Many lawyers have justifiably cheered the District of Columbia Circuit’s couplet of decisions in 2014 and 2015 favoring Kellogg Brown & Root’s attorney-client privilege claims. Lawyers defending their corporate clients’ privilege protection should take heart that two separate three-judge panels of the D.C. Circuit favored the corporate privilege protection. And as explained below, a Southern District of New York judge pointed to the 2014 KBR decision in adopting a favorable privilege standard.
But most district courts across the country take a far narrower view of privilege protection in the corporate context. The D.C. Circuit’s new pro-privilege standard may never spread, and at best will take a long time to take root elsewhere. So corporations should welcome such a friendly approach, but not count on other courts following the same path – at least for now.
The 2015 KBR decision addressed two peripheral privilege issues, while the 2014 KBR decision focused on several core corporate privilege topics. Let’s take a look at the most recent decision first, then turn to the central privilege issues. (On January 11, 2016, the U.S. Supreme Court denied cert in the 2015 KBR decision I discuss in this article. About a year ago, the Supreme Court denied cert in the 2014 KBR decision I also discuss.)
The 2015 Decision
In its 2015 decision granting a petition for writ of mandamus in In re Kellogg Brown & Root, Inc., the D.C. Circuit dealt with two privilege issues. One involved a somewhat counterintuitive and little-noticed Federal Rule of Evidence, and the other involved a frightening form of implied waiver.
First, the court dealt with Federal Rule of Evidence 612. That rule essentially requires a witness to produce documents that refreshed her recollection while testifying. That seems obvious enough. One would expect that a witness examining documents during testimony that refreshed her recollection would have to turn them over to the adversary.
But Federal Rule of Evidence 612 also requires witnesses to disclose documents that refreshed their memory when they reviewed them before testifying – “if the court decides that justice requires” such disclosure. Many lawyers do not appreciate this risk. Most would scoff at the notion that they could lose privilege protection by sharing an undeniably privileged internal corporate document with a corporate executive. Privilege waivers normally occur upon disclosure to third parties, or reliance on some privileged communication (more about that below). Yet under Rule 612 (a)(2), corporate lawyers risk losing their client’s privilege by reviewing privileged documents with a corporate executive about to testify.
The D.C. Circuit correctly found that the district court erroneously required KBR’s Rule 30(b)(6) witness to turn over everything he reviewed before testifying. Courts correctly interpreting Rule 612 first require that the witness admit that the documents refreshed his or her recollection. The 2015 KBR decision noted this threshold requirement.
If the documents refreshed a witness’s recollection, courts must then determine if “justice requires” the documents’ production to the adversary. Courts seem to take one of two approaches when analyzing the “justice requires” standard. Some courts, such as the Southern District of New York in In re Rivastigmine Patent Litig., judge the documents’ impact on the witness’s testimony. These courts sometimes review the documents in camera to determine whether they were likely to have affected the witness’s testimony. Other courts, such as the District of Maryland in Weintraub v. Mental Health Auth. of St. Mary’s, Inc., apply the type of analysis applicable in the work product context – determining if the adversary can demonstrate that it needs the withheld documents. The first approach focuses on the witness’s testimony, while the second approach focuses on possible prejudice to the adversary. But both of these fact-intensive standards reject a per se disclosure obligation. The D.C. Circuit acknowledged that the district court had engaged in a balancing analysis, but found that the lower court had not considered carefully enough the benefits of a predictable and certain attorney-client privilege.
So this was an easy call for the D.C. Circuit in its 2015 KBR decision.
To be sure, Rule 30(b)(6) depositions raise special issues and present risks that corporations should keep in mind. As most lawyers know, under Fed. R. Civ. P. 30(b)(6), institutions such as corporations can be required to designate a spokesperson to testify about certain topics. This sounds fair. Otherwise, corporations could play a “shell game,” forcing an adversary to guess who within the corporate structure has the pertinent knowledge.
But privilege issues necessarily arise in a Rule 30(b)(6) scenario. Corporations’ lawyers inevitably play the main role in preparing such witnesses. Corporations obviously cannot claim privilege protection for the entire preparation sessions. Otherwise, the Rule 30(b)(6) witness would have nothing to say. So corporations must expect their Rule 30(b)(6) witnesses to testify about underlying historic facts – even though they almost always learn them from lawyers. But what about the inevitable preparation communications that do not involve historic facts such as those that reflect the lawyers’ opinions, advice, etc.? And what of nonprivileged documents lawyers select as important, and present to the Rule 30(b)(6) witnesses for their review? In other situations, a lawyer’s selection of intrinsically unprotected documents would deserve opinion work product protection, but that somehow does not seem appropriate in a Rule 30(b)(6) context.
