“Les Privileges! Privilege and Waiver in Arizona and Federal Court”

Arizona Bankruptcy Inn of Court

March 14, 2013 Work Product Privilege Pages 1-5 Accountant Client Privilege Pages 6-7 Marital Privilege Pages 8-10 Settlement Privilege Pages 11-15 Waiver Pages 16-19 Trustee Privilege Issues Pages 20-21 Do You Hear the Witness Sing—Lyrics Page 22

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Work Product Privilege

I. Introduction

Federal Rules of Evidence 1101 and Bankruptcy Rule 9017 provide that the Federal Rules of Evidence shall apply to all proceedings and hearings in the bankruptcy courts, as well as to other federal courts. Federal Rule of Evidence 501 – Privilege in General Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness, person, government, State, or political subdivision thereof shall be governed by the principles of the common law as they may be interpreted by the Courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness, person, government, State, or political subdivision thereof shall be determined in accordance with State law. Federal Rule of Evidence 502 – Attorney-Client Privilege and Work Product;

Limitations of Waiver The following provisions apply, in the circumstances set out, to disclosure of a communication or information covered by the attorney-client privilege or work-product protection.

(a) Disclosure made in a Federal Proceeding or to a Federal office or agency; scope of waiver. When the disclosure is made in a Federal proceeding or to a Federal office or agency and waives the attorney-client privilege or work-product protection, the waiver extends to an undisclosed communication or information in a Federal or State proceeding only if:

(1) the waiver was intentional; (2) the disclosed and undisclosed communications or information

concern the same subject matter; and (3) they ought in fairness to be considered together.

(b) Inadvertent Disclosure. When made in a Federal proceeding or to a Federal office or agency, the disclosure does not operate as a waiver in a Federal or State proceeding if:

(1) the disclosure is inadvertent; (2) the holder of the privilege or protection took reasonable steps to

prevent disclosure; and

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(3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Procedure 26(b)(5)(B).

(c) Disclosure made in a State proceeding. When the disclosure is made in a State proceeding and is not the subject of a State-court order concerning waiver, the disclosure does not operate as a waiver in a Federal proceeding if the disclosure:

(1) would not be a waiver under this rule if it had been made in a Federal proceeding; or

(2) is not a waiver under the law of the State where the disclosure occurred.

(d) Controlling effect of a court order. A Federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court – in which event the disclosure also is not a waiver in any other Federal or State proceeding.

(e) Controlling effect of a party agreement. An agreement on the effect of disclosure in a Federal proceeding is binding only on the parties to the agreement, unless it is incorporated into a court order.

(f) Controlling effect of this rule. Notwithstanding Rules 101 and 1101, this rule applies to State proceedings and to Federal court-annexed and Federal court-mandated arbitration proceedings, in the circumstances set out in this rule. And notwithstanding Rule 501, this rule applies if State law provides the rule of decision.

(g) Definitions. In this rule: (1) “attorney-client privilege” means the protection that applicable

state law provides for confidential attorney-client communications; and

(2) “work-product protection” means the protection that applicable law provides for tangible materials (or its intangible equivalent) prepared in anticipation of litigation or for trial.

In general, the purpose of the rules of evidence is to ascertain the truth.

However, a subset of rules, the privilege rules, is designed to permit the exclusion of evidence wholly unconnected to the credibility of the witness or the quality of the evidence. The reason is the desire to protect a certain interest or relationship. The term “privilege” as set out in Rule 501 is used broadly to describe these rules. Since the effect of a privilege is to suppress the truth, a privilege is recognized only if the interest or relationship is of outstanding importance and would be harmed by denying the protection of that privilege.1 1Honorable Barry Russell, Bankruptcy Evidence Manual Vol 2.§ 501:1 (2010-2011 ed. 2010).

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II. Work Product – General

The work-product doctrine protects such items as “interviews, statements, memoranda, correspondence, briefs, mental impressions, [and] personal beliefs.”2 The purpose of the doctrine is to encourage careful and thorough preparation by counsel and it provides him or her with a “certain degree” of privacy, free from necessary intrusion by opposing parties and their counsel.3

Federal Rule of Civil Procedure 26(b)(3) provides that “[o]rdinarily, a party

may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or agent). But subject to Rule 26(b)(4), those materials may be discovered if:

(i) they are otherwise discoverable under Rule 26(b)(1); and (ii) the party shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means. The burden initially rests on the party asserting the work product doctrine to

prove the documents were prepared in anticipation of litigation; the burden then shifts to the party seeking discovery to show just cause to invade the adversary’s work product.4

