. In Medinol, Ltd. v. Boston Scientific Corp., No. 01 Civ. 2881 (AKH), 2002 U.S. Dist. LEXIS 20611, at *7 (S.D.N.Y. Oct. 24, 2002) (citation omitted), the court acknowledged that sharing work product with those having “common interest” did not necessarily waive the work product protection. However, the court held that an independent auditor has a “public responsibility” and therefore has interests that are “independent” of its client. Id. at *11 (citation omitted). The court held that the company waived the work product protection covering Special Litigation Committee minutes by sharing them with the company’s outside auditor Ernst & Young. 

Even sophisticated clients may not realize the risks of sharing privileged information or work product with their outside auditors, and their lawyers should train them about these risks.