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Kenyon & Kenyon, LLP

Trademark Trial and Appeal Board finds in favor of Marigny Corporation
The Trademark Trial and Appeal Board (TTAB ) last week reversed a decision by the Trademark Examiner who had refused Kenyon & Kenyon LLP client Marigny Corporation's registration of the mark WORLD CLASS GOURMET COFFEES and design, on the grounds that it resembled the mark WORLD CLASS COFFEES FOR WORLD CLASS PEOPLE. The Trademark Examiner had earlier refused the registration pursuant to Section 2(d), based on Registration No. 1486303 for WORLD CLASS and No. 1506184 for WORLD CLASSICS for coffee.

Kenyon & Kenyon showed that the distinct design of a coffee pot, coupled with the descriptiveness of the phrase WORLD CLASS GOURMET COFFEES, ensured that there was no likelihood of confusion with other marks, and had even brought the mark WORLD CLASS COFFEES FOR WORLD CLASS PEOPLE to the attention of the Trademark Examiner to show the limited protection of the term WORLD CLASS for coffee.

Only one out of ten decisions pursuant to Section 2(d) are reversed by the TTAB.

Marigny Corporation was represented by Kenyon & Kenyon partner James E. Rosini and associate Andrea H. Scheidt.

07-05-2006

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Holland & Knight, L.L.P.

Court of Appeal Affirms $13 Million Award for Holland & Knight Client
Florida's Second District Court of Appeal recently affirmed the award of more than $13 million in judgments against businessman Stanley Tseng and his affiliates, in favor of Hung-Lin Wu, the Wu Trust, and Winner Metals of Florida, LLC. The judgments were obtained last year by Holland & Knight litigation partners Brad Kimbro and Mike Chapman at the conclusion of a two-week business fraud trial in Hillsborough Circuit Court. Guy Spicola, a former partner at Holland & Knight and well-respected trial lawyer and mediator, also represented Wu as the senior member of Wu's trial team.

The three consolidated actions that were tried all related to fraud on the part of Virginia businessman Stanley Tseng, an entrepreneur who started the ""Bamboo Hut"" restaurant chain and numerous other businesses, in connection with the formation of a scrap metal business that operated in the Port of Tampa. Wu alleged, and trial court judge Sam D. Pendino determined, that Tseng defrauded Wu by representing that certain assets of the new business venture cost $2.95 million, when the actual cost was only $500,000. Tseng was found to have covered up the fraud for years and later unilaterally transferred the company's assets to another business that Tseng controlled.

""This was a case about a confidant who lied to our client. Mr. Wu's commitment to bringing the truth to light ultimately led to a fair and just result. We are extremely pleased for Mr. Wu,"" said Brad Kimbro. Mike Chapman added, ""It took hard work and commitment to bring justice in this case. We are delighted that the truth has been uncovered, and Mr. Wu has been vindicated.""

The matters raised by Stanley Tseng on appeal primarily involved entitlement to and calculation of damages. All of these arguments were resolved in favor of Mr. Wu. According to Stacy Blank, the Holland & Knight partner who handled the appeal on behalf of Mr. Wu, ""Mr. Tseng raised numerous issues on appeal. The appellate court rejected those arguments and affirmed the trial court's decision. We are very pleased with the result.

07-05-2006

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Farella Braun + Martel LLP

United States Supreme Court Broadens the Standard for Anti-Retaliation Claims by Employees
In a watershed decision on June 22, 2006, the United States Supreme Court broadened the types of employer actions that may be actionable as retaliation for violations of Title VII. The Court held that retaliation may occur even without direct, immediate economic harm. Adopting the Ninth Circuit view and rejecting the view of some other circuits, the Court held that retaliatory action need only be severe enough to deter employee complaints.

In Burlington Northern Santa Fe Railway Co. V. White, 06 CDOS 5312, No. 05-259, Plaintiff Sheila White was a ""track laborer"" at Burlington Northern Santa Fe Railway's (""Burlington"") maintenance department train yard performing a variety of tasks, but primarily operating the forklift, which was considered a less arduous and cleaner job among track laborers.

