Environmental Audits and Confidentiality: Can What You Know Hurt You As Much As What You Don't Know?

Phillip D. Reed

Editors' Summary: The adoption by many corporations of environmental auditing is evidence of the maturity of pollution control law. Increasingly, environmental compliance is seen as good business, not a pesky problem that will go away if ignored. Environmental auditing is a means by which corporate leadership can wisely manage environmental assets and liabilities. However, as a result of the relative novelty of environmental auditing, the legal consequences are uncertain, and the confidentiality of environmental audits has become a major concern. The author reviews the law and EPA policy governing access to a company's environmental audits. The law clearly allows protection of audits from discovery in civil actions under some circumstances but a question mark hangs over how EPA will deal with audits in administrative enforcement actions. The author suggests that removing that uncertainty with a policy of ignoring audit reports in routine enforcement could significantly encourage auditing without weakening enforcement.

[13 ELR 10303]

Concern over releases of confidential information is a major factor in environmental auditing. Everyone is talking about environmental auditing and some people are actually doing it. The trade press is full of material on the latest developments, notices of training seminars, and announcements of new books on environmental auditing.¹ A cynic might argue that the flood of information on auditing stems from the marketing efforts of the many law, accounting, and consulting firms that lost environmental defense and compliance work in the first years of the Reagan regulatory relief era. But while a host of firms offer environmental auditing services, the heart of the interest stems from the fact that auditing makes good sense for companies interested in managing their activities in order to minimize the environmental problems they will face. Many major firms have launched environmental audit programs and other companies large and small are considering auditing.² One of the central issues each of these companies must address is confidentiality.

Environmental auditing is not much different from financial auditing in concept. "Environmental audit" as yet has no official definition and is applied to a variety of different corporate information and management systems. The term is used here to refer to an independent appraisal of a corporation's environmental control systems and its environmental assets and liabilities to enable management to make rational decisions relating to environmental matters. In this regard, environmental auditing resembles financial auditing. The primary difference is that financial auditing is governed by a host of practices, certifications, rules, and laws which dictate how audits are conducted and how they may be used, while these issues for the most part still are unanswered questions in environmental auditing.

The benefits of environmental auditing are real and substantial. The consequences of violating pollution control laws can be severe,³ and a violator is no longer certain [13 ELR 10304] of a free grace period in which it may come into compliance without sanctions.⁴ Environmental liabilities also can cause problems with the Securities and Exchange Commission (SEC). The specters of toxic torts litigation and strict, joint and several liability for hazardous waste pollution under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)⁵ are added incentives for careful management of waste disposal practices.⁶ The Environmental Protection Agency (EPA) has endorsed the auditing concept enthusiastically and is wrestling with difficult alternatives for giving the auditing movement more momentum. From a mid-1970s start, triggered largely by the SEC requiring three corporations to audit their environmental liabilities,⁷ to today, when hundreds of corporations have voluntarily initiated environmental auditing programs, the concept has grown and taken hold.

Environmental auditing entails risks as well as benefits. Because auditing produces accurate, verified information on a company's environmental control efforts and, posibly, on the production processes they regulate, the audit could be a potent weapon in the hands of someone whose interests are adverse to those of the company. An audit report documenting violations of pollution control statutes could make an enforcement case for EPA or a state or local agency or a private group suing under the ubiquitous citizen suit provisions of federal pollution control law.⁸ Worse than that, such an audit report could document that corporate officials knew of violations, opening both the corporation and the officials to criminal liability under a number of environmenal statutes.⁹ Damaging information in an audit report could be ammunition for the SEC in an enforcement action, for people trying to block a merger or acquisition, or for dissident shareholders.¹⁰ Finally, the audit may reveal trade secrets about a company's production processes, even if it does not uncover any violations.

