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Are You Doing Enough? How to Ensure Your Internal Investigation Remains Privileged

April 29, 2014
Harter Secrest & Emery LLP

HSE LEGALcurrents

The attorney-client privilege frees clients to speak frankly with counsel to obtain critical legal advice without worrying about sharing the questions and answers with the world. This confidential space to discuss sensitive legal questions is particularly important in internal investigations, where organizations attempt to handle often times explosive allegations in a way that minimizes their legal exposure. A recent federal district court decision serves as a reminder that many companies are not doing enough to ensure that their internal investigations are treated as privileged.

Background

In March, a federal court in Washington, DC, ordered Halliburton, the international oil and gas services company, to produce otherwise confidential compliance reports. The reports contained damaging admissions, which the court characterized as “eye-openers.” Halliburton had created the reports for its in-house lawyers, as part of the company’s internal compliance program. Under the program, employees could report potential violations of company policy, including legal violations, to Halliburton’s legal department. The company’s compliance personnel then investigated the suspected violations and reported their findings to Halliburton’s in-house counsel.

To many, the court’s ruling was a surprise. After all, Halliburton had taken many steps consistent with creating attorney-client privilege. Halliburton’s in-house counsel had played a role in commencing the investigation. Interviewed employees had promised to maintain confidentiality, absent specific advance authorization from in-house counsel to disclose the substance of the interview. And the reports were expressly prepared for in-house counsel.

Yet, the role of counsel was not as prominent as it could have been. The court characterized the investigation as “a routine, corporate” investigation required by regulation and corporate policy, rather than an investigation to obtain legal advice. The court stressed that non-lawyers conducted the interviews and employees were never told that the company was gathering information to obtain legal advice.

The court also contrasted Halliburton’s investigation with an internal investigation described in a leading Supreme Court case upholding the attorney-client privilege. The court explained that the internal investigation described in the Supreme Court’s opinion “was conducted only after attorneys from the legal department conferred with outside legal counsel on whether and how to conduct an internal investigation.” By contrast, Halliburton never conferred with outside counsel, and its internal investigation was not similarly privileged.

Implications

The court’s decision is a reminder of the importance of taking prudent steps to ensure that an organization’s internal investigation remains privileged. Halliburton’s in-house counsel likely presumed the reports in question would remain privileged, as their disclosure could prejudice the company’s legal position in court. Unfortunately, the court held otherwise. Fortunately, however, the case provides valuable guidance to other organizations seeking to preserve privilege over their internal investigations. In particular, the case suggests that organizations consider doing the following to establish privilege:

  • Engage outside counsel to direct the investigation at issue;
  • Ensure that the investigation is actively overseen (or better yet, conducted) by counsel; and
  • Advise employee witnesses, in writing, that the purpose of the interviews is to assist the company in obtaining legal advice.

Not every internal investigation raises legal questions, and not every investigation requires the engagement of outside counsel. But the most critical cases do. In those cases, where maintaining confidentiality will be important, the engagement of outside counsel is probably the best and most valuable step an organization can take to secure the attorney-client privilege.

This recent case indicates that courts will not view in-house counsel’s involvement as the equivalent of an organization’s engagement of outside counsel. For good reason, the role of in-house counsel is often blurred between providing legal advice and providing business advice. In contrast, there is no such ambiguity about outside counsel’s role in providing legal advice, as that will be precisely what outside counsel has been retained to do. Engaging outside counsel to work with in-house counsel thus removes any doubt about the role counsel has played in an investigation.

Conclusion

This recent federal case should remind organizations that courts may not view corporate compliance investigations as privileged, even if an organization’s in-house lawyers play a role in commencing or reviewing the results of those investigations. It is critical that organizations document when the purpose of an audit or investigation is to obtain legal advice. One simple and effective way to do so is by retaining experienced outside counsel.

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