Internal Investigations and Attorney Client Privilege Edwin J. Tomko Jason M. Ross Texas Advanced Paralegal Seminar Crowne Plaza, 14315 Midway Road, Addison, TX October 5, 2017

The Attorney-Client Privilege Defined Protects confidential communications between an attorney and client related to legal advice from disclosure to third parties. Elements: (a) holder of the privilege is or sought to become a client; (b) person to whom the communication was made is a lawyer or acting as one; (c) the communication relates to a fact of which the attorney was informed by his client; without the presence of strangers; (d) for the purpose of securing primarily legal advice; (e) not for the purpose of committing a crime or tort; and (f) the privilege has been claimed and not waived by the client. U.S. v. United Shoe Mach. Corp., 89 F. Supp. 357 (D. Mass. 1950) Interpretations of the privilege: governed by common law, state law (Texas Rule of Evidence 503) How to establish: party seeking to assert the privilege has burden of establishing that attorney-client relationship exists

Establishing the Attorney-Client Privilege Who is the client? This can impact the scope of the attorney-client privilege, such as: An individual employee A corporation or business entity Board of directors/subcommittee When does the privilege end? Continues after death of the client For organizations, ends when corporation no longer has legal existence Some practical tips for email “Boilerplate” confidentiality language: not likely dispositive but may be one factor a court considers, and will help if claw back of the communication is needed Be aware of email content and attachments: if a party emails a third party an otherwise privileged communication, privilege lost for the email and any attachments Texas Case - in

What Is an Attorney-Client Privileged Communication? When the primary purpose of the communication is to seek legal advice, the communication is privileged. In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014) In-house counsel: mixed business/legal advice Communications between in-house counsel and employees, officers or directors may not be privileged depending on if it involves business advice Check rules in other countries when asserting the privilege outside of US

Who Holds the Privilege? Who can assert the privilege on behalf of the corporation? Possible representations include: board of directors, management, audit committee, special committees, as well as individual employees Current board of directors and officers: can assert privilege on behalf of company However, special committees of a Board may retain own counsel and have separate attorney-client privilege Fiduciary Exception Management may not be able to claim privilege against shareholders claiming that management acted against shareholders’ interests Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970) Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund Ibew, 95 A.3d 1264, 1267 (Del. 2014)

Corporate Representation Corporations can establish attorney-client privilege Who is the client: control group vs. Upjohn Some courts apply ‘control group’ test Illinois is the minority view: upper-level management is the client and holds the privilege Control group: employees who control, or have a substantial role in a decision about an action of the corporation Control group can change The Supreme Court in the Upjohn case, however, found the ‘control group’ test too narrow and concluded that the privilege should be assessed case by case Texas has followed Upjohn. [Texas Rules of Evidence 503(a)(2)(B)]

Corporate Representation, Cont. If you represent the company, you can represent certain higher level employees in their corporate capacity The attorney client privilege applies to discussions with corporate employees regardless of echelon, if sought to formulate and render legal advice to the corporation. In re LTV Sec. Litigation, 89 F.R.D. 595, 598 (N.D. Tex. 1981). It does not protect information that the former employee would not have known during employment. Communications between former employees and corporate counsel are privileged if the employee possesses information critical to the representation of the company and the communication concerns matters within the scope of the employment. U.S. v. Mobil Corp., 149 F.R.D. 533, 535 (N.D. Tex. 1993) In re GM LLC Ignition Switch Litigation, 80 F. Supp. 3d 521, 523 (S.D.N.Y. 2015)

Work Product Doctrine Two types: factual and opinion Even if disclosure ordered, attorney’s mental impressions, opinions, legal theories and conclusions usually still protected Transcript of a tape dictated by attorney to preserve his recollection of meetings was opinion work product in In re Sealed Case, 676 F.2d 793 (D.C. Cir. 1982) “In anticipation” of litigation: litigation must be actual or impending Can be overcome by opposing party showing substantial need and undue hardship to obtain the substantial equivalent [FRE Rule 26(b)(3)(A)(ii)] But it still protects mental impressions, conclusions, opinions and legal theories of counsel [FRCP 26(b)(3)(B)] Non-opinion work-product may be considered privileged only upon a showing of “substantial need” and “undue hardship.” In re Kellogg Brown & Root, Inc., 2015 U.S. App. LEXIS 14066, *1 (D.C. Cir. Aug. 11, 2015)

Internal Investigations Corporations increasingly face the risk of being examined and investigated by the U.S. government and local, state, and foreign government agencies and being sued by private plaintiffs. In light of the risk of government prosecution and private litigation, effective internal investigations are necessary to determine the facts surrounding the corporation’s compliance with the law and its fiduciary duties. Corporations and corporate counsel must be careful when conducting internal investigations to understand DOJ guidance and the scope of the attorney-client privilege.

In the Beginning… Determine the scope of the investigation Identify the client Board of Directors Audit Committee Compliance Committee Role of the In-House Counsel Implement a litigation hold Identify the sources of information Laptops, hard copies, other electronic media Understand any regulatory and special disclosure requirements

Data Collection: The Basics Who are the managers of the business units who can help? What data is actually in our “possession, custody, or control”? How are our systems organized? User-specific resources (PCs/laptops, network accounts, small media) Centralized systems (mainframes) Unusual data sources (like medical records systems) Outside services (cloud storage, SaaS, etc.) How can they be preserved if an investigation hits? How can our systems be searched for information? How long do we keep various types of data? Who are our attorneys, now and historically?

Internal Investigations When to use outside counsel and need for independence Upjohn warnings Make clear to witness/employee and make sure interviewee understands that you represent the company and not the employee personally Elements: Represent the Company; meeting to gather information to provide legal advice to the Company Do not represent you in your personal capacity Speaking to you in your capacity as an employee of Company This is an attorney/client communication But the holder of the privilege is the Company, not you Company can disclose what is said during interview, and without consulting you Company can make use of, or disclose to a third party including the government, the information you provide even if it is against your interests Ask employee to confirm understanding

Internal Investigations, Cont. “Watered-down” Upjohn warnings: a “potential legal and ethical mine field” Deciding when there is a conflict/an employee needs separate counsel Determine if interests are or potentially will be adverse The strategy of obtaining separate counsel can be helpful to internal investigation Recent DOJ policy announcement will increase requests for separate counsel for employees How to address request from company’s auditors for information about internal investigation

Safeguarding the Internal Investigation In order to protect from disclosure: Companies should ensure that all documentation regarding an internal investigation reflects that the investigation is being conducted at the express direction of the legal department, and for the expenses purpose of enabling counsel to provide legal advice. Counsel should play a principal role in the actual investigative steps: All internal investigations should be overseen by company lawyers, preferably by either outside counsel or at a minimum inside lawyers whose functions do not substantially involve managing business operations (as opposed to providing legal advice). Privilege can extend to consultants Consultant must be retained to assist counsel in providing legal advice

Disclosure to Government Individuals and companies increasingly face parallel civil and criminal proceedings Important to understand scope of waiver when disclosing internal investigation No selective waiver doctrine in the Fifth Circuit Disclosure to government will not shield documents or communications from disclosure to other third parties In SEC v. Brady, judge ordered that portion of an accounting report that that was previously produced to the SEC by another accounting firm was not protected by the attorney client privilege since the report was previously disclosed to the government and as a result, the privilege was waived as to all responsive documents relating to the report. SEC v. Brady, 238 F.R.D. 429, 440 (N.D. Tex. 2006) In re Qwest Communications International, Inc., 450 F. 3d 1179, 1192 (10th Cir. 2006)

Disclosure to Government, Cont. Leading trend: voluntary disclosure to government In transactions, for example: When the buyer is conducting an internal investigation, the buyer can potentially limit liability and show that newly- discovered liabilities were disclosed immediately to government Potential benefits are not restricted to transactional situations Voluntary disclosure considerations Waiver of privilege Prosecution likelihood Parallel civil or enforcement proceeding Mandatory disclosure requirements Required disclosures in connection with company’s performance of federal contract under FAR (Federal Acquisition Regulation) (48 CFR 52) Privilege will be waived

Internal Investigations and the Attorney Client Privilege D.C. Circuit has upheld the privilege in an internal investigation pursuant to a statutory disclosure requirement. In re Kellogg Brown & Root Inc., No. 14-5055 (D.C. Cir. June 27, 2014). The court held that the attorney-client privilege applies so long as one of the “significant purposes” of the internal investigation was to obtain or provide legal advice. “That is true regardless of whether an internal investigation was conducted pursuant to a company compliance program required by statute or regulation, or was otherwise conducted by company policy.”

