Accountants are frequently retained by attorneys to assist with corporate investigations. Accountants play a critical role in advising attorneys on, among other issues, forensic accounting and valuation matters. An accountant’s work in this context, when the retention is structured properly, is generally protected from discovery by the attorney work product doctrine. A recent ruling by a federal district court in Washington, D.C. appears to undermine the scope of the attorney work product doctrine. This memo discusses that ruling and its potential impact on the protections that generally apply to an accountant’s work with an attorney as part of a corporate investigation.
A. The Attorney Work Product Doctrine’s Protection of Accountant Work Product
The attorney work product doctrine shields certain materials from discovery. While the precise contours of the doctrine vary from state to state, as a general matter, there are two levels of work product protection. First, “fact work product” includes materials prepared in anticipation of litigation or for trial by or for a party or by or for that party’s representative (including the party’s attorney, consultant, surety, indemnitor, insurer, or agent). Materials are prepared in anticipation of litigation if they were prepared or obtained because of the prospect of litigation. The protection afforded to fact work product is a low level of protection that can be overcome when a litigant or regulator demonstrates a special need for the fact work product.
“Opinion work product,” on the other hand, warrants a much greater level of protection—a nearly absolute privilege from discovery. Materials constitute protected opinion work product if they (i) were prepared in anticipation of litigation and (ii) reflect or record an attorney’s mental processes and impressions. When parties refer to work product, they generally mean the near absolute protection covering opinion work product.
The work product of non-attorneys can also be protected opinion work product; “although the doctrine is known as the attorney work-product doctrine, work product created by non-attorneys can also be protected if it is so intertwined with the legal analysis as to warrant protection.” Indeed, courts have made clear that the relevant question is not “who created the document or how they are related to the party asserting work-product protection,” but instead “whether the document contains work product—the thoughts and opinions of counsel developed in anticipation of litigation.” Accordingly, when an attorney retains an accountant to assist with an investigation or analysis in anticipation of litigation, so long as the accountant’s work product reflects or records the attorney’s mental processes or impressions (including the attorney’s instructions to the accountant), the accountant’s work product is protected opinion work product.
B. SEC v. RPM International
1. Background of the Case
RPM International is a manufacturing company. In its 2013 third-quarter earnings release, RPM recorded a $68.8 million accrual and disclosed a GSA investigation regarding historical procurement contracts between the federal government and an RPM subsidiary. Nearly a year later, on January 27, 2014, the SEC informed RPM that it had commenced an inquiry into the timing of RPM’s disclosure. In July 2014, RPM’s Audit Committee discussed with E&Y, the company’s independent auditor, the SEC’s formal investigation and retained the Jones Day law firm to conduct an independent investigation into the timing of the disclosure and accrual. From July 30 to August 9, 2014, Jones Day conducted 19 interviews of 23 witnesses. Jones Day advised E&Y of the progress of the investigation, and orally conveyed certain facts learned in the witness interviews. By September 11, 2014, Jones Day had prepared draft memoranda to file summarizing its 19 interviews (the “Jones Day Memoranda”).
2. The District Court’s Ruling
The SEC sued RPM on September 9, 2016 in federal court in Washington, D.C., alleging that RPM violated the securities laws by not recording its accrual before the third quarter of 2013. As part of the lawsuit, the SEC moved to compel from RPM “[a]ll documents relating to the investigation conducted by RPM’s Audit Committee in 2014 . . . including . . . interview notes and interview memoranda.”
In a highly publicized ruling, the district court granted the SEC’s motion as part of an unpublished February 12, 2020 order. The district court compelled the disclosure of all 19 Jones Day Memoranda on the following grounds:
a. The Jones Day Memoranda were not attorney work product because they were not prepared in anticipation of litigation. The court reasoned that Jones Day was initially retained to conduct an investigation to address E&Y’s concerns, not because of an impending litigation.
b. The Jones Day Memoranda were not opinion work product because they were devoid of legal analysis, opinions, thoughts, or mental impressions. Instead, the Memoranda simply recounted facts or set forth the witnesses’ statements or impressions.
c. Even if the Jones Day Memoranda were work product, any work product protection was waived when Jones Day conveyed to E&Y the facts developed during some of the interviews.
The ruling surprised many lawyers and members of the business community who have generally taken for granted that (i) materials prepared by attorneys during an internal investigation conducted in part in response to an SEC inquiry are protected attorney work product and (ii) orally sharing certain findings with the client’s auditors did not constitute a waiver of that protection. Inasmuch as the attorney work product protection is undermined by the decision, the derivative protection afforded to accountants and other non-lawyer advisers working with attorneys on investigation matters is undermined to the same extent.
