In a significant opinion issued today, the U.S. Court of Appeals for the D.C. Circuit unequivocally reaffirmed that the attorney-client privilege protects internal investigations conducted by a company’s law department pursuant to a legally mandated corporate compliance program. In so holding, the D.C. Circuit reversed a March 2014 order inUnited States ex rel. Barko v. Halliburton Co., No. 1:05-cv-1276, 2014 WL 1016784 (Mar. 6, 2014), in which the district court directed defendant Kellogg Brown & Root, Inc. (“KBR”) to turn over documents from an internal investigation into KBR’s administration of its military contracts in Iraq. The district court had held that even though the investigation was conducted by KBR’s in-house counsel, the documents were not protected by the attorney-client privilege under Upjohn Co. v. United States, 449 U.S. 383 (1981), and therefore must be produced to Harry Barko, the plaintiff in the False Claims Act action against KBR alleging that it defrauded the government by inflating costs and paying kickbacks in connection with its contracts in Iraq.

Recognizing the “potentially far-reaching consequences” of the district court’s decision, the D.C. Circuit took the unusual step of granting KBR’s petition for a writ of mandamus and vacated the district court’s production order. In doing so, the D.C. Circuit clarified the application and reach of Upjohn in the present-day context where government contractors, like KBR, are required to maintain corporate compliance programs and to investigate potential wrongdoing within the company.

In particular, the Court of Appeals clarified that: (1) outside counsel need not be involved for the attorney-client privilege to apply to protect corporate communications with in-house counsel; (2) interviews conducted by non-attorneys at the direction of in-house counsel are protected by the privilege; and (3) there are no “magic words” that a company must use with its employees to obtain the benefit of the privilege—a communication made to obtain or provide legal advice may be privileged even if the employee is not specifically apprised that that is the communication’s purpose.

Perhaps most significantly to government contractors and other companies in highly regulated industries, the court held that an internal investigation undertaken to comply with legally mandated compliance, investigation, and disclosure obligations will maintain the protection of the attorney-client privilege “[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation.” (Emphasis added.) Rather than abandon the “primary purpose” test for determining whether a communication to or from in-house counsel is protected by the privilege, the D.C. Circuit clarified that the test does not require a court to determine whether the provision of legal advice was the primary purpose of the communication, but instead whether it was primary purpose. It is “not correct for a court to presume that a communication can have only one primary purpose.”

Government contractors and in-house counsel responsible for implementing compliance programs and investigating allegations of wrongdoing will breathe a sigh of relief at the swiftness and force with which the D.C. Circuit rejected the district court’s “novel approach” and affirmed the application of the privilege to internal investigations.

The case is In re: Kellogg Brown & Root, Inc., et al., No. 14-5055 (D.C. Cir. June 27, 2014).