On June 27, 2014, the U.S. Court of Appeals for the District of Columbia confirmed a company’s rights to conduct an internal investigation that is protected by the attorney-client privilege. This decision has attracted national attention.
In In re Kellogg Brown & Root, Inc., 14-5055, 2014 WL 2895939 (D.C. Cir. June 27, 2014), the appellate court overturned a decision by the U.S. District Court for the District of Columbia. The lower court had found that that no attorney-client privilege or work-product immunity attached to a company’s internal investigation of a qui tam plaintiff’s allegations of corruption related to government subcontracts. The company’s compliance office conducted an internal investigation, as required both by law under the Federal Acquisition Regulation and by its own internal policy. The plaintiff sought production of documents related to the company’s internal audits and investigations of his allegations, over which the company asserted claims of attorney-client privilege and work-product immunity. Following an in camera review of the internal records, the court noted that the reports were “eye-openers” in showing that the company’s employees had steered business and otherwise provided preferential treatment to a particular third party, who continued to receive contracts despite poor performance and repeated attempts to double-bill. In essence, the lower court ruled that the communications made and the documents gathered as part of the company’s internal investigation were not protected by the privilege. The District Court based its holding on the idea that the company undertook the investigation primarily to comply with government regulations and company policy, rather than for the purpose of obtaining legal advice.
In overturning the lower court’s decision, the Court of Appeals held that the attorney-client privilege remains solidly intact for internal investigations so long as “obtaining or providing legal advice” was “a primary purpose” of the investigation. In so holding, the appeals court invoked the Supreme Court’s long-standing Upjohn decision, which encourages privileged communications as companies navigate a complex maze of regulations and laws:
The [Upjohn] court explained that the attorney-client privilege for business organizations was essential in light of the "vast and complicated array of regulatory legislation confronting the modern corporation," which require corporations to "constantly go to lawyers to find out how to obey the law … particularly since compliance with the law in this area is hardly an instinctive matter.”
Using Upjohn as its guiding authority, the D.C. Circuit ruled that the privilege applies to internal investigations where one of the significant purposes is obtaining or providing legal advice.
Takeaways for Employers
The Kellogg decision may provide some protection for employers conducting internal investigations. To best ensure that an internal investigation is covered by the attorney-client privilege, the following steps should be considered:
- Companies should consider contacting inside or external legal counsel at the outset of an internal investigation to ensure legal compliance with all aspects of the investigation.
- Some thought should be put into the preparation of an investigation plan at the outset. At the beginning of the investigation, the company should document the purpose of the investigation, noting that the investigation will assist the company in preparing for any potential litigation arising from the allegations. This documentation should clearly establish that the company is seeking and/or providing legal advice rather than conducting the investigation for an ordinary business purpose.
- Investigators leading employee interviews, even if not legal counsel, should notify witnesses at the beginning that the investigation is being conducted under the supervision of legal counsel for the purpose of counsel providing legal advice to the company.
- To the extent possible, all investigatory processes, memorandum and reports should be prepared by legal counsel acting on behalf of the company and should be clearly marked as subject to the attorney-client privilege and work-product protection.
If the investigation uncovers information that may subject the company to civil or criminal liability, outside counsel should be consulted immediately.
If you have any questions regarding how to set up an effective compliance and ethics program, or how to best conduct an internal investigation pursuant to that program, please contact your Kutak Rock LLP attorney, a member of our National Labor & Employment Group, or the author of this alert.