Among the several challenges in responding to a government investigation of a company’s business, transactions, practices or personnel is the threat of immediate corporate prosecution if full cooperation and disclosure is not given, versus the potential lost of attorney-client privilege by disclosure of documents or communications which the government insists be provided.  The risk is enhanced by two additional features of the law of privilege: (1) disclosure of privileged materials to one party may waive the privilege as to the entire world, and (2) disclosure of privileged material may waive privilege not only with respect to the specific material actually disclosed, but as to the entire subject matter and all other privileged materials pertaining to it.  Unfortunately it has become a frequent and fearsome tactic of the federal Department of Justice, as well as other aggressive federal and state law enforcement agencies, to demand a company’s complete cooperation with certain government investigations, or face immediate indictment, prosecution or regulatory sanctions.  Particularly for service-based businesses and others which depend heavily on reputation and public confidence, the credible threat of a high-level enforcement action may offer little practical choice other than to cooperate or face ruin.

Recognizing this coercive effect, a new decision of the California Court of Appeals finds that a business which faced the threat of regulatory action and indictment was effectively under “coercion” to disclose attorney-client privileged communications and documents to the Department of Justice, and therefore was not deemed to waive attorney-client privilege in having done so.  Accordingly, when the corporation was sued by multiple private parties in a coordinated antitrust case, the court held that “it would not have been reasonable for the defendants to resist or otherwise challenge the government’s request” for privileged material in the government investigation, and they were able to assert privilege and withhold such material in the private litigation which followed.  (Regents of the University of California v. Superior Court (Aquila Merchant Services, Inc.), California Court of Appeal No. DO51364, July 30, 2008)

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