Fortunately, courts properly analyzing Rule 30(b)(6) depositions acknowledge that corporations do not lose privilege protection for every communication between such witnesses and corporate lawyers preparing them to testify. However, courts disagree about the extent of privilege protection that corporations can assert. Careful courts analyze privilege protection on a question-by-question basis – distinguishing between historical facts that such witnesses must disclose, and other communications with the preparing lawyer that the witnesses may refuse to disclose. The D.C. Circuit’s 2015 KBR decision did not have to address such subtle topics.
“At Issue” Waiver
The second issue the D.C. Circuit’s 2015 KBR decision discussed involves what is called the “at issue” doctrine.
Lawyers should remember that privilege waivers come in two varieties. What might be called an “express” waiver involves the actual disclosure of a privileged communication. The other type of waiver can be called an “implied” waiver. That type of waiver can occur without the disclosure of any protected content. Instead, the waiver occurs when a litigant relies on the fact of the communication to gain some advantage. The most obvious type of implied waiver arises when a litigant pleads an “advice of counsel” defense. Pleading that defense does not disclose any protected content, but such a litigant obviously cannot gain some advantage by asserting that defense without disclosing protected content – usually including the lawyer’s advice and the client’s communication of pertinent facts to the lawyer. At the far edge of implied waivers lie “at issue” waivers. Those waivers can occur without the disclosure of any protected content and without any reliance on, or even reference to, lawyers’ advice.
The most common type of “at issue” waiver occurs when a corporate defendant asserts an affirmative defense that it investigated claims of a hostile workplace environment and took appropriate remedial steps. That is called the Faragher-Ellerth defense. Such a defense does not disclose the content of any privileged communication relating to the investigation, and does not mention lawyers or their advice. But corporations who have their lawyers conducting the investigation underlying that defense almost inevitably forfeit privilege protection for investigation-related communications.
“At issue” waivers can occur in even more frightening situations. In 2008, the Southern District of New York dealt with a company’s malpractice claim against its accounting firm for giving allegedly bad advice about a corporate transaction in its decision in Chin v. Rogoff & Co., P.C. The court noted that the plaintiff had also received advice about the transaction from Akin Gump – and ordered the plaintiff to produce Akin Gump’s advice. The court reasoned that Akin Gump’s advice might shed light on the plaintiff’s alleged reliance on the defendant accounting firm’s advice. As the court put it, “reliance and causation are dispositive issues here, and cannot be adequately resolved without invasion of the privilege.” That must have come as a shock. After all, the plaintiff suing its accounting firm had not even referred to legal advice or Akin Gump.
Big law firms sometimes lose sight of the risk that asserting some position might trigger an “at issue” waiver. On June 19, 2015, the Northern District of California dealt with Quinn Emanuel’s improper disclosure to its client Samsung of confidential Apple communications in Apple Inc. v. Samsung Elecs. Co. Quinn Emanuel had argued that neither it nor its client Samsung had improperly used the confidential information. Quinn Emanuel also claimed that it had complied with the court’s protective order. The court found a waiver, and ordered the production of pertinent privileged Quinn Emanuel communications. As in the Akin Gump case, the Northern District of California concluded that “[w]ithout access to the documents Samsung put directly at issue, neither Apple nor Nokia [whose information was also improperly disclosed] could evaluate whether Samsung’s explanations and arguments lacked credibility.”
Not surprisingly, Quinn Emanuel had sought to put the toothpaste back in the tube – by “retroactively withdrawing its arguments.” The court rejected the firm’s efforts, concluding that “having already benefited from its arguments ... about the contents of the privileged documents [by avoiding greater sanction, Samsung] cannot now seek to withdraw those arguments.”
In its 2015 KBR decision, the D.C. Circuit addressed plaintiff’s argument that KBR had likewise triggered an “at issue” waiver. The plaintiff pointed to a footnote in KBR’s summary judgment brief, which essentially said the following: (1) KBR has an internal process for investigating possible illegal activity; (2) KBR discloses any illegal activity if such an investigation uncovers it; (3) KBR conducted such an investigation into this plaintiff’s allegations; (4) KBR did not report any illegal activity to the government after the investigation.
The district court found that KBR had triggered an “at issue” waiver by relying on the fact of privileged communications to gain some advantage in litigation. That conclusion makes some sense. After all, why would KBR have included such a lengthy footnote if not to invite the court’s inference that the investigation did not uncover anything untoward? And much like Quinn Emanuel in Apple v. Samsung, KBR scrambled “to amend its pleadings to strike” the footnote. As with the post-hoc Quinn Emanuel effort described above, the district court refused KBR’s effort to avoid the “at issue” waiver by striking the footnote.
