D.C. Circuit Clarifies Application of Attorney-Client Privilege to Internal Investigations

On June 27, 2014, the D.C. Circuit court issued a significant ruling clarifying the application of the attorney-client privilege to internal corporate investigations. The court found that with regard to such investigations, the attorney-client privilege will apply so long as one of the significant purposes of the internal investigation was to obtain or provide legal advice.

The circuit court’s opinion was issued in response to KBR’s petition for writ of mandamus after the district court, having held that the attorney-client privilege did not apply to KBR’s internal investigation file, ordered KBR to produce portions of the file to the plaintiff. The district court utilized the “primary purpose” test and noted that the primary purpose of a communication is to obtain or provide legal advice only if the communication would not have been made “but for” the fact that legal advice was sought. Stated more simply, if there was any purpose other than obtaining or providing legal advice behind the communication, the attorney-client privilege would not apply. Among other factors, the district court found that although KBR’s legal department oversaw the internal investigation, the primary purpose of the internal investigation was to comply with regulatory law and internal corporate policy rather than for purposes of obtaining legal advice. Moreover, KBR did not show that the communications would not have been made “but for” the fact that legal advice was sought. Accordingly, the district court found that the attorney-client privilege did not protect KBR’s internal investigation.

The district court’s ruling ignited a brushfire among business constituencies. If the district court’s ruling were to stand, it would vastly diminish the attorney-client privilege in business settings and would likely result in the inability of any corporate defendant to invoke the attorney-client privilege to protect internal investigations conducted as part of a compliance program. Accordingly, a number of business organizations and trade organizations, including the Chamber of Commerce of the United States, the National Association of Manufacturers and the Association of Corporate Counsel, joined KBR in objecting to the district court’s ruling. 

In vacating the district court’s ruling, the circuit court found that the district court employed the wrong legal test. As the circuit court stated: “The [d]istrict [c]ourt’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.” Similarly, the district court’s 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.” The circuit court noted that for the attorney-client privilege to apply, the law does not require that the sole purpose of the communication be obtaining or providing legal advice. In fact, many times communications do not have a sole primary purpose. Accordingly, rather than trying to determine the primary purpose of a communication, the circuit court stated a much clearer standard: So long as one of the significant purposes of an internal investigation was to obtain or provide legal services, the attorney-client privilege will apply. The circuit court clarified that this is true even if the internal investigation is conducted pursuant to company policy or a statutorily required compliance program. Moreover, the involvement of only in-house counsel, rather than outside counsel, and the use of non-attorneys to conduct interviews at counsel’s direction will not affect the application of the privilege.

While the circuit court’s broad ruling allows a company to assert the attorney-client privilege for its internal investigation files so long as it meets the articulated standard, it should be noted that the attorney-client privilege only applies to communications. The facts underlying a company’s investigation are still discoverable.