Labor Law -- 2016

In re Kellogg Brown & Root, Inc.   (D.C. Circuit)

Privilege for investigations supervised by in-house lawyers

Companies usually conduct internal investigations when they hear allegations of misconduct, such as potential violations of labor, discrimination, anti-bribery or other laws. In-house lawyers often supervise the investigations, because they anticipate that litigation against the company could occur if the allegations are not handled properly. Usually such investigations are protected by attorney-client privilege.

This case involves an in-house investigation of tips alleging potential False Claims Act violations. The company provided 100,000 pages of documents during the discovery phase of the case, but identified 89 documents that were privileged. Nevertheless, the trial judge ordered that they be disclosed, holding that communications are not privileged unless they would not have been made but for the fact that legal advice was sought. Here, the court held that the investigation was "undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice." As a result, it appears that investigations conducted under regulations that require government contractors to investigate, even if the investigations are part of the company's legal effort to minimize legal exposure, are not protected from disclosure.

On appeal, the NAM and other associations filed an amicus brief calling the judge's ruling incorrect, unprecedented, and unwarranted. As long as the predominant or primary purpose of a communication with counsel is for securing legal advice, it should be protected. It need not be the sole purpose of the communication. The trial court's ruling penalizes companies for adopting internal compliance programs and forces them to either risk a waiver of attorney-client privilege or to forego legal advice.

Moreover, were such communications to lose their privilege if they are part of a compliance investigation "required by regulatory law," many regulatory programs would be frustrated. Compliance programs are required or strongly encouraged under the Sarbanes-Oxley Act for accounting matters, the Federal Bank Act, the Bank Secrecy Act, Medicare regulations, the Foreign Corrupt Practices Act and others.

On June 27, 2014, the D.C. Circuit vacated the trial court decision and ruled that the communications were protected by the attorney-client privilege. Adhering to a Supreme Court decision, Upjohn Co. v. United States (1981), the court reiterated that so long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, those communications are privileged. Therefore, the court rejected the trial judge’s but-for analysis and determined that privileged communications can have purposes other than purely legal advice. The court also found that Kellogg Brown and Root was entitled to a writ of mandamus (an order immediately overruling the lower court’s order requiring production of the communications) because the lower court’s error was clear and indisputable. To grant such a writ, three conditions must be satisfied: 1) the petitioner must have no other avenue of relief, 2) the petitioner’s right to the writ must be “clear and indisputable, and 3) the writ must be appropriate under the circumstances. All three conditions were met here.

This is an important win for manufacturers that protects sensitive communications. Quoting KBR’s petition brief, the court agreed that the trial court’s decision “would [have] disable[d] most public companies from undertaking confidential internal investigations.”

The D.C. District Court ruled that the privilege does not apply to investigators’ factual reports made to inform legal advice. The NAM believes this ruling contradicts the judgment of the Appeals Court. On 1/30/15 the NAM filed a brief in support of mandamus.

Related Documents:
NAM brief  (January 30, 2015)
NAM brief  (March 19, 2014)


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