A happy outcome for counsel
All you in-house lawyers out there might want to raise a hearty cheer for the D.C. Circuit. Outside counsel may want to clap also. For a panel of the appeals court held in In re Kellogg Brown & Root, Inc., No. 14-5055 (D.C. Cir. June 27, 2014), that you can convert mandatory internal investigations into hush-hush probes whose results you may keep secret. Presto change-o!
The ruling arose out of a False Claims Act (or qui tam) case that a whistle-blowing ex-KBR worker brought against the defense contractor, his former employer.
Harry Barko alleged that KBR had defrauded the U.S. military in Iraq by inflating costs and paying kickbacks. He asked KBR to produce documents that related to its probe of the fraud. As the cort of appeals noted, "KBR had conducted that investigation pursuant to its Code of Business Conduct, which is overseen by the company's Law Department." In re KBR, slip op. at 2.
Trial court orders production
The district court read the documents in camera before rejecting KBR's claim of privilege. KBR failed to show, the court held, that "the communication[s in the documents] would not have been made 'but for' the fact that legal advice was sought." United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276, 2014 WL 1016784, at *2 (D.D.C. Mar. 6, 2014) (quoting United States v. ISS Marine Services, Inc., 905 F. Supp. 2d 121, 128 (D.D.C. 2012)).
KBR conducted the probe, the court concluded, not "for the purpose of obtaining legal advice" but "pursuant to regulatory law and corporate policy". Id. at *3. Indeed, the court found, "[n]othing suggests the reports were prepared to obtain legal advice. Instead, they were prepared to try to comply with KBR's obligation to report improper conduct to the Department of Defense." Id. at 2.
D.C. Circuit intervenes
KBR sought emergency relief from the D.C. Circuit, which granted it. The district court erred, the panel opined, because "it employed the wrong legal test." In re KBR, slip op. at 8. "Under the District Court's approach," the panel stated, "the attorney-client privilege apparently would not apply unless the sole purpose of the communication was to obtain or provide legal advice." Id. at 9. "That is not the law." Id.
But the district court ruled no such thing. Instead of holding that privilege "would not apply unless the sole purpose of the communication was to obtain or provide legal advice", the court had found that KBR did not prepare the reports "to obtain legal advice" but to discharge its pre-existing legal duty "to report improper conduct to the Department of Defense."
The circuit court's gloss on what the district court had done dictated a failing grade. It also led to the following declamation:
We are aware of no Supreme Court of 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 thereftofore have been coverd by the attorney-client privilege. And the Disrict Court's novel approach would eradicate the attorney-client privilege for internal investigations conducted by businesses that are required by law tomaintain compliance programs, which is now the case in a significant swath of American industry.
Id. at 9.
The court's new "one of the significant purposes" standard
The panel went on to say the True Test calls on courts to figure out whether "a primary purpose" of the communication "[w]as obtaining or providing legal advice". Id. at 10 (emphasis in original). It defined "a primary purpose" as "meaning one of the significant purposes". Id.
The standard makes little sense in the context of the case before the court, Blawgletter submits. A company in KBR's position can always choose to conduct a mandatory internal investigation with lawyers rather than with non-attorney professionals. The company can then always plausibly claim that "one of the significant purposes" of gathering the information consisted of "obtaining or providing legal advice".
The result? Companies may cloak the purely factual products of a mandatory investigation simply by having lawyers particpate in it. Plaintiffs like Mr. Barko will lose access to potentially crucial documents -- an especially bad result for Mr. Barko, whose case relates to conduct that took place a decade or so ago.