Speakers Offer Best Practices for Preserving Privilege in Internal Investigations

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By Susan Bokermann

Feb. 25 — “You can’t send non-lawyers to do lawyers’ work,” said C. Even Stewart, partner at Cohen and Gresser LLP, during a webinar Feb. 18.

This was one of many lessons learned from two prominent cases involving internal investigations last year. Stewart spoke on a panel discussing attorney-client privilege and work product in internal investigations. The panel also discussed conflicts of interest as they relate to business conflicts.

The webinar was hosted by the Practicing Law Institute.

Internal Investigations

What is the best way to preserve privilege during internal investigations? “Put lawyers in charge, not business people or compliance people” said Hillary Richard, partner at Brune and Richard LLP, and “have lawyers conduct your interviews and integrate your legal analysis to your interview memoranda.” Richard said you should also tell your witnesses that you represent the company and not the witness, and that you are interviewing with the purpose of furthering legal advice.

She noted these takeaways after delving into a detailed discussion of two recent internal investigations: In re General Motors LLC Ignition Switch Litig., 2015 BL 9476 (S.D.N.Y. 2015) and In re Kellogg Brown & Root, Inc., 2014 BL 180217, 756 F.3d 754 (D.C. Cir. 2014).

District Judge Jesse M. Furman’s opinion in In re General Motors was a “very robust endorsement of both the attorney-client and the work-product privilege,” said Richard.

After announcing the recall of certain GM cars due to an ignition switch defect, GM hired Jenner & Block LLP to begin an internal investigation. The investigation included interviewing employees and former employees, creating summaries of these interviews and drafting a formal report—the Valukas Report. The interviews were conducted by attorneys. All interviewees were told that the interviews were being conducted in the furtherance of giving legal advice to GM and the interviewees were told that the interviews were privileged and should be kept confidential.

Judge Furman, relying on the precedent set in Upjohn Co. v. United States, 101 S. Ct. 677 (1981), held that as long as obtaining legal advice was one of the significant purposes of conducting the internal investigation, the attorney-client privilege applies to the witnesses’s communications with outside counsel. And so, the interview notes and memos were protected from discovery.

Furman further found that the interview notes and memos in question had not been prepared in the ordinary course of business, but in anticipation of litigation, and thus were also protected by attorney-client privilege.

‘A Hot Mess.'

After such a “robust” precedent was set in In re General Motors, Richard was surprised by the turn of events in In re Kellogg Brown & Root, Inc. “I think it’s what we call, in legal terms, a hot mess,” she said.

The plaintiff, Harry Barko, a former KBR employee, sued the company in 2005 and then-KBR parent Halliburton under the qui tam provisions of the False Claims Act. He alleged that KBR had inflated costs and accepted kickbacks on defense contracts in Iraq and sought the production of 89 documents.

The internal investigation into these allegations was conducted by non-attorney investigators who were complying with the company’s Code of Business Conduct. In Nov. 20 and Dec. 17 decisions, Judge James Gwin of the U.S. District Court of the District of Columbia ordered KBR to turn over factual summaries prepared by a non-attorney investigator as part of the internal investigation. Gwin also held that KBR had waived attorney-client privilege by questioning its in-house attorney about the substance and results of the internal investigation. Richard said the district court was “hell bent” on having the documents produced.

In December, KBR filed a mandamus petition asking the D.C. Circuit to vacate these rulings.

This was KBR’s second mandamus petition. The D.C. Circuit granted KBR’s first manadamus petition and in June 2014, the appellate court reversed the D.C. District Court’s ruling that the attorney-client privilege did not apply because KBR had not conducted its investigation for the primary purpose of securing legal advice.

“The appellate court got it wrong,” said Stewart. The appellate court stated this case was indistinguishable from Upjohn, and that is “simply not right,” Stewart said.

Business Conflicts

The panelists also discussed conflicts of interest, specifically those that arise when during the course of representing one client, a lawyer finds himself in an adverse situation in relation to an existing client.

When discussing conflicts of interest, a lawyer needs to consider the “realities of modern practice,” said Charles C. Platt, managing partner, Wilmer Cutler Pickering Hale and Dorr LLP.

This means that clients shop around more, said Platt, and are not as loyal to particular law firms as they used to be. This requires lawyers, in turn, to go out and possibly take on competitors in the marketplace for business, which can create the potential for conflicts. Another reality is that lawyers also move around a lot, taking their clients with them, said Platt, which also creates the potential for conflicts. Another potential source of increased conflicts is the increased growth of law firms, and the number of their clients.

With this in mind, said Platt, lawyers need to keep in mind the American Bar Association Model Rule 1.7, which prohibits conflicts in concurrent representations.

Platt said that this can be a difficult area to navigate, because representation of a client with a business conflict may not be adverse in the “traditional sense.” A business conflict arises when the precedent you are setting, or the result of a particular case, “may have some adverse impact down the road on the commercial or business interests of other clients you are representing,” said Platt.

The trend in this area is “to allow law firms to engage in riskier behavior than ever before,” said Stewart.

Platt said that the problem for lawyers is that they may not know at the outset whether a particular matter will result in a business conflict for another client. The panelists agreed that there are no real processes in place for ensuring that these types of conflicts don't occur. “It's like ripples in a pond,” said Jonathan K. Youngwood, partner, Simpson Thacher and Bartlett LLP, “everything affects everything.”

To contact the reporter on this story: Susan Bokermann in Washington at sbokermann@bna.com

To contact the editor responsible for this story: Kristyn Hyland at khyland@bna.com