By Pamela J. Bethel
Last May, we wrote in this blog that we hoped and expected the U.S. Court of Appeals for the D.C. Circuit to reverse a district judge’s opinion and to permit companies to assert attorney-client privilege for internal documents created in the course of a bona fide investigation by inside counsel.
If the privilege does not apply, we contended, many people would withhold information in an internal probe for fear that what they say would be subject to discovery in a civil lawsuit. Thus, the investigation would not be able to uncover the truth, and a company’s compliance function – a function that we believe is crucial to corporations large and small – would be hamstrung.
We were absolutely right in our prediction.
The case involved Kellogg Brown & Root Services Inc. and a whistleblower named Harry Barko, who had filed a False Claims Act case against KBR. U.S, District Judge James Gwin of the Northern District of Ohio, sitting by designation, had ordered the disclosure to Barko of 89 documents from KBR’s internal investigation of Barko’s allegations, rejecting KBR’s privilege claim concerning the documents.
The documents concerned an investigation into whether the company and a subcontractor, Daoud & Partners Inc., maintained an inappropriate business relationship that involved kickbacks.
KBR’s lawyers at Vinson & Elkins, as well as an amicus brief filed by the Association of Corporate Counsel, argued in favor of the privilege at the D.C. Circuit.
On June 27, a three-judge panel of the D.C. Circuit reversed the district judge, as we predicted, and found that the documents were privileged. It ruled that the 1981 Upjohn case from the U.S. Supreme Court, which held that corporations are entitled to claim attorney-client privilege, governed this case, since KBR was seeking legal advice in conducting the investigation.
“In this case,” the appeals court wrote, “there can be no serious dispute that one of the significant purposes of the KBR internal investigation was to obtain or provide legal advice. In denying KBR’s privilege claim on the ground that the internal investigation was conducted in order to comply with regulatory requirements and corporate policy and not just to obtain or provide legal advice, the District Court applied the wrong legal test and clearly erred.”
On September 2, the full D.C. Circuit declined to hear the case en banc, and not a single judge voted to hear it. The whistleblower’s last recourse is the U.S. Supreme Court, and we doubt that that court will do anything to change this clearly correct and well-reasoned opinion.