Privilege Protections Triggered When a Significant Purpose of the Investigation Is to Obtain Legal Advice
Corporate counsel can rest a little easier now. In a widely anticipated decision issued June 27, 2014, In re Kellogg Brown & Root, Inc.,1 the D.C. Circuit granted a writ of mandamus and vacated a district court order requiring the production of a company's confidential internal investigation documents presumed to be protected by the attorney-client privilege. The D.C. Circuit rejected the finding that communications made at the direction of counsel relating to a government contractor's internal investigation were not for the "primary purpose" of obtaining legal advice because the investigation was conducted pursuant to a mandatory compliance policy. Significantly, it rejected the premise that a communication was privileged only if it would not have been made "but for" the seeking of legal advice. The D.C. Circuit clarified the "primary purpose" test to mean that as long as "one of the significant purposes" of the internal investigation communication was to obtain legal advice, then the attorney-client privilege applied.
This alert considers the district court's order, explains the D.C. Circuit's clarification of the primary purpose test and identifies areas where continued considerations in internal investigations are necessary to protect the attorney-client privilege.
The Barko Opinion's "But For" Analysis of the Primary Purpose Test
The underlying district court order stemmed from a privilege dispute over certain documents created by the defendants (collectively referred to as Kellogg, Brown & Root or KBR) during internal investigations KBR instituted pursuant to its Code of Business Conduct (COBC).2 In its decision, the district court acknowledged that in order to prevail on the assertion of privilege, the party seeking the privilege must show that the purpose of the "communication is for primarily securing either (i) an opinion on the law, (ii) legal services or (iii) assistance in some legal proceeding."3 Citing the U.S. Supreme Court's decision, Upjohn Co. v. United States, the district court noted further that the privilege applies to companies in the same manner as long as the communication was made between employees and counsel for the company, acting as such at the direction of corporate officials seeking legal advice for the company.4 Applying this standard, the district court highlighted several facts in support of its finding that the communications made during these investigations were not for the purpose of obtaining legal advice. Specifically, the court highlighted that (a) outside counsel was not consulted on whether and how to conduct the investigation; (b) the investigation was conducted by compliance staff rather than attorneys; and (c) employees were never informed either in writing or in person that their interviews were being conducted pursuant to a request for legal advice.5
Perhaps most significant, the district court found that the investigative memorandum created under the COBC was done pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.6 The investigation was done because the company was required to implement a corporate compliance program and investigate misconduct as a condition of participating in government contracting. Thus, the primary purpose of the investigation was not to obtain or provide legal advice because the communication did not take place "but for" the purpose of obtaining that advice.7
The district court ordered the production of the investigative documents and the defendants adamantly objected. The defendants asked the district court to certify the privilege question to the D.C. Circuit for interlocutory appeal and to stay its order pending a petition for mandamus. The district court denied the request. The defendants then sought a writ of mandamus, which would allow the decision to be vacated if the district court committed clear error and the error was one that justifies mandamus.
D.C. Circuit Emphasizes Upjohn and Clarifies the Primary Purpose Test
The D.C. Circuit granted the writ of mandamus and vacated the district court's order because of the district court's interpretation of the "primary purpose" test and the order's potentially far-reaching implications. The D.C. Circuit found the district court's order conflicted squarely with Upjohn Co. v. United States' findings that "the attorney client privilege protects confidential employee communications made during a business's internal investigation led by company lawyers."8 The circuit court rejected several aspects of the underlying case, which the district court viewed as distinguishing it from Upjohn. First, the circuit court made clear that a lawyer's status as in-house counsel "does not dilute the privilege," as long as in-house counsel is being consulted and involved for the purpose of seeking legal advice.9 Second, the circuit court emphasized that communications are privileged if they are made to non-attorneys acting as agents of in-house or outside counsel attorneys who are directing the internal investigations. Third, it emphasized that employees are not required to be told that the purpose of the investigation is to obtain legal advice because, under Upjohn, "no magic words" are necessary to invoke the protections of privilege for internal investigations. Here, the circuit court found it was enough that the employees knew that the company's legal department was conducting an investigation of a sensitive nature, that the information they disclosed would be protected and that they were told not to discuss their interviews without the specific advanced authorization of KBR general counsel.
On a broader level, the circuit court rejected the district court's "but for" interpretation of the primary purpose test and noted that the district court's approach would eradicate the attorney-client privilege for internal investigations conducted by companies that are required by law to maintain compliance programs. Such precedent would have a chilling effect on companies because they would be less likely to disclose facts to their counsel, seek legal advice and it would limit the valuable efforts of corporate counsel to ensure their client's compliance with the law.10
The circuit court explained further that it would be incorrect for a court to presume that a communication can have only one primary purpose. Instead, when assessing whether a communication made is protected by the attorney-client privilege, the court should ask "[w]as obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?"11 The circuit court adopted the "one of the significant purposes" formulation as an accurate and appropriate description of the primary purpose test. In particular, "in the context of an organization's internal investigation, if one of the significant purposes of the internal investigation was to obtain legal advice, the privilege would apply."12 Significantly, the circuit court also made clear that this privilege could apply regardless of whether "an internal investigation was conducted pursuant to a company's compliance program required by statute or regulation, or was otherwise conducted pursuant to a company's compliance policy."13
The circuit court's clarification is significant because it appropriately acknowledges that an internal investigation can be conducted for multiple purposes. Particularly, an investigation can be conducted pursuant to a business purpose to adhere to a company's regulatory obligations as well as pursuant to a legal purpose to obtain legal advice regarding whether the law has been violated. Moreover, it remains a sound business practice for companies to consult corporate counsel, especially when faced with a complicated regulatory matter, in an attempt to help ensure that the company adheres to the law.
Lessons Learned from the D.C. Circuit's Opinion
The D.C. Circuit Court's opinion should be a welcomed development for many diligent and proactive companies with compliance policies in place that call for the prompt investigation of potential misconduct. After all, it reaffirms the Upjohn precedent that the attorney-client privilege protects confidential employee communications made during a company's internal investigation and holds that the privilege will attach as long as a significant purpose of the investigation's communications is to provide legal advice. While this is reassuring, it is prudent for companies to remain diligent in how they conduct internal investigations to ensure the privilege applies. At a minimum, a company should be following these best practices below.
Tips for Conducting Internal Investigations
- First, have attorneys — whether outside or in-house counsel — make clear that the investigation is being conducted by counsel or led by and conducted at the direction of counsel.
- Second, conduct the investigation interviews with all of the indicia of privilege under Upjohn. In particular, it remains prudent during interviews to be clear that (a) an interview is being conducted to gather facts in order to provide legal advice for the company; (b) the communications are protected by the attorney-client privilege and must be kept in confidence to protect that privilege; and (c) the company may elect to waive the attorney-client privilege and reveal the discussion to third parties, at its sole discretion.
- Third, document the investigation with all of the indicia of privilege under Upjohn. In particular, companies should consider employee confidentiality agreements, having appropriate protective legends on documents, and even a carefully prepared, contemporaneous explanation that the investigation is being conducted for the purpose of obtaining legal advice on whether a violation has occurred.
- Finally,companies should ensure their compliance and internal investigation policies explicitly state that a significant purpose of conducting internal investigations is to allow the company to seek and obtain legal advice.
In light of the D.C. Circuit's decision, if these steps are taken, a company should once again be comfortable implementing and adhering to compliance programs that require the prompt investigation into misconduct, without the fear of its communications not being protected by the attorney-client privilege.