The risk of disclosure has made confidentiality a burning issue in the new field of environmental audit law. Environmental audit reports can be extracted from a company in two basic ways. EPA has formidable powers to compel the production of information on environmental compliance. In addition, liberal discovery rules in the federal district courts make it possible that any litigant might obtain audit reports relevant to the subject matter of a case. The potential adversarial value and possible accessibility of environmental audit reports has dampened the spread of this practice. A review of the law and policy developing in the auditing field suggests that while confidentiality cannot be guaranteed and the available ways of limiting the risk of disclosure are costly, the federal district courts might be persuaded to extend the relatively new privilege for self-evaluation to protect environmental audits from discovery by private plaintiffs. In addition, if EPA adopts a policy of tough enforcement coupled with a hands-off approach to environmental audit reports in routine enforcement proceedings, it could significantly reduce corporate anxiety about confidentiality without weakening enforcement.

Accessibility of Environmental Audit Reports

A corporation's environmental audit reports might be disclosed through one of several channels. EPA could require submission of the reports under the broad administrative enforcement powers granted the agency by federal pollution control statutes.¹¹ Moreover, these statutes [13 ELR 10305] might require reporting some information uncovered in an audit to EPA.¹² And, once in EPA files the information may be accessible to the public through the Freedom of Information Act.¹³ Thus, EPA's policy governing the information it will seek through its administrative enforcement powers significantly defines the bounds of confidentiality. In addition, governmental or private entities involved in civil litigation with the company could seek the reports through discovery. The Federal Rules of Civil Procedure,¹⁴ which govern discovery, also apply to enforcement of administrative subpoenas¹⁵ and thus generally set the legal limits on the confidentiality of environmental audits.

Discovery

The Federal Rules of Civil Procedure establish a strong bias in favor of the disclosure of any information "relevant" to the subject matter of litigation in the federal district courts.¹⁶ Even information not admissible in court may be discovered if it could lead to discovery of admissible evidence. The Rules "leave much to the judge's discretion in deciding where discovery is appropriate."¹⁷ In order to defeat the Rule's bias towards discovery a litigant must demonstrate that the "attorney-client privilege," the "work-product doctrine," or the "privilege for self-evaluative documents" applies. These three exceptions to the liberal discovery rules apply in somewhat different circumstances, but like all privileges must be narrowly construed.¹⁸ They apply to different types of information, though all require the applicant for protection to have handled the information with strict confidentiality. Of the three, the privilege for self-evaluative documents could offer the broadest protection for audit reports, but it is the newest and has the shakiest legal foundation. However, it might be applied to environmental audits and would be a useful complement to the attorney-client privilege and work-product doctrine.

* Attorney-Client Privilege. The attorney-client privilege, which protects "communications" from a client to his or her lawyer in order to serve the public interest in enabling people to communicate openly with their lawyers, has four basic elements.¹⁹ The first element of the privilege is that the lawyer must be engaged in preparing legal advice for a client.The key issue is whether the lawyer is engaged to conduct a factual investigation or to render a legal opinion.²⁰

The second element is that the privilege applies only to communications from the client to the lawyer. The communication is protected, but not the underlying facts, and the communication must go directly to the lawyer or someone working for the lawyer in preparation of the legal opinion. A more important issue for corporate use of this privilege has been the definition of "client." The Supreme Court recently gave a broad definition to the corporate "client" holding that not only the "control group" of officers, directors and top management constituted the client, but all employees.²¹ The Court noted that the narrower interpretation was obsolete in a modern regulatory world where relatively junior employees are responsible for day-to-day compliance with government regulations. Subsequent decisions by lower courts have expanded the protection of the attorney-client privilege to communications by past employees and communications by current employees made prior to their employment.²²

The third element of the attorney-client privilege is the intent that the communication be confidential.²³ The privilege may be defeated by failure to limit circulation of the audit within the corporation to the circle of people who need to know about it in connection with their work or the lawyer's investigation. Fourth, voluntary, and in some instances, involuntary or inadvertent production waives the privilege.²⁴

If all the above conditions are met, an environmental audit can be protected from discovery. The price is that the audit must be structured as a legal-advice-giving exercise, not as a routine management information system. Corporate management must direct the lawyer to conduct [13 ELR 10306] an audit for the purpose of giving legal advice, perhaps on the company's compliance with environmental laws. Employees with knowledge of the company's regulated activities must be directed to report to the lawyer for the purposes of the legal analysis. The reports must be kept confidential within the company. The lawyer must then prepare a legal opinion for management.

