Ninth Circuit Rejects Selective Waiver of Attorney-Client Privilege in Government Investigations
In a case of first impression, the U.S. Court of Appeals for the Ninth Circuit recently held that a party who provides attorney-client privileged materials to the government may not thereafter claim the privilege in civil litigation. Rejecting the theory of "selective waiver," In re Pacific Pictures Corporation1 has serious implications for companies and individuals considering disclosing privileged materials in connection with a government investigation.
Selective Waiver of Attorney-Client Privilege
Although the attorney-client privilege ordinarily protects communications between clients and their attorneys from compelled disclosure in a court of law,2 courts also recognize that voluntarily disclosing privileged documents to third parties generally destroys the privilege.3 As noted by the court, the assumption behind this rule is that “[i]f clients themselves divulge such information to third parties, chances are that they would also have divulged it to their attorneys, even without the protection of the privilege.”4
Creating an exception to this general rule, the Eighth Circuit in Diversified Industries, Inc. v. Meredith,5 adopted the theory of “selective waiver” of the attorney-client privilege. This theory provides that a party’s voluntary disclosure of privileged materials to the government — typically as part of an effort to cooperate with an investigation — does not waive the privilege as to other third parties. Rather, such disclosure is only treated as a “limited waiver” of the privilege, allowing the privilege to be asserted thereafter.6 The Eighth Circuit reasoned that “[t]o hold otherwise may have the effect of thwarting the developing procedure of corporations to employ independent outside counsel to investigate and advise them in order to protect stockholders.”7 Proponents contend that selective waiver encourages parties to voluntarily cooperate with government investigations.
The selective waiver theory has been rejected by every other circuit to consider the issue since the Eighth Circuit’s decision in Diversified Industries.8 Until its recent ruling in Pacific Pictures, the Ninth Circuit had twice deferred judgment on whether to accept a theory of selective waiver.9
The Superman Case
Writer Jerome Siegel and illustrator Joe Shuster collaborated in the 1930s to create the character that would eventually become Superman, the “Man of Steel.” In 1937, Siegel and Shuster joined D.C. Comics as independent contractors and ceded their intellectual property rights to Superman. “Since the Man of Steel made his first appearance in 1938, he has been fighting for ‘truth, justice, and the American way.’ Shuster, Siegel, their heirs ... and D.C. Comics have been fighting for the rights to his royalties for almost as long.”10
Marc Toberoff, a Hollywood producer and licensed attorney, approached the heirs with an offer to create a joint venture to manage the preexisting litigation over the Superman rights that Siegel and Shuster had previously ceded to D.C. Comics. To this end, Toberoff acted as both a business advisor and attorney for the joint venture.
In 2006, while the preexisting litigation was pending, Toberoff hired lawyer David Michaels to work for one of his companies. Michaels worked for Toberoff for approximately three months, until he absconded with copies of several documents from the Siegel and Shuster files. Unsuccessful in his attempts to solicit business from the heirs, Michaels sent the documents to executives at D.C. Comics, with a cover letter that outlined in detail Toberoff’s alleged master plan to capture Superman for himself.
Rather than make use of the documents, D.C. Comics entrusted them to an outside attorney, who sought to otherwise obtain them through ordinary discovery. Considering every communication he had with the Heirs to be privileged — regardless of whether the communication was in his capacity as a business advisor or an attorney — Toberoff resisted all such efforts. Ultimately, in April 2007, a magistrate judge ordered certain documents, including Michaels’ cover letter, turned over to D.C. Comics. Months later, Toberoff reported the Michaels incident to the FBI.
In 2010, D.C. Comics filed a lawsuit against Toberoff, the heirs and three entities in which Toberoff owned a controlling interest (collectively, the petitioners), claiming that Toberoff interfered with its contractual relationships with the heirs. Michaels’ cover letter formed the basis of the lawsuit. Shortly after the suit was filed, Toberoff requested that the Office of the United States Attorney for the Central District of California investigate Michaels. In response, the U.S. Attorney’s Office issued a grand jury subpoena for the documents. Included with this subpoena was a letter stating that if Toberoff voluntarily complied with the subpoena the government would “not provide the ... documents ... to non-governmental third parties except as may be required by law or court order.” Relying upon this letter, Toberoff complied with the subpoena, making no attempt to redact the documents.
