Preserving and piercing privileges in an oil and gas practice
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Presented: 34 TH Annual Ernest E. Smith Oil, Gas & Mineral Law Institute Friday, April 4, 2008 Houston, Texas PRODUCTION, PRIVILEGES, AND PRACTICE (PRESERVING AND PIERCING PRIVILEGES IN AN OIL AND GAS PRACTICE) David Ammons MaryAnn Joerres Diamond McCarthy LLP 1201 Elm Street, 34 th Floor Dallas, Texas 75270 (214) 389-5300 [email protected][email protected]
Transcript
1. Presented: TH 34 Annual Ernest E. Smith Oil, Gas &
Mineral Law Institute Friday, April 4, 2008 Houston,
TexasPRODUCTION, PRIVILEGES, AND PRACTICE (PRESERVING AND PIERCING
PRIVILEGES IN AN OIL AND GAS PRACTICE) David Ammons MaryAnn Joerres
Diamond McCarthy LLP 1201 Elm Street, 34th Floor Dallas, Texas
75270 (214) 389-5300 [email protected][email protected]
2. TABLE OF CONTENTS Page No.I.
INTRODUCTION..............................................................................................................1II.
THE ATTORNEY-CLIENT PRIVILEGE
.....................................................................1
A. Elements and Parameters of the Privilege
...........................................................1 B.
Choice of Law in Federal Court
...........................................................................2
C. Scope of the Privilege for Corporations
...............................................................3 D.
Scope of the Privilege for Corporate Counsel
.....................................................4 E. Erosion
of the Scope of the Privilege for Corporate Counsel.
...........................4 F. Other Parties Covered by the
Privilege
...............................................................5 1.
Joint Defense and Common Legal Interest Privileges
............................5 2. Representative of the Lawyer
...............................................................5 G.
Exceptions to the Privilege
....................................................................................6
1. Crime Fraud Exception
.............................................................................6
2. Joint Client Exception
...............................................................................7III.
THE WORK PRODUCT PRIVILEGE
...........................................................................7
A. Definitions
...............................................................................................................7
B. What Constitutes In Anticipation of Litigation?
............................................8 C. The Scope of the
Privilege
.....................................................................................9
1. Core Work Product
...................................................................................9
2. The Rest / Non-Core Work
Product.........................................................9IV.
SELF-EVALUATION
PRIVILEGE..............................................................................10
A. The Scope of the Privilege
...................................................................................10
B. The Privilege Does Not Apply to Discovery Requests from
Government Agencies
................................................................................................................10
C. Recognition of the Privilege is Not Uniform Across Jurisdictions
..................11V. DELIBERATIVE PROCESS PRIVILEGE
..................................................................11
i --
3. VI. WAIVER OF PRIVILEGES
..........................................................................................12
A. Intentional Disclosure
..........................................................................................12
1. Disclosure Outside of Litigation
.............................................................12 2.
Use in Litigation
.......................................................................................13
B. Inadvertent
Disclosure.........................................................................................13
1. Texas Law
.................................................................................................13
2. Federal Common Law
.............................................................................13
3. Federal Rule of Civil Procedure 26(b)(5)(B)
.........................................15 C. Offensive Use of
Privileged
Information............................................................16
D. Sarbanes-Oxley Authorizes Attorneys to Disclose Privileged
Information Without Client Consent
.......................................................................................16
E. Waiver Through Disclosure of Privileged Information to Auditors
...............17 F. Requests from Government Agencies to Waive
Privilege ................................18 G. Attorney-Client
Privilege Protection Act of 2007
.............................................19 H. Selective Waiver
Doctrine
...................................................................................19
I. Proposed Federal Rule of Evidence
502.............................................................21VII.
ADDITIONAL PRIVILEGE ISSUES PERTINENT TO THE OIL AND GAS
INDUSTRY.......................................................................................................................21
A. Title Opinions
.......................................................................................................21
B. Protecting Privileges When Selling Assets
.........................................................22VIII.
TIPS FOR PRESERVING OR PIERCING PRIVILEGES
........................................23IX. CONCLUSION
........................................................................................................25
ii --
4. PRODUCTION, PRIVILEGES, AND PRACTICE (PRESERVING AND
PIERCING PRIVILEGES IN AN OIL AND GAS PRACTICE) I. INTRODUCTION An
oil and gas practice covers a lot of ground. Transaction-oriented
lawyers in thebusiness determine interest ownerships. They handle
purchases and sales of leases and otherinterests. They supervise
mergers, acquisitions, and divestitures, as well as the financing
thereof.They handle employment and employee benefit matters. They
assist clients with environmentaland other regulatory issues and
make the regulatory filings required under the
relevantinternational, federal, state or local laws. If they work
for a public company, transactionoriented oil and gas practitioners
will also supervise or draft or review the companys publicfilings.
Of course, oil and gas litigators have their own diverse dockets.
They are often involvedin internal as well as governmental
investigations. They consult with and advise clients andclient
employees faced with litigation or the threat of litigation. They
deal with consulting andtrial experts. They handle seemingly
never-ending discovery. And in the end they settle,mediate,
adjudicate, litigate, and/or arbitrate the full range of their
clients disputes with othersuntil those disputes have been fully
resolved. Given the diversity of the practice, in-house and outside
counsel in the oil and gasbusiness deal with many different
applications of privileges and in many different contexts.Because
there is nothing about oil and gas law that creates special
privileges different from otherareas of law, the oil and gas
lawyers art in preserving a clients privileges must rest, first, on
asound understanding of the first principles of privilege law, and,
second, on an appreciation forhow those principles have been or
will be applied in the almost infinite variety of oil and
gascontexts. In light of that premise, this paper discusses the
basic rules and cases relating toprivileges and where possible,
discusses those principles in the context of cases that
specificallyinvolve oil and gas companies or oil and gas issues.1
Hopefully, this summary of the rules, theirinterpretations, and
their applications in circumstances familiar to the oil and gas
industry willprove helpful to this audience. II. THE
ATTORNEY-CLIENT PRIVILEGEA. Elements and Parameters of the
Privilege Texas Rule of Evidence 503 defines the scope of the
attorney-client privilege underTexas law. In contrast, the federal
privilege is not defined statutorily but via common
law.Nevertheless, the elements of the Texas attorney-client
privilege and the federal common lawattorney-client privilege are
essentially the same. In order for a communication to be
privileged:1 Given the locus of this presentation, we have focused
on Texas privilege law, as well as on the federal common law of
privilege. -1-- -
5. (1) The communication must have been between: (a) the
asserted holder of the privilege, i.e., a client, someone who
sought to become a client or a representative of a client; and (b)
an attorney or a representative of an attorney in his professional
capacity; (2) The communication must have been made for the purpose
of obtaining legal advice or legal services; (3) The communication
must have been intended to be confidential and made confidentially
(outside the presence of strangers); and (4) The privilege must not
have been waived.See TEX. R. EVID. 503(b)(1); Upjohn Co. v. U.S.,
449 U.S. 383, 395 (1981) (holding thatcommunications between an
attorney and a client and the clients representatives made to
securelegal advice were privileged and not subject to discovery);
SEC v. Brady, 238 F.R.D. 429, 438(N.D. Tex. 2006) (listing the
elements of the federal common law attorney-client privilege). The
attorney-client privilege protects both communications from the
client to its lawyer(or the lawyers representatives) and statements
and advice from an attorney to his or her client(or the clients
representative). Dewitt & Rearick, Inc. v. Ferguson, 699 S.W.2d
692, 693 (Tex.App.El Paso 1985, orig. proceeding); Brady, 238
F.R.D. at 438-39. The privilege extends notjust to an attorneys
legal advice, but to the complete communication between the
attorney andhis or her client, including factual information. Huie
v. DeShazo, 922 S.W.2d 920, 923 (Tex.1996); In re Seigel, 198
S.W.3d 21, 27 (Tex. App.El Paso 2006, orig. proceeding). However,a
person cannot cloak a fact with privilege merely by communicating
it to an attorney. Huie, 922S.W.2d at 923; Brady, 238 F.R.D. at
439. In In re ExxonMobil Corp., 97 S.W.3d 353 (Tex. App.Houston
[14th Dist.] 2003, nopet.), the Fourteenth Court of Appeals
confirmed that, when a document evidences a
privilegedcommunication, the privilege extends to the entire
document and not merely to the portion ofthe document containing
legal advice, opinions, or analysis. Id. at 357. The party
asserting the privilege has the burden of proving that it applies
to thecommunication at issue. In re E.I. DuPont de Nemours &
Co., 136 S.W.3d 218, 223 (Tex.2004); U.S. v. Mobil Corp., 149
F.R.D. 533, 536 (N.D. Tex. 1993).B. Choice of Law in Federal Court
The federal common law of attorney-client privilege applies in
federal courts when thecourts subject-matter jurisdiction is based
on a federal question or on federal admiraltyjurisdiction. FED. R.
