Superman Case Unable to Save Selective Waiver Theory
In In re Pacific Pictures Corp., No. 11-71844, 2012 WL 1293534 (9th Cir. Apr. 17, 2012), a dispute concerning royalties derived from the character of Superman, the Ninth Circuit Court of Appeals joined a majority of circuit courts eliminating the possibility of selective waiver. The theory of selective waiver would allow a party to claim attorney-client privilege, where applicable, over a document that it had previously produced to the government. Generally, voluntarily producing the document as part of a government investigation would constitute waiver of any privilege attached to that document, and the party could be forced to produce it in subsequent civil litigation. Under selective waiver, though, a party is free to produce documents to the government, and gain credibility through cooperation, without risking possible exposure in future civil litigation. The only federal court of appeals to recognize selective waiver is the Eighth Circuit. Its failure to gain wider acceptance means that businesses in highly-regulated industries must consider all collateral consequences when deciding what, if any, privilege to waive when responding to government subpoenas.
Selective waiver originated in Diversified Indus. v. Meredith, 572 F.2d 596 (8th Cir. 1978). There, the court considered “whether Diversified waived its attorney-client privilege with respect to the privileged material by voluntarily surrendering it to the SEC pursuant to an agency subpoena.” Id. At 611. The plaintiff there had produced a report performed by outside counsel as part of an SEC investigation, but claimed attorney-client privilege over the same report in subsequent civil litigation. The court found that “[a]s Diversified disclosed these documents in a separate and nonpublic SEC investigation, we conclude that only a limited waiver of the privilege occurred.” Id. The court reasoned that “[t]o hold otherwise may have the effect of thwarting the developing procedure of corporations to employ independent outside counsel to investigate and advise them in order to protect stockholders, potential stockholders, and customers.” Id.
The Pacific Pictures court referred to the Diversified court’s decision as a “cursory analysis” 2012 WL 1293534 at *4, and as the Pacific Pictures court noted, no other circuit courts followed suit in recognizing the theory, leaving the Eighth Circuit in a proverbial fortress of solitude.1
In Pacific Pictures, the party claiming privilege had not been an unwilling target of a government investigation. There, litigation had been proceeding over royalties from Superman media for years between D.C. Comics and the heirs of Superman’s creators, along with the heirs’ business partner, Marc Toberoff. While the litigation was pending, David Michaels, a lawyer in Toberoff’s employ, absconded with certain documents related to the case. Toberoff then “asked the Office of the United States Attorney for the Central District of California to investigate Michaels.” 2012 WL 1293534 at *2. In response, the U.S. Attorney undertook the investigation and subpoenaed certain documents from Toberoff. Along with the subpoena, the government stated in a letter to Toberoff that it would not provide the documents at issue “‘to nongovernmental third parties except as may be required by law or court order.’” Id. “Armed with this letter, Toberoff readily complied with the subpoena, making no attempt to redact anything from the documents.” Id. Upon that production, D.C. Comics immediately demanded that the same documents be produced in the civil case.
The Pacific Pictures court determined that the principle of selective waiver “does little, if anything, to serve the public good underpinning the attorney-client privilege,” because its main effect is to promote cooperation with the government rather than to preserve the possibility a client obtaining informed legal advice from his counsel. Id. at *4. The court was silent as to selective waiver’s general impact on truth, justice and the American way. The court noted, “If we were to unmoor a privilege from its underlying justification, we would at least be failing to construe the privilege narrowly. And more likely, we would be creating an entirely new privilege.” Id. (internal citations omitted).
