D.C. Circuit Broadly Applies Attorney-Client Privilege to Internal Investigations

by K&L Gates LLP
Contact

The attorney-client privilege broadly applies to communications made for the purpose of obtaining or providing legal advice. However, what if an internal investigation has multiple purposes, some of which are to provide legal advice and some of which are not? On June 27, 2014, the U.S. Court of Appeals for the District of Columbia Circuit held, in In re: Kellogg Brown & Root, Inc.,[1] that such investigations are privileged as long as “one of the significant purposes” of the internal investigation is to obtain legal advice.[2] The privilege is not defeated “even if there were also other purposes for the investigation and even if the investigation was mandated by regulation.”[3] As a result, “internal investigations conducted by businesses that are required by law to maintain compliance programs, which is now the case in a significant swath of American industry,” can still be privileged if one significant purpose of the investigation is to obtain facts necessary to provide legal advice.[4]

This alert analyzes the Circuit Court and District Court opinions and discusses best practices that companies should follow to protect the privileged nature of their investigations.

The District Court Decision

In United States ex rel. Barko v. Haliburton, the plaintiff brought a False Claims Act action alleging that Kellogg Brown & Root, Inc. (“KBR”) defrauded the U.S. government by inflating costs and accepting kickbacks while administering military contracts.[5] During discovery, the plaintiff sought documents related to KBR’s internal investigations into the alleged fraud, which KBR claimed were protected by the attorney-client privilege and work product doctrine. KBR initiated the investigation as a result of a “tip” concerning a potential code of conduct violation. The regulatory-required compliance program required that KBR follow up.[6]

The District Court held that the documents were not privileged because the “primary purpose” of the investigation was not to secure legal advice but instead to comply with Department of Defense contracting regulations to maintain internal compliance programs.[7] The District Court held that the privilege only applied if the company satisfied the “but for” test. An internal investigation to gather facts to provide legal advice would only be privileged if “but for” that purpose the company would not have investigated. If the company would have investigated for regulatory compliance reasons in any event, then the privilege would not attach no matter what other purposes the investigation served.[8] Since the company would have conducted an internal investigation for non-privileged compliance reasons, the District Court reasoned, the investigation was not privileged.

The District Court also relied on three bases to distinguish Upjohn, where the Supreme Court held that an internal investigation was privileged. First, the investigation was conducted by in-house counsel who did not consult with outside lawyers. The District Court concluded that this undermined the argument that the investigation was undertaken to obtain legal advice. Second, the interviews were conducted by non-attorneys, typically investigators from KBR’s security department. And third, the employees who were interviewed were not informed that the purpose of the interview was to assist KBR in obtaining legal advice. The District Court held that the company had to produce all materials concerning the investigation. Had the District Court’s decision been upheld, it would have prevented the application of the privilege to internal investigations required by government or corporate compliance policies.[9]

The D.C. Circuit Reverses

The D.C. Circuit granted mandamus and reversed. It held that the District Court’s “but for” test “is not appropriate for attorney-client privilege analysis.”[10] The Court of Appeals explained the “primary purpose” test applied to determine whether communications are privileged “does not draw a rigid distinction between a legal purpose on the one hand and a business purpose on the other.”[11] It is “not correct for a court to try to find the one primary purpose in cases where a given communication plainly has multiple purposes.”[12] Rather, the test is:

Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?[13]

The Court cited the Restatement (Third) of The Law Governing Lawyers for the proposition that “the privilege applies if one of the significant purposes of a client in communicating with a lawyer is that of obtaining legal assistance.”[14] “Sensibly and properly applied,” the D.C. Circuit stated, “the test boils down to whether obtaining or providing legal advice was one of the significant purposes of the attorney-client communication.”[15] This means that an internal investigation may be protected if it was conducted “pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy.”[16]

The Court of Appeals also rejected the three bases on which the District Court distinguished Upjohn.

First, the fact that in-house counsel did not consult with outside lawyers did not matter because “Upjohn does not hold or imply that the involvement of outside counsel is a necessary predicate for the privilege to apply.” “[A] lawyer’s status as in-house counsel ‘does not dilute the privilege.’”[17]

Second, the fact that the interviews were conducted by non-attorneys did not defeat the privilege because “communications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney-client privilege.”[18]

Third, the failure to expressly inform employees that the purpose of the interview was to assist the company in obtaining legal advice did not defeat the privilege because “nothing in Upjohn requires a company to use magic words to its employees in order to gain the benefit of the privilege for an internal investigation.”[19] It was enough that employees were told not to discuss their interviews without the authorization of the KBR General Counsel.  

Best Practices Going Forward

While In re: Kellogg Brown & Root, Inc. establishes strong precedent that should provide companies comfort in conducting investigations arising from their corporate compliance programs, there are important takeaways for companies to consider in the future. 

First, companies should document at the outset of an investigation that one of the significant purposes of the internal investigation is to obtain the facts necessary to provide legal advice.

Second, regardless of whether attorneys or their agents are conducting interviews, all interviewees should be instructed that the purpose of the interview is to assist the company in obtaining legal advice (often termed Upjohn instructions). Adequate Upjohn instructions are important for any internal investigation because they memorialize the privilege and also properly instruct the witness about the attorney-client privilege in such an interview.

Third, if attorneys are not conducting the investigation, attorneys should actively direct and monitor the investigation in order to ensure it remains privileged. As part of that monitoring, it is also prudent for counsel to memorialize contemporaneously the fact that the investigation is being undertaken to obtain legal advice, and that the people conducting the investigation are acting at counsel’s request and direction. Active involvement and thorough documentation throughout the investigation will help demonstrate that a significant purpose of the investigation was to obtain legal advice.

Fourth, attorneys should give strong consideration to conducting the interviews themselves. If interviews are conducted by non-attorneys, then a court has a possible complication in concluding that the investigation was being done for business reasons, rather than to obtain legal advice. Further, because external attorneys do not wear multiple hats, unlike in-house counsel, the involvement of outside counsel in an investigation can more clearly demonstrate the legal nature of the investigation.

Finally, companies should examine not only the D.C. Circuit’s decision in In re: Kellogg Brown & Root, Inc., but decisions in the jurisdiction in which the investigation is being conducted, which may articulate the standards differently.[20]

Notes:

[1] No. 14-5055, slip op. (D.C. Cir. June 27, 2014).

[2] Id. at 10 (emphasis added).

[3] Id. at 8.

[4] Id. at 9.

[5] In re Kellogg Brown & Root, Inc., No. 14-5055, slip op. at 1. 

[6] Id.

[7] Id. at *3.

[8]United States ex rel. Barko v. Haliburton, 2014 WL 1016784, *2-3, 1:05-CV-1276 (D.D.C. March 6, 2014).

[9] In re Kellogg Brown & Root, Inc., at 9 (suggesting that the District Court’s approach “would eradicate the attorney-client privilege for internal investigations conducted by businesses that are required by law to maintain compliance programs.”).

[10] Id. at 9.

[11] Id. at 10.

[12] Id. at 9-10 (emphasis in original).

[13] Id. at 10 (emphasis in original). 

[14] Id. at 10, citing 1 RESTATEMENT § 72, Reporter’s Note, at 554.

[15] Id. at 10.

[16] Id.

[17] Id. at 6.

[18] Id.

[19] Id. at 7.

[20] See, e.g., First Chicago Int’l v. United Exchange Co., 125 F.R.D. 55, 57 (S.D.N.Y. 1989) (Proponent of privilege has to demonstrate that “but for” the need for legal advice the communication would not have taken place.)

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP
Contact
more
less

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.