The D.C. Circuit Court of Appeal's recent opinion in In Re Kellogg Brown & Root is a victory for corporations and their lawyers across the nation, reaffirming the application of the attorney-client privilege to documents prepared during an internal investigation conducted pursuant to a corporate compliance program.
July 2, 2014
- On June 27, 2014, the D.C. Circuit granted the petition of Kellogg Brown & Root (KBR) for a writ of mandamus and vacated the District Court’s document production order in In Re Kellogg Brown & Root, No. 14-5055, 2014 U.S. App. LEXIS 12115 (D.C. Cir. June 27, 2014).
- The D.C. Circuit reinforced the Upjohn test stating that even if only "one of the significant purposes of the communication was to obtain or provide legal advice, the privilege will apply” and expressly rejected the District Court’s “but for” test for determining the application of the attorney-client privilege.
- The D.C. Circuit’s decision reiterates that, so long as legal counsel directs the investigation, internal investigations are protected under the attorney-client privilege, even when those internal investigations are conducted pursuant to a corporate compliance program or otherwise required by law or regulation.
In re Kellogg Brown & Root arises out of a whistleblower action brought by Harold Barko against KBR under the False Claims Act. See United States ex rel. Barko v. Halliburton Co., No. 05-CV-1276 (D.D.C. Mar. 6, 2014). Barko alleged that KBR, a defense contractor, had defrauded the United States by inflating costs and accepting kickbacks while administering military contracts. KBR had conducted an internal investigation pursuant to its Code of Business Conduct that is required of all Department of Defense contractors. This investigation was conducted at the direction of KBR’s law department. During discovery, Barko requested documents related to KBR’s internal investigation.
The District Court conducted an in camera review of the documents and determined that the attorney-client privilege was inapplicable because it was not the case that “the communication[s] would not have been made ‘but-for’ the fact that legal advice was sought.” In other words, because the Code of Business Conduct was required by regulation, the internal investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the [sole] purpose of obtaining legal advice.”
KBR requested the District Court to certify the issue to the D.C. Circuit for interlocutory appeal, which the District Court denied. KBR filed a petition for a writ of mandamus with the D.C. Circuit, requesting the D.C. Circuit to vacate the District Court’s order for the production of the internal investigation documents.
The D.C. Circuit determined that mandamus was appropriate because the District Court’s refusal to recognize the application of the attorney-client privilege was clearly erroneous and KBR had no other adequate means to attain relief from the District Court’s order.
The D.C. Circuit began its analysis by reiterating the holding of Upjohn Co. v. United States, 449 U.S. 383 (1981), that the attorney-client privilege applies to a corporation’s internal investigations and by finding that the instant case was materially indistinguishable from Upjohn. In so doing, the D.C. Circuit rejected the District Court’s attempts to distinguish KBR’s investigation from the investigation conducted in Upjohn.
- First, the D.C. Circuit found that the fact that the KBR investigation was conducted by in-house counsel, rather than outside counsel as in Upjohn, does not affect the application of attorney-client privilege. In other words, “a lawyer’s status as in-house counsel ‘does not dilute the privilege.’”
- Second, the D.C. Circuit rejected the District Court’s attempt to distinguish the two cases on the grounds that the Upjohn interviews were conducted by attorneys, whereas, many of the KBR interviews were conducted by non-attorneys. The D.C. Circuit emphasized that who conducts the interviews is not determinative. Rather, the fact that the investigation was conducted at the direction of attorneys in KBR’s law department extends the protection of the attorney-client privilege to interviews conducted by non-attorneys because the non-attorneys are serving as agents of attorneys.
- Third, the D.C. Circuit rejected the District Court’s assertion that the attorney-client privilege did not apply to the KBR investigation because KBR employees were not advised through confidentiality agreements that the purpose of the investigation was to obtain legal advice, whereas, the employees in Upjohn were so advised. The D.C. Circuit stated that nothing in Upjohn requires a company to “use magic words” to employees for the attorney-client privilege to apply. The D.C. Circuit found that the KBR employees knew that the law department was conducting a confidential and sensitive investigation and were told not to discuss the interviews “without the specific advance authorization of KBR General Counsel.”
