Giving SEC ‘Oral Downloads’ of Interview Notes Waived Protection

By Joan C. Rogers

A federal magistrate judge’s holding that “oral downloads” to the SEC waived work product protection for internal investigation interview memos isn’t a “game changer,” but it highlights the risk of waiver depending on what’s disclosed, according to attorneys interviewed by Bloomberg Law.

Morgan Lewis & Bockius LLP waived work product protection for notes and memoranda about witness interviews conducted in a client’s internal investigation by orally summarizing the material in a presentation to the Securities and Exchange Commission, a U.S. magistrate judge in Florida decided Dec. 5.

The “oral downloads” weren’t different for waiver purposes than actual physical delivery of the written material, Magistrate Judge Jonathon Goodman ruled.

Privilege waiver is an ever-present issue for lawyers who need to share internal investigation findings in meetings with government agencies. The case involving Morgan Lewis highlights the waiver risk but doesn’t really heighten it, according lawyers who commented on the case at Bloomberg Law’s request.

“I don’t think this case is a game-changer,” securities lawyer Timothy Peterson of Murphy & McGonigle, Washington, told Bloomberg Law.

His practice focuses on securities enforcement investigations, litigation, and compliance. He’s been on both sides, having previously served as senior counsel in the SEC Division of Enforcement in Washington.

“It’s not a revolutionary shift in the law,” Thomas E. Spahn, a commercial litigator with McGuireWoods LLP, told Bloomberg Law.

He’s the author of The Attorney-Client Privilege and the Work Product Doctrine: A Practitioner’s Guide (3d ed. 2013), as well as a 300-page summary of that book and a database of case summaries for the book.

Doesn’t Help Openness

Firms are always careful about what they disclose, taking into account the potential for waiver, Peterson said in an interview with Bloomberg Law.

The case may actually be helpful to lawyers in drawing the line between what’s protected work product and what’s not protected, he said.

On the other hand, “it’s often very helpful to have a certain degree of openness about the investigation,” Peterson said.

“This type of ruling doesn’t help that openness,” he said.

‘Speed Bump’

In an interview with Bloomberg Law, Spahn said it’s well-established that providing protected work product to the government waives the privilege, and that this waiver can occur through oral disclosure.

Oral disclosure of protected work product just functions as a “speed bump,” Spahn said. The opponent often just demands written material that was turned over, and sometimes never even asks about oral disclosures, he pointed out.

Spahn said historical facts are never protected, so oral disclosure of historical facts doesn’t waive work product protection. The magistrate judge recognized this principle in his ruling on Morgan Lewis’s PowerPoint presentation to the SEC, he said.

On the other hand, oral disclosure of the substance of communications with the witness does waive work product immunity, Spahn said.

The question here is what was “orally downloaded,” Spahn said. The magistrate judge didn’t specify whether Morgan Lewis disclosed the substance of communications with the witness versus historical facts, he noted.

‘Oral Downloads’

General Cable Corp. retained Morgan Lewis to provide legal advice about accounting errors in its Brazilian operations. The firm conducted an internal investigation and interviewed dozens of company personnel, including many interviews in Brazil.

When the SEC requested information about the investigative findings, Morgan Lewis attorneys met with SEC staff, giving a PowerPoint presentation and providing “oral downloads” of notes and memorandums about a dozen witness interviews.

The SEC is now suing two people who led the company’s Latin American operations, saying they hid accounting errors that caused the company to overstate its inventory.

The magistrate judge decided that Morgan Lewis must provide the defendants with witness interview notes and memoranda “orally downloaded” to the SEC.

The memoranda and notes summarize the relevant portions of the witnesses interviews, or at least what the interviewing lawyer deemed relevant enough to include in these materials, the magistrate judge said.

‘Functional Equivalent’

The magistrate judge said the SEC was the adversary of Morgan Lewis’s client, so the disclosure to the SEC was made to an adversary.

Turning over work product to a client’s legal adversary generally results in waiver, and the same goes for reading or orally summarizing the written material to an adversary, the magistrate judge decided.

There’s little or no substantive distinction for waiver purposes between the actual physical delivery of the work product and reading or orally summarizing its substance, Goodman said.

The SEC received the functional equivalent of the notes and memoranda by hearing the oral summaries of the material, the magistrate judge said. Morgan Lewis didn’t contend that it provided only vague references, detail-free conclusions, or general impressions, he said.

However, the magistrate judge made clear that the waiver is limited to the witnesses whose interview notes and memoranda were orally provided, not all of the witnesses Morgan Lewis interviewed.

Also, the judge rejected the defense argument that additional work product material should be turned over because the defendants have a substantial need for it.

PowerPoint

Another issue was whether a work product waiver resulted from the firm’s PowerPoint presentation to the SEC, which provided an events timeline, the names of witnesses whom Morgan Lewis had interviewed, a breakdown of the transactions deemed to be at the heart of the accounting discrepancy, and the results of its investigation.

Morgan Lewis argued that the material was never protected by work product in the first place, because it concerned facts rather than attorney mental processes.

The magistrate judge ruled, after reviewing the PowerPoint, that it’s not protected by work product immunity. Morgan Lewis prepared it specifically for the SEC, and it didn’t convey the substance of what the witnesses said even though it mentioned their names, the judge said.

The magistrate judge also ruled that Morgan Lewis didn’t waive work product protection by disclosing information from the internal investigation to the client’s auditor, Deloitte & Touche. Unlike the SEC, Deloitte isn’t the adversary of Morgan Lewis’s client, the magistrate judge said.

SEC attorneys represented their agency. Brune Law P.C. and Law Offices of Scott A. Srebnick P.A. represented defendant Maria Cidre. Kozlowski Law Firm P.A. and Marrero Bozorgi P.L. represented defendant Mathias Francisco Sandoval Herrera. Morgan Lewis & Bockius represented itself.

The case is ( SEC v. Herrera , 2017 BL 435181, S.D. Fla., No. 17-20301-CIV-LENARD/GOODMAN, 12/5/17 ).

To contact the reporter on this story: Joan C. Rogers in Washington at jrogers@bloomberglaw.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bloomberglaw.com

For More Information

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

 

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