After White complained to Burlington that her immediate supervisor had made insulting and inappropriate remarks to her and other colleagues about women working in the maintenance department, Burlington investigated and disciplined White's supervisor. White was then removed from forklift duty and reassigned to perform only standard track laborer tasks, although she received the same pay and benefits.

After White filed a complaint with the Equal Employment Opportunity Commission (EEOC) regarding the demotion, White was accused of insubordination and suspended without pay. The company later determined that she had not been insubordinate and reinstated White to her position with backpay for 37 days.

White brought suit against Burlington, claiming unlawful retaliation for (1) changing her responsibilities; and (2) suspending her without pay. A jury awarded White $43,500 in damages, plus medical expenses and attorney's fees. A Sixth Circuit en banc panel voted to affirm the District Court's judgment, but differed as to the proper standard to apply to Title VII retaliation claims.

The Supreme Court held that both Burlington's reassignment of duties and the suspension independently established an actionable retaliation claim. Resolving a split among the circuits, the Court held that any action that materially injures or harms an employee who has complained of discrimination and would dissuade a reasonable worker from making or supporting a charge of discrimination can constitute actionable retaliation.

The Court reasoned that ""[a]n employer can effectively retaliate against an employee by taking actions not directly related to his employment or by causing him harm outside the workplace."" As such, the Court found that ""the scope of the anti-retaliation provision extends beyond the workplace-related or employment-related retaliatory acts and harms.""

The Court, emphasized, however, that what exactly constitutes retaliatory conduct will depend on the context and circumstances of the particular case, focusing on the materiality of the challenged action and the perspective of a reasonable person in the plaintiff's position. This contextual approach will make summary judgment more difficult to obtain in retaliation lawsuits.

The Court rejected Burlington's contention that there was no retaliation because White's duties before and after the reassignment fell within the same job description and provided the same compensation. Because the evidence showed that White was reassigned to duties which were more arduous, dirtier and required fewer qualifications, the Court found that a reasonable jury could conclude that the reassignment would have been materially adverse to a reasonable employee.

The Court also rejected Burlington's argument that the suspension without pay was insignificant because White was ultimately reinstated with backpay. The Court explained that ""[m]any reasonable employees would find a month without a paycheck to be a serious hardship,"" and that a ""reasonable employee facing a choice between retaining her job (and paycheck) and filing a discrimination complaint might well choose the former.""

Therefore, to prove retaliation under Title VII, ""a plaintiff must show that a reasonable employee would have found the challenged action materially adverse,"" which in Burlington meant it would have ""dissuaded a reasonable worker from making or supporting a charge of discrimination.""

This decision should affect decisions about employees who complain about their supervisors. Under some circumstances, employers in the past have found that the best solution to supervisor/subordinate conflicts has been transferring the complaining employee. The Burlington case, however, suggests that even a transfer or a change in duties (without immediate economic harm) may support a retaliation cause.

07-05-2006

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Perkins Coie LLP

Document Retention -- What You Need to Know Now
A carefully conceived and well-implemented document retention policy has long been an important component of an effective corporate compliance program. Recent events have made reviewing and updating corporate document retention policies a priority for most companies.

The basic keys to an effective document retention program are:

establishing a framework within which important documents are available when needed, while other documents can be destroyed in the ordinary course of business without exposing the company to liability;
recognizing circumstances that impose special document preservation obligations; and
ensuring compliance with retention and destruction policies.
This Update explains some other key issues relating to document retention and offers practical advice.

Why Have a Document Retention Policy?

Absent a duty to preserve documents, document destruction is an expected and necessary element of an efficient, functional records management program. An effective document retention program will:

provide a system for complying with document retention laws;
ensure that valuable documents are available when needed;
save money, space and time;
protect against allegations of selective document destruction; and
provide for the routine destruction of nonbusiness, superfluous and outdated documents.
What Creates a Duty to Retain Documents?

