H.R. 6610: To amend the Federal Rules of Evidence to address the waiver of the attorney-client privilege and the work product doctrine

Texas Representative Sheila Jackson-Lee (D) has introduced HR 6610, a bill that is in the first step in the legislative process toward having a new, codified law governing inadvertent disclosure and waiver of attorney-client and work product privileges.

For the full text of the bill see govtrack.us.


Morning Bell: Time Running Out to Protect a Fundamental Civil Right

Posted July 17th, 2008 at 9.05am in Rule of Law.

The Sixth Amendment of the U.S. Constitution guarantees that “in all criminal prosecutions, the accused shall enjoy … the assistance of counsel for his defense.” Fundamental to ensuring the constitutional right to an attorney is the attorney-client privilege. For almost a decade now, the Department of Justice under both Presidents Clinton and Bush, has been steadily undermining this fundamental protection against unjust criminal punishment.

Despite recent efforts by the DOJ to reverse course, a broad bipartisan coalition has formed to support legislation that will restore the privilege. The coalition includes the American Civil Liberties Union, National Association of Criminal Defense Attorneys, and Clinton DOJ officials Walter Dellinger and Seth Waxman as well as conservative legal legends Ed Meese, Dick Thornburgh, Ken Starr and Ted Olson.

The problem began in 1999 when the DOJ issued a memo outlining nine factors for determining if an entire company should be indicted for the wrongdoing of one or more employees. One of the nine factors was “cooperation,” which included whether or not a company waived all attorney-client privilege protections. DOJ issued another memo in 2004 requiring prosecutors to take into account all nine factors when considering indictment.

Together these two internal DOJ memos created a brave new world of law enforcement, where prosecutors routinely demanded that any company waive all attorney-client privileges for its employees or face indictment. Since indictment is a death threat for most companies, especially publicly traded ones, complying with DOJ requests for privileged material cannot be considered voluntary in any way.

In 2006 a federal judge ruled that prosecutors applying the DOJ policies had violated the Fifth and Sixth Amendment rights of two employees. DOJ has since modified its internal procedures, but since 1999 it has now changed its stated policy nine times. Norman Veasey, former chief justice of Delaware, issued a report to the Senate Judiciary Committee documenting that no matter what DOJ’s stated internal policy is, prosecutors in the field continue to demand privileged materials under the treat of indictment.

Worse, any current DOJ policy could be overturned by a future administration with the stroke of a pen, and other federal agencies such as the Securities and Exchange Commission and Internal Revenue Service have also begun to adopt DOJ’s bad habits. Only legislation making it crystal clear that prosecutors cannot request privileged material can protect Americans’ right to counsel.

Responding to Auditors Without Waiving Attorney Work-Product Protection A practical guide for counsel

Alan I. Raylesberg and Lawrence E. Buterman
Special to Law.com

In order to comply with various provisions of the federal securities laws, a public company must have its financial statements audited by an independent accounting firm. In connection with the preparation of an auditor’s opinion as to whether those financial statements have been prepared in accordance with generally accepted accounting principles, auditors will evaluate, inter alia, the adequacy and reasonableness of a company’s reserve accounts and contingent liabilities — an evaluation that often requires an assessment of the company’s litigation exposure.




As part of an auditor’s fundamental role to provide an opinion regarding a company’s financial statements, an auditor cannot simply accept a company’s or its outside counsel’s determinations regarding litigation risks. In the wake of corporate scandals such as Enron and WorldCom (which implicated auditors) and the enactment of Sarbanes-Oxley, auditors have, if anything, been requesting more detailed information from outside counsel regarding significant pending or potential litigation that the company is facing.[FOOTNOTE 1] When faced with these requests from their auditors, companies and their counsel find themselves in a difficult situation. On the one hand, if the company and its outside counsel do not provide information necessary to satisfy the auditor, the company runs the unacceptable risk that the auditor will refuse to render an opinion concerning the financial statements. On the other hand, broad disclosure of information concerning litigation, including the company’s assessments of its litigation risks, creates its own set of problems — as the company may end up waiving otherwise applicable privileges, thereby providing plaintiffs with information potentially damaging to the company.


The question of whether privilege is waived when information relating to litigation assessments is disclosed to outside auditors is one without a clear answer under existing case law. As an initial matter, such information may be protected from disclosure by both the attorney-client privilege and the work-product doctrine. However, to the extent that the information is subject to the attorney-client privilege, that privilege usually is deemed waived when such materials are shared with a third party for purposes unrelated to the rendition of legal advice. See, e.g., U.S. v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961). In contrast, work-product protection is not necessarily waived simply because disclosure has been made to a third party.


