Warning Signs: Sixth Circuit Upholds Privilege for Internal Investigations Despite Challenge

The U.S. Department of Justice (DOJ) recommends that companies should conduct internal investigations to uncover potential misconduct by individuals and disclose it voluntarily when necessary. However, a federal court’s decision in May 2024 posed a challenge to this practice by ruling that the attorney-client privilege did not apply to the internal investigation conducted by FirstEnergy Corporation (FirstEnergy) in response to DOJ subpoenas in 2020. On August 7, 2025, the Sixth Circuit Court overturned the lower court’s ruling that required the production of the internal investigation materials in a securities class action lawsuit, affirming that the privilege applies when companies seek legal advice through internal investigations in response to legal inquiries, even if the investigation also serves a business purpose.

Background:
Following the indictment of former Ohio House Speaker Larry Householder on multiple charges in a bribery scheme linked to the passage of an Ohio House bill, FirstEnergy initiated two internal investigations. Shareholders demanded access to the findings of these investigations during a securities class action lawsuit, leading the lower court to order the production of the materials. The court argued that the privilege did not protect FirstEnergy as the legal advice sought was also used for business purposes.

On First Energy’s appeal to stay the lower court’s order, the Sixth Circuit halted the production of the investigation materials, emphasizing that the crucial factor for attorney-client privilege is the seeking of legal advice by a company, not its use. The court also suggested that the work product doctrine likely protected the investigation materials given FirstEnergy’s legal challenges.

Significance:
The Sixth Circuit’s decision corrects a potentially misguided lower court judgment while reiterating the importance for companies to rigorously document and oversee internal investigations to safeguard privilege. To ensure the preservation of privilege during internal investigations, companies should:

– Be led by legal counsel, whether internal or external.
– Clearly define the purpose of the investigation.
– Conduct interviews and document reviews under legal counsel’s guidance.
– Segregate legal updates on investigative findings.
– Engage third-party assistance under counsel’s supervision and with a clear legal advice mandate.

Despite following these steps, companies must remain vigilant about inadvertently waiving privilege, especially concerning special committees, parent companies, subsidiaries, and employees at various levels. It is crucial to maintain confidentiality throughout the investigation process, including providing UpJohn warnings when necessary.

For further guidance on this ruling and recommended actions, please contact Tom Barnard, Annie Kenville, or a member of Baker Donelson’s Government Enforcement and Investigations Group.