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Practising Law Institute
Corporate Law and Practice Course Handbook Series
PLI Order No. 6063
November, 2005
37th Annual Institute on Securities Regulation
*579 DOCUMENT PRESERVATION AND PRODUCTION IN CONNECTION WITH SECURITIES AND
EXCHANGE COMMISSION INVESTIGATIONS AND ENFORCEMENT ACTIONS
Stephen M. Cutler
Laurie M. Stegman
Paul M. Helms
Copyright (c) 2005 Practising Law Institute; Stephen M. Cutler, Laurie M.
Stegman and Paul M. Helms
Stephen Cutler and Laurie Stegman are partners, and Paul Helms is an associate, at the law firm Wilmer Cutler
Pickering Hale and Dorr LLP.
*581 Table of Contents
I. INTRODUCTION
II. RETENTION AND PRESERVATION
A. No General Duty to Preserve
B. Document Preservation in Civil Cases
C. Statutory and Regulatory Duty to Preserve
D. Criminal Obstruction Law
E. Retention Mechanics
III. PRODUCTION
A. Withholding Documents
1. Fifth Amendment Concerns
2. Privilege and Work Product
B. Staff Expectations in Connection with Production
IV. CONCLUSION
*583 I. INTRODUCTION
An understanding of the document preservation and production obligations of an entity subject to a Securities and
Exchange Commission inquiry or investigation can reduce exposure to substantial sanctions. Before an inquiry is
initiated, a company may have several reasons for developing a document retention policy addressing the retention
or disposal of various categories of documents. Statutes and regulations, contractual provisions, and general business
practices contribute to the formation and shape of such policies. Upon knowledge or reasonable anticipation of an
investigation about which an entity may have relevant evidence, however, an entity should consider whether
modification or suspension of its policy is required to avoid violating a duty to retain documents. When producing
these documents, the entity should consider SEC Staff expectations concerning cooperation, timing, and format,
including the effect of voluntarily producing privileged material and work product.
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II. RETENTION AND PRESERVATION
Once an SEC investigation has begun, an entity's decision to destroy or to fail to retain documents can have
significant consequences. An entity served with a subpoena has a clear duty to preserve documents. So, too, does the
initiation of an informal inquiry trigger a duty to preserve documents. And, recent developments in the context of
civil litigation suggest that a similar duty may even precede the first call from a regulator. These developments give
rise to the need to consider retaining documents prior to the initiation of an inquiry. Moreover, amendments to the
criminal obstruction laws have expanded the consequences for document destruction in anticipation of an SEC
inquiry.
A. No General Duty to Preserve
Absent some statutory or regulatory requirement (such as Section 17(a) of the Securities Exchange Act and the
rules promulgated thereunder, which require broker-dealers to maintain certain documents for specified periods), a
company has no general duty to retain or to preserve documents that may later be relevant to a hypothetical
investigation. As the Supreme Court stated in Arthur Andersen LLP v. United States, "[i]t is, of course, not
wrongful. . .to comply with a valid document retention policy under normal circumstances." [FN1]
*584 B. Document Preservation in Civil Cases
Until the SEC addresses the question of when the duty to retain documents attaches, principles articulated in
civil litigation offer relevant guidance on this issue. In the litigation context, a litigating party that fails to meet its
obligation can be sanctioned for spoliation of evidence. "Spoliation refers to the destruction or material alteration of
evidence or to the failure to preserve property for another's use as evidence in pending or reasonably foreseeable
litigation." [FN2] It is clear that a party has notice of litigation upon the filing of the complaint, at the latest. [FN3]
However, a party also has a duty to preserve documents when the litigation is reasonably foreseeable. "The requisite
knowledge for imposing sanctions. . .is not the 'potential' for litigation, but [its] 'contemplation' or 'anticipation. . . ."'
[FN4] Thus, courts have held that corporations should have retained documents upon receiving a report of the
conduct underlying a potential claim [FN5] and -- perhaps relevant to the independent investigation context -- once
attorneys or experts have been retained in anticipation of a suit. [FN6]
A case decided by the Eighth Circuit Court of Appeals is illustrative. In Stevenson v. Union Pacific Railroad
Co., the court of appeals found that a railroad company's post-accident destruction of voice tapes recording crew
conversations, pursuant to an otherwise reasonable retention policy, justified sanctions. [FN7] The company had
followed its policy notwithstanding its general knowledge that such tapes would be important to litigation
concerning an accident that resulted in serious injury or death and its knowledge that litigation frequently followed
such accidents. [FN8] According to the court, the pre-litigation destruction of these tapes pursuant to the company's
tape-recycling *585 policy in those circumstances violated the duty to preserve and justified the district court's
adverse inference jury instruction. [FN9] The court of appeals distinguished track inspection records that the
company destroyed pursuant to a separate retention policy. [FN10] Until the company received the specific
document request for track records, it did not have a duty to preserve because the company did not know these
records would relate to an issue in the case. [FN11] After the company received the request, it could not, however,
continue destroying any relevant records, even according to an otherwise reasonable retention policy. [FN12]
Similarly, in Kronisch v. United States, the Second Circuit Court of Appeals found that litigation was reasonably
foreseeable based upon the possibility that the defendants feared the litigation at the time of the spoliation. [FN13]
In 1975, a select Senate committee was convened to investigate various Central Intelligence Agency activities,
including the testing and use of chemical and biological agents by the intelligence community. [FN14] Believing
himself to have been exposed to this testing, the plaintiff Stanley Glickman brought suit against two officials of the
CIA, Sidney Gottlieb and Richard Helms, and the United States. [FN15] In 1973, two years prior to the inception of
the Senate investigation, Gottlieb and Helms ordered the destruction of all documents related to the testing. [FN16]
Gottlieb testified during Senate hearings that he had ordered the files destroyed for three reasons: to hide the
identities of researchers who had assisted the CIA, to prevent the records (many of which were incomplete) from
being misunderstood after he and others who were most familiar with the program retired, and as part of a CIA *586
effort to reduce the amount of paper stored. [FN17] When determining whether the defendants had violated a duty to
preserve documents pertinent to the Glickman litigation, the court rejected the argument that no duty attached
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simply because no litigation, administrative action, or congressional investigation had commenced. [FN18] Instead,
it reasoned that the jury could reasonably determine that the defendants violated the duty because the defendants
feared the prospect of litigation against them individually and that this prospect may have played a role in their
decision to order the destruction of the pertinent files. [FN19]
Once the duty to preserve has been breached, the state of mind and prejudice to the defendant together dictate
the level of sanctions. [FN20] Intentional destruction of documents, even pursuant to an existing document retention
and disposal policy, following notice or reasonable anticipation of the litigation can result in, inter alia, an adverse
evidentiary instruction to the jury [FN21] -- a potentially devastating development for a litigant. [FN22] Other
sanctions include dismissal of a claim or judgment in favor of the prejudiced party; suppression of evidence; fines;
and attorneys' fees and costs. [FN23] Negligent destruction, when the destruction prejudices the opposing party, can
also lead to court sanctions. [FN24]
C. Statutory and Regulatory Duty to Preserve
In the civil context, the violation of recordkeeping requirements imposed by regulation or by statute can give
rise to an inference of spoliation. *587 The Second Circuit Court of Appeals concluded that an employer had a duty
to preserve documents when it received notice of *588 a complaint filed with the Connecticut Commission on
Human Rights and Opportunities. [FN25] Moreover, the court stated that the employer's duty arguably predated the
filing of the complaint when it received a Freedom of Information Act request soliciting materials related to the
hiring process and after the employee had expressed concerns about the hiring process and requested copies of
interview questions. [FN26] The court ultimately rested the inference of spoliation on another ground: the defendant
board of education had destroyed the personnel records relevant to the case pursuant to a normal policy of the
company even though the company was required by federal regulations to retain the documents for a period of two
years. [FN27] "[U]nder some circumstances, such a regulation can create the requisite obligation to retain records,
even if litigation involving the records is not reasonably foreseeable." [FN28] For such a duty to attach, the party
seeking the records must be a member of the class that the rules are intended to protect. [FN29]
Similarly, in a recent SEC enforcement action, the failure of a broker-dealer to retain required records resulted in