A legal duty to retain documents may arise from a number of sources, including:

Statutes and Regulations. A number of laws expressly require that documents be retained for specified periods of time, including:
the Internal Revenue Code;
state and federal environmental statutes;
labor and employment laws;
criminal statutes that punish obstruction;
the Sarbanes-Oxley Act of 2002 and related SEC regulations, which, among other requirements, mandate that auditors maintain workpapers and other audit or review records for seven years from the conclusion of the audit or review;
industry-specific statutes and regulations that impose unique document retention requirements;
statutes of limitations that indirectly impose document retention obligations by making certain documents, such as contracts and personnel files, relevant to potential disputes that may remain dormant until the statutory period for bringing suit passes; and
codes of ethics and professional rules, which may require that certain materials be protected from destruction. For example, Rule 3.4 of the Washington Rules of Professional Conduct prohibits a lawyer from altering, destroying or concealing a document having potential evidentiary value.
Common Law. Court decisions may also impose duties to retain documents. One of the most important common law document retention obligations arises out of the doctrine of ""spoliation,"" which is the improper destruction of evidence relevant to a pending or reasonably foreseeable lawsuit or legal proceeding. ""Spoliation"" can result in severe sanctions being imposed on a party who improperly destroys documents in the face of information sufficient to place a reasonable person on notice that the documents could be relevant or discoverable in litigation.
Contracts. Many contracts contain provisions requiring that certain materials be preserved for future use. For example, consulting agreements frequently require the consultant to retain analyses and data prepared as part of the contract for a specified period of time.
How Did the Sarbanes-Oxley Act Affect Companies' Document Retention Obligations?

The Sarbanes-Oxley Act had significant impacts on the requirements relating to document retention, including:

Criminalizing the Destruction, Alteration and Falsification of Records in Federal Investigations, Bankruptcy Cases and Official Proceedings. Sections 802 and 1102 of the Act amended the federal obstruction of justice statute, Title 18 of the United States Code (Crimes and Criminal Procedure), to significantly increase penalties for the destruction, alteration and falsification of records in certain circumstances.
Section 802. Section 802 provides for a fine and imprisonment up to 20 years for anyone who knowingly ""alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry"" in any record or document with intent to impede, obstruct or influence the investigation or administration of any matter within the jurisdiction of a federal department or agency or any bankruptcy case. See Title 18 of the United States Code Section 1519.
Section 1102. Section 1102 establishes the same penalty for anyone who corruptly ""alters, destroys, mutilates, or conceals"" a record or document with intent to impair its integrity or availability for use in an official proceeding. Significantly, the official proceeding need not be pending or about to be instituted at the time of the offense. See Title 18 of the United States Code Section 1512.
Updating Federal Sentencing Guidelines Related to Obstruction of Justice. Section 805 of the Act commanded the United States Sentencing Commission to review and amend the Sentencing Guidelines to ensure that the base offense level and sentencing enhancements were sufficient to deter and punish obstruction of justice. The Sentencing Commission amended the Guidelines, effective November 1, 2004, to define the essential elements of an effective compliance program. See our Update on the amended Guidelines at http://www.perkinscoie.com/content/ren/updates/corp/020805.htm.
Significantly Expanding Record Retention Requirements for Auditors of Public Companies. Section 101(a) of the Act established a Public Company Accounting Oversight Board to oversee the audit of public companies, and Section 103(a)(2)(A)(i) commanded the Board to adopt auditing standards that require accounting firms to ""prepare, and maintain for a period of not less than seven years, audit work papers, and other information related to any audit report, in sufficient detail to support the conclusions reached in such report."" In addition, Section 802 of the Act amended Title 18 of the United States Code Section 1520 to require auditors of publicly held companies to maintain ""all audit or review workpapers"" and directed the SEC to enact related regulations.
The SEC regulations establish a seven-year retention period for ""records relevant to the audit or review, including workpapers and other documents that form the basis of the audit or review, and memoranda, correspondence, communications, other documents, and records (including electronic records), which (1) are created, sent or received in connection with the audit or review, and (2) contain conclusions, opinions, analyses, or financial data related to the audit or review."" In addition to the audit or review of financial statements of publicly traded companies, the retention requirement applies also to the audit or review of financial statements of registered investment companies. Knowing or willful violation of Section 802 (a)(1) of the Act or the related SEC regulations is punishable by fine and up to 10 years of imprisonment.