EVID. 501; Ferko v. Natl Assn for Stock Car Auto Racing, Inc., 218
F.R.D.125, 133 (E.D. Tex. 2003) (In cases where a federal question
exists, the federal common law ofattorney-client privilege applies
even if complete diversity of citizenship is also
present.);Hartford Fire Ins. Co. v. Garvey, 109 F.R.D. 323, 327
(N.D. Cal. 1985) (applying the federalcommon law of attorney-client
privilege in an admiralty and maritime case). However,
whenjurisdiction is based on diversity of citizenship, state law
governs the attorney-client privilege.In re Avantel, S.A., 343 F.3d
311, 323 (5th Cir. 2003). -2-- -
6. C. Scope of the Privilege for Corporations The
attorney-client privilege extends to communications between
representatives of theclient on the one hand and the clients lawyer
or a representative of the lawyer on the other hand.When the client
is a corporation, it is important to determine which corporate
representatives arecovered by the attorney-client privilege.
Historically, courts have adopted two different tests
fordetermining which corporate representatives are covered by the
attorney-client privilege: thecontrol group test and the subject
matter test. The control group test provides that a corporate
representatives communication isprotected by the attorney-client
privilege if the representative is in a position to control or
evento take a substantial part in a decision about any action which
the corporation may take upon theadvice of the attorney. Natl Tank
Co. v. Brotherton, 851 S.W.2d 193, 197 (Tex. 1993). The subject
matter test provides that a corporate representatives communication
isprotected by the attorney-client privilege if: The
[representative] makes the communication at the direction of his
superiors in the corporation and where the subject matter upon
which the attorneys advice is sought by the corporation and dealt
with in the communication is the performance by the employee of the
duties of his employment.Id. Prior to March 1998, Texas courts used
the control group test to determine whichcorporate representatives
were covered by the attorney-client privilege. However, in
March1998, Texas adopted the subject matter test in the course of
amending Texas Rule of Evidence503(a). Dupont, 136 S.W.3d at 226
n.3. That move away from the control group test wasconsistent with
the direction already taken by the United States Supreme Court in
the Upjohncase. In that 1981 case, the United States Supreme Court
had rejected the control group test infavor of a case-by-case
determination of the scope of a privilege. Upjohn, 449 U.S. at
396-97. Other states still rely on and apply the control group
test, however. For example, seeExxon Corp. v. Department of
Conservation & Natural Resources, 859 So.2d 1096 (Ala. 2002),in
which the Alabama Supreme Court considered whether the trial court
had erred in admitting aletter prepared by one of Exxons in-house
counsel on the grounds that Exxon had allegedlywaived the
attorney-client privilege with respect to the letter. Id. at
1103-04. In that letter, thein-house counsel had analyzed the
royalty provisions of a lease agreement between Exxon andthe
Alabama Department of Conservation and Natural Resources, and had
evaluated potentialareas of cost recovery for Exxon in the
production and treatment process. Id. at 1100. The trial court in
Exxon had concluded that the letter was not a
confidentialcommunication because it was circulated to too many
people. Id. at 1104. However, theAlabama Supreme Court disagreed.
It concluded that the letter was only circulated to thosedirectly
involved in the royalty-payment decision and the process of
payment. Id. Becausethose individuals were members of the control
group, the Court concluded that the letter wasprivileged. Id. -3--
-
7. D. Scope of the Privilege for Corporate Counsel It is often
difficult to determine which communications to and from corporate
counsel areprivileged and which communications are not privileged.
This is so because modern corporatecounsel are involved in all
facets of the corporations for which they work. Moreover,
manycorporate counsel hold officer and director positions that
further involve them in day-to-daybusiness operations and
decision-making. When corporate counsel act in their capacity
asbusiness persons, their communications are not privileged. See,
e.g., In re CFS-Related Secs.Fraud Litig., 223 F.R.D. 631 (N.D.
Okla. 2004) (Business advice, unrelated to legal advice, isnot
protected by the privilege even though conveyed by an attorney to
the client.). Courts have adopted a variety of tests for
determining whether communications to orfrom corporate counsel are
privileged. For example, some courts have adopted the primarily
orpredominantly legal test, which provides that, for a
communication involving a corporatecounsel to be privileged, the
holder of the privilege must demonstrate that the
communication[was] designed to meet problems which can fairly be
characterized as predominately legal.Leonen v. Johns-Manville, 135
F.R.D. 94, 99 (D.N.J. 1990) (quoting Cuno Inc. v. Pall Corp.,121
F.R.D. 198, 204 (E.D.N.Y. 1988); see also In re Vioxx Products
Liability Litig., 501 F.Supp. 2d 789, 798 (E.D. La. 2007) (The test
for the application of the attorney-client privilegeto
communications with legal counsel in which a mixture of services
are sought is whethercounsel was participating in the
communications primarily for the purpose of rendering legaladvice
or assistance.); U.S. v. Chevron Corp., No. C-94-1885 SBA, 1996 WL
264769, *3 (N.D.Cal. Mar. 13, 1996) (stating that the party
asserting the privilege must prove that all of thecommunications it
seeks to protect were made primarily for the purpose of generating
legaladvice). Other courts have focused on whether the corporate
counsel was, in connection with thecommunication, engaging in
activities typically performed by attorneys. See, e.g., Diversey
U.S.Holdings, Inc. v. Sara Lee Corp., No. 91 C 6234, 1994 WL 71462,
at *2 (N.D. Ill. Mar. 3, 1994).(holding that corporate counsels
circulation of drafts of a contract to various employees at
thecompany constituted privileged communications because [d]rafting
legal documents is a coreactivity of lawyers, and obtaining
information and feedback from clients is a necessary part ofthe
process). Other courts have focused on the corporate counsels
position on the corporationsorganizational chart. See, e.g., Boca
Investerings Pship v. U.S., 31 F. Supp. 2d 9, 12 (D.D.C.1998). If
the corporate counsel works in the legal department or for the
general counsel, courtspresume that the corporate counsels
communications involve the rendition of legal advice. Id.The
opposite presumption applies when the corporate counsel works for a
management orbusiness group in the company. Id.E. Erosion of the
Scope of the Privilege for Corporate Counsel In recent years, there
has been substantial erosion in the scope of the
attorney-clientprivilege for corporate counsel. That erosion is
attributable to, among other things: -4-- -
8. Courts increasingly presuming that corporate counsels
communications are not privileged. Pressure from government
agencies to waive privileges when companies participate in
disclosure programs and respond to investigations, etc. Requests
from outside auditors for waivers of privileges and/or access to
all of a companys files. The requirements of the Sarbanes Oxley Act
and the accompanying SEC regulations. Courts increasingly finding
that, once companies have disclosed privileged information to
government agencies, they cannot assert the privilege with respect
to that information in subsequent proceedings involving private
parties.These issues are more fully discussed in the waiver section
of this paper. According to a 2005 survey conducted by the
Association of Corporate Counsel, 30% ofthe 719 corporate counsel
surveyed said that their corporate clients had experienced an
erosion inthe protections offered by the attorney-client and work
product privileges in the post-Enronbusiness environment. The
percentage of outside counsel who had experienced this erosion
was47.3%.F. Other Parties Covered by the Privilege 1. Joint Defense
and Common Legal Interest Privileges Texas recognizes a joint
defense privilege as part of the attorney-client privilege. In
reMonsanto Co., 998 S.W.2d 917, 922 (Tex. App.Waco 1999, orig.
proceeding). The jointdefense privilege protects confidential
communications made between the client, his (or her)lawyer, or his
(or her) representative on the one hand and a lawyer or a
representative of a lawyerwho is representing another party in a
pending action and concerning a matter of commoninterest. Id.
Similarly, the federal common law recognizes a common legal
interest privilege as partof the attorney-client privilege. In re
Auclair, 961 F.2d 65, 68-69 (5th Cir. 1992). The commonlegal
interest privilege protects two types of communications: (1)
communications between co-defendants in actual litigation and their
counsel; and (2) communications between potential co-defendants and
their counsel. In re Santa Fe Intern. Corp., 272 F.3d 705, 710 (5th
Cir. 2001).With respect to the latter category [of communication],
the term potential has not been clearlydefined. Id. 2.
Representative of the Lawyer Texas Rule of Evidence 503(a)(4)
defines the phrase representative of the lawyer asfollows: -5--
-
9. (A) One employed by the lawyer to assist the lawyer in the
rendition of professional legal services; or (B) An accountant who
is reasonably necessary for the lawyers rendition of professional
legal services.TEX. R. EVID. 503(a)(4). An investigator hired to
assist an attorney in representing a client canqualify as a
representative of the lawyer. IMC Fertilizer, Inc. v. ONeill, 846
S.W.2d 590, 592(Tex. App.Houston [14th Dist.] 1993, no writ). Under
federal law, the attorney-client privilege extends to
communications made by or toan accountant employed by an attorney
when the accountants role is to clarify communicationsbetween the
attorney and the client. U.S. v. Ackert, 169 F.3d 136, 139 (2d Cir.