Internal Investigations and the Attorney-Client Privilege: Considerations Corporations must decide at an early stage, if possible, whether separate counsel is needed for employees Internal investigations may become longer and more difficult to resolve How to document Upjohn warnings Disclosure will still be evaluated as a key component of strategy analysis What to do when asking for personal electronic devices

Internal Investigations and the Attorney-Client Privilege: Joint Defense Agreements Joint defense agreements: method to have attorney-client information exchanged without losing privileged nature. Based on ‘common interest’ doctrine: Parties with common legal interests may share privileged information with each other to further their common interests without waiving the attorney-client privilege. Written vs. oral joint defense agreement There are restrictions about what a party can do with joint defense information What a joint defense agreement is not: Not joint representation Not a guarantee that a party will not cooperate with the government or an adversary at some later point Does not allow “clients” alone to have privileged communication

The Joint Defense Privilege Protects communications between an individual and an attorney for another individual when communications are part of an on-going and joint effort to set up a common defense strategy. Party asserting the privilege must show that: the communications were made in the course of a joint defense effort; the statements were designed to further the effort; and the privilege has not been waived. The joint defense privilege can be oral or written.

Internal Investigations and the Attorney-Client Privilege: Former Employees Considerations for former employees Former employees are no longer agents of the corporation However: Post-employment communications may be privileged if they relate to the employee’s conduct and knowledge obtained during employment and are limited to the facts of the current litigation. See Export-Import Bank of the United States v. Asia Pulp & Paper Co., Ltd., 232 F.R.D. 103 (S.D.N.Y. 2005) (privilege can exist for communications with a former employee). Courts have come to different conclusions about whether communications between former employees and the company’s counsel are privileged.

Conclusion: Continuing Importance of Internal Investigations The need for internal investigations remains. The core tenets of the Yates Memo – individual accountability and corporate compliance – will continue to be implemented under the Trump administration. For that reason, it is important to continue to: maintain effective compliance programs, conduct internal investigations when faced with potential allegations, and ensure the proper warnings about attorney-client privilege are given to employees when conducting investigations.

Conclusion The “New Normal” More emphasis on compliance will lead to more internal investigation More challenges to the attorney client privilege in internal investigations Uncertainty exists about whether the government will request privileged information obtained during internal investigation

Edwin J. Tomko, Senior Counsel, Dykema Cox Smith Edwin J. Tomko is a member of Dykema’s Business Litigation Group whose practice is focused on federal and state white collar crime cases involving government contracts, financial institutions, securities, environmental and health care issues. Mr. Tomko has represented clients in federal and state administrative actions by banking regulators, securities regulators, and suspension and debarment authorities. Mr. Tomko has handled federal civil cases such as qui tam and other False Claims Act actions, securities litigation including FINRA arbitration actions, contract suits involving fraud or breach of contract allegations, RICO actions, and regulatory recovery actions. For almost 20 years prior to his legal career in the private sector, Mr. Tomko held various positions in the Department of Justice and the Securities and Exchange Commission.

Jason M. Ross, Senior Counsel, Dykema Cox Smith Jason M. Ross is a member of the Litigation Group in Dykema’s Dallas office whose practice is focused on complex litigation, with an emphasis on white collar criminal defense and securities law. Mr. Ross has guided his clients throughout various stages of government action, including whistleblower complaints, initial government investigations, negotiations for immunity, grand jury proceedings, indictments and trials. Mr. Ross has counseled clients in proceedings brought by agencies such as the Department of Justice, the Securities and Exchange Commission, Federal Bureau of Investigation, the Environmental Protection Agency, the Department of Labor and the Federal Trade Commission.