Courts weigh scope of attorney-client privilege

In a seminal case issued in 1981, the U.S. Supreme Court held in Upjohn v. United States that the attorney-client privilege applies to corporations. The Supreme Court explained that business organizations depend upon confidential communications to seek or obtain legal counsel in light of the “vast and complicated array of regulatory legislation.”
Rhode Island’s federal and state courts have consistently relied upon Upjohn in their review of the importance and sanctity of the attorney-client privilege in business settings.
Earlier this year, the U.S. District Court for the District of Columbia engaged in a narrow application of Upjohn’s protections. The case involved a False Claims Act complaint filed by an employee who alleged that the company and its subcontractors defrauded the federal government while administering military contracts.
During the discovery phase of the litigation, the employee sought the production of documents relating to the company’s internal investigation, which was conducted under its code of business conduct and was overseen by its law department.
The district court questioned the company’s privilege claim in light of three factors. First, the company’s internal counsel did not confer with outside counsel. Second, nonlawyers conducted many of the interviews. Third, the confidentiality agreements signed by employees did not mention that the purpose of the investigation was to obtain legal advice. Additionally, the court ruled that the company would have conducted its investigation independent of any solicitation of legal advice and, therefore, the investigation materials were not attorney-client protected.
The ruling received significant national attention and caused substantial uncertainty regarding the scope of the attorney-client privilege in internal investigations. Several national business organizations and trade associations filed briefs in support of the company’s appeal, voicing their concerns about the chilling effect of the decision. Recently, the U.S. Court of Appeals for the District of Columbia vacated the ruling. The appellate court analyzed each of the three factors cited by the lower court and found that they did not diminish the company’s assertion of privilege. First, the involvement of outside counsel is not a necessary predicate for a company’s privilege to apply, making clear that an in-house attorney is fully empowered to engage in privileged communications.
Second, where an internal investigation is conducted at the direction of a company’s counsel, communications made by and to nonattorneys serving as counsel’s authorized agents are routinely protected by the attorney-client privilege.
Third, nothing requires a company to state a set of “magic words” to its employees to make communications privileged, especially when employees understand that the company’s legal staff is leading an investigation of a sensitive nature and that disclosed information will be protected.
Of particular importance, the court determined that the attorney-client privilege must not be eradicated within businesses that are required by law to maintain compliance programs, “which is now the case in a significant swath of American industry.” The court recognized the inherent difficulty of drawing a rigid distinction whether a communication occurred for a legal purpose on one hand and a business purpose on the other.
The court issued a practical approach to the privilege analysis: Was obtaining or providing legal advice a “significant purpose” of the communication? If the answer is “yes,” the privilege protects the confidentiality of the communication. The privilege still applies even if there were other purposes for the investigation, such as being mandated by a regulation. The rulings are significant to Rhode Island businesses because issues regarding the discoverability of internal-investigation records commonly arise in our courts.
To protect the attorney-client privilege, companies should adhere to the following practices. Legal counsel should have a clearly recognized, leading role from the investigation’s outset through its completion.
Nonattorney agents should receive directions regarding their specific roles in conducting interviews and responsibilities in disseminating information. Whether an attorney or nonattorney interviews employees, the interviewer should make clear that a significant purpose is to further counsel’s provision of legal advice.
If an attorney conducts the interviews, counsel should state an instruction that he or she represents the company, not the employees.
This instruction is important to keep employees from wrongly assuming that the attorney is their own and to avoid any potential for a conflict of interest that could result in a later disqualification of the attorney.
Internal investigations are not automatically shielded from disclosure in litigation by the mere assertion of the attorney-client privilege, and a company claiming the privilege has the burden to prove its applicability.
Rhode Island’s courts engage in a fact-specific analysis of the purposes of the investigation and the manner in which it was conducted, and our courts typically analyze privileges narrowly to ensure that the adversary process is not unduly impaired. •


Steven Richard is an attorney in the Providence office of Nixon Peabody LLP.

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