May 13, 2022

Privilege: Sharing Information with Your Auditors?

If you’ve ever been involved in an internal investigation involving a potentially substantial issue, you know that it’s virtually impossible to avoid sharing information about that investigation with the company’s independent auditors.  But if you do that, do you risk losing privilege in the event of subsequent litigation? This Perkins Coie blog says that at least some courts have answered that question in the affirmative:

Although not in the majority, courts have concluded that independent auditors in fact have an inherently adversarial relationship with the companies they audit. Compare Medinol, Ltd. v. Boston Scientific Corp., 214 F.R.D. 113, 116 (S.D.N.Y. 2002). As a consequence, companies have a solid basis for fearing a downstream assertion that they waived work product protection over the subject of the information disclosed to their outside auditors. These cases, and the more generally unsettled state of the law on this key issue, create a non-trivial risk that turning over their search terms today could create privilege waiver arguments tomorrow.

The blog says that the good news is that it’s not a foregone conclusion that a court will find that privileged has been waived under these circumstances. This is an issue that has been litigated, and only a minority of courts have taken the position that sharing such information with auditors results in a waiver of work product protection.

John Jenkins