A recent decision by the U.S. Court of Appeals for the District of Columbia reaffirmed the application of the attorney-client privilege to protect materials generated during the course of internal investigations by corporations, particularly in the context of regulated industries or other businesses which have compliance programs that are mandated by law. The decision is In re Kellogg, Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014). The appeals court decision overturned a district court opinion of earlier this year known as the “Barko case” (U.S. ex rel. Barko v. Halliburton Co., 2014 WL 1016784 (D.D.C. March 6, 2014)), which had received a good deal of attention in the healthcare and compliance legal press, and which in the words of the appellate court threatened to “eradicate the attorney-client privilege for 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.” 756 F.3d at 759.
KBR was a defense contractor, and was required by federal contracting regulations to have a compliance program and to investigate certain complaints of misconduct. Its program was staffed by non-lawyers, but reported to the legal department. KBR received such a complaint, which the compliance staff investigated. They obtained documents, interviewed people, and wrote reports. The misconduct eventually became the subject of a whistleblower lawsuit, in which the plaintiff tried to get the investigatory documents. The district judge reviewed the materials, some of which he called “eye openers” as to the misconduct or even criminal conduct at issue, and ruled that these materials werenot protected by the attorney-client privilege. The district court reasoned that the purpose of seeking or receiving legal advice was not the “but for” cause of the investigation. The compliance staff undertook the investigation to comply with the regulatory requirements, and would have investigated regardless of whether they were obtaining legal advice. In short, the attorney-client privilege did not apply because obtaining or providing legal advice was not the sole purpose of the communication. The implication of the district court ruling was that any regulated business which was required to have a compliance program and to carry out investigations would not be able to establish the foundation for the attorney-client privilege.
The Court of Appeals recently issued an opinion reversing the district court. In re Kellogg, Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014). In its opinion, the appellate court made light of the district court’s attempts to distinguish Upjohn, the Supreme Court decision establishing that corporations could invoke the protections of the attorney-client privilege, and ruled, in substance, that as long as one of the principal purposes of the communication or investigation is to obtain legal advice, that is sufficient. The Court clarified that the “primary purpose” test, which it had previously used in privilege decisions, meant that “one of the significant purposes” of the communication or investigation must be to obtain or provide legal advice. As the Court stated, “In the context of an organization’s internal investigation, if one of the significant purposes of the internal investigation was to obtain or provide legal advice, the privilege will apply.” 756 F.3d at 760. That need not be the only purpose. The Court of Appeals stated that “so long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.” Id. at 758-59. “This is true regardless of whether an internal investigation was conducted pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy. “ Id. at 760.
Of course, seeking legal advice must still be a significant purpose of the investigation. In KBR, the compliance department reported to the in-house legal department. In other investigations, outside counsel is involved at an early stage, or the compliance policy may require reporting investigatory results to counsel for their advice. Companies would be well advised to review their compliance programs from time to time with these principles in mind.