The 2015 KBR decision reversed the district court’s “at issue” waiver finding. The court correctly noted that KBR had not disclosed any protected content. The court also stressed that the footnote appeared in KBR’s introductory section (rather than the argument section), and that KBR faced all the adverse inferences as the moving party in the summary judgment context.
KBR was lucky to have dodged the “at issue” waiver bullet. Many trial courts would have permitted KBR to withdraw the footnote and proceeded to rule on its summary judgment motion. But if KBR had insisted on leaving the footnote in its brief, many courts would have found an “at issue” waiver. Corporate lawyers should keep this in mind. Their clients may trigger an “at issue” waiver by seeking some advantage in litigation by pointing to their good faith compliance with the law, their ignorance, their knowledge, or their actions that necessarily involved privileged communications – and the evaluation of which in fairness requires an evaluation of those privileged communications.
The 2014 Decision
Now let’s turn back to the earlier 2014 KBR decision in In re Kellogg Brown & Root, Inc.
That decision adopted a very favorable standard for distinguishing legal from business advice. It also brushed aside several unfavorable facts about KBR’s internal corporate investigation. Who knows if many other courts will follow the D.C. Circuit’s favorable privilege standard – although at least one court has already done that. But it seems much less likely that other courts will follow the D.C. Circuit if faced with similarly unfavorable facts about a corporation›s internal corporate investigation.
Before the 2014 KBR decision, nearly every court followed what is called the “primary purpose” test for distinguishing between legal advice and advice motivated by something else (the need for business advice, compliance with some requirement, etc.). Under that standard, corporations had a very difficult time ever claiming privilege protection for internal corporate investigations required by some external mandate (such as a government regulation) or internal mandate (a corporate policy). They also could rarely if ever successfully claim privilege protection for internal investigations conducted in the company’s ordinary course of business. Under any of those scenarios, the pertinent communications’ “primary purpose” was to comply with the external or internal requirement, or to simply conduct day-to-day business.
The 2014 KBR decision adopted an entirely new approach – protecting communications if legal advice was just one of the communications’ “significant purposes.” This is an enormously significant development. Most importantly, it gives corporations the chance to successfully assert privilege even if an internal corporate investigation is required by some external or internal mandate, or arguably also serves regular corporate business purposes.
No other circuit has ever hinted at such a favorable standard. In January 2015, a Southern District of New York decision, In re Gen. Motors LLC Ignition Switch Litig., found that the “one of the significant purposes” standard was “consistent with – if not compelled by – the Supreme Court’s logic” in the seminal Upjohn decision. So at least one other court has gone in the same direction. Time will tell if this favorable standard will take root elsewhere. In what could be a setback for any such favorable development, in November 2015, the Second Circuit, in Schaeffler v. United States, explained that for the privilege to apply “the purpose of the communication must be solely for the obtaining or providing of legal advice.” That description does not appear in the heart of the Schaeffler decision, so the Second Circuit’s brief introductory exposition on privilege might not represent its adoption of a narrower standard than the majority “primary purpose” test.
On a number of other, less central issues, the 2014 KBR decision took very favorable pro-privilege positions at odds with the vast majority of other courts.
It is worth noting some of the underlying (and apparently undisputed) facts about KBR’s internal corporate investigation at issue in both the 2015 and 2014 KBR decisions – and how nearly every other court would handle those.
First, the district court noted that nonlawyers conducted the investigation interviews, and did not give the standard Upjohn warning to the interviewed employees “that the purpose of the interview was to assist KBR in obtaining legal advice.” The 2014 KBR decision held that (1) lawyers could essentially deputize nonlawyers to conduct corporate investigation interviews; and (2) “nothing in Upjohn requires a company to use magic words.”
Many courts agree with the D.C. Circuit’s first position, but most would be reluctant to agree with the second. Many if not most courts accept a deputization argument, although most require some contemporaneous evidence suggesting that the lawyers are using their nonlawyer colleagues to gather facts the lawyers need to give legal advice. In contrast to the 2014 KBR decision, most courts explain that the Upjohn standard is not self-executing. That is why for decades lawyers have used the Upjohn language. The first half of the standard Upjohn warning deals with ethics – disclaiming any attorney-client relationship with the interviewed employee. The second half of the Upjohn warning deals with privilege – explaining the purpose of the interview. Although the 2014 KBR decision’s explanation that the privilege can protect communications in the absence of Upjohn’s “magic words” makes sense, nearly every court would require some words.
Ironically, KBR itself knows this. In April 2015, it paid a civil penalty to the SEC for having earlier obtained interviewees’ confidentiality agreements that the SEC thought might inhibit the interviewees from becoming whistleblowers. The SEC strong-armed KBR into paying a $130,000 penalty and reminding all the interviewees that the second half of the standard Upjohn warning did not prevent them from disclosures to the government “that are protected under the whistleblower provisions of federal law or regulation” in In re KBR, Inc. Other companies should start preparing for a similar heavy-handed government move.
