In the early 00s the Justice Department routinely required companies to waive their rights to assert the attorney-client privilege if they wanted to receive full cooperation credit in criminal investigations. The predictable hue and cry from the American Bar Association and other groups led the Department to withdraw from this aggressive posture. However now the attorney-client privilege is under siege from a different direction.
In a fascinating FCPA-related case, the former general counsel of Bio-Rad, Sanford Wadler, is suing his former employer for wrongful termination. Readers of The Man From FCPA will recall the company sustained an FCPA violation leading to a $55MM fine in 2014. Wadler alleges the company fired him for whistleblowing on red flags which indicated the company could have been engaging in bribery and corruption in China. The company counters that he was fired for incompetence, including failing to detect the bribery and corruption which led to the prior FCPA violation and attendant $55MM penalty.
The company had sought to keep internal memoranda and other documents from not only use at trial based upon the attorney-client privilege but also tried to throw out the entire claim on that basis. Sadler countered that he was asserting protected whistleblower rights under both Dodd-Frank and Sarbanes-Oxley and that these federal laws override State Bar of California rules requiring attorneys to keep client information confidential. The SEC weighed in on the side of Sadler and most significantly the federal district court agreed with him on both scores.
If there was ever any doubt that in-house counsel cannot bring whistleblower claims with the same confidential information they are privy to as corporate lawyers, this lawsuit ends that argument. As important as the notion of the in-house counsel as protected whistleblower may, the loss of attorney-client privilege by corporations may be the longer lasting harm. If federal whistleblower law under Dodd-Frank overcomes state bar rules around confidentiality and privilege, the inexorable march toward loss of the attorney-client privilege may well continue.