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Maintaining Privileges in Workplace Investigations

Employers accused of wrongdoing by their employees often conduct internal investigations and turn to outside counsel for advice about those investigations. When employers communicate with outside counsel in seeking advice regarding their internal investigations, quite understandably, they would like the certainty that those communications will be viewed just as any other attorney-client communication—as confidential and shielded from disclosure in litigation based on the attorney-client and work-product privileges. A recent case, however, suggests that under certain circumstances, at least some courts will view employers' assertions of privilege with skepticism, and place unexpected limits on their claims of privilege.

Whether a court will sustain employers' assertions of the attorney-client privilege over communications with counsel during a workplace investigation depends, in part, on how the court will address one critical issue. A court must decide whether each communication constitutes a request for or the delivery of legal advice, or whether the communication concerns discussions regarding day-to-day activities conducted in the ordinary course of business.

In Koumoulis v. Independent Financial Marketing Group, 295 F.R.D. 28 (E.D.N.Y. Nov. 1, 2013), aff'd in part, 29 F.Supp.3d 142 (E.D.N.Y. Jan. 21, 2014), the court addressed this critical issue in the context of an employer's investigation of allegations of discrimination and reached an alarming result. In the circumstances presented, the court held that communications between outside counsel and human resources personnel were not protected by the attorney-client privilege because "their predominant purpose was to provide human resources and thus business advice, not legal advice."1 Id. at 45. As a result, the court ordered production of documents the employer had withheld as privileged, and the deposition of the employer's outside counsel regarding those ostensibly non-privileged communications.

In this article, we analyze Koumoulis and explore the fine line the court drew between business and legal advice. We also contrast the decision in In re Kellogg Brown & Root, 756 F.3d 754 (D.C. Cir. 2014), where the U.S. Court of Appeals for the D.C. Circuit adopted a standard more favorable to the assertion of privilege during internal investigations. We then recommend steps employers should take to increase the likelihood that a court will uphold their assertions of privilege over communications with counsel during internal investigations.

Background

The attorney-client privilege is the "oldest of the privileges for confidential communications known to the common law"2 and its purpose is "to encourage clients to make full disclosure to their attorneys."3 The attorney-client privilege protects communications between attorneys and their clients from disclosure in litigation, and extends to agents of both.

Generally, the elements required to establish attorney-client privilege are "(1) a communication; (2) made between privileged persons; (3) in confidence; (4) for the purpose of seeking, obtaining, or providing legal assistance to the client."4 To determine whether a communication seeks or provides legal advice, courts often look to its "primary purpose."5 Courts vary in how they construe the primary purpose of a communication. Some courts have asked whether the communication would have been made "but for" the purpose of seeking or providing legal advice.6 Other courts have found that a communication's primary purpose was to obtain or provide legal advice even where significant business purposes were involved.7

Business or Legal Advice

Koumoulis illustrates how a court can find that communications by company employees with counsel during an internal workplace investigation constitute the delivery of business advice rather than legal advice, and thus preclude protection by the attorney-client privilege. Plaintiffs were former and current employees of a company in the business of providing investment products to financial institutions. Plaintiffs alleged that certain supervisors made derogatory comments about their Greek ancestry and religious affiliation, and constructively discharged or wrongfully terminated three of the plaintiffs. Plaintiffs claimed that defendants discriminated against them because of their religion, national origin, and race; subjected plaintiffs to a hostile work environment; and retaliated against plaintiffs for bringing their complaints.

Plaintiffs moved to compel the production of documents that defendants withheld on the basis of the attorney-client privilege. The withheld documents concerned one plaintiff's internal complaints and the subsequent investigation by the company's human resources managers into those complaints. Defendants described the withheld communications as relating to Equal Employment Opportunity Commission charges and the present litigation, plaintiff's performance issues, and emails between outside counsel and human resources concerning how to conduct the investigation. 295 F.R.D. at 34. Defendants asserted that outside attorneys did not conduct interviews or make any business decisions as part of the investigation.

