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January 29, 2018

Florida Waiver Ruling Reinforces Substance Over Form

Corporate Law360, Florida Law360, Legal Ethics Law360, Securities Law360

In December 2017, a federal magistrate judge in Florida determined1 that law firm Morgan Lewis & Bockius LLP had waived work-product protection over witness interview notes and memoranda compiled during an internal investigation of its publicly traded client, General Cable Corp., by "orally download[ing]" such materials to the U.S. Securities and Exchange Commission. Finding waiver, the court required Morgan Lewis to produce the materials to two former GCC executives charged by the SEC in early 2017 with financial fraud.2 It declined, however, to require the firm to produce interview notes and memoranda that had not been orally provided to the SEC, rejecting the former executives' argument that a "substantial need" entitled them to such materials. The order reinforces the serious implications that disclosure — even oral disclosure — to third parties, particularly government regulators, can have on work-product protection in the context of government and internal investigations.

GCC retained Morgan Lewis in 2012 to provide legal advice relating to accounting errors identified at the company's Brazilian subsidiary. Morgan Lewis in turn conducted an internal investigation, which involved interviewing "dozens" of GCC personnel and preparing notes and memoranda regarding the interviews. After Morgan Lewis disclosed to the SEC in November 2012 that it was conducting an internal investigation, the SEC initiated its own investigation of the company. The SEC issued various document requests to GCC, in response to which GCC produced over 400,000 documents and email communications. The SEC also requested information regarding the company's investigative findings. In October 2013, Morgan Lewis met with the SEC and provided "oral downloads" of 12 witness interviews. The SEC entered a cease-and-desist order against GCC in December 2016 that assessed a $6.5 million civil monetary penalty, and filed suit in January 2017 against the former CEO and chief financial officer of GCC’s Latin American operations. That suit alleged that the former executives concealed from GCC's executive management the "manipulation of accounting systems" by hiding "material inventory accounting errors" at the Brazilian subsidiary. Morgan Lewis, a nonparty to the SEC’s suit against the former executives, was served with a subpoena duces tecum in August 2017, and the executives later filed a motion to compel the production of interview notes and memoranda generated during Morgan Lewis' internal investigation of GCC.

Morgan Lewis Waived Work-Product Protection By Making "Oral Downloads" to SEC

The parties agreed that the witness summaries and notes qualified as attorney work product. The only question for the court was whether the work-product protection was waived. The court contrasted the work-product waiver analysis with privilege waiver analysis, emphasizing that in the former, the inquiry is not whether confidential communications are disclosed, but to whom the disclosure is made. This is because work-product protection aims to protect an attorney's mental processes from discovery by adverse parties and is waived when protected materials are disclosed in a manner that is "inconsistent with maintaining secrecy against opponents" or in a way that "substantially increases the opportunity for a potential adversary to obtain the protected information." The court found that Morgan Lewis waived work-product protection as to the notes and memoranda that were orally downloaded to the SEC, "easily conclud[ing]" that the SEC was GCC's adversary.

Importantly, the court found "little or no substantive distinction for waiver purposes" between the physical delivery of work product and the reading or oral summation of the "same written material's meaningful substance" to an adversary, reasoning that the SEC possessed the "functional equivalent" of the witness notes and memoranda by virtue of Morgan Lewis' oral summaries.

Disclosures to Auditor Did Not Work as a Waiver and Former GCC Executives Did Not Make a Showing of Substantial Need for Materials Not Disclosed to SEC

The court declined to go so far as to require the production of all witness interview notes and memoranda generated by Morgan Lewis in its investigation, limiting the production obligation only to those notes and memoranda discussed with the SEC. The executives argued that Morgan Lewis should produce all witness interview notes and memoranda because such materials were provided, or at least made available, to GCC's outside auditor. The court, however, ruled in line with cases holding that disclosure of work-product information to an auditor does not result in a waiver of the work-product protection. The court similarly rejected the executives' rather tenuous argument that GCC's outside auditor was a potential adversary of GCC because the auditor was "on the SEC's radar and entered into a tolling agreement with the SEC regarding its own conduct." The court noted that the SEC had not brought an enforcement action against the auditor, nor had the executives cited any legal authority supporting the notion that a common interest could evaporate in factually similar situations.