How Do You Create an Effective Document Retention Policy?

No single document retention policy will suit the needs of every company. An effective document retention policy must be developed through the collaborative efforts of the company's management, administrative staff, legal counsel and auditors. Each of these groups plays an important role in developing an effective document retention program:

Management. Management of the company establishes the corporate goals served by the document retention policy and balances the tradeoff between the benefits of retaining documents for longer periods of time with the costs of document retention.
Administrative Staff. Administrative staff typically know the most about the types of documents the company generates as part of its normal business processes and how particular document retention policies will impact the day-to-day operations of the company.
Legal Counsel. Legal counsel identifies document retention requirements specifically applicable to the company and the potential ramifications of retention policies for documents with no specific retention requirements.
Auditors. Auditors are responsible for ensuring that appropriate documents are retained for compliance with applicable auditing and tax requirements.
What Are the Elements of an Effective Document Retention Policy?

An effective document retention policy should, at a minimum, cover the following seven elements.

1. State the Objectives and Purposes. It is a good practice to explain the reasons for the policy. These may include providing a system for complying with document retention laws; ensuring that valuable documents are available when needed; and facilitating the orderly disposal of documents that are no longer required in order to save the company time, space and money.

2. Designate a ""Records Management Officer"" and Description of Organization. The policy should establish individual and organizational responsibility for implementation of the policy.

3. Identify Documents Subject to the Policy. The first step in developing a document retention policy is to distinguish between documents that are essential to the ongoing, legal and effective functioning of the company and those that are merely personal, nonbusiness and/or preliminary.

The former group of important business records includes, at a minimum,

documents and data necessary to meet government record-keeping, reporting and compliance requirements;
contracts and other transactional documents;
insurance policies;
personnel files;
financial information;
intellectual property;
official correspondence;
corporate policies and guidelines; and
other materials related to the essential business of the company, its products, its formation and its governance.
At the other extreme are documents whose continued preservation serves no useful company purpose and may, in fact, needlessly expose the company to storage costs and legal liability, such as

personal emails and correspondence;
preliminary drafts of letters and memoranda; and
other materials such as brochures and newsletters.
These materials should be promptly and systematically deleted and destroyed pursuant to the company's written retention policy, with the exception of documents relevant to or discoverable in pending or potential litigation and other legal and official proceedings. Essential email communications should either be printed or saved to a separate server or on tape or disk and should be subject to appropriate review and retention or destruction in accordance with the document retention policy applicable to other documents.

4. Establish Retention Schedules. The retention period for necessary business records depends on a number of considerations, including the retention periods specified in state or federal regulations, contractual obligations, pending or reasonably foreseeable lawsuits or official proceedings relating to the subject matter of the documents, statutes of limitations, protection of intellectual property, product development and research considerations. In the absence of a specific legal duty to retain documents, each company will need to balance the importance of specific records to the business against the costs of retaining the documents. Generally speaking, documents that are not subject to any retention requirement should not be kept longer than necessary to accomplish the task for which they were generated. Including citations to the legal authorities relied on in setting retention periods makes it easier to revise the schedules to reflect changes in the law.

5. Establish a Specific Process for Destroying Documents. The document retention policy should provide specific guidance on the process for destroying documents, including the timing of file reviews, a description of circumstances in which documents can be discarded or shredded and the identification of individuals who have authority and responsibility for carrying out the document destruction.

6. Establish Guidelines for Suspending Document Destruction. When a lawsuit or government investigation is pending, threatened or even reasonably foreseeable, destruction of all potentially relevant or discoverable documents should immediately cease. As one court explained, ""While a litigant is under no duty to keep or retain every document in its possession once a complaint is filed, it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery, and/or is the subject of a pending discovery request."" Wm. T. Thompson Co. v. General Nutrition Corp., 593 F. Supp. 1443, 1455 (C.D. Cal. 1984). Because there is no ""bright line"" test as to when a lawsuit or proceeding is ""reasonably foreseeable,"" the better practice is to err on the side of suspending destruction of documents potentially related to a lawsuit or proceeding until management of the company has confirmed with legal counsel which documents may be destroyed.

