United States: SDNY Offers Practical Lessons In Preserving Attorney-Client Privilege And Work Product Protection For In-House Counsel

A company's general counsel learns that an executive assistant has made an internal report of sexual harassment against the CEO. Given the allegations and people involved, the GC personally investigates the report and enlists the help of a senior VP to interview key witnesses. The GC also retains outside counsel to advise the company and its board of directors on the matter.

Following the GC's investigation and outside counsel's report to the board of directors, the board terminates the CEO's employment, and the CEO subsequently sues the company. In discovery, the CEO seeks (1) the GC's and senior VP's investigation notes, (2) outside counsel's report to the board of directors, (3) minutes from the board meeting where the board decided to terminate the CEO, and (4) drafts of the press release announcing the CEO's termination. The company asserts the attorney-client privilege and work product protections. The CEO moves to compel. What will the company have to produce?

A Southern District of New York Court recently addressed these issues on a motion to compel filed by the plaintiff in Demos Parneros v. Barnes & Noble, Inc., an action for alleged breach of employment contract and defamation brought by Barnes & Noble's former CEO after his employment was terminated following an internal report of alleged sexual harassment by his executive assistant.

Before considering the Court's holdings, a refresher on the elements of the attorney-client privilege and work product doctrine is helpful:

  • Attorney-Client Privilege. Under New York law, a party asserting attorney-client privilege must demonstrate that the material at issue "was a communication between client and counsel, that it was intended to be and was kept confidential, and [that] it was made in order to assist in obtaining or providing legal advice or services to the client." Charter One Bank, F.S.B. v. Midtown Rochester, L.L.C., 191 Misc. 2d 154, 166 (Sup.Ct. 2002).
  • Work Product Doctrine. Under federal law, which governs the application of the work product doctrine in cases pending in federal court, a party asserting the work product doctrine must demonstrate that the material at issue "(1) [is] a document or a tangible thing, (2) that was prepared in anticipation of litigation, and (3) was prepared by or for a party, or by his representative." Allied Irish Banks, P.L.C. v. Bank of Am., N.A., 252 F.R.D. 163, 173 (S.D.N.Y. 2008).

With respect to whether the company must produce the documents sought by the CEO, the Court held as follows:

  • Investigation Notes. The Court held that the attorney-client privilege protected the GC's and senior VP's notes from the investigation into the CEO's alleged conduct, but not before considering several interesting arguments raised by the CEO.

Attempting to capitalize on the dual roles that in-house counsel may fill (business and legal), and Barnes & Noble's policy of investigating all complaints of alleged sexual harassment, the CEO argued that the GC's and senor VP's investigation notes were created for business purposes and therefore were not privileged. The Court, persuaded by the fact that the company's top executive was being accused of misconduct and the fact that the GC retained outside counsel on the same day that he learned of the allegation, concluded that while the investigation may have yielded a business benefit, its principal purpose was to facilitate the GC's legal advice to the corporation, and accordingly was privileged.

The CEO also argued that the senior VP's notes were not privileged because she was not an attorney and did not have special expertise in investigations. The Court rejected this argument, concluding that a non-attorney investigator need not possess expertise in investigations for his or her notes to be protected by the attorney-client privilege, as long as they were prepared at the direction of the GC for the purpose of providing legal advice to the company.

  • Outside Counsel Report. The Court held that the report drafted by outside counsel for the board of directors was protected by the attorney-client privilege. In concluding that the report was privileged, the Court relied on the fact that (1) outside counsel had been retained to advise the company regarding the report of sexual harassment against the CEO and the CEO's potential termination, and (2) the report provided legal advice to the board.
  • Board of Directors Meeting Minutes. The Court held that the minutes reflecting the Board of director's discussion of the report drafted by outside counsel were protected by the attorney-client privilege. In concluding that the meeting minutes were privileged, the Court relied on the fact that (1) the report provided legal advice to the board, (2) outside counsel attended the board meeting and rendered legal advice, and (3) the GC prepared the minutes and redacted the part that contained legal advice and discussion of the legal advice.
  • Press Release Drafts. The Court held that the attorney-client privilege protected drafts of the press release regarding the CEO's departure from the company exchanged between the company's executives and the GC because they were exchanged for the purpose of providing legal advice regarding the wording of the press release.

However, with respect to drafts of the press release exchanged internally between the company's executives that did not include the GC, the Company asserted only the work product doctrine and the Court held that they were not protected. In concluding that the press releases were not protected by the work product doctrine, the court was persuaded by the lack of evidence that the press releases were prepared in anticipation of litigation.

While Parneros v. Barnes & Noble, Inc. offers several helpful takeaways regarding attorney-client privilege and work product doctrine, the following may be of particular relevance to in-house counsel:

  • Investigations by Non-Attorneys. In concluding that the senior VP's investigation notes were protected by the attorney-client privilege, the Court was persuaded by the fact that the GC directed her actions. Accordingly, if using non-attorneys to conduct an internal investigation, clarify that counsel is directing their actions and that the actions are for the purpose of counsel providing legal advice to the company.
  • Use of Outside Counsel. The GC's retention of outside counsel was a key fact that Court relied upon in concluding that his investigation was for the purpose of providing legal advice. Accordingly, retaining outside counsel in connection with internal investigations may resonate with courts that the investigation's purpose is to provide legal advice to the company.
  • Presence of Counsel at Board Meeting. Based on the GC's and outside counsel's rendering of legal advice at the board of director's meeting regarding the CEO's termination, the Court concluded that all communications discussing the advice at the meeting were privileged. Accordingly, meaningful legal advice rendered by in-house and outside counsel at meetings where termination decisions are made may protect portions of the discussions regarding termination.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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