A mandamus petition is an extraordinary remedy that seeks to compel a lower court to take action in extraordinary cases. The U. S. Court of Appeals for the District of Columbia has twice granted mandamus petitions vacating district court orders compelling disclosure of documents generated during an internal investigation. On May 1, 2020, however, the D.C. Circuit denied a mandamus petition by RPM International Inc. (RPM) and declined to provide additional guidance on the applicability of the attorney client and work product privileges when sharing information with auditors.  RPM had asked the Appeals Court to vacate a district court order requiring RPM to produce unredacted interview memoranda that RPM's counsel prepared during an internal investigation.1 The provision of information learned in internal investigations to company auditors during regulatory investigations is a recurring fact pattern. 

Factual Background

The mandamus petition related to a discovery order requiring the production to the U.S. Securities and Exchange Commission (SEC) of 19 unredacted interview memoranda prepared by counsel to RPM's Audit Committee as part of an internal investigation regarding an accrual. The internal investigation began in response to an SEC inquiry about the timing of a company accrual related to the company's settlement with the U.S. Department of Justice and the General Services Administration (GSA). RPM's auditor informed the company that it would not issue an opinion for inclusion in RPM's Form 10-K unless the company conducted an internal investigation.

While the SEC investigation was ongoing, the company's outside counsel conducted an internal investigation, which included 19 interviews of RPM personnel and outside counsel. Nine of the people whom counsel interviewed were lawyers who had given legal advice to RPM regarding the accrual and disclosure of the accrual.2 Counsel informed each of the witnesses that the interviews were privileged.3 Counsel thereafter informed the auditor of the progress of the investigation, and orally shared non-privileged facts obtained in witness interviews. Counsel did not provide the interview memoranda to the auditor; indeed, counsel had not prepared written memoranda at the time that it spoke with the auditor. The auditor memorialized its conversations with company counsel in written notes. The company thereafter restated the timing of its accrual and the auditor signed the company's Form 10-K. 

The SEC investigation continued after the company issued the restatement. During the investigation, the SEC requested documents from the auditor. The auditor provided material pertaining to the internal investigation to RPM's counsel for its review before production.  After RPM conducted a review to determine whether anything in the auditor's proposed production should be withheld on the basis of an RPM privilege, the auditor produced to the SEC its notes of oral briefings from company counsel. RPM did not redact references in the auditor's notes to the facts that counsel had shared with the auditor. The company, however, requested that references to counsel's analysis of the underlying GSA investigation be redacted as work product.

More than two years after initiating its investigation of RPM, the SEC sued RPM for violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 for allegedly failing to disclose a material loss contingency, or to record an accrual, for a government investigation when required to do so under governing accounting principles and the federal securities laws.4 In connection with the action, the SEC served discovery requests on RPM, seeking "documents relating to the investigation conducted by RPM's Audit Committee in 2014," including "interview memoranda."5 RPM objected to the request for interview memoranda, asserting that the memoranda were protected from disclosure by the attorney client and work product privileges. The SEC moved to compel production of the interview memoranda. After reviewing the interview memoranda in camera, the district court granted the SEC's motion to compel and ordered RPM to produce the memoranda to the SEC. 

District Court Opinion

The district court's opinion addressed the application of the work product doctrine and principles of waiver to the interview memoranda prepared by outside counsel.

The district court concluded that there was no work product privilege applicable to the interview memoranda.6 The district court reasoned that the interview memoranda had not been prepared "because of" potential litigation. Instead, RPM's Audit Committee retained counsel "to investigate the timing of the disclosures and accruals in question to determine whether RPM needed to restate its financials."7 Because the Audit Committee had an accounting purpose to retain counsel, the court held, the interview memoranda "were prepared in conjunction . . . not in anticipation of litigation, but at the request of the company's auditors, so they could gain confidence in issuing the company's 10-K statement."8 

The court also found that any work product privilege was "waived when RPM authorized [the auditor] to share the substance of the interviews with the SEC."9

The district court denied RPM's motion to certify the order requiring RPM to produce the interview memoranda, and the motion to stay the order pending appellate review. RPM's petition for a writ of mandamus followed. The D.C. Circuit initially stayed the district court's order pending review.  On May 1, however, the D.C. Circuit denied the writ of mandamus, stating that RPM had not shown that it had a "clear and indisputable" right to the relief requested.10 

Important Issues Set Out in RPM's Petition

RPM's mandamus petition raised important issues governing internal investigations and the sharing of investigative facts with company auditors. The first issue was the scope of work product protection for information developed prior to litigation. Here, RPM conducted an internal investigation and prepared interview memoranda before the SEC sued the company and, presumably, prior to any Wells call from the SEC staff. Counsel for the Audit Committee submitted a declaration in opposition to the motion to compel, stating that "litigation or other enforcement proceedings by the SEC (as well as other potential legal actions) were reasonably foreseeable" during the internal investigation.11  