7. Document Compliance With the Document Retention Policy. To ensure that a company receives the full protection of a valid document retention policy, it is important to document not only the policy itself, but also its enforcement. A court will be less likely to draw an adverse inference against a company that shows a documented pattern of meticulously following its document retention schedules. It is better for a company to be able to point the court to the date of destruction of particular documents than to say that any relevant documents it may have had at one point have been destroyed, even pursuant to an otherwise valid document retention policy.

Practical Tip
Establish a Document Creation Policy. It is good practice for all companies to adopt a document creation policy that prohibits employees from generating unprofessional emails and other documents. Far too often, the fruits of discovery in litigation include embarrassing, offensive and inflammatory emails that are not susceptible to easy, after-the-fact explanations. While a document retention policy that promptly disposes of nonessential emails is one way to limit the number of such communications that reside within the records of a company, a well-communicated professional policy regarding the creation and content of emails and other documents is the best way to make sure that off-the-cuff, ill-considered and other unprofessional communications do not become part of a company's records subject to production in connection with litigation, government investigations and audits.

What Are the Consequences of Improper Document Destruction?

A company that destroys documents improperly could face serious penalties. Criminal sanctions for obstruction of justice under Title 18 of the United States Code Sections 1503 and 1505 can be imposed where documents under subpoena or relevant to a government investigation are destroyed. Criminal sanctions may also be imposed for the destruction or alteration of documents for use in ""official proceedings"" under Title 18 of the United States Code Section 1512(b)(2). Importantly, this statute does not require that an ""official proceeding"" actually be pending at the time of the destruction.

Companies that destroy documents that are responsive to a discovery order could face a variety of penalties under Federal Rule of Civil Procedure 37, including striking of pleadings, presumption of established facts against the party and monetary sanctions.

Finally, under the spoliation doctrine, when a party fails to produce documents that a reasonable person would be able to produce, the court may allow the fact finder to draw an adverse inference against that party. In other words, the fact finder may be permitted to presume that, by allowing the documents to ""spoil"" or to be destroyed, the party implicitly admits that the documents would have been unfavorable to that party if produced. While it is no defense that documents were destroyed pursuant to a document retention policy, pending changes to Federal Rule of Civil Procedure 37 would create a ""safe harbor"" from sanctions under circumstances where a party failed to provide electronically stored information that was lost as a result of the routine, good-faith operation of an electronic information system.

How Important Is It to Enforce a Document Retention Policy?

A document retention policy that is not consistently enforced is not effective protection against allegations of bad-faith document destruction. Suspicions will be raised by the sudden vigorous enforcement of a policy that up until that point was only sporadically enforced. Moreover, selective destruction of documents after a subpoena has been issued could subject a company to criminal liability for conspiracy to defraud the government, Title 18 of the United States Code Section 371, as well as obstruction of justice.

07-05-2006

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Morrison & Foerster, LLP

When is a Secondee Not a Secondee? Update on the Use of Secondments in Outsourcings
The use of employee secondments in outsourcings is widespread. Staff, whose employment might otherwise transfer from customer to service provider pursuant to the Acquired Rights Directive (“ARD”), instead remain employees of the customer and are then seconded to the service provider. Customers, service providers and staff may often prefer such an arrangement to an outright transfer. Customers can retain staff who would otherwise transfer and service providers have access to, and the assistance of, key staff at the start of the contract. Staff also appreciate the element of choice which secondment gives them. In short, secondments often provide the desired flexibility which a strict application of the ARD does not allow. However, a recent House of Lords (“HL”) decision in the UK suggests that the issue of secondment in the context of an ARD transfer needs to be approached with great caution to avoid unforeseen, and potentially unfavourable, consequences for all of those involved.

