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.

Board Room, Bored Room and the Existential Horror of Styrofoam Coffee Cups: 13 Ways to Avoid Waiving Privilege in Corporate Meetings

And, how are we supposed to have a meeting without Wi-Fi?

And, how are we supposed to have a meeting without Wi-Fi?

This discussion by Mark Herrmann at Above The Law — Law Firm Meetings Vs. Corporate Meetings, Meetings, Meeting, And Meetings! — is a wonderful set-piece about meetings.  Read the whole article, but here he compares law-firm meetings  corporate meetings:

Corporations are different. They’re publicly traded. They’re often much larger than law firms. They’re divided into operational divisions with pyramidal structures, with many people reporting to fewer people who report to fewer people still who report to someone near the top. Put that all together, and it means meetings. And meetings. And meetings. And meetings. In fact, to my eye, there are four types of corporate meetings . . . .

First, there are meetings that are necessary to move the ball. These are the types of meetings that you experience at law firms: Several people are undertaking different tasks. The tasks must be coordinated, and you need a unifying mind at the top to know what’s happening. So you meet.

Or you’re struggling with a tough issue that you can’t resolve alone. You need help, so you meet.

Thus, the first type of meeting is one that’s substantively necessary: You meet to move the ball.

But we set meetings at corporations for many other reasons, too.

Because of the frequency of internal corporate meetings, and the manner in which they are conducted, they are prime pathways to waive the company’s privilege.  How can we minimize the likelihood of doing so?

The modernist American poet Wallace Stevens (1879-1955) wrote Thirteen Ways of Looking at a Blackbird.  You are an internal corporate lawyer.  Think of this article as “Thirteen Ways Of Looking At An Outlook Invitation.”

Skipping email.

Skipping email.

1.           Judges and juries think you’re a gangster.  Realize that judges and juries, the ultimate consumers of lost privilege, think that internal counsel are some kind of consigliere — at  best.  You are perceived (wrongly, usually) as a businessperson worried about budgets or looking good for the boss or covering up problems, rather than as lawyer with independent judgment, ethical constraints and multiple clients rather.  This is why, for example, agents and prosecutors do not especially like you, either, and may ask that you not attend employee interviews.  The privilege caselaw about internal lawyers is often not great, either.

2.           Pretend that you are Tom Hagen.   In the movies The Godfather and The Godfather Part II, the consigliere to Don Vito Corleone (Marlon Brando), and later Don Michael Corleone (Al Pacino), is Tom Hagen (Robert Duvall). 

A supporting role.

A supporting role.

Fantasize that you actually are a consigliere, which has the two-fold benefit of (a) driving other people crazy and (b) preserving privilege.  Follow steps (3) to (13) below.

3.           Face-to-face.  Among mob movies, The Godfather franchise still reigns supreme.  In The Godfather, does anybody talk on the phone?  Not if they can help it: somebody’s always listening.  You should assume the same.

Face-to-face, outside, with a cement mixer in the background is best for avoiding audio surveillance. 

"Don't worry about anything, Frankie Five Angels." "Thanks Tom. Thanks." ―Frank Pentangeli and Tom Hagen

“Don’t worry about anything, Frankie Five Angels.”
“Thanks, Tom. Thanks.” ―Frank Pentangeli and Tom Hagen

You’ve seen it in the movies.  Face-to-face is best for preserving privilege, too: no forwarded emails or unintended texts to worry about.  (f you want to unnerve others in the meeting, you can pay your drug-addled nephew, the one at the construction company, fifty dollars to drive a cement mixer back and forth outside).

"I hate taking work calls in the shower."

“I hate taking work calls in the shower.”

4.           Phone over email.  If it’s raining outside, or if cement mixers are too grimy, use the phone rather than email or text.

5.           Maximize formality to maximize privilege.  Here in the 21st century, business is supposedly informal, collaborative and horizontal rather than hierarchical.  (Supposedly.  Mainly, in many informal, collaborative and horizontal offices I see guys who would barely look good in suit-and-tie wearing clothes designed for junior-high volleyball coaches).  Privilege, on the other hand, is formal: privilege law draws sharp distinctions based upon need-to-know; control groups versus the controlled; and circles within circles.  If an activity actually helps the business, the product or the service, or is useful to and used by lots of people across the organization, it’s probably not privileged.

6.           If it was good enough for the Dead Sea scrolls, it’s good enough for you.  If there are to be agendas at the meeting, print them out on paper and then, after the meeting, collect them back up.

A blank slate.

A blank slate.

7.           Put a bullet in bullet-lists.  A PowerPoint presentation is already sufficiently soul-eating.  (See Edward Tufte’s work on this subject).  Do not compound the problem by allowing meeting attendees to tote the presentation around: do not print out the PowerPoint slides and do not distribute them. 

8.           They no longer make carbon paper.  Ban “cc’s,” an abbreviation for “carbon copy.”  (Remember mimeograph machines, though?  Nothing made you think “second grade” more than the smell of mimeograph fluid).  Some employees seem to think that the more they “cc,” the more they communicate (or the more CYA they have).  In general, the longer the “cc” list, the more likely that privilege will be lost, if indeed the email was privileged in the first place.

9.           “Re” is a Latin prefix, not a meaningful communication.  Do not re-use the same subject line in emails.  Despite advances in technology, recycled “re” lines make pulling out the privileged thread more difficult and encourage thoughtless, too-rapid correspondence.

Your choice for illegibility.

Your choice for illegibility.

10.        Crimson Security.  If you must distribute documents with important factual and legal findings, print them on red paper.  When scanned or photocopied, red paper turns black.  You do not waive anything because no one can read anything.

11.        Technological omerta.  Look into “Silent Circle” or similar tools to minimize the permanence of emails.

12.        Upjohn Massacres.  Speak the language of Upjohn, frequently, meetings.  It sobers people up.  Seriously: people need to remember that the substance of the meeting is privileged and that the privilege is held by the company.

13.        BYOD Is More Of A Menace to Privilege Than BYOB.  Bug your IT people about making and enforcing a coherent policy on the phenomenon of “bring your own device” to work.  (BYOD is not going away.  Most employees would much rather bring their own device to work than bring their own children to work).

There's work in here, somewhere.

There’s work in here, somewhere.

Good luck.