* Work-Product Doctrine. The work-product doctrine, which protects a lawyer against the disheartening experience of having his or her work fall into an adversary's hands, is spelled out in Rule 26(b)(3) of the Federal Rules of Civil Procedure. The doctrine is independent of the attorney-client privilege²⁵ and applies to documents, notes, and other tangible things prepared "in anticipation of litigation." Materials compiled before a case has been filed may be work product, but not materials used in litigation which were prepared for other purposes before the prospect of litigation arose.²⁶ Exactly where on this spectrum a court will draw the line is not entirely clear.²⁷ In general, there is no protection if the "party seeking discovery has substantial need of the materials in the preparation of his case and … is unable without undue hardship to obtain the substantial equivalent … by other means."²⁸ However, the "mental impressions, conclusions, opinions, or legal theories of an attorney"²⁹ are protected in spite of a showing of need and unavailability. Included in this category of materials are notes of interviews with potential witnesses, suggesting that an attorney attempting to bring an environmental audit within the protection of the work-product doctrine should gather as much information as possible through interviews with the appropriate company personnel and record the information in his or her own handwriting.³⁰

The work-product doctrine is less useful in protecting environmental audits than the attorney-client privilege. Work product protects a somewhat broader category of information — materials, not just communications — but can be overcome by a showing of need and unavailability and only applies when litigation reasonably may be foreseen, which should not be the case in a routine periodic environmental audit. In addition, the work-product doctrine requires at least as much involvement of counsel as the attorney-client privilege, since the lawyer may have to actually prepare the materials in order to maximize the chances of protection.

* Privilege for Self-Evaluation. A third potential basis for protecting the confidentiality of environmental audits is the limited privilege against disclosure of "self-evaluative" documents.³¹ This privilege was first recognized in 1970 in Bredice v. Doctors Hospital, Inc.,³² a medical malpractice case in which the court decided that reports of a hospital peer review committee should not be disclosed, because discovery would stifle the doctors' candid self-evaluation, a process in which there is an "overwhelming public interest." The court held that the privilege was qualified and could be overcome by a showing of exceptional necessity. It applies to evaluations and not underlying facts. Other courts have recognized the privilege in a number of contexts, and have expanded it to the regulatory field of equal employment opportunity compliance.³³ While the courts have not provided a definitive analysis of this privilege, several elements have been recognized in one or more opinions. They include: (1) an internal review process which serves an important public interest;³⁴ (2) the risk that disclosure will cut off candid reviews;³⁵ and (3) preparation of the reviews for internal purposes only.³⁶

The courts also have found limits to the self-evaluation privilege which restrict its potential utility in protecting environmental audits. The most serious limitation is the courts' unwillingness to apply the privilege to prevent disclosure to a government enforcement agency.³⁷ The self-evaluation privilege appears inapplicable to administrative subpoenas as well as discovery in court enforcement actions; it has only been recognized in the context of discovery in private actions. Two courts have ruled that where Congress has empowered an agency with "broad investigatory and subpoena powers," it has deprived the court of the discretion to find a privilege for self-evaluation.³⁸ Thus, it appears that the privilege against disclosure of self-evaluative documents is available at most in private actions. Not all courts recognize the privilege even in private actions and it is clearly not available where the issue is the company's use of the audits themselves, not its environmental compliance.³⁹

[13 ELR 10307]

In spite of these limitations, district courts hearing private actions in which one party seeks the other's environmental audit reports might be persuaded to apply the self-evaluation privilege. Environmental audits, as defined in this comment, satisfy the basic criteria set out by the courts for the self-evaluation privilege. They are designed to provide a critical review of internal procedures and there is a strong public interest in having corporations perform such reviews since they improve pollution control. It seems clear that evaluative environmental auditing is discouraged by the risk of disclosure. Although some firms have set up audit programs in spit of the risk, their auditors seem generally to be directed to be less than candid in reporting and analyzing environmental problems until the lawyers establish the basis for claiming the attorney-client privilege or the work-product doctrine.⁴⁰ Environmental audits generally satisfy the self-evaluation criterion of internal use only.

