The D.C. Circuit reversed a district court ruling that would have significantly curtailed the scope of the attorney-client privilege for companies engaging in internal investigations. Judge Cavanaugh’s opinion, issued June 27, 2014, ruled that the attorney-client privilege applies to communications made during the course of an internal investigation, so long as obtaining or providing legal advice was one of the significant purposes of the internal investigation. The D.C. Circuit ruled that this privilege remains intact even though there were additional purposes for the investigation, the investigation was mandated by regulation, the investigation was overseen by in-house (rather than external) counsel, the interviews were conducted by non-attorneys at the direction of counsel and the interview subjects were not explicitly told that the purpose of the interview was to assist the company in obtaining legal advice.
In 2005, an employee of defense contractor Kellogg Brown & Root (“KBR”) filed a False Claims Act against the company, alleging that KBR defrauded the U.S. government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq. During the course of discovery, the employee sought documents related to an internal investigation previously conducted by KBR in relation to this fraudulent activity.
As a defense contractor, KBR was required by Department of Defense regulations to maintain compliance programs and conduct internal investigations into allegations of potential wrongdoing. The KBR internal investigation at issue was overseen by in-house counsel pursuant to the company’s Code of Business Conduct. KBR initiated the internal investigation to gather facts and ensure legal compliance, after having been informed that potential misconduct had occurred. In response to discovery requests issued by its employee, KBR claimed that the documents resulting from this investigation were privileged since the investigation was “conducted for the purpose of obtaining legal advice.”
The district court, following an in camera review of the documents, ruled that the attorney-client privilege did not apply because the internal investigation was undertaken “pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” The district court also identified several ways in which the KBR internal investigation was distinguished from the internal investigation in the seminal case of Upjohn Co. v. United States, which established the attorney-client privilege in the internal investigation context. KBR filed a petition for a writ of mandamus with the D.C. Circuit and several business organizations filed amicus briefs in support of KBR.
The D.C. Circuit found that under common law and Upjohn the attorney-client privilege applied to corporations so long as the communication involved was made “for the purpose of obtaining or providing legal advice to the client.”
The D.C. Circuit rejected the series of findings by the district court meant to distinguish this case from the internal investigation in Upjohn. The D.C. Circuit rejected the finding that the corporate attorney-client privilege required the involvement of outside counsel, finding that an in-house counsel is fully empowered to engage in privileged communication. The D.C. Circuit rejected the finding that the corporate attorney-client privilege required that the investigation interviews be conducted by attorneys, finding that the interviews could be conducted by non-attorneys provided that the communications were conducted at the direction of KBR’s attorneys. The D.C. Circuit rejected the finding that the corporate attorney-client privilege required that the employees subjected to interviews be expressly told that the purpose of their interview was to assist the company in obtaining legal advice, finding it sufficient that the interviewed employees were aware that the company’s legal department was conducting an investigation of a “sensitive nature” and that the content of the interviews would be protected.
Finally, the D.C. Circuit found that the district court, in analyzing whether the attorney-client privilege applied, improperly employed a “but-for” test, which would have required KBR to show that the “sole purpose” of the communication at issue “was to obtain or provide legal advice.” This test led to the district court’s finding that KBR’s internal investigation was conducted to comply with Department of Defense regulatory requirements rather than for the purpose of obtaining or providing legal advice.
The D.C. Circuit noted that courts typically adopt a “primary purpose” test in attorney-client privilege situations to determine if the primary purpose of the communication at issue was made to serve the business or legal interests of the company. However, the D.C. Circuit stressed that the “primary purpose” test was itself flawed given the difficulty in determining the primary purpose when a communication “plainly has multiple purposes.”
The D.C. Circuit therefore proposed and adopted the “one of the significant purposes” test, in which courts should ask the following question: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication.” The D.C. Circuit found 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 other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.”
The D.C. Circuit found that the district court applied the wrong legal test in deciding whether there was an attorney-client privilege and therefore clearly erred. The D.C. Circuit granted mandamus, finding that KBR had no other adequate means to attain the desired relief and that the erroneous decision could have far-reaching consequences in the world of corporate internal investigations.
This decision is a significant victory for all companies that utilize internal investigations at the direction of in-house or external counsel. Even with this expansive protection of the attorney-client privilege, however, in-house and outside counsel conducting investigations should be careful to take steps to preserve privilege, including documenting that a significant purpose of the investigation is to provide legal advice.