Government Enforcement Bulletin

Government Enforcement Bulletin

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Introduction

Corporations often perform internal investigations in response to subpoenas or other government requests for information, calls by employees into company "hotlines," actual or potential litigation, and to develop corporate policy. One of the key issues facing companies performing such investigations is how to ensure that privileged communications and attorney work product remain protected. Without that protection, the results of these often sensitive investigations may be subject to discovery by govern ment agencies and adversaries in litigation. This article is the first in a three-part series reviewing privileges and protections in the context of internal investigations and discussing the factors counsel should consider to preserve the confidentiality of the information they collect. This article addresses the attorney-client privilege.

The Attorney-Client Privilege and "Corporate Communications"

Communications shared in the course of an internal investigation, including documents which contain or constitute communications between employees and in-house or outside counsel, are subject to the attorney-client privilege if they are made with a reasonable expectation of, and in confidence between, privileged persons, and for the purpose of seeking, obtaining, or providing legal assistance or advice 1

In 1981, with the issuance of Upjohn Co. v. United States , the Supreme Court clarified the privileged nature of "corporate communications," holding that such communications are protected by the attorney-client privilege. 2 In Upjohn, the Court rejected a narrow control-group test and upheld the assertion of the attorney-client privilege to protect communications between in-house counsel and mid-level managers. In making its determination, the Court considered the following factors: the communications concerned matters within the scope of the employees' duties; the employees cooperated with counsel at the direction of their superiors; the information was not available from upper-management employees; and the employees were aware that they were being questioned so that the company could obtain legal advice. The Court further noted that the corporation tried to maintain the confidentiality of the information.

Although the cases following it reveal that courts make case-by-case determinations on attorney-client privilege, it is possible to derive a helpful set of guidelines for companies and their counsel performing internal investigations, including:

  1. Employees should be told about the investigation only on a need-to-know basis and should be asked for their cooperation.
  2. Only those employees whose work falls within the scope of the investigation should be interviewed.
  3. Documents containing privileged information should be shared only with employees directly concerned with the matter either to clarify the information or to report it to them (i.e. company management).
  4. All memoranda created pursuant to such communications should be clearly marked as privileged and confidential.
  5. Counsel should endeavor to ensure that the confidentiality of the communications is preserved and that inadvertent disclosures are prevented.
  6. Where non-lawyers are involved in an investigation, they should work only under the guidance and direction of counsel.

Employees Must Be Informed That the Company Is the Client

In addition to the above considerations, counsel performing internal investigations should inform employees who are interviewed or are otherwise involved in the investigation that they represent the company; that the attorney-client privilege applies to the company, not to the employee; and therefore, that the decision whether to waive the privilege belongs to the company. 3 Such a disclosure will help to avoid misunderstandings and conflicts of interest between the company and individual employees and eliminate potential concerns about whether and when a company has the right to waive the privilege.

The Privilege and Former Employees

Companies should also consider the manner in which the attorney-client privilege applies to communications with former employees. Generally, the company maintains the right to assert or waive the privilege for communications with employees, even after they have left the company's employ. Whether a court will uphold the corporation's right to assert or waive the privilege in such a situation, however, depends, in part, on how the company obtained the information. For example, if the former employee can show that he or she believed that the communication at issue was for the purpose of seeking personal legal advice, a court may be reluctant to allow the company to waive the privilege. Further, although not covered by this article, communications between former employees and corporate counsel can implicate joint-defense privileges, which may also limit a company's power to exercise a waiver.

Waiver of the Privilege

Sharing Information with Third Parties. As in any other context, the corporate attorney-client privilege may be waived. Counsel should, therefore, make every effort to ensure that they do not disclose privileged communications to third parties. Whether a waiver occurs will depend on whether the third party is involved in the matter at issue and the nature of that person's role with the company. For example, the disclosure of a communication to a company's auditors, even for the purposes of resolving an issue related to the company's finances, may result in a waiver. 4 In addition, disclosure of information to an underwriter for due-diligence purposes has also been found to be a waiver. 5 Finally, courts usually find that the disclosure of privileged materials to government agencies results in a waiver. 6

In contrast, courts have left the privilege intact when the communication was shared with a consultant or agent whose duties were directly related to the communication. 7 If such consultants are retained specifically for the investigation at issue, counsel should hire and direct them. Further, before sharing communications in these circumstances, counsel should instruct the consultant to maintain the confidentiality of the information shared.

Inadvertent Disclosures. Inadvertent disclosures of information may also result in a waiver. Some courts have taken a very strict view of "inadvertent" disclosures, determining, for example, that the privilege attached to documents mistakenly intermingled with other documents in a production was waived. 8 Many courts, however, now consider the "involuntariness" of the disclosure before determining whether a waiver occurred. Under this less draconian approach to waiver questions, courts consider a variety of factors, including: the reasonableness of precautions taken to prevent inadvertent disclosure; the number and extent of inadvertent disclosures; and the delay or measures taken to rectify such disclosures. 9 Thus, when documents are produced to counsel as part of an internal investigation, counsel should reserve any privileges and design the document review and production procedures to prevent, where possible, the inadvertent production of privileged information to those not involved in the investigation.

