The many moving parts of an internal investigation — Have all appropriate documents been preserved and adequately reviewed? Have all relevant witnesses been identified and interviewed? Have they been given proper Upjohn warnings? — make the process of conducting one a demanding task. But attorneys conducting internal investigations must also keep their eye on the investigation’s “end product” — i.e., the investigation report. Reporting on internal investigations is not as simple as putting pen to paper after all the documents have been reviewed and the witnesses interviewed. Attorneys conducting investigations must be aware of the choices they will face in reporting, and address the risks that reporting poses, throughout the investigation process.
A detailed written report allows the client to preserve the investigation’s results in comprehensive and permanent form. However, the report may contain damaging evidence and admissions, and confidentiality cannot be guaranteed. There is always a risk that a report may be leaked, or that harmful information in it may be obtained by a third party by subpoena or through civil discovery. Moreover, if the disclosure of an internal investigation report is found to waive an applicable privilege, that waiver may extend beyond the report itself.
Although some courts have held that voluntary disclosure of an internal investigation report to the government may not waive the attorney-client privilege with regard to third parties, see In re Columbia/HCA Healthcare Corp. Billing Practices Litigation, 293 F.3d 289, 299 (6th Cir. 2002), the majority rule is to the contrary. E.g., Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1430 (3rd Cir. 1991). And “subject-matter waiver” is the majority rule, meaning that voluntary disclosure of an investigation report may lead to disclosure of underlying materials, including documents and witness interview materials. This can create a difficult choice: whether to forgo the benefits of voluntary disclosure and cooperation in order to preserve the confidentiality of privileged materials, or to risk waiving the privilege in order to obtain those benefits.
MANAGING THE RISKS
Although it cannot be removed, the risk that an internal investigation report will be accessed by third parties can be managed by taking steps to ensure that safeguards against disclosure — notably the attorney-client privilege and the work-product doctrine — provide maximum protection. Doing so requires attention not only when it is time to prepare the report, but from the beginning of the investigation.
There is often significant pressure to waive the attorney-client privilege in the context of an internal investigation, and companies cooperating with government investigations may find this their best course of action. However, there may also be occasions on which a corporation decides not to make a voluntary disclosure to a government agency. And even cooperating corporations may hope to limit any waiver to the agency itself. Some courts have held that waiver in the context of cooperating with a government agency does not extend to third parties. See, e.g., Diversified Indus. Inc. v. Meredith, 572 F.2d 596, 604 n.1, 611 (8th Cir. 1977). And a corporation may not decide whether to make a disclosure until the investigation is completed. As a result, counsel conducting an investigation should act throughout the investigation in a manner that will maximize the chance that attorney-client privilege will apply.
The attorney-client privilege shields from disclosure communications made in confidence for the purpose of obtaining or providing legal advice. But the mere fact that a lawyer participated in, or conducted, the investigation does not automatically confer privilege. Courts have held that no privilege attaches when an attorney acts as a “mere investigator,” rather than a provider of legal advice. E.g., Spectrum Systems Int’l Co. v. Chemical Bank, 588 N.Y.S.2d 486 (N.Y. App. Div. 1st Dep’t 1989), rev’d, 581 N.E.2d 1055 (N.Y. 1990). Therefore, counsel must make clear that her role is not merely to investigate, but to provide analysis, recommendations and legal advice.
This process begins at the very outset, when a corporation decides whether the investigation will be conducted by in-house or outside counsel. In-house counsel are likely to benefit from their greater familiarity with the company’s inner workings, but at the same time, the blurring of the line between their roles as providers of legal and business advice may make it more likely that their report will not be found privileged.
It should be made clear that counsel is being asked not merely to conduct an investigation, but to do so for the purpose of providing legal advice. The company may make a specific written request for legal advice and if outside counsel is used, the engagement letter should make clear that counsel’s assignment includes the provision of legal advice, and cannot be performed by a nonlawyer. The engagement letter may also specify the scope of the investigation, but if the investigation unearths additional questions not covered by the original letter, the letter may need to be amended to reflect the expansion of the investigation.
Counsel must also be careful to protect the attorney-client privilege while conducting the investigation. Corporate witnesses must be advised of the privilege, and admonished to keep communications confidential. Interview memos must, of course, reflect witnesses’ statements, but the risk that such reports will not be found privileged increases to the extent they merely report what a witness says. Therefore, these memos should reflect counsel’s thoughts, impressions, evaluation and analysis.
Finally, the report should include counsel’s analysis, evaluation and legal advice. Such a report stands a far greater chance of being protected by the attorney-client privilege than one that merely reports the facts uncovered by counsel.
Federal Rule of Civil Procedure 26(b)(3) protects from disclosure materials “prepared in anticipation of litigation.” Counsel conducting an internal investigation will nearly always anticipate some form of litigation, civil or criminal. In order to maximize work-product protection, the investigation, and the report, should reflect as much. When applicable, a request by the client for legal advice, and the engagement letter, should reflect the possibility — and anticipation — of litigation. The report, too, should offer evaluation and analysis of potential claims.
The work-product doctrine provides two levels of protection. So-called “ordinary” work product — i.e., facts uncovered by counsel — may be discovered upon a showing of need. Fed. R. Civ. P. 26(b)(3)(ii). But in contrast, “opinion” work product — i.e., that reflecting counsel’s opinions, conclusions and mental impressions — is almost immune to discovery. Thus, materials that include attorney analysis and evaluation are far more likely to be off limits to third parties. This, of course, suggests that witness interview memos, the report itself and any other documents authored by counsel should include opinions, analysis and evaluation.
In some investigations, a written report will be required, for example, pursuant to a U.S. Securities and Exchange Commission consent decree. But if not, counsel and the client must decide what form the ultimate report will take. A written report may offer more clarity and certainty than an oral report, and may be necessary to explain complicated transactions. It may also be useful in establishing credibility, by documenting the investigation process. However, if discovered, a written report can provide an opponent with a road map of the client’s strategy, and a rich vein of impeachment evidence. On the other hand, the contents of an oral report may also be discovered in depositions — with sensitive disclosures garbled or even misstated.
The benefits of cooperation with criminal authorities or the SEC may not be apparent at the outset of an investigation. Thus counsel should keep her options open rather than commit to writing early on. And although communication with the client is critical during an internal investigation, written interim reports are generally a bad idea, because they may be subject to disclosure and, particularly to the extent they differ from a final report, may provide information an opponent can exploit.
Finally, the choice is not limited to an oral report or a full-blown narrative report. Many lawyers conducting internal investigations use presentation software to report their results, because it allows certainty and clarity with regard to the main findings of an investigation without committing every factual detail to paper, where they may be discovered and taken advantage of.
The description of unflattering facts, and the possibility of disclosure to third parties, make reporting on an internal investigation a delicate task. But while the steps described above may not guarantee confidentiality, keeping them in mind throughout the investigation can help maximize the chances of confidentiality.
Paul F. Enzinna is a partner in Brown Rudnick’s white-collar defense and government investigations practice group in Washington.