The New Gray Zone? A Potentially New Approach to Attorney-Client Privilege in Internal Investigations for Current Employees Who Have Given Notice

In September 2022, the First Department upheld an order to compel production of videotaped interviews with two company employees conducted as part of an internal investigation. See BDO USA v. Franz, 208 A.D.3d 1088, 1089 (1st Dep’t Sept. 27, 2022). In doing so, the First Department held that BDO could not have had a reasonable expectation that these interviews would be privileged because the employees had given notice prior to their interviews. Without question, in determining the scope of attorney-client privilege, courts have already distinguished between current and former employees. See, e.g., Radovic v. City of New York, 642 N.Y.S.2d 1015 (N.Y. Sup. Ct. April 16, 1998). But here, the First Department considered what happens in the in-between—when employees are employed with the company but have already tendered their resignation. The First Department’s holding is one that corporations conducting internal investigations or otherwise considering potential privilege issues should keep in mind going forward.

In BDO, the company launched an internal investigation into whether a former partner had conspired with other employees to lure employees, clients and business away from BDO. As part of that investigation, corporate counsel interviewed current employees (now defendants) Matthew Franz and Donald Sowell after they had tendered their resignations, but a few weeks before they actually left the firm. Per common practice, counsel for the company provided “Upjohn warnings” to the individuals before beginning the interviews. After this internal investigation had concluded and after both Mr. Franz and Mr. Sowell had left BDO, BDO sued Mr. Franz and Mr. Sowell in the Supreme Court of the State of New York, New York County, for among other things, breach of contract based on the alleged breach of their employment contracts with the company. During that litigation, defendants sought to compel production of the videotapes of the interviews they gave to BDO’s in-house counsel and outside counsel during the internal investigation. After several rounds of motions, the Supreme Court issued an order to compel production of the unredacted videotapes. See BDO USA v. Franz, 2022 WL 2663324 (N.Y. Sup. Ct. July 7, 2022).