Kusserow’s Corner: Court Rules Internal Investigations are Privileged

There was good news for in-house legal counsel, compliance officers, and others responsible for implementing compliance programs and investigating allegations of wrongdoing. The D.C. Circuit at the end of June unequivocally reaffirmed that the attorney-client privilege protects internal ruled investigations conducted by legal counsel pursuant to a legally mandated corporate compliance program. This decision reverses a lower court decision order in U.S. ex rel. Barko v Halliburton Co. that directed defendant Kellogg Brown & Root, Inc. (KBR) to turn over documents from an internal investigation, even though the investigation was conducted by in-house legal counsel. The documents were not protected by the attorney-client privilege under Upjohn Co. v United States, 449 U.S. 383 (1981), and therefore must be produced to the plaintiff in the False Claims Act suit alleging fraud against the government by inflating costs and paying kickbacks in connection with its contracts in Iraq. What this means is that the court has reaffirmed that conducting an investigation under direction of legal counsel can protect the investigation from unnecessary disclosure of potentially damaging documents.

Attorney-client privilege is a legal concept that protects communications between a client and their attorney and keeps those communications confidential. It is one of the oldest common law privileges protecting confidential communications. The test always is whether a communication satisfies the elements necessary to establish the privilege—not how the communication is identified or labeled. The decision means that:

  1. outside counsel need not be involved for the attorney-client privilege to apply to protect corporate communications with in-house counsel;
  2. interviews conducted at the direction of in-house counsel by non-attorneys, such as compliance officers and outside investigators or consultants, are protected by the privilege; and
  3. there are no “magic words” that a company must use with its employees to obtain the benefit of the privilege—a communication made to obtain or provide legal advice may be privileged even if the employee is not specifically apprised that that is the communication’s purpose.

Putting this in the context of health care compliance, the HHS Office of Inspector General (OIG) recognizes that legal counsel involvement may be necessary to evaluate the evidence of potential violations of law and when appropriate to direct the investigation. Their role is also addressed when a decision is needed as to whether reporting misconduct to the government is necessary. The OIG noted “The compliance officer, under advice of counsel, and with guidance from the governmental authorities, could be requested to continue to investigate the reported violation.”

The court also held that an internal investigation undertaken to comply with legally mandated compliance, investigation, and disclosure obligations will maintain the protection of the attorney-client privilege “[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation.” They made it clear that the test does not require a court to determine whether the provision of legal advice was the primary purpose of the communication, but instead whether it was a primary purpose. It is “not correct for a court to presume that a communication can have only one primary purpose.”

The significance of the opinion is great. It means inside counsel may establish privilege without having to engage outside counsel, and the privilege extends to compliance officers, consultants, and experts conducting the investigation under direction of counsel. There are some general rules that should be followed for preserving legal counsel-client privilege in a compliance internal investigation:

  1. The investigation must be conducted under the attorney’s direction.
  2. Counsel should make it clear that the investigation is being conducted to provide legal advice to the organization.
  3. The purpose of the investigation is to gather facts and determine liabilities and defenses, not to conceal or commit further misconduct.
  4. Employee interviews and other components of the investigation must be to provide confidential information to the attorney.
  5. Privileged communications should remain confidential, and all interviews should be conducted in a way that ensures maximum confidentiality.
  6. All communications must be directed back to the attorney.
  7. Privileged communications should be kept separate from non-privileged business documents.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.