A. Bankruptcy Specific Work Product Case Law

- Any work product privilege attaching to email communications between chapter 11 debtor’s insiders and their attorneys was waived as to communications that involved potential dispute between insiders and estate, and that insider’s counsel disclosed to debtor’s attorney and consultant.5 - Documents disclosed to testifying expert including attorney’s work product are discoverable.6 - Handwritten notes of counsel for unsecured creditor’s committee protected as work product. “The Notes sought by the Debtor go to the very heart of the work product doctrine. They contain the attorney’s on-the-spot mental 2Id., at § 501:26 citing Hickman v. Taylor, 329 U.S. 495, 510, 67 S. Ct. 385, 393, 91 L. Ed. 451, 1947 A.M.C. 1 (1947). 3Id., citing Hickman, at 510-511, 67 S. Ct. at 393. 4In re Tri State Outdoor Media Group, Inc. 283 B.R. 358, 54 Fed. R. Serv. 3d 668 (Bankr. M.D. Ga. 2002). 5In re Asia Crossing, Ltd., 322 B.R. 247 (Bankr. S.D. N.Y. 2005). 6In re McRae, 295 B.R. 676 (Bankr. N.D. Fla. 2003).

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impressions, thoughts and strategies, and are not subject to discovery absent proof that there is at least a compelling need for the documents.. . .That the attorneys’ fees for its services are in dispute does not give rise to an ‘at issue’ waiver of the work product doctrine.”7 - Investigator’s report not protected by the attorney-client privilege but will be protected by the work-product doctrine.8 - Work product doctrine applies to production of documents prepared in anticipation of litigation and Federal Rule of Civil Procedure 26(b)(3) applies to motions under Bankruptcy Rule 2004 through Bankruptcy Rule 9014 and Rule 26 has not been limited to discovery where litigation has been commenced.9

B. Arizona Specific Case Law - Under ARCP Rule 26(b)(3), limited protection is afforded to documents

and tangible things “prepared in anticipation of litigation or for trial by or for another party or by or for that other party’s representative . . . .” An expert retained by counsel or by the client at counsel’s direction to investigate and produce reports on technical aspects of specific litigation is considered part of the lawyer’s investigative staff and the opinions and theories of such expert constitute protectable “work product.”10 - The work-product doctrine does not immunize from discovery a lawyer’s written or oral communications with an expert who has been hired to provide expert testimony, even if the expert also has been retained by counsel to consult as well.11 - A party waives the work-product protection ordinarily afforded the work of a consulting expert when the party designates that expert to testify at trial.12 - The work-product protection can be reinstated by removing the designation before expert-opinion evidence is offered from the witness through production of a report, responses to discovery, or expert testimony.13

III. Conclusion 7In re JMP Newcor Intern., Inc., 204 B.R. 963, 966 (Bankr. N.D. Ill. 1997). 8In re Sorrento’s I, Inc., 195 B.R. 502, 506 (Bankr. M.D. Fla. 1996). 9In re Financial Corp. of America, 119 B.R. 728 (Bankr. C.D. Ca. 1990). 10 Daniel J. McAuliffe & Shirley J. McAuliffe, Arizona Civil Rules Handbook, Rule 501 pg. 1052 (2011 ed.); citing State ex rel. Corbin v. Ybarra, 161 Ariz. 188, 777 P.2d 686 (1989). 11Id.; citing Emergency Care Dynamics, Ltd. v. Superior Court In and for County of

Maricopa, 188 Ariz. 32, 932 P.2d. 297 (Ct. App. Div. 1 1997). 12Green v. Nygaard, 213 Ariz. 460, 143 P.3d 393 (Ct. App. Div. 2 2006). 13Id.

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The must use quote in any well drafted work product brief: “Discovery was hardly intended to enable a learned profession to perform

its functions either without wits or on wits borrowed from the adversary.”14

14 Hickman v. Taylor, 329 U.S. 495, 516, 67 S. Ct. 385, 91 L.Ed. 451 (1947).

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ARIZONA’S STATUTORY ACCOUNTANT-CLIENT PRIVILEGE

At common law, no special privilege attaches to transactions between a client and his accountant, and an accountant is generally deemed competent to testify to any and all communications with his or her client in both civil and criminal proceedings. See 33 A.L.R. 4th 539 §2[a] (1984); see also 1Am. Jur. 2d Accountants § 15 (1994). Nonetheless, several jurisdictions have enacted accountant-client privilege statutes in direct derogation of this common law practice. The reasoning for enacting these statutes is similar to the attorney-client privilege: to encourage free and open communications between client and accountant. Although a surprise to some, Arizona is a jurisdiction with a statutory accountant-client privilege.

