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Varied Interpretations of “Upjohn” Present Challenges

For almost 40 years, Upjohn Co. v. United States, 449 U.S. 383 (1981), has been the seminal case regarding the attorney-client privilege in the corporate setting. According to the U.S. Supreme Court in Upjohn, the purpose of the privilege is to “encourage full and frank communication between attorneys and their clients, and thereby promote broader public interests in the observance and administration of justice.” In other words, the privilege facilitates lawyers’ advising their clients to do the right thing and promotes dispute resolution.

In Upjohn, the core issue was whether legal memoranda documenting interviews of employees conducted during an internal investigation were protected by the attorney-client privilege when the Internal Revenue Service demanded their disclosure in its own, subsequent investigation.

Upjohn has had a lasting impact on the application of the attorney-client privilege in the corporate context, but because the Supreme Court eschewed any specific “set of rules,” courts continue to take varying approaches.

Prior to Upjohn, challenges were presented when counsel, either in-house or outside, conducted an internal investigation or prepared for litigation and, in the process, interviewed an employee and documented the interview. Then, following on the initial investigation, a government investigation, qui tam lawsuit or civil litigation arose. Government or plaintiff’s counsel promptly requested documentation of witness interviews conducted in any internal investigation, and the company’s lawyers typically objected that the documentation was protected by the attorney-client privilege or the attorney work-product doctrine.

In many cases, companies were compelled to produce the legal memoranda of witness statements made to counsel, in which counsel identified all the legal issues and found the relevant facts. This discovery “on a silver platter” resulted because, for the purpose of the attorney-client privilege, the lawyer’s client was the company, not the employee interviewed. Because the employee was not a client, there was no attorney-client privilege protecting the employee’s statements from disclosure.

The upshot was a major disincentive for companies to engage in internal investigations, meaning companies were hindered in their abilities to obtain critical information about their internal workings and advice from counsel about how to properly conduct their affairs or resolve disputes.

One solution adopted by a number of courts, including the 6th Circuit in Upjohn, was the Control Group Test, which broadened the definition of the “client.” Under this test, the client is not just the company; it is the company and the company’s senior management or “control group.”

But the Control Group Test’s inherent limitations often led to the same result. For example, counsel conducting an internal investigation might interview an employee clerk responsible for Medicare billing and document that interview. Should a government investigation or litigation follow, opposing counsel would promptly request documentation of witness interviews conducted during the internal investigation. As before, the company would have to produce the legal memorandum of the clerk’s statement because, even under the expanded definition of “client,” the lawyer’s client would be the company and senior management, not the clerk.

While the Control Group Test accounts for the company’s need to obtain legal advice from counsel, it fails to account for the information counsel needs to obtain from lower- to mid-level employees in order to best advise the company. This was precisely the issue in Upjohn.

The 6th Circuit, applying the Control Group Test, found that the employees interviewed were not part of the “control group” and therefore were not clients for the purpose of the privilege. The 6th Circuit also held that the work-product doctrine was not applicable. Other federal courts, including the 7th and 8th Circuits, adopted different tests focused on the subject matter of the communications rather than on identifying the client. To resolve this circuit split, the 6th Circuit’s decision in Upjohn was ultimately taken up by the U.S. Supreme Court.

The Supreme Court rejected the Control Group Test as too narrow to satisfy the purpose of the attorney-client privilege. The court stated, “Such a view, we think, overlooks the fact that the privilege exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice.”

Still, the Supreme Court declined to declare a “set of rules,” but instead made observations about the facts of the case that have become the de facto Upjohn test. Regarding the protected communications, the Court observed that they were: by employees with relevant information within the scope of their duties; to counsel for the company acting as such; at the direction of corporate management; to secure legal advice from counsel (and the employees were aware of that purpose); and were confidential. Under this subject-matter test, the attorney-client privilege protected the memoranda of interviews from disclosure.

Accordingly, attorneys today provide the following Upjohn warnings, or some variation thereof, to employee witnesses prior to investigative interviews:

We have been retained by the company to investigate [subject of investigation] so that we can provide legal advice to the company.