a $10 million penalty when the failures impeded the investigation of improper trading. [FN30] During the
investigation, the broker-dealer, Banc of America Securities, failed in a timely manner 1) to produce electronic mail,
including a particular chain that the company knew to be relevant; 2) to produce certain compliance reviews; and 3)
to produce compliance and supervision records concerning the personal trading activities of a former senior
employee. [FN31] The SEC reasoned that these failures "impeded the Commission's ability to discharge its
investigative and law enforcement activities." [FN32] It further stated that the Commission's authority to examine a
registered broker-dealer's books and records is "unconditional, subject only to the requirement that any such
examination be reasonable." [FN33] Failure to preserve or promptly to produce documents *589 subject to the
Section 17 requirements following a request constitutes a willful violation of Section 17. [FN34] Pursuant to a
settlement, Banc of America agreed to a cease-and-desist order, a censure, and payment of a $10 million civil
penalty. [FN35]
Coordinating with the U.S. Attorney's Office, the SEC has brought charges against auditors for destroying
workpapers in contravention of recordkeeping obligations. [FN36] During an examination by the Office of
Comptroller of the Currency, Thomas Trauger, assisted by Michael Mullen and Oliver Flanagan, all of whom were
auditors of a publicly traded company, allegedly destroyed, altered, and falsified hard and electronic copies of audit
workpapers. [FN37] The documents were destroyed after the workpapers had been completed and during an OCC
examination of the public company's subsidiary. [FN38] Trauger also participated in the collection and production
of altered workpapers to the OCC, pursuant to a subpoena directed to him. [FN39] Trauger then concealed the
alteration and destruction of documents during sworn testimony to the SEC when questioned about his role in the
production to the OCC. [FN40] In the SEC order instituting administrative proceedings, the Division of
Enforcement sought an order denying all three auditors the privilege of appearing or practicing before the SEC,
while the U.S. Attorney's Office brought criminal obstruction charges against Trauger *590 and Mullen. [FN41]
Trauger and Mullen subsequently were barred from appearing or practicing before the Commission based on their
criminal convictions. Flannagan consented to an order barring him but permitting him to request reinstatement after
three years. In announcing this case, the SEC Staff signaled its intent to continue to pursue vigorously auditors who
alter or destroy workpapers or who otherwise undermine the financial reporting process. [FN42]
D. Criminal Obstruction Law
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Criminal obstruction law should also inform decisions to preserve or to destroy documents. Recent amendments
to Title 18 expanded the scope of and penalties under the obstruction law. Sections 1503, 1505, 1512, 1519, and
1520 introduce significant risk to the decision to dispose of documents at any stage of an SEC investigation. [FN43]
[ ] Sections 1503 and 1505 prohibit the destruction of documents in connection with pending judicial,
agency, and congressional proceedings. [FN44] Pursuant to this section, an individual or entity can be prosecuted for
destruction of documents with mere knowledge of the proceedings; receipt of the subpoena is not required.
[ ] In addition to assigning criminal liability to tampering with witnesses, victims, or informants, Congress
passed Section 1512 to address document destruction or alteration when done to withhold a document or to render it
unavailable for use in an official proceeding. [FN45] Although this section was originally designed to apply to
individuals who persuaded another to destroy documents, Congress recently amended the language to apply to the
*591 individual who actually participates in the destruction. Unlike Sections 1503 and 1505, a proceeding does not
need to be pending.
[ ] In Section 1519, Congress expressly expanded the reach of the obstruction laws to federal
investigations. [FN46] This section provides a maximum sentence of twenty years for destruction,
alteration, or falsification of records with the intent to obstruct the investigation or proper administration of
any matter within the jurisdiction of the SEC. Congress designed this section to overcome distinctions
based upon the stage of the proceedings or the timing of the destruction relative the inception of the
proceedings. [ ] Section 1520 penalizes destruction of audit records. [FN47] This section requires the
retention of audit workpapers for five years and imposes a maximum ten-year sentence for the willful
failure to preserve these documents.
*592 The severity of these penalties is rivaled by the impact of a criminal indictment of a business entity in
the marketplace. The recent indictment and conviction of Arthur Andersen, notwithstanding the subsequent
reversal of its conviction, [FN48] is instructive.
Recent cases highlight the willingness of the SEC to refer matters for criminal prosecution when documents
requested in a subpoena have been destroyed or altered. For example, in 2003, the SEC filed a complaint
against Scott Miller, a senior vice president of finance and chief accounting officer of a
business-to-business internet company, alleging accounting fraud and document destruction. [FN49] In
addition to participating in the fraud, Miller withheld, destroyed, and attempted to destroy several
documents and electronic files after receiving a subpoena for the material. [FN50] In the SEC action, Miller
consented to an injunction, a permanent officer-and-director bar, and disgorgement of $100,000 in bonuses
received during the period in question. [FN51] The Department of Justice and the U.S. Attorney's Office
for the Eastern District of Virginia subsequently filed obstruction charges against Miller. [FN52]
*593 E. Retention Mechanics
Given the myriad ways in which a firm can be penalized, an entity should carefully consider halting disposal of
documents, including the overwriting of backup tapes, [FN53] upon reasonable anticipation of an investigation.
[FN54] The interruption of the customary document retention policy need only last long enough to determine the
sources most likely to possess or to house relevant documents. Taking cues from the Zubulake decision, a party
should consider interviewing management and information-technology staff, as well as key players, concerning the
official and, if different, the actual document retention policy. Absent a particular obligation to maintain the
confidentiality of a proceeding, notice of the investigation should be sent to all individuals who are likely to have or
to generate relevant documents. A company should also consider archived documents (which may be subject to
independent document retention policies) and documents in the hands of another party but under its control.
Although not always practicable, it is sensible to consult the Staff concerning the proposed list of names or search
terms used to identify potentially relevant documents. Of course, such consultation is not possible prior to the initial
contact by the Staff. In such cases, it is probably advisable to follow the procedures suggested in Zubulake for
implementing retention prior to the discovery conference, i.e., to retain documents and backup tapes for relevant
personnel, to catalog documents later created by these personnel *594 in a separate electronic file, and to create a
mirror-image of the computer system at the time the duty to preserve attaches. [FN55]
If a decision is made to conduct an internal investigation, the company and its employees should be careful to
maintain the integrity of documents requested by the investigators. The SEC has signaled a willingness not only to
protect the integrity of its own investigations, but the integrity of the internal investigations that indirectly support its
work. In a case brought against Symbol Technology and eleven former officers of the company, the SEC alleged
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that the defendants had engaged in fraudulent schemes to inflate revenue, earnings, and other financial performance
measures. [FN56] The SEC further alleged that one former officer delayed the Commission's investigations by
ordering subordinates to discard copies of incriminating documents after the investigation had begun. [FN57]
Another former officer allegedly altered revenue recognition data provided to forensic accountants engaged in an
internal inquiry, instructed subordinates to withhold information from internal investigators, and directed employees
to sanitize portions of schedules delivered to the investigators. [FN58] For this and other conduct, *595 the
Commission sought injunctions, disgorgement, civil monetary penalties, and officer-and-director bars. [FN59]
Symbol agreed to settle the case without admitting or denying the allegations. As part of the settlement, Symbol
agreed to pay a $37 million penalty for its conduct. In announcing the case, the Commission noted that the penalty
amount was based upon, among other factors, the company's efforts to conceal the misconduct and to impede two
internal investigations and the Commission's investigation. [FN60]
The attorney and client have a continuing duty to maintain the "document hold" described above throughout an
investigation. Indeed, given the risks involved, one commentator has suggested that documents be held until specific
instructions are received from the Staff that the documents are no longer necessary. [FN61] In the event such an
instruction is given, the company must evaluate the requirements of subsequent private litigation or criminal action.
