Analyzing the Subtle Waiver Issues Caused by Disclosures to the Government

October 29, 2008

Companies making disclosures to the government face very subtle and sometimes misunderstood waiver issues. Except in those very rare occasions when the government is an ally, disclosing privileged communications to the government almost always triggers a waiver (and sometimes a subject matter waiver). On the other hand, disclosing historical facts to the government should not cause a waiver — because historical facts never deserve privilege protection to begin with. Relying on the existence of an investigation to avoid some government action might not cause an express waiver (because such reliance would not disclose a privileged communication), but could trigger an implied waiver — much like pleading “advice of counsel” causes an implied waiver without the actual disclosure of privileged communications.

Courts sometimes have difficulty addressing these subtle issues. In In re Stone Energy Corp., Civ. A. No. 05-2088, -2109, & -2220, 2008 U.S. Dist. LEXIS 62611, at *5 (W.D. La. Aug. 14, 2008), the court held that the work product doctrine protected Davis Polk’s internal investigation report to Stone’s audit committee, but that Davis Polk waived the work product protection when it “presented the conclusions of its investigation to the SEC Staff.” The court ordered Davis Polk and Stone to provide securities plaintiffs with Davis Polk’s background material generated during its internal investigation. The court did not explain whether the “conclusions” Davis Polk provided to the SEC consisted of historical facts (which should not have caused a waiver), the substance of privileged communications (which should have caused a waiver) or the law firm’s opinions based on privileged communications (which usually triggers at least an implied waiver). Eight days later, the Northern District of California dealt with Howrey’s internal investigation report about options backdating at McAfee. In SEC v. Roberts, No. C 07-04580 MHP, 2008 U.S. Dist. LEXIS 64615 (N.D. Cal. Aug. 22, 2008), the court appeared to distinguish between Howrey’s opinions and historical facts that the firm uncovered. The court ultimately ordered Howrey to disclose to Roberts (a former McAfee vice president facing SEC charges) whatever opinions the firm provided to the SEC. In response to Roberts’ efforts to obtain Howrey’s notes of the firm’s interview with McAfee employees, the court addressed the issue on a witness-by-witness basis. Although the court’s analysis can be difficult to follow, it appears that the court ordered Howrey to provide its notes of interviews with witnesses about whom Howrey had provided opinions and impressions to the McAfee board and to the government. In contrast, Howrey did not have to disclose its notes of interviews with witnesses about whom it supplied only historical facts to the McAfee board or the government.

Because the stakes involved in corporations’ disclosures to the government can be so high, it is unfortunate that the rules are so complicated and vague.