Internal Investigations, the KBR Decision and International Investigations

Child of Upjohn

Child of Upjohn

In a recent post, we touched on the importance of the D.C. Circuit’s decision in KBR concerning privilege and internal investigations:

Post-recession, we are living through an era of regulators’ grimaces and prosecutors’ giddiness. Editorialists and bloggers want business scalps, especially scalps of individuals (as opposed to simple monetary fines for corporations), and most especially scalps of those in banking and finance.  In the wake of the GM report and other stories about lawyers, the role of business lawyers is as suspect in the public mind as it has been for decades.  It’s as though everybody smells a rat.

On the other hand, faced with ever-increasing and increasingly complex regulation, companies’ need to conduct self-reviews and internal investigations is unavoidable. Indeed, in many industries, the governing set of rules require companies to self-investigate and, under certain conditions, reveal those investigatory results to the Government.  This is especially the case if the company wishes to be seen as a good citizen and a cooperator. (We have discussed the ups and downs of cooperation here and here).

In this environment, it was refreshing to see the decision of the United States Court of Appeals for the District of Columbia Circuit in In re Kellogg Brown & Root, Inc.

Skeptical of the role of lawyers.

Skeptical of the role of lawyers.

(Read the complete post at It’s Okay To Smell A Rat: Internal Investigations, Attorney-Client Privilege and the KBR Decision).

More recently, from our friends at the White Collar Crime Prof Blog, here and here are two good essays by Professor Lucian Dervan of Southern Illinois University on KBR, privilege and the implications for international internal investigations.


“Compensation” | Paul Laurence Dunbar

On budget, or off?

On budget, or off?

Compensation is a matter dear to lawyers’ hearts, white-collar and otherwise.  Here’s a poem (via www.poets.org) by Paul Laurence Dunbar:

Compensation

Because I had loved so deeply,
Because I had loved so long,
God in His great compassion
Gave me the gift of song.

Because I have loved so vainly,
And sung with such faltering breath,
The Master in infinite mercy
Offers the boon of Death.

Paul Laurence Dunbar was born in Dayton, Ohio, in 1872.

Paul Laurence Dunbar

Paul Laurence Dunbar

He wrote numerous books of poems, including Majors and Minors (1895), as well as several novels and a play. He died in 1906 in Dayton, Ohio.  “Compensation” was originally published in Dunbar’s 1905 collection Lyrics of Sunshine and Shadow.

 

 

 


“Appellate Jurisdiction” | Marianne Moore (1887-1972)

What's the appeal?

What’s the appeal?

For pondering our appeals of all sorts.

 

Appellate Jurisdiction

by

Marianne Moore

Fragments of sin are a part of me.
New brooms shall sweep clean the heart of me.
      Shall they? Shall they?

When this light life shall have passed away,
God shall redeem me, a castaway.
      Shall He? Shall He?

 

About This Poem

“Appellate Jurisdiction” by Marianne Moore was published in the May 1915 issue of Poetry along with four other poems by Moore.

Marianne Moore was born in Saint Louis, Missouri, on November 15, 1887. Moore, a former Chancellor of the Academy of American Poets, was the recipient of the National Book Award and the Pulitzer Prize. She died in New York City on February 5, 1972.


It’s Okay To Smell A Rat: Internal Investigations, Attorney-Client Privilege and the KBR Decision

Skeptical of the role of lawyers.

Skeptical of the role of lawyers.

Post-recession, we are living through an era of regulators’ grimaces and prosecutors’ giddiness. Editorialists and bloggers want business scalps, especially scalps of individuals (as opposed to simple monetary fines for corporations), and most especially scalps of those in banking and finance.  In the wake of the GM report and other stories about lawyers, the role of business lawyers is as suspect in the public mind as it has been for decades.  It’s as though everybody smells a rat.

On the other hand, faced with ever-increasing and increasingly complex regulation, companies’ need to conduct self-reviews and internal investigations is unavoidable. Indeed, in many industries, the governing set of rules require companies to self-investigate and, under certain conditions, reveal those investigatory results to the Government.  This is especially the case if the company wishes to be seen as a good citizen and a cooperator. (We have discussed the ups and downs of cooperation here and here).