1999); Ferko, 218F.R.D. at 139 (holding that the attorney-client
privilege applied to confidential client informationthat the
attorney disclosed to an accounting firm).G. Exceptions to the
Privilege There are several exceptions to the attorney-client
privilege, including the crime-fraudexception and the joint-client
exception. 1. Crime Fraud Exception Texas Rule of Evidence
503(d)(1) provides that there is no privilege [i]f the services
ofthe lawyer were sought or obtained to enable or aid anyone to
commit or plan to commit whatthe client knew or reasonably should
have known to be a crime or fraud. TEX. R. EVID.503(d)(1). Courts
have held that the party who asserts the crime-fraud exception must
establish: (1) A prima facie case showing a violation sufficiently
serious to defeat the privilege; and (2) A relationship between the
document for which the privilege is challenged and the prima facie
proof offered.Arkla, Inc. v. Harris, 846 S.W.2d 623, 630 (Tex.
App.Houston [14th Dist.] 1993, no writ). In Arkla, the Fourteenth
Court of Appeals held that the crime fraud exception to
theattorney-client privilege did not apply with respect to title
opinions and related documents thatArkla had destroyed. Id. at 630.
The Court explained that that there was no showing that theservices
of the attorneys who prepared the title opinions and related
documents were obtainedwith any fraudulent or illegal intent. Id.
Moreover, the Court also explained that the partyseeking the
documents had failed to offer any proof supporting its allegation
that Arklasdocument destruction constituted fraud. Id. Under the
federal common law, the party asserting the crime-fraud exception
to theattorney-client privilege must: -6-- -
10. (1) Make an independent prima facie case that a crime or
fraud has been committed; and (2) Then demonstrate that the
privileged information bears a relationship to the alleged crime or
fraud.Ward v. Succession of Freeman, 854 F.2d 780, 790 (5th Cir.
1988). Included as part of theprima facie case of fraud is evidence
of an intent to deceive. In re Rigby, 199 B.R. 358, 361(Bankr. E.D.
Tex. 1995). 2. Joint Client Exception Texas Rule of Evidence
503(d)(5) provides that there is no privilege with respect to
acommunication relevant to a matter of common interest between or
among two or more clients ifthe communication was made by any of
them to a lawyer retained or consulted in common, whenoffered in an
action between or among any of the clients. TEX. R. EVID.
503(d)(5). In Marathon Oil Co. v. Moye, 893 S.W.2d 585 (Tex.
App.Dallas 1994, no writ), a coallicense grantee made a prima facie
showing that certain documents were protected by theattorney-client
privilege. However, the coal license grantor claimed that those
documents werediscoverable because an attorney had generated those
documents while jointly representing thegrantors and the grantees
interests. However, the Dallas Court of Appeals held that joint
clientexception to the attorney-client privilege did not apply
because there was no evidence that:(1) the grantor and the grantee
each retained the attorney as their common attorney; (2) thegrantor
and the grantee each consulted with the attorney; or (3) the
attorney agreed to renderlegal services to the grantee. For a
discussion of the joint client situation in the federal context,
see Valente v. Pepsico,Inc., 68 F.R.D. 361, 368-69 (D.C. Del.
1975). III. THE WORK PRODUCT PRIVILEGE The work product and
attorney-client privileges often cover much of the same
material.The crucial difference between these privileges is that
the work product privilege protects onlymaterials prepared with an
eye toward litigation. Hickman v. Taylor, 329 U.S. 495,
511(1947).A. Definitions Texas Rule of Civil Procedure 192.5(a)
defines work product as follows: (1) Material prepared or mental
impressions developed in anticipation of litigation or for trial by
or for a party or a partys representatives, including the partys
attorneys, consultants, sureties, indemnitors, insurers, employees,
or agents; or (2) A communication made in anticipation of
litigation or for trial between a party and the partys
representatives or among a partys representatives, -7-- -
11. including the partys attorneys, consultants, sureties,
indemnitors, insurers, employees, or agents.TEX. R. CIV. P.
192.5(a). Federal Rule of Civil Procedure 26(b)(3) defines work
product as documents andtangible things that are prepared in
anticipation of litigation or for trial by or for another party
orits representative (including the other partys attorney,
consultant, surety, indemnitor, insurer, oragent). FED. R. CIV. P.
26(b)(3). A party cannot bury non-privileged facts in work product,
and such facts may bediscovered through appropriate searching
interrogatories. Hickman, 329 U.S. at 513; Suggs v.Whittaker, 152
F.R.D. 501, 507 (M.D.N.C. 1993); Owens-Corning Fiberglas Corp. v.
Caldwell,818 S.W.2d 749, 750 n.2 (Tex. 1991).B. What Constitutes In
Anticipation of Litigation? When evaluating an assertion of the
work product privilege, the first thing that a courtmust do is
determine whether a particular document or tangible thing was
created in anticipationof litigation. The Texas Supreme Court has
established the following two-prong test fordetermining whether a
document or tangible thing was created in anticipation of
litigation: (1) The objective prong asks whether a reasonable
person would have concluded from the totality surrounding the
creation of the document or tangible thing that there was a
substantial chance that litigation would ensue; and (2) The
subjective prong asks whether the party resisting discovery
believed in good faith that there was a substantial chance that
litigation would ensue and created the document or tangible thing
for the purpose of preparing for such litigation.National Tank, 851
S.W.2d at 203-204. The Fifth Circuit has adopted the primary
purpose test for determining whether adocument or tangible thing
was created in anticipation of litigation. Pursuant to that test,
theprimary motivating purpose behind the creation of the document
must be to aid in possiblefuture litigation. In re Kaiser Aluminum
& Chemical Co., 214 F.3d 586, 593 (5th Cir. 2000)(quoting U.S.
v. El Paso Co., 682 F.2d 530, 542 (5th Cir.1982)). However, it is
not necessary forthe document to be created at a time when
litigation is imminent. Id. Documents prepared in the regular
course of business, rather than for litigation, are notprotected.
See Arkla, 846 S.W.2d at 630 (holding that the work product
privilege does notapply to those title opinions not prepared as
part of the preparation for litigation). -8-- -
12. C. The Scope of the Privilege The scope of protection
provided by the work product privilege depends upon the natureof
the materials sought to be protected. 1. Core Work Product The
following are a few examples of core work product: legal memoranda;
summaries ofwitness interviews; investigatory reports; and audit
letters. See Brady, 238 F.R.D. at 442. Texas Rule of Civil
Procedure 192.5(b)(1) provides that the mental
impressions,opinions, conclusions, and legal theories of an
attorney or an attorneys representative are NOTdiscoverable
regardless of need or hardship. TEX. R. CIV. P. 192.5(b)(1). In In
re Exxon Corp., 208 S.W.3d 70 (Tex. App.Beaumont 2006, no pet.),
theBeaumont Court of Appeals addressed whether the trial court had
erred in granting the plaintiffsmotion to compel Exxon to designate
an individual to testify concerning Exxons efforts togather
documents responsive to the plaintiffs requests for production. Id.
at 71. Exxon hadargued that, because its in-house and outside
counsel had searched for and produced theresponsive documents, any
testimony regarding that process was privileged. Id. at 72-73.
TheCourt of Appeals agreed with Exxon. It held that the process by
which Exxons attorneysresponded to the requests for production was
protected by the work product privilege as Exxonsattorneys had to
draw on their mental impressions, opinions, conclusions, and/or
legal theories todetermine which documents to produce. See id. at
75-76. Under the federal common law, the mental impressions,
conclusions, opinions or legaltheories of an attorney or an
attorneys representative are generally afforded near
absoluteprotection from discovery. In re Cendant Corp. Secs.
Litig., 343 F.3d 658, 663 (3d Cir. 2003). However, pursuant to
Federal Rule of Civil Procedure 26(b)(4)(B), if an attorney
isacting as a consulting expert in litigation, the facts known or
opinions held by that attorneymay be discoverable through
depositions or interrogatories upon a showing of
exceptionalcircumstances under which it is impracticable for the
party seeking discovery to obtain facts oropinions on the same
subject by other means. FED. R. CIV. P. 26(b)(4)(B). 2. The Rest /
Non-Core Work Product Texas law and federal law are almost
identical on the subject of whether non-core workproduct is
discoverable. Under both, non-core work product is discoverable
only upon ashowing that the party seeking discovery has substantial
need of the materials in the preparationof the partys case and that
the party is unable without undue hardship to obtain the
substantialequivalent of the material by other means. TEX. R. CIV.
