After the highly controversial DC District Court ruling in United States ex rel. Barko v. Halliburton Co., which permitted discovery of attorney-client communications and attorney work product generated during a confidential internal investigation that had been undertaken in order to comply with regulatory disclosure obligations (see our previous alert Don’t Let Barko Bite Your Company’s Attorney-Client Privilege And Work Product Protection), the DC Circuit took the rare step of granting a writ of mandamus in order to vacate the ruling. This outcome was a welcome reprieve for government contractors, and indeed, for any corporation that is subject to legal or financial disclosure obligations or incentives potentially affecting its decision to undertake an internal investigation. The decision provides clear assurance that a company embroiled in litigation in the DC courts will not be compelled to disclose information and opinions generated during the course of a confidential internal investigation, as long as a significant purpose of the investigation was to obtain or provide legal advice. But there can be no assurance that the DC Circuit’s decision will lead courts in other jurisdictions to reach similar results, particularly in jurisdictions outside the US where multinational corporations (MNCs) may well face efforts to compel disclosure of such information.
- The DC District Court’s Decision
We described the DC District Court’s decision in detail in our previous alert, so we will provide only a very brief summary here. The plaintiff had filed a False Claims Act suit against his former employer KBR, alleging a wide range of improper activities relating to federal government contracts performed in Iraq, and requested discovery of KBR’s internal investigation reports and documents related to the alleged misconduct. KBR refused to provide the documents, arguing that they were covered by the attorney-client privilege and work product protections. The District Court ordered the materials to be produced, after applying a “but for” test which it deemed to be equivalent to the prevailing “primary purpose” test for determining whether an internal investigation was sufficiently grounded in a need for legal advice. The Court found that the “but for” test was not satisfied because, inter alia, KBR’s investigations “resulted from the Defendants [sic] need to comply with government regulations” and therefore “would have been conducted regardless of whether legal advice were [sic] sought.”
- The DC Circuit’s Decision
The DC Circuit granted mandamus and held that the District Court’s decision was legally erroneous. In doing so, it found that KBR’s privilege assertion was “materially indistinguishable” from the privilege claim upheld in Upjohn Co. v. United States, 449 U.S. 383 (1981): the investigation was undertaken to uncover facts necessary to promote legal compliance and was conducted under the auspices of the legal department in its legal capacity.
The appeals court disagreed with the lower court’s distinguishing of KBR from Upjohn for several reasons. First, that KBR consulted only in-house counsel (and not outside counsel as in Upjohn) was of no moment, as “a lawyer’s status as in-house counsel ‘does not dilute the privilege.’” Second, having non-attorneys conduct interviews under the direction of counsel, as KBR did, does not dilute the privilege. Third, Upjohn does not require “magic words” when informing employees that they are assisting the company’s lawyers in a confidential legal investigation.
Regarding the most troubling aspect of the District Court’s decision – that because KBR’s investigation was undertaken to comply with Defense Department regulations, it was not conducted with the purpose of obtaining legal advice but merely to comply with regulatory obligations – the Court of Appeals held that this view was a “false dichotomy” because “[s]o 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.” Thus, the “but-for” test articulated by the District Court was “not appropriate for attorney-client privilege analysis.” Instead, the Court of Appeals noted that investigations and communications can have several primary purposes, and, rather than assuming a communication can have only one primary purpose, a “clearer, more precise, and more predictable” articulation of the “primary purpose” test would be to “boil [it] down to whether obtaining or providing legal advice was one of the significant purposes of the communication.” In applying that legal standard to the KBR facts, the Court found that legal advice was one of the significant purposes of the investigation.
Barko recently filed a petition for en banc review of the Court of Appeals decision; KBR has filed an opposition response. As of the publication of this alert, the petition is outstanding.
- Remaining Risks
In the course of rectifying the District Court’s improper transformation of the “primary purpose” test into a “but for” test, the DC Circuit arguably construed the “primary purpose” test more broadly than other US courts may be willing to do. We believe that the DC Circuit’s decision is correct, and rightly restores rationality to the state of privilege law in the District of Columbia. However, companies cannot be certain that other circuits will be as protective, and the growing trend toward cooperation and information sharing between national enforcement authorities means that MNCs must be mindful of the different rules relating to privilege, or even whether such concepts exist, across the various jurisdictions where they operate.