In this environment, it was refreshing to see the decision of the United States Court of Appeals for the District of Columbia Circuit in In re Kellogg Brown & Root, Inc.  In KBR, the D.C. Circuit considered a district court’s denial of the protection of the attorney-client privilege to a company that conducted an internal investigation.
The district court based its decision in part on the ground that the internal investigation had been “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice,” attempting to distinguish the ur-case in this area, Upjohn Co. v. United States, 449 U.S. 383 (1981)

 

Business people (and internal business-lawyers) wear many hats.  Some of the hats don’t fit neatly (or comfortably).  Many activities undertaken by corporations have multiple purposes: business, political, legal and otherwise.  If this view of internal-investigations law had been allowed to stand, it would be virtually impossible for a company subject to even the most rudimentary level of regulatory oversight to maintain its attorney-client privilege.

It is worth quoting the D.C. Circuit here at some length, given the clarity and forcefulness of the holding:
KBR’s assertion of the privilege in this case is materially indistinguishable from Upjohn’s assertion of the privilege in that case. As in Upjohn, KBR initiated an internal investigation to gather facts and ensure compliance with the law after being informed of potential misconduct. And as in Upjohn, KBR’s investigation was conducted under the auspices of KBR’s in-house legal department, acting in its legal capacity. The same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.
The District Court in this case initially distinguished Upjohn on a variety of grounds. But none of those purported distinctions takes this case out from under Upjohn’s umbrella.
First, the District Court stated that in Upjohn the internal investigation began after in-house counsel conferred with outside counsel, whereas here the investigation was conducted in-house without consultation with outside lawyers. But Upjohn does not hold or imply that the involvement of outside counsel is a necessary predicate for the privilege to apply. On the contrary, the general rule, which this Court has adopted, is that a lawyer’s status as in-house counsel “does not dilute the privilege.” In re Sealed Case, 737 F.2d at 99. As the Restatement’s commentary points out, “Inside legal counsel to a corporation or similar organization . . . is fully empowered to engage in privileged communications.” 1 RESTATEMENT § 72, cmt. c, at 551.
Second, the District Court noted that in Upjohn the interviews were conducted by attorneys, whereas here many of the interviews in KBR’s investigation were conducted by non-attorneys. But the investigation here was conducted at the direction of the attorneys in KBR’s Law Department. And communications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney-client privilege. See FTC v. TRW, Inc., 628 F.2d 207, 212 (D.C. Cir. 1980); see also 1 PAUL R. RICE, ATTORNEY-CLIENT PRIVILEGE IN THE UNITED STATES § 7:18, at 1230-31 (2013) (“If internal investigations are conducted by agents of the client at the behest of the attorney, they are protected by the attorney-client privilege to the same extent as they would be had they been conducted by the attorney who was consulted.”). So that fact, too, is not a basis on which to distinguish Upjohn.
Third, the District Court pointed out that in Upjohn the interviewed employees were expressly informed that the purpose of the interview was to assist the company in obtaining legal advice, whereas here they were not. The District Court further stated that the confidentiality agreements signed by KBR employees did not mention that the purpose of KBR’s investigation was to obtain legal advice. Yet nothing in Upjohn requires a company to use magic words to its employees in order to gain the benefit of the privilege for an internal investigation. And in any event, here as in Upjohn employees knew that the company’s legal department was conducting an investigation of a sensitive nature and that the information they disclosed would be protected. Cf. Upjohn, 449 U.S. at 387 (Upjohn’s managers were “instructed to treat the investigation as ‘highly confidential’”). KBR employees were also told not to discuss their interviews “without the specific advance authorization of KBR General Counsel.” United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276, 2014 WL 1016784, at *3 n.33 (D.D.C. Mar. 6, 2014).
In short, none of those three distinctions of Upjohn holds water as a basis for denying KBR’s privilege claim.
More broadly and more importantly, the District Court also distinguished Upjohn on the ground that KBR’s internal investigation was undertaken to comply with Department of Defense regulations that require defense contractors such as KBR to maintain compliance programs and conduct internal investigations into allegations of potential wrongdoing. The District Court therefore concluded that the purpose of KBR’s internal investigation was to comply with those regulatory requirements rather than to obtain or provide legal advice. In our view, the District Court’s analysis rested on a false dichotomy. 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 rather than simply an exercise of company discretion.
In the context of an organization’s internal investigation, if one of the significant purposes of the internal investigation was to obtain or provide legal advice, the privilege will apply. That is true regardless of whether an internal investigation was conducted pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy.

 

It is noteworthy that the D.C. Circuit clarifies the rule such that it applies in all contexts: civil, criminal and administrative.  The attorney-client privilege is, to some degree, in derogation of the search for the truth, at least in the first instance.  Yet, lawyers learn things from clients that the lawyers then do not have to reveal because we believe that, on balance, “truth” is ultimately best served in an adversarial system by a tool that encourages clients to tell their lawyers the truth.

