In re Kellogg Brown & Root, Inc., 2014 U.S. App. LEXIS 12115 (D.C. Cir. June 27, 2014)
The United States Court of Appeals for the District of Columbia Circuit held that the attorney-client privilege applies to internal investigations performed at the direction of in-house counsel if “one of the significant purposes” of the investigation was to obtain or provide legal advice.
Kellogg Brown & Root, Inc. (“KBR”) was a defense contractor for the United States government. Harry Barko, a former employee of KBR, filed a False Claims Act complaint against KBR, alleging fraud against the government. During the ensuing litigation, Barko requested documents related to KBR’s prior internal investigation into the alleged fraud. The investigation had been conducted by KBR pursuant to Department of Defense regulations that require defense contractors to maintain compliance programs and conduct internal investigations, and was overseen by the company’s in-house legal department. KBR objected to the document request, arguing that the investigation was protected by the attorney-client privilege. In turn, Barko argued that the documents were discoverable business records not covered by the privilege.
After an in camera review of the documents, the District Court agreed with Barko and determined that the privilege was inapplicable. In particular, the Court found that the privilege did not apply because the investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” Put differently, KBR had not shown that the investigation would not have been conducted “but for” the fact that the company sought legal advice.
The District Court analyzed the case before it in light of the seminal case of Upjohn Co. v. United States, 449 U.S. 383 (1981), which established that the attorney-client privilege applies to confidential communications made during a company’s internal investigation led by company lawyers. The District Court distinguished Upjohn on four grounds: First, it held that the privilege did not apply because KBR had conducted its internal investigation solely at the direction of in-house counsel, while Upjohn involved an internal investigation led by outside lawyers. Second, while the internal interviews in Upjohn were conducted by the company’s lawyers, KBR’s investigation was conducted by non-lawyer employees.
Third, the interviewed employees in Upjohn were expressly informed that the purpose of the investigation was to assist the company in obtaining legal advice, while KBR employees were not expressly informed. Finally, while the investigation in Upjohn was conducted for the “primary purpose” of obtaining legal advice, the District Court held that KBR’s investigation was undertaken for the primary purpose of complying with Department of Defense regulations, rather than to seek legal advice. The District Court held that legal advice is the “primary purpose” of a communication only if the communication would not have been made “but for” the fact that legal advice was sought. Based upon these four distinctions, the District Court held that Upjohn did not apply and that the investigation was not privileged. It thus ordered KBR to produce the disputed documents.
KBR filed a petition for mandamus with the Court of Appeals for the D.C. Circuit, which stayed the District Court’s order pending its decision. Ultimately, the Court of Appeals vacated the District Court’s order, finding that “KBR’s assertion of privilege in this case is materially indistinguishable from Upjohn’s[.]”
The Court of Appeals discussed each of the four grounds upon which the District Court had distinguished KBR’s assertion of privilege from Upjohn, holding that the District Court’s privilege ruling was legally erroneous.
First, the Court of Appeals found it immaterial that KBR’s investigation was conducted by in-house lawyers without prior consultation with outside counsel as in Upjohn. Rather, “the general rule, which this Court has adopted, is that a lawyer’s status as in-house counsel ‘does not dilute the privilege.’”
Second, the Court of Appeals found that the privilege is not defeated because the interviews in KBR’s investigation was conducted by non-lawyers. Rather, the privilege still applied because the interviews were conducted by non-lawyers “at the direction of the attorneys” in KBR’s legal department, and “communications by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney-client privilege.”
Third, the Court of Appeals held that the privilege still applied even though KBR employees were not expressly informed that the purpose of employee interviews was to assist KBR in obtaining legal advice. To the Court of Appeals, “nothing in Upjohn requires a company to use magic words to its employees” in order for the privilege to apply. Rather, it was sufficient that interviewed employees knew that the company’s legal department was conducting a sensitive investigation, that the employees knew that the information they disclosed would be protected, and that they were told not to discuss their interviews without advance authorization by KBR’s General Counsel.
Finally, the Court of Appeals held that the District Court had applied the wrong legal standard in determining the “primary purpose” of KBR’s investigation. Specifically, the Court “reject[ed] the District Court’s but-for test as inconsistent with the principle of Upjohn and longstanding attorney-client privilege law.” To the Court of Appeals, “it is…not correct for a court to presume that a communication can have only one primary purpose.” Rather, a court should utilize the following test: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?” (emphasis in original).
Thus, because it was clear that legal advice was one of the significant purposes of KBR’s investigation, the Court of Appeals held that the requested documents were protected by the attorney-client privilege.
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