If applied, the self-evaluation privilege would serve the public interest by allowing companies to protect sensitive information evaluating environmental compliance from private parties who would use this information for purposes other than environmental protection. It would be easier to establish an audit system qualifying for the self-evaluation privilege than for the attorney-client privilege or work-product doctrine, because counsel would not have to manage the system. It would still be essential to maintain confidentiality with regard to outsiders, but the audit probably could be circulated in-house for its educational value.

Arguably, extending this privilege to environmental auditing could harm the public interest by keeping compliance information from watchdog citizens groups which play an important back-up role in the enforcement system Congress built into our national pollution control statutes.⁴¹ This argument can be expanded to the position that the public generally has a right to an open window on corporate environmental control activities. But the self-evaluation privilege would not apply to the facts concerning compliance, and the audit need not be the only information available on compliance, since the government can require the collection and reporting of compliance data, which are then available to the public. The impulse to make audits do double duty as internal management and evaluation systems and as sources of compliance data for government or the public undermines the potential for auditing. It may appear to make sense in an era of government belt-tightening, but an attempt to make auditing do this double duty may result in it performing no duty at all.

EPA Policy on Auditing

The EPA has not made final decisions on what it will or will not do with environmental audits, in large part because of difficulty in deciding on the proper relationship between auditing and enforcement. The agency long ago considered and rejected the idea of requiring companies to conduct periodic environmental audits and report the results. In its current desire to encourage auditing, EPA considered manipulating its enforcement program to make auditing more attractive, for example, by easing the surveillance or enforcement faced by companies conducting audits, but has backed off to a program of "endorsement, analysis and assistance."⁴² The agency has made it clear that it thinks auditing is a good idea, and has sponsored a series of conferences, seminars, and workshops providing information on auditing. EPA staff and contractors are preparing papers analyzing important auditing issues such as confidentiality⁴³ and the agency is supporting demonstration projects on auditing in several states.⁴⁴ But in addition, the General Counsel reportedly has been asked for an opinion on the extent to which EPA may use its prosecutorial discretion to benefit firms with environmental auditing programs, which would enable EPA informally to give companies with auditing programs the enforcement breaks the agency decided it could not formally offer.

Lessons for Those Considering Auditing

The status of the law on confidentiality and EPA's position toward auditing suggest several basic lessons for companies considering establishing environmental auditing programs. The first is do not do it, unless the company is prepared to correct promptly any environmental compliance or liability problems identified in the audit. It may be costly to correct the problems and, upon learning of them the company may be forced to reveal the information to a government agency,⁴⁵ which in turn may be forced to take an enforcement action.⁴⁶ But the company that reports its own violations and is in the process of correcting them is likely to get the benefit of whatever enforcement discretion the agency has,⁴⁷ and avoids the risk of criminal liability for knowing violations that is the possible price of having the agency discover the violation some time after it was uncovered by the company's own [13 ELR 10308] auditing system. The second lesson is to utilize expert counsel in setting up the audit system and in conducting the first audit. While it generally will not be practical to bring the entire audit process within the attorney-client privilege or work-product doctrine, a lawyer can organize the audit system to maximize the chances of protecting particularly sensitive information through selective application of those devices. This is the approach utilized by several companies with the most experience in environmental auditing.⁴⁸ However, since the first audit is likely to reveal the most problems, it appears prudent to invest the legal resources to bring it within the attorney-client privilege where possible in order to give the company breathing room to respond to the problems identified before they become public knowledge.

Lessons for EPA

EPA's program has given a boost to private sector environmental auditing, but the prospect of turning over audit reports to enforcement officials, even if minor violations thus revealed might be forgiven, would seem to have an equal or greater chilling effect. It might make greater sense to completely sever the auditing and enforcement programs. The single strongest encouragement for environmental auditing is an aggressive EPA enforcement program; EPA's aggressive enforcement drive of the late 1970s⁴⁹ was one of the reasons for the development of auditing in the first place. EPA is not dependent on audit reports for effective enforcement, at least in theory, given its power to compel the collection and production of compliance data. EPA might even adopt a policy of not seeking internal corporate reports generated by audit programs, unless it had reason to believe that the audit itself was an element of the violation, as where it constituted the corporation's knowledge of the violation in a criminal action.

