Opinion ID: 149672
Heading Depth: 2
Heading Rank: 3

Heading: The Dow Documents

Text: Although the government concedes that the Dow Documents are work product, it contends that Dow waived work-product protection by disclosing them to Deloitte. To the best of our knowledge, no circuit has addressed whether disclosing work product to an independent auditor constitutes waiver. Among the district courts that have addressed this issue, most have found no waiver. E.g., Regions Fin. Corp. v. United States, No. 2:06-CV-00895-RDP, 2008 WL 2139008, at  (N.D.Ala. May 8, 2008) (slip op.); Lawrence E. Jaffe Pension Plan v. Household Int'l, Inc., 237 F.R.D. 176, 183 (N.D.Ill.2006); In re JDS Uniphase Corp. Sec. Litig., No. C-02-1486 CW, 2006 WL 2850049, at  (N.D.Cal. Oct.5, 2006) (unpublished decision); Am. S.S. Owners Mut. Prot. & Indem. Ass'n v. Alcoa S.S. Co., No. 04-Civ-4309, 2006 WL 278131, at  (S.D.N.Y. Feb.2, 2006) (unpublished decision); Frank Betz Assocs., Inc. v. Jim Walter Homes, Inc., 226 F.R.D. 533, 535 (D.S.C.2005); Merrill Lynch & Co., Inc. v. Allegheny Energy, Inc., 229 F.R.D. 441, 447-49 (S.D.N.Y.2004); In re Honeywell Int'l, Inc. Sec. Litig., 230 F.R.D. 293, 300 (S.D.N.Y.2003); Gutter v. E.I. Dupont de Nemours & Co., No. 95-CV-2152, 1998 WL 2017926, at  (S.D.Fla. May 18, 1998) (unpublished decision); In re Pfizer Inc. Sec. Litig., No. 90 Civ. 1260, 1993 WL 561125, at  (S.D.N.Y. Dec.23, 1993) (unpublished decision). At least two courts have found waiver. Medinol, Ltd. v. Boston Scientific Corp., 214 F.R.D. 113, 115-17 (S.D.N.Y.2002); In re Diasonics Sec. Litig., No. C-83-4584-RFP, 1986 WL 53402, at  (N.D.Cal. June 15, 1986) (unpublished decision). While voluntary disclosure waives the attorney-client privilege, it does not necessarily waive work-product protection. United States v. Am. Tel. & Tel. Co., 642 F.2d 1285, 1299 (D.C.Cir.1980) ( AT & T ). As we explained in AT & T, the attorney-client privilege and the work-product doctrine serve different purposes: the former protects the attorney-client relationship by safeguarding confidential communications, whereas the latter promotes the adversary process by insulating an attorney's litigation preparation from discovery. Id. Voluntary disclosure waives the attorney-client privilege because it is inconsistent with the confidential attorney-client relationship. Id. Voluntary disclosure does not necessarily waive work-product protection, however, because it does not necessarily undercut the adversary process. Id. Nevertheless, disclosing work product to a third party can waive protection if such disclosure, under the circumstances, is inconsistent with the maintenance of secrecy from the disclosing party's adversary. Rockwell Int'l Corp. v. U.S. Dep't of Justice, 235 F.3d 598, 605 (D.C.Cir.2001) (quoting AT & T, 642 F.2d at 1299). Under this standard, the voluntary disclosure of attorney work product to an adversary or a conduit to an adversary waives work-product protection for that material. Applying this standard, the government contends that Dow has waived work-product protection for the Dow Documents because Deloitte is (1) a potential adversary and (2) a conduit to other adversaries. We reject both contentions and conclude that Dow has not waived the protection.
