D.C. Circuit: Compliance Investigations Are Privileged
Posted on June 28, 2014 in Case Analysis, Discovery, Privilege
Written by: Drew B. Howk
Yesterday, the D.C. Circuit issued a much-anticipated decision regarding whether or not internal compliance investigations were privileged. Two recent lower court decisions had ruled that such compliance investigations were not privileged because they were for business rather than legal purposes. The D.C. Circuit disagreed and found that such compliance investigations are for legal purposes and fall squarely under the attorney-client privilege.
This decision came on a writ of mandamus – In re: Kellogg Brown & Root, Inc., et al. – from a lower court, in which the lower court had refused the Defendant’s request for an interlocutory appeal. Therefore, the D.C. Circuit’s determination was only appropriate if the district court’s decision “constituted legal error.” (Kellogg at 4.)
The D.C. Circuit rejected all of the lower court’s bases for determining that the attorney-client privilege did not protect the internal compliance review and communications.
Outside Counsel Involvement Not Required
The district court had held that because outside counsel had not been a part of in-house counsel’s determination to conduct a compliance review, the privilege did not apply. The D.C. Circuit Court rejected this rationale, noting that “a lawyer’s status as in-house counsel ‘does not dilute the privilege.'” (Kellogg at 6.)
Agents of Attorney’s Involvement Does Not Waive the Privilege
The district court noted that much of the internal compliance investigation was conducted by non-attorney employees of the Defendant and therefore, their communications were not privileged. The D.C. Circuit Court held otherwise. The Circuit Court noted that the investigations took place “at the direction of attorneys” and that “communications made by and to non-attorneys, serving as agents of attorneys in internal investigations, are routinely protected” by the privilege. (Kellogg at 6.)
Employees Need Not Know the Purpose of the Investigation
The district court ruled that because employees were not informed of the purpose of the investigation that the privilege did not arise. The Circuit Court again rejected the lower court’s rationale. The Circuit noted that there are no talismans or magic words upon which the privilege rests: “nothing . . . requires a company to use magic words to its employees in order to gain the benefit of the privilege for an internal investigation.” (Kellogg at 7.)
The Proper Test
Finally, the Court noted that the district court created a “false dichotomy” when it reasoned that internal compliance programs that were required by the Department of Defense must be for a business, rather than legal purpose. The most important determination to be made, the Circuit Court ruled, is that legal advice is being sought or given:
So long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation and even if the investigation was mandated by regulation. (Kellogg at 8.)
This distinction is a direct rejection of the district court’s “but-for” articulation of the “primary-purpose” test by the lower court. Again, the Circuit Court found the district court missed its mark, “the but-for test articulated by the District Court is not appropriate for attorney-client privilege analysis.” Id. Under such a test, the privilege could survive only if the sole purpose of the investigation was legal advice. This is a rigid reading of the primary purpose test that goes beyond its intent and, the Court noted, has no basis in any Supreme Court or federal appellate decision. To adopt such a rigid standard “would eliminate the attorney-client privilege for many communications,” which share both a business and legal purpose and “eradicate” the privilege for internal investigations required by law.
In recognizing the confusion of the district court and other courts that have made similar determinations, the D.C. Circuit set forth a clarified standard: if obtaining or providing legal advice is a primary or significant purpose of the communication, then it is privileged.
The Court ended by stressing that though the Relator could discover “the underlying facts” of the Defendants investigation, he “was not entitled to KBR’s own investigation files.” In noting that such a decision limits the ability of a relator to learn of and use certain information, the Court did as others have done before and reiterated the principle purpose of our legal system’s recognition of this limit on discovery:
Our legal system tolerates those costs because the privilege ‘is intended to encourage ‘full and frank’ communication between attorneys and their clients and thereby promote broader public interests in the observance of law and the administration of justice. (Kellogg at 18.)
To rectify the lower court’s error, the District Court took the unusual step of ruling upon a writ of mandamus.
The impact of this decision is substantial. Compliance procedures within health care providers and government contractors are the frontline for defending against costly False Claims Act litigation. What this case makes clear is that when counsel oversees such compliance programs, the programs are clearly within the attorney-client privilege and therefore not normally discoverable in litigation. Health care clients and government contractors should work closely with their counsel to revisit their internal compliance processes to ensure that the attorney-client privilege is maintained.
Should you have any questions regarding False Claims Act defense, putting in place or strengthening your regulatory compliance programs or this article, please contact:
- David B. Honig at email@example.com or (317) 429-1447;
- Drew B. Howk at firstname.lastname@example.org or (317) 429-3607; or
- Your regular Hall Render attorney.