There is some support for this approach in the case law concerning the privilege for self-examination. In disallowing the privilege, the court in Memorial Hospital for McHenry County v. Shadur⁵⁰ based its decision largely on the extent to which the internal review in question was independent of the alleged wrongful acts. It found that where the privilege was allowed, the plaintiff had ample other ways in which to prove its case. This is true in theory with EPA, given its far-reaching enforcement investigatory powers. The Memorial Hospital court denied the privilege in the case before it because the review process itself was the source of the alleged liability for denying a doctor the right to practice at the hospital, allegedly in restraint of trade.

Some precedent for a policy of ignoring internal audits in routine enforcement actions also is found in a policy of the Food and Drug Administration (FDA). In 1978 the FDA required manufacturers to establish quality assurance programs and procedures to audit the effectiveness of the quality assurance programs.⁵¹ The regulations stated that the programs had to follow written company procedures and be conducted by trained individuals who did not have responsibility for the audited activities.⁵² The regulations also prescribed that FDA inspectors must have access to the written procedures for the audits. However, in response to intense opposition to the audit proposal, FDA stated in the preamble to the final regulations, that

as a matter of administrative policy, FDA will not request inspections and copying of the reports of audits of a manufacturer's quality assurance program when FDA conducts routine surveillance of a manufacturer's compliance ….⁵³

The analogy is imperfect since FDA mandated the audits, while environmental audits are voluntary, but it does demonstrate that protection against disclosure in regular enforcement inspections can assuage some intense corporate concerns about auditing of regulatory compliance. Some might argue that in an era of shrinking enforcement resources, EPA should not give up any potentially useful enforcement information. It is clear from experience to date that a significant number of firms will establish auditing programs with no quid pro quo from EPA. However, many companies have not committed themselves to auditing programs and the potential environmental benefits of more candid self-regulation through auditing are substantial.

Conclusion

The courts and EPA could provide added impetus to the movement toward regular corporate environmental auditing by expanding the confidentiality of audit reports. Recognition by the courts of a qualified self-evaluation privilege for environmental audits would limit private access to the information.EPA also could follow the FDA's lead and ignore audit materials in routine enforcement investigations. These measures would provide additional security to companies using audits without depriving private litigants or EPA of necessary and relevant information on environmental compliance.

1. Environmental auditing now has its own newsletter, ENVTL. AUDIT LETTER, and several books on the subject have been published. For a particularly thorough and comprehensible review of legal issues raised by environmental auditing, see T. H. TRUITT et al., ENVIRONMENTAL AUDIT HANDBOOK (2d ed. 1983) [hereinafter cited as TRUITT]; see also R. HALL & D. CASE, THE ENVIRONMENTAL AUDIT (1982); and THE ENVIRONMENTAL AUDITING HANDBOOK (L. Harrison ed. forthcoming 1984).

2. While there is no authoritative tally of the number of companies using environmental auditing, in part because there are many different definitions of the term, there are indications that many of the largest corporations in the United States have adopted some form of environmental audit procedures. One observer reports that several hundred companies have environmental audit programs, including "over two-thirds of the larger companies in the basic manufacturing and process industries." Address of J. Ladd Greeno, Environmental Protection Agency (EPA) Environmental Auditing Opinion Leaders' Workshop, Alexandria, Virginia, June 9, 1983. In addition to corporate auditing, several federal agencies are considering or developing auditing programs. Federal agencies are directed by executive order (Exec. Order No. 12088, 43 Fed. Reg. 47707 (1978), ELR STAT. 45033) and statute (see, e.g., Clean Air Act § 118(a), 42 U.S.C. § 7518(a), ELR STAT. 42220) to comply with all federal, state, local, and interstate procedural and substantive environmental requirements and are made subject to the same sanctions for noncompliance as private parties. And in Sierra Club v. Peterson, 13 ELR 20585 (9th Cir. Apr. 13, 1983), the court held that the obligations imposed by Exec. Order No. 12088 are enforceable by citizen suit, even if the underlying federal statute has no citizen suit provision.