This is an often overlooked point.  Frequently, clients do not tell lawyers the whole truth, at least the first time a discussion arises. This is particularly the case in criminal representations, but it is not uncommon in the civil arena.  Sometimes, this reticence arises from a client’s knowledge of his, her or its wrongdoing, and a concomitant desire to hide or destroy evidence.

More often, however, that initial reticence arises from much more innocuous sources: embarrassment, shame, misunderstanding, fear of losing a job or worry about how superiors or colleagues might react.  In those contexts, it is the privilege itself that is most solicitous of the truth, and allows the truth to eventually out.

A Meditation On Independence Day

Oh, say, Can you still see plea-bargaining reform?

Oh, say, Can you still see plea-bargaining reform?

We all like the Fourth of July; most of us want it to mean something beyond cookouts and fireworks.  When my children were little, I would read aloud to them the entire Declaration of Independence, an oration they found both alarming and distracting. The nation’s Independence Day celebration has changed over time, as has its people (alarmed or distracted) and their culture.

We have an Independence Day in film and in song, works of art that speak to a patriotism grounded in a corporate concept (national independence) and in a citizen concept (individual independence).

Here in the early portion of the 21st-century, it is the domestic liberty of individuals, rather than the specter of foreign domination from across the seas, that is the most fruitful subject for reflection this Independence Day.  At the end, you can decide which is more apt: alarm or distraction.

In the Declaration of Independence, the list of grievances against King George III and his agents is lengthy and detailed, a fact that my young children frequently brought to my attention as I declaimed in our den.

Need to read the fine print.

Need to read the fine print.

In general, however, the revolution that followed the Declaration was a “conservative” revolution, at least compared to successor-revolutions such as the French and the Bolshevik.  In terms of its genesis, the complaints in the Declaration were the complaints of Englishmen who had been denied English rights.

Further, many of the concepts underpinning those rights – for example, the nature of the sovereign and his subservience to God, the more powerful King – arose out of the Protestant Reformation in Europe.  There were many flavors and strains of what we call “Protestant,” but one of several unifying factors was an emphasis on the individual’s direct access to the divine, rather than a requirement that the individual proceed through a priest or a bureaucratic episcopate that could grant or withhold dispensation, including that ultimate dispensation of liberty and property rights — the freedom and freehold of the kingdom of God.  The individual believer could now read a sacred text (the Bible) for himself or herself.  Priest, prince, pope: all potentates were sidelined.

In our pluralistic, post–Christendom culture, what bearing (if any) does this historical, cultural and religious context have this Independence Day?

On this Independence Day, the concept of “independence” is informed by two consistent drumbeats.

First, the national-security state that has grown ever since September 11 shows no sign of abating.

Still got the briefcase, though.

Still got the briefcase, though.

Second, the editorial, social-media and congressional criticism of prosecutorial handling of post-recession financial institutions and white-collar defendants feeds an apparently deep-seated need to assign particular blame for generalized ills.

For a white-collar defense lawyer, he confluence of these two drumbeats is deafening. For business people – indeed, for all citizens – the scales have been tipped further in favor of the state and its investigatory and prosecutorial apparatus.  Substantively, there continues an arguable over- criminalization of undesirable but not, at heart, criminal conduct, a legislative spasm driven by an unseemly result–orientation.

The grand jury has long been unmoored from its original function as a buffer between the sovereign and subject.  Reform of the grand jury and the plea-bargaining system is overdue but unlikely to happen in the near-term.  (On the other hand, Martin Luther thought he was merely trying to reform the church and did not intend, as Winston Churchill said in another context, to set Europe ablaze).

Maybe I needed the microphones.

Maybe I needed the microphones.

In addition, the “presumption of innocence” about which we all learned (or, at least, used to learn) in civics class has been translated into a presumption of guilt.  Most citizens, most of the time, believe that when a person or company is charged with a criminal offense, they are guilty (or perhaps guilty of something pretty close to the charged offense).  (We have discussed presumption problems here and here).

Such impulses and shifts in presumptions do damage due process and, ultimately, the status of a free people.  Citizens in white-collar professions are often the first to clamor for more national security externally and more law-enforcement domestically.  In many circumstances, of course, that clarion call is entirely appropriate, even vital, to our survival as a nation.  On the other hand, the call can only be answered by the raw exercise of sovereign power.  One need not be a Protestant Reformer or a Declaration subscriber to wonder if another call, this one for reflection and vigilance, is not perhaps overdue if we are to maintain those liberties — that “independence” — that we all treasure.

Happy Independence Day.