The courts are split as to whether disclosing work-product material to a company’s auditors constitutes a waiver of work-product protection. In general, courts find waiver of work-product protection to have occurred only when the disclosure to a third party “substantially increases the opportunity for potential adversaries to obtain the information.” In re Pfizer, Inc. Securities Litigation, No. 90 Civ. 1260, 1993 WL 561125, at

*6 (S.D.N.Y. Dec. 23, 1993); see also United States v. MIT, 129 F.3d 681, 687 (1st Cir. 1997) (stating that “work product protection is provided against ‘adversaries,’ so only disclosing material in a way inconsistent with keeping it from an adversary waives work product protection”). Thus, in analyzing whether disclosure of otherwise protected information to auditors has resulted in a waiver, courts have considered whether such disclosure is of the type that “substantially increases the opportunity for potential adversaries to obtain” the information or is otherwise inconsistent with keeping it from an adversary. On that question, courts have come out both ways.


For example, in Medinol, Ltd. v. Boston Scientific Corp., 214 F.R.D. 113 (S.D.N.Y. 2002), Southern District of New York Judge Alvin Hellerstein held that Boston Scientific had waived work-product protection over board meeting minutes that reflected the substance of an investigation performed by outside counsel when Boston Scientific disclosed those meeting minutes to its outside auditors for purposes of analyzing litigation reserves. That decision was based on the finding that Boston Scientific and its independent auditors were adversarial to one another because “as has become crystal clear in the face of the many accounting scandals that have arisen of late, in order for auditors to properly do their job, they must not share a common interest with the companies they audit.” Id. at 116 (emphasis in original). Because Hellerstein viewed auditors as adversarial to the company, he concluded that disclosure, by definition, made it more likely that the information could be obtained by potential adversaries. This result has been reached by at least one other district court. See In re Raytheon Sec. Litig., 218 F.R.D. 354 (D.

Mass. 2003).


In contrast, in Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 229 F.R.D. 441 (S.D.N.Y. 2004), Southern District of New York Judge Harold Baer determined that Merrill Lynch’s auditors were neither adversaries nor conduits to a potential adversary and, accordingly, disclosure to those auditors of reports that were the result of an investigation undertaken by Merrill Lynch’s counsel did not result in a waiver of the work-product privilege that had attached to those reports. Indeed, Baer took the position that “[a] business and its auditor can and should be aligned insofar as they both seek to prevent, detect, and root out corporate fraud.” Id. at 448.


While the majority of cases seems to follow Baer’s rationale, see, e.g., In re JDS Uniphase Corp. Sec. Litig., No. C-02-1486, 2006 WL 2850049 (N.D. Cal. Oct. 5, 2006); International Design Concepts, Inc. v. Saks Incorporated, No. 05 Civ. 4754, 2006 WL 1564684 (S.D.N.Y. June 6, 2006); American Steamship Owners Mut. Prot. and Indem. Ass’n v. Alcoa Steamship Co., Inc., No. 04 Civ. 4309, 2006 WL 278131 (S.D.N.Y. Feb. 2, 2006); Lawrence E. Jaffe Pension Plan v. Household Intern., Inc., 237 F.R.D.

176 (N.D. Ill. 2006), at this point there is no consensus as to whether disclosure to auditors will waive work-product protection.


Notwithstanding the lack of clarity in the law, there are practical steps that can be taken to minimize the risk that sensitive information concerning litigation strategy will be required to be turned over to plaintiffs as a result of a response to an audit inquiry.


First, company counsel should work with the auditor to ascertain precisely what material the auditor needs, and engage in a “give and take.” Given the nature of the audit process, it may be possible to satisfy an audit inquiry with a response focused on the facts of the litigation rather than counsel’s particularized assessment of those facts. Because neither the attorney-client privilege nor the work-product doctrine protect facts from disclosure, potential damage may be limited by only disclosing facts.


Second, if an auditor does require more than the “facts” underlying a litigation, counsel should consider making an oral presentation to the auditors rather than providing the auditor with written materials. While the contents of such a meeting between counsel and the auditors might be required to be disclosed, a face-to-face environment should make it easier to limit the information that needs to be provided.


Third, if the auditor requires written information concerning inside or outside counsel’s evaluation of a litigation, counsel should be hesitant to create any documents for that purpose. The creation of documents for a meeting with auditors arguably means that those documents were not created “in anticipation of litigation,” and, therefore, are not subject to work-product protection in the first place. Thus, rather than creating documents for the purpose, if written materials need to be provided to the auditor, it may be better to supply pre-existing documents, especially if the documents are part of the “litigation record” in the case or otherwise of the type that would not cause problems if it ultimately ended up in the plaintiff’s possession.