US Jurisdictions. As mentioned in our previous alert, judges in New York, California, and Florida district courts have recognized the same or a similar version of the “but for” test applied in the DC District Court decision in Barko. Moreover, the judge who issued that decision was actually a member of the US District Court for the Northern District of Ohio, sitting by designation in the DC District Court. As such, he will not be bound by the DC Circuit’s decision when hearing cases arising in his home district. Thus, companies should be prepared for the possibility that some courts might apply the “but for” test to their privilege claims, as well as the possibility that other courts might construe the “primary purpose” test as requiring the identification of a single primary purpose for an investigation. Given these possibilities, it remains prudent for companies to follow the best practices outlined in our previous alert, at least until other appellate courts weigh in.
Other Common Law Jurisdictions. Other common law jurisdictions (e.g., the UK, Australia, and Hong Kong) generally accord in-house lawyers the same status with respect to privilege as external lawyers, provided that they are acting in their capacity as legal professionals providing legal advice to their employer regarding its rights, obligations, liabilities, and remedies. Communications that wholly or partially relate to an in-house lawyer’s performance of other business or administrative roles do not attract privilege.
There are some material differences in this area between US and other common law jurisdictions. For example, in contrast to the US attorney-client privilege which extends to communications made by and to non-lawyers serving as agents of lawyers, the “legal advice privilege” in the UK, Australia, and Hong Kong, does not extend to communications between a lawyer and a third party, even if the purpose of such a communication is to enable a lawyer to provide legal advice to his/her client. In the UK and Hong Kong, a second category of privilege, “litigation privilege,” will protect such communications, provided that they are made for the dominant purpose of litigation that is pending, reasonably contemplated or existing. Whether documents created during the course of an internal investigation can fulfil the criteria required to attract litigation privilege is uncertain and a question of fact that must be established on a case-by-case basis. Another difference between the US and other common law jurisdictions involves the class of company employees who can create privileged documents. In Three Rivers District Council v. The Governor and Company of the Bank of England Rev 1, the UK Court of Appeal held that legal advice privilege only covers communications between a lawyer and the small group of company employees responsible for instructing the company’s lawyers.
Civil Law Jurisdictions. The approach adopted in civil law jurisdictions is markedly different, partly as a result of more limited disclosure obligations that typically do not require a party to disclose documents damaging to its case. In such jurisdictions, the concept of privilege is often more narrowly defined, if it exists at all. For example, in the European Court of Justice case Akzo Nobel Chemicals Ltd. and Akcros Chemicals Ltd. v. Commissionit was held that legal professional privilege does not apply to communications between a company and its in-house lawyers in the context of European Union antitrust investigations.
In many civil law jurisdictions communications between in-house lawyers and their clients are not protected. The policy reasons underpinning this difference of approach are varied. In-house lawyers in some civil law jurisdictions receive different training and have different qualifications than their counterparts in private practice. In other jurisdictions, in-house lawyers are not necessarily governed by the same professional bodies and may not have the same professional status as private practitioners. Furthermore, in some countries (e.g., Russia), the employment relationship between an in-house lawyer and his/her company is sometimes considered to lack the level of independence necessary to justify the privilege.
Expectations of Enforcement Authorities. Mediating the competing and, at times, contradictory demands of applicable national and supranational laws on privilege can become an even more complex task if, as will often be the case, MNCs are also seeking to balance the expectations of multiple enforcement authorities concerning access to the documentary fruits of an internal investigation. When MNCs decide to self-report an alleged compliance breach to enforcement authorities, they will typically only receive credit for the report with respect to charging and/or sentencing decisions if it also helps those authorities to understand the conduct that motivated the report. For example, both the US Department of Justice and the UK Serious Fraud Office (SFO) expect cooperating MNCs to disclose the factual background to their investigations.
Meeting those expectations poses a particular challenge when determining how to deal with materials over which MNCs may be able to claim privilege, such as witness accounts and, to the extent they are produced, written investigation reports. Enforcement authorities have adopted a variety of approaches with respect to this issue. For example, the SFO’s Joint Head of Bribery and Corruption recently stated in a speech to members of the UK’s Aerospace and Defence industry that the SFO expects cooperating companies to provide “access to the factual accounts that witnesses gave.” He went on to say that, to the extent such accounts are claimed to be privileged, MNCs will “need to waive privilege over the factual parts of those accounts.” He also suggested that the SFO is prepared to challenge privilege claims made with respect to such accounts, particularly if such claims suggest that “a lazy, blanket approach is being taken.” The current position is somewhat different in the US as, since the publication of the Filip Memorandum in August 2008, US prosecutors have not been permitted to ask companies to waive attorney-client privilege over the fruits of their internal investigations.