We think you, as an employee, may have relevant information.

The company is our only client; we are not your personal counsel. If you want to retain your own lawyer, you may do so.

Your communications with us are confidential and protected by the attorney-client privilege. We request that you keep our communications confidential.

screen-shot-2018-08-06-at-2-04-24-pmThe attorney-client privilege belongs to the company, and the company may waive the privilege and disclose your communications with us to third parties.

For the most part, these warnings are drawn directly from the Supreme Court’s observations in Upjohn for the purpose of insuring application of the attorney-client privilege. The exception is warning No. 5, which is more focused on cooperation with a potential government investigation and voluntary disclosure of communications.

In 2015, the Department of Justice issued guidance authored by then-Deputy Attorney General Sally Yates that took a hard line on cooperation by corporate defendants in government investigations. The Yates memo requires that a company, in order to receive any credit for cooperation, provide all relevant facts about individuals involved in corporate misconduct. Still, the U.S. Attorney’s Manual, which explicitly encourages internal investigations, prohibits a DOJ lawyer from requiring waiver of the attorney-client privilege and disclosure of legal memoranda as a condition of cooperation. This makes the attorney-client privilege all the more important in the corporate context.

Regarding the work-product doctrine, the Supreme Court in Upjohn also found that the legal memoranda contained not just communications between employees and counsel, but also the attorney’s mental processes, impressions, conclusion, opinions and legal theories. Thus, they also were protected as attorney work-product. For this reason, counsel should avoid verbatim reports of witness interviews, while realizing that the work-product doctrine is limited. For example, under Federal Rule of Civil Procedure 26(b)(3), a court may order disclosure of otherwise protected attorney work-product upon a showing of substantial need and the inability to obtain equivalent evidence without undue hardship.

Because the court in UpJohn did not dictate a set of rules and because the decision is not binding on state courts, the various federal and state courts continue to take different approaches.

Prior to Upjohn, the 8th Circuit decided Diversified Industries, Inc. v. Meredith, in which the 8th Circuit preceded the Supreme Court in rejecting the Control Group Test and adopted a subject matter test very similar to the Upjohn test. Indeed, the Supreme Court in Upjohn relied on Diversified Industries in rejecting the Control Group Test. After Upjohn, the 8th Circuit reaffirmed the Diversified Industries test in In re Bieter Co.

Similarly, the 7th Circuit also rejected the Control Group Test before Upjohn in Harper & Row Publishers, Inc. v. Decker. There, the 7th Circuit applied an abbreviated subject-matter test focusing on just three factors: the communication was for the purpose of securing legal advice; the employee communicated with counsel at the direction of a supervisor; and the subject matter of the communication was within the scope of the employee’s duties.

In Delaporte v. Robey Building Supply, Inc., the Missouri Court of Appeals for the Eastern District adopted the 8th Circuit’s Diversified Industries test.

Illinois courts have adopted and continue to apply the Control Group Test today. The Illinois Court of Appeals, in Day v. Illinois Power Co., first adopted the Control Group Test. Subsequent to Upjohn, in Consolidation Coal Co. v. Bucyrus-Erie Co., the Illinois Supreme Court noted Upjohn’s rejection of the Control Group Test, and the adoption by the 7th and 8th Circuits of a subject-matter test, but nonetheless refused to abandon the Control Group Test. This means that, in Illinois, communications by employee witnesses receive much less protection under the attorney-client privilege. Therefore, the focus for protecting legal memoranda documenting such communications must be the attorney work-product doctrine, with all its limitations.

Due to the lack of consistency among the courts, in-house or outside counsel are well advised to identify the potential venue before commissioning an investigation. But regardless of which court they may find themselves in, counsel conducting an internal investigation should identify the client at the outset, give Upjohn warnings where appropriate, and prepare legal memoranda with the Control Group Test and the work-product doctrine in mind.

Cristian Stevens

Cristian Stevens

A former federal prosecutor, Cristian Stevens is a partner and trial lawyer at Armstrong Teasdale focusing on internal corporate investigations, government investigations and complex commercial litigation.

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