- Finally, and perhaps most importantly, the D.C. Circuit found that the District Court erred by turning the “primary purpose” test of the D.C. Circuit and other circuits into essentially a “but for” test for determining the application of the attorney-client privilege. The D.C. Circuit said that the lower court’s finding that the attorney-client privilege does not apply unless the sole purpose of the communication was to obtain or provide legal advice is simply “not the law.” The fact that an investigation is conducted pursuant to a compliance program that is required by law or regulation, as well as for obtaining legal advice, does not render the attorney-client privilege inapplicable. The D.C. Circuit found that to adopt such an interpretation would “eliminate the attorney-client privilege for numerous communications that are made for both legal and business purposes and that heretofore have been covered by the attorney-client privilege.”
The D.C. Circuit re-articulated its “primary purpose” test to avoid incorrect interpretations such as that of the District Court. The D.C. Circuit stated that because communications rarely have only one primary purpose, a clearer, more precise test is the “significant purpose” test — that if one of the “significant purposes” of the communication is to obtain or provide legal advice, the attorney-client privilege will apply.
Having determined that the District Court’s failure to recognize the application of the attorney-client privilege to KBR’s internal investigation was clearly erroneous, the D.C. Circuit concluded by determining that mandamus was appropriate even though it is a “drastic and extraordinary” remedy. In this instance, an interlocutory appeal was not available to KBR and an appeal after judgment would come too late. The District Court’s order that KBR produce documents related to its internal investigation was vacated.
Conclusion and Practice Tips
The D.C. Circuit’s opinion is noteworthy for its reaffirmation of the important principles establishing the scope of the attorney-client privilege in internal investigations. Post & Schell recommends the following best practices for companies and other entities to assure that their attorney-client relationships are properly protected and to prevent unnecessary litigation regarding those protections.
- When conducting internal investigations, whether initiated by a regulatory requirement or by concerns about possible violation of federal or state laws, companies should promptly contact lawyers representing the company, whether they are in-house counsel or outside law firms.
- The internal investigation should be overseen by counsel, and documented as such, to protect the communciations of non-lawyers such as human resources, compliance officers, field managers, or subject matter experts who might assist in gathering information and conducting interviews.
- All communications regarding the internal investigation, such as documents that set out the investigation steps, investigation reports, emails, and handwritten notes, should be marked “Privileged and Confidential, Attorney-Client Communication, Attorney Work Product” or similarly to expressly signify the privileged nature of the communications.
- These privilege markings should be made even if the communications are from or to non-lawyers, as long as they are in connection with the investigation, such as communications for the purpose of collecting information and contacting witnesses.
- Meetings or conference calls regarding the internal investigation should include counsel for the company.
- Employees, including senior management, should be advised as soon as practicable during the course of an internal investigation, and before interviews commence, that the attorney-client relationship is between the company and its lawyers and not between company counsel, in-house or outside the company, and the individual employee, even if that employee is the company president or another senior executive.
If you have questions about this EFLash, contact Barbara Rowland at (202) 661-6945 or Laura M. Weeden at (717) 612-6051.
Disclaimer: this E-Flash does not offer specific legal advice, nor does it create an attorney-client relationship. You should not reach any legal conclusions based on the information contained in this E-Flash without first seeking the advice of counsel.
Barbara Rowland is a Principal in the Firm's Internal Investigations & White Collar Defense Practice Group resident in its Washington, D.C. Office. Her practice focuses on representing large for-profit and not-for-profit corporations in a variety of industries, including pharmaceutical and medical device manufacturing, retail pharmacy, pharmacy benefit management, health care and defense contracting. Learn More >>
Laura M. Weeden is an Associate in the Firm's Health Care Practice Group and works with national, regional and single-site proprietary, non-profit and governmental providers across the full continuum of care, representing clients on both substantive and procedural aspects of health facility regulation. Learn More >>