• Attorney-Client Privilege and Work Product Protection Considered Waived By Disclosure to the Government Notwithstanding Confidentiality Agreements
  • March 31, 2004
  • Law Firm: Hinshaw & Culbertson LLP - Chicago Office
  • In McKesson HBOC, Inc. v. The Superior Court of San Francisco County, 115 Cal.App.4th 1229, 9 Cal.Rptr.3d 812 (2004) the California Court of Appeals held that under the California law, a client waives attorney-client privilege and work product protection when it shared privileged documents with the government, notwithstanding the fact that the disclosure to the government was pursuant to confidentiality agreements.

    McKesson HBOC, Inc., ("McKesson") publicly disclosed that its auditors had discovered accounting improprieties. This disclosure led to shareholder lawsuits. The United States Attorney and the Securities and Exchange Commission also opened formal investigations with regard to these accounting problems. McKesson hired Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") to defend it in the shareholder lawsuits. Skadden was also asked to performed an internal investigation of the allegations. Skadden attorneys interviewed numerous present and former McKesson or HBOC employees and prepared an interview memorandum for each of the interviews. Skadden also prepared an audit committee report which was provided to McKesson.

    McKesson disclosed the results of Skadden's internal review to the United States Attorney and the SEC pursuant to confidentiality agreements. The confidentiality agreements reflected McKesson's belief that the documents were protected by the attorney-client privilege and the work product doctrine, McKesson did not intend to waive those protections, and McKesson believed it had a "common interest with the government in obtaining information regarding the improperly recorded revenues." The government authorities agreed to protect the confidentiality of the documents, but reserved the right to publicly disclose the information under certain circumstances, including the prosecution of McKesson, or, for the SEC's part "except to the extent that the [SEC] Staff determines that disclosure is otherwise required by federal law or in furtherance of the Commission's discharge of its duties and responsibilities." Neither the United States Attorney or the SEC took any action against McKesson with respect to these accounting issues.

    Plaintiffs in the shareholder lawsuits moved to compel McKesson to produce the documents McKesson had shared with the government on the theory that the disclosure was a waiver of the attorney-client privilege and work product doctrine. The California Court of Appeals upheld the trial court's grant of the motion. The Court held that McKesson's voluntary disclosure was not "reasonably necessary for the accomplishment of the purpose" for which Skadden was consulted because Skadden had been retained "to provide legal advice to McKesson and its Audit Committee and to assist McKesson in civil litigation pending in state and federal court" and it was unnecessary to share privileged information with the government to "accomplish that assignment." Accordingly, McKesson's disclosure was not exempted from being construed as a waiver under California Evid. Code § 912(d) which allows attorneys to provide confidential client information to professionals and experts so that the attorney will better be able to advise the client. The Court also dismissed McKesson's argument that it and the government authorities had a "common interest" in "investigating and rooting out the source of the accounting improprieties" and should be protected under the common interest doctrine which permits parties to share attorney-client privileged information. The Court found that there was no real alignment of interest between the government and McKesson, who was under investigation for securities law violations. The Court also found that the protection for the work product materials was waived for an additional reason as well: the documents were disclosed to the government which had no interest, independent of the confidentiality agreements, in maintaining the secrecy of the information.

    Finally, the Court refused to adopt the selective waiver theory recently embraced by the Delaware Court of Chancery in Saito v. McKesson HBOC, Inc. 2002 WL 31657622 (Del. Ch. 2002) which holds that a client can disclose a protected communication to the government while continuing to assert it against other parties. The California Court of Appeals concluded that adoption of such a theory must come from the California Legislature.

    Significance of the Case
    Whether they should do so or not, clients sometimes disclose information that may be protected by work product and attorney-client privilege to government authorities for use in government investigations or tax audits. These disclosures may be desirable if they help to convince the government that the client has acted lawfully. Nevertheless, attorneys should counsel their clients that a confidentiality agreement with the government will not necessarily protect the information from subsequent disclosure to others.

    Whether the position taken in this case becomes the majority or minority position throughout the country remains to be seen. It is clear, however, that this ruling could have a chilling effect on the government's ability to secure cooperation. Other things equal, clients should be less willing to share information with the government if they cannot rely on a selective waiver theory.