Privilege Issues in Internal Investigations.

Generally, no. Attorney-client privilege protects “confidential communications made for the purpose of seeking or providing legal advice or representation.” No matter what purpose is alleged or how much legal analysis is provided, if attorney-client privilege does not apply, the communication is not protected. Additionally, legal advice should not be confused with business advice. While the communication is made to a lawyer, and while a lawyer is involved, if the communication does not seek legal advice and does not provide legal advice, it is not protected by the attorney-client privilege.

What about the “work product” doctrine? The work product doctrine is the second key privilege for internal investigations; however, the work product doctrine is a distinct legal concept and, like the attorney-client privilege, it requires a clear showing of its applicability.

Finally, just because communications or other investigation-related materials are marked “Privileged & Confidential” or “Attorney-Client Privilege” does not make them so. In fact, under scrutiny by government lawyers, such stamps often prove completely ineffective.

The other most common mistake is to assume that in-house counsel’s participation protects advice on business matters. In-house counsel must also participate as lawyers, not as business people, for communications to be privileged under the attorney-client privilege. Similarly, routine compliance reviews are not automatically privileged even when lawyers are involved to some extent.

Another common misconception is to assume that communications seeking or providing legal advice are not protected unless there is litigation pending. In fact, attorney-client privilege apply regardless of whether the advice is provided with litigation in mind. (The work-product doctrine is different.)

Lastly, in EU competition law enforcement matters, internal investigation communications with in-house lawyers are almost never privileged, as held by the Court of Justice of the European Union in Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v European Commission, Case C-550/07 P (CJEU, 14 Sept. 2010).

Which Privilege Test Applies to Mixed Legal and Business Purposes?

Generally, the attorney-client privilege protects the “confidential communications themselves, not the underlying facts or information conveyed.” Communications made with a dual-purpose, namely, both legal advice and business or other purposes, trigger differenttests in different jurisdictions.

Under Rule 501 of the Federal Rules of Evidence, “if the privilege or protection concerns a matter involving a state law claim, the rule of evidence or statutory provision designating the applicable privilege or protection shall be state law.” Rule 501 generally also controls federal-question cases, meaning it applies in most investigations.

501 Engagement Letters, Investigation Plans, and Investigation Protocols

To support their claims of privilege, companies and their counsel should consider executing engagement letters and internal investigation plans or investigation protocols. These internal documents clearly set forth the scope of the investigation and the investigation team’s legal mandate, and provide an important first step toward demonstrating compliance with the applicable privilege test.

501 (A) The D.C. Circuit Test

In federal-question cases, Rule 501 governs privilege assertions in federal court through the federal common law. The D.C. Circuit, which governs in many federal investigations, addresses the applicability of attorney-client privilege in “dual purpose” communications by asking whether legal advice was “a significant communication purpose.”

While the D.C. Circuit’s majority adopts this relatively permissive “significant purpose” approach, there are two significant drawbacks. First, because this standard is so broad, it may fail to protect against the disclosure of documents and communications produced during a federal government investigation. Second, given the breadth of this standard, some federal courts may require document-specific privilege support, rather than protecting an entire investigation categorically. The consequences of this may be substantial, and, in many cases, companies and their counsel can protect their investigations by proving that the lawyers provided “significant” legal advice rather than “primary” legal advice.

501 (B) The Ninth Circuit Test

Other federal circuits have adopted the stricter, “primary purpose” standard, and the Ninth Circuit is no exception. As the Ninth Circuit explains:

“When seeking to establish attorney-client privilege, in-house counsel must show that the ‘primary purpose’ of the in-house counsel’s communication was to provide legal advice.”

While the “primary purpose” test is harder for companies to meet, the Ninth Circuit’s adoption of this test will likely lead to challenges when conducting internal investigations in jurisdictions that do not adopt it.

501 (C) Determining the “Primary Purpose”

When a communication is made for both legal and business purposes (or even when it is made for a third or fourth purpose, such as media relation advice), a company or an individual attorney may still be able to protect the communication under the attorney-client privilege. However, determining the communication’s “primary purpose” involves an analysis of the circumstances surrounding the communication.

Once the nature of the communication is established, the court will then evaluate the substance of the communication at hand to see if the lawyer’s advice pertains to legal, rather than business, issues.

If a communication contains “legal and non-privileged information,” the privileged information will be redacted, and the non-privileged information will be produced.

