If outside counsel for a company drafts factual memoranda concerning an internal investigation conducted in response to alleged wrongdoing, and then voluntarily shares the memoranda at the company’s direction with government investigators, has the company waived the work product privilege? According to a recent decision from a federal district court in New York, the answer is yes. See In re Initial Public Offering Securities Litigation, 2008 WL 400933 (S.D.N.Y. Feb. 14, 2008).

After receiving a subpoena from the U.S. Attorney regarding alleged misconduct related to the allocation of shares during initial public offerings, Credit Suisse First Boston (“Credit Suisse”) requested that the U.S. Attorney withdraw the subpoena so that Credit Suisse could conduct its own internal investigation regarding the allegations and then report back to the U.S. Attorney on its findings. In December 1999, in-house counsel at Credit Suisse began an internal investigation and subsequently retained outside counsel who interviewed Credit Suisse employees regarding their allocation practices and memorialized “factual summaries” of those interviews in several memoranda (the “Memoranda”). Credit Suisse produced the Memoranda and other documents to the U.S. Attorney's Office and to the SEC pursuant to letter agreements that contained promises of confidentiality.

Beginning in 2001, numerous class-action lawsuits were filed against Credit Suisse, Goldman Sachs, JPMorgan, Merrill Lynch, Morgan Stanley and 49 other underwriters relating to IPO allocation practices. There are now more than 1,000 cases pending against over 300 issuers that were consolidated for pretrial purposes, and in which the plaintiff classes seek billions of dollars in damages. In one of those cases involving Credit Suisse, the plaintiffs moved for an order compelling Credit Suisse to produce the Memoranda. Credit Suisse opposed the motion on the ground that the Memoranda were protected as attorney work product. The plaintiffs argued that the Memoranda were not work product and that even if they were, any attaching privilege was waived by prior disclosure of the Memoranda to the government. Judge Shira A. Scheindlin granted the plaintiffs’ motion and ordered that Credit Suisse produce the Memoranda to the plaintiffs in the IPO allocation case

The work product doctrine generally protects from discovery all documents and materials prepared by in anticipation of litigation. The party asserting work product protection bears the burden of establishing that the document sought was prepared or obtained because of the prospect of litigation. Work product is divided into two categories: fact work product (e.g., a factual investigation) which is given qualified protection, and opinion work product (i.e., mental impressions, conclusions, opinions, or legal theories of an attorney or other representative) which is given absolute protection. Opinion work product is entitled to greater protection than fact work product. The Memoranda at issue in this case fell under the category of fact work product. It is well-settled law that voluntary disclosure of work product to an adversary waives the privilege as to all other parties.

In this case, Judge Scheindlin concluded that Credit Suisse had initiated an internal investigation and drafted the Memoranda with an intent to prepare for litigation, and therefore she found that the Memoranda fell within the category of fact work product. However, Judge Scheindlin concluded that Credit Suisse had waived the work product privilege when it voluntarily produced the Memoranda to the government. In response, Credit Suisse asserted that voluntary disclosure in the context of a government investigation where a confidentiality agreement is in place does not amount to waiver of attorney work product privilege. Rather, Credit Suisse argued, such disclosure falls under the doctrine known as “selective waiver.”

Noting that neither the Supreme Court nor the Second Circuit has expressly upheld a claim of selective waiver, Judge Scheindlin looked to the decisions of other circuits and to decisions in the Southern District of New York for guidance, concluding that most courts have rejected the selective waiver approach, but that some have held that the existence of a confidentiality agreement precludes a finding of waiver. In the end, Judge Scheindlin concluded that the cases indicate a strong presumption against a finding of selective waiver, and ruled that a selective waiver finding should not be permitted absent special circumstances. Without defining “special circumstances,” she held that Credit Suisse failed to show the existence of any special circumstances that would justify selective waiver, despite the existence of a confidentiality agreement.

Judge Scheindlin also flatly rejected Credit Suisse’s assertion that it shared “common interests” with the U.S. Attorney and SEC (even though the parties had a written agreement which stated that they indeed shared “common interests) which prevented waiver of the work product privilege. Judge Scheindlin pointed out that the parties had a truly adversarial relationship and therefore the parties could not simply manufacture a “common interest” by agreement of the parties.

This decision is a strong warning that parties wishing to take advantage of the privilege that protects attorney work product must zealously maintain the confidentiality of that work product from all adversaries – whether private civil litigants or regulatory or government agents. More specifically, in order to avoid waiver of the work product privilege, parties should not voluntarily produce to the government memoranda concerning internal investigations. This case is distinguishable from situations in which disclosure to an adversary is only obtained through compulsory legal process, in which case courts typically hold that the privilege has not been waived.