Crime-Fraud Exception

Finally, counsel must weigh communications in the context of the "crime-fraud exception." Under the crime-fraud exception, communications concerning completed crimes or frauds are privileged, but those to facilitate future or ongoing crimes, frauds, or torts are not.

Although counsel performing an internal investigation presumably do not consider themselves to be acting in furtherance of a crime or fraud, the facts of the investigation may allow for a challenge as such. For example, if a crime or fraud evolves from legal advice, the privilege may not apply. 10 Indeed, one court ordered a company to produce memoranda its legal counsel had drafted in order to collect information to assist in the defense of ongoing litigation - on the grounds that the information was collected in order to further misrepresentations about the safety of a product. 11 In order to prevent any misunderstanding about whether the investigation is for the purpose of developing legal advice, counsel should consider informing interviewees and those from whom it obtains documents both of that fact and of the company's general position on appropriately responding to potentially problematic information it might collect.

Parties seeking to obtain information on the basis of this exception must make a prima facie showing of the immoral or fraudulent activity. Most courts require some evidence that, at the time of the communication, the client intended to commit a wrongful act. 12 Thus, specific evidence of communications, or other information concerning the alleged misconduct, is generally necessary for the other party to win an attack on the assertion of the attorney-client privilege based on the crime-fraud exception. 13

Conclusion

In summary, although communications shared in the course of an internal investigation may raise many difficult issues concerning the attorney-client privilege, companies which follow several basic guidelines are likely to succeed when invoking the privilege's protection. Starting at the beginning of an investigation, companies, through their Boards of Directors or management, must distinguish between business and legal advice, and then specifically request counsel to perform the internal investigation for the purpose of rendering legal advice. When counsel conduct the investigation, they should share information with, and involve only those persons, who by virtue of their position with the company, either have knowledge about the matters at issue or whose duties encompass issues related to the investigation. Counsel should then inform all persons whom they contact that the attorney-client privilege belongs to the company and may be exercised or waived only by the company. And, finally, any information retrieved in the course of the investigation should be designated as confidential and should be maintained in a manner designed to safeguard its confidentiality.

1 See Griffith v. Davis, 161 F.R.D. 687, 694 (C.D. Cal. 1995). Note, however, that communications involving business, and not legal advice, are not protected by the attorney-client privilege, even if those communications involve counsel. Thus, it must be clear that counsel conducting an internal investigation are conducting the investigation to provide legal advice.

2 449 U.S. 383 (1981).

3 For example, counsel might consider using introductory remarks similar to those below.

My name is [ ]. I am an attorney at [ ]. I represent XYZ Company.
On [date], XYZ Company received a notice of informal inquiry from the [Government Agency]. The [Agency] is investigating [ ]. I have several questions for you and the Company would appreciate your cooperation in answering those questions.
Because I represent the Company, I will share the information in our interview with Company management and people outside the Company, if necessary. XYZ would appreciate, however, your not discussing this matter with others at the Company.
I am not aware of any conflict of interest between you and XYZ. I hope that there will not be any. If a conflict arises in the future, we will advise you immediately.
If you wish, we will assist you in locating your own lawyer. You must, however, understand that I represent the Company and will continue to do so.

4 In re John Doe Corp., 675 F.2d 482, 489 (2d Cir. 1982).

5 Id. at 489. See also In re Grand Jury Proceedings, 727 F.2d. 1352 (4th Cir. 1984) (finding information given to attorney for prospectus which never issued was not privileged).

6Cf. In re Steinhardt Partners, L.P., 9 F.3d 230, 234-36 (2d Cir. 1993) (voluntary disclosure of materials to Securities and Exchange Commission and Department of Justice waived work-product protection). But see Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978) (en banc) (disclosure of privileged material to SEC in response to subpoena in nonpublic investigation held to be only "limited waiver").

7Rager v. Boise Cascade Corp., No. 88 C 1436, 1988 WL 84724 (N.D. Ill. August 5, 1988)(discussions between corporate counsel and non-employee hired to assist in handling of unemployment compensation matter for company were covered by privilege, where non-employee acted as employee of company and communication consisted of legal advice); In re Bieter Co., 16 F.3d 929, 939 (8th Cir. 1994) (disclosure of otherwise privileged documents to independent contractor who is "functional equivalent" of employee did not destroy privilege where communications concerned matters within scope of contractor's duties with company).

8U.S. v. Kelsey-Hayes Wheel Co., 15 F.R.D. 461, 465 (E.D. Mich. 1954)(further noting insufficiency of company procedures for maintaining confidentiality of documents).

9 See e.g. Parkway Gallery v. Kittinger/Pennsylvania House Group, Inc ., 116 F.R.D. 46, 50 (M.D.N.C. 1987).

10 See In re A.H. Robins Co., Inc., 107 F.R.D. 2, 9 (D. Kan. 1985).

11Id at 14 (finding that company sought attorneys' advice in order to aid in commission of ongoing fraud; therefore, memoranda drafted by attorneys seeking information concerning Dalkon Shield litigation and for purpose of building company's defenses were not privileged).

12 In re Sealed Case, 754 F.2d 395, 399-400 (D.C. Cir. 1985) (finding no privilege where government produced evidence of company's ongoing efforts to conceal wrongdoing with aid of its legal department).

13Id.

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