A Dangerous Departure: Why the Court's Privilege Ruling Weakens Corporate Self-Policing

The Ruling's Dangerous Expansion of the "Business Purpose" Exception

In my 25 years as a federal prosecutor, I have seen courts occasionally test the boundaries of the attorney-client privilege, but the recent decision in this district court represents an unprecedented and dangerous departure from settled law. The court held that internal corporate interviews conducted by outside counsel—specifically those undertaken to determine whether regulatory violations occurred—are not automatically privileged because they serve a "dual business and legal purpose." This reasoning ignores the reality that virtually every internal investigation in a regulated industry serves both a business interest (compliance) and a legal interest (avoiding criminal liability). The court's analysis effectively requires corporations to prove that the "primary purpose" of each interview was legal advice, a standard that the Supreme Court explicitly rejected in Upjohn when it recognized that corporate counsel must often gather facts before offering legal advice. Under this ruling, any interview that could be characterized as part of "standard compliance procedures" under the Sarbanes-Oxley Act of 2002 or the Dodd-Frank Wall Street Reform and Consumer Protection Act is now presumptively non-privileged. This creates a perverse incentive: companies that diligently follow federal regulations by conducting prompt internal investigations are punished with privilege waiver, while those that delay or avoid such inquiries preserve their privilege. The practical consequence is that corporate counsel will now be forced to bifurcate every interview into a "legal" portion and a "business" portion, an artificial distinction that bears no resemblance to how real-world corporate compliance functions.

Undermining the Self-Policing Model at the Heart of Federal Sentencing

The Department of Justice has spent the better part of two decades building a framework that rewards corporate self-policing, and this privilege ruling threatens to dismantle that framework in a single stroke. Under the U.S. Sentencing Guidelines §8B2.1, a corporation's compliance and ethics program must be "reasonably designed, implemented, and enforced" to be effective, and the DOJ's Evaluation of Corporate Compliance Programs (ECCP) guidance explicitly requires prosecutors to assess whether companies conduct "thorough and timely investigations" of alleged misconduct. The Yates Memo of 2015 reinforced this by requiring corporations to disclose "all relevant facts" about individual wrongdoers to qualify for any cooperation credit, effectively demanding that companies conduct privileged investigations and then waive that privilege to the government. Now this court ruling adds a new threat: even if a company does not voluntarily disclose its investigation to the government, the privilege may be pierced by civil plaintiffs or other third parties who argue that the interviews were merely "business compliance" rather than legal advice. This creates an impossible trilemma for corporate counsel: (1) conduct a privileged investigation and risk later waiver through this new "business purpose" exception; (2) conduct the investigation without privilege and effectively create a roadmap for plaintiffs to use against the company; or (3) abandon internal investigations altogether, which would violate the Sentencing Guidelines and virtually guarantee a corporate prosecution under the Justice Manual's §9-28.300 factors. In my experience, no corporation will choose option three, but options one and two both severely compromise the candor that makes internal investigations effective. Employees who know their statements may be discoverable in civil litigation will simply refuse to speak candidly, and the entire self-policing architecture collapses.

Practical Consequences for Corporate Counsel and Compliance Officers

The immediate practical impact of this ruling is that every internal investigation must now be restructured with a level of formality that will slow down fact-gathering and increase costs exponentially. Corporate counsel can no longer rely on the "Upjohn warnings" that have been standard practice since 1981—the warnings that inform employees the interview is privileged and protected by the attorney-client privilege for the corporation's benefit. Instead, counsel must now document, in real time, exactly why each specific interview was conducted for a "legal" rather than "business" purpose, creating a paper trail that itself may become discoverable under the crime-fraud exception or through a privilege log challenge. The ruling also implicates the work product doctrine under Federal Rule of Civil Procedure 26(b)(3), which protects materials "prepared in anticipation of litigation or for trial," because many internal investigations are conducted precisely because litigation is reasonably anticipated. However, the court's reasoning suggests that if the investigation could also be characterized as "routine compliance" under Sarbanes-Oxley §301 or Dodd-Frank §922, then the work product protection may also be weakened. I have already heard from general counsel at several Fortune 500 companies who are considering whether to hire separate "compliance investigators" who are not lawyers to conduct factual interviews, thereby preserving attorney-client privilege for only a narrow subset of "legal" interviews. This is a terrible development: it divorces legal advice from factual investigation, which is precisely the opposite of what Upjohn intended. The American Bar Association's Model Rule of Professional Conduct 1.13 requires lawyers to act in the organization's best interest, and that often means integrating legal analysis with factual development from the earliest stages of an investigation.

The Broader Threat to the Attorney-Client Privilege in Corporate America

This ruling is not an isolated aberration; it represents a growing judicial skepticism toward corporate assertions of privilege that threatens to fundamentally alter the relationship between in-house counsel and their business clients. The Federal Rules of Evidence 501 governs privilege in federal proceedings, and courts have long recognized that the attorney-client privilege is "the oldest of the privileges for confidential communications known to the common law," as the Supreme Court stated in Swidler & Berlin v. United States, 524 U.S. 399 (1998). However, this court's analysis effectively creates a new "compliance exception" to the privilege, one that has no basis in the text of Rule 501 or in the Supreme Court's jurisprudence. The ruling also conflicts with the DOJ's own guidance in the Justice Manual §9-28.720, which acknowledges that corporations have a legitimate need to conduct privileged investigations and that the government should not demand waiver of the attorney-client privilege as a prerequisite to cooperation credit. If this ruling stands, it will inevitably be cited by civil plaintiffs in securities fraud class actions, False Claims Act qui tam suits, and shareholder derivative actions as authority to compel production of internal investigation materials. The long-term consequence will be a chilling effect on corporate self-reporting: companies will be less likely to conduct thorough investigations if they know the results will be weaponized against them in litigation. In my years of practice, I have seen the attorney-client privilege eroded in piecemeal fashion, but this ruling represents a quantum leap that threatens to undo decades of progress in corporate compliance. The Department of Justice should file a statement of interest in this case to clarify that the privilege protects internal investigations, or Congress should consider legislation codifying the Upjohn standard to prevent further judicial erosion of this critical protection.

If your company is conducting or considering an internal investigation in the wake of this ruling, you need experienced counsel who understands both the legal nuances of privilege law and the practical realities of corporate compliance. I have spent decades navigating these issues from both sides of the courtroom, and I can help you structure your investigation to maximize privilege protection while still meeting your obligations under the Sentencing Guidelines. Contact my office today to schedule a confidential consultation about your specific situation—before a court determines that your compliance efforts have created a roadmap for your adversaries.