In a recent case, documents related to an audit which was described in internal correspondence as being done to assess general compliance were not privileged in later civil litigation since the Court found: (1) the audit was conducted as a regular business activity; and (2) defendants could not establish that litigation was the “driving force” for the audit. Graph v. Haverhill North Coke Company, WL 5495514 (S.D. Ohio), Case No. 1:09-CV-670 (SD Ohio, November 13, 2012), The Graph defendant had already performed a prior audit and had been subjected to Clean Air Act violations and enforcement prior to having URS conduct another audit. After the URS audit was completed, the defendant was sued by plaintiff asserting Clean Air Act and Resource Conservation and Recovery Act (“RCRA”) violations. Although the audit-related correspondence was discoverable, the court found that the actual draft and final versions of the URS audit itself were protected since those documents contained legal advice and were made in confidence by the defendant. However, the court found that the results and drafts of the earlier audit were not themselves protected since: (1) the defendant had disclosed some of those audit materials in separate litigation; and (2) the defendant was relying on results of this earlier audit to support some of its defenses.
In light of this ruling, clients need to be careful to cloak all documents relating to sensitive audits under privilege. Clients should seek legal advice expressly, allow attorneys to provide input before even the first draft of the audit is prepared, and keep all copies of audit-related documents in files separate from those containing normal business documents to avoid disclosure of some documents which might waive the privilege for the entire audit.