Litigants in data breach class actions often fight over whether a data breach investigation report prepared in response to the breach is protected by the work-product doctrine. Common areas of dispute include whether the report was prepared in whole or in part for business—not legal—purposes, and whether the report relays facts that are not discernable from other sources. The fight becomes even more complicated, however, when the company that suffered the data breach is required to provide the report to regulators.
For example, in the mortgage industry, mortgagees regulated by the Multistate Mortgage Committee (MMC) are required to provide a “root cause report” following a data breach. Similarly, under Mortgagee Letter 2024-10, FHA-approved mortgagees must notify HUD of a cybersecurity incident and provide the cause of the incident. These reporting obligations involve production of information to regulators that typically overlaps with the content of data breach investigation reports.
Traditionally, one might think that disclosure of an investigation report (or its contents) to a regulator was a question of waiver. But recently, a federal district court in the Southern District of Florida bypassed the waiver analysis entirely by holding that reports provided to regulators weren’t protected by the work-product doctrine because they were primarily created for regulatory compliance rather than in anticipation litigation, even though, factually, they weren’t originally created for the purpose of regulatory compliance.
What Happened?
In a recent decision in a data breach litigation against a national mortgage loan servicer, the court considered whether investigative reports prepared by cybersecurity firms were protected under the work-product doctrine. These reports were initially withheld from discovery on the familiar grounds that they were prepared in anticipation of litigation following a data breach. But the plaintiffs argued that because the reports were disclosed to mortgage industry regulators, any work-product protections were waived.
Rather than address the waiver issue, the court analyzed whether the documents were privileged in the first place under the dual-purpose doctrine, which assesses whether a document was prepared in anticipation of litigation or for other business purposes. Under this doctrine (adopted by the First, Second, Third, Fourth, Sixth, Seventh, Eighth, Ninth, and D.C. Circuits), a document is protected if it was created “because of” the anticipated litigation, even if it also serves an ordinary business purpose. Notably, the court found that the reports were primarily created to comply with regulatory obligations, specifically those imposed by the MMC, even though they’d initially been prepared in anticipation of litigation. In the court’s view, the unredacted submission of the reports to the MMC, when demanded, evidenced that the predominant purpose for their creation was regulatory compliance.
The court ended with the suggestion that the defendants could have avoided this issue by creating a separate document for regulatory compliance, omitting sensitive findings related to litigation. Aside from this suggestion, there does not appear to be a legal framework under the which the disclosed reports would have been protected work product, at least in the court’s view.
Why Does it Matter?
The district court’s decision creates a new challenge for breach victims seeking to protect investigation reports from disclosure under the work-product doctrine. A key purpose of the doctrine is to allow parties to engage in pre-litigation investigations without the fear of disclosure. Data breach victims dealing with regulators have historically had to manage the risk that disclosing investigation reports (in whole or in part) to regulators could result in litigation over whether work-product protections were waived. But the decision appears to raise the stakes. The risk of disclosure is not limited to a waiver analysis, where parties can defend the disclosure based on the circumstances of the compelled disclosure and can rely on law requiring the narrow construction of privilege waivers. Now, parties must also consider whether using a report for a non-litigation purpose after the fact will lead to the conclusion that the report wasn’t prepared for litigation at all and therefore not privileged in the first place.
What Do I Need to Do?
Because this decision is by a federal district court, this is an area that should be monitored to determine whether a trend develops around the court’s rationale. And in the interim, the best option seems to be to follow the court’s suggestion: create separate documents for regulatory compliance and litigation purposes.
It is, of course, important to maintain a good relationship with regulators to try to circumvent these issues, but the two-report approach is a practical way to preempt the issue entirely. The reality is that many litigation-related items do not need to be submitted in a regulatory report. For example, an emerging issue in the cybersecurity space is whether following a data breach, the company that suffered the breach should bring claims against other related parties. Analyzing the merits of this type of litigation is plainly covered by the work-product doctrine but is not needed for regulatory reports. Thus, by following the two-report approach, sensitive findings related to that potential litigation can be omitted from the regulatory report, preserving the work-product protection for the litigation-related document. This approach could help companies navigate the complexities of dual-purpose documents and maintain the intended protections of the work-product doctrine.