Subjects of government investigations routinely face the question: To be or not to be forthcoming with information otherwise protected by the attorney-client privilege? A recent opinion out of the District of New Jersey has not made the decision any easier, though it does tell counsel and their clients very clearly that the bounds of the attorney-client privilege do not extend to information produced during the course of a government investigation. This guidance allows subjects of government investigations the opportunity to make informed decisions when balancing whether to disclose privileged information to a government agency in the course of an investigation.

In In re Merck & Co., Inc. Securities, Derivative & “ERISA” Litigation, No. 2:05-cv-02367-SRC-CLW (District of New Jersey), Merck had provided certain documents protected by the attorney-client privilege to the Department of Justice (“DOJ”) in the course of a prior criminal investigation. Merck disclosed the otherwise privileged documents pursuant to an agreement with the DOJ under which (1) the DOJ promised to maintain the confidentiality of the documents; and (2) Merck’s purported limited waiver of the attorney-client privilege as to the DOJ would not extend to any other third party. In the subsequent civil litigation, Plaintiffs sought to compel Merck to produce documents, including those that Merck had disclosed in the criminal investigation pursuant to the confidentiality agreement. Merck countered that those documents remained protected by the attorney-client privilege pursuant to the selective waiver doctrine. District Judge Chesler of the District of New Jersey rejected Merck’s argument in its entirety, writing that Third Circuit precedent  based on Westinghouse v. Republic of the Philippines “clearly instructs that applying selective waiver in the context of voluntary disclosure to government agencies would amount to an unjustified expansion of the attorney-client privilege.” 

In Westinghouse, the Third Circuit declined to adopt the “celebrated and controversial selective waiver theory fashioned by the Eighth Circuit in Diversified Industries, Inc. v. Meredith and resoundingly rejected by the D.C. Circuit in Permian Corp. v. United States. The selective waiver doctrine, when applied, allows a party to disclose to a government agency attorney-client privileged materials while maintaining confidentiality of those materials as to all other parties, including those involved in subsequent civil litigation with the disclosing entity. In rejecting the selective waiver theory in 1991, the Third Circuit examined the underpinnings of the attorney-client privilege, holding:

. . . selective waiver does not serve the purpose of encouraging full disclosure to one’s attorney in order to obtain informed legal assistance; it merely encourages voluntary disclosure to government agencies, thereby extending the privilege beyond its intended purpose. . . . [T]o go beyond the policies underlying the attorney-client privilege . . . would be to create an entirely new privilege.

Twenty years later, in Merck, the disclosing party argued that the Westinghouse decision did not apply to the documents Merck had disclosed in the prior government investigation. Merck attempted to distinguish its agreement with the DOJ from the confidentiality agreement in Westinghouse. Merck argued that Westinghouse left open the possibility that an agreement between the disclosing party and government agency purporting to preserve the privilege as to third parties could in fact preserve the attorney-client privilege as to third parties. The District of New Jersey disagreed with this analysis and noted that Merck’s argument was based on an observation made by the Third Circuit in dicta that the agreement in Westinghouse did not attempt to preserve the privilege as to third parties. The District Court noted that the Third Circuit’s observation did not provide a basis for its decision; rather, the Third Circuit rejected the selective waiver theory because it impermissibly expanded the parameters of the attorney-client privilege. 

Although the District of New Jersey’s conclusion is not surprising, it firmly shuts the door once again on the selective waiver doctrine. The opinion reminds litigants that courts in the Third Circuit have emphatically rejected the theory – and do not appear to be reconsidering this position in the short term. This means that subjects of government investigations must continue to weigh the benefits of disclosure to an investigating agency (i.e., cooperation and credibility points) against the potential detriment that may result when third parties in parallel or subsequent action gain access to the otherwise privileged documents. Ultimately, a party which elects to disclose documents to the government may not be able to assert a privilege to later protect disclosed information. With the assistance of counsel, though, the party can prepare a strategy for dealing with the effects, if any, of the disclosure.