United States: Disclosure of Privileged Communications and Work Product to Regulators

Last Updated: June 28 2004
Article by Alexander Y. Thomas

Once it has waived the privilege and work product shield as to the OCC, a Bank may be precluded from asserting those protections against adversaries in downstream or collateral disputes involving the Bank and private litigants.

This article presents a brief analysis of the legal implications of revealing to federal bank regulators information internal to a Bank and otherwise protected by the attorney-client privilege (the "privilege") or the work product doctrine. The question of disclosure to regulators, in particular the Office of Comptroller of the Currency ("OCC"), presents not just legal issues, but, given the OCC’s comprehensive and routine examination authority, practical concerns regarding the Bank’s ongoing relationship with its regulators. However, the consequences of disclosure can be serious, and may include a Bank’s permanent waiver of the protections of the privilege and work product doctrine—a waiver that can extend to the entire subject matter of the disclosed materials. Once it has waived the privilege and work product shield as to the OCC, a Bank may be precluded from asserting those protections against adversaries in downstream or collateral disputes involving the Bank and private litigants.

The impact of disclosure on the privilege and the work product doctrine differs slightly, though materially. We have treated the two protections separately.1

Effect of Disclosure on the Privilege

The general rule is that voluntary disclosure of confidential, attorneyclient communications to any stranger to the attorney-client relationship results in a waiver of the privilege, and that once waived as to one party, the privilege is waived en toto. This rule applies to disclosures to government agencies, unless the disclosure is involuntary; i.e. court ordered. The tension between the desire to cooperate with government regulators/ enforcers and the desire to safeguard the privilege has produced considerable recent case law concerning the effect of voluntary disclosures. A majority of courts reject the notion that a party may, without working a waiver, selectively disclose privileged information to the government even if the disclosure is accompanied by an agreement that the government will keep the information confidential. As one court recently put it:

The attorney-client privilege was never designed to protect conversations between a client and the Government—i.e., an adverse party—rather, it pertains only to conversations between the client and his or her attorney…[A]ny form of selective waiver, even that which stems from a confidentiality agreement, transforms the attorney- client privilege into merely another brush on an attorney’s palate, utilized and manipulated to gain tactical or strategic advantage …The client cannot be permitted to…invoke the privilege as to communications whose confidentiality he has already compromised for his own benefit.2

Among federal courts of appeal, only the Eighth Circuit has expressly embraced the notion of selective waiver, permitting a litigant who has disclosed privileged information to one party to continue asserting the privilege against other parties.3

The question of whether the privilege has been waived does not turn on whether the government and the disclosing party are adversaries. In other words, disclosure of privileged material in the course of routine examinations, such as those conducted by the OCC, works a waiver of the privilege to no lesser extent than if the government request is unquestionably adversarial, such as in the form of a subpoena.4 Moreover, courts generally take the view that disclosures to regulators with enforcement authority, such as the OCC, are voluntary, and not compelled, inasmuch as the disclosing party has voluntarily pursued the line of business that subjected it to regulatory review. For example, the First Circuit flatly rejected a claim by Massachusetts Institute of Technology that its production of privileged matters to an auditing arm of the Department of Defense was involuntary. "…MIT’s disclosure to the audit agency resulted from its own voluntary choice, even if that choice was made at the time it became a defense contractor and subjected itself to the alleged obligation of disclosure."5

The OCC’s rules of practice and procedure for the agency’s enforcement actions recognize that the agency is not entitled to discover privileged material.

Privileged Matter. Privileged documents are not discoverable. Privileges include the attorneyclient privilege, work-product privilege, any government’s or government agency’s deliberative process privilege, and any other privileges the Constitution, any applicable act of Congress, or the principles of common law provide.

12 C.F.R. §19.24(c). At least one federal court of appeals has recognized a party’s right to assert the privilege in response to an OCC administrative subpoena.6

In short, whether privileged communications are disclosed to the OCC during the course of the agency’s routine examination or its adversarial enforcement proceedings, such a disclosure will likely constitute a waiver of the privilege—a waiver that will preclude the party from making a subsequent claim of privilege as to the disclosed information.

Effect of Disclosure on the Work Product Doctrine

Waiver of the work product doctrine generally turns on whether the covered materials are disclosed to an adversary. 7 Courts consider disclosure of work product to an adversary to be inconsistent with the purpose of the doctrine and sufficient to work a waiver. Disclosures to a non-adversary are less likely to result in waiver.

