In a decision brimming with privilege nuggets, the SDNY ruled that the attorney–client privilege protected Barnes & Noble’s General Counsel’s 
internal investigation into sexual-harassment accusations against B&N’s now-former CEO. The Court upheld the privilege even though counsel provided the CEO no Upjohn warning and B&N’s Employee Handbook—a business document—required the investigation. Parneros v. Barnes & Noble, Inc., 2019 WL 4891213 (SDNY Oct. 4, 2019).
You may read this informative decision, which contains other privilege nuggets discussed below, at this link.
Accusations, Termination, and a “Curious” Lawsuit
In May 2018, B&N’s General Counsel received notice that a company Executive Assistant reported that B&N’s CEO, Demos Parneros, sexually harassed her. Following a short investigation and a failed meeting with a “Potential Acquirer,” B&N terminated Parneros and refused to pay him a severance under the employment contract. It also issued this press release, which upset Parneros.
Parneros filed breach-of-contract and defamation claims, and B&N counterclaimed for breach of fiduciary duties. You may read more about the case in the ABC News story, The Curious Case of the Fired Barnes & Noble CEO Demos Parneros.
GC’s Internal Investigation
Upon learning of the EA’s sexual-harassment allegation, the GC began an internal investigation that included meeting with the EA, delegating other interviews to other senior executives (but not the HR Director), and retaining outside counsel. One of the delegees was Leonard Riggio, B&N’s Founder and Board Chair.
The GC took notes during his meetings and instructed his delegees to do so as well. Parneros later moved to compel the GC’s notes and other documents prepared in the course of his investigation. He claimed that the GC’s investigation was for business, not legal, purposes.
The Privilege and Internal Investigations
The Court provided an excellent privilege overview that lawyers should review.
- In diversity cases, state law provides the rule of decision on the privilege’s application; however, FRE 502 governs the scope of intentional waiver “notwithstanding the fact that the substantive privilege is governed by state law.”
- The privilege obstructs truth-finding and courts narrowly construe its application.
- In-house lawyers may have “mixed business-legal responsibility” in their jobs and, consequently, the putatively privileged communication must be “primarily or predominantly of a legal character.”
- Ipse dixit or conclusory privilege assertions are insufficient; the in-house lawyer must prove the communication’s legal-advice nature through competent evidence such as affidavits or deposition testimony. adidas learned this lesson, as explained in this post, Ipse Dixit Privilege Assertions Doom In-House adidas Lawyer’s Emails.
- Factual investigations by an attorney’s agent, even a non-lawyer, “fall within the attorney–client rubric.”
- The attorney’s agent, moreover, does not need to have some subject-matter expertise or particular skill to fall within the privilege.
GC’s Declaration
With these principles in mind, the Court reviewed the GC’s declaration, which you may read here, and largely found that he sufficiently proved that the privilege covered his internal-investigation documents. He specifically declared that he took notes during the EA meeting—and asked his delegees to take notes during their meetings—so that he could render legal advice to B&N on (1) Parneros’s continued employment and (2) a potential claim by the EA.
More persuasive, however, was the fact that, while the GC was conducting his investigation, he simultaneously retained outside counsel to investigate and provide legal advice to B&N. Indeed, outside counsel—not the GC—reported the investigation’s results to the Board.
Routine Business Investigation?
B&N’s Employee Handbook, available to review here, required that B&N investigate all sexual-harassment complaints. Parneros argued that the GC investigated the EA’s claim because business policies demanded it rather than to provide legal advice to the company.
The Court ruled that the “mere fact” that the GC’s internal investigation also provided a “business benefit” did not obviate that the investigation’s purpose was predominantly legal. This ruling bodes well for corporations having mandatory investigation requirements. For more support, read my post on then-Judge Kavanaugh’s similar opinion finding a predominantly legal investigation even though Defense Department and company policies required the investigation.
Upjohn Warning?
Those who interviewed Parneros never provided him with an Upjohn warning, and the CEO claimed that this failure negated the privilege. Not so, the Court said, noting simply that “courts have found the attorney–client privilege to shield notes of interviews undertaken as part of an internal investigation without discussing whether the Upjohn warning was first given.”
So, in sum, the GC’s declaration, coupled with his retention of outside counsel, persuaded the Court that the GC investigated the EA’s claims to provide legal advice to B&N, and therefore the privilege protected his notes and related documents from discovery.
Other Privilege Nuggets
The Court ruled on other privilege challenges that warrant attention, and I’ll mention a couple of them here.
GC’s Meeting Notes
During the internal investigation, the GC attended a meeting between the CEO and other B&N executives and a “Potential Acquirer.” B&N claimed the privilege protected the GC’s notes from these meetings, but the Court disagreed. On this point, the Court found the GC’s declaration too conclusory on the legal-advice component.
Read paragraphs 17–20 of the GC’s declaration and see if you agree.
Press Release
Prior to publishing the press release, B&N sent release drafts to the GC, and claimed that the privilege protected those communications and drafts. Securing privilege protection for PR-related communications is tricky, as you can read about in this post on the Blackberry case discussing a privilege loss and this post on the Alomari case discussing a privilege win.
Parneros cited the Blackberry case for support, but the Court distinguished it. Here, the GC persuaded the Court that he kept the drafts confidential and that he reviewed and communicated about them for legal-advice purposes pertaining to the CEO’s departure.
At-Issue Waiver
Invoking the at-issue waiver doctrine, Parneros sought production of the report prepared by B&N’s outside counsel on grounds that B&N placed the report “at issue” in the case by claiming that it acted in good faith. The Court recognized that at-issue waiver is not limited to situations where a party places some, but not all, of its privileged communications at issue.
Rather, a party may implicitly waive the privilege when it “asserts a claim that in fairness requires examination of protected communications.” Importantly, courts find at-issue waiver “even if the privilege holder does not attempt to make use of a privileged communication.” For example, if a party testifies that he “thought his actions were legal,” then he places his knowledge in issue and conversations with his lawyers become relevant to challenge the claim.
While this waiver law sounds quite broad, it did not warrant waiver here. B&N asserted that its public statements that Parneros violated company policy were made in good faith. But, the Court ruled, the statement alone is insufficient to invoke at-issue waiver. To invoke the doctrine, B&N would have to affirmatively assert that it intends to rely on a good-faith defense. Otherwise, a mere “good faith” assertion in an Answer is of no significance.