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If a company suspects that its employees may have been involved in illegal activity, the company may investigate to determine whether such activity occurred and, if so, whether the company has potential legal exposure arising from the activity. Outside counsel are often called upon to conduct internal investigations in such situations. Often the most critical component of an effective internal investigation is promptly conducting employee interviews. A recent 4th U.S. Circuit Court of Appeals decision, In re Grand Jury Subpoena, drives home important lessons for companies and outside counsel conducting internal investigations. In Subpoena, the 4th Circuit upheld the trial court’s refusal to quash grand jury subpoenas that sought outside counsel’s reports on interviews conducted as part of an internal investigation. The case arose from a fact pattern familiar to those who conduct internal investigations. Outside counsel was conducting an internal investigation for AOL Time Warner that focused on AOL’s relationship with PurchasePro Inc. Investigating counsel sought to interview a number of employees during its internal investigation so that the company could quickly ascertain whether any wrongdoing had occurred, and whether it would consider disclosing such wrongdoing to the government to demonstrate the company’s cooperation with the government’s investigation. During the internal investigation, investigating counsel stated to employees being interviewed that they represented the company and that conversations between counsel and the employees were privileged. Counsel also indicated that the company could choose to waive the attorney-client privilege. At some point, however, investigating counsel also explained that they “could” or “can” represent the employees as well, “as long as no conflict appeared.” Investigating counsel also pointed out that the employee could retain personal counsel at the company’s expense. At the end of one particular interview, one of the employees asked whether he needed personal counsel. One of the investigating attorneys stated that he did not recommend it, but that he would tell the company not to be concerned if the employee retained personal counsel. The Securities and Exchange Commission launched an investigation of AOL and PurchasePro, which was followed by a criminal investigation. AOL ultimately agreed to waive the attorney-client privilege and to produce documents in response to a grand jury subpoena seeking material about its internal investigation of the AOL-PurchasePro relationship. After AOL agreed to waive the privilege, the employees moved to quash the subpoenas on the grounds that each employee had an individual attorney-client relationship with outside counsel. This claim was based upon statements made by outside counsel in the interview that it “can” or “could” represent each employee. The district court refused to quash the subpoenas and was affirmed by the 4th Circuit. Based upon the facts in the record, it appears that part of the reason why the privilege issue was litigated in Subpoena was that the employees being interviewed might not have understood that they were not being represented during the interview by investigating counsel. The set of statements or warnings to be given at the outset of an interview has come to be known as the Upjohn warnings. The name derives from the Supreme Court decision in Upjohn Co. v. United States, in which the court held that the attorney-client privilege between a company and investigating counsel protected communications between investigating counsel and the company’s employees when they are for the purpose of rendering legal advice to the corporation. The court recognized that a protected mechanism for gathering facts from employees was necessary for the company to obtain legal advice from investigating counsel. In the wake of Upjohn, it has become common practice for investigating counsel to clarify a number of things before proceeding with an employee interview. Subpoena reinforces the fact that the following steps must be taken at the outset of an employee interview: � Investigating counsel must clearly state that counsel represents the company and does not represent the employee being interviewed. � Investigating counsel must state that the information learned during the interview is privileged to the company, and that the company alone will determine whether to provide such information to the government or another party without consulting the employee. � Investigating counsel must make clear to the employee that the information discussed at the interview is to be kept confidential so that the company’s privilege can be preserved; this explicitly reinforces that the information covered in the interview is covered by the company’s privilege. � Investigating counsel should ascertain that each employee interviewed understands the warnings given. ‘DO I NEED A LAWYER?’ One of the complexities of internal investigations is that they often create situations that require not only legal judgments but also strategic and corporate policy considerations as well. One situation that raises a variety of issues is when an employee asks investigating counsel whether he or she needs a lawyer. One of the employees in Subpoena asked this very question. Investigating counsel, after previously indicating that he “can” represent the employee individually, responded by saying that he did not recommend that the employee engage his own counsel. The 4th Circuit, in summary fashion, declared that investigating counsel had not provided personal legal advice to any of the employees and that the employees had not sought such advice. It is possible, however, the court could have found — at least as to the employee who asked whether he needed a lawyer — that personal legal advice had been rendered. This statement could have created the basis for a finding that an attorney-client relationship existed between the investigating counsel and the employee. Handling the “do I need a lawyer” question is a potential minefield for the company and investigating counsel. From the company’s perspective, there are potential problems with either a “yes” or “no” answer by investigating counsel. A “yes” answer risks slowing down the internal investigation to wait for the employee to retain counsel. A “no” answer may lead to claims against the company and/or investigating counsel if the employee ultimately suffers legal consequences as a result of participation in the interview without counsel. At the outset of an internal investigation, the company may decide that investigating counsel should decline to answer the “do I need a lawyer” question. This response, of course, risks alienating the employees being interviewed. Alternatively, if the company is concerned that some of its employees will ask the “do I need a lawyer” question, it may wish to take steps at the outset of the internal investigation to make sure that separate counsel will be available to represent individuals. Companies using this approach should take steps to ensure that employees understand that separate counsel is being provided for their protection, and that the company’s decision to do so does not mean that the company believes that they have done something wrong. Companies should also be aware that adopting this approach might slow the pace of the internal investigation considerably. The company may not be in a position to adopt either of these approaches at the outset of an internal investigation. Often investigating counsel must have candid discussions with the company’s senior executives to help the company frame the internal investigation and to determine how the company should proceed. In these discussions, and perhaps in other discussions between investigating counsel and company employees, the company may want to allow investigating counsel to respond to the “do I need a lawyer” question. The following steps can be taken to address the question while minimizing the risk that a court will find that personal legal advice was rendered, thus preventing the basis for finding the existence of an attorney-client relationship between investigating counsel and the employees: � Address the nature of the internal investigation and the possible responses of the company to any investigation of the conduct at issue by the government, making it clear that such statements are being made in investigating counsel’s role as counsel to the company. � Address the likelihood that the interests of the company may conflict with the interests of the employee or some group of employees, again making clear that this assessment is being made on behalf of the company. � Advise the employee whether or not the company will consider paying for personal legal counsel for employees. These responses clearly provide information to the employee to allow the employee to address the “do I need a lawyer” question without giving a “yes” or “no” answer. Certainly the circumstances of the representation will often dictate whether other responses would be appropriate to help the employee address this all-important question. In the current climate, where prosecutors are demanding that companies waive the attorney-client privilege as part of their cooperation, it will be increasingly important for investigating counsel to help employees address the question in a way that preserves the interests of the company while not alienating the employees. It is also important for the company and investigating counsel to consider whether to advise employees of the likelihood that the company will agree to waive the attorney-client privilege and turn over the results of the internal investigation to the government. Resolution of this issue will depend on the type of internal investigation being conducted, the nature and status of the government’s investigation, and the underlying facts at issue. Michael D. Farber is a partner in Dechert’s antitrust practice group and works out of the firm’s Washington D.C. office.

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