The accountant-client privilege in Arizona found in A.R.S. Section 32-749(A) reads as follows:

Certified public accountants and public accountants practicing in this state shall not be required to divulge, nor shall they voluntarily divulge, client records or information which they have received by reason of the confidential nature of their employment. Information derived from or as a result of such professional source shall be kept confidential as provided in this section, but this section shall not be construed as modifying, changing or affecting the criminal or bankruptcy laws of this state or the United States, nor shall it be construed to limit the authority of this state or any agency of this state to subpoena and use the information in connection with any investigation, public hearing or other proceeding.

Four Arizona cases reference the privilege, and then, only in passing and

without interpretation. A brief analysis is provided by two of these cases: Brown v. Superior Court In and For Maricopa County, 137 Ariz. 327, 670 P.2d 725 (1983), and State v. O’Brien, 123 Ariz. 578, 601 P.2d 341 (Ct. App. 1979).

The Brown Court affirmed the text of the privilege when it wrote that the

Arizona accountant-client privilege “applies to communications between accountant and client when those communications pertain to the client’s financial affairs;…” However, the Arizona Supreme Court held that the privilege does not apply to “communications received by the client from an accountant employed as an expert to examine the affairs of a non-client,” which was the situation in the Brown case.

The O’Brien Court cautioned against a liberal application and construction

of the privilege, but affirmed the spirit of the statute when it stated that “the statute [A.R.S. § 32-749] and privilege it accords must be strictly construed, since no

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such privilege exists at common law, and the statute tends to prevent full disclosure of facts.” The Arizona Court of Appeals went on to hold that the privilege does not apply in criminal matters, as was the case in O’Brien, because the “express language of the statute precludes its application to a criminal prosecution.”

Who is entitled to the privilege?

Based on case law from other jurisdictions, it appears that the privilege is usually found to belong to the accountant, rather than the client. Arizona courts, if presented with the issue, would probably rule similarly based upon the similarity of the language used in Arizona’s statutory accountant-client privilege and the established precedent from sister jurisdictions.

The language of A.R.S. § 32-749(A) is almost identical to that found in § 67-23-26 N.M.S.A., presumably giving only the accountant the right to assert privilege with language such as “shall not be required to divulge” and “which they have received by reason of the confidential nature of their employment.”

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MARITAL PRIVILEGES

There are two distinct marital privileges: (1) the anti-marital fact privilege, and (2) the marital communication privilege. The anti-marital fact privilege generally prevents one spouse from being called to testify against the other spouse during the duration of the marriage. The marital communication privilege, on the other hand, bars the disclosure of confidential communications between spouses even after the marriage dissolves. The charts below outline the differences between these two privileges under federal and state law:

Anti-Marital Fact Privilege Federal Arizona15 Rule Prevents one spouse from being called to testify against the other

spouse Who may invoke?

Testifying Spouse16 Party Spouse

Timeframe covered

Applies only to events occurring during marriage

Complete bar to testifying

Type of Proceeding

Criminal only Civil or Criminal

Duration Dissolution of marriage terminates privilege

Marital Communication Privilege Federal Arizona17 Rule Bars disclosure of confidential communications made by one

spouse to the other18 Who may invoke?

Non-Testifying Spouse19 Each Spouse

Timeframe covered

Only protects communications made during marriage

Type of Proceeding

Civil or Criminal

Duration Survives Marriage 15 In Arizona, the anti-marital fact privilege is set forth in A.R.S. § 12-2231. 16 Trammel v. United States, 445 U.S. 40, 53 (1980). 17 In Arizona, the marital communication privilege is set forth in A.R.S. § 12-2232. 18 In Arizona, all marital communications are presumed to be confidential, and the party seeking to avoid the privilege bears the burden of establishing contrary intent. See Blazek v. Superior Court in and for County of Maricopa, 177 Ariz. 535 (Ct. App. 1994). 19 United States v. Marashi, 913 F.2d 724, 729 (9th Cir. 1990).

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Which Privilege(s) Apply In Bankruptcy?

Knowing the state and federal rules regarding the marital privileges is only one part of the equation in bankruptcy. A more difficult question is: What privilege(s) apply and when?

The Federal Rules of Evidence apply in bankruptcy cases. See Fed. R. Bankr. P. 9017. In turn, Federal Rule of Evidence 501 states:

The common law — as interpreted by United States courts in the light of reason and experience — governs a claim of privilege unless any of the following provides otherwise:

the United States Constitution;

a federal statute; or

rules prescribed by the Supreme Court.

But in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.

In other words, where substantive federal law controls, the federal law of marital privilege applies. But where substantive state law controls, the state law of marital privilege applies. As a result, it turns out that in bankruptcy cases, the applicable privilege law may change depending on the nature of the contested matter.

