In the Courts

D.C. Circuit Rules on Attorney-Client Privilege Protections for Corporate Internal Investigations

On June 27, 2014, the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit” or “Circuit”) vacated the order of the U.S. District Court for the District of Columbia (“District Court”) that directed Kellogg Brown & Root, Inc. (“KBR”) to turn over internal investigation materials and granted KBR's petition for a writ of mandamus. In stating that “the District Court's decision is irreconcilable with Upjohn,” the court concluded that “[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.” In re Kellogg Brown & Root, Inc., No. 14-5055, 2014 WL 2895939, at *1, 4 (D.C. Cir. June 27, 2014). In dissecting and disagreeing with the trial court's reasoning, the D.C. Circuit cited an amicus brief “joined by numerous business and trade associations,” and pointed out that “the District Court's novel approach has the potential to 'work a sea change' in the well-settled rules governing internal corporate investigations.'” Id. at * 8, 7.

In 2005, Harry Barko, a former employee of KBR, filed a False Claims Act complaint against KBR and its related corporate entities, alleging that “KBR and certain subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq.” Id. at *1. Barko sought discovery of documents related to a prior internal investigation, overseen by the KBR Legal Department under its Code of Business Conduct. The District Court reviewed the documents in camera and concluded that the attorney-client privilege did not apply because, in applying the primary purpose test, the Court determined that “the communication would not have been made 'but for” the fact that legal advice was sought.” Id.

Prior to KBR filing a petition for a writ of mandamus, KBR requested, and the District Court denied, certification of the privilege question for interlocutory appeal and related stay of the order. The matter has been closely watched by corporations large and small, as well as the corporate defense bar, because of its potential impact on internal investigations and compliance programs, with a number of organizations and trade associations filing an amicus brief in support of KBR.

The Circuit made quick work of all of the District Court's arguments for distinguishing Upjohn , and calmed the corporate world by holding that: 1) involvement of outside counsel is not necessary for privilege to apply; 2) the privilege also applies to non-attorney agents working at the direction of attorneys in internal investigations; and 3) expressly informing employees “that the purpose of the interview was to assist the company in obtaining legal advice” is not necessary, nor are any “magic words” needed “in order to gain the benefit of the privilege for an internal investigation.” Id. at *3.

The District Court was also found to have erred in concluding that the attorney-client privilege does not apply when an internal investigation is undertaken pursuant to regulatory law and corporate policy, rather than for the purpose of obtaining legal advice. Id. at *4. In rejecting the reasoning, the Circuit Court recognized the potential far reaching consequences of the District Court's erred approach that “would eradicate the attorney-client 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.” Id. at *4.

The D.C. Circuit repeatedly called the District Court's approach “novel,” noting that it “erred because it employed the wrong legal test.” Id. at *4. According to the D.C. Circuit opinion, “[t]he but-for test articulated by the District Court is not appropriate for attorney-client privilege analysis” and further the Circuit “reject[s] the District Court's but-for test as inconsistent with the principles of Upjohn and the longstanding attorney-client privilege law.” Id. at *4.

The D.C. Circuit went on to provide clarity on the “sensible” and “properly applied” primary purpose test that should be applied, by explaining that “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 purpose of the communication?” Id . at *5 (emphasis in original). Reiterating the privilege's application to internal investigations directed by counsel, the D.C. Circuit made clear “if one of the significant purposes of the internal investigation was to obtain or provide legal advice, the privilege will apply.” Id.

The D.C. Circuit acknowledged the importance of the opinion, noting that “prudent counsel monitor court decisions closely and adapt their practices in response ' that many organizations are well aware of and deeply concerned about the uncertainty generated by the novelty and breadth of the District Court's reasoning.” Id. at *8. The Circuit went on to call attention to the importance of certainty in the privilege protection, citing the U.S. Supreme Court in Upjohn to note “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.” Id . (citing Upjohn at 393).

In the Courts and Business Crimes Hotline were written by Feifei Ren , Foreign Legal Intern for Mayer Brown, LLP, Washington, DC.

