DC Circuit Provides Guidance on Preserving Attorney-Client Privilege in an Internal Investigation

The DC Circuit recently held that the attorney-client privilege applies to internal investigations, even when the investigations are mandated by law and are not conducted with the sole purpose of obtaining or providing legal advice.

In a case that caught the eye of a number of business organizations and trade associations, the court ruled that defense contractor Kellogg Brown & Root (KBR) was not required to disclose confidential communications made during an internal investigation conducted at the direction KBR’s in-house counsel. The court’s opinion provides guidance on how best to protect the confidentiality of communications made during internal investigations.

In 2005, plaintiff Harry Barko filed a False Claims Act complaint against KBR and KBR-related corporate entities, alleging that they defrauded the US government by inflating costs and accepting kickbacks while administering military contracts in Iraq. In discovery, Barko sought certain documents regarding KBR’s prior internal investigation of the alleged fraud. That investigation was conducted pursuant to KBR’s code of business conduct and was overseen by KBR’s law department. KBG argued that the attorney-client privilege protected the documents from disclosure, but the district court disagreed and ordered the documents to be produced.

Despite settled law that the attorney-client privilege applies to communications between company employees and company attorneys made during internal investigations, Barko argued and the district court held that the sought-after documents were not privileged because KBR’s internal investigation was undertaken pursuant to law and corporate policy rather than for the purpose of obtaining legal advice. In vacating the district court’s order, the DC Circuit provided the following guidance:
 

• The attorney-client privilege applies to an internal investigation regardless of whether the investigation is conducted to comply with regulatory requirements or is simply an exercise in company discretion.
• Communications made for both legal and business purposes are privileged. Provided that one primary purpose of the communication is to obtain legal advice, the privilege applies — even if the communication is also motivated by a business purpose.
• The privilege extends to an internal investigation regardless of whether outside counsel is involved. If an investigation is completely internal and conducted by in-house attorneys only, the attorney-client privilege still applies.
• Interviews conducted as part of the internal investigation are privileged, even if the interviews are conducted by non-attorneys. For the privilege to apply, the interviews must be directed by counsel for the corporation.
• There are no “magic words” required for the attorney-client privilege to apply. Nothing requires a corporation to use certain words to gain the benefit of the privilege. Interviewed employees do not need to be informed the purpose of the interview is to assist the company in obtaining legal advice.

Arent Fox regularly monitors cases of interest to corporate counsel. We can assist you in structuring or conducting an investigation to maximize the protection of the attorney-client privilege. For more information, please contact James H. Hulme or Leah C. Montesano, or the Arent Fox professional who handles your matters.