In any event, the 2014 KBR decision’s extension of privilege protection despite the lack any Upjohn warning represented a far more favorable attitude than most courts would take.
Second, the 2014 KBR decision noted that the confidentiality agreements KBR’s nonlawyer interviewers asked the interviewees to sign did not mention legal advice. In fact, it seems that none of the underlying investigation-related email or other message traffic referred to legal advice. The D.C. Circuit’s 2014 KBR decision nevertheless found the privilege applicable – concluding that KBR employees knew that the law department was conducting a “sensitive” investigation obviously involving legal advice.
Most courts would not be as forgiving as the D.C. Circuit. Perhaps because of the dramatic increase in electronic communications requiring in camera review, most trial courts examine documents’ four corners for clients’ explicit request for, or lawyers’ providing of, legal advice. Unlike the 2014 KBR decision, these courts ultimately reject privilege protection unless some reference to legal advice appears in the document.
A few examples demonstrate such courts’ nearly exclusive focus on the face of withheld documents: Hamdan v. Ind. Univ. Health N., LLC (“There is no request for legal advice in any of the redacted emails, nor is there any indication in any of the emails that the author initiated or created the message for the purpose of seeking advice from the attorneys.”); A&R Body Specialty & Collision Works, Inc. v. Progressive Cas. Ins. Co. (“There is no legal advice requested, explicitly or implicitly, in the cover letter.”); Owens v. Stifel, Nicolaus & Co. (emails to and from an in-house lawyer “do not explicitly seek or contain legal advice”); LolongaGedeon v. Child & Family Servs. (“Nor is there any request within the text of the communication for legal advice or services and, as such, the communication is not protected by the attorney-client privilege.”).
This is a very unfortunate but widespread trial court approach. It elevates form over substance, and ignores the increasingly cryptic nature of electronic communications. But it clearly represents the attitude of many federal district courts and state courts. All of us can hope that the 2014 KBR decision represents a break from this approach, but there is no sign of that yet.
Corporate lawyers should train their clients to include on the face of privileged communications some reference to the clients’ request for legal advice. And corporate lawyers should include in their responsive communications some reference to their content’s legal aspects.
Other Privilege Impediments
In addition to these two issues in which the 2014 KBR decision took what could be seen as a far more favorable privilege approach than most courts, corporations face other headwinds in claiming privilege protection. It is worth mentioning several of these – if only to temper any irrational exuberance over the two KBR decisions.
First, some courts essentially adopt a per se standard rejecting privilege protection for communications a corporate employee sends simultaneously to a lawyer and to a nonlawyer. This case law does not make much sense, but it is out there. Even under the less favorable “primary purpose” test, communications simultaneously sent to a lawyer and a nonlawyer should be able to satisfy that standard. Given corporate employees’ use of email and practice of copying other employees on communications with inhouse or outside counsel, it is almost surely going to be impossible to train employees not to copy nonlawyers on their emails to company lawyers. But at least in some courts their doing so may doom privilege protection.
Second, some courts apply an equally frightening approach – denying corporations privilege protection for intracorporate communications if the corporation cannot prove that each recipient had a “need to know.” For example, in Int’l Cards Co. v. MasterCard Int’l Inc., the court held that “a corporate entity’s attorney-client privilege can also be waived by disclosure of the communication to employees of the corporation who are not in a position to act or rely on the legal advice contained in the communication.” And in LolongaGedeon, the court found that “defendant’s failure to demonstrate that [three employees] each needed to know the information contained in the communication has waived the attorney-client privilege.”
Notice the distinction between this approach and the one mentioned above. The doctrine mentioned above goes to whether the privilege even protects original employee communications to a lawyer and nonlawyer. The “need to know” requirement does not focus on the communication’s original protection, but rather applies a waiver concept to purely intracorporate communications. But the result is the same under either approach – the privilege does not protect the communications.
The “need to know” requirement does not make sense. Why should corporations have to disclose privileged communications to their litigation adversaries because a few extra corporate employees received the purely internal communications? After all, those other employees have a contractual and perhaps even a fiduciary duty to keep the communications confidential. Stripping away corporations’ privilege in this setting seems contrary to laudable corporate policies favoring transparency and encouraging employees’ involvement of corporate lawyers in their everyday work.
These and other narrow privilege approaches represent additional impediments that should dampen corporate lawyers’ otherwise understandable delight in the D.C. Circuit Courts’ 2015 and 2014 KBR decisions.
Thomas E. Spahn, Partner with McGuireWoods LLP and commercial litigator who advises in-house counsel on ethics issues. [email protected]
Published January 31, 2016.