The government contends that Deloitte is a potential adversary of Dow because disputes sometimes arise between independent auditors and their clients and because independent auditors have the power to issue opinions that adversely affect their clients. Neither argument demonstrates that Deloitte is a potential adversary for purposes of waiver analysis. First, as an independent auditor, Deloitte cannot be Dow's adversary. Even the threat of litigation between an independent auditor and its client can compromise the auditor's independence and necessitate withdrawal. See AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA), AICPA PROFESSIONAL STANDARDS, CODE OF PROFESSIONAL CONDUCT § 101.08 (2005) (hereinafter AICPA CODE OF PROFESSIONAL CONDUCT) (discussing the effect of actual and threatened litigation on auditor independence). Further, Deloitte's power to issue an adverse opinion, while significant, does not make it the sort of litigation adversary contemplated by the waiver standard. Similarly, any tension between an auditor and a corporation that arises from an auditor's need to scrutinize and investigate a corporation's records and book-keeping practices simply is not the equivalent of an adversarial relationship contemplated by the work product doctrine. Merrill Lynch, 229 F.R.D. at 448. Second, the possibility of a future dispute between Deloitte and Dow does not render Deloitte a potential adversary for the present purpose. If it did, any voluntary disclosure would constitute waiver. Yet the work-product doctrine allows disclosures as long as they do not undercut the adversary process. See AT & T, 642 F.2d at 1299. Here, the question is not whether Deloitte could be Dow's adversary in any conceivable future litigation, but whether Deloitte could be Dow's adversary in the sort of litigation the Dow Documents address. We conclude that the answer must be no. In preparing the Dow Documents, Dow anticipated a dispute with the IRS, not a dispute with Deloitte. The documents, which concern the tax implications of the Chemtech partnerships, would not likely be relevant in any dispute Dow might have with Deloitte. Thus Deloitte cannot be considered a potential adversary with respect to the Dow Documents. The government argues that United States v. Massachusetts Institute of Technology, 129 F.3d 681 (1st Cir.1997), supports its argument that an independent auditor is a potential adversary. In that case, a defense contractor (MIT) under IRS investigation claimed work-product protection for expense reports it had disclosed to the Defense Contract Audit Agency, a branch of the Department of Defense. The First Circuit held that MIT had waived the protection by disclosing its expense reports to a potential adversary. Id. at 687. The court's reasoning is clear: MIT disclosed the expense reports to the auditing arm of the Defense Department, the most likely adversary in any dispute over expense reports. In doing so, it disclosed its work product not to an independent auditor, but to an auditor affiliated with a potential adversary. Dow's disclosure to its independent auditor, which is not a potential adversary in tax litigation over the Chemtech partnerships, is wholly different.
The government also asserts that Deloitte is a conduit to Dow's adversaries. It claims the district court failed to address this question, but this ignores the district court's explicit statement that no evidence suggests that it was unreasonable for Dow to expect Deloitte USA to maintain confidentiality. Deloitte, 623 F.Supp.2d at 41. Like the district court, we conclude that Deloitte is not a conduit to Dow's adversaries. Our prior decisions applying the maintenance of secrecy standard, while fact-intensive, have generally made two discrete inquiries in assessing whether disclosure constitutes waiver. First, we have considered whether the disclosing party has engaged in self-interested selective disclosure by revealing its work product to some adversaries but not to others. Williams, 562 F.3d at 394; In re Subpoenas Duces Tecum, 738 F.2d 1367, 1372 (D.C.Cir.1984). Such conduct militates in favor of waiver, for it is inconsistent and unfair to allow [parties] to select according to their own self-interest to which adversaries they will allow access to the materials. In re Subpoenas, 738 F.2d at 1372. Second, we have examined whether the disclosing party had a reasonable basis for believing that the recipient would keep the disclosed material confidential. Williams, 562 F.3d at 394; In re Subpoenas, 738 F.2d at 1372-74. A reasonable expectation of confidentiality may derive from common litigation interests between the disclosing party and the recipient. In re Subpoenas, 738 F.2d at 1372. As we explained in AT & T, [t]he existence of common interests between transferor and transferee is relevant to deciding whether the disclosure is consistent with the nature of the work product privilege. 642 F.2d at 1299. This is true because when common litigation interests are present, the transferee is not at all likely to disclose the work product material to the adversary. Id. Alternately, a reasonable expectation of confidentiality may be rooted in a confidentiality agreement or similar arrangement between the disclosing party and the recipient. Nevertheless, a confidentiality agreement must be relatively strong and sufficiently unqualified to avoid waiver. In Williams, for example, we concluded that the government's assurance that it would maintain confidentiality to the extent possible was not sufficiently strong or sufficiently unqualified to prevent the government from disclosing the information to a criminal defendant under Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). 