For example, in a discovery dispute in a non-dischargeability complaint under 11 U.S.C. §§ 523 and 727, the federal common law of marital privilege clearly applies. See, e.g., In re Shur, 225 B.R. 295, 299-300 (Bankr. E.D.N.Y. 1998) (overruling objections based on invocation of anti-marital privilege because the privilege is limited to criminal matters under federal law).

On the other hand, state privilege law applies in a complaint for fraudulent transfer pursuant to 11 U.S.C. § 544 where only a state law cause of action is pled. See, e.g., In re Carmean, 153 B.R. 985, 991 (Bankr. S.D. Ohio 1993).

“Where there are federal question claims and pendent state law claims present, the federal law of privilege applies.” Agster v. Maricopa County, 422 F.3d 836, 839 (9th Cir. 2005).

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But what happens when a creditor wishes to conduct a Rule 2004 examination of a non-debtor spouse when no litigation is currently pending? This was the situation in In re Rafsky, 300 B.R. 152 (Bankr. D. Conn. 2003), where a judgment creditor obtained an order authorizing a 2004 exam of the debtor’s wife, who was not a debtor herself. The non-debtor spouse subsequently moved for a protective order, asserting a marital privilege under Connecticut law. Although the court in Rafsky acknowledged that the testimony obtained during the 2004 exam might be available in subsequent proceedings where state law would provide the rules of decision, it denied the motion for protective order. Id. at 154. In reaching its conclusion, the court seemed to imply that a Rule 2004 examination, by its very nature, always centers on bankruptcy law because it is an essential tool in permitting a party in interest to obtain discovery regarding property of the debtor’s estate. Id. at 153.

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RULE 408 --- Formal Settlement Privilege?

The words “Subject to Rule 408” appear on the top right-hand corner of many settlement letters and emails. This Federal Rule of Evidence (“FRE”) provides as follows:

Rule 408. Compromise Offers and Negotiations

(a) Prohibited Uses. Evidence of the following is not admissible –

on behalf of any party – either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction:

(1) Furnishing, promising, or offering – or accepting, promising

to accept, or offering to accept – a valuable consideration in compromising or attempting to compromise the claim; and

(2) Conduct or a statement made during compromise negotiations

about the claim – except when offered in a criminal case and when the negotiations related to a claim by a public office in the exercise of its regulatory, investigative, or enforcement authority.

(b) Exceptions. The Court may admit this evidence for another

purpose, such as providing a witness’s bias or prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution. It is clear from the reading of this rule that FRE 408(b) does not require exclusion of evidence when the evidence at issue is for “another purpose” and not related to the validity or amount of the claim. The 6th Circuit Court of Appeals in Goodyear Tire & Rubber Co. v. Chiles Power Supply In., 332 F3d 976 (CA 6, 2003) reasoned that:

[v]iewed ‘in the light of reason and experience,’… a settlement privilege serves a sufficiently important public interest, and therefore should be recognized. There exists a strong public interest in favor of secrecy of matters discussed by parties during settlement negotiations… The ability to negotiate and settle a case without trial fosters a more efficient, more cost-effective, and significantly less burdened judicial system… [and enables parties] to propose the types of compromises that most effectively lead to settlement…

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confident that their proposed solutions cannot be used on cross examination.

A California District Court also denied a motion to compel seeking disclosure of settlement negotiations based upon the “well established privilege relating to settlement discussions.” Cook v. Yellow Freight System 132 F.R.D. 548 (E.D. Cal. 1990). However, the majority of federal courts have declined to recognize a settlement privilege. In litigation where a consumer sued an energy company regarding alleged manipulation of energy prices, the energy company brought an action to contest subpoena served upon Commodity Futures Trading Commission (CFTC) by the consumer, which sought documents that CFTC had collected from the energy company and others in course of its investigation into alleged market manipulation of energy industry. In re Subpoena Issued to Commodity Futures Trading Comm'n, 370 F. Supp. 2d 201 (D.D.C. 2005) aff'd in part on other grounds sub nom. In re Subpoena Duces Tecum Issued to Commodity Futures Trading Comm'n, 439 F.3d 740 (D.C. Cir. 2006). The court refused to find that a settlement privilege existed, noting that there was 1) no consensus of support for a settlement privilege under federal or state law, 2) Congress, if it chose to, could rewrite federal mediation privilege to extend scope of its coverage, 3) privilege was not listed among nine privileges identified in Proposed Federal Rules of Evidence, and 4) there was no certainty that proposed privilege would effectively advance a public good. Id. at 209. Faced with a discovery dispute over access to pre-litigation settlement negotiations involving patent licensing, the Court found that no settlement privilege exists. Matsushita Elec. Indus. Co., Ltd. v. Mediatek, Inc., C-05-3148MMC(JCS), 2007 WL 963975 (N.D. Cal. Mar. 30, 2007). The Court stated,