If the communication consists of mixed legal- and non-legal-related discussions, then the attorney will, once again, need to determine whether the legal advice constitutes the communication’s “primary purpose.”

Who Owns and Controls a Corporation’s Investigation Privilege?

1. Who Owns the Privilege?

The organization, rather than the employees whom the organization’s investigating counsel interviews, owns the corporate attorney-client privilege. The privilege is the organization’s, and the organization has the right to assert or waive the privilege as appropriate.

2. Who Exercises the Privilege?

A corporation’s authorized decision-makers ordinarily exercise the corporation’s right to assert or waive the privilege. A privilege waiver (or an asserted privilege) can be challenged by an employee, but any challenge must be supported with relevant evidence.

3. Does the Work Product Doctrine Protect Corporate Investigations?

The work-product doctrine generally protects corporate investigations in addition to the attorney-client privilege. Federal courts’ application of the work-product doctrine is similar to their application of the attorney-client privilege in corporate investigations, but not identical.

4. Is the Scope of Corporate Privilege Limited to Decision-Controlling Employees?

No. While corporate privilege began with the scope limited to “those whose job it is to provide information and advice to the decision-makers who control the corporation’s fate,” in the landmark Upjohn Co. v. United States case, the U.S. Supreme Court rejected this limited scope. Instead, the Supreme Court approved a much broader scope for the corporate privilege, specifically approving the inclusion of:

“...the privilege to cover communications with employees who have acquired knowledge of their employer’s or principal’s business or affairs by reason of their employment, and the privilege to cover communications between employee-custodians and their lawyers concerning information given to the lawyers by employee-custodians on behalf of their employer or principal.”

5. What Does an “Upjohn Warning” Accomplish?

The “Upjohn warning” identifies for an employee whom the lawyer represents, who receives the lawyer’s disclosures, and who owns the communication’s privilege. Although an employee who receives an Upjohn warning may object to answering certain questions, the lawyer’s Upjohn warning does not establish whether the communication is privileged or whether a waiver has occurred.

6. Who Controls a Bankrupt Corporation’s Investigation Privilege?

With respect to the bankruptcy-related internal investigations, the controlling bankruptcy trustee (rather than the corporation’s former board of directors) generally controls the debtor corporation’s investigation privilege.

7. Who Controls a Surviving Company’s Internal Investigation Privilege in M&A Transactions?

Generally, unless the merger or acquisition agreement’s terms provide otherwise, the surviving company in a merger or acquisition transaction will control the target company’s internal investigation privilege.### 8. What about the Privilege Status of Former Employees?

While a corporate attorney-client privilege is typically terminated upon the employee’s departure, the Ninth Circuit approved the privilege for certain communications between counsel and a former employee in Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999).

Spodek Law Group, led by managing partner Todd Spodek, defends clients in federal criminal and white collar matters.

What Investigation Materials Can Prosecutors or Opponents Still Obtain?

1. Qualifying Material Prepared in Anticipation of Litigation

Under Federal Rule 26(b)(3), “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or agent)” are generally protected from discovery. Even though the work-product doctrine generally protects materials prepared in anticipation of litigation or for trial, not all materials are protected. For example, “fact work product” generally requires the party seeking discovery to demonstrate that it has a “substantial need” for the materials and that obtaining their substantial equivalent by other means would cause “undue hardship” before a court will order production.

2. Document-Specific Privilege Support

Rule 26(b)(5)(A) provides: “A party or party’s representative that claims the privilege or protection with respect to a document or communication must expressly make the claim and describe the nature of the document or communication in a manner that, without revealing information exempted by the privilege or protection, allows other parties to assess the claim.”

3. Waiver of the Attorney-Client Privilege

Waiver of the attorney-client privilege can arise through affirmative or inadvertent disclosure. The “crime-fraud exception” defeats the attorney-client privilege when the privilege is being used in “furtherance of a crime, fraud, or similar improper act.” With respect to the crime-fraud exception, the scope of the exception is broad, and it is up to the party seeking to pierce the privilege to show that the exception applies.

An at-issue waiver arises when a party affirmatively relies on a communication made in the context of obtaining legal advice, e.g., in order to support a claim or defense. The attorney-client privilege generally protecting a communication made in the context of obtaining legal advice is a qualified privilege, and an at-issue waiver of the privilege has significant consequences.

