United States: In Re: Kellogg Brown & Root, Inc., et al.: D.C. Circuit Grants Petition For Mandamus And Protects Attorney–Client Privilege Of Internal Investigation In False Claims Act Case

In March 2014, we issued an  Alert summarizing a decision issued by the U.S. District Court for the District of Columbia in United States ex rel. Barko v. Halliburton Co., et al.1 The District Court granted a relator's motion to compel and ordered defendants to produce documents reflecting the results of an internal investigation related to the subject matter of the relator's complaint. Our Alert warned that the District Court's decision presented troubling implications for companies—particularly in regulated industries—and specifically their ability to conduct internal audits and investigations without using outside counsel. Further, our Alert suggested that the District Court's decision misconstrued and misapplied the United States Supreme Court's decision in Upjohn Co. v. United States.2

The D.C. Circuit, on petition for writ of mandamus,3 stayed the District Court's document production order and held oral argument on the mandamus petition. In its June 27, 2014 decision, the D.C. Circuit granted the petition for writ of mandamus and vacated the District Court's production order.4 The D.C. Circuit confirmed that Upjohn is the standard by which the attorney–client privilege should be judged when assessing whether confidential employee communications made during a company's internal investigation led by company lawyers will be protected by the attorney–client privilege. It particularly emphasized that the test for applying the privilege is whether obtaining or providing legal advice was "a primary purpose of the communications," rejecting the rule that the privilege applies only if the communication would not have been made but for the fact that legal advice was sought.

Background and the District Court's Decision

KBR asserted attorney–client privilege and work product protection in response to relator's requests for "internal audits and investigations" into the alleged misconduct and the related subject matter. The investigations were undertaken by a director of the Code of Business Conduct ("COBC") organization and completed by a team of non-lawyers, following receipt of an employee tip about potential misconduct. After the investigations were completed, summary reports were prepared and forwarded to the company's law department.

The District Court reviewed the summary investigative reports and ruled that they were not protected by the attorney–client privilege or the attorney work product doctrine. The District Court found that the investigations were "undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice." The District Court referred to Department of Defense regulations that "require contractors to have internal control systems such as [defendants'] COBC program" so that reported instances of alleged misconduct can be investigated and reported. Applying a "but for" test used to determine the applicability of the attorney–client privilege, the District Court concluded that the implementation of these "routine corporate, and apparently ongoing, compliance investigation[s]" was nothing more than the company's implementation of DOD requirements.

The District Court also found persuasive that employees interviewed by COBC investigators were not expressly advised that the purpose of these investigations was to obtain "legal advice." According to the District Court, the absence of this express notice was evidence that the reports were not protected under the attorney–client privilege. Finally, the District Court noted additional characteristics of the investigation that weighed against the privilege, including that employees were asked to sign confidentiality statements that discussed only potential "adverse business impact"—and not legal implications—if disclosures were made. Finally, the interviews were conducted by non-attorneys.

The District Court also held that the documents were not protected under the work product doctrine. The District Court again emphasized that the investigation was conducted "in the ordinary course of business" pursuant to DOD regulatory requirements; thus, the documents were not prepared in anticipation of litigation. In addition, the court highlighted timing, particularly the fact that the investigations were conducted years prior to the unsealing of the qui tam litigation.

United States v. Upjohn

In Upjohn, the Supreme Court held that the attorney–client privilege applies to corporations. The privilege was applicable—indeed "essential"—because of the "vast and complicated array of regulatory legislation confronting the modern corporations" that required them to "constantly go to lawyers to find out how to obey the law, ... particularly since compliance with the law in this area is hardly an instinctive matter."5 In Upjohn, the communications were made by company employees to company attorneys during an attorney-led investigation to ensure compliance with the law.6 The Supreme Court held that the privilege applied to the internal investigation and covered the communications between company employees and company attorneys.

The D.C. Circuit's Mandamus Decision

The D.C. Circuit held that KBR's "assertion of the privilege in this case is materially indistinguishable from Upjohn's assertion of the privilege in that case."7 The D.C. Circuit then rejected all of the District Court's prior efforts to distinguish KBR's arguments regarding the application of Upjohn.

