Opinion
Opinion By: Jack Conway, Attorney General; Amye L. Bensenhaver, Assistant Attorney General
Open Records Decision
Richmond Register Senior News Writer Bill Robinson appeals the City of Somerset's denial of his July 14, 2015, request for a copy of:
the City of Somerset's official response to its contracted auditors' review of city finances for the years ending June 30, 2010, and June 30, 2011. This may not be the precise title of these documents, but I believe they are styled "Matters of Legal Consultation and/or Representation" or similar wording.
The city promptly responded to Mr. Robinson's request by providing him with copies of final audit reports for 2010 and 2011, because they included the city's responses to the auditors' reports, but refused to produce the documents entitled "Matters of Legal Consultation and/or Representation." The City advanced a number of arguments in support of its position. Because we find its work-product argument persuasive, we do not address the remaining arguments. We affirm the city's denial of Mr. Robinson's request for "Matters of Legal Consultation and/or Representation" on this basis.
In supplemental correspondence directed to this office after Mr. Robinson initiated his appeal, the city attorney explained:
Each year the city's external auditor -- a certified public accounting firm -- conducts an audit of the city's financial statements. Before providing these services, the auditor requires the city to agree to certain terms of engagement. Those terms expressly state, in relevant part, that (1) the audit will be conducted in accordance with the standards for financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; (2) the auditor will request written representations from the city's attorneys as part of the engagement, and the attorneys may bill the city for responding to the inquiry; and (3) the audit documentation for the engagement is the property of the auditor and constitutes confidential information.
She provided copies of the 2010 and 2011 engagement letters to verify the terms under which the audits were conducted.
With respect to information provided by counsel to the auditor, the city attorney continued:
When the auditor seeks this information from legal counsel, a written request is sent directly from the city to the attorney asking the attorney to provide the auditor with a letter containing summaries, strategies, observations, opinions, and mental impressions on "pending or threatened litigation, claims, and assessments" exceeding a certain value, specifically (1) how the city intends to respond to the litigation; and (2) the attorney's evaluations of the likelihood of an unfavorable outcome and an estimate, if one can be made, of the amount or range of potential loss.
Again referencing the terms of the engagement letters, the city attorney asserted that counsel's response to the request "becomes the auditor's property and is treated as confidential information. "
In support the city attorney cited 07-ORD-147, holding that an attorney's work product, consisting of the attorney's mental impressions, conclusions, opinions, or legal theories concerning litigation, may be withheld. See also, 14-ORD-002 (approving agency's denial of request for "notes created by counsel" that related to an incident that was the subject of litigation). 1 She later cited a federal and state case in which the courts recognized that the protection afforded by the work-product rule is not waived by disclosure of protected materials to an auditor. Shaheen v. Progressive Car Ins. Co., 2012 WL 3644817 (W.D. Ky. 2012) (dealing with privileged conversations between an insured and the insurer) ; Sherman v. Ryan, 911 N.E.2d 378 (Ill. App. 2009) (Illinois case dealing with application of work-product privilege to records shared with outside auditor) .
Our research confirms the City of Somerset's position. Although there is a split of authority on the issue of work-product waiver by disclosure made to an auditor, it is generally recognized that the protection the rule extends is waived only when the protected materials are disclosed to an adversary "or a third party that could serve as a conduit to an adversary." 2 For example, in United States v. MIT, 129 F.3d 681, 687 (1st Cir. 1997), the court determined that "work product protection is provided against 'adversaries,' so only disclosing material in a way inconsistent with keeping it from an adversary waives work product protection." Accord, Gutter v. E.I DuPont de Nemours & Co., 1998 WL 2017926 at 3 (S.D. Fla. May 18, 2008) (stating that "if it is clear that the information contained in the document was intended to be disseminated to those outside the cloister of confidentiality, then the privilege is waived" ).
The nonadversarial role of the auditor is also debated. In general, the courts have recognized that if the disclosing party and a third party share a common interest, the protection afforded by the work product rule is not waived. Merrill Lynch & Co., Inc. v. Allegheny Energy, Inc., 229 F.R.D. 441, 446 (S.D.N.Y. 2004). Only if the disclosure "substantially increases the opportunity for potential adversaries to obtain the information," have the courts found a waiver of the protection. In re Pfizer Inc. Sec. Litig., No. 90 Civ. 1260, 1993 WL 5611 25, at 6 (S.D. N.Y. Dec. 23, 1993). In the latter case, the court held that disclosure of work product by the audited entity's attorney to an independent auditor did not waive the work product protection since the auditor was "not reasonably viewed as a conduit to a potential adversary." Conversely, in Medinol, Ltd. v. Boston Scientific Corp., 214 F.R.D. 113, 116 (S.D.N.Y. 2002), the court determined that work product protection was waived by disclosure of protected material to an independent auditor, acting as a "public watchdog," whose interests were not necessarily aligned with the interests of the entity being audited.
