Should Congress Adopt Selective Waiver Legislation?
Volume 80, No. 2, Summer 2007
By Alexander F. Smith

Corporate scandals have become as ubiquitous as political scandals. In the wake of the Enron collapse and its progeny, Congress and the U.S. Securities and Exchange Commission (“SEC”) took serious steps in an attempt to reinstill public confidence in corporation governance. Not surprisingly, these steps have resulted in the uncovering of several new scandals. Almost every governance scandal eventually results in both governmental investigations and civil litigation. The narrow purpose of this Comment is to examine one doctrine that has an enormous impact on both the governmental investigations of, and civil litigation involving, corporations implicated in these scandals: selective waiver. Selective waiver effectively is the waiver of legally privileged information with respect to a governmental agency while keeping the same information privileged in dealings with subsequent parties. The following example from In re Qwest Communications International Inc. demonstrates the multimillion dollar impact that selective waiver can have on a case.

In 2002, the SEC and the U.S. Department of Justice (“DOJ”) began investigating Qwest Communications’ business practices. Pursuant to negotiated, written confidentiality agreements between Qwest and both agencies, Qwest produced more than 220,000 pages of documents otherwise protected by the attorney-client privilege and the work-product doctrine. These confidentiality agreements essentially “stated that Qwest did not intend to waive the attorney-client privilege or work-product protection.”

Concurrent with the governmental investigations, the United States District Court for the District of Colorado consolidated several civil cases involving the same issues into a federal securities action. During the consolidated securities class action, Qwest did not produce the documents released to the SEC and the DOJ, arguing that those documents remained privileged. The plaintiffs moved to compel Qwest to produce the documents, and the magistrate judge concluded that Qwest had waived attorney-client privilege and work-product protection by producing the documents to the agencies. Qwest, therefore, was ordered to produce the documents to the plaintiffs. The “district court refused to overrule the magistrate judge’s order compelling production,” and in June of 2006, the Tenth Circuit ultimately upheld the district court’s decision.

The fact pattern of Qwest is not unusual in the current corporate environment of regulatory requests and civil litigation. The SEC and the DOJ, in particular, have offered corporations under investigation the carrot of possible leniency tied to cooperation. The corporations, however, must balance the potential benefits of cooperation with the possible pitfalls of a court viewing the cooperation as waiver in subsequent civil actions. The SEC and many corporations have looked to selective waiver as the mechanism for filling this gap. The courts, as in Qwest, however, have generally determined that selective waiver is not a natural extension of attorney-client privilege and the work-product doctrine.

Is there any relief in sight for corporations stuck between this proverbial rock and hard place? Probably not in the immediate future–the Advisory Committee on Evidence Rules (“Advisory Committee”) recently dropped a selective waiver provision from Proposed Federal Rule of Evidence 502 (“Proposed Rule”). The centerpiece of this Comment will be the recently dropped provision and its interplay with the case history and policy issues relating to selective waiver. Ultimately, this Comment will attempt to determine whether the Advisory Committee made an error by excluding the selective waiver from Proposed Rule 502 and whether Congress should enact a separate selective waiver provision.

Part II.A will explain the types of privileges that corporations attempt to selectively waive, specifically the attorney-client privilege and the work-product doctrine. Part II.B examines how the various circuits have ruled on the issue of selective waiver. Part II.C discusses the selective waiver provision that the Advisory Committee recently dropped from Proposed Rule 502 and the related public comments that may have led to this decision. Part III.A explains why none of the current common law approaches to selective waiver can resolve the debate on this issue. Part III.B proposes that selective waiver constitutes an entirely new privilege and discusses why this distinction is important. Finally, Parts III.C-D explain why Congress should adopt a new selective waiver provision and what form the provision should take.

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