Assuming that such matters are not pending or anticipated, the company should then proceed with its regular
retention and disposal practices.
III. PRODUCTION
The ability to meet Staff expectations concerning cooperation, timing, and format during the document production
process can significantly affect the outcome of an investigation. [FN62] A well-executed production can build
credibility and goodwill with the Staff. A poorly managed production, on the other hand, can result in deleterious
consequences: larger penalties; exposure to secondary, including criminal, investigations; and business losses
attributed to prolonged distraction and loss of confidence in the marketplace. For example, following an
investigation into disclosures made during a takeover battle, Wachovia recently agreed to pay a $37 million penalty,
which was based in part upon the company's failure to meet its legal obligations in the course of the SEC's
investigation. [FN63] As the Commission explained,
*596 during the course of the SEC staff's investigation into this matter, Wachovia provided incomplete and
untimely document productions and failed to ensure comprehensive and complete responses to requests made and
subpoenas issued by the SEC staff. These production deficiencies and delays unnecessarily prolonged the SEC
staff's investigation. The Commission took this conduct into account in setting the penalty in this case. [FN64]
Before discussing other cases that concern production, it is useful to review some of the legitimate reasons not to
produce certain documents to the SEC.
A. Withholding Documents
A decision to retain and to preserve documents does not necessarily entail a decision to produce all such
documents.
1. Fifth Amendment Concerns
In relatively rare circumstances, it may be appropriate for the recipient of a voluntary request or subpoena
for documents from the SEC to consider the need to assert the Fifth Amendment privilege against self-incrimination.
In the corporate context, this claim may have limited utility, as the privilege generally does not extend to corporate
records. [FN65] During its investigation of the Enron matter, the SEC asserted its right to documents withheld by
the company's former chief executive officer, Kenneth Lay, notwithstanding Lay's assertion of the Fifth Amendment
privilege. [FN66]
2. Privilege and Work Product
An individual or entity responding to a document request or subpoena may elect to withhold documents on
the basis of the attorney-client privilege or the work product doctrine. Should the client determine to produce
privileged documents or material subject to work product protection, opponents in subsequent civil litigation may
*597 argue that the production effected a waiver. Courts have come to varying conclusions concerning the question
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of whether production of privileged documents or work product to the SEC waives these protections with respect to
all third parties.
The attorney-client privilege and work product doctrine are well established in the law. The privilege
applies to communications between privileged persons made in confidence for the purpose of seeking, obtaining, or
providing legal assistance to the client. [FN67]
The attorney-client privilege is the oldest of the privileges for confidential communications known to the
common law. Its purpose is to encourage full and frank communication between attorneys and their clients and
thereby promote broader public interests in the observance of law and administration of justice. The privilege
recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon
the lawyer's being fully informed by the client. [FN68]
The privilege extends to communications between an attorney for a corporation and employees of that
corporation during an internal investigation, when those communications are necessary to obtain legal advice.
[FN69] The work-product doctrine, articulated by the Supreme Court in Hickman v. Taylor [FN70] and codified in
the Rules of Civil Procedure, [FN71] protects the ability of the lawyer to "assemble information, sift what he
considers to be the relevant from the irrelevant facts, prepare his legal theories, and plan his strategy without undue
and needless interference." [FN72] Giving greater protection to the mental impressions, conclusions, opinions, and
legal theories of the attorney (also called opinion work product), [FN73] the federal rules protect disclosure of notes,
working papers, memoranda, or other materials prepared by an attorney in anticipation of litigation. [FN74]
*598 Once privileged documents or work product have been produced to the SEC, the corporation or
individual is exposed to the possibility that the privilege or work product protections of those documents, or even
documents related to the same subject matter as the disclosed materials, [FN75] have been waived. "Cases under
[the] 'waiver' heading include situations as divergent as an express and voluntary surrender of the privilege, partial
disclosure of a privileged document, selective disclosure to some outsiders but not all, and inadvertent overhearings
or disclosures." [FN76] Generally speaking, disclosure to the government and a later claim to the privilege in private
litigation raise a problem of selective waiver. [FN77] In recent amicus briefs, the Commission has disagreed with
this characterization of the issue. [FN78] The SEC instead contends that no waiver occurs when the privileged
documents and work product are produced to the Commission, if the production is made pursuant to a
confidentiality agreement. [FN79]
The case law concerning selective waiver is not settled. On balance, however, the courts of appeals tend to
hold that the attorney-client privilege and work-product protections are waived when a corporation or individual
voluntarily produces privileged documents or work product to the SEC or to the Department of Justice. These *599
courts seem more reluctant to reach this conclusion with respect to work product when a confidentiality agreement is
in place. [FN80] The First, Second, Third, Sixth, and D.C. Circuit Courts of Appeals have concluded that waiver to
the SEC during an investigation or enforcement inquiry effectuates a waiver of the privilege and work-product
protections as to other parties, while the Eighth Circuit Court of Appeals has concluded otherwise. [FN81]
[ ] In United States v. MIT, the Massachusetts Institute of Technology produced privileged documents to
the Department of Defense in connection with an audit of government contracts with the expectation that the
materials would be given confidential treatment. [FN82] Responding to a separate examination by the Internal
Revenue Service at a later date, MIT produced redacted versions of the same documents, claiming attorney-client
privilege and work-product protection. [FN83] The First Circuit Court of Appeals ruled that the disclosure to the
Department of Defense waived the privilege as to the IRS. [FN84] The court expressed concern that privilege law
would become more unpredictable and difficult to administer if the court departed from the general principle that
disclosure normally negates the privilege. [FN85] The court also rejected MIT's arguments that it shared a common
interest with the Department of Defense [FN86] or that its disclosure was, in a practical sense, not voluntary. [FN87]
After noting that work product was often given more protection than privileged documents, the court found that
"disclosure to an adversary, real or potential, forfeit[ed] work product protection." [FN88]
[ ] In Steinhardt Partners, the Second Circuit Court of Appeals found that voluntary disclosure of
documents to the SEC waived the attorney-client privilege and work-product protection *600 but reserved the
possibility that a confidentiality agreement with the government could preserve these protections. [FN89] Prior to a
civil class action alleging Steinhardt's manipulation of Treasury notes, the SEC Division of Enforcement, in
connection with a formal investigation of the matter, requested that Steinhardt's counsel submit a memorandum that
would address the facts and legal theories involved in the case. [FN90] Without obtaining a confidentiality
agreement, counsel agreed and submitted the memorandum with a notice reading "FOIA Confidential Treatment
Requested." [FN91] The court of appeals found that Steinhardt had voluntarily disclosed the memorandum to an
adversary. [FN92] With this disclosure, Steinhardt had waived the work-product protection. [FN93] In dicta, the
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court observed that it was not adopting a per se rule concerning waiver of work-product protection in similar
circumstances. [FN94]
*601 Establishing a rigid rule, [the court declared], would fail to anticipate situations in which the
disclosing party and the government may share a common interest in developing legal theories and analyzing
information, or situations in which the SEC and the disclosing party have entered into an explicit agreement that the
SEC will maintain the confidentiality of the disclosed materials. [FN95]
[ ] The Third Circuit Court of Appeals has also concluded that voluntary disclosure to the SEC (or to the
Department of Justice) during an investigation waives protection of the work-product doctrine. [FN96] Following
the inception of an SEC investigation into public charges that Westinghouse had procured a contract to build a
nuclear facility in the Philippines by bribing government officials, Westinghouse retained a law firm to conduct an
internal investigation. [FN97] The results of this internal investigation were reduced to two reports, one of which
was shared with the SEC without underlying documentation and pursuant to an agreement by the SEC not to retain
the report. [FN98] The company stated that it had an expectation that the SEC would maintain the confidentiality of
the report based upon regulations issued by the SEC at the time of the disclosure. [FN99] Pursuant to a