4. Privilege Logs

Privilege logs are extremely common in both civil and criminal cases. A privilege log typically lists each date, author, recipient, and subject, the claim(s) of privilege, and other information pertinent to the privilege claim.

5. When Does Rule 26(b)(3) Apply?

As stated above, Rule 26(b)(3) applies when a document or tangible item is prepared in “anticipation of litigation.” This general rule does not require litigation to be certain or nearly inevitable; rather, it only requires a reasonable prospect of litigation.

6. What are the Limits of Opinion Work Product?

Rule 26(b)(3)(B) specifically identifies certain documents and communications as being almost always protected from discovery in civil litigation cases. The rule applies to:

• (i) “the mental impressions, conclusions, opinions, or legal theories of an attorney or other person working on behalf of a party,” and;
• (ii) “the mental impressions, conclusions, opinions, or legal theories of a party’s attorney or other representative concerning the litigation,” which the court must protect against disclosure if it orders production of trial-preparation materials.

Opinion work product is the most protected category of work-product, and while the “fact work product” must be disclosed under certain conditions, opinion work product is generally not disclosed even in the case of the opposing party’s substantial need and undue hardship.

Does Sharing Investigation Materials with the Government Waive Privilege?

1. Voluntary Disclosure to Regulators

Generally, voluntarily sharing a company’s internal investigation materials with regulators, such as the SEC, U.S. Justice Department, or U.S. Army, will be construed by the federal courts as a waiver of the underlying corporate privilege. A confidentiality agreement, whether signed by a regulator and/or a regulator’s U.S. Attorney’s Office, does not guarantee the preservation of the attorney-client privilege and the work-product protection, and this type of agreement should be carefully scrutinized and negotiated.

2. Selective Waiver

In many jurisdictions, companies and their counsel may present a “selective waiver” strategy, but not all jurisdictions, however, uniformly recognize selective waivers. As discussed, in fact, even the Supreme Court has not clearly addressed the concept of selective waiver of the attorney-client privilege.

3. Inadvertent Disclosure

Federal Rule of Evidence 502(b) generally allows companies and their counsel to preserve the attorney-client privilege and the work-product protection after an inadvertent disclosure of confidential materials to the government. The rule applies to the “attorney-client privilege, attorney work product, or other privilege or protection” that “was reasonably prevented and, upon discovery, promptly corrective action was taken to preserve the privilege or protection.” However, after inadvertent disclosure, it is up to the opposing party to decline to seek court intervention in reliance upon Rule 502(b).

4. Avoiding Waiver

Companies and their counsel can potentially preserve their investigation privilege(s) after federal government requests for investigation materials under Rule 502(d) by seeking a court order under Rule 502(d). A Rule 502(d) order can protect against a waiver of privilege even if the materials are released in subsequent federal and state proceedings.

5. Cooperation Credit

Under Justice Manual § 9-28.710, federal prosecutors can consider “voluntary disclosure” to “cooperate” with investigations as a basis for seeking a downward departure for a company. As Justice Manual § 9-28.710 explains, however, “The Department’s policy is to encourage companies to conduct their own internal investigations. We do not believe that the companies’ willingness to share the results of an internal investigation with the Department, or to waive attorney-client privilege or the work-product doctrine, should be taken into account in these considerations.”

6. Limiting the Distribution of Internal Investigation Findings

Limiting the internal investigation findings to a need-to-know group within a corporation and its affiliated entities is important for multiple reasons. It reduces the risk of unnecessary third-party disclosure (and a potential waiver of the corporate attorney-client privilege), it protects confidentiality, it limits a company’s regulatory burden, and it helps to ensure a disciplined approach to communications and information management when facing federal investigations.

7. Government Requests for Relevant Non-Privileged Information

Justice Manual § 9-28.710 also allows federal prosecutors to request relevant non-privileged information. The manual explicitly provides:

“The Department’s policy is to not seek to require a company to waive the attorney-client privilege or the attorney work product doctrine in order to obtain “cooperation credit.” However, while federal prosecutors can seek “cooperation credit” under the guidelines, the Federal prosecutor’s Manual also states that, “The Department believes that internal investigations can lead to the identification of evidence and witness statements that are not subject to claims of privilege or work product. The Department strongly encourages that companies share such evidence and statements with federal prosecutors during all investigations.”

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 212-300-5196.