Preserving and piercing privileges in an oil and gas practice

1. Presented:
TH
34 Annual Ernest E. Smith
Oil, Gas & Mineral Law Institute
Friday, April 4, 2008
Houston, Texas
PRODUCTION, 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

2. TABLE OF CONTENTS
Page No.
I. INTRODUCTION..............................................................................................................1
II. 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 ...............................................................................7
III. 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.........................................................9
IV. 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 ..................11
V. DELIBERATIVE PROCESS PRIVILEGE ..................................................................11
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3. 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.............................................................21
VII. ADDITIONAL PRIVILEGE ISSUES PERTINENT TO THE OIL AND GAS
INDUSTRY.......................................................................................................................21
A. Title Opinions .......................................................................................................21
B. Protecting Privileges When Selling Assets .........................................................22
VIII. TIPS FOR PRESERVING OR PIERCING PRIVILEGES ........................................23
IX. CONCLUSION ........................................................................................................25
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4. 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 the
business determine interest ownerships. They handle purchases and sales of leases and other
interests. They supervise mergers, acquisitions, and divestitures, as well as the financing thereof.
They handle employment and employee benefit matters. They assist clients with environmental
and other regulatory issues and make the regulatory filings required under the relevant
international, 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 public
filings.
Of course, oil and gas litigators have their own diverse dockets. They are often involved
in internal as well as governmental investigations. They consult with and advise clients and
client employees faced with litigation or the threat of litigation. They deal with consulting and
trial 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 others
until those disputes have been fully resolved.
Given the diversity of the practice, in-house and outside counsel in the oil and gas
business 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 other
areas of law, the oil and gas lawyers’ art in preserving a client’s privileges must rest, first, on a
sound understanding of the first principles of privilege law, and, second, on an appreciation for
how those principles have been or will be applied in the almost infinite variety of oil and gas
contexts.
In light of that premise, this paper discusses the basic rules and cases relating to
privileges and where possible, discusses those principles in the context of cases that specifically
involve oil and gas companies or oil and gas issues.1 Hopefully, this summary of the rules, their
interpretations, and their applications in circumstances familiar to the oil and gas industry will
prove helpful to this audience.
II. THE ATTORNEY-CLIENT PRIVILEGE
A. Elements and Parameters of the Privilege
Texas Rule of Evidence 503 defines the scope of the attorney-client privilege under
Texas 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 law
attorney-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.
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5. (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 that
communications between an attorney and a client and the client’s representatives made to secure
legal 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 not
just to an attorney’s legal advice, but to the complete communication between the attorney and
his 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, 922
S.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, no
pet.), the Fourteenth Court of Appeals confirmed that, when a document evidences a privileged
communication, “the privilege extends to the entire document and not merely to the portion of
the document containing legal advice, opinions, or analysis.” Id. at 357.
The party asserting the privilege has the burden of proving that it applies to the
communication 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 the
court’s subject-matter jurisdiction is based on a federal question or on federal admiralty
jurisdiction. 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 of
attorney-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 federal
common law of attorney-client privilege in an admiralty and maritime case). However, when
jurisdiction 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).
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6. C. Scope of the Privilege for Corporations
The attorney-client privilege extends to communications between representatives of the
client 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 are
covered by the attorney-client privilege. Historically, courts have adopted two different tests for
determining which corporate representatives are covered by the attorney-client privilege: the
control group test and the subject matter test.
The “control group” test provides that a corporate representative’s communication is
protected by the attorney-client privilege if the representative is “‘in a position to control or even
to take a substantial part in a decision about any action which the corporation may take upon the
advice 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 is
protected 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 which
corporate representatives were covered by the attorney-client privilege. However, in March
1998, Texas adopted the subject matter test in the course of amending Texas Rule of Evidence
503(a). Dupont, 136 S.W.3d at 226 n.3. That move away from the control group test was
consistent with the direction already taken by the United States Supreme Court in the Upjohn
case. In that 1981 case, the United States Supreme Court had rejected the control group test in
favor 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, see
Exxon 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 a
letter prepared by one of Exxon’s in-house counsel – on the grounds that Exxon had allegedly
waived the attorney-client privilege with respect to the letter. Id. at 1103-04. In that letter, the
in-house counsel had analyzed the royalty provisions of a lease agreement between Exxon and
the Alabama Department of Conservation and Natural Resources, and had evaluated “potential
areas 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 confidential
communication because it was circulated to too many people. Id. at 1104. However, the
Alabama Supreme Court disagreed. It concluded that the letter was only circulated to “those
directly involved in the royalty-payment decision and the process of payment.” Id. Because
those individuals were members of the “control group,” the Court concluded that the letter was
privileged. Id.