562 F.3d at 395-96. Likewise, we have determined that a mere promise to give the disclosing party notice before releasing documents does not support a reasonable expectation of confidentiality. In re Subpoenas, 738 F.2d at 1373. The selective disclosure inquiry is straightforward. Selective disclosure involves disclosing work product to at least one adversary. As we have explained, Deloitte is not an adversary, so Dow's disclosure to Deloitte was not selective disclosure. The reasonable expectation of confidentiality inquiry is more complicated. As to common interests, Dow and Deloitte do not have common litigation interests in the Dow DocumentsDow has a litigation interest in the documents because of its interest in the Chemtech partnerships, but Deloitte has no similar interest in the documents. Absent common interests, the question is whether a confidentiality agreement or similar assurance gave Dow a reasonable expectation that Deloitte would keep its work product confidential. We conclude that Dow had a reasonable expectation of confidentiality because Deloitte, as an independent auditor, has an obligation to refrain from disclosing confidential client information. Rule 301 of the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct provides: A member in public practice shall not disclose any confidential client information without the specific consent of the client. AICPA CODE OF PROFESSIONAL CONDUCT § 301.01. William Curry's declaration explains that Dow furnished these documents to D & T [Deloitte] with the expectation that D & T would retain the confidentiality of the two documents. Given the obligation imposed by Rule 301, we think this expectation was reasonable. The government responds that this is a qualified assurance that does not suffice to prevent waiver because Rule 301 also explains that it shall not be construed ... to affect in any way the member's obligation to comply with a validly issued and enforceable subpoena or summons. Id. But an assertion of work-product protection challenges the enforceability of a subpoena with respect to those materials. Thus Deloitte could refuse to produce the documents, thereby allowing Dow to intervene and assert work-product protection, without violating its obligation to comply with enforceable subpoenas. Indeed, this is exactly what Deloitte did. Accordingly, this caveat does not significantly diminish the reasonableness of Dow's expectation of confidentiality. The government also attempts to bolster its waiver argument by identifying instances in which an independent auditor might disclose information obtained from a company whose finances it audits. For example, it asserts that Deloitte could make Dow disclose its confidential tax analysis in footnotes to its public financial statements. Likewise, Deloitte could testify about confidential information obtained from Dow in proceedings brought by the SEC or private parties. Or Deloitte might report illegal acts it detects during its audit in accordance with § 10A of the Securities and Exchange Act, 15 U.S.C. § 78j-1. Finally, the government returns to Arthur Young, arguing that as an independent auditor, Deloitte is a public watchdog whose ultimate allegiance is to Dow's creditors, stockholders, and the investing publicall potential adversaries of Dow. In sum, the government contends that Dow could not reasonably expect confidentiality from Deloitte after giving it the Dow Documents, given the myriad ways Deloitte could reveal that information. Of course Deloitte might disclose some information relevant to Dow's finances. But the government has neither pointed to any regulatory provision nor posited any specific circumstance under which Deloitte would be required to disclose attorney work product like that contained in the Dow Documents. An independent auditor can fulfill its duties and render an opinion concerning a company's public financial statements without revealing every piece of information it reviews during the audit process. In short, Deloitte's independent auditor obligations do not make it a conduit to Dow's adversaries. Likewise, the government's reliance on Arthur Young is misplaced. In Arthur Young, the Court considered whether accountant work-product should be granted the same protection attorney work product receives. The government quotes the Court's statement that [t]o insulate from disclosure a certified public accountant's interpretations of the client's financial statements would be to ignore the significance of the accountant's role as a disinterested analyst charged with public obligations. Arthur Young, 465 U.S. at 818, 104 S.Ct. 1495. All well and good. In this case, however, the government attempts to discover not an independent auditor's interpretations of the client's financial statements, which Arthur Young would permit, but an attorney's thoughts and opinions developed in anticipation of litigation, which the work-product doctrine forbids. Furthermore, we are mindful that independent auditors have significant leverage over the companies whose finances they audit. An auditor can essentially compel disclosure by refusing to provide an unqualified opinion otherwise. Finding waiver based on such disclosures could well encourage the sort of [i]nefficiency, unfairness and sharp practices that Hickman sought to avoid. For example, it might discourage companies from seeking legal advice and candidly disclosing that information to independent auditors. Moreover, the government has not proffered any good reason for wanting the Dow Documents other than its desire to know what Dow's counsel thought about the Chemtech partnerships. Granting discovery under these circumstances would undercut the adversary process and let the government litigate on wits borrowed from the adversary, Hickman, 329 U.S. at 516, 67 S.Ct. 385 (Jackson, J., concurring). We conclude that the district court applied the correct legal standard and acted within its discretion in determining that Dow had not waived work-product protection. Consequently, we affirm the district court's decision denying the government's motion to compel with respect to the Dow Documents.