The Case
North Wales Training and Enterprise Council Limited (t/a Celtec) v. Astley & ors [2006] UKHL 29 concerned the outsourcing in 1990 by the Department of Education (“DofE”) of part of its training responsibilities to newly established training and enterprise councils (TECs). Although the TECs were able to recruit their own staff, to ensure they could deliver the services immediately, civil servants were offered secondments from the DofE to the TECs. When the secondments ended three years later, seconded staff had the option of accepting employment with the TEC on the TEC’s terms and conditions of employment or being redeployed by the DofE. The claimants resigned from the DofE and signed new contracts with Celtec’s predecessor TEC. When one of the claimants was made redundant in 1998, she claimed a redundancy payment based on continuity of employment back to the beginning of her employment with the DofE. All the claimants then sought a determination by the employment tribunal as to the length of their continuous employment. Celtec argued that they were only entitled to continuity of employment from 1993.

Prior to the HL’s decision, the European Court of Justice (“ECJ”) had already ruled in the same case that the use of the word “date” in the ARD, combined with the need for legal certainty, meant that the parties had to be able to point to a specific date on which they said the transfer occurred and that a transfer could not occur over a period of time. The only guidance which the ECJ gave on ascertaining when a transfer took place was that the relevant date was the date on which responsibility as employer for carrying on the business of the unit transferred moved from the transferor to the transferee.

The Decision
Applying the ECJ’s guidance, the majority of the HL held that the ARD transfer was in 1990 (when the TEC took over the premises, information systems and databases of the DofE area offices) and that the civil servants who thought, along with the DofE and the TEC, that they had been seconded to the TEC in 1990 had actually transferred to it at that date. So, even though everybody thought, in 1990-93, that the individuals were on secondment, in fact (because of later events) their employment had transferred. The HL recognised the difficulties which its judgment may cause parties and referred in particular to “the obliteration of reality in relation to such matters as [seconded employees’] pension rights”.

The HL did confirm that it is open to an employee whose contract of employment would otherwise be transferred of his own free will to withdraw from this arrangement by declining employment with the transferee but only if the employee:

(i) is in a position to choose whether or not to enter the employment of the transferee; and
(ii) in fact exercises that choice by deciding of his own free will not to do so.

The Impact
Although Celtec v. Astley concerned a public sector transferor, secondment is also widely used in private sector outsourcings. Accordingly, the case is of general interest and concern. In the light of its findings, what should customers and service providers be doing to minimise the risks regarding secondments? From a customer perspective, there are primarily practical concerns: if you have been treating someone as an employee whose employment has in fact transferred, you may need to revisit benefit entitlements which have been treated as accrued during the secondment period.

For service providers, there are substantial risks which you need to address at the earliest possible opportunity. For example, on second generation outsourcings your due diligence should cover whether you are inheriting any potential liabilities as a result of secondment arrangements in place at the time of any previous contracts. At the point of transfer, are employees transferring automatically as well as being seconded? If you can show that an employee could have transferred but chose to be seconded instead, you will be able to argue that by opting for secondment in such circumstances the employee has removed himself from the ARD altogether.

Finally, for both customers and service providers, identifying the date of the transfer may itself prove tricky. In a complex transaction, it may not be possible accurately to pinpoint a particular calendar date on which “responsibility” as employer for carrying on the business is transferred.

07-05-2006

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Morrison & Foerster, LLP

Tenth Circuit Addresses Selective Waiver of Attorney-Client Privilege and Work Product Protection when Documents Are Produced to the DOJ and SEC Pursuant to a Confidentiality Agreement
Joining a growing list of Circuit Courts, the Tenth Circuit in In re Qwest Communications International Inc. Sec. Litig., CV No. 06-1070 (10th Cir., June 19, 2006), rejected Qwest’s argument that it did not have to produce 220,000 privileged documents in a class action lawsuit where the company had previously produced the documents to the SEC and DOJ pursuant to confidentiality agreements that expressly provided for a “selective” or “limited” waiver. The Court found that the District Court was within its discretion when it declined to adopt a rule of “selective” or “limited” waiver which would allow production of attorney-client privileged and work product documents to the DOJ and SEC during the course of agency investigations without waiving protection for those materials as to third-party litigants.