3. Federal environmental statutes typically provide for administrative orders and injunctive relief to compel compliance with their requirements. See, e.g., Clean Air Act § 113(a), (b); 42 U.S.C. § 7413(a), (b), ELR STAT, 42216. In addition, the statutes provide for potentially large civil penalties and criminal sanctions. Clean Air Act civil penalties may run up to $25,000 per day of violation. Clean Air Act § 113(b), 42 U.S.C. § 7413(b), ELR STAT. 42216. Under a civil penalty policy still in force, which dictates that penalties be based on the economic benefits of delayed compliance, the extent of the violator's good faith efforts to comply, and other factors, EPA has sought penalties of over $1 million in a number of cases. See Enforcement of Environmental Regulations: Hearings before the Subcomm. on Environmental Pollution of the Senate Comm. on Environmental and Public Works, 96th Cong., 1st Sess. 227 [hereinafter cited as Enforcement Hearings] (Statement of Marvin Durning, Assistant Administrator for Enforcement, EPA). Criminal sanctions under the Clean Air Act include fines of $25,000 and jail terms of up to one year for certain knowing violations. Clean Air Act § 113(c), 42 U.S.C. § 7413(c), ELR STAT. 42216. EPA and the Department of Justice have established investigatory and prosecutorial task forces to implement the criminal provisions of the environmental statutes. (Address of Stephen Ramsey, Department of Justice, Water and Air Pollution Law Conference, Washington, D.C., May 7, 1983.) Corporations convicted of criminal violations can be blacklisted from governmental procurement contracts. Clean Air Act § 306, 42 U.S.C. § 7606, ELR STAT. 42257. In addition to the above array of enforcement sanctions, the Clean Air Act provides that sources failing to meet certain compliance deadlines in the Act must pay noncompliance penalties equal to the economic benefit of delayed compliance. Clean Air Act § 120, 42 U.S.C. § 7420, ELR STAT. 42226.

4. In the early years of environmental regulation a company could wait until an enforcement agency notified it that it was in violation of new standards and work out a reasonable compliance schedule for correcting the violations. Now statutory deadlines for compliance with substantive standards and permit and reporting requirements have passed, putting the violator at risk of immediate imposition of penalties that will continue to mount up until compliance is achieved. For example, EPA's policy for dealing with sources in violation of Clean Air Act state implementation plans after the December 31, 1982 attainment deadline requires payment of a significant cash penalty as a condition of continued operation. Memorandum, Guidance on Implementation of the 1982 Deadline Enforcement Policy Issued September 20, 1982 (EPA 1983), 13 ELR 3009. And a violator also faces the threat of shutdown, although the Supreme Court has ruled that violators may continue to operate after deadlines for compliance have passed under some circumstances. Weinberger v. Romero-Barcelo, 456 U.S. 305, 12 ELR 20538 (1982).

5. 42 U.S.C. §§ 9601-9657, ELR STAT. 41941.

6. For a discussion of potential problems stemming from toxic torts litigation, see Garrett, Compensating Victims of Toxic Substances: Issues Concerning Proposed Legislation, 13 ELR 10172 (June 1983). For a discussion of the potential for joint and several liability under CERCLA, see Comment, Conservation Chemical: Generator Liability for Imminent Hazards on the Docket, 13 ELR 10208 (July 1983).

7. For a discussion of the SEC enforcement actions, see TRUITT, supra note 1, at 167-68.

8. Most federal pollution control statutes empower private citizens to sue violators to compel compliance. See, e.g., Resource Conservation and Recovery Act § 7002, 42 U.S.C. § 6972, ELR STAT. 41921. See also Miller, Private Enforcement of Federal Pollution Control Laws, Part I, 13 ELR 10309 (Oct. 1983).

9. See supra note 3.

10. See TRUITT, supra note 1, at 15, 19, & 24.

11. Each of the federal pollution control statutes authorizes EPA to compel record keeping, pollution monitoring and reporting, and access for agency inspectors for both regulatory and enforcement purposes. See, e.g., Federal Water Pollution Control Act (FWPCA) § 308, 33 U.S.C. § 1318, ELR STAT. 42130. See also U.S. v. Tivian Laboratories, Inc., 589 F.2d 49, 9 ELR 20008 (1st Cir. 1978), cert. denied, 442 U.S. 942 (1979) (EPA data requests under FWPCA § 308 and Clean Air Act § 114, 42 U.S.C. § 7414, ELR STAT. 42219, are constitutional).