Fourth, counsel should seek to get the auditor’s agreement that the information in question is being provided to the auditor under a strict pledge of confidentiality, for the limited purpose of the engagement. By doing so, counsel increases the likelihood that a court may find that disclosure to the auditor has not substantially increased the opportunity for potential adversaries to obtain the information.


Finally, despite any and all precautions taken, there can be no guarantees that the work-product protection will be maintained once information is presented to the auditor. Accordingly, counsel should do his or her utmost to supply information in a form that will satisfy the auditor while at the same time best protect the company’s interests in the event that any applicable work-product protection is ultimately deemed to have been waived.


Alan I. Raylesberg is a partner in and co-head of the commercial litigation group at Chadbourne & Parke LLP. Lawrence E. Buterman is a counsel in that group. They are reachable at 212-408-5100 or araylesberg@chadbourne.com and lbuterman@chadbourne.com




FN1 On June 5, 2008, the Financial Accounting Standards Board (“FASB”) issued an Exposure Draft of a Proposed Statement of Financial Accounting Standards relating to the Disclosure of Certain Loss Contingencies. See File Reference No. 1600-100. The Proposed Statement, if adopted, would amend FASB Statements No. 5 and 141(R) to require expanded disclosures in financial statements of pending or anticipated litigation. In turn, one can expect that, if adopted, the Proposed Statement will result in auditors demanding even more detailed information regarding litigation exposures in order to opine on a company’s financial statements.



AG Mukasey Hints at Revision of McNulty Memo, Spars With Senators at Hearing

Pedro Ruz Gutierrez
Legal Times

Wednesday morning’s oversight hearing of the Justice Department by the Senate Judiciary Committee got off to a contentious start between Attorney General Michael Mukasey and the committee’s top senators.

And then Mukasey dropped the bombshell: The so-called McNulty memorandum may be revised and is likely to be replaced by a new set of guidelines for the handling of attorney-client privilege in corporate fraud investigations.

Responding to Sen. Arlen Specter, R-Pa., the ranking minority member, Mukasey revealed that Deputy Attorney General Mark Filip is drafting a letter to Specter addressing “real significant proposed changes” that could replace the policy named after former Deputy Attorney General Paul McNulty.

“There’s no such as thing as a memo that achieves perfection. … There are adjustments in the McNulty memo that can and will be made,” Mukasey said. “In particular, we will no longer measure cooperation by waiver of the attorney-client privilege.”

Mukasey said Filip’s letter can be used to discuss changes “that may very well produce a memorandum in short order.”

Specter, the lead sponsor of a bill in the Senate to modify the McNulty guidelines, had asked Mukasey what justified “coercing a waiver of the attorney-client privilege” and whether legislation is necessary.

The McNulty memo, which addresses how prosecutors should treat suspected corporate wrongdoers and their invocation of the privilege, is one of several in a succession of Justice directives that have been criticized as far-reaching and unfair to corporations.

Last month, Mukasey hinted that the memo could be tweaked.

Earlier Wednesday, at the outset of the question and answer session, Sen. Patrick Leahy, D-Vt., the committee’s chairman, accused Mukasey of failing to keep his promise, made last fall, to review all controversial
legal opinions by the department’s Office of Legal Counsel issued in recent years.

“Why have you done that?” Leahy asked bluntly.

“Respectfully, I don’t think I’ve gone back on my word,” Mukasey said. Mukasey went on to say that he has reviewed “all significant OLC memos,” some of which have been made available to the judiciary and intelligence
panels in Congress.

Leahy quickly interjected: “I beg to differ with you a little bit. … Simply reviewing the current [opinions], I don’t think is enough.” Leahy explained that revisiting past legal memos on executive powers would help the committee.

“I can’t make a commitment to open up drawers of OLC and make them available to this committee,” Mukasey shot back.

Leahy next suggested Mukasey make a list available of the memos he chose not to review. The attorney general was not swayed: “For me to give an index of all OLC memos, I don’t know that it would serve anybody’s interests.”

Frustrated, Leahy ended his questioning: “Your answer is, ‘No.'”

Mukasey responded: “My answer is qualified.”

Backers Expect Attorney-Client Privilege Bill to Pass


Zach Lowe

The American Lawyer



A bill that would protect attorney-client privilege during federal investigations of corporations gained another major supporter Tuesday when Sen. Jim Webb, D-Va., added his name to the sponsors list.


The bill, which passed the House of Representatives on voice vote, now has the backing of a dozen high-profile senators, 32 former federal prosecutors and a diverse coalition of organizations that includes the American Civil Liberties Union and the Chamber of Commerce, says Susan Hackett, senior vice president and general counsel for the Association of Corporate Counsel.


Hackett is one of several key people who helped draft the legislation last year, and those supporters say they expect the bill to pass easily if the Senate Judiciary Committee votes it out before the Senate’s summer recess.