confidentiality agreement, Westinghouse also later shared with the Department of Justice the internal investigation
reports together with the underlying documentation. [FN100] After these disclosures, the Republic of the Philippines
sued Westinghouse for the fraudulent conduct and requested the *602 materials that had been disclosed to the SEC
and Department of Justice. [FN101] The court stated that permitting Westinghouse to disclose selectively to the
government would effectively recognize another exception to the waiver doctrine. [FN102] Declining to extend the
exceptions to the waiver doctrine, the court reasoned that selective waiver did not serve the purpose of encouraging
full disclosure to one's attorney to obtain legal advice. [FN103] The court also rejected Westinghouse's argument
that it did not waive the privilege and work-product protections because it reasonably expected the SEC and the
Department of Justice to maintain the confidentiality of the disclosures. [FN104] Although it simultaneously noted
the distinct purposes of the attorney-client privilege and the work-product doctrine, the court reached the same
conclusion with respect to the waiver of work product without significant modification of the reasoning. [FN105]
The disclosures were not made to further the underlying goal of the work-product doctrine; instead, the court
reasoned, a party disclosing protected materials to a government agency typically uses them to forestall prosecution
or to obtain lenient treatment. [FN106]
*603 [ ] The Sixth Circuit Court of Appeals has rejected the concept of selective waiver in the context of
disclosures to the government. [FN107] Although the court noted a distinction between the attorney-client
privilege and the work-product doctrine, it nevertheless held that neither could be selectively waived. [FN108] The
Department of Justice began investigating Colubmia/HCA Healthcare in the mid-1990s for Medicare and Medicaid
fraud. [FN109] In response, the company conducted internal audits of its patient records, which it later produced to
the Department of Justice pursuant to a confidentiality agreement. [FN110] After details and results of the
Department of Justice investigation were made public, several insurance companies and individuals sued
Columbia/HCA Healthcare alleging fraud in billing practices. [FN111] After reviewing several opinions, the Sixth
Circuit Court of Appeals rejected the concept of selective waiver on several grounds. [FN112] First, selective waiver
did not foster communication between a client and her attorney. [FN113] Second, the court of appeals reasoned that
it would be unfair to permit a corporate defendant to waive the privilege against the government only to assert the
privilege against later plaintiffs. [FN114] Third, the court worried that the selective waiver would have *604 no
"logical terminus," be difficult to administer, and introduce uncertainty into the law. [FN115]
[ ] In Diversified Industries, Inc. v. Meredith, the Eighth Circuit Court of Appeals held that a defendant
corporation did not waive its attorney-client privilege when a privileged internal investigation report was produced
voluntarily to the SEC. [FN116] In that case, the SEC initiated an investigation of Diversified Industries after
proxy-fight litigation revealed the existence of a "slush fund" used to bribe purchasing agents. [FN117] The board of
directors hired a law firm to conduct an internal investigation and then approved the production of the internal
investigation report to the SEC. [FN118] In subsequent litigation, the investigative report and other related materials
were requested during discovery. [FN119] The Eight Circuit Court of Appeals, sitting en banc, held that only a
selective waiver had occurred because Diversified had produced the documents in a "separate and nonpublic SEC
investigation." [FN120] The court reasoned that "[t]o hold otherwise [might] have the effect of thwarting the
developing procedure of corporations to employ independent outside counsel *605 to investigate and advise them in
order to protect stockholders, potential stockholders and customers." [FN121] It also observed that the litigants were
not foreclosed from obtaining the same information from nonprivileged sources. [FN122]
[ ] The D.C. Court of Appeals has rejected the selective waiver theory. [FN123] In Permian v. United
States, Occidental had engaged Mead in a takeover bid, which had resulted in litigation. [FN124] During the course
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of the litigation, the SEC initiated an informal investigation into various concerns raised by Mead's counsel.
[FN125] To avoid substantial delay in responding to the investigation, Occidental negotiated an arrangement with
the SEC whereby Mead would produce confidential documents directly to the Staff. [FN126] The documents
provided to the SEC, some of which were privileged and were work product, were stamped with a legend noting the
privileged and confidential nature of the documents and that no disclosure by the SEC could occur without notice to
the parties. [FN127] However, the parties did not enter an express confidentiality agreement. [FN128] After the
transaction was abandoned, the Department of Energy sought the documents from the SEC for use in an
investigation of Permian's compliance with petroleum pricing regulations. [FN129] Occidental objected to the
transfer. [FN130] The court found that the attorney-client privilege with respect to the disclosed documents had
been waived by the disclosure to the Commission. [FN131]
On balance, these decisions demonstrate the substantial risk that disclosure of privileged documents and work
product to the government will waive the protections as to third parties.
*606 B. Staff Expectations in Connection with Production
Recent cases highlight the Staff's expectations for the production process, particularly the interest of the Staff in
timely and complete production and the desire for candor. In 2004, the Commission imposed a $25 million penalty
for Lucent's lack of cooperation during an SEC investigation into improper revenue and income recognition.
[FN132] The SEC based Lucent's penalty for the failure to cooperate on several grounds. [FN133] During the
investigation, Lucent provided incomplete document production and produced documents after the testimony of
relevant witnesses. [FN134] The company also failed to preserve a document relevant to the subpoena. After
reaching an agreement to settle the case, Lucent's former Chairman and Chief Executive Officer and its former
outside counsel agreed to an interview with Fortune magazine. [FN135] During the interview, the two individuals
denied that an accounting fraud had occurred by attributing one of the fraudulent transactions to a "failure of
communication." [FN136] Lucent also indemnified additional employees against the consequences of the
enforcement action -- most significantly, any penalties and disgorgement required of the employees -- following the
settlement. [FN137] The broader indemnification was not required by state law or by the corporate charter. [FN138]
Lucent failed to provide in a timely manner a full disclosure concerning indemnification of the employees. [FN139]
A recent case brought against Banc of America Securities provides an example of the SEC's insistence on
candor concerning document production issues. [FN140] According to the administrative order, after Banc of
America Securities had represented to the Staff that it could not retrieve certain emails without undue burden and
expense, the company privately restored backup tapes and identified recipients of an email with significant
consequences for the investigation. [FN141] The company then proceeded to delete the retrieved email and failed to
produce the identity of the individuals who received the email immediately following *607 the retrieval of the email.
[FN142] The company failed to communicate with the Staff on other occasions and provided inconsistent responses
concerning the existence or availability of documents. [FN143] As noted above, the firm also generally failed to
produce documents and compliance reviews in a timely manner. [FN144]
The SEC has also imposed substantial penalties for the production of email after the subject of an investigation
has certified its production of all documents relevant to the request or subpoena. As part of an $87.5 million penalty
arising from an investigation of research conflicts of interest, Deutsche Bank recently agreed to pay a $7.5 penalty
for its failure to produce email in a timely manner during the investigation. [FN145] After representing to the Staff
that its production was complete, Deutsche Bank produced three times the number of emails that were originally
produced. The production delayed the investigation for over a year.
IV. CONCLUSION
The SEC views incomplete, inefficient, or untimely production of documents during its investigations as serious
threats to investor protection. From the Staff's perspective, if a company or its employees conceal or destroy
evidence or simply delay its production, the Commission's ability to assign responsibility for past wrongs and to
prevent harm to investors in the future is compromised. The Commission has developed this theme through its civil
enforcement program, levying substantial penalties against firms that destroy or alter documents during an
investigation or that delay investigations by failing to produce documents in a timely or comprehensive manner. To
avoid these consequences, entities should revisit their document retention policy once an investigation or
enforcement action is reasonably anticipated. After a party has taken steps to satisfy its duty to retain documents,
counsel should make clear to their clients that any failure to make prompt and complete production of documents
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could have far-reaching consequences.