12. For example, § 103 of CERCLA, 42 U.S.C. § 9603, ELR STAT. 41944, requires notice to the National Response Center of releases of hazardous substances and notice to EPA by mid-1981 of the existence and ownership of hazardous substance disposal or storage facilities. In addition to statutory reporting requirements, there are very limited circumstances under which an attorney working on an audit might be required to disclose illegal activities of his or her client revealed in the audit. Disciplinary Rule 7-102(B)(1) of the Model Code of Professional Responsibility of the American Bar Association, a rule which has been adopted in one form or another in 29 states, requires an attorney who learns that his or her client has perpetrated a fraud on a tribunal or person to notify the victim if the client refuses to do so, unless the information revealing the fraud is a privileged communication.

13. 5 U.S.C. § 552, ELR STAT. 41015. The pollution control statutes themselves provide that the information obtained by EPA must be available to the public except for information on production processes shown to be entitled to protection as trade secrets. See, e.g., FWPCA § 308(b), 33 U.S.C. § 1318(b), ELR STAT. 42130.

14. FED. R. CIV. P. 26-33.

15. The rules do not apply to the administrative information collecting process itself, which is governed by the applicable statute or agency regulations. However, the rules do apply to actions in the district courts to enforce administrative subpoenas.FED. R. CIV. P. 81(a)(3).

16. Rule 26(b)(1) states:

Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party…. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.

FED. R. CIV. P. 26(b)(1).

17. See Memorial Hospital for McHenry Cty. v. Shadur, 664 F.2d 1058, 1061 (7th Cir. 1981) (whether a claimed privilege should be recognized "is 'governed by the principles of the common law as they may have been interpreted by the courts of the United States'").

18. U.S. v. Nixon, 418 U.S. 683 (1974), Memorial Hospital for McHenry Cty. v. Shadur, 664 F.2d 1058, 1061 (7th Cir. 1981).

19. The case setting out the attorney-client privilege was U.S. v. United Shoe Machinery Corp., 89 F. Supp. 357 (D. Mass. 1950). For a more thorough analysis of the application of the attorney-client privilege to the environmental auditing problems, see TRUITT, supra note 1, at 37-59.

20. Diversified Industries, Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1978).

21. Upjohn C. v. U.S., 449 U.S. 383 (1981).

22. See TRUITT, supra note 1, at 46-47.

23. Id. at 47-52.

24. Id. at 53-59.

25. See, e.g., Daniels v. Hadley Memorial Hospital, 68 F.R.D. 583 (D.D.C. 1975).

26. See, e.g., Westehemeco Ltd. v. New Hampshire Ins. Co., 82 F.R.D. 702 (S.D.N.Y. 1979).

27. See TRUITT, supra note 1, at 60-63.

28. FED R. CIV. P. 26(b)(3).

29. Id.

30. In Upjohn Co. v. U.S., 449 U.S. 383 (1981), the Court held that an attorney's notes of oral statements by employees were protected, in spite of a showing of need and hardship, as opinion work-product. Id. at 399.

31. For a general discussion of the privilege, see Note, The Privilege of Self-Critical Analysis, 96 HARV. L. REV. 1083 (1983). For an analysis of the application of the privilege to environmental auditing, see TRUITT, supra note 1, at 72-79.

32. 50 F.R.D. 249 (D.D.C. 1970), aff'd mem., 479 F.2d 920 (D.C. Cir. 1973).

33. See cases cited in Federal Trade Commission v. TRW, Inc., 628 F.2d 207, 210 (D.C. Cir. 1980), and U.S. v. Noall, 587 F.2d 123, 126 (2d Cir. 1978).

34. Bredice v. Doctors Hospital, Inc., 50 F.R.D. 249. 250 (D.D.C. 1970).

35. Id.

36. See Emerson Elec. Co. v. Schlesinger, 609 F.2d 898 (8th Cir. 1979) and Reynolds Metals Co. v. Rumsfeld, 564 F.2d 663 (4th Cir. 1977), in which the courts rejected claims that the privilege for self-evaluation applied on the grounds that the material sought to be protected was not prepared for internal use.

