Two men share securities regulation news

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Securities Regulation Daily, June 27, 2014

Attorney-client privilege shields KBR’s internal investigation

By Anne Sherry, J.D.

Defense contractor Kellogg Brown & Root (KBR) need not turn over documentation of an internal investigation to a False Claims Act plaintiff. By vacating the district court’s March 6 document production order, the D.C. Circuit quieted uncertainty about the application of the attorney-client privilege to internal investigations, particularly those conducted under a regulatory mandate (In re Kellogg Brown & Root, Inc., June 27, 2014, Kavanaugh, B.).

Discovery dispute. The plaintiff, a KBR employee, alleged that KBR had defrauded the federal government. During discovery, he sought documents related to an investigation of the alleged misconduct that KBR’s legal department had previously conducted. KBR asserted the attorney-client privilege, and after in camera review, the district court determined that the documents were not privileged because KBR had not shown that the communications would not have been made “but for” the fact that legal advice was sought. Rather, the court reasoned, the investigation was undertaken pursuant to regulatory law and corporate policy.

Error in distinguishing UpjohnKBR petitioned the D.C. Circuit for a writ of mandamus after the district court denied its petition to certify the privilege question for interlocutory review. The appeals court held that the district court erred in applying a but-for test and in distinguishing the Supreme Court’s 1981 Upjohn decision. KBR’s privilege assertion was “materially indistinguishable from Upjohn’s assertion of the privilege”: both involved communications made by employees to in-house attorneys during an attorney-led internal investigation intended to ensure the company’s compliance with the law.

Contrary to the district court’s opinion, it was irrelevant that Upjohn began its investigation after conferring with outside counsel; privilege is not diluted because the lawyer is in-house. Furthermore, the court should not have distinguished Upjohnbecause non-attorneys conducted many of the interviews in KBR’s investigation, as communications with non-attorneys serving as agents of attorneys are routinely protected. The district court had also noted that in Upjohn, unlike in KBR’s investigation, the employees were expressly informed that the interview’s purpose was to help the company obtain legal advice. Even if this were the case, the appeals court countered, “nothing in Upjohn requires a company to use magic words to its employees” to gain privilege protection.

More broadly, the district court erred in distinguishing Upjohn on the ground that KBR was required by Department of Defense regulations to maintain compliance programs and conduct internal investigations into allegations of wrongdoing. The appeals court described the district court’s apparently rogue adoption of a but-for test as a “novel approach” that would eradicate the attorney-client privilege for the significant portion of American industry required to maintain compliance programs. The court held that the privilege applies to communications made during an internal investigation whose significant purpose was obtaining or providing legal advice, even if there were other purposes or a regulatory mandate to conduct the investigation.

Mandamus appropriate. The district court’s error justified the “drastic and extraordinary” remedy of a writ of mandamus, the appeals court concluded, because there were no other adequate means of relief, the district court had committed clear error, and the writ was appropriate under the appeals court’s discretion. Absent certification, which the district court had denied, there is no interlocutory appeal for attorney-client privilege cases, and an appeal after final judgment would be too late as the documents would already have been produced. The appellate court vacated the district court’s order but denied KBR’s request to assign the case to a different judge.

The case is No. 14-5055.

Attorneys: John P. Elwood (Vinson & Elkins LLP) and John Martin Faust (Law Office of John M. Faust PLLC) for Kellogg Brown & Root, Inc. and Halliburton Co.

Companies: Kellogg Brown & Root, Inc.; Kellogg Brown & Root Services, Inc.; Halliburton Co.; KBR Technical Services, Inc.; Kellogg Brown & Root Engineering Corp.

MainStory: TopStory CorporateGovernance FraudManipulation DistrictofColumbiaNews

Securities Regulation Daily

Introducing Wolters Kluwer Securities Regulation Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.