Analyzing whether the audited entity and its outside auditor shared a common interest, in Merrill Lynch & Co., Inc., 229 F.R.D. at 447, the court concluded that the absence of a shared "litigation interest [was] of no moment." Using the expansive "because of existing or expected litigation" test for work product, as opposed to the narrower "prepared primarily or exclusively to assist in litigation," the court recognized that "work product protection extends to documents prepared in anticipation of litigation even if they are 'intended to assist in the making of a business decision influenced by the likely outcome of the anticipated litigation.'" Id. citing United States v. Adlman, 134 F.3d 1194, 1195 (2d Cir. 1998). The court reasoned:
[A]ny tension between an auditor and an [audited entity] that arises from an auditor's need to scrutinize and investigate [the entity's] records and book-keeping practices simply is not the equivalent of an adversarial relationship contemplated by the work product doctrine. Nor should it be. [The audited entity] and its auditor can and should be aligned insofar as they both seek to prevent, detect, and root out . . . fraud . . . . Without access to this information, auditors would likely fail in the fulfillment of this important public function.
Id. at 448, 449, citing United States v. Arthur Young & Co., 677 F.2d 211, 220 (2d Cir. 1982), aff'd in part, rev'd in part, 465 U.S. 805, 104 S. Ct. 1495, 79 L. Ed. 2d 826 (1984). As a matter of policy, the court concluded, "the aim should be for [audited entities] to share information with their auditors to facilitate a meaningful review and, ultimately, the availability of more accurate information . . . ." Merrill Lynch & Co. at 449. We find that this approach strikes a reasonable balance between the need for candor between the audited entity and its independent auditor and the public's right to know. Accord, 10-ORD-164 (affirming agency's denial of fraud or risk assessment questionnaires returned by the agency to the agency's external auditor) . 3
The aim of the work-product rule is to safeguard the adversary system of litigation. It "is intended to preserve a zone of privacy in which a lawyer can prepare and develop legal theories and strategies 'with an eye toward litigation,' free from unnecessary intrusion by his adversaries." United States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1958) (citing Hickman v. Taylor, 329 U.S. 495, 687 S. Ct. 385, 91 L. Ed. 451 (1947); see also, Richard H. Underwood Discovery in Kentucky: An Overview , 72 Ky. L. J. 727, 738 (1984) (the rule "provides a limited privilege of nondisclosure to avoid the 'demoralizing' effects on the adversary function of lawyers 'that might result if a party, could stand back and secure . . . the fruits of his opponent's preparation. '" Citing J. LEVINE, DISCOVERY II (1982).
In Kentucky, the rule is found in the Rules of Civil Procedure at CR 26.02(3). It provides:
(a) [A] party may obtain discovery of documents and tangible things otherwise discoverable under paragraph (1) of this rule and prepared in anticipation of litigation nor for trial by or for another party or by or for that other party's representative (including his attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of his case and that he is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.
(Emphasis added.) The work-product rule has been deemed incorporated into the exceptions to the Open Records Act by KRS 61.878(1)(l), authorizing public agencies to withhold "[p]ublic records or information the disclosure of which is prohibited or restricted or otherwise made confidential by enactment of the General Assembly." The statutory enactment restricting access in this context is KRS 447.154 which states:
No act creating, repealing, or modifying any statute shall be construed directly, or by implication, to limit the right of the Court of Justice to promulgate rules from time to time or to supercede, modify, or amend any rule so promulgated. Nor shall any statute be construed to limit in any manner the power of the Court of Justice to make rules governing practice and procedure in the courts.
Applying this statute, in an early open records opinion the Attorney General observed:
If any documents which are requested are in fact the attorney's work product in connection with a law suit, we believe that they may be properly withheld from public inspection under the court rules pertaining to discovery. Kentucky Constitution § 116 authorizes the Court of Justice to make rules, and KRS 447.154 gives statutory authority to the rules the Court has made. Any records which are privileged under the rules of discovery are, therefore, exempt from mandatory public disclosure by KRS 61.878(1)[(l)] "public records or information the disclosure of which is prohibited or restricted or otherwise made confidential by enactment of the General Assembly."
OAG 81-246; accord, 14-ORD-186 (affirming agency's denial of attorney notes, consisting of attorney's mental impressions, conclusions, opinions, and/or legal theories, on the basis of the work-product rule). In matters of access to attorney work-product, the Open Records Act yields to the Kentucky Rules of Civil Procedure as long as those rules are properly applied. We can conceive of few records that represent a greater threat to an agency's litigation posture, or the adversarial system, as a whole, then records containing its attorney's mental impressions, conclusions, opinions, or legal theories, in relation to the likelihood of an unfavorable outcome, and an estimate of the amount or range of potential loss, in pending or threatened litigation, claims, and assessments. Here, the work-product rule was properly applied. Disclosure of counsel's analysis of the strength or weakness of a claim, and the dollar amount she assigns to it, would severely disadvantage her client in, for example, settlement negotiations.
The letters requested by the city's auditor were created by the city's attorney "because of" the pending or threatened litigation and were submitted to the auditor, who was neither an adversary nor a conduit to an adversary, and who maintained the confidentiality of the letters, ensuring that there was no further disclosure of their content. Those letters, entitled "Matters of Legal Consultation and/or Representation," qualified for protection under the work-product doctrine codified at CR 26.02(3) and incorporated into the Open Records Act by KRS 61.878(1)(l) and KRS 447.154. The City of Somerset did not violate the Open Records Act in withholding the letters on this basis. 4
Either party may appeal this decision by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882. Pursuant to KRS 61.880(3), the Attorney General should be notified of any action in circuit court, but should not be named as a party in that action or in any subsequent proceeding.
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