D.C. Comics immediately requested all documents disclosed to the U.S. Attorney, claiming that the disclosure of these unredacted copies waived any remaining privilege. The magistrate judge agreed, ruling that a voluntary disclosure of privileged materials waives that privilege regardless of whether the third party is the government or a civil litigant. The petitioners sought to overturn the magistrate’s order through a writ of mandamus.
The Ninth Circuit Rejects Selective Waiver
On April 17, 2012, the Ninth Circuit rejected the theory of selective waiver, denying the petitioners’ petition for mandamus. The court’s ruling focused on, and ultimately rejected, the petitioners’ theories of selective waiver.
Citing Diversified Industries, supra, the petitioners argued that because Toberoff disclosed the documents to the government, and not a civil litigant, his actions did not waive the privilege, but rather, operated as a “selective waiver.” The court rejected this argument, stating that “selective waiver does not serve the purpose of encouraging full disclosure to one’s attorney in order to obtain informed legal assistance; it merely encourages voluntary disclosure to government agencies, thereby extending the privilege beyond its intended purpose.”11 The court noted Congress’ reluctance to enact a privilege to protect disclosures to the government: “[g]iven that Congress has declined broadly to adopt a new privilege to protect disclosures of attorney-client privileged materials to the government, we will not do so here.”12
Seeking support for alternative interpretations of the selective waiver theory, the petitioners also argued that (1) the letter from the USAO operated as a confidentiality agreement, precluding disclosure and upholding the privilege; (2) Toberoff was the victim of Michaels’ crime, not the target of the grand jury probe, and his disclosure warranted different treatment; and (3) since the disclosures were made in response to a subpoena, they were done so involuntarily. These arguments were summarily rejected by the court. Fatal to the petitioners’ claims was the fact that “Toberoff both solicited the subpoena and chose not to assert the privilege when it was appropriate to do so.”13 Indeed, even though the subpoena specifically contemplated that Toberoff could chose to redact privileged materials, he chose not to.14
Implications for Government Investigations
Companies often conduct sensitive internal investigations when they are confronted with allegations of misconduct, government subpoenas, government enforcement actions, regulatory compliance issues, threats of civil litigation, governance concerns and media/public relations issues. Internal investigations often generate privileged materials and attorney work product. Whether to make a voluntary disclosure to the government requires a careful balancing of sometimes competing interests, including whether to waive privilege or produce redacted versions.
Viewed in this light, In re Pacific Pictures Corporation has serious implications for companies and individuals responding to any government investigation. The court’s decision makes clear that waiving attorney-client privilege in a government investigation can serve as an irreversible waiver of the privilege in parallel or subsequent civil proceedings. Moreover, confidentiality agreements with the government, by themselves, do not provide any additional protection. Consequently, individuals and companies must consult with legal counsel before responding to government subpoenas or voluntarily cooperating with any government investigation.
1 __ F.3d __, 2012 WL 1293534 (9th Cir. Apr. 17, 2012).
2 See Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).
3 See Hernandez v. Tanninen, 604 F.3d 1095, 1100 (9th Cir. 2010).
4 __ F.3d __, 2012 WL 1293534 at *2.
5 572 F.2d 596 (8th Cir. 1978) (en banc).
8 See In re Qwest Commc'ns Int'l, 450 F.3d 1179, 1197 (10th Cir. 2006); Burden-Meeks v. Welch, 319 F.3d 897, 899 (7th Cir. 2003); In re Columbia/HCA Healthcare Corp. Billing Practices Litig., 293 F.3d 289, 295 (6th Cir. 2002); United States v. Mass. Inst. of Tech., 129 F.3d 681, 686 (1st Cir. 1997); Genentech, Inc. v. United States Int'l Trade Comm'n, 122 F.3d 1409, 1416-18 (Fed. Cir. 1997); In re Steinhardt Partners, L.P., 9 F.3d 230, 236 (2d Cir. 1993); Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1425 (3d Cir. 1991); In re Martin Marietta Corp., 856 F.2d 619, 623-24 (4th Cir. 1988); Permian Corp. v. United States, 665 F.2d 1214, 1221 (D.C. Cir. 1981).
9 United States v. Bergonzi, 403 F.3d 1048, 1050 (9th Cir. 2005) (per curiam); Bittaker v. Woodford, 331 F.3d 715, 720 n.5 (9th Cir. 2003) (en banc).
10 __F.3d __, 2012 WL 1293534 at *1.
13 Id. at *10 (internal citation and quotes omitted).