[FN1]. Arthur Andersen LLP v. United States, 125 S. Ct. 2129, 2135 (2005).
[FN2]. Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001) (citing West v. Goodyear Tire & Rubber
Co., 167 F.3d 776, 779 (2d Cir. 1991)); Byrnie v. Town of Cromwell, Bd. of Educ., 243 F.3d 93, 107 (2d Cir. 2001);
Gates Rubber Co. v. Bando Chemical Indus., 167 F.R.D. 90, 101 (D. Colo. 1996) (quoting JAMIE S. GORELICK,
DESTRUCTION OF EVIDENCE § 3.8 (1989) ( "'[T]he prevailing consensus of courts is that sanctions are
appropriate when a party (1) destroys (2) discoverable matter (3) which the party knew or should have known (4)
was relevant to pending, imminent, or reasonably foreseeable litigation."')); Zubulake v. UBS Warburg LLC, 220
F.R.D. 212, 217 (S.D.N.Y. 2003). A federal district court may impose sanctions for spoliation in violation of a court
order or pursuant to its inherent power to control litigation. West, 167 F.3d at 779 (citations omitted).
[FN3]. See, e.g., Clark Constr. Co. v. City of Memphis, 229 F.R.D. 131, 136 (W.D. Tenn. 2005); MOSAID Tech.
Inc. v. Samsung Elec. Co., 348 F. Supp. 2d 332, 336 (D.N.J. 2004).
[FN4]. Iowa Ham Canning, Inc. v. Handtmann, 870 F. Supp. 238, 245 (N.D. Ill. 1994); Zubulake, 220 F.R.D. at 217
(concluding that "[m]erely because one or two employees contemplate the possibility that a fellow employee might
sue does not generally impose a firm-wide duty to preserve" but that recognition of everyone associated with the
plaintiff that she might sue triggered the duty). For instance, the mere specter of general litigation concerning a
product coupled with notice of a specific accident creates only a possibility of litigation and does not establish a duty
to preserve. Davis v. Ford Motor Co., 375 F. Supp. 2d 518 (S.D. Miss. 2005). In Davis v. Ford Motor Co., the
plaintiffs were involved in a serious car accident involving a Ford Explorer rented from Hertz. Id. at 519. Although
the plaintiff informed Hertz of the accident that day, Hertz sold the vehicle three months later in keeping with its
normal business practices, repairing the car in the process. Bringing suit two years after the injury, the plaintiffs
alleged spoliation of the evidence. Id. at 519-20. The court declined to impose a duty to preserve on either Ford or
Hertz. Id. at 521. Notice of the accident and knowledge of general litigation surrounding the Ford Explorer design
did not place either defendant on notice of the particular litigation alleging defects in the safety restraint system. Id.
[FN5]. Broccoli v. Echostar Commc'n Corp., No. Civ. AMD 03-3447, 2005 WL 1863176, at *3 (D. Md. Aug. 4,
2005). Beginning in January 2001, plaintiff Dino Broccoli, an employee of Echostar Communications, complained
to two of his supervisors, orally and by email, that a human resources manager had been sexually harassing him. Id.
at *3. The complaints were repeated and relayed to managers over the course of several months. Id. In July 2001,
Broccoli met with a regional human resources manager to complain of the harassing behavior. Id. Several months
later, in November, the plaintiff was terminated, at which time he delivered a letter to the company stating that he
believed his termination to be related to the complaints. Id. This letter was forwarded to upper management. Id. In
December, the plaintiff's girlfriend sent an email to Echostar alleging that Broccoli's termination was the product of
discriminatory conduct. Id. In February 2002, Broccoli filed a complaint with the Equal Employment Opportunity
Commission. The court found that Echostar should have interrupted its normal document retention policy in January
2001, when Broccoli first informed his supervisors of the sexual harassment, and should have retained all
documentation relevant to the complaints, including email and personnel files, because it reasonably should have
foreseen the litigation at that time. Id. at *3-*4.
[FN6]. Pace v. Nat'l R.R. Passenger Corp., 291 F. Supp. 2d 93 (D. Conn. 2003). In Pace v. National Railroad
Passenger Corp., the plaintiff was injured after tripping on what he alleged were negligently maintained buffer
plates. Id. at 96. During discovery, the defendant railroad company failed to produce maintenance and inspection
reports, which it had destroyed in July 2001 pursuant to a normal document retention schedule. Id. at 97. The
defendant argued that it had no knowledge of the claim until the filing of the complaint in September 2001. Id. The
court disagreed and found that the defendants had knowledge of the claim based upon the railroad's surveillance of
Pace beginning in February 2000 and the retention of a doctor in May 2001 to confirm the extent of the plaintiff's
injury. Id. at 99. These actions were consistent with preparation for litigation. Id.
Several cases address imposition of sanctions when destruction of the defective product has occurred prior to
initiation of a tort action, but after the plaintiff has retained an expert or counsel following an injury. In West v.
Goodyear Tire & Rubber Co., the plaintiff, West, sent an inflated tire to counsel to pursue a tort case for injury from
the rupture of a similar tire. 167 F.3d at 778. West's counsel then sent the tire for evaluation by an expert, which
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took pictures of the tire and deflated it prior to the inception of litigation. Id. Following notice of discovery, the
plaintiff sold other items involved in the accident, which were located later in an altered condition. Id. The court of
appeals upheld the spoliation finding but remanded the case for a lesser sanction. See id. at 780 (leaving the question
of sanctions to the district court).
In Silvestri v. General Motors Co., the Fourth Circuit Court of Appeals found that a plaintiff had violated his duty
to preserve evidence prior to the inception of litigation when he failed to notify General Motors of the repair of a car
after the plaintiff's lawyer and experts had viewed the car and recognized that General Motors would need to inspect
the car before it was repaired. 271 F.3d at 591. The plaintiff's experts had testified that it was their understanding
that the inspection was being conducted in anticipation of litigation. Id.
See also Vodusek v. Bayliner Marine Corp., 71 F.3d 148, 156-57 (4th Cir. 1995) (approving sanctions for
spoliation when plaintiff and her expert destroyed boat that was the subject of the suit while investigating the cause
of the accident); Allstate Ins. Co. v. Sunbeam Corp., 53 F.3d 804, 807 (7th Cir. 1995) (concluding that an Allstate
insurance adjuster and engineer who preserved only components of a gas grill after a fire but prior to product
liability suit had breached the duty to preserve all evidence of alternative causes to the fire); Sylla-Sawdon v.
Uniroyal Goodrich Tire Co., 47 F.3d 277, 280-81 (8th Cir. 1995) (finding sanctions appropriate when attorneys for
the plaintiff bringing suit for injury caused by tire defect knew the cause of the accident was tire failure and yet
failed to preserve the evidence at the time of inspection); Barsoum v. NYC Housing Auth., 202 F.R.D. 396, 400
(S.D.N.Y. 2001) (concluding that plaintiff bringing employment discrimination claim had a duty to preserve a tape
she used to record an interview because she had been receiving the assistance of counsel at the time of the
conversation); Rambus, Inc. v. Infineon Tech. AG, 222 F.R.D. 280, 295 (E.D. Va. 2004) (concluding that the
company's initiation of a document retention program in concert with the development of a litigation strategy
contemplating suit against a single entity violated the duty to preserve).
[FN7]. Stevenson v. Union Pac. R.R. Co., 354 F.3d 739, 747-48 (8th Cir. 2004).
[FN8]. Id.
[FN9]. Id. at 748.
