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D.C. Circuit Upholds the Attorney-Client Privilege for Corporate Internal Investigations

posted 9 years ago

On June 27, 2014, the U.S. Court of Appeals for
the D.C. Circuit granted Kellogg Brown & Root’s (KBR) petition for a
writ of mandamus and vacated the District Court’s order in United
States ex rel. Barko v. Halliburton Co.
, No. 05-cv-1276, 2014 WL
1016784 (D.D.C Mar. 5, 2014) compelling KBR to produce internal
investigation documents.  In Re: Kellogg Brown & Root,
Inc.
, No. 1:05-cv-1276 (D.C. Cir. June 27, 2014).  The D.C.
Circuit’s ruling has upheld important protections for companies conducting
internal investigations pursuant to statute or regulation, and affirmed
the continued vitality of the Supreme Court’s decision in Upjohn Co. v.
United States
, 449 U.S. 383, 389 (1981) for companies claiming the
attorney-client privilege.

District Court
Proceedings
  

In Barko, the relator sought documents
created by KBR during its internal investigation of the allegations that
are the basis for the relator’s qui tam case.  KBR’s legal
department oversaw the investigation, which was conducted pursuant to
KBR’s Code of Business Conduct.  KBR asserted the attorney-client
privilege over the investigation, arguing that KBR created the documents
so that KBR’s internal lawyers could provide legal advice to the
company.  The relator argued that the documents were not privileged
because they were ordinary business records.  The District Court
applied a “but for” test for determining whether the purpose of the
documents was to obtain legal advice – analyzing whether the documents
would have been created “but for” the need for legal advice.  The
District Court reasoned that because regulations and KBR’s own corporate
policy required KBR to conduct the investigation, KBR had not created the
documents solely to obtain legal advice.  The Court concluded that
the documents were not privileged because KBR created them to satisfy
regulatory and corporate requirements.

KBR immediately requested that the District
Court certify the privilege question for interlocutory appeal and to stay
its order compelling production pending a petition for a writ of mandamus
from the D.C. Circuit.  The District Court denied those
requests.  Left with no other choice, KBR took the extraordinary
action of filing a petition for writ of mandamus with the D.C.
Circuit.  The D.C. Circuit stayed the District Court’s order pending
a ruling on the mandamus petition.

D.C. Circuit’s Analysis

KBR had two difficult hurdles to clear to
prevail on mandamus – it had to show legal error and that
the error justified the extraordinary writ of mandamus.  It cleared
both of them.

The Circuit found two fundamental
legal errors.  First, the District Court improperly used a “but for”
causation analysis when applying the “primary purpose test.”  The
correct formulation of the “primary purpose” test requires legal advice to
be a significant purpose of the communication.  The
significant purpose of legal advice is not undermined simply because the
internal investigation is also required by statute, regulation or a
company’s compliance program.  

Second, the District Court misinterpreted
Upjohn.  The D.C. Circuit noted that Upjohn does
not require
any of the following for the privilege to apply: (1)
the involvement of outside counsel to claim the attorney-client privilege;
(2) that attorneys personally conduct employee interviews when the
investigation is conducted at the direction of counsel; or
(3) the use of “magic words” informing employees of the purpose of the
interview. 

The D.C. Circuit noted that KBR’s assertion of
the privilege was “materially indistinguishable” from the basis upheld in
Upjohn.  As in Upjohn, KBR initiated an internal
investigation in response to reports of potential misconduct and as part
of a concerted effort to gather facts and ensure compliance with
applicable laws and regulations.  As in Upjohn, KBR’s in-house
legal counsel coordinated the investigation.  In short, the Circuit
confirmed the continuing validity of Upjohn procedures in
establishing the attorney-client privilege.

After finding clear legal error, the D.C.
Circuit applied the three factors required for mandamus as set forth in
Cheney v. U.S. District Court for the District of Columbia, 542,
U.S. 367, 380 (2004): (1) no other adequate means to secure the desired
relief; (2) the right to relief must be clear and indisputable; and (3)
the writ is appropriate under the circumstances.  KBR easily met the
first two factors.  Mandamus provided KBR with the only meaningful
remedy.  The District Court had denied KBR’s motion for interlocutory
appeal, and an interlocutory appeal under the collateral order doctrine is
not available for attorney-client privilege orders.  An appeal after
final judgment would be too late to protect the documents that KBR was
ordered to produce.  The D.C. Circuit’s finding of clear legal error
itself made KBR’s right to relief clear and indisputable.

The third factor, “a relatively broad and
amorphous totality of the circumstances consideration”, also favored
KBR.  The potential for grave harm to the attorney-client privilege
if the District Court’s decision remained in effect made mandamus
“appropriate under the circumstances.”  Left in place, the District
Court’s decision could “work a sea change in the well-settled rules
governing internal corporate investigations”:

Because defense contractors are
subject to regulatory requirements of the sort cited by the District
Court, the logic of the ruling would seemingly prevent any defense
contractor from invoking the attorney-client privilege to protect
internal investigations undertaken as part of a mandatory compliance
program.  See 48 C.F.R. § 52.203-13 (2010).  And
because a variety of other federal laws require similar internal
controls or compliance programs, many other companies likewise would
not be able to assert the privilege to protect the records of their
internal investigations.  See, e.g., 15 U.S.C. §§
78m(b)(2), 7262; 41 U.S.C. § 8703.  As KBR explained, the
District Court’s decision “would disable most public companies from
undertaking confidential internal investigations.”  KBR Pet.
19.

Id. at 15.  Thus, although not
binding, the incorrect “but for” analysis could gain traction in other
district courts.  To protect against these harms to both KBR and the
attorney-client privilege more broadly, the D.C. Circuit granted KBR’s
petition for a writ of mandamus. 

Government contractors (and the many other companies subject
to statutory and regulatory requirements to conduct internal
investigations) can now breathe a sigh of relief – the application of the
attorney-client privilege to corporate internal investigations required by
law or regulation has been vindicated and upheld.  Companies
following Upjohn procedures can conduct their internal
investigations with the assurance that the attorney-client privilege will
protect candid and full communications.

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