Internal Investigations and Privileges: Two More Courts Rule

01 April 2020 Publication
Author(s): Olivia S. Singelmann Scott L. Fredericksen Lisa M. Noller David W. Simon

Despite the global pandemic, the federal judiciary continues to issue rulings. In the last week, two courts provided guidance about when self-disclosures to the government waive the attorney-client privilege, underscoring the continued potential landmines in this area

In a per curiam, unpublished decision on March 25, the Fourth Circuit granted a writ of mandamus and vacated a district court order that erroneously had required a company, Fluor Intercontinental, Inc., to produce information over which the district court concluded Fluor had waived attorney-client privilege. See In re Fluor Intercontinental, Inc., No. 20-1241 (4th Cir. March 25, 2020). In 2017, Fluor, a government contractor, conducted an internal investigation, supervised by its legal department, of an alleged conflict of interest involving an employee and a company to which Fluor planned to award a contract. Following the investigation, Fluor terminated the employee and sent a summary of its findings to the government pursuant to the Contractor Code of Business Ethics and Conduct (48 C.F.R. §52.203-13), which requires a contractor to “timely disclose, in writing” whenever a contractor has “credible evidence” that an employee has violated certain federal laws, including the False Claims Act.

The terminated employee filed a wrongful termination suit against Fluor and in discovery sought copies of Fluor’s privileged files regarding the internal investigation. The district court ordered the files produced, concluding the statements in Fluor’s disclosure to the government revealed legal conclusions which characterized the terminated employee’s conduct in a way that revealed attorney-client communications, thus waiving the privilege. The Fourth Circuit disagreed, stating it would not infer a waiver merely because a party’s mandatory government disclosure covered the same topic as the one on which it was seeking legal advice. Rather, the test was whether there had been disclosure of protected communications. The Fourth Circuit found no evidence to suggest that Fluor’s disclosure “quoted privileged communications or summarized them in substance and format.” Instead, they simply described Fluor’s “general conclusions about the propriety of [the terminated employee’s] conduct.” The fact that statements may have been based on advice of counsel was not sufficient to waive the sacrosanct attorney-client privilege. Furthermore, the Fourth Circuit adroitly explained that the lower court’s opinion would undermine government disclosure requirements, because companies would be unable to disclose credible evidence of unlawful activity without also disclosing conclusions, often based on advice of counsel. Such results would be contrary to the policy objectives of the Contractor Code of Business Ethics.

Despite this favorable Fourth Circuit result, another court reminded practitioners not to disclose too much information about a company’s internal investigation. On March 5, the District Court for the District of Columbia denied defendants’ motions for interlocutory appeal and stay, pending resolution of appellate review, and ordered a company (RPM) to turn over internal investigation interview memoranda to the SEC. See Sec. & Exch. Comm’n v. RPM Int’l, Inc., No. 16-1803 (D.D.C. March 5, 2020). The district court previously had granted the SEC’s motion to compel the memoranda prepared by RPM’s outside law firm, finding RPM had waived the attorney-client and work product privileges when it disclosed its findings to its outside auditors, and RPM authorized the auditors to share the substance of that information with the SEC. However, RPM filed a petition for a writ of mandamus with the D.C. Circuit, and on March 16 the appeals court stayed the order that would have promptly required RPM to turn over the material and ordered the SEC to file a brief in response to RPM’s petition, which it did on March 26.

Companies should see this as a cautionary tale. Despite the Fourth Circuit’s In re Fluor Intercontinental, Inc. ruling, investigation memoranda must include mental thoughts and impressions, and the memoranda should not be quoted or summarized in substance or format to any third party in any way — even to the government in a mandatory disclosure.

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