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Privilege and the Internal Investigation

When a company does an internal investigation, what does it need to do to ensure that the investigation is protected by the attorney-client privilege? Many companies erroneously believe that cc’ing the in-house counsel on the emails about the investigation is all that it takes to ensure that the investigation will be protected. It will not. However, a Texas court recently offered some helpful guidance on the steps that a company can take – at least in Texas – to ensure that an internal investigation remains protected by the attorney-client privilege.

In In Re Fairway Methanol LLC and Celanese Ltd., an in-house lawyer for the defendant company requested an investigation into an accident at one of the company’s facilities. The in-house lawyer made it clear that the investigation was to provide the company’s legal department with information necessary to assess potential liability in litigation and to develop legal strategies and defenses to any claims raised in anticipated legal or regulatory proceedings. While the in-house counsel stated that the primary purpose of the investigation was to aid the company in preparation of a defense to anticipated litigation, the company acknowledged that a secondary purpose of the investigation was to allow the legal department of the company to provide business and legal advice on the potential termination of employees involved in the incident.

All of the investigation team members were immediately informed that the investigation was for the purpose of assisting counsel. The in-house counsel instructed the team that all communications and documents generated during their investigation must be kept confidential and marked as privileged and confidential or attorney-client privileged work product. The investigation team reported its findings only to the company’s law department. The investigation team prepared a root cause analysis which was necessary for the company’s law department to evaluate liability and to develop the strategy for defending itself in likely civil and regulatory litigation. The Fourteenth Court of Appeals in Houston found that the company had made a sufficient showing that the communications concerning the internal investigation were protected by the attorney-client privilege.

One caveat is that this case only applies Texas law. There could be different outcomes if a court were applying federal law or the law of another state. For example, the court in this case noted that, under Texas law, it did not need to conclude that the primary purpose of the communications was for solicitation of legal advice but, under federal law, that may be required. The reason these issues are difficult for in-house counsel is because in-house counsel often provide both business and legal advice to their clients. Therefore, courts often struggle as to what communications of in-house counsel are privileged when in-house counsel are offering a mixture of business and legal advice. These are not easy issues, and reasonable judges often differ in their rulings when presented with very similar factual situations. For these reasons, if it is of the utmost importance that an internal investigation is protected by attorney-client privilege, in-house counsel should consider retaining outside counsel to direct and control the investigation. Yes, there will be more expenses associated with retention of outside counsel, but if maintaining privilege over an investigation is essential to the company, it may still be the best choice.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.