Case study: North Carolina courts provide guidance on scope, limitations of attorney-client privilege 

By Sarah A. Sheridan 

Attorneys, particularly those working as in-house counsel or as outside counsel performing an investigation, often wear multiple hats and are expected to provide legal and business advice. A North Carolina Business Court decision provides helpful guidance regarding the scope and limitations of the attorney-client privilege, particularly in the context of when communications contain intertwined legal and business advice.  

Buckley case background 

The Buckley case involved a dispute brought in the North Carolina Business Court over whether an insurance policy issued by Oxford (an insurance company) to Buckley (a law firm) covered Buckley for certain losses associated with the departure of a key revenue-generating partner (Buckley LLP v. Series 1 of Oxford Ins. Co. NC LLC, No. 19 CVS 21128, 2020 WL 6696138 (N.C. Super. Nov. 9, 2020), aff’d, 382 N.C. 55). 

By way of brief factual background, Buckley learned of potential sexual harassment misconduct by one of its founding partners and hired the Latham & Watkins Law firm to investigate the allegations. The scope of Latham’s work involved legal advice and investigative services.  

Rather than participate in the investigation, the founding partner who had been accused of sexual harassment retired. Following his retirement, Buckley informed Oxford of its claim under the insurance policy due to the departure of a key revenue-generating partner. At the time, Oxford did not have an official claims department. Instead, Oxford’s in-house counsel, in addition to providing legal advice, also served in a business role with the authority to approve coverage and resolve claims. After reviewing the claim, Oxford refused to pay it. Shortly after, Buckley filed suit. 

Dueling motions to compel 

During discovery, Oxford and Buckley reached a standstill on privilege disputes and both filed motions to compel. Buckley moved to compel communications withheld as privileged that involved Oxford’s in-house counsel, arguing that Oxford had improperly asserted privilege over all internal substantive deliberations regarding the claim. Buckley argued that (i) communications by Oxford’s in-house counsel in her role as a business advisor are not privileged; (ii) Oxford’s internal communications regarding coverage of the claim and the amount of the claim are “core” evidence, and by including Oxford’s in-house counsel on all communications and then asserting privilege, Oxford was improperly attempting to “cloak” discoverable communications with privilege by routing them through in-house counsel; and (iii) Oxford has the burden to show that the “primary purpose” of each communication with its in-house counsel was to request or give legal advice.  

Conversely, Oxford moved to compel Buckley’s communications with Latham, arguing that (i) Buckley knew of the sexual misconduct allegations against the founding partner and had already hired Latham to investigate at the time Buckley applied for insurance coverage, but failed to disclose the allegations and investigation to Oxford; (ii) the primary purpose of Latham’s investigation was to conduct a factual investigation as required by Buckley’s policies, not to provide legal advice; (iii) decisions concerning the discipline and termination of employees are business decisions; and (iv) there is no valid work product protection because Buckley’s HR policies required an investigation, and thus the investigation was not in anticipation of litigation. According to Oxford, the critical factual issue was whether Buckley “reasonably believed” at the time it sought coverage whether there was anything that “would be likely to result in a loss” and Buckley’s initial communications with Latham would be most telling. 

Business Court’s decision 

Chief Judge Louis A. Bledsoe III of the North Carolina Business Court held a hearing on the motions to compel and conducted an in camera review of the disputed communications. Bledsoe attached an addendum to his decision detailing on a document-by-document basis whether the privilege applied and ruled that most documents had been improperly withheld as privileged. With respect to Oxford’s communications, the court explained that while certain communications involving Oxford’s in-house counsel reflect the primary purpose of giving and receiving legal advice, most reflect that Oxford’s in-house counsel was acting primarily in her business role of reviewing Buckley’s claim in the ordinary course of Oxford’s business. As such, the court concluded that all such ordinary course of business communications were not protected by the attorney-client privilege.  

Similarly, the court determined that many of Buckley’s communications with Latham were solely or primarily in furtherance of Latham’s factual investigation into the alleged misconduct in accordance with Buckley’s firm policies and were unrelated to the rendition of legal services. As such, the court concluded that most of Buckley’s communications with Latham were not privileged. Further, the court determined that the work product protection did not apply because none of the communications mention potential litigation, there was no evidence that Buckley feared or contemplated litigation, and Latham’s investigation would have proceeded in the same way because it was required under Buckley’s policies.  

Appeal to state Supreme Court 

Buckley submitted an interlocutory appeal to the North Carolina Supreme Court. Oxford did not cross-appeal. Buckley argued that if the Business Court decision is upheld, it risks exposing highly confidential information that is revealed during investigations. Furthermore, Buckley warned that companies might be inclined to get rid of policies requiring the investigation of harassment or other misconduct for fear that any such investigation would be deemed the “regular course” of business and lose attorney-client privilege protections. Buckley also contended that the Business Court decision erodes long-standing attorney-client privileges and will “dampen” the willingness of clients to share information with counsel.  

Supreme Court affirms 

In August 2022, the North Carolina Supreme Court issued a three-page per curiam decision affirming the Business Court’s decision (Buckley, LLP v. Series 1 of Oxford Ins. Co., NC, LLC, 382 N.C. 55 (2022)). The North Carolina Supreme Court reasoned that “in today’s business world, investigations of alleged violations of company policy, including sexual harassment or discrimination, are ordinary business activities and, accordingly, the communications made in such investigations are not necessarily ‘made in the course of giving or seeking legal advice for a proper purpose.’” (quoting In re Miller, 357 N.C. 316, 335 (2003)). 

Lessons learned 

Notably, the Business Court and Supreme Court’s decisions rest upon a long line of legal precedents in North Carolina and do not create new law. Nevertheless, many attorneys and clients will likely be surprised that the scope of the attorney-client privilege and work product doctrine can be so narrowly applied. Below are some key takeaways: 

• Companies who hire outside counsel to conduct investigations as required by company policy should be aware that not all communications with attorneys will be privileged. Attorneys should advise their clients that the fact-finding portion of an investigation is unlikely to be privileged.
• Attorneys might consider conducting investigations in two separate phases — the fact-finding phase followed by the legal analysis/advice phase — to create more clarity regarding which types of communications are covered by the attorney-client privilege.
• Companies with in-house counsel who perform both legal and business functions should be mindful that copying in-house counsel on a communication does not cloak that communication with the attorney-client privilege.
• Litigators making privilege determinations and drafting privilege logs should be aware that under North Carolina law, the “primary purpose” of the communication will determine whether such communication is privileged.

Sarah A. Sheridan is a litigation associate at Moore & Van Allen in Charlotte. Her practice includes commercial disputes, arbitration and mediation. •