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The Calm Before the Storm: New Jersey Magistrate Judge Declines Selective Waiver Approach

10/10/2012

In a letter opinion issued October 5, 2012, Magistrate Judge Cathy Waldor ordered Merck & Co., Inc. to turn over documents claimed to be privileged because those same documents had earlier been voluntarily delivered to the federal government.

In her letter opinion in In re Merck & Co., Inc. Securities, Derivative & ERISA Litigation, Judge Waldor notes that lead plaintiffs sought informally to compel certain categories of documents related to Vioxx and the decline in stock price after the drug's safety and commercial viability came into question. Among the requests was a request for "documents produced in connection with any government investigation."

Documents had been produced by Merck, pursuant to a Confidentiality and Non-Waiver Agreement, to the Department of Justice during the DOJ investigation into the Vioxx drug. The plaintiffs argued that the Agreement does not operate to preclude later discovery of the documents, but rather, that it operates as a complete waiver. Merck responded by arguing that a "selective waiver" approach be implemented under these circumstances.

The selective waiver doctrine was set forth in Teachers Ins. & Annuity Assoc. of America v. Shamrock Broadcasting Co., 521 F. Supp. 638 (S.D.N.Y. 1981) and was adopted in some form (a case-by-case analysis) more recently by the Second Circuit as well. In re Steinhardt Partners, L.P., 9 F.3d 230 (2d Cir. 1993). The approach is also in force in the Sixth Circuit. In re Columbia/HCA Healthcare Billing Practices Litig., 293 F.3d 289 (6th Cir. 2002).

In essence, the selective waiver doctrine operates to waive privilege for the government only as to documents turned over to the government during an investigation that are subject to a confidentiality agreement or court order. The privilege that would extend to those documents remains in force for all subsequent civil cases. The basis for this "selective waiver" is that "[t]he disclosing party had made some effort to preserve the privacy of the privileged communication, rather than having engaged in abuse of the privilege by first making a knowing decision to waive the rule's protection and then seeking to retract that decision in subsequent litigation." Teachers Ins. at 646.

The Third Circuit, however, has not adopted the selective waiver approach. Rather, in Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, the court specifically held that the confidentiality agreement between Westinghouse and the Department of Justice in a prior investigation "does not appear in any way to have purported to preserve Westinghouse's right to invoke the privilege against a different entity in an unrelated civil proceeding." Id. at 1427. This language explicitly rejects the holding of the courts in Steinhardt and Columbia/HCA.

True to form, Mag. Judge Waldor refused to extend the selective waiver approach to the documents in this case, despite the existence of a Confidentiality Agreement between Merck and the DOJ. Merck's argument that it reasonably expected the government to abide by the Agreement and, therefore, maintain the privilege for later use was not accepted by the court. There was simply no reason, in Judge Waldor's view, to extend a new exception to the facts of this case.

What is clear from the holding in the active Merck matter is that a company dealing with a governmental investigation in which civil litigation is likely to follow (read: most, if not all governmental investigations with any scale) must tread carefully. Proactively working with both in-house and outside counsel with significant experience handling government investigations enables companies to identify these pitfalls early on so they do not result in significant losses later.

LeClairRyan's Compliance, Investigations and White Collar team -- including former government attorneys Thomas Cohn, Carlos Ortiz and Michael Volkov -- regularly assists clients in navigating myriad regulatory and compliance issues as well as the complex process of government investigations and litigation.