Attorney-Client Privilege, Federal Practice, Internal Investigations

D.C. Circuit Clarified 4 Critical Factors Regarding Attorney-Client Privilege in Corporate Internal Investigations, Finding District Court’s Decision “Irreconcilable with Upjohn”

MeetingIn a recent post, we discussed the D.C. Circuit’s consideration of the District Court’s decision in U.S. ex.rel Barko v. Halliburton Co. et al., Case No. 05-01276 (D.D.C. 2014), which provided an alarming perspective on the applicability of the attorney-client privilege and work product doctrine to internal investigations conducted pursuant to government regulatory compliance requirements.  The District Court had ruled that the privilege and work product doctrine did not apply to communications generated during the course of an internal investigation, because the company conducted the investigation pursuant to the compliance requirements imposed on federal defense contractors via federal regulation.  The District Court was sure that its position regarding the inapplicability of the privilege/protection was sound and certainly obvious, declaring that “the question of whether the COBC documents were subject to the attorney-client privilege or the work-product doctrine was not close” and the court was “confident that other courts conducting a similar in camera review would come to the same conclusion.”  In the District Court’s view “KBR’s hope that the Court of Appeals will take this case for interlocutory appeal is fanciful.”  However, the D.C. Circuit did just that in In re: Kellog Brown & Root, Inc., et al., No. 14-5055 (D.C. Cir. June 27, 2014), granting KBR’s writ for mandamus and vacating the District Court’s order to produce the privileged documents.

The District Court had distinguished the internal investigation at issue from the internal investigation in Upjohn Co. v. United States, 449 U.S. 383 (1981), arguing that the compliance investigation in this case “was a routine corporate, and apparently ongoing, compliance investigation required by regulatory law and corporate policy,” unlike the internal investigation in Upjohn which “was conducted only after attorneys from the legal department conferred with outside counsel on whether and how to conduct an internal investigation.”  The D.C. Circuit, however, found that the District Court’s decision was “irreconcilable with Upjohn” and “KBR’s assertion of the privilege in this case is materially indistinguishable from Upjohn’s assertion of the privilege in that case.”

The Court of Appeals clarified the appropriate test for determining whether corporate documents are privileged and the following critical points regarding the applicability of the privilege/protection:

  1. The “but-for” test applied by the District Court is the wrong analysis for attorney-client privilege and it is not the law as articulated by the U.S. Supreme Court or any other Circuit Court.  “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.”
  2. The investigation does not have to be prompted by or involve outside counsel.  “Upjohn does not hold or imply that the involvement of outside counsel is a necessary predicate for the privilege to apply.  On the contrary, the general rule, which this Court has adopted, is that a lawyer’s status as in-house counsel ‘does not dilute the privilege.’”
  3. The fact that an investigation is executed by non-attorneys does not abrogate privilege if it is conducted at the direction of attorneys.  “[C]ommunications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney-client privilege.”
  4. Employees do not have to be expressly told that the purpose of an investigation “is to obtain legal advice.”  “[N]othing 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. And in any event, here as in Upjohn employees knew that the company’s legal department was conducting an investigation of a sensitive nature and that the information they disclosed would be protected.”

Although the District Court’s decision was not binding on other courts, the D.C. Circuit granted mandamus in this case to head off the “potentially far-reaching consequences” of the ruling which the appellate court believed “threaten[ed] to vastly diminish the attorney-client privilege in the business setting” by “seemingly prevent[ing] any defense contractor from invoking the attorney-client privilege to protect internal investigations undertaken as part of a mandatory compliance program…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.”  The D.C. Circuit noted that the interest in this case “convincingly demonstrates 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.”  Accordingly, it granted mandamus given “[t]he novelty of the District Court’s privilege ruling, combined with its potentially broad and destabilizing effects in an important area of law.”

Tony Lathrop

About Tony Lathrop

Tony Lathrop brings experience and a high level of analytical ability, professional credibility and creativity to handling litigation matters. He rigorously represents his clients' interests in a diverse range of claims and actions. A certified mediator, Mr. Lathrop has extensive experience representing business clients in mediation. His service to the legal profession in North Carolina has allowed him to develop relationships across the state that benefit the firm's clients.


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