P. 192.5(b)(2); FED. R. CIV. P. 26(b)(3). In Smith v. Diamond
Offshore Drilling, Inc., 168 F.R.D. 582 (S.D. Tex. 1996),
theSouthern District of Texas addressed whether to compel Diamond
Offshore to producetranscripts of interviews of certain of its
employees who witnessed the accident that was thesubject of the
litigation. Id. at 584. The Court held that the transcripts were
discoverable underthe substantial need/undue hardship exception to
the work product privilege. Id. at 584-85. The -9-- -
13. Court explained that, because the interviews had been
conducted shortly after the accident, thetranscripts would be more
accurate than any statements that could be obtained from the
samewitnesses during discovery. Id. at 584. In Mack v. Global Santa
Fe Drilling Co., No. Civ. A. 04-3461, 2006 WL 980746 (E.D.La. April
11, 2006), the Eastern District of Louisiana held that the
protection afforded by thework product privilege extended to
documents prepared by an investigator working for GlobalSanta Fes
outside counsel. Id. at *3. The Court noted that attorneys must
often rely oninvestigators and other agents to assist them in
preparing for trial. Id. (quoting U.S. v. Nobles,422 U.S. 225,
238-39 (1975)). It is therefore necessary that the [work product
privilege]protect material prepared by agents for attorneys as well
as those prepared by the attorneyhimself. Id. However, because the
factual information discovered by the investigator was notsubject
to the work product privilege, the Court noted that the plaintiff
could depose theinvestigator regarding these facts. Id. at *4. IV.
SELF-EVALUATION PRIVILEGEA. The Scope of the Privilege The
self-evaluation privilege allows a party to protect certain
records, or portions of therecords, that contain internal
evaluations because to require such production would impede theopen
and candid discussion of ideas. The self-evaluation privilege
attaches only where the party asserting the privilege showsthe
following: (1) The information sought in discovery resulted from a
critical self-analysis undertaken by the party seeking protection;
(2) The public has a strong interest in preserving the free flow of
the type of information sought in discovery t; (3) The free flow of
the type of information sought in discovery will be curtailed if
discovery is allowed; and (4) The information sought in discovery
was prepared with the expectation that it would be kept
confidential, and it has, in fact, been kept confidential.Dowling
v. Am. Haw. Cruises, Inc., 971 F.2d 423, 426 (9th Cir. 1992). The
self-evaluationprivilege applies only to evaluations; factual
determinations and facts contained in internalevaluations or
reports are not subject to the privilege and must be produced if
properly requested.B. The Privilege Does Not Apply to Discovery
Requests from Government Agencies The self-evaluation privilege
does not apply to discovery requests from governmentagencies.
Kaiser, 214 F.3d at 593. For example, in FTC v. TRW, Inc., 628 F.2d
207 (D.C. Cir.1980), the Federal Trade Commission served a subpoena
duces tecum on a credit reporting -10-- -
14. agency directing the company to produce fifty categories of
documents, including in-housereports analyzing the companys
compliance with federal and state fair credit reporting laws. Id.at
209-10. The company claimed that the in-house reports were
protected by the self-evaluationprivilege. Id. at 210. The District
of Columbia Circuit noted that: [w]hatever may be the statusof the
self-evaluative privilege in the context of private litigation,
courts with apparentuniformity have refused its application where,
as here, the documents in question have beensought by a government
agency. Id.C. Recognition of the Privilege is Not Uniform Across
Jurisdictions The self-evaluation privilege is not uniformly
recognized. Texas does not currentlyrecognize the self-evaluation
privilege. Neither do federal courts in the Fifth Circuit.
SeeKaiser, 214 F.3d at 593. V. DELIBERATIVE PROCESS PRIVILEGE When
litigating against the federal government, it is important to be
aware that thefederal government can assert privileges that are not
available to private litigants. Thedeliberative process privilege
is one such privilege. It protects predecisional
materialsreflecting deliberative or policy-making processes, but
not materials that are purely factual.E.E.O.C. v. Fina Oil &
Chemical Co., 145 F.R.D. 74, 75 (E.D. Tex. 1992) (quoting Skelton
v.U.S. Postal Service, 678 F.2d 35, 38 (5th Cir.1982)). A document
is considered to bepredecisional when it is generated before the
adoption of an agency policy. See Coastal StatesGas Corp. v. Dept
of Energy, 617 F.2d 854, 866 (D.C. Cir. 1980). A document is
considered tobe deliberative when it reflects the give-and-take of
the consultative process. Id. Examplesof documents covered by the
deliberative process privilege include recommendations,
draftdocuments, proposals, suggestions, and other subjective
documents reflecting the personalopinions of the writer rather than
the policy of the agency. Id. The purpose of the deliberative
process privilege is to encourage frank discussion ofideas and
policies, thereby ensuring the quality of governmental decision
making. Mobil OilCorp. v. Dept of Energy, 102 F.R.D. 1, 5 (N.D.N.Y.
1983). However, it is a qualifiedprivilege, to be applied as
narrowly as possible, consistent with efficient
administrativeoperations. Exxon Corp. v. Dept of Energy, 91 F.R.D.
26, 43 (N.D. Tex. 1981) In Chevron U.S.A., Inc. v. United States,
80 Fed. Cl. 340 (2008), the Court of Claimsaddressed whether the
government could assert the deliberative process privilege in
response toChevrons requests for the production of documents. Id.
at 355-362. This case involved adispute over ownership interests in
the Elk Hills Naval Petroleum Reserve (the Reserve). Id.at 342. In
1944, Chevrons predecessor in interest had entered into a contract
with thegovernment that assigned ownership interests in the Reserve
to each party and that provided forredetermination of those
interests at such time as there was a better way of determining
thevolume of oil and gas in the Reserve. Id. at 343. In 1997,
Chevron entered into an EquityProcess Agreement with the government
that set out a procedure for the Assistant Secretary forFossil
Energy (the ASFE) to finalize each partys equity interests in the
Reserve. Id. at 344-45. The ASFE subsequently issued a decision
finalizing each partys equity interests in theReserve. Id. at 347.
-11-- -
15. The Equity Process Agreement prohibited the parties from
engaging in ex partecommunications with the ASFE. Id. at 345.
Nevertheless, after the AFSE had issued hisdecision, Chevron
discovered that the government had engaged in numerous ex
partecommunications with the ASFE. Id. at 347. Chevron subsequently
filed suit against thegovernment for breaching the Equity Process
Agreement. Id. at 350. During discovery, Chevron requested that the
government produce documents relating tothe ex parte communications
with the ASFE. Id. at 351. In response, the government claimedthat
all documents relating to issues arising out of the equity
finalization process wereprotected under the deliberative process
privilege, which included the ex parte communicationswith the ASFE.
Id. at 355. In its analysis, the Court of Claims noted that the
Equity Process Agreement was acontract to divide commercial
property interests in oil rights, and that the
governmentparticipants involved in the equity finalization process
were not engaged in policy-making inthe traditional sense. Id. at
361. Moreover, the Court noted that the communications at issuedo
not concern national defense, international relations, law
enforcement, and the like. Id.However, because Chevron had not
raised these arguments, the Court assumed that the
relevantdocuments were protected by the deliberative process
privilege. Id. Nevertheless, the Courtordered the government to
produce all of the factual content contained in the documents
thatcould be isolated from the content protected by the
deliberative process privilege. See id. VI. WAIVER OF PRIVILEGES
Parties can waive privileges in a variety of ways, including
through intentional disclosureof privileged information,
inadvertent disclosure of privileged information, and offensive use
ofprivileged information. Moreover, if a party selectively
discloses privileged information togovernment agencies, a court may
conclude that the party has waived its right to assert theprivilege
in proceedings involving entirely unrelated third parties.A.
Intentional Disclosure 1. Disclosure Outside of Litigation The
privilege is waived by disclosure to third parties, i.e., parties
outside the attorney-client relationship. Axelson, Inc. v.
McIlhany, 798 S.W.2d 550, 554 (Tex. 1990) (holding that agas well
operator waived its attorney-client privilege as to an internal
investigation of allegedkickbacks and bribes from suppliers and
contractors by disclosing the results of that investigationto
federal investigators and to the media). The same is true in
federal court. See, e.g., Alldreadv. City of Grenada, 988 F.2d
1425, 1434 (5th Cir. 1993); Aiken v. Tex. Farm Bureau Mut. Ins.Co.,
151 F.R.D. 621, 623 (E.D. Tex. 1993). In In re ExxonMobil Corp., 97
S.W.3d 353 (Tex. App.Houston [14 Dist.] 2003, nopet.), the First
Court of Appeals held that the trial court had not abused its
discretion in orderingthe production of a title opinion prepared by
an Exxon attorney. Id. at 363. Although there wasno evidence that
the title opinion in question had been shown to a third party, the
Court ofAppeals noted that there was conflicting testimony
regarding whether Exxon had occasionally -12-- -
16. shown other title opinions to leaseholders. Id. This
conflicting evidence raised a factual issue[that] the trial court
resolved. Id. In In Re BP Products North America Inc., --- S.W.3d
----, 2006 WL 2973037, (Tex.App.Houston [1 Dist.] 2006, no pet.),
the First Court of Appeals addressed whether the trialcourt had
abused its discretion in ordering BP to produce documents used by
BP to compute areserve figure reported to the SEC. Id. at *1. The
reserve figure was BPs estimate of itsliability for the personal
injuries resulting from the March 23, 2005 explosion at BPs Texas
Cityrefinery. Id. The trial court had held that BP waived the
attorney-client and work productprivileges with respect to the
methodology and materials used to compute the reserve figure
byvoluntarily disclosing the reserve figure to the SEC and on BPs
web-site. Id. at 2-3. However,the First Court of Appeals disagreed.
It held that, because BP strictly limited its publicdisclosure to
the reserve figure itself and did not disclose the methodology or
materials used tocompute the reserve figure, BP did not waive its
attorney-client and work product privileges withregard to the
underlying methodology and materials. Id. at *9. 2. Use in
Litigation A party may not useat any hearing or trialmaterial or
information withheld fromdiscovery under a claim of privilege,
including a claim sustained by the court, without timelyamending or
supplementing the partys response to that discovery. TEX. R. CIV.
P. 193.4(c).The results are similar in federal courts. See e.g.,
Savoy v. Richard A. Carrier Trucking, Inc.,178 F.R.D. 346, 350 (D.
Mass. 1998); Harding v. Dana Transp., Inc., 914 F. Supp. 1084,
1094-96 (D.N.J. 1996). The extent of the waiver, however, will be
determined on a case by case basis. See Dukev. Power Elec. &
Hardware Co., 674 S.W.2d 400, 404 (Tex App.Corpus Christi 1984,
nowrit) (holding that asking questions to establish the motive or
intent of a party when acting onadvice of an attorney may not
result in a complete waiver of the attorney-client privilege).B.
Inadvertent Disclosure 1. Texas Law Texas Rule of Civil Procedure
Rule 193.3(d) governs the inadvertent production ofprivileged
material. Rule 193.3(d) provides that, if a party discloses
privileged material inresponse to a written discovery request and
that party does not intend to waive the privilege, theparty must
amend its discovery response within 10 days (or a shorter time
designated by thecourt) after discovering the inadvertent
production. TEX. R. CIV. P. 193.3(d). In the amendedresponse, the
party must identify the privileged material that it inadvertently
produced and statethe privilege asserted. Id. Upon receipt of such
amended response, the party who received theinadvertently produced
material must return the specified material and any copies to
theproducing party. Id. 2. Federal Common Law Some federal courts
have held that, where there has been a disclosure of
privilegedcommunications to third parties, the privilege is lost,
even if the disclosure is unintentional or -13-- -
17. inadvertent. See, e.g., In re Sealed Case, 877 F.2d 976,
980 (D.C. Cir. 1989); In re Grand JuryProceedings, 727 F.2d 1352,
1356 (4th Cir. 1984). However, the majority of courts,
whilerecognizing that inadvertent disclosure may result in a waiver
of the privilege, have declined toapply this strict responsibility
rule of waiver and have opted instead for an approach whichtakes
into account the facts surrounding a particular disclosure. See,
e.g., TransamericaComputer Co. v. IBM Corp., 573 F.2d 646, 650-52
(9th Cir. 1978) (privilege waived only ifprivilege holder
voluntarily discloses the communication); Parkway Gallery
Furniture, Inc. v.Kittinger/Pennsylvania House Group, Inc., 116
F.R.D. 46, 50-52 (M.D.N.C. 1987) (limitedinadvertent disclosure
will not necessarily result in waiver); Georgetown Manor, Inc. v.
EthanAllen, Inc., 753 F.Supp. 936, 938-39 (S.D. Fla. 1991) (mere
inadvertent production by anattorney does not waive a clients
privilege). The Fifth Circuit has adopted the majority rule.See
Alldread, 988 F.2d at 1434) (In our view, an analysis which permits
the court to considerthe circumstances surrounding a disclosure on
a case-by-case basis is preferable to a per se ruleof waiver.).
Courts can consider the following factors when addressing whether
inadvertentproduction waives the attorney-client privilege: (1) The
reasonableness of the precautions taken to prevent inadvertent
disclosure; (2) The time taken to rectify the error; (3) The scope
of the discovery; (4) The extent of the disclosure; and (5) The
overriding issue of fairness.Hartford Fire Ins. Co. v. Garvey, 109
F.R.D. 323, 332 (N.D. Cal. 1985); see also Alldread, 988F.2d 1425,
1434 ([W]e conclude that the district courts decision to analyze
the issue under theHartford test was proper.). In Corvello v. New
England Gas Co., Inc., 243 F.R.D. 28 (D.R.I. 2007), a number
oflandowners sued the New England Gas Company (NEGC) claiming that
their properties hadbeen contaminated by coal gasification
by-products. Id. at 31. In connection with this lawsuit,NEGC served
a subpoena duces tecum on the Rhode Island Department of
EnvironmentalManagement (REDEM) requesting all documents in REDEMs
files relating to the allegedcontamination. Id. REDEM identified
6300 pages of documents that were responsive toNEGCs subpoena, 400
of which were privileged. Id. REDEM subsequently engaged an
outsidevendor to scan the non-privileged documents onto one CD and
the privileged documents ontoanother CD. Id. REDEM then
inadvertently produced the CD containing the privilegeddocuments to
NEGC because it did not review either of the CDs before production.
Id. Approximately one week later, an attorney for NEGC wrote to
REDEM stating that theCD produced to NEGC contained internal
communications with counsel and that NEGC washalting its review of
the documents until REDEM confirmed that it had meant to produce
them.Id. An attorney for REDEM responded back with a voicemail
stating that he was aware that the -14-- -
18. CD contained three privileged letters, but that REDEM was
not concerned about those letters.Id. Two weeks later, REDEM
realized that it had inadvertently produced the CD
containingprivileged documents and requested that NEGC return them.
Id. at 32. NEGC refused to returnthe documents, which prompted
REDEM to move for a protective order. Id. The Court concluded that
REDEM had failed to exercise due care with respect to theprivileged
documents because it had produced the CD containing those documents
to NEGCwithout reviewing it and had failed to take corrective
action when informed by NEGCs counselthat the CD contained
privileged documents. Id. at 37. Accordingly, the Court held
thatREDEM had waived the privilege with respect to those documents.
Id. The government fared better in United States v. Apex Oil
Company, Inc., No. 05-CV-242-DRH, 2007 WL 4557827 (S.D. Ill. Dec.
21, 2007). In the course of discovery in thisenforcement action,
the government had inadvertently produced to Apex an EPA
memorandumentitled Determination of Threat to Public Health or
Welfare of the Environment at the HarfordArea Hydrocarbon Plum
Site, which was marked ENFORCEMENT CONFIDENTIAL NOTSUBJECT TO
DISCOVERY. Id. at *1. Because of an administrative error, however,
the EPAhad placed this document in the administrative record, and
the government had subsequentlyproduced it to Apex during
discovery. Id. Upon learning of its mistake, an attorney for
thegovernment sent a letter to Apex requesting that the document be
returned or destroyed. Id.Apex declined to do either, which
prompted the government to move for a protective order. Id. The
Court concluded that the government had not waived the
attorney-client privilegewith respect to the EPA memorandum because
the government had taken reasonable steps toprevent disclosure of
the memorandum and it had immediately acted to rectify its error
uponlearning that the memorandum had been disclosed to Apex. See
id. at *4. Specifically, the Courtnoted that the EPA had presented
evidence showing that the EPA had a reasonable procedure inplace to
prevent this type of disclosure, that the author of the memorandum
had followed thatprocedure, and that the memorandum was included in
the administrative record because of anadministrative error. Id.
The Court also noted that, upon learning of the inadvertent
disclosure,the government responded the next business day by
requesting that Apex return or destroy thememorandum. Id. 3.
Federal Rule of Civil Procedure 26(b)(5)(B) Federal Rule of Civil
Procedure 26(b)(5)(B) was approved by the United States
SupremeCourt as part of the 2006 amendments to the Federal Rules of
Civil Procedure. Rule 26(b)(5)(B)provides that, if privileged
information is produced during discovery, the holder of the
privilegemay notify anyone who received the information that the
information is privileged. FED. R. CIV.P. 26(b)(5)(B). After being
notified, a party must promptly return, sequester, or destroy
thespecified information and any copies it has; must not use or
disclose the information until theclaim is resolved; must take
reasonable steps to retrieve the information if the party disclosed
itbefore being notified; and may promptly present the information
to the court under seal for adetermination of the claim. Id. It is
unclear to what extent Rule 26(b)(5)(B) impacts the prior federal
case law regardinginadvertent disclosure. -15-- -
19. C. Offensive Use of Privileged Information Under Texas law,
a party who uses privileged information offensively (as a sword
ratherthan as a shield) waives the privilege. Republic Ins. Co. v.
Davis, 856 S.W.2d 158, 163 (Tex.1993). However, before a party may
be found to have waived an asserted privilege, the Courtmust
determine that: (1) The party asserting the privilege is seeking
affirmative relief; (2) The privileged information sought is such
that, if believed by the fact finder, it would in all probability
be outcome determinative of the cause of action asserted; and (3)
Disclosure of the confidential communication is the only means by
which the aggrieved party may obtain the evidence.TransAmerican
Natural Gas Corp. v. Flores, 870 S.W.2d 10, 11-12 (Tex. 1994). When
adefendant relies on privileged information to rebut a plaintiffs
cause of action, the defendant isnot seeking affirmative relief
that is an offensive use of the privilege. Marathon Oil Co. v.Moye,
893 S.W.2d 585, 590 (Tex. App.Dallas 1994, no writ). Under the
federal common law, the attorney-client privilege is waived when a
litigantplace[s] information protected by it in issue through some
affirmative act for his own benefit,and to allow the privilege to
protect against disclosure of such information would be
manifestlyunfair to the opposing party. Conkling v. Turner, 883
F.2d 431, 434 (5th Cir. 1989) (quotingHearn v. Rhay, 68 F.R.D. 574,
581 (E.D. Wash. 1975). However, unlike under Texas law, thereis no
requirement that the party using the privilege information be
seeking affirmative relief. SeeApex Mun. Fund v. N-Group Secs., 841
F. Supp. 1423, 1430-31 (S.D. Tex 1993).D. Sarbanes-Oxley Authorizes
Attorneys to Disclose Privileged Information Without Client Consent
The Sarbanes-Oxley Act and the SEC regulations promulgated pursuant
to that Act(collectively, Sarbanes-Oxley) have tremendous
implications for the attorney-clientrelationship and the privileges
associated with that relationship. This is so for a number
ofreasons. First, Sarbanes-Oxley requires that attorneys act as
watchdogs over their clients. Ifan attorney discovers evidence that
a client has committed a material violation, the attorneymust
report that evidence to the clients chief legal officer and its
chief financial officer. 17C.F.R. 205.3(b). The attorney must then
monitor the chief legal officers and chief financialofficers
response to the reporting of that information. See id. 205.3(c).
Unless the attorneyreasonably believes that the chief legal
officers and chief financial officers response isappropriate, the
attorney must report the evidence of the material violation to the
clients boardof directors. Id. The chief legal officer must, in
turn, thoroughly investigate every report of amaterial violation so
as to protect himself or herself from potential criminal liability.
Second, Sarbanes-Oxley specifically authorizes attorneys to
disclose attorney-clientcommunications to the SEC without their
clients consent. Specifically, an attorney can disclose -16--
-
20. attorney-client communications to the SEC when the attorney
reasonably believes that disclosureis necessary: (1) To prevent the
issuer from committing a material violation that is likely to cause
substantial injury to the financial interest or property of the
issuer or investors; (2) To prevent the issuer, in a Commission
investigation or administrative proceeding from committing perjury,
proscribed in 18 U.S.C. 1621; suborning perjury, proscribed in 18
U.S.C. 1622; or committing any act proscribed in 18 U.S.C. 1001
that is likely to perpetrate a fraud upon the Commission; or (3) To
rectify the consequences of a material violation by the issuer that
caused, or may cause, substantial injury to the financial interest
or property of the issuer or investors in the furtherance of which
the attorneys services were used.Id. 205.3(d)(2). Third,
Sarbanes-Oxley authorizes an attorney to disclose attorney-client
communicationswithout his clients consent in connection with any
investigation, proceeding, or litigation inwhich the attorneys
compliance with this part is in issue. Id. 205.3(d)(1). The SEC
initially proposed an additional rule requiring that, if an
attorney was notsatisfied with a clients response to his reporting
of evidence of a material violation, the attorneywithdraw from the
representation and notify the SEC of his withdrawal. This
noisywithdrawal rule was heavily criticized by members of the bar,
and the SEC eventually decidednot to adopt it.E. Waiver Through
Disclosure of Privileged Information to Auditors Sarbanes Oxley has
also had a tremendous impact on auditors. Specifically,
SarbanesOxley requires auditors to engage in far more stringent
investigations of publicly tradedcompanies than was previously
required, including investigating a companys liabilities,
itslitigation, its internal investigations and controls, and any
actual or potential enforcement mattersagainst the company. So that
they may conduct these more stringent investigations,
publiclytraded companies must allow their auditors to access and
review more privileged informationthan they ever did before. One
important implication of this increased access to privilege
information is thepotential for increased privilege waivers. This
is so because it has long been the rule in the FifthCircuit that,
if a company discloses privileged information to its outside
auditors, the companywaives the privilege with respect to that
information. Specifically, in United States v. El PasoCo., 682 F.2d
530, the Fifth Circuit addressed whether the trial court had erred
in enforcing twosummons issued to an oil and gas holding company by
the IRS as part of a tax audit. Id. at 536.The summons directed the
company to produce its tax pool analysis which was an analysis
oftax positions taken by the company that might be challenged by
the IRS and the backup -17-- -
21. memoranda and files relating to that analysis. Id. at 534.
The company had argued that the taxpool analysis was privileged.
Id. at 538. However, the district court had held that, because
thecompany discussed some of the information and many of the
potential tax liability issues in thetax pool analysis with its
independent auditors, the company had waived the privilege
withrespect to that information. Id. at 539-40. The Fifth Circuit
agreed with the trial courtsreasoning and affirmed its holding. Id.
at 540.F. Requests From Government Agencies to Waive Privilege As a
result of the highly publicized collapses of Enron, WorldCom, and
other publiclytraded companies, there has been a trend amongst
government agencies to pressure corporationsto waive their
attorney-client and work product privileges. The Department of
Justice (DOJ)has been at the forefront of that trend through its
issuance of a series of memorandum that haveupdated the DOJs
policies regarding requests for privilege waivers. In 1999, the DOJ
issued the Holder Memorandum, which addressed the
circumstancesunder which prosecutors should charge corporations
with criminal conduct. See Memorandumfrom Deputy Atty Gen. to All
Component Heads and U.S. Attys (June 16, 1999). The
HolderMemorandum instructed prosecutors to apply the same factors
in deciding whether to charge acorporation that prosecutors applied
when deciding whether to charge individuals. Id. However,due to the
nature of corporations, the Holder Memorandum listed eight
additional factors forprosecutors to consider. Id. The fourth
factor provides that, in assessing whether to chargecorporations
with criminal conduct, prosecutors should consider [t]he
corporations timely andvoluntary disclosure of wrongdoing and its
willingness to cooperate in the investigation of itsagents,
including, if necessary, the waiver of the corporate
attorney-client and work productprivileges. Id. Waiver could be
requested both with respect to [the corporations]
internalinvestigation and with respect to communications between
specific officers, directors, andemployees and counsel. Id. In
2003, the DOJ issued the Thompson Memorandum. See Memorandum from
Larry D.Thompson, Deputy Atty Gen., to Heads of Dept Components and
U.S. Attys (Jan. 20, 2003).Although the Thompson Memorandum is very
similar to the Holder Memorandum, there is atleast one important
difference between them. Specifically, the Thompson Memorandum
statesthat, in assessing whether to charge corporations with
criminal conduct, prosecutors should alsoconsider whether a
corporation, while purporting to cooperate, actually engaged in
conduct thatimpeded the investigation. Id. That conduct can include
the corporation directing employees ortheir counsel not to
cooperate openly and fully with the governmental investigation. Id.
In 2006, the DOJ issued the McNulty Memorandum. See Memorandum from
Paul J.McNulty, Deputy Atty Gen., to Heads of Dept Components and
U.S. Attys (Dec. 12, 2006).The McNulty Memorandum establishes a new
system for prosecutorial requests for corporatewaivers of
privilege. Specifically, under the McNulty Memorandum, the
government mayrequest a waiver of privilege only if there is a
legitimate need for the waiver. Id. Moreover,whether a legitimate
need exists depends upon four factors: (1) The likelihood and
degree to which the privileged information will benefit the
governments investigation; -18-- -
22. (2) Whether the information sought can be obtained in a
timely and complete fashion by using alternative means that do not
require waiver; (3) The completeness of the voluntary disclosure
already provided; and (4) The collateral consequences to a
corporation of a waiver.Id. If a legitimate need does exist,
prosecutors are instructed to seek the least intrusivewaiver
possible. Id. They should first request Category I information,
which is defined aspurely factual information . . . relating to the
underlying misconduct, including key documents,witness statements,
organization charts created by company counsel, and other
factualdocuments. Id. Before requesting waiver of Category I
information, prosecutors must obtainwritten authorization from the
United States Attorney, who must consult with the AssistantAttorney
General for the Criminal Division before deciding upon the request.
Id. Thecorporations response to the request for waiver of privilege
for Category I information may beconsidered in determining whether
a corporation has cooperated in the governmentsinvestigation. Id.
