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Production, Privileges, and Practice paper

Production, Privileges, and Practice paper



Preserving and piercing privileges in an oil and gas practice

Preserving and piercing privileges in an oil and gas practice



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    Production, Privileges, and Practice paper Production, Privileges, and Practice paper Document Transcript

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