Factual Background

Both the SEC and the DOJ undertook investigations of Qwest during 2002. In the course of those investigations, Qwest voluntarily produced to the agencies over 220,000 documents that it claimed were protected by the attorney-client privilege and work product doctrines.1 The documents were produced pursuant to subpoenas and written confidentiality agreements which stated that Qwest did not intend to waive either attorney-client privilege or work product protection. Both the SEC and the DOJ agreed to maintain confidentiality of the documents and to not disclose them to third parties.

Prior to and following the SEC and DOJ investigations, private plaintiffs filed suits against Qwest, many of which were consolidated into a federal securities action. During the course of the federal securities action, Qwest produced millions of pages of documents but did not produce the 220,000 privileged and work product documents that it had previously produced to the DOJ and the SEC. After the plaintiffs moved to compel production, the District Court ordered Qwest to produce the documents and certain reports prepared by its counsel but allowed Qwest to redact attorney opinion work product from both the documents and the reports.

Holding

Waiver of Attorney-Client Privilege: The Court found that Qwest had waived its attorney-client privilege in the securities action by producing the documents in the course of the DOJ and SEC investigations. In doing so, the Tenth Circuit joined the First, Second, Third, Fourth, Sixth, and DC Circuits in rejecting a “selective waiver” rule which would allow a company to voluntarily surrender documents to government agencies but still assert attorney-client privilege in subsequent legal actions. Currently, only the Eighth Circuit accepts a “selective” or “limited” waiver rule as to attorney-client privileged documents.

Waiver of Work Product Protection: The Court also found that Qwest had waived work product protection by producing the documents to the SEC and DOJ. In reaching this conclusion, the Tenth Circuit joined the Third, Sixth, and Eighth Circuits in declining to apply a selective waiver rule to work product documents. Only the Fourth Circuit has approved a selective waiver rule; however, the Fourth Circuit limited its application of that rule to opinion work product, declining to apply it to non-opinion work product.

The Court’s Fact-Based Approach: The Tenth Circuit appears to have applied a fact-specific analysis, determining that “the record in this case is not sufficient to justify adoption of a selective waiver doctrine or an exception to the general rules of waiver upon disclosure of protected material.” The Court acknowledged arguments that the selective waiver rule might further important objectives, including (1) encouraging cooperation with law enforcement; (2) increasing investigative efficiencies; (3) encouraging settlements; and (4) possibly increasing corporate self-policing. However, the Court rejected these arguments, noting that cooperation with the government was likely to continue even in the face of privilege waiver. Of note, the Court observed that the DOJ—which filed an amicus brief at the Court’s request—did not expressly advocate for an adoption of the selective waiver rule.

Impact of Confidentiality Agreements and Fairness Standard: The Court also found that the record did not support Qwest’s argument that its confidentiality agreements justified selective waiver, noting that “[t]he record does not indicate whether Qwest negotiated or could have negotiated for more protection for the waiver documents, or whether, as it asserted at oral argument, setting further restrictions would have so diluted its cooperation [as] to render it valueless.” Instead, the Court observed that the confidentiality agreements in the case gave the agencies “broad discretion” to use the documents and, in fact, that the documents could be shared with other federal, state, and local agencies and had already “been introduced as evidence in a criminal trial, produced as discovery in three separate criminal proceedings and used as exhibits to SEC investigative testimony.” By producing only a portion of the attorney-client privileged and work product documents, the Court found Qwest had taken a calculated risk and hedged the odds of compelled production of privileged or work product documents. As a result, the Court found that ordering Qwest to produce documents was not unfair.

Conclusion

This case represents one more effort by a public company to get judicial relief from the potentially severe negative consequences of cooperating with a government investigation. Given the long list of circuit courts that have refused to provide that relief, it now appears that the only remaining “fix” to this issue is the amendment to the federal rules of evidence which has been proposed by the Federal Judicial Conference’s Advisory Committee on Evidence Rules. That amendment, which is supported by the SEC, would limit the discovery and admissibility of privileged communications turned over to the government during an investigation. Unless and until that amendment is made into law, however, companies have to assume that any information turned over to the government, regardless of protective measures taken, will also end up in the hands of private plaintiffs.

07-05-2006

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