Significant D.C. Circuit Decision for Attorney–Client Privilege and Internal Investigations 1

The D.C. Circuit Court of Appeals issued a significant decision upholding the attorney–client privilege for internal investigations conducted at in-house counsel’s direction.  The Court ruled that the privilege applied even where governmentConfidential Report Blue Tone Brochure regulations required the investigation and non-attorneys conducted the employee interviews. And in a move that will please in-house counsel, the Court rejected a narrow view of the primary purpose test for dual-purpose communications. In re Kellogg, Brown & Root, Inc., 2014 WL 2895939 (D.C. Cir. June 27, 2014).  You may read the opinion here.

An employee of Kellogg, Brown & Root, Inc., a Department of Defense contractor, filed a qui tam action asserting that KBR defrauded the government by inflating its DoD invoices and receiving improper kickbacks.  DoD regulations require defense contractors to maintain policies triggering internal investigations when misconduct claims arise.

When apprised of the potential wrongdoing, KBR’s in-house counsel directed an internal investigation pursuant to KBR’s Code of Business Conduct.  Non-attorneys working under the in-house lawyer’s direction conducted the employee interviews, and KBR required its employees to sign confidentiality agreements—but these agreements did not mention the attorney–client privilege.

The employee later sought production of the internal investigation report.  The district court rejected KBR’s privilege argument after finding that KBR conducted the internal investigation because of its corporate policy and DoD regulatory requirements, and not for the “primary purpose” of providing legal advice.  The district court held that the primary purpose test shielded internal investigation reports only where the company would not have conducted the investigation “but for” the purpose of seeking legal advice.

The D.C. Circuit reversed.  And in ruling that the attorney–client privilege protected KBR’s internal investigation, the Court made three critical holdings.

First, the Court rejected the notion that the privilege did not apply because non-attorneys conducted the employee interviews.  The Court held that the privilege applies so long as the company’s legal department directed the investigation, stating that “communications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney–client privilege.”

Second, the Court held that the privilege applied even though KBR did not inform its employees of the interview’s purpose and that the confidentiality agreement signed by the employee did not mention that the discussions were privileged.  The Court refused to require companies to “use magic words to its employees in order to gain the benefit of the privilege for an internal investigation,” and held that KBR satisfied its burden by telling the employees that the interviews were highly confidential and not to discuss the matter without authorization from KBR’s General Counsel.

Third, the Court rejected a narrow interpretation of the primary purpose test for dual-purpose communications and adopted a new, broader standard. Noting “evident confusion” about this test and stating that the district court’s “but for” test was “not appropriate for attorney–client privilege analysis,” the Court followed the Restatement (Third) of the LawDC Circuit Governing Lawyers § 72, and articulated this test: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?”

In other words, the Court rejected the sole causation test in favor of a broader test that, “sensibly and properly applied, … boils down to whether obtaining or providing legal advice was one of the significant purposes of the attorney-client communication.”

PoP Analysis

The KBR decision represents a significant victory for in-house lawyers overseeing internal investigations.  With more governmental regulations mandating corporate investigations and more corporations implementing mandatory investigation policies, it seems short-sighted that these events would vitiate, rather than strengthen, the attorney–client privilege.

And the Court’s rejection of the narrow “but for” primary purpose test runs contrary to several recent decisions concerning dual purpose communications.  In one decision, a state court adopted a heightened burden for in-house counsel—for a dual-purpose communication containing an equal amount of legal and business advice, the in-house lawyer has to “clearly show” that the legal purpose outweighs the business purpose for the privilege to apply.  See my blog post, GC’s “Talking Points” Memo to CEO Not Privileged—Leads to a Punitive Damages Verdict, for further discussion of this case. And for a discussion of how other courts apply the “because-of” and “primary purpose” standards in these situations, see my prior post titled Dual-Purpose Emails to In-House Counsel: Are They Privileged?