Troubling Decision Highlights the Importance of Involving Lawyers in Corporate Investigations

July 31, 2002

A large accounting firm recently lost a fight over the applicability of the attorney-client privilege and the work-product doctrine to materials generated during an internal corporate investigation.

In Seibu Corp. v. KPMG LLP, No. 3-00-CV-1639-X, 2002 U.S. Dist. LEXIS 906 (N.D. Tex. Jan. 18, 2002), KPMG conducted an internal investigation after one of its audit clients declared bankruptcy. However, the Court rejected both KPMG’s attorney-client privilege and the work-product doctrine claims, finding that the “primary purpose” of the investigation was to determine whether to retain one of the firm’s partners—not to obtain legal advice or prepare for litigation. In this troubling decision, the Court noted that “[s]ignificantly, there is no evidence that either in-house or outside counsel saw many of the documents generated as part of this investigation.” Id. at *10 n.4.

Lawyers hoping to protect materials generated during internal corporate investigations must keep in mind the very narrow view of the protections that some courts take. Among other things, in-house or outside counsel should be intimately involved in such corporate investigations.