[FN10]. Id. at 749.
[FN11]. Id.
[FN12]. Id.
[FN13]. Kronisch v. United States, 150 F.3d 112, 127 (2d Cir. 1998).
[FN14]. Id. at 116.
[FN15]. Id.
[FN16]. Id. at 118.
[FN17]. Id.
[FN18]. Id. at 127.
[FN19]. Id.
[FN20]. See, e.g., id. ("Once a court has concluded that a party was under an obligation to preserve the evidence that
it destroyed, it must then consider whether the evidence was intentionally destroyed, and the likely contents of that
evidence."); Silvestri v. Gen. Motors Corp., 271 F.3d 583, 593 (4th Cir. 2001) (noting that although bad faith or
other "like actions" normally are required to justify dismissal as a sanction, less culpable conduct may warrant such
a sanction when the injured party has been sufficiently prejudiced); Trigon Ins. Co. v. United States, 204 F.R.D.
277, 286 (E.D. Va. 2001) ("To establish a claim of spoliation, a movant must show that the adverse party had a duty
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to preserve the allegedly spoiled documents and that the documents were intentionally destroyed. The natural
consequence of spoliation is that the moving party was prejudiced by the destruction. The degree of culpability and
the prejudice suffered by the moving party will guide a [c]ourt in its formulation of remedial and punitive action.").
See generally Shira A. Scheindlin and Kanchana Wangkeo, Electronic Discovery Sanctions in the Twenty-First
Century, 11 MICH. TELECOMM. & TECH. L. REV. 71, 95 (2004) (reviewing cases in which sanctions were
imposed for failure to produce electronic documents and concluding that "[i]n no case did a judge sanction a party
for the routine recycling of backup tapes where the party did not know (or should not have known) of its obligation
to retain discoverable information"). Thus, the intent to destroy documents (which is relevant to the finding that
spoliation has occurred) should be distinguished from the state of mind of the spoliator (which is relevant to
determining the appropriate remedy or penalty for the spoliation).
[FN21]. West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 780 (2d Cir. 1991).
[FN22]. See, e.g., Coleman v. Morgan Stanley & Co., 2005 WL 679071, at * 5-6 (Fla. Cir. Ct. Mar. 1, 2005)
(shifting the burden of proof based upon the knowing, deliberate, and bad faith destruction of electronic documents
and delays in production).
[FN23]. MOSAID Tech. Inc. v. Samsung Elec. Co., 348 F. Supp. 2d 332, 335 (D.N.J. 2004).
[FN24]. See, e.g., id. at 338.
[FN25]. Byrnie v. Town of Cromwell, Bd. of Educ., 243 F.3d 93, 108 (2d Cir. 2001) (reasoning that filing of the
complaint with the commission suggested that an action would later be brought in court).
[FN26]. Id.
[FN27]. Id.; cf. Coleman, 2005 WL 679071, at *5-6 (imposing sanctions for failures to preserve and to produce
email in derogation of federal recordkeeping obligations).
[FN28]. Byrnie, 243 F.3d at 109.
[FN29]. Id.
[FN30]. In re Banc of Am. Sec., LLC, Exchange Act Release No. 49,386, 82 SEC Docket 1264 (Mar. 10, 2004).
"Section 17(a)(1) of the Exchange Act provides that each member of a national securities exchange, broker, or
dealer 'shall make and keep for prescribed periods such records, furnish such copies thereof, and make and
disseminate such reports as the Commission, by rule, prescribes as necessary or appropriate in the public interest, for
the protection of investors, or otherwise in furtherance of the purposes of this title."' Id. at *7. Pursuant to this
authority, "the Commission promulgated Rule 17a-4, . . .[which] requires broker-dealers to 'preserve for a period of
not less than three years, the first two years in an accessible place,. . .[o]riginals of all communications received and
copies of all communications sent by such member, broker or dealer (including inter-office memoranda and
communications) relating to his business as such."' Id. This rule applies to email communications. Id. at *8. Rule
17a-4 also provides that every member, broker, or dealer shall furnish promptly to a representative of the
Commission such legible, true, and complete copies of those records upon request. Id. Section 17(b) of the
Exchange Act provides that members, brokers, and dealers are subject to reasonable examination by the Staff. Id.
Investment advisers, who also have extensive books-and-records requirements, see generally 1 JAMES E.
ANDERSON ET AL., INVESTMENT ADVISERS: LAW & COMPLIANCE § 13 (2005) (reviewing
recordkeeping requirements), could be charged with a failure to retain documents in connection with an enforcement
proceeding as well. Section 204 of the Advisers Act provides the primary basis for advisers' obligations, and Rule
204-2 provides the basis for the commission's inspection program. Id. § 13.01.
The Commission has brought actions to enforce compliance with recordkeeping requirements when regulated
entities are unable to produce documents during an examination. See, e.g., In re Schield Mgmt. Co., Initial Decision
Release No. 3-11762, 2005 WL 1240259 (May 24, 2005) (imposing penalties and barring president of registered
investment adviser from association with any investment manager or broker-dealer after he ordered the destruction
or alteration of documents during the course of an examination).
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[FN31]. In re Banc of Am. Sec. LLC, 82 SEC Docket 1264.
[FN32]. Id.
[FN33]. Id.
[FN34]. Id.
[FN35]. Id.
[FN36]. Press Release, SEC, Former Ernst & Young Audit Partner Arrested for Obstruction Charges and Criminal
Violations of Sarbanes-Oxley Act (Sept. 25, 2003). Auditors have a duty to retain workpapers and other records
related to the audit and review of financial statements for seven years after the audit is concluded. Retention of
Records Relevant to Audits and Reviews, 17 C.F.R. § 210 (2003); Retention of Records Relevant to Audits and
Reviews, Securities Act Release No. 8180, Exchange Act Release No. 47,241, Investment Company Act Release
No. 25911, 68 Fed. Reg. 4862 (2003). Accountants who audit or review an issuer's financial statements must retain
various records relevant to the review. Retention of Records Relevant to Audits and Reviews, 68 Fed. Reg. at 4862.
These records include workpapers and other documents that form the basis of the audit or review, and
memoranda, correspondence, communications, other documents, and records (including electronic records), which
are created, sent, or received in connection with the audit or review, and contain conclusions, opinions, analyses, or
financial data related to the audit or review.
Id.
[FN37]. Press Release, SEC, supra note 37.
[FN38]. Id.
[FN39]. Id.
[FN40]. Id.
[FN41]. Id.
[FN42]. Id.
[FN43]. See generally Christopher R. Chase, Note, To Shred or Not to Shred: Document Retention Policies and
Federal Obstruction of Justice Statutes, 8 FORDHAM J. CORP. & FIN. L. 721 (2003) (reviewing amendments).
[FN44]. 18 U.S.C. § § 1503, 1505 (2000).
[FN45]. § 1512.
[FN46]. § 1519.
[FN47]. § 1520.
[FN48]. Arthur Andersen v. United States, 125 S. Ct. 2129 (2005). Until the day it was served with SEC subpoenas,
employees of Arthur Andersen were encouraged to comply with the firm's document retention policy. Id. at 213233. This destruction proceeded months earlier, after Arthur Andersen had concluded litigation was likely based upon
stories in the news media, and over a week after the SEC issued requests for accounting documents. Id.
[FN49]. SEC Files Accounting Fraud Charges Against Two Former Officers of PurchasePro.com, Inc., Litig.
Release No. 18,358 (Sept. 23, 2003).
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[FN50]. Id.
[FN51]. Id.
[FN52]. Id.
[FN53]. The duty to preserve documents in civil litigation encompasses electronic, as well as hard-copy, documents,
and can extend to backup tapes, which are used record email. See, e.g., Zubulake v. UBS Warburg LLC, 220 F.R.D.