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7. D. Scope of the Privilege for Corporate Counsel
It is often difficult to determine which communications to and from corporate counsel are
privileged and which communications are not privileged. This is so because modern corporate
counsel are involved in all facets of the corporations for which they work. Moreover, many
corporate counsel hold officer and director positions that further involve them in day-to-day
business operations and decision-making. When corporate counsel act in their capacity as
business 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, is
not 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 or
from corporate counsel are privileged. For example, some courts have adopted the “primarily or
predominantly legal” test, which provides that, for a communication involving a corporate
counsel 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 privilege
to communications with legal counsel in which a mixture of services are sought is whether
counsel was participating in the communications primarily for the purpose of rendering legal
advice 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 the
communications it seeks to protect were made primarily for the purpose of generating legal
advice”).
Other courts have focused on whether the corporate counsel was, in connection with the
communication, 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 the
company constituted privileged communications because “[d]rafting legal documents is a core
activity of lawyers, and obtaining information and feedback from clients is a necessary part of
the process”).
Other courts have focused on the corporate counsel’s position on the corporation’s
organizational 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, courts
presume 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 or
business 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-client
privilege for corporate counsel. That erosion is attributable to, among other things:
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8.  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% of
the 719 corporate counsel surveyed said that their corporate clients had experienced an erosion in
the protections offered by the attorney-client and work product privileges in the post-Enron
business environment. The percentage of outside counsel who had experienced this erosion was
47.3%.
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 re
Monsanto Co., 998 S.W.2d 917, 922 (Tex. App.—Waco 1999, orig. proceeding). The joint
defense 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 lawyer
who is representing another party in a pending action and concerning a matter of common
interest. Id.
Similarly, the federal common law recognizes a “common legal interest” privilege as part
of the attorney-client privilege. In re Auclair, 961 F.2d 65, 68-69 (5th Cir. 1992). The common
legal 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 clearly
defined.” Id.
2. “Representative of the Lawyer”
Texas Rule of Evidence 503(a)(4) defines the phrase “representative of the lawyer” as
follows:
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9. (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 can
qualify 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 to
an accountant employed by an attorney when the accountant’s role is to clarify communications
between the attorney and the client. U.S. v. Ackert, 169 F.3d 136, 139 (2d Cir. 1999); Ferko, 218
F.R.D. at 139 (holding that the attorney-client privilege applied to confidential client information
that the attorney disclosed to an accounting firm).
G. Exceptions to the Privilege
There are several exceptions to the attorney-client privilege, including the crime-fraud
exception 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 of
the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit what
the 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 the
attorney-client privilege did not apply with respect to title opinions and related documents that
Arkla had destroyed. Id. at 630. The Court explained that that there was no showing that the
services of the attorneys who prepared the title opinions and related documents were obtained
with any fraudulent or illegal intent. Id. Moreover, the Court also explained that the party
seeking the documents had failed to offer any proof supporting its allegation that Arkla’s
document destruction constituted fraud. Id.
Under the federal common law, the party asserting the crime-fraud exception to the
attorney-client privilege must:
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10. (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 the
prima 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 “a
communication relevant to a matter of common interest between or among two or more clients if
the communication was made by any of them to a lawyer retained or consulted in common, when
offered 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 coal
license grantee made a prima facie showing that certain documents were protected by the
attorney-client privilege. However, the coal license grantor claimed that those documents were
discoverable because an attorney had generated those documents while jointly representing the
grantor’s and the grantee’s interests. However, the Dallas Court of Appeals held that joint client
exception 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) the
grantor and the grantee each consulted with the attorney; or (3) the attorney agreed to render
legal 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 only
materials 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,
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11. 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 and
tangible things that are prepared in anticipation of litigation or for trial by or for another party or
its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or
agent).” FED. R. CIV. P. 26(b)(3).
A party cannot bury non-privileged facts in work product, and such facts may be
discovered 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 court
must do is determine whether a particular document or tangible thing was created in anticipation
of litigation. The Texas Supreme Court has established the following two-prong test for
determining 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 a
document 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 possible
future 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 for
the 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 not
protected. See Arkla, 846 S.W.2d at 630 (holding that the “work product privilege does not
apply to those title opinions not prepared as part of the preparation for litigation”).
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12. C. The Scope of the Privilege
The scope of protection provided by the work product privilege depends upon the nature
of the materials sought to be protected.