The D.C. Circuit rejected the District Court's "but for" test for applying the privilege, under which the lower court had found that the duty under Department of Defense regulations to adhere to compliance programs meant that the "primary purpose" of the investigation could not be to obtain or provide legal advice. Many courts—including the D.C. Circuit—have used the "primary purpose" test to resolve disputes when attorney–client communications may have both legal and business purposes. The D. C. Circuit emphasized that the question is simply whether obtaining or providing legal advice was "a" primary purpose of the communication—one of the significant purposes—so the privilege can apply even if the communication also had a business purpose. There is no need for "a rigid distinction" between legal and business purposes. To clarify the law, the circuit court explained this rule and its logic at length:


In our view, the District Court's analysis rested on a false dichotomy. So 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.

Given the evident confusion in some cases, we also think it important to underscore that the primary purpose test, sensibly and properly applied, cannot and does not draw a rigid distinction between a legal purpose on the one hand and a business purpose on the other. After all, trying to find the one primary purpose for a communication motivated by two sometimes overlapping purposes (one legal and one business, for example) can be an inherently impossible task. It is often not useful or even feasible to try to determine whether the purpose was A or B when the purpose was A and B. It is thus not correct for a court to presume that a communication can have only one primary purpose. It is likewise not correct for a court to try to find the one primary purpose in cases where a given communication plainly has multiple purposes. Rather, it is clearer, more precise, and more predictable to articulate the test as follows: Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication? As the Reporter's Note to the Restatement says, "In general, American decisions agree that the privilege applies if one of the significant purposes of a client in communicating with a lawyer is that of obtaining legal assistance." 1 RESTATEMENT §72, Reporter's Note, at 554. We agree with and adopt that formulation—"one of the significant purposes"—as an accurate and appropriate description of the primary purpose test.


The D.C. Circuit also ruled that investigators are not required expressly to inform interviewed employees that the purpose of the interview is to assist the company in obtaining legal advice. Nothing in Upjohn requires "a company to use magic words" to gain the benefit of the privilege for an internal investigation. In KBR's investigation, as in Upjohn, employees knew that the legal department was conducting an investigation of a sensitive nature and that the information they disclosed would be protected. In fact, KBR employees were told not to discuss their interviews without the specific advance authorization of company counsel.

That many of the interviews in the investigation were conducted by non-attorneys was not dispositive. The investigation was conducted at the direction of attorneys in KBR's legal department. The D.C. Circuit held that communications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the privilege.

And, finally, the D.C. Circuit ruled that Upjohn did not require or hold that involvement of outside counsel was a necessary prerequisite for the privilege to apply.

KBR reaffirms important principles established in Upjohn and clarifies that internal investigations are still protected by the attorney–client privilege even when required by government regulation. In light of Upjohn and KBR, companies conducting internal investigations should be mindful of certain "best practices" to follow:

  1. Companies should promptly engage lawyers—whether in-house or outside—when conducting internal investigations that they may want to protect from discovery.
  2. Counsel should oversee the investigation and be prepared to demonstrate that oversight and involvement.
  3. To the extent possible, counsel should draft written reports and memoranda.
  4. All communications concerning the investigation should be properly marked as containing privileged and confidential attorney–client and/or work product information.
  5. Oral conversations concerning the investigation should include counsel.
  6. Employees should be provided Upjohn warnings at the beginning of any interview, regardless of who is conducting it.
  7. Particularly if counsel is not conducting an interview or part of a communication, employees should be instructed that the investigation is being conducted under the authority of legal counsel and for the purpose of providing legal advice.
  8. Finally, a company should consider retaining outside counsel if the sensitivity or breadth of the investigation will likely be significant or at least greater than its in-house counsel can manage, or if the company feels it necessary or appropriate to use counsel experienced in conducting internal investigations and in implementing the "best practices" identified above.

Footnotes

1 Relator sued Kellogg Brown & Root ("KBR"), its parent Halliburton Co., and other entities. Relator had previously worked for KBR. The District Court decision is captioned Halliburton, but the D.C. Circuit decision is captioned KBR.

2 See 449 U.S. 383 (1981).

3 KBR asked the District Court to certify the privilege question for interlocutory appeal and to stay its order pending petition for mandamus. The District Court denied both requests.

4 See In re: Kellogg Brown & Root, Inc., et al., 2014 U.S. App. LEXIS 12115 (D.C. Cir. June 27, 2014).

5 449 U.S. at 392.

6 Id. at 392, 394.

7 2014 U.S. App. LEXIS 12115 at *6.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
J. Andrew Jackson
Stephen G. Sozio
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions