On June 27, 2014, the D.C. Circuit ruled that Upjohn Co. v. United States, 449 U.S. 383 (1981) (recognizing that the attorney-client privilege may apply to corporate internal investigations) should be interpreted broadly and that the attorney-client privilege may apply to communications made during the course of an attorney-directed internal investigation—including communications made for fact-gathering purposes—so long as obtaining or providing legal advice was one of the "significant purposes" of the investigation. In so ruling, the D.C. Circuit reversed a district court decision that could have dramatically eroded the privilege with regard to internal investigations.
In 2005, an employee of Kellogg Brown & Root, Inc. ("KBR") filed a complaint under the False Claims Act alleging that KBR had defrauded the United States in connection with various military contracts. During discovery, a privilege dispute arose as to various documents created through an internal investigation KBR conducted regarding the alleged fraud. After reviewing the disputed documents in camera, the district court ruled that they were not covered by the attorney-client privilege because KBR's desire for legal advice was not the "but for" cause of its decision to conduct the internal investigation, and because its internal investigation was distinguishable from the one discussed in Upjohn. KBR promptly filed a petition for a writ of mandamus, which was granted.
Adoption of the "Significant Purpose" Test for Applicability of the Privilege
In its ruling, the district court applied the commonly used "primary purpose" test whereby the attorney-client privilege applies only to communications made for the primary purpose of seeking or providing legal advice. Under this test, a secondary non-legal motivation for a communication does not render the privilege inapplicable. But, the district court then went a step further, adding a "but for" requirement whereby the privilege applies only to communications that would not have been made "but for" a desire to seek or provide legal advice. Applying this novel requirement, the district court rejected KBR's privilege claims because—regardless of its desire to obtain legal advice—it would have conducted its investigation anyway, either pursuant to its own corporate policies or in order to comply with applicable regulations for military contracts.
The D.C. Circuit, however, rejected the district court's "but for" requirement, finding it to be contrary to common law principles and unsupported by any controlling authorities. The D.C. Circuit also modified the "primary purpose" test, finding that courts are not required to make the inevitably imprecise determination as to the single primary purpose of a communication. Instead, the D.C. Circuit explained that "[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies ..." Under this "significant purpose" test, the attorney-client privilege will attach to an attorney-directed internal investigation so long as obtaining or providing legal advice was a significant goal of the investigation, even if the investigation also served other non-legal purposes.
The Privilege Recognized In Upjohn Should Be Broadly Applied
In its ruling, the district court also attempted to distinguish the case from Upjohn on various grounds that the D.C. Circuit found unpersuasive. First, while KBR's investigation was directed by in-house counsel, rather than outside counsel, the D.C. Circuit rejected any distinction between the two for privilege purposes. Second, the D.C. Circuit found it to be irrelevant that KBR's investigation involved interviews conducted by non-attorneys, as the interviews were still taken at the direction of KBR's in-house counsel. Third, the D.C. Circuit, contrary to the district court, found it immaterial that KBR had not told the employees interviewed as part of its investigation that they were being questioned in order to facilitate legal advice. Rather, the D.C. Circuit found it to be sufficient that the employees were told to treat the investigation as highly confidential.
Implications for Businesses
The D.C. Circuit's decision is a major victory for businesses that use counsel-directed internal investigations to monitor legal compliance and assess potential liabilities. Additionally, as the D.C. Circuit did not limit the "significant purpose" test to internal investigations alone, the ruling may be helpful to businesses seeking to shield from production other types of communications that involve legal issues to a significant extent, but which were motivated by non-legal goals. Businesses should, however, exercise caution when attempting to invoke the privilege with regard to communications that are primarily non-legal in nature.