212, 217-18 (S.D.N.Y. 2003). See generally Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 313 n.19, 313-15
(S.D.N.Y. 2003) (discussing the distinction between residual and deleted data and describing a backup tape system).
If the tapes are accessible, the party has an obligation to interrupt the overwriting of backup tapes; in contrast, a
party is not obliged to interrupt the overwriting of inaccessible backup tapes. Zubulake, 220 F.R.D. at 218. Judge
Scheindlin provided one exception to the general rule: To the extent inaccessible tapes can be segregated by key
players in the litigation (players likely to have information relevant to the claim), those tapes, or the particular
storage area of those tapes, should be preserved for the litigation. Id. During the course of the litigation, the attorney
and client share a continuing obligation to preserve the retained documents. Id.
[FN54]. Judge Scheindlin warned that the client's duty is shared with its counsel. Zubulake v. UBS Warburg LLC,
No. 02 Civ. 1243, 2004 WL 1620866, at *9 (S.D.N.Y. July 20, 2004). Attorneys have a duty to instruct the client to
retain documents; to supervise the retention; to communicate with key players to explain obligations and to collect
documents; to remind the client periodically of the ongoing preservation duty; and to preserve and segregate backup
tapes if they are the only source of certain information. Id. at *9- 10.
[FN55]. Zubulake, 220 F.R.D. at 218. The court noted that implementation of these practices should be guided by
reasonableness and that other methods could obtain the same result. Id.
[FN56]. In re Symbol Tech., Inc., Litig. Release No. 18,734, Accounting and Auditing Enforcement Act Release
No. 2029, 82 S.E.C. Docket 3424 (June 3, 2004).
[FN57]. Id.
[FN58]. Id.
[FN59]. Id.
[FN60]. Id. One individual defendant agreed, without admitting or denying the allegations, to the imposition of the
non-monetary relief sought by the Commission.
[FN61]. GORELICK ET AL., supra note 3, § 9.1.
[FN62]. See generally Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and
Commission Statement on the Relationship and Cooperation to Agency Enforcement Decisions, Exchange Act
Release No. 44,969 (Oct. 23, 2001) (discussing staff expectations).
[FN63]. Press Release, SEC, SEC Settles Action Charging Wachovia Corporation with Proxy Disclosure and Other
Reporting Violations Involving the 2001 Merger Between First Union Corporation and Old Wachovia Corporation
(Nov. 4, 2004). Neither the press release nor the complaint in the action recited the details of Wachovia's failures.
[FN64]. Id.
[FN65]. Braswell v. United States, 487 US 99, 102 (1988).
[FN66]. Securities and Exchange Commission Files Subpoena Enforcement Action Against Kenneth L. Lay, Litig.
Release No. 18,372 (Sept. 29, 2003). Lay eventually agreed to produce the documents, subject to several conditions.
Former Enron Chairman and Chief Executive Officer Agrees to Stipulation and Order Requiring Production of
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Documents, Litig. Release No. 18,449 (Nov. 7, 2003).
[FN67]. EDNA SELAN EPSTEIN, THE ATTORNEY-CLIENT PRIVILEGE AND THE WORK-PRODUCT
DOCTRINE 45-46 (4th ed. 2001).
[FN68]. Upjohn Co. v. United States, 449 U.S. 383, 389 (1981) (citation omitted).
[FN69]. Id. at 394.
[FN70]. Hickman v. Taylor, 329 U.S. 495 (1947).
[FN71]. Fed. R. Civ. P. 26(b)(3).
[FN72]. Hickman, 329 U.S. at 510-11.
[FN73]. Saito v. McKesson HBOC, Inc., No. Civ. A. 18553, 2002 WL 31657622, at *3 (Del. Ch. Nov. 13, 2002),
aff'd 870 A.2d 1192 (Del. 2005) (distinguishing opinion work product).
[FN74]. Fed. R. Civ. P. 26(b)(3). The rules also protect information prepared by the party or by a representative of
the party. Id.
[FN75]. "As a general rule, waiver of the privilege with regard to some communications waives the privilege as to
all other communications relating to the same 'subject matter."' EPSTEIN, supra note 68, at 378; see also, e.g., In re
Sealed Case, 676 F.2d 793, 809 (D.C. Cir. 1982) (concluding that production of investigative report to the SEC
waived the privilege with respect to the underlying documents). The waiver of work product, on the other hand, may
be limited to the documents actually disclosed. EPSTEIN, supra note 68, at 639.
[FN76]. United States v. MIT, 129 F.3d 681, 684 (1st Cir. 1997).
[FN77]. EPSTEIN, supra note 68, at 342-43, 619-23 (reviewing selective-waiver cases); EDNA SELAN EPSTEIN,
THE ATTORNEY-CLIENT PRIVILEGE AND THE WORK-PRODUCT DOCTRINE 76-90, 163-64 (Supp.
2004). Selective waiver and limited waiver are distinctive terms. "Selective waiver permits the client who has
disclosed privileged communications to one party to continue asserting the privilege against other parties. Partial [or
limited] waiver permits a client who has disclosed a portion of privileged communications to continue asserting the
privilege as to remaining portions of the same communications." Saito, 2002 WL 31657622, at *6.
[FN78]. Brief of the Securities and Exchange Commission, Amicus Curiae, in Support of McKesson Corp. and
Supporting Reversal, United States v. Bergonzi, 403 F.3d 1048 (9th Cir. 2005) (No. 03-10511), available at
www.sec.gov; Brief of the United States Securities and Exchange Commission as Amicus Curiae in Support of
McKesson HBOC, Inc., McKesson HBOC, Inc. v. Super. Ct. of San Francisco County, 9 Cal. Rptr. 3d 812 (Cal. Ct.
App. 2004) (No. A103055), available at www.sec.gov.
[FN79]. Brief of the Securities and Exchange Commission, Amicus Curiae, in Support of McKesson Corp. and
Supporting Reversal, supra note 79; Brief of the United States Securities and Exchange Commission as Amicus
Curiae in Support of McKesson HBOC, Inc., supra note 79.
[FN80]. See, e.g., MIT, 129 F.3d at 685, 687 ("The privilege, it is said, is designed to protect confidentiality, so that
any disclosure outside [a small group] is inconsistent with the privilege; by contrast, 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."); Tenn. Laborers Health & Welfare Fund v. Columbia/HCA Healthcare Corp. (In
re Columbia/HCA Healthcare Corp. Billing Practices Litig.), 293 F.3d 289, 304 (6th Cir. 2002).
[FN81]. The Fourth Circuit Court of Appeals has not yet addressed the precise issue of selective waiver, but a
district court interpreting a limited-waiver opinion issued by the court of appeals has concluded that the court of
appeals would reject the concept of selective waiver, even when the disclosure is accompanied by a confidentiality
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agreement. Labelle v. Philip Morris, Inc., No. 2-98-3235-23, 2000 WL 33957169, at *5-7 (D.S.C. Oct. 23, 2000)
(order) (citing United States v. Pollard (In re Martin Marietta Corp.), 856 F.2d 619, 620 (4th Cir. 1988)); cf. In re
Royal Ahold N.V. Sec. & ERISA Litig., Civ. No. 1:03-MDL-01539 (D. Md. Sept. 8, 2005) (ordering production of
interview memoranda in shareholder litigation based upon disclosure of related investigative report to SEC and
Department of Justice).
In an opinion authored by Judge Posner, the Seventh Circuit Court of Appeals cited the reasoning in
Westinghouse, a decision discussed infra, but the posture of the case did not expressly raise the issue of selective
waiver to a government agency. See Dellwood Farms, Inc. v. Cargill, Inc., 128 F.3d 1122, 1127 (7th Cir. 1997)
(observing that the government, the recipient of the disclosure request, was not an adversary of the persons seeking
disclosure and suggesting that a confidentiality agreement may have averted the waiver).
