Pitfalls of Internal Investigations: Supreme Court Appeal Highlights Perils of Reliance on Consulting Firms
November 29, 2022
By Brett W. Johnson, T. Troy Galan, and Ryan P. Hogan
With the ever-increasingly complex regulatory environment in the United States, ensuring corporate compliance is neither inexpensive nor easy. Given these difficulties, when the need to conduct an internal investigation arises, it is tempting to view consulting firms as a safe and financially sound option. Although consulting firms do provide expertise in niche area, the United States Supreme Court has recently indicated choosing the financially expedient option can lead to untenably risky exposure. While most attorney communications occur under the protection of attorney-client privilege or an attorney’s investigation under the work product privilege, communications with consultants do not enjoy any similar protections from disclosure.
It has long been black-letter law that communications with company attorneys during internal investigations are shielded from disclosure by the attorney-client privilege.1 But what about “dual-use records”—documents and communications made for reasons not strictly limited to legal advice? Whether such records are protected by the privilege lies at the heart of the appeal recently taken up by the Supreme Court in In re Grand Jury.2 In this dispute, grand jury subpoenas were issued to a company and a law firm seeking records that contained both legal and tax advice.3
The targets of the subpoena withheld some of the requested records on the basis of privilege, but the Ninth Circuit Court of Appeals ultimately rejected these assertions.4 The Court explained that a “Primary Purpose” test is used to analyze whether dual-use records are privileged.5 That is, dual-use records will be shielded from production if “the primary purpose of the communication is to give or receive legal advice” as opposed to merely business advice.6 Again, this is separate from the attorney work product privilege, which allows attorneys to investigate a matter without their deliberations (e.g., the scope of “who, what, and why” as a part of the investigation) having to be disclosed.
In re Grand Jury marks a stark departure from prior appellate cases addressing assertions of privilege for dual-purpose records. Previously, in In re Kellogg Brown & Root, Inc., the District of Columbia Circuit Court of Appeals held that dual-purpose records are privileged if obtaining or providing legal advice was “one of the significant purposes of the communication.”7 Under this test, District of Columbia Circuit courts inquire whether one of the purposes of the record was to provide legal advice. In contrast to the Ninth Circuit test, whether records were created for a specific primary purpose is not relevant to an assertion of privilege.8
At first blush, these cases might seem to be nothing more than legal minutia far afield from day-to-day operations or corporate compliance. On closer examination, however, they reveal an important lesson. In the current regulatory environment, the line between legal and business advice can blur. As these cases demonstrate, documents containing an attorney’s legal advice are protected from disclosure and they may also enjoy protection even if they encompass other matters.
But absent attorney involvement, communications with outside consultants (except in support and under the supervision of an attorney) never enjoy the protections of the privilege regardless of their purpose. Indeed, In re Kellogg explicitly noted that communications by and to non-attorneys may be protected, but only when working at the direction of attorneys.9 Whether it be for internal investigations or for some other secondary purpose, these cases are a warning sign of the perils of non-attorney led compliance matters.
With economic uncertainties on the horizon, it is tempting to turn to consultants for a less expensive option when it comes to advising on, or investigating, compliance obligations. But, there is an inherent risk of relying on consulting firms alone an non-disclosure agreements do not provide protection. Without an attorney’s involvement, the records generated by a consultant may not be privileged and result in exposure to serious liability and (possible) embarrassment. Accordingly, before acting on the belief that consultants are the financially expedient option, consider the potentially serious exposure it may lead to and the long-term objective of the review of investigation. Especially when the unintended negative determinations are not subject to the attorney-client privilege to allow the company the opportunity to address the problem with sound legal advice.
See Upjohn Co. v. United States, 449 U.S. 383, 395, (1981).
See In re Grand Jury, 23 F.4th 1088, 1091 (9th Cir. 2021), cert. granted sub nom. In re Jury, 21-1397, 2022 WL 4651237 (U.S. Oct. 3, 2022)
See id. at 1090.
See id. at 1094.
See id. at 1091.
See In Re Kellogg Brown & Root, Inc., 756 F.3d 754, 759–60 (D.C. Cir. 2014)
The Seventh Circuit Court of Appeals also weighed on this issue and held that dual-purpose records are never protected by the privilege. United States v. Frederick, 182 F.3d 496, 501 (7th Cir. 1999).
See In Re Kellogg, 756 F.3d at 757.
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