37. See Federal Trade Commission v. TRW, Inc., 628 F.2d 207, 210 (D.C. Cir. 1980), in which the court stated:

Whatever may be the status of the "self-evaluative" privilege in the context of private litigation, courts with apparent uniformity have refused its application where, as here, the documents in question have been sought by a governmental agency.

38. Federal Trade Commission v. TRW, Inc., 628 F.2d 207, 211 (D.C. Cir. 1980) (FTC); U.S. v. Noall, 587 F.2d 123, 126 (2d Cir. 1978) (IRS).

39. Courts have refused to recognize the privilege where the plaintiff's claim arises out of the self-evaluative process itself, as where doctors claimed they were discriminated against through internal hospital peer review proceedings. Memorial Hospital for McHenry Cty. v. Shadur, 664 F.2d 1058 (7th Cir. 1981); Robinson v. Magovern, 83 F.R.D. 79 (W.D. Pa. 1979).

40. See infra note 49 and accompanying text.

41. See supra note 8.

42. Address of Karen Blumenfeld, EPA Regulatory Reform Staff, EPA Environmental Auditing Opinion Leaders' Workshop, Alexandria, Virginia, June 9, 1983.

43. See, e.g., M. Weiss, Issues of Confidentiality and Disclosure in Environmental Auditing, Paper prepared for EPA Regulatory Reform Staff, Draft, Aug. 26, 1983; E.H. Clark II, Environmental Auditing Programs: Benefits to the Environment and Government, Paper prepared for the EPA Regulatory Reform Staff, Draft, June 9, 1983.

44. EPA reportedly has been helping five state or local air pollution control agencies develop programs to encourage auditing. INSIDE E.P.A., Apr. 8, 1983, at 6. To date none of the programs has provided formal benefits for firms with auditing programs.

45. See supra note 12.

46. EPA may have limited discretion when confronted with a violation of some of the federal pollution control statutes. For example, in interpreting the FWPCA and the Clean Air Act, several courts have found that while EPA has discretion in determining whether a violation exists, once it identifies a violation, it must take an enforcement action. See, e.g., Luckie v. Gorsuch, 13 ELR 20400 (D. Ariz. Feb. 25, 1983) (Clean Air Act); South Carolina Wildlife Fed'n v. Alexander, 457 F. Supp. 118, 8 ELR 20757 (D.S.C. 1978), But see Sierra Club v. Train, 557 F.2d 485, 7 ELR 20670 (5th Cir. 1977) (EPA has discretion to find violation and in responding once a violation has been identified).

47. Environmental enforcement agencies typically allocate their limited monitoring and enforcement resources on the basis of their perceptions of which sources are making good faith efforts to comply. A well-conceived environmental audit program is likely to make a good case for less enforcement attention.

48. For example, Occidental Petroleum has established an environmental audit program where technical personnel conduct the audits under the direction of a manager who is not an attorney. The auditors are trained, however, to identify situations which could lead to legal problems and to turn those matters over to corporate counsel immediately. The auditors are also trained to limit their audit reports to the bare facts necessary for determining the environmental compliance of the audited operations. Thus, the audit serves as a screening device that sifts out the serious matters from the routine and allows the company to handle the former through procedures designed to preserve the attorney-client privilege. Address of D. Giannotti, Occidental Petroleum, Conference, State Bar of Texas Environmental Law Section, May 28, 1982.

49. In order to bring major air and water polluters which had not complied with the first level of control requirements of the FWPCA and Clean Air Act by the initial deadlines in the statutes, EPA launched a major source enforcement litigation drive in which it filed hundreds of civil actions and attempted to utilize other enforcement tools such as blacklisting and criminal sanctions. See Enforcement Hearings, supra note 3, at 195-259.

50. 664 F.2d 1058 (7th Cir. 1981).

51. 21 C.F.R. § 820.20.

52. Id.

53. 43 Fed. Reg. 31516 (1978).