Major Decision: Texas Supreme Court Declares Expansive Privilege for Internal Investigations

In a divided ruling, the Texas Supreme Court granted privilege protection for the University of Texas’s internal investigation conducted by a non-lawyer third party. The privilege covered communications and memos even though the university–third party engagement letter mentioned nothing about a legal-advice purpose or the privilege, drawing criticism from two dissenting justices.  The majority opinion provides significant privilege authority to corporate and governmental entities subcontracting their internal investigations, but should they nevertheless follow the dissent’s guidance?  Let’s discuss it.  Univ. of Tex. Sys. v. Franklin Ctr. for Gov’t & Public Integrity, 2023 WL 4278243 (Tex. June 30, 2023).  You may read the majority opinion here.

An “Internal” Investigation?

Following concern whether undue influence infiltrated the University of Texas’s admissions process, the University’s chancellor tasked its General Counsel, Dan Sharphorn, to conduct an internal investigation.  He did so and, in a report accessible here, found none.

A former admissions official contradicted this finding and the Chancellor asked Sharphorn to conduct a more thorough and comprehensive investigation.  The Chancellor described this investigation as an external one:

We are responsible to the public. If the public has concerns or questions, then we will do an investigation. So in fact, we are going to do a more formal external investigation of this, basically to put the matter to rest.

The University issued a Request for Proposal for external firms to conduct the investigation and ultimately inked an agreement with Kroll Associates Inc.  Kroll’s written agreement with the University described the investigation’s purpose as ascertaining whether UT Austin’s admission decisions were “made for any reason other than an applicant’s individual merit” and determining whether “the conduct of U.T. officials is beyond reproach.”  Remember that phrase—“beyond reproach.” As you can see in its final report, Kroll described its “Scope of Work” with similar language.

The agreement and Scope of Work contained many confidentiality provisions but mentioned nothing about legal advice or the attorney–client privilege.  Importantly, though, these documents stated that Kroll would conduct the investigation under UT System General Counsel’s direction and submit its report to the GC.

I Don’t Believe You

Kroll produced its report, available here, which contained findings, recommendations, and best practices for future implementation, but overall found a “relatively small” number of improprieties.  A reporter for the Frankling Center for Government and Public Integrity made a public-records request to determine whether Kroll omitted any significant information from its report—and thus was inaccurate in its assessment.  The Center asked for internal emails of UT’s lawyers shared with Kroll, Kroll’s interviews with UT’s employees and officials, and draft communications between UT’s General Counsel and interviewees shared with Kroll.

Citing Texas’s attorney–client privilege, found at Tex. R. Evid. 503, the University refused to produce the information and sought the Attorney General’s opinion on the matter.  The Texas AG, in a ten-page letter ruling, agreed, concluding that the University proved the privilege’s applicability to the requested documents.

The Legal Standard

The Center filed suit, which meandered its way to the Texas Supreme Court with a January 2023 oral argument, which you may watch here.  The Court recited Rule 503’s direction that the privilege protects communications between a lawyer and her client—and their representatives.  While the privilege’s extension to representatives was important, the Court noted that “the core of the privilege is the notion that the communications are ‘made for the purpose of facilitating the rendition of professional legal services.’”

The questions, therefore, were (1) whether Kroll was the lawyer or client’s representative and, if so, (2) whether the communications were made for legal-advice purposes.  These two questions ultimately merged, with the legal-advice component becoming the singular issue for the University to hurdle.

Majority Decision

Rule 503 defines “lawyer’s representative” as “one employed by the lawyer to assist in the rendition of professional legal services.”  While the lawyer need not formally employ a third party for him to qualify as a representative, the lawyer must prove that a “significant purpose” for retaining a third party was to assist in the rendition of legal services.

The majority looked to the University’s engagement letter with Kroll, but nothing in the agreement mentioned assisting any lawyer in the “rendition of legal services.”  Undeterred, the majority ruled that “no such magic words are required” and looked “beyond the surface language used in the contract.”  Yet, these justices latched onto the “beyond reproach” phrase—surface language in the contract—and found that it “embodies the notion of legal compliance as a necessary component.”  Kroll’s report buttressed this conclusion, the majority explained in a footnote, because it “analyzed applicable rules of conduct based in state law.”

The affidavits of the University’s General Counsel and Assistant General Counsel bolstered the majority’s conclusion. The GC stated that he hired Kroll to investigate admissions practices and that he instructed Kroll to notify him of any irregularities.  The Assistant GC stated that Kroll’s communications during its investigation were for legal-advice purposes.  And it helped that Kroll was to work under the GC’s direction and send its report to him.

And rebutting the Dissent’s claim that these affidavits were conclusory, the majority made this important statement—

Expecting the affidavits to provide a comprehensive account of privileged communications would undermine the very essence of the privilege.  Affidavits supporting a privilege claim must strike a delicate balance between providing enough information to establish the existence of a privileged communication while preserving confidentiality.

The Dissent

Two justices dissented, stating they would have held that “the attorney–client privilege did not attach to Kroll’s investigation.”  In an opinion available here, the dissent observed that privilege concerns are “at an apex” when a client retains a nonlawyer to provide services.  And while they recognized that nonlawyer consultants can play a critical role in a lawyer’s provision of legal services, “the potential for misusing the privilege exists absent a clear nexus between the consultant’s services and a lawyer’s provision of legal services.”

Notably, the dissent agreed with the majority’s “significant purpose” standard, meaning that a privilege proponent must prove that a significant purpose for entering a contract with third-party consultant was to help the lawyer provide legal advice to her client.  This standard requires proof that the consultant’s work was more than incidental or merely helpful in the lawyer’s rendition of legal services.

The Evidence

The problem, as the dissent saw it, was the majority’s application of the standard.  These justices would require a contract between a client and a third-party consultant to clearly and with certainty explain the legal-advice component.  Here, the Kroll contract did not “mention legal services, let alone require Kroll to provide or assist with the rendition of such services.”  And while the Kroll contract contained various confidentiality provisions, the dissent critically observed:

But not a single word in these provisions speaks to the performance of legal services, attorney–client confidences, or privileges as one might expect if assisting in the rendition of legal services was a significant purpose of the engagement.

Undeterred by the majority’s rebuttal, the dissent found the GC’s affidavit as a conclusory paraphrasing of Kroll’s Statement of Work.  And these justices noted that the Assistant GC’s affidavit did not mention the purpose of Kroll’s retention.

POP Analysis

The University of Texas decision contains many important take-aways.  All the justices agreed that the privilege proponent must show that a “significant purpose” for retaining a third-party consult was to assist a lawyer in providing legal services to the client.  The majority opinion provides privilege proponents with good authority for not requiring magic “legal advice” words in the agreement and for looking beyond the agreement’s surface language to find the engagement’s significant purpose.

But the dissent’s commentary should make us consider foregoing the need for that authority. Securing privilege protection is an important objective of most internal investigations, and the dissent remarked that “such important objectives are rarely accomplished through vague terms and subtle devices.”

So, perhaps the greatest take-away is that, while parties seeking privilege protection for internal investigations may use the majority’s opinion as good authority, they should nevertheless follow the dissent’s direction to have the lawyer retain the consultant and “clearly and with certainty” memorialize that one of the engagement’s significant purposes is to assist the lawyer in supplying the client with legal advice.  As the dissent concluded: “It’s not that hard.  But to guard against abuse of the privilege, it is that important.”