A review of district court selective-waiver cases can be found in EPSTEIN, supra note 68, at 342-43, 619-23;
EPSTEIN, supra note 78, at 76-90, 163-64.
State courts have also considered this issue. A recent (unpublished) case by the Delaware Chancery Court is
instructive, given the court's prominent role in establishing corporate law. Saito v. McKesson HBOC, Inc., No. Civ.
A. 18553, 2002 WL 31657622, at *3 (Del. Ch. Nov. 13, 2002), aff'd 870 A.2d 1192 (Del. 2005).
Finally, a recent report promulgated by the American Bar Association Task Force on the Attorney-Client
Privilege provides a useful summary of recent precedent and discussion of the legal and practical issues concerning
the production of privileged documents and work product to the SEC. See generally ABATask Force on the
Attorney-Client Privilege, Task Force Report to the ABA House of Delegates (May 18, 2005).
[FN82]. 129 F.3d at 682-83. The Department of Defense had not signed a confidentiality agreement with MIT, but
the court observed that "its regulations and practices offered MIT some reason to think that indiscriminate disclosure
was unlikely." Id. at 683.
[FN83]. Id.
[FN84]. Id. at 686.
[FN85]. Id. at 685.
[FN86]. Id. at 685-86. Parties sharing a common interest, such as co-defendants, insurers and insured, patentees and
licensees, have been permitted to disclose privileged materials to each other without forfeiting the privilege. Id. at
685. The court conceded that, in the abstract sense, MIT and the Department of Defense shared a common interest in
the proper performance of MIT's defense contracts. Id. at 686. However, the court concluded that "this [case was]
not the kind of common interest to which the cases refer in recognizing that allied lawyers and clients -- who are
working together in prosecuting or defending a lawsuit or in certain other legal transactions -- can exchange
information among themselves without loss of the privilege." Id.
[FN87]. Id.
[FN88]. Id. at 687.
[FN89]. Salomon Bros. Treasury Litig. v. Steinhardt Partners (In re Steinhardt Partners), 9 F.3d 230, 235 (2d Cir.
1993). In dicta, the Second Circuit Court of Appeals has rejected selective waiver in other cases as well. See Ratliff
v. Davis Polk & Wardwell, 354 F.3d 165, 170 & n.5 (2d Cir. 2003) (concluding that, if a client were to authorize
voluntary disclosure to the SEC, the protections would be waived); United States v. Doe (In re Grand Jury
Proceedings), 219 F.3d 175, 191 (2d Cir. 2000) (citing Steinhardt Partners in a limited-waiver case for the
proposition that disclosure of documents to the SEC waived the company's work-product privilege as to other
parties); John Doe Corp. v. United States (In re John Doe Corp.), 675 F.2d 482, 489 (2d Cir. 1982) (noting with
approval the Permian Corp. case, which rejected a "pick and choose" theory of attorney-client privilege). For
examples of district court cases applying Steinhardt Partners, see In re Natural Gas Commodity Litig., 2005 WL
1457666, at *6-9 (S.D.N.Y. June 21, 2005) (reviewing cases, concluding that district courts in the Second Circuit
have found significant the presence of a confidentiality agreement, and finding no waiver when confidentiality
agreement had been secured and disclosure of factual work product underlying legal and expert analyses had been
provided to opposing counsel) and Bank of Am. v. Terra Nova Ins. Co., 212 F.R.D. 166, 173-74 (S.D.N.Y. 2002)
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(holding that oral disclosure of investigative report to law enforcement authorities absent a confidentiality agreement
waived the work product protection for the communication and supporting documents).
[FN90]. In re Steinhardt Partners, 9 F.3d at 232.
[FN91]. Id.
[FN92]. Id. at 234. The court of appeals based its conclusion on the fact that Steinhardt knew that it was the subject
of an investigation and that the memorandum was sought as part of the investigation. Id. The involvement of the
Enforcement Division buttressed this conclusion. Id.
[FN93]. Id. at 235.
[FN94]. Id. at 236.
[FN95]. Id.
[FN96]. Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1429-30 (3d Cir. 1991).
[FN97]. Id. at 1418.
[FN98]. Id.
[FN99]. Id.
[FN100]. Id. at 1419.
[FN101]. Id. at 1420.
[FN102]. Id. at 1424.
[FN103]. Id. at 1425.
[FN104]. Id. at 1427.
[FN105]. Id. at 1429-30.
[FN106]. Id. at 14229.
[FN107]. Tenn. Laborers Health & Welfare Fund v. Columbia/HCA Healthcare Corp. (In re Columbia/HCA
Healthcare Corp. Billing Practices Litig.), 293 F.3d 289, 304, 307 (6th Cir. 2002).
[FN108]. Id.
[FN109]. Id. at 291.
[FN110]. Id. at 291-92. The agreement provided that the disclosure of any report, document, or information by one
party did not constitute a waiver of any applicable privilege or claim under the work product doctrine. Both parties
to the agreement reserved the right to contest the assertion of any privilege by the other party to the agreement and
agreed that neither party would argue that privilege or work product had been waived. Id. at 92. The agreement did,
however, permit the Department of Justice to transfer the protected information to other governmental entities and
congressional committees for certain purposes.
[FN111]. Id.
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[FN112]. Id. at 302.
[FN113]. Id.
[FN114]. Id.
[FN115]. Id. at 303-04.
[FN116]. Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 606-07 (8th Cir. 1978) (en banc).
[FN117]. Id. at 607.
[FN118]. Id. at 606. The law firm hired by Diversified Industries was Wilmer, Cutler & Pickering.
[FN119]. Id.
[FN120]. Id. at 611. Although several courts deplore the court's lack of analysis, the court's use of the term
"separate" suggests that the court was mindful that the selective waiver doctrine implicated fairness to another
litigating party in the same matter but was less concerned when the private litigant was pursuing a claim in a
separate action. The term "nonpublic" suggests that court (implicitly) predicated its conclusion on the confidential
nature of the disclosure (with respect to the adversary in the private litigation).
[FN121]. Id.
[FN122]. Id.
[FN123]. Permian Corp. v. United States, 665 F.2d 1214, 1220-22 (D.C. Cir. 1981); In re Subpoenas Duces Tecum,
738 F.2d 1367 (D.C. Cir. 1984); In re Sealed Case, 676 F.2d 793 (D.C. Cir. 1982).
[FN124]. Permian Corp., 665 F.2d at 1216.
[FN125]. Id.
[FN126]. Id.
[FN127]. Id.
[FN128]. See id.
[FN129]. Id.
[FN130]. Id.
[FN131]. Id. at 1220.
[FN132]. Press Release, SEC, Lucent Settles SEC Enforcement Action Charging the Company with $1.1 Billion
Accounting Fraud (May 17, 2004).
[FN133]. Id.
[FN134]. Id.
[FN135]. Id.
[FN136]. Id.
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[FN137]. Id.
[FN138]. Id.
[FN139]. Id.
[FN140]. In re Banc of Am. Sec. LLC, Exchange Act Release No. 49,386, 82 SEC Docket 1264 (Mar. 10, 2004).
[FN141]. Id.
[FN142]. Id.
[FN143]. Id.
[FN144]. Id.
[FN145]. SEC v. Deutsche Bank Sec., Inc., No. 04-CV-06909 (S.D.N.Y. Aug. 26, 2004); see also In re Am. Int'l
Group, Inc., Exchange Act Release No. 48,477 (Sept. 11, 2003) (citing AIG for its initial failure to search the files of
a key employee resulted in significant production after the date the production was certified); In re Prudential Equity
Group, LLC, Exchange Act Release No. 52,116 (July 25, 2005) (ordering broker-dealer to cease and desist Section
17 violations for its production of several documents responsive to the SEC's request one month after settlement).
END OF DOCUMENT
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