1. Core Work Product
The following are a few examples of core work product: legal memoranda; summaries of
witness 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 NOT
discoverable 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.), the
Beaumont 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 to
gather documents responsive to the plaintiffs’ requests for production. Id. at 71. Exxon had
argued that, because its in-house and outside counsel had searched for and produced the
responsive documents, any testimony regarding that process was privileged. Id. at 72-73. The
Court of Appeals agreed with Exxon. It held that the process by which Exxon’s attorneys
responded to the requests for production was protected by the work product privilege as Exxon’s
attorneys had to draw on their mental impressions, opinions, conclusions, and/or legal theories to
determine which documents to produce. See id. at 75-76.
Under the federal common law, the mental impressions, conclusions, opinions or legal
theories of an attorney or an attorney’s representative are “generally afforded near absolute
protection 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 is
acting as a consulting expert in litigation, the “facts known or opinions held” by that attorney
may be discoverable through depositions or interrogatories upon a showing of “exceptional
circumstances under which it is impracticable for the party seeking discovery to obtain facts or
opinions 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 work
product is discoverable. Under both, non-core work product is discoverable “only upon a
showing that the party seeking discovery has substantial need of the materials in the preparation
of the party’s case and that the party is unable without undue hardship to obtain the substantial
equivalent 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), the
Southern District of Texas addressed whether to compel Diamond Offshore to produce
transcripts of interviews of certain of its employees who witnessed the accident that was the
subject of the litigation. Id. at 584. The Court held that the transcripts were discoverable under
the substantial need/undue hardship exception to the work product privilege. Id. at 584-85. The
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13. Court explained that, because the interviews had been conducted shortly after the accident, the
transcripts would be more accurate than any statements that could be obtained from the same
witnesses 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 the
work product privilege extended to documents prepared by an investigator working for Global
Santa Fe’s outside counsel. Id. at *3. The Court noted that attorneys must often rely on
investigators 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 attorney
himself.’” Id. However, because the factual information discovered by the investigator was not
subject to the work product privilege, the Court noted that the plaintiff could depose the
investigator regarding these facts. Id. at *4.
IV. SELF-EVALUATION PRIVILEGE
A. The Scope of the Privilege
The self-evaluation privilege allows a party to protect certain records, or portions of the
records, that contain internal evaluations because to require such production would impede the
open and candid discussion of ideas.
The self-evaluation privilege attaches only where the party asserting the privilege shows
the 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-evaluation
privilege applies only to evaluations; factual determinations and facts contained in internal
evaluations 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 government
agencies. 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
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14. agency directing the company to produce fifty categories of documents, including in-house
reports 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-evaluation
privilege. Id. at 210. The District of Columbia Circuit noted that: “[w]hatever may be the status
of the ‘self-evaluative’ privilege in the context of private litigation, courts with apparent
uniformity have refused its application where, as here, the documents in question have been
sought 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 currently
recognize the self-evaluation privilege. Neither do federal courts in the Fifth Circuit. See
Kaiser, 214 F.3d at 593.
V. DELIBERATIVE PROCESS PRIVILEGE
When litigating against the federal government, it is important to be aware that the
federal government can assert privileges that are not available to private litigants. The
deliberative 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 States
Gas Corp. v. Dep’t of Energy, 617 F.2d 854, 866 (D.C. Cir. 1980). A document is considered to
be “deliberative” when it “reflects the give-and-take of the consultative process.” Id. Examples
of documents covered by the deliberative process privilege include recommendations, draft
documents, proposals, suggestions, and other subjective documents reflecting the personal
opinions of the writer rather than the policy of the agency. Id.
The purpose of the deliberative process privilege is to “encourage frank discussion of
ideas and policies, thereby ensuring the quality of governmental decision making.” Mobil Oil
Corp. v. Dep’t of Energy, 102 F.R.D. 1, 5 (N.D.N.Y. 1983). However, it is a “qualified
privilege, to be applied as narrowly as possible, consistent with efficient administrative
operations.” 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 Claims
addressed whether the government could assert the deliberative process privilege in response to
Chevron’s requests for the production of documents. Id. at 355-362. This case involved a
dispute 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 the
government that assigned ownership interests in the Reserve to each party and that provided for
redetermination of those interests “at such time as there was a better way of determining the
volume of oil and gas” in the Reserve. Id. at 343. In 1997, Chevron entered into an Equity
Process Agreement with the government that set out a procedure for the Assistant Secretary for
Fossil 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 the
Reserve. Id. at 347.
