As reported by the law firm Husch Blackwell, a recent D.C. Circuit court decision reaffirms that the attorney-client privilege applies with equal force to internal investigations today as it did 30 years ago. We often cover compliance stories on our website and this issue is of particular importance for corporate compliance officers.
This decision vacates the March 6, 2014 district court decision in the same case. The lower court ruled that the attorney-client privilege did not protect documents developed during an internal investigation of potential fraud. The Court reasoned that investigations were not privileged because they were conducted “pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” The Circuit Court decision recognizes the “uncertainty generated by the novelty and breadth of the District Court’s reasoning” and echoes the Supreme Court’s concern that an “uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.” (Husch Blackwell)
District Court’s Potential Impact on Attorney-Client Privilege
Sidley Austin’s False Claims Act blog noted the significance of the Circuit Court case to corporate internal investigations. Citing a petition submitted to the Court: “It is no exaggeration to say that if the district court’s ruling stands, no defense contractor—and indeed, no public company, given widespread internal-control and auditing requirements under laws such as Sarbanes-Oxley and the Foreign Corrupt Practices Act—can claim privilege over materials generated in internal investigations, because all such companies face obligations under ‘regulatory law’ (comparable to those the court held rendered KBR’s investigative documents unprivileged.”
Additionally, the United States Chamber of Commerce, Association of Corporate Counsel, the National Association of Manufacturers, Coalition for Government Procurement, and American Forest & Paper Association, filed an amicus brief in support of the appeal. The brief argued that the District Court’s ruling “threatens to work a sea change in the well-settled rules governing internal corporate investigations.” As the amicus brief states: “stripping the attorney-client privilege where corporate policy drives employees to report legally significant facts to in-house lawyers would penalize companies that have effective compliance policies.”
Circuit Court’s Reasoning
Ultimately, the D.C. Circuit’s decision reversed Judge Gwin’s ruling. The decision recognizes the “uncertainty generated by the novelty and breadth of the District Court’s reasoning” and echoes the Supreme Court’s concern that an “uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.” If the district court’s decision were to stand, “businesses would be less likely to disclose facts to their attorneys and to seek legal advice.” The behavior created by this uncertainty in the attorney-client privilege would undercut the very compliance and disclosure regulations central to Judge Gwin’s analysis.
Meaning for Compliance Officers
Brian Miller writes: “The importance of the attorney-client privilege is not limited to ‘clients,’ in-house counsel or outside counsel. Privilege is, as some have noted, a compliance officer’s best friend because it leads to increased compliance and compliance reviews. As such, compliance officers had the most to lose from the recent Barko decision which, if it had not been overturned, would have vitiated the privilege.
By eliminating the protections of the attorney-client privilege in a corporation’s internal investigations, Judge Gwin’s decision would have perversely discouraged companies from conducting internal investigations and making disclosures.”