The D.C. Circuit recently issued its highly anticipated decision in In Re Kellogg Brown & Root, Inc., and the  result should come as a welcome relief for companies conducting internal investigations.  The D.C. Circuit  granted Kellogg Brown & Root Inc.’s (KBR’s) petition for a writ of mandamus and vacated the lower court’s  controversial March 6 production order, which had compelled the production of materials prepared during  the course of an internal investigation overseen by KBR’s in-house counsel.  We previously discussed the  lower court’s ruling in our alert The Evisceration of Attorney-Client Privilege for In-House Investigations?  District Court Rules that Internal Investigations Conducted Pursuant to Regulatory Law and Corporate  Policy are Not Protected by Attorney-Client Privilege or the Work-Product Doctrine.

The underlying case involves a False Claims Act qui tam action brought by a Harry Barko, a former KBR  employee, alleging that KBR and certain subcontractors defrauded the U.S. Government by inflating the  costs of construction services on military bases in Iraq.  Prior to the initiation of the suit, KBR had  conducted an internal investigation in accordance with its Code of Business Conduct, as required by  government procurement regulations, to investigate potential violations of law and corporate policy.   During discovery, Barko sought documents prepared during the course of KBR’s prior internal investigation,  and KBR responded by claiming the documents were protected under the attorney-client privilege and the  work product privilege.

After reviewing the disputed documents in camera, the district court ruled that the documents were not  covered by the attorney-client privilege because the KBR’s investigation was not undertaken for the  primary purpose of seeking legal advice; but rather, the investigation was a routine corporate compliance  investigation required by regulatory law and corporate policy.  The district court also rejected KBR’s claim  for work product privilege, ruling that documents were prepared in the ordinary course of business, not  because of the prospect of litigation.  Thus, the district court effectively denied attorney-client privilege  over internal investigations that arise for more than one purpose.

On review, the D.C. Circuit held that the district court’s privilege ruling was clearly erroneous under  Upjohn v. United States.  As the D.C. Circuit explained, “the District Court’s novel approach would  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.”

The D.C. Circuit further clarified that the primary purpose test—which is used to resolve privilege disputes  when attorney-client communications may have both legal and business purposes—does not require the  court to identify the one primary purpose of the communication.  In so doing, the D.C. Circuit wholly  rejected the district court’s requirement that the communications at issue have the “sole purpose” of  obtaining legal advice.  Instead, the court should ask whether obtaining legal advice was a primary  purpose of the communication.  “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,” according to the Court’s ruling.

While the D.C. Circuit’s decision should resolve much of the uncertainty that has followed in the wake of  the district court’s ruling, companies should remain diligent when undertaking internal investigations to  create a record which clarifies the role of counsel, and ensure that the primary purpose test is met.  For  example, prior to launching internal investigations related to compliance with the law, companies should  involve lawyers (either in-house or outside counsel) to establish the attorney-client privilege.  Moreover,  during an internal investigation directed by counsel, companies should establish a process to properly identify the communications made during, and the results from, the investigation (e.g., documents,  meeting minutes, emails,  interview notes, reports, etc.) as protected by the attorney-client privilege.