In the D.C. Circuit, work product protection is governed by the "because of" test, which asks "whether, in light of the nature of the document and the factual situation of the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation." In re Sealed Case, 146 F.3d 881, 884 (D.C. Cir. 1998). RPM argued that the preparation of interview memoranda where counsel reasonably foresees potential litigation arising from a pending SEC investigation satisfies the "because of" standard. Interview memoranda can be prepared for multiple purposes, including potential litigation and a pending audit. In failing to recognize that documents may serve many purposes, RPM argued, the district court rejected the prevailing "because of" test in favor of a more restrictive "primary motivating purpose test."12

The SEC did not dispute the applicable standard for work product. It agreed that the "because of" test governs work product. The SEC argued, however, that the district court correctly applied the "because of" test to the facts of the case. Here, the chair of the Audit Committee testified that the "assignment" to counsel "was to conduct a thorough investigation based on . . . the scope that [the auditors] felt was necessary to get them to a comfort level where they would be able to sign the [Form 10-K] . . . [C]learly, we wanted to be able to address [the auditor's] concerns."13  The SEC contended that the interview memoranda were not prepared for multiple purposes. There was a single purpose to the engagement: to determine whether RPM needed to restate its financials.14

A second issue presented for review was the application of work product to the attorney's presentation of facts and opinions in interview memoranda. RPM argued that "in choosing what to write down and what to omit, a lawyer necessarily reveals his mental processes."15 The SEC rejected the proposition that any documentation of an interview contains mental processes. On the facts of this case, the SEC contended that there were no mental impressions or analysis in the memoranda. Here, the district court reviewed the documents in camera and concluded that the interview memoranda "are completely devoid of legal opinions, thoughts or mental impressions" and "contain no analysis whatsoever."16

The third (and recurring) issue in investigations of public companies is the application of work product protection when companies share privileged information with their auditors. The majority position is that companies can share work product information with their auditors without waiving the protection.17 Courts that have reached this conclusion reasoned that the auditor was not adverse to the company; the auditor is obliged to maintain the confidence of material provided to it by counsel; and the auditor's task of identifying deficiencies in internal controls would be weakened if it were unable to obtain information concerning a company's internal investigation due to concerns about a risk of waiver.18

The issue RPM asked the D.C. Circuit to review was whether work product protection is waived when a company authorizes the auditor to produce to the SEC notes of its communications with company counsel. In the RPM litigation, the auditor's notes allegedly contained detailed and specific statements that the witnesses made to company counsel. RPM argued that the facts were not work product and the witness statements included in the auditor notes were not work product. The interview memoranda, by contrast, were "entirely different thing[s]."19 The memoranda were more expansive than the summaries shared with the auditors and contained more information than the fragments of the interviews conveyed to the auditor. The district court appears to have treated the inclusion of specific statements in the auditor notes as support for a broad subject matter waiver: "But RPM didn't just disclose facts, it disclosed the specific statements made during the interviews, and it covers the entire subject matter of those interviews."20

Practice Points

Public policy favors companies' disclosure to auditors of factual information regarding corporate conduct and financial reporting. So strong is this policy that the sharing of information learned in internal investigations should continue without fear that confidential information will be disclosed to third parties. RPM's experience, and the SEC's position in the litigation, provides the occasion to refresh our guidance on best practices to preserve privilege in internal investigations with auditors.

First, special attention should be given to the resolutions authorizing retention of counsel to conduct internal investigations. RPM's position was patently correct that internal investigations may be conducted for multiple purposes, including preparation for potential litigation, and in support of decision-making regarding corporate conduct and financial reporting. Resolutions to retain counsel, and the scope of the engagement, should memorialize all the animating reasons for retention so that, years later, one particular motivating purpose does not obscure all the other valid reasons for a company's decision to have its counsel conduct a thorough investigation.21 

Second, as RPM correctly argued to the D.C. Circuit, the documentation of witness interviews necessarily reflects the attorney's thought processes as to what is important to memorialize and what should be omitted.22 It also reflects the attorney's thought processes as to the interview itself-as to, for example, the documents the attorney showed to a witness, the order of the interview and the attorney's questions about documents. To the extent that counsel concludes that an interview should be memorialized, the memorandum should include statements that will support the reasons that the interview has been documented and provide context for the information contained in the memorandum. Recommended disclaimers in interview memoranda include, as appropriate in light of the relevant circumstances, the following:

The memorandum was prepared by counsel in furtherance of an ongoing regulatory inquiry and potential litigation; it incorporates the mental impressions, analyses, and opinions of counsel; it is intended to assist counsel in providing legal representation and advice to the company; it is not a substantially verbatim recital of the interview; information in the memorandum may have been reorganized and summarized for clarity; and it is based on the participants' understanding of the facts as of the date of the meeting and may contain inaccuracies, be incomplete or lack context.

RPM's counsel appears to have followed this practice, and the memoranda stated that they "are not verbatim transcripts of the interviews," are summaries of information "that the lawyer creating the documents believed to be significant" and include "the mental impressions of the lawyer conducting the interview."23  The less that an interview memorandum appears to be a transcript of the interview, the more likely it is to be deemed protected work product.