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15. The Equity Process Agreement prohibited the parties from engaging in ex parte
communications with the ASFE. Id. at 345. Nevertheless, after the AFSE had issued his
decision, Chevron discovered that the government had engaged in numerous ex parte
communications with the ASFE. Id. at 347. Chevron subsequently filed suit against the
government for breaching the Equity Process Agreement. Id. at 350.
During discovery, Chevron requested that the government produce documents relating to
the ex parte communications with the ASFE. Id. at 351. In response, the government claimed
that all documents relating to “issues arising out of the equity finalization process” were
protected under the deliberative process privilege, which included the ex parte communications
with the ASFE. Id. at 355.
In its analysis, the Court of Claims noted that the Equity Process Agreement was a
contract to divide commercial property interests in oil rights, and that the government
participants involved in the equity finalization process “were not engaged in policy-making in
the traditional sense.” Id. at 361. Moreover, the Court noted that “the communications at issue
do 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 relevant
documents were protected by the deliberative process privilege. Id. Nevertheless, the Court
ordered the government to produce all of the factual content contained in the documents that
could 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 disclosure
of privileged information, inadvertent disclosure of privileged information, and offensive use of
privileged information. Moreover, if a party selectively discloses privileged information to
government agencies, a court may conclude that the party has waived its right to assert the
privilege 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 a
gas well operator waived its attorney-client privilege as to an internal investigation of alleged
kickbacks and bribes from suppliers and contractors by disclosing the results of that investigation
to federal investigators and to the media). The same is true in federal court. See, e.g., Alldread
v. 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, no
pet.), the First Court of Appeals held that the trial court had not abused its discretion in ordering
the production of a title opinion prepared by an Exxon attorney. Id. at 363. Although there was
no evidence that the title opinion in question had been shown to a third party, the Court of
Appeals noted that there was conflicting testimony regarding whether Exxon had “occasionally”
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16. 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 trial
court had abused its discretion in ordering BP to produce documents used by BP to compute a
reserve figure reported to the SEC. Id. at *1. The reserve figure was BP’s estimate of its
liability for the personal injuries resulting from the March 23, 2005 explosion at BP’s Texas City
refinery. Id. The trial court had held that BP waived the attorney-client and work product
privileges with respect to the methodology and materials used to compute the reserve figure by
voluntarily 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 public
disclosure to the reserve figure itself and did not disclose the methodology or materials used to
compute the reserve figure, BP did not waive its attorney-client and work product privileges with
regard 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 from
discovery under a claim of privilege, including a claim sustained by the court, without timely
amending 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 Duke
v. Power Elec. & Hardware Co., 674 S.W.2d 400, 404 (Tex App.—Corpus Christi 1984, no
writ) (holding that asking questions to establish the motive or intent of a party when acting on
advice 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 of
privileged material. Rule 193.3(d) provides that, if a party discloses privileged material in
response to a written discovery request and that party does not intend to waive the privilege, the
party must amend its discovery response within 10 days (or a shorter time designated by the
court) after discovering the inadvertent production. TEX. R. CIV. P. 193.3(d). In the amended
response, the party must identify the privileged material that it inadvertently produced and state
the privilege asserted. Id. Upon receipt of such amended response, the party who received the
inadvertently produced material must return the specified material and any copies to the
producing party. Id.
2. Federal Common Law
Some federal courts have held that, where there has been a disclosure of privileged
communications to third parties, the privilege is lost, even if the disclosure is unintentional or
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17. inadvertent. See, e.g., In re Sealed Case, 877 F.2d 976, 980 (D.C. Cir. 1989); In re Grand Jury
Proceedings, 727 F.2d 1352, 1356 (4th Cir. 1984). However, the majority of courts, while
recognizing that inadvertent disclosure may result in a waiver of the privilege, have declined to
apply this “strict responsibility” rule of waiver and have opted instead for an approach which
takes into account the facts surrounding a particular disclosure. See, e.g., Transamerica
Computer Co. v. IBM Corp., 573 F.2d 646, 650-52 (9th Cir. 1978) (privilege waived only if
privilege 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) (limited
inadvertent disclosure will not necessarily result in waiver); Georgetown Manor, Inc. v. Ethan
Allen, Inc., 753 F.Supp. 936, 938-39 (S.D. Fla. 1991) (“mere inadvertent production” by an
attorney 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 consider
the circumstances surrounding a disclosure on a case-by-case basis is preferable to a per se rule
of waiver.”).
Courts can consider the following factors when addressing whether inadvertent
production 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, 988
F.2d 1425, 1434 (“[W]e conclude that the district court’s decision to analyze the issue under the
Hartford test was proper.”).
