December 11, 2006

In the wake of recent corporate scandals, both the attorney-client privilege and work product doctrine are under attack, and there is growing concern that the protections are facing significant erosion as public and prosecutors alike clamor for vigorous prosecutions of corporations. The latest assault is what has lately become a significant tool in a prosecutor's arsenal in investigating alleged corporate wrongdoing: corporate waiver of the attorney-client privilege and work product doctrine.

A hallmark of the attorney-client relationship has been the privilege afforded to the communications between the attorney and the client. A related doctrine is the work-product doctrine that protects as confidential much of a lawyer's "work product" developed in anticipation of litigation. Both the attorney-client privilege and the work product doctrine are recognized exceptions to the general rule that information relevant to a case is discoverable by the adversary. Courts have long and consistently decided in favor of protecting and upholding the privilege and the work-product doctrine despite the fact that such decisions necessarily sacrifice to some extent discovery of the truth.¹

Both the attorney-client privilege and the work product doctrine also apply in the context of a corporation, a legal fiction which can act only through its employees and agents. The difficulty comes in determining which communications between an attorney and the corporation are privileged and what work product is protected from discovery.

Traditionally, a client can "waive" a privilege by sharing the information protected by the privilege to a third party. The waiver of a privilege to one person in effect waives the privilege as to all persons. Therefore, once a privilege has been waived and disclosure has been made to a third party, the privilege is waived as to all others. In the context of corporations, waiver of such privileges raises some sticky issues. Generally, it is agreed that if a company waives the attorney-client privilege by disclosing protected material or information to a regulator or prosecutor, the company waives the privilege as to that information to all other parties (e.g. private litigants). Courts are not agreed, however, on whether disclosure of some protected information acts as a waiver of all other privileged but nondisclosed information on the same subject matter.

Law enforcement and regulatory authorities have increasingly used the concept of waiver to secure cooperation from corporate clients during investigations. Corporations are presented with the Hobson's choice of waiving attorney-client privilege and work product doctrine in exchange for getting credit for cooperating, or refusing the waiver and suffering the consequences. Increasingly, the concern is that prosecutors and regulators expect such waivers as proof that the corporation is innocent of wrongdoing.

This encroachment on what has been an almost sacrosanct aspect of legal representation can be traced to the collapse of Enron, after which the then Deputy Attorney General Larry Thompson issued a memorandum to the Department of Justice entitled "Principles of Federal Prosecution of Business Organizations." Memorandum from Deputy Attorney General Larry Thompson to Heads of Department Components and U.S. Attorneys, Principles of Federal Prosecution of Business Organizations (Jan. 20, 2003) (available at http://www.usdoj.gov/dag/cftf/corporate_guidelines.htm). Thompson listed nine factors for consideration by federal prosecutors in making charging decisions, one of which was the corporation's cooperation during the investigation, including whether the corporation waived corporate attorney-client and work product protection.

Even more recently, the Federal Sentencing Guidelines were amended such that in order to qualify for a sentence reduction in exchange for assisting the government investigation, a corporation would be required to waive confidentiality protections if "such waiver is necessary in order to provide timely and thorough disclosure of all pertinent information known to the organization." fn 3 U.S. Sentencing Guidelines Manual § 8C2.5 (2004) (available at http://www.ussc.gov/2004guid/8c2_5.htm).

Though perhaps unintentional, one effect of the "required" waiver has been to help private litigants in cases brought against the corporations. The efforts of corporations in cooperating with prosecutors and regulators, then, may significantly increase their exposure to additional private litigation. Such a result offends traditional notions of fairness, when, in effect, the burden of proof is shifted from a plaintiff to show wrongdoing to the defendant in proving innocence.

In response, the American Bar Association established in September, 2004 a Task Force on the Attorney-Client Privilege to evaluate the issues and recommend policy related to the attorneyclient and work product doctrine. The Task Force issued a report in May, 2005, and issued Recommendation 111 in which they reiterated their opposition to "policies, practices and procedures of governmental bodies that have the effect of eroding the attorney- client privilege and work product doctrine," and specifically to "the routine practice by government officials of seeking to obtain a waiver of the attorney-client privilege or work product doctrine through the granting or denial of any benefit or advantage." ² The ABA has been proactive in its opposition; writing letters, testifying at hearings and commenting on proposed changes to existing rules. Their efforts were rewarded, at least in part, on April 5, 2006, when the U.S. Sentencing Commission unanimously voted to remove the privilege waiver language from the amended Sentencing Guidelines.

Ultimately, the interests of the public are better served when corporations can predict with some degree of certainty the protections afforded by the attorney-client privilege and the work product doctrine. Erosion of those protections significantly compromises the ability of attorneys to effectively and adequately represent their clients, as clients are less willing to provide to their attorneys the information needed to provide sound advice. Debate on the issues continues and significant activity in this area of the law is expected.

² The Recommendation and the Task Force report are available at http://www.abanet.org/buslaw/attorneyclient/home.shtml.