Decision Highlights the Subtle and Complex Issues Involved in Internal Corporate Investigations: Part I

February 21, 2007

Internal corporate investigations often involve subtle privilege and work product issues. And because such investigations often uncover and then analyze wrongdoing or potential wrongdoing, the stakes can be enormously high.

In Lawrence E. Jaffe Pension Plan v. Household International, Inc., No. 02 C 5893, 2006 U.S. Dist. LEXIS 88826 (N.D. Ill. Dec. 6, 2006), Magistrate Judge Nan Nolan analyzed privilege and work product issues arising from Household International’s internal corporate investigation of alleged predatory lending practices. Household had retained the accounting firm of Ernst & Young and the law firm of WilmerHale to participate in the investigation. Securities fraud class-action plaintiffs sought the material generated by both E&Y and WilmerHale. In analyzing the materials generated by E&Y, Judge Nolan concluded that (1) E&Y’s materials deserved privilege protection, because E&Y assisted Household’s in-house lawyers in giving legal advice; (2) the privilege protection was overcome by the “fiduciary exception,” because the plaintiffs represented a “substantial majority of [Household] shareholders” (id. at *27); (3) E&Y’s documents also deserved work product doctrine protection, which was not automatically overcome by the fiduciary exception; (4) Household did not waive the work product protection by filing a privilege log three months late (noting that “more than four million pages of documents are at issue”) (id. at *37); (5) Household did not waive the work product protection by inadvertently producing several E&Y documents to plaintiffs in discovery; (6) Household did not waive the work product protection by revealing the subject matter of the E&Y work to various state attorneys general (because merely disclosing the subject of work did not trigger a waiver); (7) plaintiffs had demonstrated “substantial need” for the E&Y materials because the materials “may assist Plaintiffs in establishing falsity, scienter and materiality,” and “it is not clear that witness depositions would provide Plaintiffs with the substantial equivalent of the materials.” Id. at *34.

The “bottom line” was that Household had to produce the E&Y materials. Next week’s Privilege Point will deal with the WilmerHale materials.