In Corvello v. New England Gas Co., Inc., 243 F.R.D. 28 (D.R.I. 2007), a number of
landowners sued the New England Gas Company (“NEGC”) claiming that their properties had
been 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 Environmental
Management (“REDEM”) requesting all documents in REDEM’s files relating to the alleged
contamination. Id. REDEM identified 6300 pages of documents that were responsive to
NEGC’s subpoena, 400 of which were privileged. Id. REDEM subsequently engaged an outside
vendor to scan the non-privileged documents onto one CD and the privileged documents onto
another CD. Id. REDEM then inadvertently produced the CD containing the privileged
documents 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 the
CD produced to NEGC contained internal communications with counsel and that NEGC was
halting 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
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18. 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 containing
privileged documents and requested that NEGC return them. Id. at 32. NEGC refused to return
the 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 the
privileged documents because it had produced the CD containing those documents to NEGC
without reviewing it and had failed to take corrective action when informed by NEGC’s counsel
that the CD contained privileged documents. Id. at 37. Accordingly, the Court held that
REDEM 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 this
enforcement action, the government had inadvertently produced to Apex an EPA memorandum
entitled “Determination of Threat to Public Health or Welfare of the Environment at the Harford
Area Hydrocarbon Plum Site,” which was marked “ENFORCEMENT CONFIDENTIAL NOT
SUBJECT TO DISCOVERY.” Id. at *1. Because of an administrative error, however, the EPA
had placed this document in the administrative record, and the government had subsequently
produced it to Apex during discovery. Id. Upon learning of its mistake, an attorney for the
government 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 privilege
with respect to the EPA memorandum because the government had taken reasonable steps to
prevent disclosure of the memorandum and it had immediately acted to rectify its error upon
learning that the memorandum had been disclosed to Apex. See id. at *4. Specifically, the Court
noted that the EPA had presented evidence showing that the EPA had a reasonable procedure in
place to prevent this type of disclosure, that the author of the memorandum had followed that
procedure, and that the memorandum was included in the administrative record because of an
administrative 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 the
memorandum. 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 Supreme
Court 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 privilege
may 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 the
specified information and any copies it has; must not use or disclose the information until the
claim is resolved; must take reasonable steps to retrieve the information if the party disclosed it
before being notified; and may promptly present the information to the court under seal for a
determination of the claim.” Id.
It is unclear to what extent Rule 26(b)(5)(B) impacts the prior federal case law regarding
inadvertent disclosure.
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19. C. Offensive Use of Privileged Information
Under Texas law, a party who uses privileged information offensively (as a sword rather
than 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 Court
must 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 a
defendant relies on privileged information to rebut a plaintiff’s cause of action, the defendant is
not 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 manifestly
unfair to the opposing party.’” Conkling v. Turner, 883 F.2d 431, 434 (5th Cir. 1989) (quoting
Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D. Wash. 1975). However, unlike under Texas law, there
is no requirement that the party using the privilege information be seeking affirmative relief. See
Apex 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-client
relationship and the privileges associated with that relationship. This is so for a number of
reasons. First, Sarbanes-Oxley requires that attorneys act as “watchdogs” over their clients. If
an attorney discovers evidence that a client has committed a “material violation,” the attorney
must report that evidence to the client’s chief legal officer and its chief financial officer. 17
C.F.R. § 205.3(b). The attorney must then monitor the chief legal officer’s and chief financial
officer’s response to the reporting of that information. See id. § 205.3(c). Unless the attorney
reasonably 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 board
of directors. Id. The chief legal officer must, in turn, thoroughly investigate every report of a
material violation so as to protect himself or herself from potential criminal liability.
Second, Sarbanes-Oxley specifically authorizes attorneys to disclose attorney-client
communications to the SEC without their clients’ consent. Specifically, an attorney can disclose
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20. attorney-client communications to the SEC when the attorney reasonably believes that disclosure
is 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 communications
without his client’s consent “in connection with any investigation, proceeding, or litigation in
which 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 not
satisfied with a client’s response to his reporting of evidence of a material violation, the attorney
withdraw from the representation and notify the SEC of his withdrawal. This “noisy
withdrawal” rule was heavily criticized by members of the bar, and the SEC eventually decided
not to adopt it.
E. Waiver Through Disclosure of Privileged Information to Auditors
Sarbanes Oxley has also had a tremendous impact on auditors. Specifically, Sarbanes
Oxley requires auditors to engage in far more stringent investigations of publicly traded
companies than was previously required, including investigating a company’s liabilities, its
litigation, its internal investigations and controls, and any actual or potential enforcement matters
against the company. So that they may conduct these more stringent investigations, publicly
traded companies must allow their auditors to access and review more privileged information
than they ever did before.