D.C. Circuit Rules on Attorney-Client Privilege Protections for Corporate Internal Investigations

On June 27, 2014, the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit” or “Circuit”) vacated the order of the U.S. District Court for the District of Columbia (“District Court”) that directed Kellogg Brown & Root, Inc. (“KBR”) to turn over internal investigation materials and granted KBR's petition for a writ of mandamus. In stating that “the District Court's decision is irreconcilable with Upjohn,” the court concluded that “[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.” In re Kellogg Brown & Root, Inc., No. 14-5055, 2014 WL 2895939, at *1, 4 (D.C. Cir. June 27, 2014). In dissecting and disagreeing with the trial court's reasoning, the D.C. Circuit cited an amicus brief “joined by numerous business and trade associations,” and pointed out that “the District Court's novel approach has the potential to 'work a sea change' in the well-settled rules governing internal corporate investigations.'” Id. at * 8, 7.

In 2005, Harry Barko, a former employee of KBR, filed a False Claims Act complaint against KBR and its related corporate entities, alleging that “KBR and certain subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq.” Id. at *1. Barko sought discovery of documents related to a prior internal investigation, overseen by the KBR Legal Department under its Code of Business Conduct. The District Court reviewed the documents in camera and concluded that the attorney-client privilege did not apply because, in applying the primary purpose test, the Court determined that “the communication would not have been made 'but for” the fact that legal advice was sought.” Id.

Prior to KBR filing a petition for a writ of mandamus, KBR requested, and the District Court denied, certification of the privilege question for interlocutory appeal and related stay of the order. The matter has been closely watched by corporations large and small, as well as the corporate defense bar, because of its potential impact on internal investigations and compliance programs, with a number of organizations and trade associations filing an amicus brief in support of KBR.

The Circuit made quick work of all of the District Court's arguments for distinguishing Upjohn , and calmed the corporate world by holding that: 1) involvement of outside counsel is not necessary for privilege to apply; 2) the privilege also applies to non-attorney agents working at the direction of attorneys in internal investigations; and 3) expressly informing employees “that the purpose of the interview was to assist the company in obtaining legal advice” is not necessary, nor are any “magic words” needed “in order to gain the benefit of the privilege for an internal investigation.” Id. at *3.

The District Court was also found to have erred in concluding that the attorney-client privilege does not apply when an internal investigation is undertaken pursuant to regulatory law and corporate policy, rather than for the purpose of obtaining legal advice. Id. at *4. In rejecting the reasoning, the Circuit Court recognized the potential far reaching consequences of the District Court's erred approach that “would eradicate the attorney-client 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.” Id. at *4.

The D.C. Circuit repeatedly called the District Court's approach “novel,” noting that it “erred because it employed the wrong legal test.” Id. at *4. According to the D.C. Circuit opinion, “[t]he but-for test articulated by the District Court is not appropriate for attorney-client privilege analysis” and further the Circuit “reject[s] the District Court's but-for test as inconsistent with the principles of Upjohn and the longstanding attorney-client privilege law.” Id. at *4.

The D.C. Circuit went on to provide clarity on the “sensible” and “properly applied” primary purpose test that should be applied, by explaining that “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 purpose of the communication?” Id . at *5 (emphasis in original). Reiterating the privilege's application to internal investigations directed by counsel, the D.C. Circuit made clear “if one of the significant purposes of the internal investigation was to obtain or provide legal advice, the privilege will apply.” Id.

The D.C. Circuit acknowledged the importance of the opinion, noting that “prudent counsel monitor court decisions closely and adapt their practices in response ' that many organizations are well aware of and deeply concerned about the uncertainty generated by the novelty and breadth of the District Court's reasoning.” Id. at *8. The Circuit went on to call attention to the importance of certainty in the privilege protection, citing the U.S. Supreme Court in Upjohn to note “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.” Id . (citing Upjohn at 393).

In the Courts and Business Crimes Hotline were written by Feifei Ren , Foreign Legal Intern for Mayer Brown, LLP, Washington, DC.