December 20, 2012 Articles

Preserving Privilege During an Internal Investigation

To maintain privilege is to maintain options.

By Daniel S. Park

When a government begins investigating a corporation or allegations are brought by private plaintiffs, a corporation often will find it advisable to conduct an internal investigation to determine what has happened. These investigations often entail detailed witness interviews, analyses of corporate policies and practices, and a thorough review of sensitive documents. The findings of these investigations may be gold mines of information about a corporation’s potentially wrongful behavior. Privilege is therefore critical to a successful investigation, for to maintain privilege is to maintain options.

Although the materials produced during an internal investigation traditionally have been protected by attorney-client privilege, as they are often produced by outside counsel, cases in recent years have demonstrated that constant vigilance is required to preserve privilege. For example, in November 2012, a federal district court found that an email from a company’s president informing senior management of an incident at a company plant was not privileged. Graff v. Haverhill North Coke Co., No. 1:09-cv-670, 2012 WL 5495514, at *21 (S.D. Ohio Nov. 13, 2012). The court found that the email had not clearly been written to seek legal advice—even though corporate counsel had been copied on the email. And the court found that the company had waived privilege not only with respect to an audit report that the company had disclosed to plaintiffs, but also as to all documents and communications underlying the report. Id. at *17.

Even more alarming is the decision in In re OM Group Sec. Litig., in which a company conducted an audit and shared the audit report with the full board of directors. In a subsequent securities-fraud litigation, the Northern District of Ohio found that, because the audit committee had shared the report with the full board, the corporation had waived privilege not only as to the audit report but also for all underlying materials used in preparing the report. In re OM Group Sec. Litig., 226 F.R.D. 579 (N.D. Ohio 2005).

Corporate counsel and boards of directors must therefore bear in mind many factors when conducting or overseeing an internal investigation to preserve privilege. In the absence of set rules or universal methodologies for structuring a response, there are three overarching factors that a board of directors should consider when deciding whether to conduct an internal investigation so as to best protect the attorney-client privilege.

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