United States: Southern District Of New York Holds Cooperation With Government Waives Attorney-Client Privilege

In July and again in November 2013, the Southern District of New York held that the voluntary disclosure of privileged communications to the government, even with a confidentiality agreement in place, can be treated as a waiver of attorney-client privilege with respect to the communications and the underlying source documents.¹

The defendants and their principal owner operated several hedge funds that hired outside counsel in 2006 to conduct internal investigations regarding certain financial irregularities that had come to light. The plaintiff, CFO of one of the defendant entities at the time, was blamed for the irregularities and resigned. In 2007, defendants hired a second law firm to conduct a second internal investigation into the financial irregularities and to notify the SEC of the firm's findings. Defendants' disclosures to the SEC were entirely voluntary and were governed by a confidentiality agreement that stated the defendants did not intend to waive the protection of attorney-work product or attorney-client privilege and that the SEC would maintain the confidentiality of the protected materials and would not disclose them to any party, "except to the extent that the Staff determines that disclosure is required by law or would be in furtherance of the Commission's discharge of its duties and responsibilities."

The defendant later disclosed the financial irregularities and internal investigations to investors, blaming the plaintiff for the irregularities in this disclosure. The plaintiff sued the defendants, claiming the statements to investors were false and defamatory. The plaintiff sought production of attorney notes and summaries of witness interviews conducted by outside counsel, which defendants opposed, claiming the notes and summaries were protected by attorney-client privilege and the work-product doctrine.

The plaintiff argued that the defendants had waived attorney-client privilege and work product protection as to witness interview notes and summaries by making selective use of the same in their presentations to the SEC.

On July 14, 2011 a magistrate judge issued an order denying the plaintiff's motion to compel production of these materials, finding that the defendants' disclosure to the SEC did not constitute a waiver of the privilege in the undisclosed portions of the interview notes and summaries as to the plaintiff. The plaintiff objected to part of this holding, arguing that he was seeking only factual interview notes reflecting the statements made by witnesses, and not disclosure of the notes and summaries that disclosure counsel's opinion or analytical process.

The Court considered the Second Circuit case In re Steinhardt Partners L.P., 9 F.3d 230 (2d Cir. 1993), where, in dicta, the Second Circuit suggested that a party's voluntary submission to a governmental agency in an adversarial posture of a document containing attorney work product might not waive work product protection in that document where the disclosing party and the government shared a common interest, or where the government agency had explicitly agreed to maintain the disclosed materials as confidential. The Court noted that the confidentiality agreement the defendants signed with the SEC provided no meaningful protection to defendants because it essentially granted the SEC discretion to disclose the submitted materials whenever it chose. After surveying other circuit authority on the effect of confidentiality agreements with government agencies, the Court concluded that the magistrate judge was mistaken in finding there was no waiver of privilege. In addition, the Court held that when a party selectively discloses attorney-client communications to an adverse government entity, the privilege is waived not only as to the materials provided, but also as to the underlying source materials. The Court ordered that the defendants produce all notes and summaries for in camera inspection in order to determine what portion of the documents constituted opinion work product, with the intention of ordering production of the rest.

Subsequent to the Court's July 10, 2013 decision, former outside counsel to the defendants moved for clarification of the Court's order, objecting to producing hand-written interview notes taken by the firm's lawyers during its representation of the defendants, on the grounds of work product privilege and public policy. The Court held that the law firm did not have a distinct privacy interest in the interview notes that would protect them from disclosure. However, the Court agreed to conduct an in camera review of the interview notes to protect disclosure of the notes that constituted opinion work product.

Footnote

1. Gruss v. Zwirn, 2013 WL 3481350 (S.D.N.Y. July 10, 2013), on motion for clarification, 296 F.R.D. 224 (2013).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.