On June 27, in In re Kellogg Brown & Root, Inc.,1 the United States Court of Appeals for the D.C. Circuit quickly allayed the fears of government contractors and other businesses concerned by U.S. District Judge James S. Gwin’s March 6, 2014, decision2 that created a “but for” threshold test to determine whether the attorney-client privilege applied to documents developed during an internal investigation.
Granting the extraordinary remedy of a writ of mandamus,3 the D.C. Circuit vacated the U.S. District Court for the District of Columbia’s decision, determining that uncertainties in the application of the attorney-client privilege would “eradicate” the privilege for businesses that typically would be able to disclose sensitive facts to counsel during internal investigations conducted pursuant to legally required compliance programs. Contrary to the general understanding of the attorney-client and work-product privileges, the District Court’s decision rendered internal investigation documents unprotected unless the investigation was conducted solely for the purpose of seeking legal advice or the documents were prepared in anticipation of litigation.
The District Court’s surprising ruling stemmed from Henry Barko’s qui tam suit under the False Claims Act alleging that a government contractor and subcontractor inflated costs and accepted kickbacks while administering services in Iraq. Granting Barko’s motion to compel documents, the District Court held that in order for a business to invoke the attorney-client privilege for documents created during an internal investigation, it must show that the communications would not have been made “but for” the fact that legal advice was being sought. The D.C. Circuit determined that this narrow application of the attorney-client privilege to internal investigations was simply wrong.4
The District Court’s decision rested on the following: 1) the investigation was conducted pursuant to internal compliance procedures and Department of Defense regulations; 2) the investigation was conducted by non-attorney investigators under the direction of the in-house legal department and outside counsel was not involved; and 3) the employees interviewed were never informed, orally or in confidentiality agreements, that the investigation was being conducted for the purpose of legal advice.
The D.C. Circuit wholly rejected the District Court’s reasoning. It held that the defendants’ assertion of the attorney-client privilege was “materially indistinguishable” from the seminal case Upjohn Co. v. United States,5 in which the Supreme Court held that the attorney-client privilege applied to an internal investigation led by company lawyers. The D.C. Circuit clarified Upjohn and held that the privilege applies if one of the significant purposes of the investigation was to obtain or provide legal advice, regardless of whether the investigation was also conducted for compliance or policy reasons.
While the D.C. Circuit’s In re Kellogg Brown & Root, Inc., decision is a relief, it highlights the need to carefully craft compliance and internal investigation procedures. In addition to privilege concerns, compliance officers must be mindful of the potential for waiver of the privilege, which was not an issue addressed in the D.C. Circuit’s decision. In order to avoid the possibility of having to turn over documents, businesses and in-house legal departments should take the time to structure internal investigations prior to taking the first step.
1In re Kellogg Brown & Root, Inc., 14-5055, 2014 WL 2895939 (D.C. Cir. June 27, 2014).
2United States ex rel. Barko v. Halliburton Co., 1:05-CV-1276, 2014 WL 1016784 (D.D.C. Mar. 6, 2014).
3The defendants sought a writ of mandamus when the District Court denied a request to certify for interlocutory appeal the ruling that internal investigation documents were not privileged and ordered the documents produced within days.
4The D.C. Circuit did not directly address the work-product privilege issue in In re Kellogg Brown & Root, Inc.
5Upjohn Co. v. United States, 449 U.S. 383 (1981).