One important implication of this increased access to privilege information is the
potential for increased privilege waivers. This is so because it has long been the rule in the Fifth
Circuit that, if a company discloses privileged information to its outside auditors, the company
waives the privilege with respect to that information. Specifically, in United States v. El Paso
Co., 682 F.2d 530, the Fifth Circuit addressed whether the trial court had erred in enforcing two
summons 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 of
tax positions taken by the company that might be challenged by the IRS – and the backup
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21. memoranda and files relating to that analysis. Id. at 534. The company had argued that the tax
pool analysis was privileged. Id. at 538. However, the district court had held that, because the
company discussed “some of the information and many of the potential tax liability issues” in the
tax pool analysis with its independent auditors, the company had waived the privilege with
respect to that information. Id. at 539-40. The Fifth Circuit agreed with the trial courts
reasoning 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 publicly
traded companies, there has been a trend amongst government agencies to pressure corporations
to 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 have
updated the DOJ’s policies regarding requests for privilege waivers.
In 1999, the DOJ issued the Holder Memorandum, which addressed the circumstances
under which prosecutors should charge corporations with criminal conduct. See Memorandum
from Deputy Att’y Gen. to All Component Heads and U.S. Att’ys (June 16, 1999). The Holder
Memorandum instructed prosecutors to apply the same factors in deciding whether to charge a
corporation that prosecutors applied when deciding whether to charge individuals. Id. However,
due to the nature of corporations, the Holder Memorandum listed eight additional factors for
prosecutors to consider. Id. The fourth factor provides that, in assessing whether to charge
corporations with criminal conduct, prosecutors should consider “[t]he corporation’s timely and
voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its
agents, including, if necessary, the waiver of the corporate attorney-client and work product
privileges.” Id. Waiver could be requested “both with respect to [the corporation’s] internal
investigation and with respect to communications between specific officers, directors, and
employees 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 at
least one important difference between them. Specifically, the Thompson Memorandum states
that, in assessing whether to charge corporations with criminal conduct, prosecutors should also
consider whether a corporation, while purporting to cooperate, actually engaged in conduct that
impeded the investigation. Id. That conduct can include the corporation directing employees or
their 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 corporate
waivers of privilege. Specifically, under the McNulty Memorandum, the government may
request 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;
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22. (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 intrusive
waiver” 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 factual
documents. Id. Before requesting waiver of Category I information, prosecutors must obtain
written authorization from the United States Attorney, who must consult with the Assistant
Attorney General for the Criminal Division before deciding upon the request. Id. The
corporation’s response to the request for waiver of privilege for Category I information “may be
considered in determining whether a corporation has cooperated in the government’s
investigation.” 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 memoranda
containing counsel’s mental impressions and conclusions, legal determinations, and legal advice.
Id. Before requesting Category II information, the United States Attorney must obtain written
authorization from the Deputy Attorney General. Id. Prosecutors are told not to consider a
refusal to provide Category II information when making a charging decision, but they are always
allowed to favorably consider a corporation’s compliance with government requests to supply
Category 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 Senate
entitled the Attorney-Client Privilege Protection Act of 2007 (S. 186). The proposed bill states
that, in any “[f]ederal investigation or criminal or civil enforcement matter,” the agents and
attorneys of the United States shall not “demand, request, or condition treatment” on the
disclosure of attorney-client communications or attorney work product. The proposed bill has
been 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 House
of 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 whether
corporations may selectively waive privileges so as to disclose privileged information to
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23. government agencies while avoiding a wholesale waiver of the privilege with respect to that
information.
In Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978) (en banc), a
company had voluntarily submitted documents to the SEC pursuant to a subpoena, and private
litigants were seeking access to that same material. Id. at 611. The Eight Circuit held that the
company did not fully waive the attorney-client privilege because it “disclosed these documents
in a separate and nonpublic SEC investigation.” Id. The waiver of privilege was limited to the
SEC. Id. The court explained that: “To 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.
In Permian Corp. v. United States, 665 F.2d 1214 (D.C. Cir. 1981), another case
involving disclosure to the SEC, the District of Columbia Circuit unequivocally disallowed the
use 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 assert
confidentiality must maintain genuine confidentiality.” Id. at 1222. The Court reach this
holding despite the fact that the company had included a stamp on each document produced to
the SEC stating that the document was a “Trade Secret,” “Privileged and Confidential,” and not
to be “disclosed by the Commission to any third-party” without the company’s permission. Id. at
1216 n.3.
