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

February 28, 2007

As explained in last week’s Privilege Point, internal corporate investigations often involve subtle attorney-client privilege and work product issues. 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 ordered the production of materials created by Ernst & Young, the accounting firm retained by Household to assist in an internal investigation of alleged predatory lending practices.

Judge Nolan also assessed materials generated by the law firm of WilmerHale, which Household had also retained to assist in the investigation. Judge Nolan concluded that (1) WilmerHale’s materials deserved attorney-client privilege protection, because the law firm was retained to provide legal advice rather than just collect facts; (2) WilmerHale’s client was Household, not just Household’s Audit Committee; (3) WilmerHale’s materials deserved work product protection because the firm prepared them in anticipation of litigation (holding that Household’s use of the WilmerHale report to assist in consummating a merger with another company did not make the work product doctrine unavailable); (4) plaintiffs could not establish “substantial need” for the WilmerHale materials because plaintiffs had deposed or were scheduled to depose the witnesses with pertinent knowledge (id. at *47-48); (5) Household did not waive the privilege or the work product protection by producing several factual non-privileged documents relating to WilmerHale’s work; (6) Household did not waive either protection by inadvertently producing a draft of the WilmerHale report to plaintiffs; (7) Household did not waive the work product protection by disclosing WilmerHale’s report to its outside auditor KPMG; (8) Household did not waive either protection by summarizing WilmerHale’s finding in a communication to the SEC, because Household and the SEC had entered into a confidentiality agreement (acknowledging that only a few courts nationwide find that such agreements preclude a waiver when a company shares work product with the government).

The “bottom line” was that Household did not have to produce the WilmerHale materials — although the same opinion required Household to produce the E&Y materials. Companies must be prepared to deal with such subtleties.