On its face, Federal Rule of Evidence 408 is not a discovery rule. It only limits the admissibility of some, but not all, evidence of events that occur during the course of settlement negotiations. Moreover, Rule 408 provides for the admissibility of evidence relating to settlement negotiations for specific purposes. See Fed.R.Evid. 408(b) (permitting the introduction of evidence of compromise and offers to compromise to prove a witness's bias or prejudice, negate a contention of undue delay, or to prove an effort to obstruct a criminal investigation). The only prohibited use of such evidence is to prove or disprove liability or the amount of a claim “or to impeach

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through a prior inconsistent statement or contradiction.” Id. at 408(a). The inescapable conclusion is that a privilege against disclosure cannot be found in Rule 408. To the contrary, because the Rule anticipates that settlement negotiations may be admissible, a privilege against their discovery would be inconsistent with Rule 26.

Id. at *2. In Bd. of Trustees of Leland Stanford Junior Univ. v. Tyco Int'l Ltd., 253 F.R.D. 521 (C.D. Cal. 2008), the Court for the Central District of California held similarly:

Finally, the Court notes there is no federal privilege preventing the discovery of settlement agreements and related documents. See JZ Buckingham Invest. LLC v. United States, 78 Fed.Cl. 15, 22 (Fed.Cl.2007) (“The Court of Appeals for the Federal Circuit has provided little guidance on the extent to which settlement documents are protected from discovery as privileged. Further, there is no consensus among district courts on the existence of a settlement privilege.”); Matsushita Elec. Indus. Co., Ltd. v. Mediatek, Inc., 2007 WL 963975, *2–4 (N.D.Cal.2007). As the District Court for the District of Columbia has held:

Congress clearly enacted [Fed.R.Evid. 408] to promote the settlement of disputes outside the judicial process. [¶] However, it is equally plain that Congress chose to promote this goal through limits on the admissibility of settlement material rather than limits on their discoverability. In fact, the Rule on its face contemplates that settlement documents may be used for several purposes at trial, making it unlikely that Congress anticipated that discovery into such documents would be impermissible. As a leading treatise on evidence has explained: [¶] “The policy of allowing open and free negotiations between parties by excluding conduct or statements made during the course of these discussions is not intended to conflict with the liberal rules of discovery embodied in the Federal Rules of Civil Procedure.... Therefore, a party is not allowed to use Rule 408 as a screen for curtailing his adversary's right of discovery.” 2 Weinstein's Federal Evidence § 408.07 at 408–26 (2005).

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In re Subpoena Issued to Commodity Futures Trading Commission, 370 F.Supp.2d 201, 211 (D.D.C.2005) (footnote and some citations omitted); Matsushita Elec. Indus. Co., 2007 WL 963975 at *5. For all these reasons, defendant Lucent's motion to compel should be granted.

Bd. of Trustees of Leland Stanford Junior Univ. v. Tyco Int'l Ltd., 253 F.R.D. 521, 523 (C.D. Cal. 2008). However, some Courts have protected the disclosure of certain settlement documents or discussions. In an antitrust action involving bakers, in which the jury had returned a verdict against one defendant and in which another defendant had entered into a settlement agreement with the plaintiff prior to trial, where the court, in holding that there was insufficient evidence to support the amount of damages awarded, stated that while the fact of the settlement was inadmissible under Rule 408 to establish the liability of the defendant which settled for the antitrust violations, the jury should have been made aware of certain terms of the settlement. William Inglis & Sons Baking Co. v ITT Continental Baking Co., 461 F Supp 410 (1978, ND Cal), affd in part and revd in part on other grounds 652 F2d 917 (9th Cir.) The court noted that the settling defendant, Campbell-Taggart was a very strong and active competitor in the Northern California market, so that while the fact of the settlement was inadmissible under Rule 408 to establish liability of Campbell-Taggart for the antitrust violations, the jury should have been made aware of the Inglis plant acquisition as part of that settlement and of Campbell-Taggart's current market position. Without these facts, the jury had before it a badly skewed picture of the market. Id. at n. 14. In United States v Contra Costa County Water Dist. 678 F2d 90 (9th Cir. 1982), the court rejected the water district's contention that the trial judge should have taken judicial notice of a settlement between the United States and a private landowner regarding the costs of a canal retaining wall, noting that Rule 408 states that settlement negotiations are not admissible to prove liability for or invalidity of the claim or its amount. The court added that it gave additional importance to the fact that the water district was not a party to the litigation or the settlement conferences arising from the 1972 suit. Id. at 92.

