by Joe Adams
An internal investigation is an important way for corporations to address allegations of wrongdoing and other serious issues. If conducted under the supervision of counsel, an investigation can allow companies to review significant issues under the protections of the attorney-client privilege and to obtain an independent review of allegations. A properly conducted investigation can be a powerful tool in resolving issues with governmental agencies, private plaintiffs, and employees.
For attorneys, one of the most important things to keep in mind in an investigation is to be very clear with everyone about who you are and how the information might be used. Cases in this area expect attorneys to provide a “corporate Miranda” that informs witnesses who you are. They are also called “Upjohn” warnings, after the Supreme Court case of Upjohn Company v. United States, 449 U.S. 383 (1981). Like the familiar Miranda warning from criminal law, the goal is to provide disclosures and information to witnesses before any questioning takes place. The basics of a corporate Miranda warning include the following disclosures by attorneys:
- We represent the company (or board of a company). We do not represent you, the individual witness.
- We consider this conversation to be privileged, and we would like you to keep it confidential.
- However, it is the company’s decision on whether to waive the privilege and share information with other people outside the company. That decision is up to the company.
The risks of failing to give these types of warnings can be severe. In the absence of these disclosures, witnesses may later claim that they thought that the attorney was representing them, not just the company. If that were the case, the company could not disclose information learned in an investigation or use it freely. In addition, serious conflicts of interest could develop if a court were to hold that attorneys are representing individual witnesses as well as the company.
A case from the Ninth Circuit illustrates the risks of failing to provide disclosures that are documented in writing. See U.S. v. Nicholas, 606 F. Supp. 2d 1109 (C.D. Cal. 2009), rev’d by United States v. Ruehle, 583 F.3d 600 (9th Cir. 2009). In that case, an outside law firm was retained to conduct an internal investigation into the company’s stock option granting practices. At the same time, the same law firm represented the company and its senior officers in a shareholder derivative suit about the company’s stock option grants. When it was conducting its investigation, the law firm interviewed the company’s CFO. According to the CFO, the law firm never gave him an “Upjohn” warning, didn’t tell him that it was only representing the company for the investigation, and didn’t say that they might share information from the interview with third parties. The law firm maintained that the warning was given, but there was no written record of any warning or disclosure.
The company shared information from that interview with the company’s outside auditors, and the government eventually brought criminal charges against the CFO and wanted to use his statements from the interview at trial. The CFO moved to quash the subpoena seeking that information on the ground that they were privileged communications with his lawyers. The district court agreed, and found that the law firm had breached its duty of loyalty by disclosing communications protected by the attorney-client privilege. The court even referred the law firm to the State Bar for potential discipline. On appeal, the Ninth Circuit reversed and determined that the CFO didn’t make his statements in confidence, and that he knew that the information was going to be shared with outside auditors. Even though the information was able to be used, this case illustrates the consequences of being unclear with witnesses.
Similarly, the disclosures provided to witnesses must be clear and unqualified. A case from the Fourth Circuit illustrates the dangers of a “watered down” disclosure. In re Grand Jury Subpoena: Under Seal, 415 F.3d 333 (4th Cir. 2005). In this case, an outside law firm was conducting an investigation for AOL. The outside law firm gave an Upjohn warning, but also included the statement that “we can represent you until such time as there appears to be a conflict of interest.” A grand jury issued a subpoena for records of the interview, some of the witnesses moved to quash the subpoena on the ground that they had an individual attorney-client relationship with the investigating attorney, and that the records were privileged. The court held that there was no attorney-client relationship because there was never any agreement between the witness and the lawyers. According to the court, “we can represent you” is different than “we do represent you.” As a result, the witnesses could not have reasonably believed that the investigating attorneys also represented them personally. The court made a point of noting that it was not endorsing what it called “watered down Upjohn warnings.”
The lesson from these cases is to provide clear disclosures – documented in writing – to every witness in an internal investigation.