The Court of Appeals for the D.C. Circuit ruled this week that the attorney-client privilege extended to investigation files created during corporate internal investigations, where one of the significant purposes was to obtain or provide legal advice. In its ruling, the Circuit Court explained that the District Court had used a legally incorrect test in ordering disclosure of a company’s internal investigation materials.
In United States ex rel. Barko v. Halliburton, No. 05-cv-1276 (D.D.C.), the plaintiff, Harry Barko, was a former employee of KBR, a defense contractor. Barko alleged in a False Claims Act lawsuit that KBR had defrauded the U.S. Government by inflating costs and accepting kickbacks in connection with contracts in Iraq. During discovery, Barko requested files related to KBR’s own internal investigation into the alleged fraud, which was undertaken to comply with KBR’s corporate policy as well as Department of Defense regulations. KBR argued that, because the internal investigation had been conducted to obtain facts necessary for receiving legal advice, the requested files were protected by the attorney-client privilege.
The District Court incorrectly found that the case was distinguishable from the seminal attorney-client privilege case Upjohn Co. v. United States, 449 U.S. 383 (1981). While the District Court correctly stated that the privilege applies in cases where the primary purpose of the communication is for legal advice, it held that the privilege did not apply in this case. The court held that, because the internal investigation was mandated by Department of Defense regulations, the primary purpose of the investigation “was to comply with federal defense contractor regulations, not to secure legal advice.”
The Court of Appeals reversed, finding the District Court’s standards for determining the “primary purpose” of a communication were inconsistent with Upjohn and the principle of the attorney-client privilege. As the Court of Appeals explained, the District Court’s approach would eliminate the attorney-client privilege for communications that were made for both legal and business purposes. The Court of Appeals also noted that many businesses are now legally required to maintain compliance programs. The Court of Appeals concluded that the attorney-client privilege will apply where “one of the significant purposes of the internal investigation was to obtain or provide legal advice,” even if the investigation is also required by company policy or statue or regulation.
The decision of the Court of Appeals reaffirms the applicability of the attorney-client privilege to internal investigations. As the Court of Appeals noted, eliminating the attorney-client privilege in investigations required by corporate policy or law would not only vitiate the protection in great number of internal investigations, it would make companies less likely to disclose information to their attorneys. In the wake of the D.C. Circuit opinion, companies performing internal investigations can be more confident that communications in those investigations will be protected by the attorney-client privilege. However, it is important to make clear in engagement letters and attorney memoranda documenting the investigation that one of the significant purposes of the investigation is to gather factual information necessary to obtain legal advice.