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.