Opinion

Alison Frankel

D.C. Circuit expands attorney-client shield for businesses

By Alison Frankel
June 27, 2014

U.S. District Judge James Gwin of Washington, D.C., created a huge stir last March when he ruled that documents from KBR’s internal investigation of government contract fraud were not protected by attorney-client privilege and must be disclosed to a whistleblower who sued KBR under the False Claims Act. Even though KBR’s in-house lawyers oversaw the investigation — which examined allegations that the company and a subcontractor inflated costs and accepted kickbacks related to military contracts in Iraq — Gwin said that the privilege didn’t apply because (among other things) KBR’s primary purpose in the investigation was to comply with regulatory requirements, not to obtain legal advice.

His reasoning scared other companies in regulated industries, which feared that notes from their internal investigations would also be exposed to discovery demands by whistleblowers. When KBR filed a mandamus appeal to the U.S. District Court of Appeals for the D.C. Circuit, the Chamber of Commerce, the National Association of Manufacturers and three other trade groups quickly chimed in with an amicus brief arguing that Gwin’s ruling would ultimately weaken regulatory compliance because it would discourage companies from conducting internal reviews.

The D.C. Circuit agreed. On Friday, judges Brett Kavanaugh, Thomas Griffith and Sri Srinivasan granted KBR a writ of mandamus, overturning Gwin’s ruling and articulating a business-friendly standard for attorney-client privilege over materials from an internal investigation. Those documents are protected, according to the D.C. Circuit, as long as one of the significant purposes of the investigation — but not necessarily the only purpose — is to obtain legal advice. The privilege applies, the opinion said, “even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.”

That will come as a big relief to businesses concerned about what the opinion called the “potentially broad and destabilizing effects” of Gwin’s KBR ruling. KBR lawyer John Elwood of Vinson & Elkins told me the D.C. Circuit’s opinion is an important interpretation of the “primary purpose” test many courts use to evaluate the scope of attorney-client privilege. “There has not been a huge gloss on what the primary purpose test means,” Elwood said. The D.C. Circuit’s holding — that privilege applies even if obtaining legal advice was only one of several goals of an internal investigation — makes it clear, Elwood said, that Gwin misapplied the test. (Elwood also said that the panel’s willingness to grant the extraordinary relief of mandamus is significant evidence that such petitions are “a safety valve” in attorney-client privilege disputes.)

The D.C. Circuit said there’s really not much to distinguish KBR’s privilege claim from the claim in Upjohn v. U.S., the 1981 case in which the U.S. Supreme Court established that internal investigation notes are protected. Most of the distinctions Judge Gwin drew between the KBR and Upjohn investigations were too minor to cast KBR out of Upjohn’s umbrella, the court said. And his holding that Upjohn didn’t apply to KBR’s investigation because KBR was fulfilling a corporate or regulatory duty was “inconsistent with the principle of Upjohn and longstanding attorney-client privilege law,” the opinion said. “The district court’s novel 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.”

No fear of that under the new ruling. KBR lawyer Elwood noted that the panel that decided the case is notably distinguished, even for the highly regarded D.C. Circuit. But Stephen Kohn of Kohn, Kohn & Colapinto, who represents whistleblower Harry Barko, a former KBR employee, said his regard for the D.C. Circuit won’t stop him from appealing the panel’s decision. He told me he continues to believe the internal investigation documents are not privileged, and he intends to ask the appeals court to review the panel’s decision en banc or to seek certiorari from the Supreme Court.

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