Work Product Doctrine in SEC Document Requests.

SEC investigative subpoenas require prompt production of all responsive and nonprivileged materials that are within the company’s or individual’s “possession, custody or control.” The SEC states that it “respects the company’s and individual’s obligations to preserve attorney-client and work-product protections.” With this in mind, we generally negotiate extensions and rolling production timelines on a case-by-case basis with the relevant SEC Enforcement staff.

Federal Rule of Evidence 502, “Privilege and Work Product Disclosures to Federal Agencies,” applies to materials produced in response to an SEC request. It states: “In a federal proceeding, disclosure to a federal agency does not constitute waiver or disclosure of a privilege in relation to a subsequent proceeding.”

It is common practice for SEC Enforcement staff to set an initial subpoena response deadline within two weeks of issuance. While not statutory, this initial timeframe is customary practice. Regardless, the SEC still demands compliance by companies and individuals that it deems prompt.

The SEC’s 2001 Seaboard Report remains a principal corporate-cooperation framework, and it outlines how companies and individuals can demonstrate “full cooperation” when under scrutiny. According to the Report, a company’s or individual’s “full cooperation” includes, but is not limited to, several key factors. One key indicator of “full cooperation” is listed in Seaboard Factor 11, which states that a company must promptly disclose “review results and any other relevant documentation supporting the completeness of its internal investigation.”

As a result, companies and individuals under investigation must make informed, calculated decisions regarding their investigative strategies and response timeliness. With this in mind, prompt cooperation with the SEC is essential, but it cannot trigger the accidental waiver of attorney-client or work-product privilege. When handling SEC investigative subpoenas and related document requests, we focus on achieving a “best of both worlds” scenario.

What Qualifies as Work Product During an SEC Investigation?

In SEC subpoena-enforcement proceedings and other SEC enforcement matters, companies and individuals’ work-product claims are governed by federal common law, and discovery is conducted under Federal Rule of Civil Procedure 26. In these proceedings, under Federal Rule of Civil Procedure 26(b)(3), “ordinary” work-product protections can be overcome where an SEC Enforcement Division staff member or trial attorney can establish substantial need, undue hardship, and the information’s availability from other sources. However, under Federal Rule of Civil Procedure 26(b)(3)(B), “opinion” or “core” work-product protections are much harder to overcome; and where applicable, they must be strictly protected against the SEC.

The determination of whether a document falls into the category of ordinary or core work-product is critical, and it requires an in-depth understanding of the underlying document. While attorney-client privilege covers communications between a client and his or her lawyer, work-product protection is a broad shield that covers a client’s or attorney’s materials “prepared in anticipation of litigation.” In the context of an SEC investigation, while an SEC investigation necessarily implies the reasonable anticipation of litigation, it does not automatically mean that everything created after the investigation begins will be protected.

• Attorney-client privilege is designed to protect confidential communications between an attorney and a client for the purpose of obtaining or providing legal advice. Work-product privilege is designed to protect the contents and the nature of an attorney’s work for the client.
• An attorney-client privilege claim requires that the communication be made in confidence and for the purpose of facilitating the relationship between an attorney and a client. A work-product privilege claim requires that the attorney, or the attorney-client, prepared the information in anticipation of litigation.
• Work-product materials can be protected even if they are not confidential or if they are a third party’s materials. Attorney-client privilege typically is not available for third-party materials.
• Attorney-client privilege can apply in civil and criminal cases as well as administrative matters. Work-product protection only applies when there is “reasonably foreseeable” or “anticipated” litigation (though it can protect against a variety of types of litigation).
• Waiver of the attorney-client privilege can occur when information is disclosed to a third party who is not a lawyer. Work-product privilege waiver is more complicated and is not automatically triggered by disclosure of the work-product material itself, as established in the seminal Supreme Court case of Hickman v. Taylor, 329 U.S. 495 (1947).
• With respect to federal agencies, Federal Rule of Evidence 502(b) provides that a disclosure made to a federal office or agency does not operate as a waiver in a federal or state proceeding only if the disclosure was inadvertent, the holder took reasonable steps to prevent disclosure, and the holder promptly took reasonable steps to rectify the error.

1. Reasonable Anticipation of Litigation

Again, for companies and individuals under investigation by the SEC, reasonably anticipating litigation is usually a safe bet. But here is the thing: not everything created after an SEC investigation begins necessarily qualifies as work product.

Remember, the legal standard is “prepared in anticipation of litigation.” If a lawyer or a client prepares a document during a corporate internal investigation in response to an SEC inquiry, it does not automatically trigger work-product protection. If the documents are prepared during the ordinary course of business and not because of the prospect of litigation, then they won’t qualify for work-product protection.

2. Dual-Purpose Documents

How should we identify and support withheld work product?

