The Boundaries of Privilege in Internal Investigations

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Pearlynn G. Houck and Jonathan C. Krisko
Robinson Bradshaw Publication
Jan. 26, 2021

A recent ruling by North Carolina Business Court Chief Judge Bledsoe addressed the boundaries of the attorney-client privilege and work product doctrine under North Carolina law in the context of an internal investigation performed by outside counsel. In Buckley LLP v. Series 1 of Oxford Insurance Company NC LLC, 2020 NCBC 81 (N.C. Super. Ct. Nov. 9, 2020), the Court resolved two cross-motions to compel discovery.

We focus here on the motion that addresses communications between the entity investigating its internal conduct, law firm Buckley LLP, and its outside counsel, Latham and Watkins LLP. The subject of the communications for which Buckley asserted privilege protections was communications in an internal investigation into allegations of wrongdoing by Buckley’s former partner. The Court addressed whether those communications were protected from disclosure by the attorney-client privilege or work product doctrine.

The Washington, D.C.-based Buckley law firm sued its insurance company (Defendant Oxford) after Oxford’s denial of coverage for certain losses associated with the departure of one of Buckley’s key revenue-generating partners. The documents at issue arose when Buckley’s Executive Committee engaged Latham to investigate allegations of potential misconduct leveled at the departing Buckley partner. Notably, investigation into the alleged misconduct was required under Buckley’s firm policies which promise to “investigate all allegations of harassment or other misconduct,” and the Buckley partner departed the firm rather than participate in the investigation.

After reviewing the circumstances of Latham’s engagement and the investigation, the Court held that numerous communications Buckley sought to protect were not privileged. The Court put particular emphasis on the fact that an investigation was required by Buckley’s internal compliance policies and therefore concluded that the investigation was initiated and pursued “in the ordinary course” of Buckley’s business. That the Buckley firm hired outside counsel to perform the investigation did not alter the Court’s analysis, and the fact that the engagement letter specifically indicated Latham was to provide legal advice to the Buckley firm during its investigation was insufficient to “cloak” the investigation in privilege. The Court stressed that the inquiry was not whether an attorney was engaged, but rather, whether the investigation was “related to the rendition of legal service.” After an in-camera review, the Court concluded that although the investigation was an “unprecedented event in the life of the Buckley firm,” most of the communications were made to further the investigation “in accordance with Buckley’s firm policies and were unrelated to the rendition of legal services.”

The Court also held that work-product protection was inapplicable because the evidence before the Court did not show that either the Buckley firm or its outside counsel anticipated litigation at the time of the investigation. The Court also noted that even if litigation had been anticipated, nothing in the record suggested “that the investigation would have proceeded, or the Buckley Communications would have been made, differently in any respect ….”

The case is currently on appeal to the North Carolina Supreme Court, but in the interim it provides several cautionary lessons and reminders for the retention of counsel for investigations and the conduct of those investigations:

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