Protecting internal company investigation communications
A recent decision from the United States District Court, District of Columbia, generated a great deal of uncertainty and concern in the business community about the application of attorney-client privilege to internal corporate investigations. The district court found that attorney-client privilege did not apply to some investigatory reports that were prepared for business and regulatory — not legal — reasons. An appellate court quickly vacated the ruling and restored order, but the rulings highlight the importance of handling internal investigations appropriately to retain attorney-client privilege.
The issue arose in the context of a False Claims Act complaint filed against defense contractor KBR Inc. and several others by former KBR employee Harry Barko. Alleging inflated costs and kickbacks related to military contracts, Barko sought discovery of certain internal investigatory reports prepared by KBR’s non-lawyer compliance staff under the direction of the legal department. KBR refused, citing attorney-client privilege.
After an in-camera review, the federal district court determined KBR did not establish that the reports would not have been prepared “but for” the fact legal advice was sought. United States ex rel. Barko v. Halliburton Co., No. 05-CV-1276, (D.D.C. Mar. 6, 2014). The district court reasoned that since KBR was required to identify, investigate and report fraud pursuant to Department of Defense regulations, KBR undertook the internal investigation “pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” Id. at *3. The district court ordered KBR to produce the investigatory reports to Barko.
KBR filed a petition for a writ of mandamus in the U.S. Court of Appeals, D.C. Circuit, which promptly stayed the document production order. The appeals court subsequently vacated the district court order, rejecting its “rigid distinction” between a legal purpose and a business purpose for conducting an investigation. Kellogg Brown & Root, Inc., et al. No. 14-5055 (D.C. Cir. June 27, 2014). Holding that the “but for” test was the wrong legal standard to apply in this context, the appellate court criticized the district court’s ruling as erroneously eliminating privilege for communications that were made for both legal and business reasons. “[T]he District Court’s novel approach 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. A more accurate test, the appellate court ruled, was whether obtaining or providing legal advice was “one of the significant purposes of the communication.” Id.
The matter was remanded to the district court where, among other things, the court will rule whether KBR waived attorney-client privilege by relying on the internal investigatory reports in an early proceeding. Meanwhile, Barko’s request for a rehearing en banc remains pending as of this writing.
The Barko litigation is not likely to be resolved any time soon, but this case highlights the importance of engaging counsel in a meaningful way in the investigatory process so that attorney-client privilege will apply. And while the issue will eventually be resolved in the D.C. Circuit, the ruling will not have binding precedential effect in other circuits or in the state courts, some of which have articulated slightly different standards for applying attorney-client privilege to corporate investigatory materials. In fact, the judge who issued the “but for” standard in the Barko matter is assigned to the U.S. District Court for the Northern District of Ohio and was sitting by designation in the D.C. District Court for this case. He is not bound by the outcome in the D.C. courts if similar questions arise in his Ohio courtroom.
So, a few pointers for maintaining attorney-client privilege when conducting your internal investigations:
- Counsel need not personally conduct all aspects of an investigation, but should oversee and be integrally involved in the investigation.
- Corporate investigators who are not counsel can help secure attorney-client privilege for their work by coordinating closely with counsel to conduct the investigation.
- Employees who are interviewed or involved in the investigation should be instructed that the investigation is being conducted under the authority of legal counsel and for purposes of providing legal advice.
- Documents should be prepared by or in collaboration with counsel and should be marked as confidential.