3. The Amicus Brief Prepared by the Chamber of Commerce and Association of Corporate Counsel
Following the district court’s ruling in favor of the SEC, RPM attempted to appeal to the D.C. Circuit Court of Appeals through a petition for mandamus. The U.S Chamber of Commerce and Association of Corporate Counsel filed an amicus brief in support of RPM’s position (the “Chamber Brief”). The Chamber Brief made three principal arguments.
a. The court wrongly determined that whether a document is prepared in anticipation of litigation, and is thus eligible for work-product protection, turns entirely on “why the law firm’s investigation [i]s undertaken in the first instance.” According to the Chamber, Jones Day served multiple functions that evolved and expanded during the course of the firm’s representation. One such function was to serve as litigation counsel, and Jones Day was operating in that capacity when it created the Memoranda.
b. Jones Day did not waive work product protection when it disclosed certain interview-related information to E&Y. The Chamber Brief pointed to the fact the Interview Memoranda did not even exist at the time that Jones Day briefed E&Y. The Chamber argued that the district court’s decision might chill the flow of information from corporate counsel to the independent auditor.
c. If allowed to stand, the district court’s waiver holding would chill the development of compliance programs and cooperation with the government. As the Chamber Brief puts it, “[h]olding that a disclosure of facts uncovered during an internal investigation waives the . . . work product protection will create a perverse incentive for companies to limit the scope of their investigations and ultimate disclosures, thus undermining the beneficial purpose of disclosure requirements.”
While not discussed in detail in the Chamber Brief, the district court opinion also creates the risk that attorneys and their advisors may become reluctant to memorialize their investigation findings.
4. The Likelihood of Reversal and Precedential Effect
The D.C. Circuit denied the petition for mandamus, leaving the district court decision intact for now. It is unlikely the decision will ever be reviewed on appeal. There is almost no chance the U.S. Supreme Court will review the mandamus denial. That means RPM must wait for a “final judgment” in the SEC’s favor in the underlying litigation to appeal the district court’s decision. Most cases of this nature settle before reaching a final judgment.
The district court decision, however, is not binding on any court. District court opinions carry no precedential weight, and are instead viewed merely as “persuasive” authority in analogous factual circumstances. District court decisions have even less persuasive value where, as here, they are unpublished. And courts outside the D.C. Circuit should not view an unpublished decision of a D.C. district court as anything more than noteworthy.
C. Best Practices for Protecting Attorney Work Product
The case is, at the very least, a reminder of the structural and substantive requirements for invoking opinion work product protection. Accountants working with attorneys on corporate investigations should consider the following best practices to maximize the strength of work product protection.
- The documentation authorizing and/or launching the corporate investigation should expressly identify the reasons for the investigation, including pending or potential litigation. From the company’s perspective, that documentation includes, among other things, (i) Board resolutions establishing committees tasked with overseeing an investigation, (ii) retention agreements with attorneys conducting the investigation, and (iii) investigation mandates provided to the professionals conducting the investigation. From the professionals’ perspective, that documentation includes engagement agreements and work plans. Litigation does not have to be the exclusive reason for the investigation; but when, as in the RPM case, a company is discussing financial reporting issues with its auditor, the company will also be concerned about potential litigation and government enforcement risks. The scope of the investigation outlined in the documents should tie at least in part to the pending or potential litigation.
- Accountant engagement letters should make clear the accountant is engaged to assist the attorney as part of the investigation and to inform the attorney’s judgements and opinions, and is working at the attorney’s direction.
- Thought should be given as to what investigation activities are memorialized. It may not be necessary to memorialize all interviews, for example.
- Any interview memoranda and other investigation summaries should include an attorney’s thought processes and/or mental impressions. These documents should not be verbatim transcripts or recitations of mere facts. Documents that do not record or reflect an attorney’s thought processes or mental impressions may be entitled to fact work product protection, but will not constitute opinion work product. Memoranda should also include clear disclaimers that they include mental impressions and opinions of counsel and were prepared in connection with pending or potential litigation.
- Materials prepared by accountants should include, in addition to the materials described in the prior bullet, the attorney’s instructions and the reasons the accountant is preparing the materials. The materials should of course be labeled “Attorney Work Product” and “Prepared at the direction of counsel and in anticipation of litigation.”
- The company and its advisors should be careful about disclosures to independent auditors, regulators, or other corporate outsiders. Written work product should not be provided to outsiders. And in any oral briefings, the company should not disclose quotations from witnesses and should focus on summations of facts.
1 U.S. v. ISS Marine Servs., Inc., 905 F. Supp. 2d 121, 134 (D.C. Cir. 2012) (internal quotation marks omitted).
2 United States v. Deloitte, 610 F.3d 129, 135-38 (D.C. Cir. 2010).
3 SEC v. RPM Int’l. Inc., No. 16-1803, tr. op. (D.D.C. Feb. 12, 2020).