The Third Circuit, the Sixth Circuit, and the Tenth Circuit have followed the lead of the
District 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 disclosing
otherwise-protected documents to governmental agencies, company waived both the attorney-
client and work product privileges); In re Columbia/HCA Healthcare Corp. Billing Practices
Litig., 293 F.3d 289, 302 (6th Cir. 2002) (holding that disclosures of privileged material to the
DOJ, whether protected by the attorney-client or work product privilege, fully waived the
privilege, regardless of a detailed confidentiality agreement between the parties); In re Qwest
Communications Int’l Inc., 450 F.3d 1179, 1201 (10th Cir. 2006) (holding that, by disclosing
privileged documents to the DOJ pursuant to a subpoena, company waived the attorney-client
and 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 when
disclosing information to a government agency is to make the disclosure pursuant to an explicit
non-waiver agreement with the government agency. See, e.g., In re Natural Gas Commodity
Litigation, 232 F.R.D. 208 (S.D.N.Y. June 21, 2005) (denying a motion to compel the production
of documents disclosed by two natural gas commodity traders to various government agencies
because the commodity traders had entered into an explicit written confidentiality and non-
waiver agreements with the government agencies). Though these agreements may only be
effective 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).
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24. I. Proposed Federal Rule of Evidence 502
On May 15, 2006, the Advisory Committee on Evidence Rules issued a report in which it
recommended that the Standing Committee on Rules of Practice and Procedure of the Judicial
Conference of the United States adopt proposed Federal Rule of Evidence 502. Proposed
Federal Rule of Evidence 502 limits the scope of waivers. Specifically, it provides that a waiver
of an attorney-client privilege or work product protection “extends to an undisclosed
communication or information concerning the same subject matter only if that undisclosed
communication or information ought in fairness to be considered with the disclosed
communication or information.”
Proposed Federal Rule of Evidence 502 also states that, if privileged information is
inadvertently disclosed “in connection with federal litigation or federal administrative
proceedings,” there will not be a waiver of privilege in any “state or federal proceeding” as long
as 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 or
agency,” 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 the
Judicial Conference of the United States approved all of proposed Federal Rule of Evidence 502
except for the provision on selective waiver.
On December 11, 2007, Senator Patrick Leahy, introduced S. 2450, a bill adding new
Evidence Rule 502 to the Federal Rules of Evidence. On February 28, 2008, the proposed bill
passed in the Senate. It was referred to the Judiciary Committee in the House of Representatives
that same day.
VII. ADDITIONAL PRIVILEGE ISSUES PERTINENT
TO THE OIL AND GAS INDUSTRY
A. Title Opinions
Numerous courts have noted that title opinions are protected by the attorney-client and
the 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 the
title opinion is relevant has been assigned. Id. Presumably the assignee gains the benefit of the
protection.
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25. The protection afforded title opinions, however, is waived if a party shares the title
opinion with a third party who is not covered by the privilege. See In re Exxon, 97 S.W.2d at
362-6; Arkla, 846 S.W.2d at 630 (noting that Sante Fe had argued “that the title opinions ‘were
passed 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. With
each change in management, there is generally a change in the assets that the company wants as
part of its portfolio. An important issue arises in this content: do privileged documents that are
transferred 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 the
privilege. 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 of
the attorney-client privilege.”); O’Leary v. Purcell Co., Inc., 108 F.R.D. 641, 644 (“As the
surviving 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 the
documents of Old Pinehurst.”). That is probably also true with other types of recognized entities
like limited liability companies and partnerships.
The answer, however, is different when specific assets are sold and are not bundled and
sold 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 assets
from 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-client
privilege passed to the new company when it acquired all of the assets and control of the old
company).
Often, when soliciting bids for properties, plants, pipelines or other business assets, a
seller permits prospective buyers to review pertinent documents related to the asset for sale.
Moreover, the seller generally requires that prospective buyers sign confidentiality agreements
before having access to the documents. But, do these documents need to be culled for privilege
before they are reviewed by prospective buyers? In short, the answer is probably yes.
A confidentiality agreement is clearly necessary, particularly where the documents being
shared contain trade secrets and other proprietary information. Such agreements prohibit the
buyer from disclosing the confidential information to third parties except as permitted by the
confidentiality agreement. However, the fact that a prospective buyer has bound itself to keep
the information confidential does not necessarily mean that the seller has maintained the
privilege with respect to the shared documents. See Bowne of New York City, Inc. v. AmBase
Corp., 150 F.R.D. 465, 480 (S.D.N.Y. 1993) (“[E]ven if the disclosing party requires, as a
condition of disclosure, that the recipient maintain the materials in confidence, this agreement
does not prevent the disclosure from constituting a waiver of the privilege; it merely obligates
the recipient to comply with the terms of any confidentiality agreement.”).
