The attorney-client privilege broadly applies to communications made for the purpose of obtaining or providing legal advice. However, what if an internal investigation has multiple purposes, some of which are to provide legal advice and some of which are not? On June 27, 2014, the U.S. Court of Appeals for the District of Columbia Circuit held, in In re: Kellogg Brown & Root, Inc.,[1] that such investigations are privileged as long as “one of the significant purposes” of the internal investigation is to obtain legal advice.[2] The privilege is not defeated “even if there were also other purposes for the investigation and even if the investigation was mandated by regulation.”[3] As a result, “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,” can still be privileged if one significant purpose of the investigation is to obtain facts necessary to provide legal advice.[4]

This alert analyzes the Circuit Court and District Court opinions and discusses best practices that companies should follow to protect the privileged nature of their investigations.

The District Court Decision

In United States ex rel. Barko v. Haliburton, the plaintiff brought a False Claims Act action alleging that Kellogg Brown & Root, Inc. (“KBR”) defrauded the U.S. government by inflating costs and accepting kickbacks while administering military contracts.[5] During discovery, the plaintiff sought documents related to KBR’s internal investigations into the alleged fraud, which KBR claimed were protected by the attorney-client privilege and work product doctrine. KBR initiated the investigation as a result of a “tip” concerning a potential code of conduct violation. The regulatory-required compliance program required that KBR follow up.[6]

The District Court held that the documents were not privileged because the “primary purpose” of the investigation was not to secure legal advice but instead to comply with Department of Defense contracting regulations to maintain internal compliance programs.[7] The District Court held that the privilege only applied if the company satisfied the “but for” test. An internal investigation to gather facts to provide legal advice would only be privileged if “but for” that purpose the company would not have investigated. If the company would have investigated for regulatory compliance reasons in any event, then the privilege would not attach no matter what other purposes the investigation served.[8] Since the company would have conducted an internal investigation for non-privileged compliance reasons, the District Court reasoned, the investigation was not privileged.

The District Court also relied on three bases to distinguish Upjohn, where the Supreme Court held that an internal investigation was privileged. First, the investigation was conducted by in-house counsel who did not consult with outside lawyers. The District Court concluded that this undermined the argument that the investigation was undertaken to obtain legal advice. Second, the interviews were conducted by non-attorneys, typically investigators from KBR’s security department. And third, the employees who were interviewed were not informed that the purpose of the interview was to assist KBR in obtaining legal advice. The District Court held that the company had to produce all materials concerning the investigation. Had the District Court’s decision been upheld, it would have prevented the application of the privilege to internal investigations required by government or corporate compliance policies.[9]

The D.C. Circuit Reverses

The D.C. Circuit granted mandamus and reversed. It held that the District Court’s “but for” test “is not appropriate for attorney-client privilege analysis.”[10] The Court of Appeals explained the “primary purpose” test applied to determine whether communications are privileged “does not draw a rigid distinction between a legal purpose on the one hand and a business purpose on the other.”[11] It is “not correct for a court to try to find the one primary purpose in cases where a given communication plainly has multiple purposes.”[12] Rather, the test is:

Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?[13]

The Court cited the Restatement (Third) of The Law Governing Lawyers for the proposition that “the privilege applies if one of the significant purposes of a client in communicating with a lawyer is that of obtaining legal assistance.”[14] “Sensibly and properly applied,” the D.C. Circuit stated, “the test boils down to whether obtaining or providing legal advice was one of the significant purposes of the attorney-client communication.”[15] This means that an internal investigation may be protected if it was conducted “pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy.”[16]

The Court of Appeals also rejected the three bases on which the District Court distinguished Upjohn.

First, the fact that in-house counsel did not consult with outside lawyers did not matter because “Upjohn does not hold or imply that the involvement of outside counsel is a necessary predicate for the privilege to apply.” “[A] lawyer’s status as in-house counsel ‘does not dilute the privilege.’”[17]

Second, the fact that the interviews were conducted by non-attorneys did not defeat the privilege because “communications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney-client privilege.”[18]

Third, the failure to expressly inform employees that the purpose of the interview was to assist the company in obtaining legal advice did not defeat the privilege because “nothing in Upjohn requires a company to use magic words to its employees in order to gain the benefit of the privilege for an internal investigation.”[19] It was enough that employees were told not to discuss their interviews without the authorization of the KBR General Counsel.  

Best Practices Going Forward

While In re: Kellogg Brown & Root, Inc. establishes strong precedent that should provide companies comfort in conducting investigations arising from their corporate compliance programs, there are important takeaways for companies to consider in the future. 

First, companies should document at the outset of an investigation that one of the significant purposes of the internal investigation is to obtain the facts necessary to provide legal advice.

Second, regardless of whether attorneys or their agents are conducting interviews, all interviewees should be instructed that the purpose of the interview is to assist the company in obtaining legal advice (often termed Upjohn instructions). Adequate Upjohn instructions are important for any internal investigation because they memorialize the privilege and also properly instruct the witness about the attorney-client privilege in such an interview.

Third, if attorneys are not conducting the investigation, attorneys should actively direct and monitor the investigation in order to ensure it remains privileged. As part of that monitoring, it is also prudent for counsel to memorialize contemporaneously the fact that the investigation is being undertaken to obtain legal advice, and that the people conducting the investigation are acting at counsel’s request and direction. Active involvement and thorough documentation throughout the investigation will help demonstrate that a significant purpose of the investigation was to obtain legal advice.

Fourth, attorneys should give strong consideration to conducting the interviews themselves. If interviews are conducted by non-attorneys, then a court has a possible complication in concluding that the investigation was being done for business reasons, rather than to obtain legal advice. Further, because external attorneys do not wear multiple hats, unlike in-house counsel, the involvement of outside counsel in an investigation can more clearly demonstrate the legal nature of the investigation.

Finally, companies should examine not only the D.C. Circuit’s decision in In re: Kellogg Brown & Root, Inc., but decisions in the jurisdiction in which the investigation is being conducted, which may articulate the standards differently.[20]

Notes:

[1] No. 14-5055, slip op. (D.C. Cir. June 27, 2014).

[2] Id. at 10 (emphasis added).

[3] Id. at 8.

[4] Id. at 9.

[5] In re Kellogg Brown & Root, Inc., No. 14-5055, slip op. at 1. 

[6] Id.

[7] Id. at *3.

[8]United States ex rel. Barko v. Haliburton, 2014 WL 1016784, *2-3, 1:05-CV-1276 (D.D.C. March 6, 2014).

[9] In re Kellogg Brown & Root, Inc., at 9 (suggesting that the District Court’s approach “would eradicate the attorney-client privilege for internal investigations conducted by businesses that are required by law to maintain compliance programs.”).

[10] Id. at 9.

[11] Id. at 10.

[12] Id. at 9-10 (emphasis in original).

[13] Id. at 10 (emphasis in original). 

[14] Id. at 10, citing 1 RESTATEMENT § 72, Reporter’s Note, at 554.

[15] Id. at 10.

[16] Id.

[17] Id. at 6.

[18] Id.

[19] Id. at 7.

[20] See, e.g., First Chicago Int’l v. United Exchange Co., 125 F.R.D. 55, 57 (S.D.N.Y. 1989) (Proponent of privilege has to demonstrate that “but for” the need for legal advice the communication would not have taken place.)