Magistrate Judge Vera Scanlon ruled that the attorney-client privilege did not protect the communications between human resources and outside counsel, finding that the communications' "predominant purpose" was to seek business advice. Id. at 45. The magistrate judge found that the communications generally concerned counsel's advice as to what actions human resources personnel should take regarding the investigation, who should perform those actions, and what should be documented.

The magistrate judge found that the communications by outside counsel to human resources also included draft emails to plaintiffs and scripts for conversations that human resources staff would have with plaintiffs. Defendants' emails to outside counsel reported on the outcome of their actions and new developments, and asked about next steps in the investigation. The magistrate judge described outside counsel's role as "help[ing] supervise and direct the internal investigations primarily as an adjunct member of Defendants' human resources team." Id.

The court acknowledged the difficulty of its decision in light of the overlapping nature of legal and human resources advice. The court recognized that human resources programs seek to "ensure compliance with the myriad of laws regulating employer-employee relations, such as…wage-and-hour laws, benefits laws and health-and-safety laws." Id. Despite the fact that these subjects involved compliance with law, the court still found the advice business-related because "like other business activities with a regulatory flavor, [human resources work] is part of the day-to-day operation of a business." Id. According to the court, "just as an employment lawyer's legal advice may well account for business concerns, a human resources employee's business advice may well include a consideration of the law." Id.

In articulating its decision, the court noted that counsel's advice rarely involved interpreting and applying legal principles. Upon review, District Judge Pamela Chen reaffirmed Judge Scanlon's opinion. She wrote that the overwhelming majority of the communications discussed how human resources should conduct the investigation and how they should respond to plaintiff. Accordingly, the district court labeled outside counsel's advice as "plainly…not legal advice, but rather human resources advice on personnel management and customer relations." Koumoulis v. Independent Financial Marketing Group, 29 F.Supp.3d 142, 148 (E.D.N.Y. Jan. 21, 2014).

'In re Kellogg'

Koumoulis hinged upon finding that the advice outside counsel provided was predominantly business advice even though the subject of the advice included compliance with employment laws. Just months after the Koumoulis decision, in In re Kellogg Brown & Root, 756 F.3d 754 (D.C. Cir. 2014), the D.C. Circuit set forth a standard for resolving privilege disputes in a non-employment case concerning communications that have both legal and business purposes. In Kellogg, a relator filed suit against government contractors under the False Claims Act and alleged that the contractors schemed to defraud the United States. United State ex rel. Barko v. Halliburton Company, 37 F.Supp.3d 1, 1 (D.C. Cir. March 6, 2014). Defendants' legal department directed an investigation of the alleged misconduct. Plaintiff moved to compel the production of documents related to the investigation, and defendants refused to comply on the grounds that the documents were privileged.

The district court ordered defendants to produce the documents, ruling that defendants carried out the investigations for purposes of complying with government regulations and corporate policy rather than obtaining legal advice. The circuit court reversed. The circuit court understood the attorney-client privilege, under the district court's ruling, to "not apply unless the sole purpose of the communication was to obtain or provide legal advice." 756 F.3d at 759. The D.C. Circuit instead ruled that as long as obtaining or providing legal advice "was one significant purpose" of the investigation, the privilege protected communications related to the investigation. Id. According to the circuit court, this is true even if there are other purposes for the investigation.

The D.C. Circuit emphasized that courts should not draw "a rigid distinction" between a legal purpose and a business purpose, in part because that "can be an inherently impossible task" where a communication is motivated by more than one purpose. Id. Rather, the court articulated its standard in the form of a single question: "Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?" Id. at 760. Where the answer to that question is a "yes," the attorney-client privilege applies.

Although the courts in both Kellogg and Koumoulis each stated that they were seeking to determine whether the predominant purpose of the communication with counsel was obtaining or providing legal advice, the Koumoulis court appeared to define the "predominant purpose" narrowly where the subject matter of the communications also involved human resources issues. The Koumoulis court found that the subject matter of human resources is inherently a business function even though human resources issues and legal issues frequently overlap. By contrast, the Kellogg court applied a more traditional approach to the attorney-client privilege by holding that communications with mixed business and legal purposes remain legal in nature, so long as providing legal advice was "a primary purpose" of the communication.