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26. VIII. TIPS FOR PRESERVING OR PIERCING PRIVILEGES
A lawyer in possession of a client’s privileged communication or protected work product
has a duty to protect it, in order to maintain its confidential and privileged nature. As noted
above, this is not an easy task. It is fairly easy to waive the privileges associated with a
communication, and the results of an unintended waiver can be disastrous.
It pays then to take precautions – and the following precautions may help to protect your
privileged 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.
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27.  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
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28. 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 frequently
with privilege questions. Sometimes the focus is on the need to protect communications or work
product. Sometimes it is on the need to obtain documents or other evidence that an adversary
claims 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 not
always be obvious who an attorney represents. That is particularly true when the client is a
corporation. 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 pays
to know what privilege law will apply to your documents and privileged communications.
Some documents and communications may be both an attorney-client communication
and work product, but there is a difference between these two. An attorney-client privileged
communication must involve a communication between two or more persons. It also generally
involves a lawyer or someone acting at a lawyer’s behest. But, it does not necessarily involve
ongoing litigation or anticipated litigation. Work product, on the other hand, is limited to
situations where there is litigation. or litigation is reasonably anticipated. The work product
protection is also more restricted in the sense that non-core work product is subject to forced
disclosure on a showing of substantial need by the party seeking discovery.
It should be noted that additional privileges may be available in some jurisdictions, such
as the self-evaluation privilege. Thus, if a document or communication does not fall squarely
within the parameters of the attorney-client or work product privileges, it is worth looking at any
special 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 an
intentional, but errant disclosure. Sometimes, they arise out of an inadvertent disclosure. In
either case, as with an initial determination as to whether a document, e-mail or other
communication is privileged in the fist instance, it may not always be clear whether a disclosure
constitutes a waiver. All of the following factors may need to be considered to determine
whether there has been a waiver: (1) whether there was a process which the person or
organization claiming the privilege used to keep such documents confidential; (2) where the
document was maintained (e.g., was it maintained in a manner consistent with its allegedly
privileged character); (3) the entities and persons to whom the disclosure was made, and the
positions 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, the
party asserting the privilege took prompt corrective action (e.g. by informing the recipient
promptly upon learning of the disclosures to halt his or her review of the documents and to return
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29. or destroy them). Even then, it may not be clear whether there was a waiver – and courts have
not consistently applied these factors.
As counsel giving legal advice to a corporation, in-house counsel are apt to be involved
in 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 challenges
to privilege assertions for communications to and from in-house counsel. For example, there has
been heightened scrutiny regarding whether in-house counsels’ communications are for legal
versus business purposes. There are also provisions of Sarbanes Oxley that put in-house counsel
in difficult positions, and that may – under certain circumstances – call upon them to be
whistleblowers as to questionably illegal corporate practices. Disclosure of in-house counsel’s
communications to auditors and/or government agencies may also be found to be waivers of the
privileges associated with those communications.
Unlike litigators, who generally deal with attorney-client communications and work
product 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 facilitate
the protection of communications containing the legal advice that transnational lawyers are paid
to give. Further, if litigation arises, their communications should not be produced without first
analyzing them carefully and determining whether they actually constitute privileged
communications. That caution is warranted in any context, the dangers are multiplied when, for
sound reasons relating to effective transnational lawyering, documents are shared with
prospective buyers (for instance, in a data room made available to prospective bidders) or
regulators (for instance, during audits). While there may be valid arguments after the fact that
such disclosure did not constitute a waiver, it is better to avoid the argument altogether – if that
is possible.
Recent statutes and cases may make dealing with the government, either in the context of
an investigation or in litigation, somewhat different than dealing solely with private parties or
litigants. The government or an agency of the government may be entitled to assert privileges
not available to private litigants, e.g., the executive privilege or the deliberative process
privilege. Those privileges, of course, are in addition to the attorney-client and work product
protections also afforded them. Even as to the government, however, all of these privileges have
their limitations and can be waived.
The circumstances under which a privilege issue can arise in the practice of an oil and gas
practitioner are too diverse to cover with any exhaustion. Hopefully, however, the rules and
cases discussed above will be helpful, when you come to address those issues in the unique
circumstances in which you find yourself.
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