In a patent infringement case on remand to determine the amount of damages to be awarded the plaintiffs, the court stated that the defendants were precluded under Rule 408 from introducing evidence of certain licensing agreements entered into subsequent to the ruling on liability in the present case and stressed that the licensing agreements were entered into in compromise of

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infringement claims against the licensed parties. Saf-Gard Products, Inc. v. Serv. Parts, Inc., 491 F. Supp. 996 (D. Ariz. 1980).

Courts have admitted evidence of settlement discussions under the “other purpose” prong of FRE 408. Lesson to be learned is that simply writing “Subject to Rule 408” may not protect your settlement agreement from being admitted into evidence. In light of the rulings by some of the courts it is suggested that when drafting a settlement agreement, careful attention is placed into the wording of the agreement confirming its confidential nature and the reasons why the terms therein must remain confidential. Also consider an agreement whereby all drafts of the settlement documents are destroyed by all parties. Last, but not least, you should caution your client that despite all parties’ efforts to keep the agreement confidential, as an attorney, you cannot give 100% assurance that the agreement will be not be required to be disclosed by a court.

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WAIVER

1. Waiver of attorney-client privilege

The Ninth Circuit has held that the essential elements of the attorney-client privilege are as follows: (1) where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such (3) the communications relating to that purpose (4) made in confidence (5) by the client (6) are at the client’s insistence permanently protected (7) from disclosing by himself or by legal adviser (8) unless the protection is waived. Fischel, 557 F.2d at 211 (citing 8 John Henry Wigmore, Wigmore on Evidence § 2295 at 554 (McNaughton rev. 1961)); see also United States v. Flores, 628 F.2d 521, 526 (9th Cir. 1987).

Various types of waivers are as follows20:

Waiver for All Documents on Same Subject Matter

Waiver Only For Documents That Are Disclosed

Waiver for All Persons Full Waiver Partial Waiver

Waiver Only for Some Persons

Selective Waiver Partial Selective Waiver

A client can waive the privilege in several ways -- consent or failure to assert the privilege properly. Id. 98. For example, “disclosure of privileged communications to a person outside the attorney-client relationship manifests indifference to confidentiality and waives the protection of the privilege.” Id. at 99. Subjective intent is but one factor; question is whether client acted voluntarily and substantially in disregard of confidentiality. Id. at 101 (quoting Weil v. Inv./Indicators, Research & Mgmt., Inc.,, 657 F.2d 18, 24 (9th Cir. 1981)).

It is well-known that the privilege belongs to the client; thus, only the client has the right to waive the privilege. Id. at 106. Thus, while an attorney cannot maintain a privilege after it has been waived by the client, an attorney’s incidental disclosure of privileged documents does not waive the privilege. Id.

20 Chart from David M. Greenwald, Protecting Confidential Legal Information, A Handbook for Analyzing Issues Under The Attorney-Client Privilege And The Work Product Doctrine, published by Jenner & Block (2011) at 96.

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Federal Rule of Evidence, Rule 502, substantially changed the law of privilege (and waiver) as it pertains to disclosure of privileged material in a federal proceeding. Id. at 108. Its purpose is to minimize discovery costs by allowing parties to produce large volumes of documents without being penalized inadvertent disclosures. Id. This Rule is relatively consistent with prior Ninth Circuit authority. See Transamerica Computer v. IBM Corp., 573 F.2d 646, 647-51 (9th Cir. 1978). There are important limits on Rule 502, which are beyond the scope of this summary, but should be consulted before producing large amounts of documents.

2. Waiver of work product protection

Like the attorney-client privileged, work product protection may be waived though consent or through effectively asserting the protection. Id. at 240. However, some courts have held that an attorney may claim the protection even if the client has abandoned it. Id. “Unlike the attorney-client privilege, selective disclosure of work product to some but not to others is permitted. Because the work product doctrine protects trial preparation materials, only disclosures that show an indifference to protection strategy will result in waiver.” Id. (citations omitted). And only that work product disclosed will be waive; undisclosed work protect will remain protected. Id.

Rule 502 weighs in on this topic, too. “[A] voluntary disclosure of privileged information will only result in subject matter waiver if the protected document is voluntarily disclosed and ‘fairness requires’ that the undisclosed and disclosed documents be considered together.” Id. at 245. Subject matter waiver is the exception, not the rule. Id.

Not surprisingly, work product may not be protect if it is “at issue” in the litigation -- i.e. a legal malpractice action. Id. at 254.

