Attorney-Client Privilege Protection In Internal Investigations Upheld By D.C. Circuit: Good News For Corporate Counsel

In a much-anticipated decision, the D.C. Circuit clarified the general test for the applicability of the attorney-client privilege in internal investigations. In re Kellogg Brown & Root, Inc., 14-5505, 2014 WL 2895939 (D.C. Cir. June 27, 2014). The court unanimously rejected the district court's holding that a communication is privileged only if it would not have been made "but for" the purpose of seeking legal advice. Although a few district courts have followed this narrow "but for" test, corporate counsel rightfully feared that other courts would follow suit and narrow the protection generally afforded to internal investigations that are often done to comply with regulatory or business requirements and to seek legal advice. In rejecting the "but for" test, the D.C. Circuit looked to the lessons learned from Upjohn Co. v. United States, 449 U.S. 383, 392 (1981) and broadly held that communications in internal investigations are privileged not only where the single primary purpose of an investigation is to provide legal advice, but also if that is "one of the significant purposes" of the investigation.

The Facts

In June 2007, plaintiff-relator Henry Barko, a former contract administrator for Kellogg, Brown and Root ("KBR") in Iraq, filed a qui tam False Claims Act ("FCA") lawsuit against Halliburton and its former subsidiary, KBR. Barko alleged that KBR provided preferential treatment to subcontractors to inflate the costs of construction services on military bases in Iraq and passed on the inflated costs to the U.S. government.

Prior to Barko's complaint, which was unsealed in 2009, Halliburton had independently investigated these allegations from 2004 to 2006 based on an internal report of a potential Code of Business Conduct ("COBC") violation. The Director, COBC, a non-attorney, had decided to initiate an investigation. Non-attorney COBC investigators interviewed witnesses, reviewed documents related to the allegations and prepared reports on their findings. These reports were provided to the legal department among others at the company. The COBC function was under the umbrella of the legal department but no attorneys were involved until the reports were finalized.

During discovery, Barko requested production of documents related to KBR's internal audits and COBC investigations. KBR confirmed that responsive documents existed but objected to the production based on the attorney-client privilege and the work-product doctrine.

The District Court's Application of the "But For" Test

The district court ordered KBR to produce the documents related to its internal investigation because it found that they were created for a business purpose, namely to comply with the Federal Acquisition Regulation's ("FAR") Mandatory Disclosure Rule (FAR 52.203-13), and not to obtain legal advice. United States ex rel. Barko v. Halliburton Co., 1:05-CV-1276, 2014 WL 1016784 (D.D.C. Mar. 6, 2014) vacated sub nom. In re Kellogg Brown & Root, Inc., 14-5055, 2014 WL 2895939 (D.C. Cir. June 27, 2014). Although the court recognized that the general test for the application of the attorney-client privilege is the "primary purpose" test – whether the communication was made primarily to secure legal advice – it narrowed its application by stating that the "but for" formulation is used to determine the primary purpose of a communication. The court stated that under the "but for" formulation, "[t]he party invoking the privilege must show 'the communication would not have been made "but for" the fact that legal advice was sought.'"

The court held that KBR had not met its burden under the "but for" formulation because the investigation at issue would have been conducted pursuant to company policy and regulatory law "regardless of whether...