Sixth Circuit Protects Corporate Internal Investigations

In a notable victory for corporations, the U.S. Court of Appeals for the Sixth Circuit issued a critical ruling in In re: FirstEnergy Corporation (pdf) that strengthens the protections of the attorney-client privilege and work-product doctrine for documents created during internal investigations.

Background

The case arises from a securities class action lawsuit against FirstEnergy Corporation following the indictment of former Ohio House Speaker Larry Householder, which implicated FirstEnergy in a bribery scheme. The indictment triggered a wave of legal action, including criminal and civil investigations by the Department of Justice as well as multiple lawsuits and regulatory actions.

In response, FirstEnergy’s board of directors hired outside counsel to conduct internal investigations. During discovery, the shareholders sought to compel the production of documents from these internal investigations. The district court ordered their production.

The Sixth Circuit’s order grants a stay of the lower court’s discovery order to prevent the disclosure of sensitive investigative materials to opposing parties. This decision, although a preliminary ruling, sends a strong signal that the Sixth Circuit will uphold the confidentiality of corporate internal investigations.

The Court’s Rationale: A Win for Corporate Privacy

The Sixth Circuit’s decision was based on its determination that FirstEnergy was likely to succeed on the merits of its argument and would suffer irreparable harm without the stay. The court’s analysis provides two key takeaways for corporate clients.

1. Attorney-client privilege is not undermined by a “business purpose.”

The Sixth Circuit determined that the district court incorrectly concluded the attorney-client privilege did not cover any documents from the investigations. Citing the Supreme Court’s decision in Upjohn Co. v. United States, the court explained the privilege applies when a company seeks legal advice through internal investigations in response to criminal and civil inquiries.

The Sixth Circuit explicitly rejected the district court’s approach, which focused on the fact that FirstEnergy also used this advice for business purposes. The court clarified that for attorney-client privilege, what matters is whether a company seeks legal advice, not how it uses that advice. It emphasized that a corporation could hardly justify spending resources on legal advice that isn’t business-related. The court also noted that it is the “rare company” facing criminal and civil allegations that would not have a business reason for seeking such vital legal advice.

By affirming that a primary purpose test should focus on whether a communication primarily seeks “to render or solicit legal advice,” the court has provided a strong shield for companies that are simultaneously addressing legal and business concerns during an investigation.

2. Work-product doctrine protects materials prepared in anticipation of litigation.

The Sixth Circuit also found that FirstEnergy likely could demonstrate the attorney-work-product doctrine protects the products of its internal investigations. This doctrine covers documents “prepared in anticipation of litigation.”

The court noted the “deluge” of legal and regulatory actions against FirstEnergy—including a Department of Justice subpoena, eight lawsuits, and multiple state and federal investigations—demonstrates the internal investigations were conducted because of actual, and not just anticipated, legal threats. The court stated that the district court’s conclusion that the investigations were not performed in anticipation of litigation, because FirstEnergy would have undertaken them for business purposes, ignores the abundance of civil and criminal investigations.

The court’s ruling reaffirms the principle that an internal investigation triggered by a genuine threat of litigation, even if it also serves other business purposes, is protected from discovery.

Why This Ruling Matters

This decision strongly affirms the importance of protecting confidential internal investigations. The Sixth Circuit acknowledged the significant public interest in maintaining the attorney-client privilege and the work-product doctrine. The court cited Upjohn, stating, “[a]n uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.”

While this is a stay pending a final decision on FirstEnergy’s petition, the court’s reasoning offers important guidance and reassurance to corporate clients. The ruling indicates the Sixth Circuit will uphold established legal protections for internal investigations, allowing companies to consult legal counsel and prepare for litigation without fearing disclosure to adversaries.

How Should Business Leaders and Corporate Counsel Respond?

This ruling highlights the importance of maintaining strong policies and procedures to safeguard privileged information. Since these protections are vital during litigation, consulting an attorney should be your first step when an internal investigation is needed.

For more details on best practices for conducting internal investigations and safeguarding your company’s confidential communications, please contact the author of this article or a member of the Government & Special Investigations team.