Specialized rules pertaining to use of work product documents being used by experts and witnesses. These are outside the scope of this summary, but should be consulted prior to use in a deposition or trial. See id. at 257-268.

3. Waiver of common interest doctrine (a/k/a “joint-defense privilege”)

FED.R.EVID. 501 provides that “the privilege of a witness . . . shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in light of reason and experience.” Thus, federal common law governs the applicability of the common interest doctrine. Matter of Fischel, 557 F.2d 209, 211 (9th Cir. 1977).

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The common interest doctrine provides an exception to the general rule that a client waives the attorney-client privilege by communicating previously privileged information to a third party. Thus, the common interest doctrine is not a separate privilege in and of itself but rather an extension of the attorney client privilege. The rationale of the common interest doctrine is consistent with that of the attorney-client privilege – the doctrine exists to promote full disclosure of the truth between client and attorney in order to facilitate effective representation. See Upjohn Co. v. Unite States, 449 U.S. 383 (1981) (stating that the attorney-client privilege exists to protect “the giving of information to the lawyer to enable him to give sound and informed advice”). Thus, to encourage information-sharing, the common interest doctrine treats all involved attorneys and clients as a single-attorney-client insofar as a common interest is pursued.

To establish the common interest privilege, the party asserting the privilege must show that (1) the communications were subject to the attorney-client privilege, (2) the communications were made in the course of a joint defense effort, (3) the statements were designed to further the joint defense effort, and (4) the privilege has not been waived. United States v. Bay State Ambulance & Hosp. Rental Serv., 874 F.2d 20, 28 (1st Cir. 1989) (citing In re Bevil, Bresler & Schulman Asset Management Corp., 805 F.2d 120, 126 (3rd Cir. 1986)); see also Waller v. Financial Corp. of America, 828 F.2d 579, 583 n. 7 (9th Cir. 1987). Although the common interest doctrine originally was limited to co-defendants in criminal actions, the Ninth Circuit has applied the common interest doctrine to protect communications shared between attorneys for co-defendants in a civil action. United States v. Zolin, 809 F.2d 1411, see also Sedlacek v. Morgan Whitney Trading Group, Inc., 795 F. Supp. 329 (C.D.Cal. 1992) (applying the common interest doctrine to protect communications shared between attorneys for co-plaintiffs in a civil action).

In order to benefit from the attorney-client privilege after a communication has been shared by the client with a third party, the communication itself must be made in connection with a common interest. Some courts have narrowly defined “common interest” as requiring an identical legal interest. See, e.g., Duplan Corp. v. Deering Milliken, Inc., 397 F. Supp. 1146, 1172 (D.S.C. 1975) (stating “A community of interest exists among different persons or separate corporations where they have an identical legal interest with respect to the subject matter of the communication between an attorney and a client concerning legal advice.”). Other courts, however, have applied a broader standard and allowed the common interest doctrine to protect communications shared in furtherance of a less than identical interest. See, e.g., Visual Scene, Inc. v. Pilkington Brothers, PLC, 508 So. 2d 437, 439 (Fla. Dist. Ct. App. 1987) (finding that, despite significant adversity between the parties, the plaintiff and defendant shared privileged communications “for the limited purpose of assisting in their common cause”).

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Next, the communication must be intended to further the common interest of the parties. A number of jurisdictions have also required that either pending or anticipated litigation is necessary at the time of the communication. See, e.g., Niagara Mohawk Power Corp. v. Megan-Racine Assocs., Inc. (In re Megan-Racine Assocs., Inc.), 189 B.R. 562, 573 (Bankr. N.D.N.Y. 1995) (“A common legal interest exists where the parties asserting the privilege were co-parties to litigation or reasonably believed they could be made a party to litigation.”); Polycast Tech. Corp. v. Uniroyal, Inc., 125 F.R.D. 47, 50 (S.D.N.Y. 1989) (“Actual or potential litigation is a necessary prerequisite for application of the joint defense privilege.”). However, other jurisdictions have concluded that no pending or anticipated litigation is necessary. See. e.g., In re Grand Jury Subpoenas, 89-3 & 89-4, John Doe 89-129, 902 F.2d 244, 249 (4th Cir. 1990) (applying the common interest doctrine to protect communications exchanged between attorneys for civil plaintiff an non-party absent contemplated litigation involving non-party); United States v. Schwimmer, 892 F. 2d 237, 244 (2d Cir. 1989) (finding that is “unnecessary that there be actual litigation in progress for the common interest rule for the attorney-client privilege to apply”); SCM Corp. v. Xerox Corp., 70 F.R.D. 508, 513 (D. Conn. 1976) (finding that the common interest doctrine “need not be limited to legal consultations between corporations in litigation situations”).

