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Legal Update

Oklahoma Federal Court Compels Company to Produce “Ombudsman” Investigation Documents

4 August 2009
Mayer Brown Legal Update

In two related cases, a magistrate judge in the United States District Court for the Northern District of Oklahoma ordered IBM to produce documents from the company’s procurement ombudsman’s investigation of a dispute with a vendor. Accounting Principals, Inc. v. Manpower, Inc., 07-cv-636-TCK-PJC, 2009 WL 2252123 (N.D. Okla. July 28, 2009) and Pinstripe, Inc. v. Manpower, Inc., 07-cv-620-GKF-PJC, 2009 WL 2252137 (N.D. Okla. July 28, 2009) (IBM is a defendant in both cases).

Accounting Principals, Inc. (API) and Pinstripe, Inc. (Pinstripe) are staffing companies that provide accounting and finance personnel. In 2005, both companies were providing contract accounting employees to IBM in Tulsa. In March 2005, IBM approached API about reducing the costs of API’s services. When a resolution could not be reached, IBM terminated its relationship with API.

Upon termination of the relationship, API sought to complain to IBM’s management by calling a hotline number featured on IBM’s website. A member of IBM’s legal staff responded and told API that because the matter was not in litigation API should contact IBM’s procurement ombudsman. A few days later, API contacted and spoke with the ombudsman. Following this conversation, IBM’s assistant general counsel, according to IBM, directed the ombudsman and an assisting investigator to investigate the dispute with API, collect certain information, and report back to him. Over the next few weeks, the ombudsman and the investigator interviewed employees at API and IBM about the dispute, and then reported their findings to the assistant general counsel. A report was drafted and circulated to IBM managers. As a result of the investigation, IBM restored its relationship with API.

In October 2007, however, IBM once again terminated the contract with API and moved the work to Manpower. At the same time, IBM terminated a separate relationship with Pinstripe, and moved that work to Manpower as well. Separately API and Pinstripe sued Manpower and IBM.

API and Pinstripe both moved to compel IBM to produce documents connected to the ombudsman’s investigation of the dispute with API. IBM moved for a protective order arguing that the documents were protected by the attorney-client and work product privileges because the ombudsman’s investigation was conducted in anticipation of litigation with API, and because IBM’s assistant general counsel requested and directed the investigation. In response, API and Pinstripe argued that neither privilege applied because the ombudsman and the assisting investigator were not attorneys.

The court rejected API’s and Pinstripe’s arguments concerning the non-attorney status of the ombudsman and the investigator. The court noted that Oklahoma’s privilege statute extends attorney-client protection to confidential communications with a “representative of the attorney,” and that work product protection has routinely been extended to material prepared by an agent of an attorney.

The court determined, however, that the ombudsman documents did not qualify as work product. The key, according to the court, was that the primary motivation for the ombudsman’s investigation was not the anticipation of litigation, but the resolution of a business dispute. The court noted that IBM had directed API to the ombudsman for the specific reason that the dispute was not in litigation. Also of significance was IBM’s website that described its ombudsman office as an “objective and impartial organization . . . [that] assists in resolving procurement-related concerns and issues.” Even under IBM’s view that an ombudsman can wear two hats -- one as an impartial and neutral observer/mediator and the other as an investigator directed by legal counsel -- the court held that it “is clear that ‘dual purpose’ documents may not qualify for work-product protection.” In short, the court concluded that the “[o]mbudsman’s involvement indicates a separate business purposes,” and therefore the ombudsman’s investigation documents “were created in the ordinary course of business for independent business purposes” not subject to work product protection. Based on an in camera review of the documents in dispute, the court next concluded (with little discussion) that IBM failed to meet its burden of showing that most of the documents were protected by the attorney-client privilege.

The Manpower cases reflect the increasing use and strict application of the primary motivation standard for work product protection to internal investigation documents (e.g., see our June 11, 2009, Client Alert, “Texas Court Widens Door to Internal Investigation Materials.”) Moreover, for any company that has an ombudsman function, the Manpower cases serve as a forewarning that a company may have to produce a company ombudsman’s communications and documents when a unresolved business dispute transforms into litigation.

For inquiries related to this Client Alert, please contact the author Lucius Outlaw III at .

For information about Mayer Brown’s Electronic Discovery & Records Management group, please visit or contact or Michael Lackey at .

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