Returning to First Principles of Privilege Law: Focusing on the Facts in Internal Corporate Investigations

Abstract

In the aftermath of the worst economic downturn since the Great Depression, it is necessary and appropriate to ask some fundamental questions on the economic laws and regulations that, for better or worse, played a contributing role in the recent financial crisis. Although the ongoing financial reform efforts have already resulted in significant changes in applicable laws, a further discussion regarding the principles and practices that existed within the enforcement of law is worthy of consideration. Specifically stated, are there any improvements that can be made to the current federal securities enforcement regime that would work to the benefit of the U.S. economy and, as a consequence, to all actors therein? The answer that shall be presented in this article is, simply, yes. In particular, this article focuses on the longstanding debate regarding the appropriate limits of the attorney-client privilege within the context of an internal corporate investigation, and whether the corporation may selectively waive the privilege as a means of effectively cooperating with federal securities enforcement agencies. The argument presented is that courts and federal securities enforcement agencies should return to the first principles of privilege doctrine, and more specifically to the “facts-communication” distinction as enunciated by the Supreme Court in Upjohn v. United States. In making such an argument, this article will: (i) provide an overview of the relevant historical development of the attorney-client privilege; (ii) address the evolution of the current securities enforcement regime and its interplay with attorney-client privilege issues, which will include a statistical analysis of recent trends in securities law enforcement; and (iii) argue for a “facts-communication” model in contrast to other possible alternatives in doctrine. This article is the first in a series that will explore the intersection of corporate law and legal ethics. For purposes of the present discussion, however, the relevant subject matter will be the corporate attorney-client privilege as first enunciated by the Supreme Court in Upjohn v. United States, and as later interpreted by the lower courts and the enforcers of federal securities laws—namely, the Securities and Exchange Commission and the Department of Justice.