Under Federal Rule of Civil Procedure 26(b)(5)(A), “ privilege claims in SEC document requests should be supported by descriptions of the withheld materials that are ‘sufficient to allow the court to assess the claim without revealing the information asserted to be privileged.’”

With this in mind, the SEC allows “categorical privilege assertions” in most SEC subpoena-enforcement actions. This was established in SEC v. Thrasher, No. 92 Civ. 6987 (JFK), 1996 WL 125661 (S.D.N.Y. Mar. 20, 1996). As noted by the court in SEC v. Thrasher:

“Generally, the SEC is not asking for an individual-item privilege log. Rather, the SEC generally agrees that ‘categorical assertions of privilege in response to its subpoenas will generally be appropriate so long as the information is ‘sufficient to allow the court to assess the claim without revealing the information asserted to be privileged.’”

However, for any disputed privilege claims that remain unresolved after the review of the privilege log, the court will review the disputed documents in camera.

What Qualifies as Work Product?

Within this framework, examples of documents that may qualify for work-product protection include:

• Internal Investigation Reports and Documents, When generated under the direction of an attorney because of the reasonable anticipation of litigation, an internal investigation report (and documentation prepared in connection with its preparation) can qualify as work product. However, internal investigation reports and documentation will not ordinarily conceal the underlying factual details within the documents, and witnesses to the documents’ preparation can testify about these details.
• Witness Interview Memoranda, While interview notes themselves may not ordinarily protect the underlying factual information, a witness interview memorandum can serve as a valuable tool to assert work-product protection over an attorney’s selection of facts, organization of facts, and characterization of facts.

Who Can Create Work Product?

Under Federal Rule of Civil Procedure 26(b)(3), “materials prepared by an attorney or his or her representative are entitled to work-product protection.” In SEC enforcement proceedings, this includes materials prepared by lawyers (inside and outside counsel), consultants, insurance companies, agents, other company representatives, and others.

Moreover, company personnel who have no prior legal training or experience can also create work product. But this generally only happens when company personnel act on behalf of the company because of the reasonable anticipation of litigation (e.g., preparing documents for their attorney).

Can Work-Product Claims Be Proven?

Ultimately, the determination of whether work-product protections apply in any specific case depends on the unique facts at hand. However, in the vast majority of cases, these protections are available to companies and individuals when appropriate.

When representing companies and individuals in SEC enforcement matters, we focus on a disciplined, evidence-driven approach to securing and documenting all available work-product protections. While we work closely with SEC enforcement staff to meet their deadlines, we also work to preserve our client’s work-product protections to the fullest extent possible.

Do We Assert the Work Product Doctrine in SEC Enforcement Matters?

Yes. When appropriate, we assert the work product doctrine in SEC document requests and other matters in a disciplined, aggressive, and consistent manner.

Todd Spodek is the managing partner of Spodek Law Group, a second generation criminal defense firm that has been practicing since 1976.

Can Cooperation with the SEC Waive Work Product Protection in Later Lawsuits?

In federal government enforcement actions, including SEC enforcement proceedings, voluntary cooperation with government prosecutors can trigger waiver of work-product protection in subsequent (e.g., private) litigation.

In the case of SEC enforcement proceedings, cooperation with the SEC can (and often does) trigger waiver of work-product protection in subsequent private litigation, even when the investigation does not lead to any civil or criminal charges against the company or individual.

While this result is extremely undesirable for companies and individuals under investigation, several federal courts have acknowledged this reality. For example, in In re Steinhardt Partners, L.P., 9 F.3d 230, 235 (2d Cir. 1993) (denying the company’s claim that voluntary disclosure to the SEC did not waive work-product protection in private litigation), the court stated:

“ a voluntarily provided translation of what was an otherwise exempt work-product is what constitutes voluntary disclosure. .. Here, voluntary disclosure to the SEC waives privilege and work-product protection.”

How Can Work Product Protection Be Preserved Downstream?

In federal government investigations, several different strategies can be used to preserve work-product protections downstream (i.e., in federal, state, or administrative proceedings).

One important, though limited, strategy is to seek a “selective waiver,” as articulated by several federal courts. For example, in the case of Diversified Industries, Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977) (en banc) (finding that a company’s conditional waiver of privilege to the SEC preserved the privilege against downstream private litigants), the court recognized a company’s right to selectively waive attorney-client privilege as to the SEC.

However, the vast majority of federal circuits have rejected this doctrine. Even when a company obtains a confidentiality agreement from the DOJ or SEC to preserve the confidentiality of the disclosed documents, most federal courts have held that such an agreement does not protect against downstream private litigants.

How Does FRE 502 Deal with Work Product Protection?

Federal Rule of Evidence 502 also plays a critical (and complex) role in preserving work-product protection downstream. However, under FRE 502(d) and (e), there are different conditions for invoking protections, and FRE 502(e) is limited to those who agree to the privilege waiver under their specific terms.

