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Internal Investigations: Upjohn Warnings Are Required

White Collar and Corporate Investigations Alert

Author: Angelo A. Stio III



Internal investigations are fraught with peril for corporate counsel who, whether in-house or outside, must take a key role in a situation embedded with conflict. In an internal investigation an attorney is asked to act on behalf of the corporation, which may have differing interests than the directors, officers and employees through whom the corporation functions. To make matters worse, these same directors, officers and employees may be individuals who retained counsel. One of the most important steps in reducing the risk of a conflict is the so-called Upjohn warning, when corporate counsel is faced with the often uncomfortable task of advising individuals that counsel represents only the corporation and not the individual. Care taken in providing such a warning can avoid hazards for the corporation, the individuals, and counsel.

The Upjohn Decision: A New Application of the Attorney-Client Privilege

The frequently used term “Upjohn warning” derives from Upjohn Co. v. United States, 449 U.S. 383 (1981). Upjohn did not actually involve an issue directly related to an Upjohn warning. Rather, Upjohn provided a flexible framework to identify when employee communications with corporate counsel qualifies as protected attorney-client exchanges.

Prior to Upjohn, the circuit courts were split between the “control group” test, which only applied the attorney-client privilege to contacts with a small group of individuals at the company necessary for rendering legal advice, or the “subject matter” test, in which application of the privilege depended on the nature of the communications.

Upjohn held that each case must be evaluated on its own facts to determine whether application of attorney-client privilege would further the underlying purpose of the privilege, which is to encourage candid communications between client and counsel for the purpose of rendering legal advice. Specifically, the court emphasized that the privilege applies when “[t]he communications concerned matters within the scope of the employees’ corporate duties, and the employees themselves were sufficiently aware that they were being questioned in order that the corporation could obtain legal advice.” Id. at 394.

Upjohn provided more flexibility for companies by allowing them to conduct internal investigations through interviewing employees, while giving assurance that the proper notice could keep these communications confidential. However, Upjohn also created tension because only the company, not the individuals, could decide to waive the attorney-client privilege that covered such communications. This tension has made it imperative to handle the internal investigations carefully to protect the company, and for corporate counsel to protect himself.

The Ruehle Decision: The Practical Consequence of Upjohn

United States v. Ruehle, 583 F.3d 600 (9th Cir. Cal. 2009), involves a prime example of a case that features some of the pitfalls arising from the failure to provide a proper Upjohn warning. In Ruehle, counsel represented the company and its CFO in civil securities litigations at the same time it was conducting an internal investigation into issues related to the securities litigations. During the internal investigation, counsel interviewed the CFO. The company later waived the attorney-client privilege, and turned over the interview statement to the SEC and U.S. Attorney’s Office in a criminal investigation.

When the CFO was subsequently indicted, he contended that his statement to counsel during the internal investigation was protected by the attorney-client privilege, and moved to suppress the statement from admission at trial. The CFO contended that he reasonably believed at the time of the interview that counsel represented both the company and him as an individual, and that counsel never advised the interview was on behalf of the company. Counsel, on the other hand, contended that it advised the CFO that it did not represent him individually with regard to the interview.

In the absence of any documents memorializing counsel’s provision of a proper Upjohn warning, the district court found that counsel failed to provide it, and the disclosure of the CFO’s statement to the government required that the statement be suppressed. The court also referred counsel to the California bar for discipline for representing two parties with conflicting interests without obtaining written consent and for failing to advise the CFO to seek separate counsel.

On appeal, the Ninth Circuit reversed the suppression order, but acknowledged the “treacherous path” corporate counsel faces when conducting an internal investigation. The Ninth Circuit further noted that although the conduct of counsel was “troubling,” it did not provide a basis for suppression of the statement.

The Upjohn Warning

In order to reduce the risks presented by the treacherous path outlined in Ruelhe, before undertaking any internal investigation, counsel should both provide a proper Upjohn warning and contemporaneously memorialize that the warning was given. Counsel also should review the record of representation to ensure that it has not represented any director, officers or employees individually in the past and that no conflict exists. If a conflict exists or if a prior representation could confuse the witness as to the nature of corporate counsel’s representation, an Upjohn warning may not be sufficient. Counsel should then consider taking additional steps, including obtaining a conflict waiver or recommending the company retain independent counsel for the witness.

Although there is no magical script, an example of an appropriate Upjohn warning, issued by the American Bar Association’s White Collar Crime Committee Working Group, follows:

I am a lawyer for Corporation A. I represent only Corporation A, and I do not represent you personally.

I am conducting this interview to gather facts in order to provide legal advice for Corporation A. This interview is part of an investigation to determine the facts and circumstances of X in order to advise Corporation A how best to proceed.

Your communications with me are protected by the attorney-client privilege. But the attorney-client privilege belongs solely to Corporation A, not you. That means Corporation A alone may elect to waive the attorney-client privilege and reveal our discussion to third parties. Corporation A alone may decide to waive the privilege and disclose this discussion to such third parties as federal or state agencies, at its sole discretion, and without notifying you.

In order for this discussion to be subject to the privilege, it must be kept in confidence. In other words, with the exception of your own attorney, you may not disclose the substance of this interview to any third party, including other employees or anyone outside of the company. You may discuss the facts of what happened but you may not discuss this discussion.

Do you have any questions?

Are you willing to proceed?

Although providing an appropriate Upjohn warning can, at times, be uncomfortable and there is a risk that a witness may not cooperate with an internal investigation, the alternative in not providing a warning is far less appealing. The risks of exposing the corporation, counsel and individuals to potential adverse claims and sanctions from not providing such a warning far outweigh any minimal benefits that could arise from providing a watered-down warning or no warning at all. Pepper Hamilton’s White Collar and Corporate Investigations Practice Group attorneys have the skills and practical experience needed to help businesses properly conduct internal corporate investigations.

Angelo A. Stio III and Michael T. Pidgeon

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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