When an Ohio utility company’s secret deal with state politicians unraveled, it sparked criminal charges, a market crash, and a privilege battle that reached the Sixth Circuit — and set a new standard for how deep internal corporate investigations can stay under wraps.
FirstEnergy Caught in a Scandal
The underlying facts leading to the lawsuit that would result in big changes for discovery originate in a complex bribery scheme involving FirstEnergy Corporation, a major public utility in Ohio, and key state politicians.
In late 2016, FirstEnergy faced severe financial difficulty due to two failing nuclear plants owned by its subsidiary. To address these financial woes, FirstEnergy allegedly entered into an illicit arrangement with Larry Householder, then a member and later Speaker of the Ohio House of Representatives. We wrote about this case previously. In summary, though, FirstEnergy contributed millions of dollars to support Householder’s campaign through a network of fundraising groups. In return, Householder rigorously promoted and ensured the passage of Ohio House Bill 6, which granted FirstEnergy a substantial $1.3 billion bailout and guaranteed fixed annual revenue of $100 million — all funded by Ohio residents.
Not long after detailed allegations came to light, the company confronted a tidal wave of criminal, regulatory, and civil legal threats stemming from the alleged bribery. In July 2020, federal authorities released a criminal complaint charging Householder under the Racketeer Influenced and Corrupt Organizations Act (RICO). There was a huge cascade effect in the market: publication of these allegations caused FirstEnergy’s stock price to plummet by 45% overnight and triggered a rapid succession of internal and external investigations.
FirstEnergy and its board hired separate legal counsel to review the company’s exposure and advise on imminent legal threats. Meanwhile, state and federal regulators, including the SEC, the Ohio Attorney General, and the Public Utilities Commission, launched investigations. Within weeks, FirstEnergy and several directors and officers became defendants in multiple lawsuits and other civil and regulatory actions alleging securities fraud and participation in a criminal scheme. The lawsuits were led by shareholders who accused FirstEnergy and its executives of defrauding investors by concealing the bribery scheme and its impact on the company’s business, regulatory standing, and stock value.
Company Investigates Itself
Within days of the federal criminal charges implicating FirstEnergy, the company and its Board conducted internal investigations. FirstEnergy’s board retained Squire Patton Boggs to conduct an independent investigation, while the company itself engaged Jones Day to advise on legal responses to the subpoenas and allegations.
These efforts included interviewing witnesses, reviewing internal records, gathering facts, preparing legal analyses, and presenting findings and strategic recommendations to FirstEnergy leadership. All that digging resulted in lots of documents being created. These included internal communications, lawyer notes, summaries of investigative interviews, legal risk assessments, and periodic reports crafted for the board and executive management.
The plaintiffs sought access to these documents for purposes of the court battle, which is how we got to the case we’re actually talking about here. That case largely revolves around whether those materials should be protected under attorney-client privilege and the work-product doctrine.
Battle Over Privilege
FirstEnergy asserted that these materials were protected by both attorney-client privilege and the work-product doctrine because of the reason that motivated their creation. They were created almost exclusively to secure legal advice and to anticipate and respond to imminent litigation or government action. The company argued that any use of the documents to shape business decisions does not destroy the privilege, since legal risks were the primary driver for commissioning the investigations. FirstEnergy also argued that no communications or core legal analyses were voluntarily disclosed to adversaries in a way that would waive these protections.
The plaintiffs claim that the documents aren’t covered by either privilege, since they conveyed “mere facts” rather than legal advice. They also argue that FirstEnergy's later use of the findings from the investigations for business decisions "denied the need for the attorney-client privilege and the work-product protection.”
The Sixth Circuit Court soon took up the matter, and last week, decided that the defendants were right.
Court Rules: Privileged
The court closely scrutinized the circumstances surrounding the creation of those materials, finding that they were produced “because of actual, not merely anticipated, legal and regulatory threats.” The judges noted that FirstEnergy and its board retained outside counsel swiftly in direct response to the substantial legal peril the company faced, specifically to “secure legal advice” regarding both criminal and civil liability exposures. As the panel explained, communications and analyses prepared by Squire Patton Boggs and Jones Day included “investigative findings, legal analyses, and assessments of potential criminal and civil liability” – precisely the type of confidential work product and attorney-client communications the law is designed to protect.
The court was not convinced by the plaintiffs pointing out that the documents were used for business decisions; the judges emphasized that the privilege applies even when legal advice informs corporate strategy. The court reaffirmed longstanding principles: what matters is not how the company ultimately used the legal analysis, but whether legal advice was sought and received in anticipation of litigation.
Because the internal investigation materials were created in direct response to the legal crisis stemming from the Householder scandal and related regulatory inquiries, the court held that both the attorney-client privilege and work-product doctrine applied. As a result, FirstEnergy was not required to produce the contested documents in the ongoing shareholder litigation. The Sixth Circuit granted a stay of a district court order that had initially directed the energy company to produce the documents for the plaintiffs.
Big Win for Corporations
The decision binds future federal cases in the Sixth Circuit (Tennessee, Ohio, Kentucky, and Michigan), but can still be cited from other jurisdictions to attempt to beat broad discovery requests in similar situations.
Defense lawyers and corporations praised the decision as a victory for corporate privilege protections. They emphasize that it clarifies and safeguards the ability of companies to conduct candid internal investigations through outside counsel in the face of government investigations and litigation. They seem relieved that the decision confirms that internal investigation materials prepared by outside counsel are still protected by privilege, even if later used for business reasons or shared with auditors.
But plaintiffs’ advocates and transparency groups won’t be too happy, since the ruling will reduce the amount of information available to shareholders and regulators during high-profile litigation.
Related Resources:
- What's All the Racket With RICO Law? (FindLaw’s Law and Daily Life)
- Don't Trust DOJ Antitrust Dealings, Claims Fired Staffer (FindLaw’s Federal Courts)
- Half of the States Sue Federal Government for Blocking Immigrant Victims’ Access to Justice (FindLaw’s Federal Courts
