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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