Company and its Auditor Pay the Price for not Keeping Track of Documents

October 1, 2003

With more companies conducting internal investigations, their lawyers should remember the importance of carefully documenting the steps taken by the company and its investigators.

In United States v. Northrop Grumman Corp., No. 89 C 6111, 2003 U.S. Dist. LEXIS 10538 (N.D. Ill. June 19, 2003), Northrop argued that the attorney-client privilege covered certain documents created by the company’s independent auditor Arthur Young. Arthur Young had performed a privileged review of Northrop’s management systems, and later performed a separate non-privileged review. Northrop had not kept track of Arthur Young’s notes prepared during both of the projects, but argued that there was no evidence that Arthur Young actually used documents from the first privileged review as part of its second review. The court held that Northrop had the burden of proof, and found that it had failed to show that the documents were not relied upon during Arthur Young’s second non-privileged review—meaning that Northrop had to produce all of the disputed documents.

Companies commissioning investigations for which they might seek privilege protection should be careful to keep track of which documents were created or reviewed as part of the process.