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:
- Companies should promptly engage lawyers—whether in-house or outside—when conducting internal investigations that they may want to protect from discovery.
- Counsel should oversee the investigation and be prepared to demonstrate that oversight and involvement.
- To the extent possible, counsel should draft written reports and memoranda.
- All communications concerning the investigation should be properly marked as containing privileged and confidential attorney–client and/or work product information.
- Oral conversations concerning the investigation should include counsel.
- Employees should be provided Upjohn warnings at the beginning of any interview, regardless of who is conducting it.
- 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.
- 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.
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