If the Category I information does not prove satisfactory, the
prosecutor may requestCategory II information, which consists of
legal advice given to the corporation before,during, and after the
underlying misconduct occurred, including attorney notes and
memorandacontaining counsels mental impressions and conclusions,
legal determinations, and legal advice.Id. Before requesting
Category II information, the United States Attorney must obtain
writtenauthorization from the Deputy Attorney General. Id.
Prosecutors are told not to consider arefusal to provide Category
II information when making a charging decision, but they are
alwaysallowed to favorably consider a corporations compliance with
government requests to supplyCategory II information when
determining cooperation. Id.G. Attorney-Client Privilege Protection
Act of 2007 On January 4, 2007, Senator Arlen Specter introduced a
proposed bill in the Senateentitled the Attorney-Client Privilege
Protection Act of 2007 (S. 186). The proposed bill statesthat, in
any [f]ederal investigation or criminal or civil enforcement
matter, the agents andattorneys of the United States shall not
demand, request, or condition treatment on thedisclosure of
attorney-client communications or attorney work product. The
proposed bill hasbeen referred to the Senate Judiciary Committee,
but no further action has been taken on it. On July 12, 2007,
Representative Bobby Scott introduced a companion bill in the
Houseof Representatives (H.R. 3013). The House of Representatives
passed that bill on November 14,2007.H. Selective Waiver Doctrine
There is a split among the United States Courts of Appeals
regarding whethercorporations may selectively waive privileges so
as to disclose privileged information to -19-- -
23. government agencies while avoiding a wholesale waiver of
the privilege with respect to thatinformation. In Diversified
Industries, Inc. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978) (en
banc), acompany had voluntarily submitted documents to the SEC
pursuant to a subpoena, and privatelitigants were seeking access to
that same material. Id. at 611. The Eight Circuit held that
thecompany did not fully waive the attorney-client privilege
because it disclosed these documentsin a separate and nonpublic SEC
investigation. Id. The waiver of privilege was limited to theSEC.
Id. The court explained that: To hold otherwise may have the effect
of thwarting thedeveloping procedure of corporations to employ
independent outside counsel to investigate andadvise them in order
to protect stockholders, potential stockholders and customers. Id.
In Permian Corp. v. United States, 665 F.2d 1214 (D.C. Cir. 1981),
another caseinvolving disclosure to the SEC, the District of
Columbia Circuit unequivocally disallowed theuse of selective
waiver of the attorney-client privilege, saying, [w]e believe that
the attorney-client privilege should be available only at the
traditional price: a litigant who wishes to assertconfidentiality
must maintain genuine confidentiality. Id. at 1222. The Court reach
thisholding despite the fact that the company had included a stamp
on each document produced tothe SEC stating that the document was a
Trade Secret, Privileged and Confidential, and notto be disclosed
by the Commission to any third-party without the companys
permission. Id. at1216 n.3. The Third Circuit, the Sixth Circuit,
and the Tenth Circuit have followed the lead of theDistrict of
Columbia Circuit and disallowed selective waiver. Westinghouse
Elec. Corp. v.Republic of the Philippines, 951 F.2d 1414, 1417 (3d
Cir. 1991) (holding that, by disclosingotherwise-protected
documents to governmental agencies, company waived both the
attorney-client and work product privileges); In re Columbia/HCA
Healthcare Corp. Billing PracticesLitig., 293 F.3d 289, 302 (6th
Cir. 2002) (holding that disclosures of privileged material to
theDOJ, whether protected by the attorney-client or work product
privilege, fully waived theprivilege, regardless of a detailed
confidentiality agreement between the parties); In re
QwestCommunications Intl Inc., 450 F.3d 1179, 1201 (10th Cir. 2006)
(holding that, by disclosingprivileged documents to the DOJ
pursuant to a subpoena, company waived the attorney-clientand work
product privileges). The Fifth Circuit has yet to address the issue
of selective waiver. See S.E.C. v. Brady,238 F.R.D. 429, 440 (N.D.
Tex. 2006). One way for a company to potentially avoid a wholesale
waiver of privilege whendisclosing information to a government
agency is to make the disclosure pursuant to an explicitnon-waiver
agreement with the government agency. See, e.g., In re Natural Gas
CommodityLitigation, 232 F.R.D. 208 (S.D.N.Y. June 21, 2005)
(denying a motion to compel the productionof documents disclosed by
two natural gas commodity traders to various government
agenciesbecause the commodity traders had entered into an explicit
written confidentiality and non-waiver agreements with the
government agencies). Though these agreements may only beeffective
under certain circumstances and in certain jurisdictions. See
Brady, 238 F.R.D. at 444(holding that a company waived its work
product privilege by disclosing documents to the SEC,even though
the documents were disclosed pursuant to a confidentiality
agreement). -20-- -
24. I. Proposed Federal Rule of Evidence 502 On May 15, 2006,
the Advisory Committee on Evidence Rules issued a report in which
itrecommended that the Standing Committee on Rules of Practice and
Procedure of the JudicialConference of the United States adopt
proposed Federal Rule of Evidence 502. ProposedFederal Rule of
Evidence 502 limits the scope of waivers. Specifically, it provides
that a waiverof an attorney-client privilege or work product
protection extends to an undisclosedcommunication or information
concerning the same subject matter only if that
undisclosedcommunication or information ought in fairness to be
considered with the disclosedcommunication or information. Proposed
Federal Rule of Evidence 502 also states that, if privileged
information isinadvertently disclosed in connection with federal
litigation or federal administrativeproceedings, there will not be
a waiver of privilege in any state or federal proceeding as longas
the holder of the privilege took: (1) Reasonable precautions to
prevent disclosure; and (2) Reasonably prompt measures to rectify
the error once the holder knew or should have known of the
disclosure. Proposed Federal Rule of Evidence 502 also provides for
selective waiver of privilege.Specifically, it states that, if
privileged information is disclosed to a federal public office
oragency, the privilege is not waived with respect to
non-governmental persons or entities. On June 11, 2007, the
Standing Committee on Rules of Practice and Procedure of
theJudicial Conference of the United States approved all of
proposed Federal Rule of Evidence 502except for the provision on
selective waiver. On December 11, 2007, Senator Patrick Leahy,
introduced S. 2450, a bill adding newEvidence Rule 502 to the
Federal Rules of Evidence. On February 28, 2008, the proposed
billpassed in the Senate. It was referred to the Judiciary
Committee in the House of Representativesthat same day. VII.
ADDITIONAL PRIVILEGE ISSUES PERTINENT TO THE OIL AND GAS INDUSTRYA.
Title Opinions Numerous courts have noted that title opinions are
protected by the attorney-client andthe work product privileges.
See e.g. In re Exxon Mobile Corp., 97 S.W.3d 353, 362
(Tex.App.Houston [14th Dist.] 2003, no. pet.); Arkla, Inc. v.
Harris, 846 S.W.2d 623, 630 (Tex.App.Houston [14th Dist.] 1993, no
writ); Harrell v. Atlantic Refining Co., 339 S.W.2d 548,554 (Tex.
Civ. App.Waco 1960, writ refd n.r.e.). This is true even if the
lease to which thetitle opinion is relevant has been assigned. Id.
Presumably the assignee gains the benefit of theprotection. -21--
-
25. The protection afforded title opinions, however, is waived
if a party shares the titleopinion with a third party who is not
covered by the privilege. See In re Exxon, 97 S.W.2d at362-6;
Arkla, 846 S.W.2d at 630 (noting that Sante Fe had argued that the
title opinions werepassed around like a used deck of cards, thereby
waiving any privilege).B. Protecting Privileges When Selling Assets
Acquisitions and divestitures seem to be never ending in the oil
and gas industry. Witheach change in management, there is generally
a change in the assets that the company wants aspart of its
portfolio. An important issue arises in this content: do privileged
documents that aretransferred as part of a sale remain privileged?