The court noted it was not beyond its power to create a new privilege, but that, “Put simply, the balance of conflicting interests of this type is particularly a legislative function. Since Diversified, there have been multiple legislative attempts to adopt a theory of selective waiver. Most have failed.” 2012 WL 1293534 at *4 (internal quotations omitted). The court cited to the 2007 Report of the Advisory Committee on Evidence Rules; as part of that Committee’s effort to amend the federal rules of evidence, it had attempted to integrate a provision applying for selective waiver in the Diversified mold. However, the Committee ultimately dropped that provision from its proposed amendment, opting instead to report a proposed selective waiver provision separately. After this decision, the selective waiver provision failed to gain any traction and was never integrated into the federal rules. The Pacific Picturescourt concluded, “Given that Congress has declined broadly to adopt a new privilege to protect disclosures of attorney-client privileged materials to the government, we will not do so here.” Id.
Toberoff had argued that, apart from a general principle of selective waiver, the fact that he produced the documents to the government pursuant to a subpoena should merit protection for the documents, because responding to a subpoena does not constitute a voluntary waiver of privilege. The court noted, “Involuntary disclosures do not automatically waive the attorney-client privilege. But without the threat of contempt, the mere existence of a subpoena does not render testimony or the production of documents involuntary.” Id. at *6. The court noted that “even though the subpoena specifically contemplated that Toberoff may choose to redact privileged materials, he did not.” Id. Because he did not make any effort to assert the attorney-client privilege over the documents when responding to the subpoena, the court treated his disclosure as voluntary. As a voluntary disclosure, Toberoff’s production of the documents amounted to a waiver of the attorney-client privilege over them.
The court also considered whether it “should enforce a purported confidentiality agreement based upon the letter from the U.S. Attorney’s Office.” Id. at *5. The court noted it was unclear that the letter at issue constituted a confidentiality agreement, but that even if it did, the court would decline to interpret it to protect the documents from production here. The court pointed out that enforcing “post hoc contracts regarding how information may be revealed” would do “little to serve the public ends of adequate legal representation that the attorney-client privilege is designed to protect.” Id. For that reason, the court declined to rule that the documents should be protected under the terms of the U.S. Attorney’s letter.
The Ninth Circuit’s ruling here may ensure that the selective waiver principle disappears from American jurisprudence faster than a speeding bullet. In light of Pacific Pictures and the prior tide of decisions declining to adopt the theory, it is clear that parties must give careful consideration to privilege issues when responding to government subpoenas. When responding to a government investigation, a company often seeks to cooperate as fully as possible, in order to build credibility with the government and achieve a favorable resolution. However, companies must balance this consideration with a recognition that anything they produce to the government may be subject to production in later civil litigation, as well. Just as Clark Kent changes into Superman, a document that helps with a government investigation can become kryptonite in subsequent civil litigation. Companies should therefore make the effort necessary to identify and assert privilege when faced with government investigations. In addition, because many companies have more than one firm handling government investigations and civil litigation, it is critical that counsel consider the implications of producing documents beyond their own engagements, and company counsel must recognize and coordinate such interactions.
Although selective waiver would likely make it easier for parties to respond to government investigations, its failure to gain acceptance outside the Eighth Circuit means that companies must be mindful of the implications of production for future civil litigation.
1 The Pacific Pictures court cited the following cases rejecting selective waiver: In re Qwest Commc’ns Int’l, 450 F.3d 1179, 1197 (10th Cir. 2006); Burden–Meeks v. Welch, 319 F.3d 897, 899 (7th Cir. 2003); In re Columbia/HCA Healthcare Corp. Billing Practices Litig., 293 F.3d 289, 295 (6th Cir. 2002); United States v. Mass. Inst. of Tech., 129 F.3d 681, 686 (1st Cir. 1997); Genentech, Inc. v. United States Int’l Trade Comm’n, 122 F.3d 1409, 1416–18 (Fed. Cir. 1997); In re Steinhardt Partners, L.P., 9 F.3d 230, 236 (2d Cir. 1993); Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1425 (3d Cir. 1991); In re Martin Marietta Corp., 856 F.2d 619, 623–24 (4th Cir. 1988); Permian Corp. v. United States, 665 F.2d 1214, 1221 (D.C. Cir. 1981).