Courts determine whether or not a government agency to which work product is revealed is an adversary based on the facts associated with the initial disclosure; there is, however, considerable guidance regarding the effect of work product disclosure to the OCC. The United States District Court for the Northern District of Illinois recently considered whether the work product doctrine protected documents created by Bank One in response to an investigation by the OCC.8 Prior to becoming a defendant in private class action securities litigation, Bank One responded to an administrative order from the OCC by producing documents that were otherwise subject to a claim of work product protection. The court noted that the voluntary nature of the disclosure to the OCC was not dispositive of whether the protections of the work product doctrine had been waived; rather, the essential inquiry was whether Bank One and the OCC were adversaries at the time of the disclosure. Because "[t]he OCC targeted Bank One for an investigation due to the questionable practices adopted by Bank One," the parties were indeed adversaries and Bank One’s disclosure of work product waived the protections of the doctrine.9

Some courts give exceptionally broad meaning to the term "adversary," as applied to government entities to which work product is disclosed.

The issue of whether a waiver has occurred has frequently arisen when disclosure of work product is made to a governmental authority— usually a law enforcement agency. A waiver will be found if the governmental agency was an adversary, a "potential adversary" or even just "stood in an adversarial position" with respect to the disclosing party… In other instances, the issue is decided based on whether the disclosure to the governmental agency would "materially" or "substantially" increase the likelihood that the disclosing party’s adversary would obtain the information— regardless of whether the governmental agency was itself in an adversarial position to the disclosing party.10

Accordingly, disclosure of work product to the OCC, acting in a nonenforcement, regulatory capacity, will likely work a waiver if the materials (1) reveal some basis for an enforcement action by the OCC or (2) provide the disclosing party’s adversary with ready access to the materials through discovery or third-party subpoena. Since the work product doctrine only comes into play if a party is in anticipation of litigation, and given the fact that, even in carrying out routine examination functions, the OCC is at least a "potential adversary" to the regulated entity, we believe in most instances disclosure of work product to the OCC will work a waiver.

The federal banking agencies long have recognized the difficulties created by waiver of the privilege and the work product doctrine, especially its potential for undermining the open exchange of information essential to their supervisory mission. Therefore, they have taken a keen interest in Section 4 of H.R. 2179, the regulatory relief bill now before Congress. That provision would prevent waiver of the privilege and work product doctrine regarding any information a company discloses to the SEC pursuant to a confidentiality agreement:

AUTHORITY TO ACCEPT PRIVILEGED AND PROTECTED INFORMATION—Notwithstanding any other provision of law, whenever the [SEC] and any person agree in writing to terms pursuant to which such person will produce or disclose to the [SEC] any document or information that is subject to any Federal or State law privilege, or to the protection provided by the work product doctrine, such production or disclosure shall not constitute a waiver of the privilege or protection as to any person other than the Commission.

In effect, the proposed legislation would codify the rule of selective waiver adopted by a minority of federal courts.11 In a concerted effort, federal banking agencies are seeking to expand Section 4 to cover information disclosed by banks to their regulators.

Footnotes

1 We have focused this analysis on federal law regarding the privilege, the work product doctrine, and waiver. We note, however, that state law on those matters differs from state to state and will be applied pursuant to the choice of law rules applicable in a state court action, or an action in federal court founded on diversity jurisdiction.

2 In Re Columbia/HCA Healthcare Corp., 293 F.3d 289, 302-303 (6th Cir. 2002) (finding waiver of privilege based on healthcare corporation’s voluntary disclosures to SEC) (citations and quotations omitted); see The Periman Corp. v. United States, 665 F.2d 1214, 1220-21 (D.C. Cir. 1981) ("Voluntary cooperation with government investigations may be a laudable activity, but it is hard to understand how such conduct improves the attorney-client relationship. If the client feels the need to keep his communications with his attorney confidential, he is free to do so under the traditional rule by consistently asserting the privilege, even when the discovery request comes from a ‘friendly’ agency.")

3 See Diversified Ind. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978).

4 See U.S. v. Massachusetts Instit. of Technology, 129 F.3d 681 (1st Cir. 1997) (finding that MIT’s disclosure of privileged material to the Defense Contract Audit Agency conducting routine audit for DOD was sufficient to work a waiver; compelling production of records to IRS).

5 Id., at 687.

6 Clarke v. American Commerce National Bank, 974 F.2d 127 (9th Cir. 1992) (evaluating defendant’s refusal to produce billing records based on attorney-client privilege; rejecting same on merits of privilege argument).

7 See Bank of America, N.A. v. Terra Nova Insurance Co., 212 F.R.D. 166, 170 (S.D.N.Y. 2002); MIT, 129 F.3d at 687. Note that before a court conducts a waiver analysis it will first determine whether information claimed to be work product meets the applicable requirements under Fed. R. Civ. P. 26, including, as a threshold matter, that the information has been prepared in anticipation of litigation.

8 In Re Bank One Securities Litigation, 209 F.R.D. 418 (2002).

9 Id., at 424.

10 Bank of America, 212 F.R.D. at 170.

11 See e.g., Diversified Ind., 572 F.2d at 611

This article is presented for informational purposes only and is not intended to constitute legal advice.

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