Third, the company should think carefully about how it conveys the substance of witness interviews to auditors. The company should avoid, to the extent practicable and consistent with the purpose of the briefing of the auditor, the inclusion of direct quotes from the witnesses.

Last, the company should conduct a privilege review of the auditor's proposed production to third parties to ensure that privileged communications are withheld. Here again, RPM's counsel reviewed the documents that the auditor planned to produce to the SEC and distinguished facts and the identities of knowledgeable witnesses from work product. Where the auditor has included direct quotes from witness interviews in its audit file, consider whether the information reflects attorney mental impressions or work product and should be withheld from production. The SEC's apparent success in obtaining the interview memoranda prepared during the RPM internal investigation is a reminder that third parties may challenge the company's assertion of privilege.

Footnotes

1.See Petition for Writ of Mandamus, Document No. 1833317, In re RPM Int'l Inc., No. 20-5052 (D.C. Cir. Mar. 12, 2020) (RPM Petition).

2. Brief of Jones Day as Amicus Curiae in Support of Petition, Document No. 1834616, In re RPM Int'l, No. 20-5052 (D.C. Cir. Mar. 12, 2020) (Jones Day Amicus Brief) at 6.

3. The company, acting through management or the board, owns the attorney client privilege. See Upjohn Co. v. United States, 449 U.S. 383, 394-95 (1981).

4. SEC v. RPM Int'l, Inc., Case No. 16-cv-01803 (ABJ) (D.D.C. Sept. 9, 2016).

5. RPM Petition at 10.

6. Min. Entry (Feb. 12, 2020), SEC v. RPM Int'l, Inc., Case No. 16-cv-01803 (ABJ) (D.D.C. Sept. 9, 2016); Feb. 12, 2020, Tr. of Status Hr'g, Dkt. No. 82, SEC v. RPM Int'l, Inc., Case No. 16-cv-01803 (ABJ) (D.D.C. Sept. 9, 2016) (Feb. 12, 2020, Hr'g Tr.) at 5-11. 

7. Feb. 12, 2020, Hr'g Tr. at 10.

8. Order, Dkt. No. 86, SEC v. RPM Int'l, Inc., Case No. 16-cv-01803 (ABJ) (D.D.C Sept. 9, 2016) at 4. The court's statements about the Form 10-K appear to be colloquial. The company issues the Form 10-K. This is not an auditor document. 

9. Feb. 12, 2020, Hr'g Tr. at 10. The district court also addressed the application of the attorney client privilege and principles of waiver to the memoranda. The court held that RPM waived the privilege "when RPM disclosed the contents of the interview to [the auditor], which also, thereafter, were disclosed to the SEC." Id. at 13; see also id. at 12-13 ("Courts have held that where the substance of investigative interviews are disclosed, that will waive the attorney-client privilege because it's inconsistent with the confidential relationship.").

10. Order, Document No. 1840933, In re RPM Int'l Inc., No. 20-5052 (D.C. Cir. Mar. 12, 2020).

11. RPM Petition at 9.

12. Id. at 20.

13. Opposition of the Securities and Exchange Commission to the Petitioner's Petition for Writ of Mandamus and Emergency Motion for Stay, Document No. 1835540, In re RPM Int'l, No. 20-5052 (D.C. Cir. Mar. 12, 2020) (SEC Opposition) at 32.

14. Id. at 33.

15. Reply in Support of Petition for a Writ of Mandamus and Emergency Motion for Staying Pending Petition for a Writ of Mandamus, Document No. 1836514, In re RPM Int'l Inc., No. 20-5052 (D.C. Cir. Mar. 12, 2020) at 8 n.2.

16. SEC Opposition at 34.

17. See United States v. Deloitte LLP, 610 F.3d 129, 139-43 (D.C. Cir. 2010) (holding disclosure to independent auditor does not waive work product protection); Merrill Lynch Co. v. Allegheny Energy, Inc., 229 F.R.D. 441, 444-49 (S.D.N.Y. 2004) (same). The minority position holds that companies waive the work product privilege when sharing work product materials with an auditor. See Medinol, Ltd. v. Boston Sci. Corp., 214 F.R.D. 113, 115-17 (S.D.N.Y. 2002).

18. See Deloitte, 610 F.3d at 140; Merrill Lynch, 229 F.R.D. at 449.

19. RPM Petition at 23.

20. Feb. 12, 2020, Hr'g Tr. at 15.

21. See, e.g., In re Royal Ahold N.V. Sec. & ERISA Litig., 230 F.R.D. 433, 435-36 (D. Md. 2005) (holding that principal reason interview memoranda were created was to satisfy outside accountants, and therefore work product protection does not apply).

22. This would not be the case when the documentation is a verbatim, or substantially verbatim, account of what a witness said. Such memoranda are created when the attorney intends to capture a witness interview in a form that will be disclosed to government investigators or other third parties.

23. Jones Day Amicus Brief at 7-8.

Article originally published on 4 May 2020

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