Practice Suggestions

In light of Koumoulis, employment counsel should redouble their efforts to preserve privileges associated with their communications with human resources staff conducting internal investigations. For example, counsel should state explicitly in its communications that the communications involve the delivery of legal advice, and are communications outside the ordinary course of the day-to-day operation of the client's business. And where appropriate, counsel should identify applicable legal principles or relevant statutes to help underscore the legal nature of the communication. To the extent that litigation is reasonably foreseeable, counsel should note this as well. Similarly, corporate legal departments should reinforce to their business colleagues that when they write seeking legal advice, they should expressly state that.

Counsel should also include legends on such communications such as "ATTORNEY-CLIENT COMMUNICATION, PRIVILEGED AND CONFIDENTIAL." While such statements certainly do not guarantee that a court will find the communications to be legal rather than business communications, such statements serve as contemporaneous confirmations that the parties to the communication regarded their communications as being legal in nature. However, as Koumoulis admonishes, what is far more important than including a legend on the document, is that the substance of the communication contains more than "a stray sentence or comment within an email chain referenc[ing] litigation strategy or advice." 29 F.Supp.3d at 147.

Employers should think critically about whether counsel's involvement in an investigation presents the appearance that counsel is actually participating in the investigation in the background by directing the investigation. Where counsel appears to be directing the investigation, as opposed to providing general legal advice about the investigation process, Koumoulis suggests that the attorney-client privilege is less likely to apply.

Employers also should keep in mind that if they will later seek to rely on the sufficiency of the investigation as a defense to plaintiff's claims in litigation, communications with the investigator regarding the investigation could be considered non-privileged. Accordingly, investigators should keep factual information separate from communications and documentation containing legal advice in order to increase the likelihood that a court will deem those latter documents protected by the attorney-client privilege.

At the outset, employers should consider designing their investigations to define clearly the scope and responsibilities of the participants in the investigation. Specifically, employers should identify and insulate those who will investigate the facts from those who will make employment decisions based on those facts. With such clearly defined and separate roles, a court deciding whether communications with counsel are privileged will be able to distinguish between communications regarding the fact-finding process from communications regarding the decision-maker's assessment of the facts.

As the Koumoulis court held, counsel's communications with the business people investigating the facts of a discrimination claim may not be privileged where the employer relies on the investigation as an affirmative defense in subsequent litigation. If the employer has concern about whether it may be waiving privilege over the lawyer's communications with the person charged with investigating the facts, the employer may consider the possibility of hiring a law firm to counsel the investigator that is different from the law firm that counsels the decision-maker. By separating the roles of the lawyer counseling the investigator from the lawyer counseling the decision-maker the employer will be in a better position to demonstrate in a litigation that counsel's communications with the decision-maker about the assessment of the facts, the ultimate employment decision and/or litigation strategy are not waived because the lawyer in that situation will not have participated in the factual investigation.

Footnotes:

1. The court also held that the employer waived any attorney-client or work-product privilege that attached to communications with outside counsel by asserting an affirmative defense that relied upon the sufficiency of the investigation. We do not address the waiver issue in this article.

2. Upjohn Co. v. U.S., 449 U.S. 383, 389 (1981).

3. Fisher v. United States, 425 U.S. 391, 403 (1976).

4. Edna Selan Epstein, THE ATTORNEY-CLIENT PRIVILEGE AND THE WORK-PRODUCT DOCTRINE 65 (5th ed. 2007).

5. Id. at 325.

6. See, e.g., First Chicago Int'l v. United Exchange Co., 125 F.R.D. 55, 57 (S.D.N.Y. March 30, 1989).

7. See, e.g., Simon v. G.D. Searle & Co., 816 F.2d 397, 404 (8th Cir. 1987).

Reprinted with permission from the April 6, 2015 edition of the New York Law Journal © 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

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