Rejecting "But For" Test For Application Of The Attorney-Client Privilege In Corporate Internal Investigations

In a case involving discovery of documents from the defendant's "prior internal investigation into ... alleged fraud," D.C. Circuit explains that defendant's investigation documents were protected by the attorney-client privilege even though the "sole purpose" of the investigation was not to obtain legal advice, but rather receiving legal advice was just one of the "significant purposes" of the investigation, in In Re Kellogg Brown & Root, Inc., _ F.3d _ (D.C. Cir. June 27, 2014) (No. 14-5055)

The scope of the attorney client privilege in the context an internal corporate investigation has been an important issue since the Supreme Court last provided guidance in 1981 on this issue in Upjohn Co. v. United States, 449 U.S. 383 (1981). In Upjohn Justice Rehnquist, writing for the Court, declined to lay out a broad set of interpretations. Rather he wrote that the court "sit[s] to decide concrete cases and not abstract propositions of law" and so on the application of the attorney-client privilege in the corporate internal investigation area, "[w]e decline to lay down a broad rule or series of rules to govern all conceivable future questions in this area, even were we able to do so." Upjohn, 449 U.S. at 386. Last week, the D.C. Circuit issued a writ of mandamus to prevent the district court from requiring production of defense contractor Kellogg, Brown & Root's (KBR) internal investigation records. In doing so, the circuit noted that it was laying out a broad rule that the court in Upjohn declined to address.

Disclosure Of Internal Investigation Ordered

In the case, a whistleblower in defendant KBR's ranks brought a qui tam False Claims Act suit against the defendant and other defense contractors. The plaintiff claimed that KBR had inflated costs and taken kickbacks in reconstruction work for rebuilding Iraq. Apparently unrelated to the plaintiff's suit, which had been sealed, defendant KRB had conducted an internal investigation of the alleged misconduct in billing for war-zone projects. This sort of investigation was required of defense contractors by statute and as part of their contract with the government. The mandated internal investigation required that the contractor establish a compliance program and to undertake internal investigations and as a result make self-reports of employee misconduct.

Naturally KBR resisted disclosure of its internal investigation to the plaintiff, claiming it was protected by the attorney-client privilege. KBR's argued to the district court that disclosure was foreclosed under the doctrines in Upjohn Co. v. United States, 449 U.S. 383 (1981). The district court was not persuaded. Under Upjohn the Supreme Court set many of the contours of the federal attorney-client privilege in the corporate context. This included the holding that "the privilege exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice" and that the corporate attorney-client privilege must be able to reach "below officers and agents . . . responsible for directing" corporate affairs to learn facts relevant to the legal situation and to render advice. Upjohn, 449 at 390, 391.

The district court decided that KRB could not claim the protections of the attorney-client privilege in their internal investigation materials, which the court had reviewed in camera. The reason the materials were unprivileged was because obtaining legal advice was not the "primary purpose" behind KRB conducting the internal investigation. The judge reasoned that the defendant was unable to show that "the communication would not have been made 'but for' the fact that legal advice was sought." The court concluded the primary purpose -- the "but for" cause -- for the investigation had been to satisfy "regulatory law and corporate policy rather than for the purpose of obtaining legal advice." Kellogg, _ F.3d at _ (citations omitted).

The "Primary" vs. A "Significant" Purpose

The D.C. Circuit disagreed with the district court's assessment, particularly with its construction and application of the "primary purpose" test, explaining:

The District Court erred because it employed the wrong legal test. The but-for test articulated by the District Court is not appropriate for attorney-client privilege analysis. Under the District Court's approach, the attorney-client privilege apparently would not apply unless the sole purpose of the communication was to obtain or provide legal advice. That is not the law. We are aware of no Supreme Court or court of appeals decision that has adopted a test of this kind in this context. The District Court's novel approach to the attorney-client privilege would eliminate the attorney-client privilege for numerous communications that are made for both legal and business purposes and that heretofore have been covered by the attorney-client privilege. And the 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. In turn, businesses would be less likely to disclose facts to their attorneys and to seek legal advice, which would “limit the valuable efforts of corporate counsel to ensure their client's compliance with the law.” We reject the District Court's but-for test as inconsistent with the principle of Upjohn and longstanding attorney-client privilege law.

Given the evident confusion in some cases, we also think it important to underscore that the primary purpose test, sensibly and properly applied, cannot and does not draw a rigid distinction between a legal purpose on the one hand and a business purpose on the other. After all, trying to find the one primary purpose for a communication motivated by two sometimes overlapping purposes (one legal and one business, for example) can be an inherently impossible task. It is often not useful or even feasible to try to determine whether the purpose was A or B when the purpose was A and B. It is thus not correct for a court to presume that a communication can have only one primary purpose. It is likewise not correct for a court to try to find the one primary purpose in cases where a given communication plainly has multiple purposes. Rather, it is clearer, more precise, and more predictable to articulate the test as follows: Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication? As the Reporter's Note to the Restatement says, “In general, American decisions agree that the privilege applies if one of the significant purposes of a client in communicating with a lawyer is that of obtaining legal assistance.” We agree with and adopt that formulation—“one of the significant purposes”—as an accurate and appropriate description of the primary purpose test. Sensibly and properly applied, the test boils down to whether obtaining or providing legal advice was one of the significant purposes of the attorney-client communication.

Kellogg, _ F.3d at _ (citing Upjohn, 449 U.S. at 392; 1 Restatement § 72, Reporter's Note, at 554.

Conclusion

In explaining the application of a "broad" reading of the attorney-client privilege in the corporate context, the Kellogg court noted a number of prudential concerns as well. The case had created a "substantial uncertainty" about the proper application of the attorney-client privilege in the internal investigation setting. This could be fairly significant particularly where internal investigation procedures are required as a regulatory requirement or by the terms of a contract.

______________________________

Photo Description: D.C. Circuit, E. Barrett Prettyman U.S. Courthouse and William B. Bryant Annex in Washington, D.C.

______________________________

Subscribe Now To The Federal Evidence Review

** Less Than $25 Per Month ** Limited Time Offer **

subscribe today button

Federal Rules of Evidence
PDF