The next element is that the party reasonably expected its communications with the other party or parties to be confidential. If there is a written agreement (or even an oral argument) requiring all communications regarding non-public information be kept in strict confidence, then all parties have a strong expectation that the communications remain confidential.

Very few courts have addressed the issue of whether the common interest doctrine would protect direct client-to-client communications made outside the presence of counsel. However, in United States v. Gotti, the New York Eastern District Court expressly rejected the defendant’s argument that the joint defense privilege should extend to conversations among defendants themselves even in the absence of any attorney during the course of the conversation. 771 F. Supp. 535, 545 (1991). Also, although not controlling of federal common law, the Restatement (Third) of the Law Governing Lawyers provides that “a person who is not represented by a lawyer and who is not himself or herself a lawyer cannot participate in a common-interest arrangement.” (§ 76, comment d).

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Privilege Communication- Trustee in a Business Case What party holds the right to assert or waive attorney-client privilege

in a Chapter7 business case?

The Chapter 7 Trustee is generally vested with control over the attorney-client privilege, including whether to waive or exercise said privilege.

Subsection (e) of Section 542 authorizes the court, after notice and a

hearing, to order an attorney, accountant or any other person to turn over or disclose to the estate documents or books "relating to the debtor's property or financial affairs," subject to any privilege that may be asserted by the professional holding them.

The governing case is Commodity Futures Trading Commission v.

Weintraub, 471 U.S. 343 (1985). There, the US Supreme Court addressed the question of who controls the attorney-client privilege in a corporate bankruptcy case. The specific issue addressed by the Court was whether the trustee for a corporate debtor has the power to waive the debtor's attorney-client privilege with respect to pre-petition communications. The Court reversed an earlier Seventh Circuit decision, holding that the trustee is vested with control over the exercise or waiver of the attorney-client privilege.

In reaching this conclusion, the Supreme Court stated that section 542(e)

of the Bankruptcy Code was not dispositive, but merely created "an invitation for judicial determination of privilege questions." Id. at 351. The Court said:

In light of the lack of direct guidance from the Code, we turn to consider the roles played by the various actors of a corporation in bankruptcy to determine which is most analogous to the role played by the management of a solvent corporation. See Butner v. United States, 440 U.S. 48, 55, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136 (1979) . Because the attorney-client privilege is controlled, outside of bankruptcy, by a corporation's management, the actor whose duties most closely resemble those of management should control the privilege in bankruptcy, unless such a result interferes with policies underlying the bankruptcy laws.

The Supreme Court found that, because of the extensive duties imposed upon a trustee in administering the estate, the trustee, rather than the directors of the corporation, occupies the position most closely analogous to the solvent corporation's management. Id. at 353. The Court also found that granting the trustee control of the debtor's attorney-client privilege would not impair any policy of the bankruptcy laws, but instead would serve the important goal of

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maximizing the value of the estate--a goal that would be frustrated if the former management of the debtor were able to control the privilege. Id. The Court stated that "[t]he Code's goal of uncovering insider fraud would be substantially defeated if the debtor's directors were to retain the one management power [i.e., control of the privilege] that might effectively thwart an investigation into their own conduct." Id.

The Court found no merit in the debtor's counsel's arguments that vesting the trustee with control of the privilege would chill communications between attorneys and their corporate clients, discriminate against insolvent companies, and leave unprotected the interests of shareholders. Id. at 354. With respect to the latter argument, the Court stated that "[o]ne of the painful facts of bankruptcy is that the interests of shareholders become subordinated to the interests of creditors." Id. at 355. Such subordination, the Court noted, is consonant with the "hierarchy of interests created by the bankruptcy laws." Id.

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Do you hear the Witness Sing? [To the tune “Do you hear the people sing?”] Do you hear the witness sing? Singing of matter priv-i-leged, It is the nightmare of a lawyer, Who will not forget again, When a privilege does apply You know the privilege won’t apply, Unless a prior objection’s made, Before the trial comes! Will you join in our review, Who will read Rule 5 0 2? And in the documents Is there work product by mis-take? Then learn of the rule That will give you the right to exclude! Do you hear the client sing, Over the voice of angry men, It is the ranting of a client With others present again, When the client tells the facts With friends and family in the room, The privilege falls apart, And is waived when the trial comes.

Will you study all the law So that our trial will advance? Some words in and some words out You should not leave this all to chance, Words that are privileged May determine the fate of your case!

Do you hear the judge rul-ing? Reading a doc-u-ment again, It is the Judge’s good discretion, Whether the words get in again, When the winning of your case Hinges on privileges enforced,, There is a motion to filed, Before the trial comes!