The answer is it depends. There is little question that, where a
corporation maintains a privileged communication(and has not waived
it), and that corporation is sold, the successor corporation
acquires theprivilege. See City of Rialto v. U.S. Dept of Defense,
492 F. Supp. 2d 1193, 1201 (C.D. Cal.2007) (Normally, the transfer
of control over the corporation would also result in a transfer
ofthe attorney-client privilege.); OLeary v. Purcell Co., Inc., 108
F.R.D. 641, 644 (As thesurviving corporation in the merger, Purcell
by operation of law succeeded to all the rights,privileges, and
powers of Old Pinehurst and thus has authority to assert privilege
relating to thedocuments of Old Pinehurst.). That is probably also
true with other types of recognized entitieslike limited liability
companies and partnerships. The answer, however, is different when
specific assets are sold and are not bundled andsold as part of an
on-gong entity. In this situation, the seller retains the
privilege. See Fed.Deposit Ins. Corp. v. McAtee, 124 F.R.D. 662,
664 (D. Kan. 1988) ([T]he transfer of assetsfrom one entity to
another does not generally transfer the attorney-client
privilege.); Cf.Ramada Franchise Sys. v. Hotel of Gainesville
Assocs., 988 F. Supp. 1460, 1464 (N.D. Ga.1997) (finding that the
authority to assert or waive the former companys
attorney-clientprivilege passed to the new company when it acquired
all of the assets and control of the oldcompany). Often, when
soliciting bids for properties, plants, pipelines or other business
assets, aseller permits prospective buyers to review pertinent
documents related to the asset for sale.Moreover, the seller
generally requires that prospective buyers sign confidentiality
agreementsbefore having access to the documents. But, do these
documents need to be culled for privilegebefore they are reviewed
by prospective buyers? In short, the answer is probably yes. A
confidentiality agreement is clearly necessary, particularly where
the documents beingshared contain trade secrets and other
proprietary information. Such agreements prohibit thebuyer from
disclosing the confidential information to third parties except as
permitted by theconfidentiality agreement. However, the fact that a
prospective buyer has bound itself to keepthe information
confidential does not necessarily mean that the seller has
maintained theprivilege with respect to the shared documents. See
Bowne of New York City, Inc. v. AmBaseCorp., 150 F.R.D. 465, 480
(S.D.N.Y. 1993) ([E]ven if the disclosing party requires, as
acondition of disclosure, that the recipient maintain the materials
in confidence, this agreementdoes not prevent the disclosure from
constituting a waiver of the privilege; it merely obligatesthe
recipient to comply with the terms of any confidentiality
agreement.). -22-- -
26. VIII. TIPS FOR PRESERVING OR PIERCING PRIVILEGES A lawyer
in possession of a clients privileged communication or protected
work producthas a duty to protect it, in order to maintain its
confidential and privileged nature. As notedabove, this is not an
easy task. It is fairly easy to waive the privileges associated
with acommunication, and the results of an unintended waiver can be
disastrous. It pays then to take precautions and the following
precautions may help to protect yourprivileged communications or
attorney-work product: Within the communications themselves, list
the purpose of the communication. E.g., this is being sent at the
request of counsel for the purpose of facilitating legal advice.
Rather than just using their names in communications, identify
senders or recipients of communications and documents who are
attorneys (or paralegals or experts on a litigation team) by
reference their positions, e.g. General Counsel, attorney,
consulting expert, etc. Remember (and advise those you work with to
remember) that even if something is clearly privileged, it someday
may be produced to a government agency, prosecutor, an adversary or
buyer. This may be done by choice, inadvertently or by court order.
Accordingly, jokes, cynicism, overstatements, and insensitive
comments about age, race, physical characteristics and the like
should be avoided. While the attorney-client privilege is meant to
facilitate frank and open communication, attorneys should draft
memoranda and e-mails without taking unnecessary risks that those
documents might someday offend a jury. Stamp documents and e-mails
as privileged. As appropriate, label them Privileged and
Confidential Attorney-Client Communication or Privileged Attorney
Work Product. Use bold and red (understanding of course that copies
will likely be in black and white) for impact. This speeds up the
process of pulling a document as potentially privileged during
discovery or other exchanges of documents. Minimize the number of
people to whom confidential documents and communications are
distributed. This is a wise practice for all classes of documents,
but it is far too often neglected with e-mails. Resist the urge to
copy too many people on your e-mails, and watch the use of the
reply all button. Where possible, file privileged documents in a
separate folder. Understandably, that is not always possible. So,
general files that do contain privileged communications (among
other documents and non- privileged communications) should be
labeled as containing privileged and confidential attorney-client
communications and/or work product. -23-- -
27. Use common sense in housing privileged documents. There
have been commentators (including judges) who have suggested that
privileges may be waived if such documents are not maintained under
lock and key or in some form of electronic restricted access within
a law firm. That seems unworkable. Nevertheless, there should
certainly be practices that safeguard privileged documents.
Visitors and litigation opponents ought to be allowed access only
to areas such as conference rooms, restrooms, and other areas where
privileged documents are not kept. Moreover, attorneys, paralegals,
and staff should ensure that documents in their possession are not
left for wandering eyes to see. Use confidentiality agreements to
safeguard the distribution and use of confidential and sensitive
documents such as business plans, financial data, trade secrets,
and other proprietary information. However, do not rely on these
agreements to assure that the privileges associated with the
documents provided under such agreements will not be waived by
their disclosure to third parties. Rather, review and pull
privileged documents before making documents available to
prospective buyers or similar parties in the early phases of
soliciting bids. When producing documents to government agencies
and prosecutors, enter into explicit non-waiver and/or
confidentiality agreements. Though these agreements may only be
effective under certain circumstances and in certain jurisdictions,
they create evidence of the confidential nature of the documents,
and the intent to preserve that confidentiality. When doing
privilege reviews of massive numbers of documents, use common sense
as to the capabilities of the reviewers. Massive numbers of
documents, understaffing, and tight deadlines invite errors and
inadvertent production. On the other hand, if you are looking to
obtain documents that a party claims are privileged, check to see
if that party took the precautions noted above. If not, it may be
one indication that the party was not serious about the privileged
nature of the documents When seeking such documents, request that
the party asserting the privilege provide a comprehensive and
detailed privilege log. The log should include at least the
following categories: (1) the author and his or her position or
title; (2) the recipient and his or her position or title; (3) the
ccs and their positions or titles; (4) the identities of all other
persons to whom the document or communication was later
disseminated or disclosed (including their positions or titles);
(5) any agreement (confidentiality agreement or non-waiver
agreement) under which the document was provided to its recipients;
(6) the date of the document (including both the original draft
date as well as the dates of any modifications); (7) where the
document was maintained; (8) where it was -24-- -
28. found; and (9) the privilege being asserted. Most of these
categories are now required by rule. See, e.g., FED. R. CIV. P.
26(b)(5)(A). This type of log is onerous. But, insisting on its use
will cut down on overbroad assertions of privilege or other
exemptions from discovery. It also permits an assessment of waiver.
IX. CONCLUSION All oil and gas practitioner, whether outside or
in-house counsel, must deal frequentlywith privilege questions.
Sometimes the focus is on the need to protect communications or
workproduct. Sometimes it is on the need to obtain documents or
other evidence that an adversaryclaims to be protected the
attorney-client or work product privileges. The privileges as
discussed above are simple to state, but difficult to apply. It may
notalways be obvious who an attorney represents. That is
particularly true when the client is acorporation. State and
federal laws may differ as to who is within the zone of the
privilege (e.g.,the group to whom and from whom communications will
be deemed to be protected), so it paysto know what privilege law
will apply to your documents and privileged communications. Some
documents and communications may be both an attorney-client
communicationand work product, but there is a difference between
these two. An attorney-client privilegedcommunication must involve
a communication between two or more persons. It also
generallyinvolves a lawyer or someone acting at a lawyers behest.
But, it does not necessarily involveongoing litigation or
anticipated litigation. Work product, on the other hand, is limited
tosituations where there is litigation. or litigation is reasonably
anticipated. The work productprotection is also more restricted in
the sense that non-core work product is subject to forceddisclosure
on a showing of substantial need by the party seeking discovery. It
should be noted that additional privileges may be available in some
jurisdictions, suchas the self-evaluation privilege. Thus, if a
document or communication does not fall squarelywithin the
parameters of the attorney-client or work product privileges, it is
worth looking at anyspecial privileges that may be available in the
forum in which you are litigating. Waiver issues are raised
frequently. Sometimes those issues arise in the context of
anintentional, but errant disclosure. Sometimes, they arise out of
an inadvertent disclosure. Ineither case, as with an initial
determination as to whether a document, e-mail or
othercommunication is privileged in the fist instance, it may not
always be clear whether a disclosureconstitutes a waiver. All of
the following factors may need to be considered to determinewhether
there has been a waiver: (1) whether there was a process which the
person ororganization claiming the privilege used to keep such
documents confidential; (2) where thedocument was maintained (e.g.,
was it maintained in a manner consistent with its
allegedlyprivileged character); (3) the entities and persons to
whom the disclosure was made, and thepositions and affiliations of
such persons at the time of disclosure; (4) the time of the
disclosure;(5) the conditions of the disclosure; and (6) whether,
if there was an inadvertent disclosure, theparty asserting the
privilege took prompt corrective action (e.g. by informing the
recipientpromptly upon learning of the disclosures to halt his or
her review of the documents and to return -25-- -
29. or destroy them). Even then, it may not be clear whether
there was a waiver and courts havenot consistently applied these
factors. As counsel giving legal advice to a corporation, in-house
counsel are apt to be involvedin numerous privileged
communications. However, the privilege, as applied to in-house
counsel,has come under increased scrutiny in recent years. There
has been an increase in the challengesto privilege assertions for
communications to and from in-house counsel. For example, there
hasbeen heightened scrutiny regarding whether in-house counsels
communications are for legalversus business purposes. There are
also provisions of Sarbanes Oxley that put in-house coun