A recent federal court decision provides a timely reminder for public companies to be attentive to attorney-client privilege when preparing SEC filings. In Roth v AON Corporation (N.D. Ill. January 8, 2009), Magistrate Judge Morton Denlow held that an e-mail and attached draft of disclosure language circulated for comment among corporate employees and in-house counsel in connection with preparing an Annual Report on Form 10-K were protected from discovery by plaintiffs in a pending securities fraud action.
In so holding, Judge Denlow recognized that the process of preparing SEC filings involves pervasive legal judgments throughout, even where the disclosure in question concerns operational rather than legal matters. “The determination of what information should be disclosed for compliance is not merely a business operation,” he ruled, “but a legal concern.” Consequently, he held that the e-mail and attached draft sent by AON’s CFO to its IR head, Controller, an employee in the Controllers’ division and in-house counsel constituted a request for legal advice from counsel – a pre-requisite for privilege coverage – even though the draft disclosure concerned an operational aspect of AON’s business (“Compensation for Services”).
Judge Denlow also held that the inclusion of non-lawyers as recipients on the communication did not waive the privilege so long as all other recipients were AON employees. He also rejected the plaintiffs’ argument that, because the final Form 10-K would be a public document, drafts and related communications could not be protected by the privilege.
The Roth case does not make new law. But the guidance it provides regarding application of attorney-client privilege to communications and drafts relating to SEC filings is something public company personnel should bear in mind as they produce this year’s filings.
Preparing good SEC disclosure is a challenging team process in which inside and outside counsel are usually deeply involved, along with company officers and employees. In order for SEC disclosure to be well prepared, it is essential that drafts be circulated to key corporate personnel and that discussion of needed revisions be candid and thorough. Maintaining attorney-client privilege protection over preliminary drafts and discussion of related issues – communications that could easily be misconstrued and misused by adverse parties in litigation – is of paramount importance not only to protect the company, but also to produce quality disclosure.
The Roth case suggests some important keys to maintaining maximum privilege protection that all members of the company’s SEC disclosure working group should understand:
- Legal judgments and considerations are pervasive in producing most SEC filings. In-house or outside counsel should play a pivotal role in a public company’s disclosure controls and procedures and should be a party to all significant or sensitive communications and drafts. Courts will not extend the privilege shield to correspondence simply because it is addressed to a lawyer, but the shield can only apply if a lawyer is an addressee.
- Communications to be shielded must only be exchanged among in-house or outside counsel and company employees. Including outsiders, such as the company’s outside auditors or other consultants, as recipients would generally waive the privilege.
- Documents containing draft disclosures or discussion of related issues should be labeled “Preliminary Drafts” and "Confidential/Attorney-Client Privilege." Such labeling will not necessarily mean that a court will ultimately find such documents to be protected, but it will evince an intent to apply the shield. These labels should also help to prevent unintended delivery to opposing parties in litigation discovery (as originally occurred in the Roth case).
- E-mails relating to such drafts and discussion of related issues should also be so labeled.
To the extent they have not already done so, in-house counsel should establish and promulgate communication guidelines consistent with these principles and oversee compliance with them among working group members. In-house counsel should also make sure that the company has an appropriate document retention policy in place and that there is compliance with that policy in connection with production of documents and correspondence related to SEC filings.