That it has so much momentum is something of its surprise, even to its supporters, since it emerged from a climate of intense scrutiny of white-collar crime.


“There were a lot of detractors when we first came out with this bill,”

Hackett says. “But this is not a pro-company bill. This is about the fundamental premise upon which all legal counseling is based. We are very pleased with the progress we’ve made.”


The bill would make it illegal for federal prosecutors to order companies to turn over privileged documents as a condition of a cooperating agreement. That has been a popular tactic to get access to the juicy stuff, but it’s already happening less because of the disastrous KPMG tax shelter case, says William Sullivan, a Winston & Strawn partner and former federal prosecutor who spoke at a panel discussion during ALM’s Corporate Counsel Conference earlier this month [ALM is the parent company of The Am Law Daily and The American Lawyer].


In the KPMG case, a federal judge tossed out indictments against several individual defendants after learning that prosecutors banned KPMG from paying their legal fees — a condition the judge considered onerous.


Still, the concern is there. The bill, called the Attorney-Client Privilege Protection Act, would revise the so-called McNulty Memorandum, named for former deputy attorney general Paul McNulty, who wrote the memo. McNulty came up with guidelines purportedly limiting a prosecutor’s right to demand privileged information from companies seeking a plea deal or a deferred prosecution agreement.


The defense bar believed the guidelines did not go far enough; McNulty was actually softening earlier guidelines by former Deputy Attorney General Larry Thompson. The bill would replace those guidelines by simply making the practice illegal.


Sullivan, for one, would like to see the proposed bill go further by calling for penalties for prosecutors found to be in violation.


The bill’s authors thought about that clause but decided against it, says Stephanie Martz, director of the National Association of Criminal Defense Lawyer’s White Collar Crime Project and a major supporter of the bill.


Martz expects the bill to pass whether the Senate gets to it now or under the next president. “There’s no logical reason it shouldn’t pass,”

she says. “We haven’t run into any opposition except from U.S.

Department of Justice officials. It’s not going to matter who the president is.”



Electronic Communications Preservation Act — Government’s Attempt to Tame Electronically Stored Information

Finding “what you need when you need it” sounds simple enough, but the dramatic explosion of electronically stored information generated worldwide over the last few years has left individuals, business organizations, and even governments seriously challenged with knowledge management. 

To find what one needs when one needs it, we first must determine what we don’t need and establish a regular and secure process for disposing obsolete information.  I just cleaned my desk this morning, but the amount of time and thought required to clear my inbox or those thousand or so sent messages, is a different proposition altogether.

In the most recent attempt to tame the ESI beast, Congress has proposed a new piece of legislation intended to perserve important emails needed for historical purposes.  The Electronic Communications Preservation Act, introduced by House Democrats, is intended to address the recent problem with missing emails and backup tapes from the Bush Administration.  NARA has concerns with the bill, however, and the Justice Department has its own set of issues relative to legal and regulatory preservation matters.  Congress would be well served in leveraging the substantial expertise NARA and the private sector have to offer in this area.  Taming the ESI beast is not something anyone has achieved with a great deal of success, to date, but it is clearly a major risk area that organizations and governments will need to address and mitigate for many years to come.

For more on this story, see FCW.com.

White House Admits Recycling Tapes, Hedges on Missing E-Mail

By Chris Maxcer
E-Commerce Times
Part of the ECT News Network  

Conflict is igniting over official White House e-mails that some say have gone missing, though the Bush administration has officially denied that there is any reason to believe any have been lost. Others contend that the White House is well aware that e-mail for some executive offices of the President was not archived for up to 473 days. Rep. Henry Waxman has called for a hearing.

There are conflicting reports coming out of Washington surrounding missing White House e-mails as well as conflicting statements coming from the White House press room. A hearing has been scheduled by Democratic Calif. Rep. Henry Waxman to investigate comments from White House spokesperson Tony Fratto asserting that he had no reason to believe any e-mails are missing.

Meanwhile, a White House chart that was used behind closed doors reportedly showed that e-mail  for some executive offices of the President was not archived on 473 days.

The public learned of the chart when it was noted in a White House declaration filed Tuesday in response to lawsuits started by Citizens for Responsibility and Ethics in Washington (CREW) and the National Security Archive, an independent, non-government research organization. In this case, Magistrate Judge John Facciola issued an order earlier this month that required the White House to answer four questions concerning back-up copies of the millions of e-mails apparently missing from White House servers.

In addition, the court-ordered declaration revealed that the White House routinely recycled its backup tapes of e-mail before October 2003, which means that e-mails between White House officials surrounding possible discussions about leaking a CIA officer’s identity to reporters may be forever erased.

For more see Tech News World.