In a recent decision, United States v. ISS Marine Services, Inc., No. 12-mc-481, Mem. Op. (D.D.C. Nov. 21, 2012), the U.S. District Court for the District of Columbia ruled that an internal investigation report prepared by an internal auditor of an affiliate of respondent ISS Marine Services, Inc. (ISS) was not subject to the protections of the attorney-client privilege or the work-product doctrine despite the involvement of outside counsel. The opinion serves as a strongly-worded reminder that direct attorney oversight and supervision of internal investigations is the surest way to safeguard privileges.
The case involved a government petition to enforce an administrative subpoena issued by the Department of Defense Inspector General’s Office. The respondent, ISS, had agreed to produce non-privileged, responsive documents but had claimed privilege with respect to an investigative report prepared by an internal auditor of the company’s U.K. affiliate. While the facts surrounding the commissioning of the investigation and report were disputed, the court found ultimately that, although an outside law firm had initially proposed conducting the investigation, had provided advice on issues to investigate and documents to review, and was provided a copy of the finished report, neither outside nor in-house counsel directed or supervised the work of the auditor to the extent necessary to protect the final report with a privilege.
Regarding the attorney-client privilege, the court focused on the purpose for which the investigation was conducted and the audit report was created. The court applied a strict test, concluding that the party claiming privilege must demonstrate that the communication in issue would not have been made “but for” the purpose of seeking legal advice. Mem. Op. at 9. The court first noted that, despite the fact that outside counsel suggested the investigation, there was evidence that the report was prepared to allow the U.K. affiliate of respondent to make a business decision about what further action should be taken to address the issues. Id. at 11. Then, in strikingly strong language, the court found the outside law firm’s involvement too tenuous to support blanketing the internal auditor’s work with privilege:
At bottom, respondent’s claim to privilege appears to be premised on a gimmick: exclude counsel from conducting the investigation but retain them in a watered-down capacity to “consult” on the investigation in order to cloak the investigation with privilege. Unfortunately for respondent, this sort of “consultation lite” does not qualify the Audit Report for the protections of the attorney-client privilege.
Mem. Op. at 12. The court continued that “[t]his sort of arms-length coaching by counsel, as opposed to direct involvement of an attorney, undercuts the purposes of the attorney-client privileged in the context of an internal investigation.” Id. at 13.
The court emphasized that, for the results of an internal investigation to be privileged, “the company must clearly structure the investigation as one seeking legal advice and must ensure that attorneys themselves conduct or supervise the inquiries and, at the very least, the company must make clear to the communicating employees that the information they provide will be transmitted to attorneys for the purpose of obtaining legal advice.” Id. at 14.
The district court also rejected the respondent’s claim that the report was protected from disclosure by the work-product doctrine. In a detailed analysis of various tests for determining whether a document was prepared for purposes of litigation, the court concluded that the respondent had not met its burden under any potentially applicable test. After pointing out that the investigation was conducted and the report was prepared some two years before the government commenced its investigation of respondent, as well as evidence that the company had an alternative business purpose for conducting the investigation, the court returned again to the fact that counsel was not closely involved with the investigation. The court stated: “Minimal attorney involvement in an internal investigation represents a distinct difficulty for corporations claiming work-product privilege because it is the rare case in which a company genuinely anticipating litigation will leave its attorneys on the outside looking in.” Id. at 26.
A copy of the opinion is available here.