The court also rejected the former executives' argument that they had a "substantial need" for Morgan Lewis' other work product that had not been disclosed to the SEC. The executives had cited several concerns they contended warranted the production of additional witness notes and memoranda. Chief among them was the need to "level the playing field" between the SEC and the executives because the executives did not have access to the same information provided to the SEC through Morgan Lewis' previous disclosures and pledge of ongoing cooperation. The executives also noted the difficulty of interviewing Brazilian witnesses through a letters rogatory process and fading memories of witnesses given that Morgan Lewis had conducted the interviews between four and five years ago. In rejecting these arguments, the court pointed out that the executives were in possession of hundreds of thousands of contemporaneous documents that could be used to refresh recollections, and that the executives could seek extensions of time if the letters rogatory process proved lengthier than taking traditional depositions. The court emphasized that the additional materials sought by the executives were "classic attorney work product" and quoted the seminal Upjohn case,3 which provides that forcing an attorney to disclose notes and memoranda of witnesses' statements is "particularly disfavored" because doing so "tends to reveal the attorney's mental processes."

After the court's disclosure ruling, Morgan Lewis requested that instead of producing the notes and memoranda from the 12 witness interviews, it only be required to produce the notes from the October 2013 meeting with the SEC in which it discussed those interviews (and a portion of one interview memorandum read aloud to the SEC during that meeting).4 The court said it needed more information before it could decide on the motion. It solicited additional under-seal productions from Morgan Lewis and scheduled an extensive evidentiary hearing that would have required all lawyers who participated in the October 2013 SEC meeting (or in any other meetings where witness summaries were discussed) to testify. Prior to the evidentiary hearing, however, the parties reached an agreement, the terms of which were not disclosed, and the former executives withdrew their motion to compel.5

Lessons Learned and Takeaways

Making a disclosure to government regulators has always created the possibility of far-reaching waiver consequences, both in the investigation and in any potential future related litigation. The court's waiver ruling here reinforces the notion of substance over form by eliminating — as other courts have — the distinction between providing an oral summary to the government of the content of witness interviews and providing similar information in written form.

When engaged in discussions with government regulators, companies must decide whether to limit what is shared (possibly at the expense of receiving cooperation credit, particularly in the post-Yates Memorandum world), or to provide such material to the regulator and risk a waiver of work-product protection. The court did not address the intricacies of what was disclosed orally to the SEC, noting only that Morgan Lewis provided "oral downloads of the substance" of certain interview memoranda, as opposed to "vague references," "detail-free conclusions" or "general impressions." The order states that the memoranda and notes summarize the "relevant portions" of the witness interviews, "or at least what the attorney participating in the interview deemed to be relevant enough to include in these materials." The line between sharing facts with a regulator (which are not protected by privilege or as attorney work product) and providing "oral downloads" is a fuzzy one, and the court did not provide clarity on precisely when waiver is triggered. The same considerations also are relevant when disclosing material to other (nongovernment) third parties.

The ruling highlights the potential damaging and expansive consequences of a waiver finding. The additional briefing following the order seizes on these concerns, as Morgan Lewis sought to cabin the scope of the material to be produced to the notes of the October 2013 meeting when the interviews were discussed and to avoid production of the interview notes and memoranda themselves. And although the matter ultimately was resolved by the parties without additional court intervention, the court's orders that would have required Morgan Lewis to make significant in-camera submissions and have its attorneys testify in an evidentiary hearing highlight the burdens imposed on counsel in trying to limit production obligations following a finding of waiver.

To avoid a finding of waiver in the first instance, counsel should be careful what information — regardless of its form — is shared with regulators. Waiver analyses are necessarily fact-intensive, and various factors — including the precise type and amount of information disclosed, whether it was used offensively or selectively, and to whom it was disclosed — all bear on the analysis. A final key consideration is how to be protect both work-product and attorney-client privilege. While the issue here was work product, a company's attorney-client privilege is often also at issue, and as the court correctly noted, the analysis for potential waiver of attorney-client privilege is different.

  1. Order on Defs.’ Mot. to Compel Produc. From Non-Party Law Firm, SEC v. Mathias Francisco Sandoval Herrera, No. 17-cv-20301 (S.D. Fla. Dec. 5, 2017).

  2. See Litigation Release No. 23726, U.S. Securities and Exchange Commission (Jan. 25, 2017),

  3. Upjohn Co. v. United States, 449 U.S. 383, 399 (1981).

  4. Mot. for Clarification or Recons. of the Order on Mot. to Compel Prod., SEC v. Mathias Francisco Sandoval Herrera, No. 17-cv-20301 (S.D. Fla. Dec. 12, 2017).

  5. Joint Notice of Resolution of Issues Relating to, and of Withdrawal of, Mots. To Compel and for Immediate Enforcement of Ct. Order, SEC v. Mathias Francisco Sandoval Herrera, No. 17-cv-20301 (S.D. Fla. Jan 3, 2018).