• Federal Rule of Evidence 502(d) is the stronger of the two. It permits a federal court, upon an appropriate request by a company or individual, to issue an order stating that a “covered disclosure” “does not constitute a waiver of privilege in this or any other federal or state proceeding.”
• Federal Rule of Evidence 502(e) permits two parties in a federal proceeding (such as an SEC Enforcement staff member and a company’s counsel) to sign a “privilege waiver agreement.” While such an agreement binds the parties to the specific terms therein, and it may not otherwise protect privileged and work-product materials, it may be possible to incorporate a Rule 502(e) agreement into a Rule 502(d) order.

As we have discussed, since the SEC cannot issue Rule 502(d) orders on its own, companies and individuals relying on Rule 502(d) must either: (i) obtain approval from the SEC to intervene in court for the limited purpose of obtaining a Rule 502(d) order, or (ii) obtain a Rule 502(d) order from the federal court after the SEC pursues an enforcement action in court.

Does the SEC Require Disclosure of Work-Product Protected Materials?

Generally, the SEC does not require companies and individuals to disclose work-product protected materials. In the November 2017 edition of the SEC Enforcement Manual, however, we learned that a “qualified” (i.e., non-core) work-product claim can be asserted against the SEC, but that before SEC Enforcement staff members can request a privilege waiver, they must obtain approval from the Director or Deputy Director of the division. If the SEC decides to request a privilege waiver and the response is a refusal to disclose (perhaps due to ordinary work-product concerns), then the SEC may seek a court order to compel production.

What should we do after inadvertently producing protected documents?

Under Federal Rule of Evidence 502(b), a company’s inadvertent disclosure of attorney-client privilege-protected or work-product protected materials to the SEC, whether through a subpoena response or by disclosing the materials in a non-responsive manner during an SEC enforcement proceeding, does not automatically trigger a privilege waiver.

To rely on a Rule 502(b) defense, a company must be able to establish that it (i) inadvertently disclosed the protected materials; (ii) took reasonable steps to prevent the inadvertent disclosure; and, (iii) took reasonable steps to rectify the inadvertent disclosure.

In SEC v. Welliver, the 2012 court decision was one of the first federal cases to apply Rule 502 in the context of an SEC investigative production. While the Welliver defendants asserted that they had inadvertently disclosed several protected emails in their subpoena response, the court denied their motion to claw back those emails. From the court’s review of the record, it determined that (i) there was no evidence of a thorough privilege review, (ii) there was no evidence that any safeguards were put into place to prevent inadvertent disclosure, and, (iii) the company’s counsel did not seek to get a deadline extension prior to its production, and the company produced the same emails repeatedly.

Furthermore, while seeking to avoid a permanent privilege waiver, the defendants’ counsel waited until later counsel arrived to seek a clawback of the disclosed emails. By this time, the defendants’ counsel had also used some of the undisclosed emails during their employees’ depositions, which the court found created an exception to the work-product privilege. As a result, the court held that the defendants had failed to establish a Rule 502(b) defense.

To satisfy the second prong of Rule 502(b), that the company took “reasonable steps” to prevent inadvertent disclosure, the company will need to generate contemporaneous records that document the preventive steps it has taken. For example, if the company only allows a small number of trusted people to access the set of documents it is collecting in response to the SEC’s subpoena, this can also serve as a reasonably sufficient preventive measure.

Similarly, to satisfy the third prong of Rule 502(b), that the company took “reasonable steps” to rectify the inadvertent disclosure, the company will need to generate contemporaneous records that document the corrective steps it takes after it discovers that an inadvertent disclosure occurred.

In all cases, an informed, early, and decisive approach to identifying inadvertent disclosures is essential to avoiding a potential waiver of the attorney-client or work-product privilege.

While the SEC may be entitled to use protected materials inadvertently disclosed by a company during an SEC enforcement proceeding, the SEC must take certain precautions as well. Under Federal Rule of Civil Procedure 26(b)(5)(B), if the SEC is notified that it received privileged materials inadvertently, it must sequester the materials, either return the materials, or destroy the materials upon the request of the company’s counsel, until the company’s claim of privilege can be resolved.

Furthermore, Rule 26(b)(5)(B) mandates that once notified, the SEC cannot use the materials, and any subsequent copies made, or any info derived from them during the investigation pending the outcome of the privilege challenge. If it does use the materials, it must destroy its copies. Finally, Rule 26(b)(5)(B)(iii) limits the use of inadvertently disclosed materials, providing that “the recipient may use the materials in any federal proceeding that is related to the subject matter of the investigation, unless the court of the proceeding takes an appropriate measure to protect the company.”

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 212-300-5196 to speak with our team.