The attorney-client privilege applies with equal force to internal investigations today as it did 30 years ago thanks to the D.C. Circuit’s recent decision in In re: Kellogg Brown & Root, Inc., No. 14-5055 (D.C. Cir. June 27, 2014). The appeals court decision vacates the March 6, 2014 district court decision in the same case. At the district court, Judge James Gwin ruled that the attorney-client privilege did not protect documents developed during KBR’s internal investigations of potential fraud relating to its LOGCAP III contract. According to Judge Gwin, KBR’s investigations were not privileged because they were conducted “pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.”
The D.C. Circuit’s decision reverses Judge Gwin’s ruling. The decision recognizes the “uncertainty generated by the novelty and breadth of the District Court’s reasoning” and echoes the Supreme Court’s concern that an “uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.” If the district court’s decision were to stand, “businesses would be less likely to disclose facts to their attorneys and to seek legal advice.” The behavior created by this uncertainty in the attorney-client privilege would undercut the very compliance and disclosure regulations central to Judge Gwin’s analysis.
“One of the significant purposes” test
The D.C. Circuit rejected the “novel” standard employed by the District Court. Although the District Court articulated the well-settled “primary purpose” test for determining whether the attorney-client privilege applies, it grafted onto that standard an additional “but for” test to identify the purpose of the investigation. Under the “but-for” test, “if there was any other purpose behind the communication, the attorney-client privilege  does not apply.” Since applicable regulations (e.g. FAR 52.203-13) require such investigations, the District Court concluded that obtaining legal advice could not have been the primary purpose of the investigation.
The D.C. Circuit rejected the “rigid distinction between a legal purpose on the one hand and a business purpose on the other.” Such a bright line would eviscerate the privilege in the context of internal investigations and simply “is not the law:”
The District Court’s novel approach to the attorney-client privilege would eliminate the attorney-client privilege for numerous communications that are made for both legal and business purposes and that heretofore have been covered by the attorney-client privilege. And the District Court’s novel approach would eradicate the privilege for 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.
Internal investigations can have many purposes, and it is improper for courts to presume that there is (or try to find) only one true purpose. The correct standard is to determine whether obtaining legal advice was “one of the significant purposes” of the investigation. According to the D.C. Circuit, a privileged investigation may be conducted “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:”
[I]t 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?
Care still required to ensure applicability of privilege
The D.C. Circuit also rejected the district court’s suggestion that there is only one set of specific words or one way of conducting an internal investigation. The District Court decision contrasted the KBR investigations with the investigation conducted in Upjohn v. United States, 449 U.S. 383 (1981)—the seminal case on privilege in internal investigations. Unlike Upjohn, KBR’s investigations did not involve outside counsel and were not conducted by attorneys. Nor were KBR employees expressly informed that the purpose of the employee interviews was for the company to obtain legal advice.
The D.C. Circuit concluded that the KBR investigations were “materially indistinguishable” from the investigation in Upjohn. The district court’s reliance on such “purported distinctions” put form over substance. Nothing in Upjohn requires the involvement of outside counsel, the use of attorneys to conduct interviews, or the recital of “magic words” at the start of the interviews. What matters is that a significant purpose of the investigation is to obtain legal advice.
Even though Barko is overruled, KBR’s investigation records may still be subject to disclosure if KBR waived its privilege protection. In his March 11, 2014 order denying KBR’s motion to certify the case for appeal, Judge Gwin noted that “a substantial question exists whether KBR waived any attorney-client privilege claims or work-product protection.” Even if the records were privileged, KBR might have waived the privilege by putting the investigations at issue.
The potential waiver is based on KBR’s motion for summary judgment. In its motion, KBR argued that it routinely investigates and reports alleged violations of law when an investigation uncovers “reasonable grounds to believe a violation occurred,” and that it did not report any possible violations after the Barko investigations. Because KBR relied on the investigations for the inference that they “showed nothing,” Judge Gwin reasoned that it could not “hide behind attorney-client privilege claims to avoid allowing the other side to test the facts.”
The waiver issue is fair game on remand. The D.C. Circuit did not address KBR’s potential privilege waiver and expressly indicated that the District Court could consider any of Barko’s other timely arguments as to why the investigations are not covered by the attorney-client privilege. Whether Judge Gwin will do so remains to be seen.
[UPDATE: Judge Gwin concluded that KBR waived its attorney-client privilege by putting its investigation “at issue” in the litigation and by having its 30(b)(6) designee review the investigation documents. He also required KBR to produce redacted versions of reports protected by work product. Copies of Judge Gwin’s opinions and our review of them is available here.]
Barko v. Halliburton: The next (and final?) chapter (Jan. 4, 2015)
Preserving attorney-client privilege in internal investigations after Barko v. Halliburton (Mar. 25, 2014)
Are internal investigations protected by the attorney-client privilege and work product doctrine? (Mar. 17, 2014)