August 14, 2015 - False Claims Act

D.C. Circuit Grants Second Writ of Mandamus to Protect the Attorney-Client Privilege and Work-Product Doctrine as Applied to an Internal Investigation

False-claimsOn August 11, 2015, the D.C. Circuit took the rare step of granting a second petition for mandamus from defendant Kellogg Brown & Root (KBR) to vacate two recent discovery orders from the U.S. District Court for the District of Columbia and find that KBR’s internal investigation documents are protected by the attorney-client privilege and work-product doctrine.[1]  The circuit court’s decision, like its prior 2014 rebuke of the district court, is a welcome development for companies that conduct internal investigations into potential wrongdoing under the important protections afforded by attorney-client privilege and work-product protection.

KBR – Round I

The continuing attacks on privilege in the KBR case are well known.[2]  As a brief reminder, Harry Barko, a former KBR employee, brought a qui tam claim under the False Claims Act in 2005, alleging that KBR and certain subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks during the performance of contracts in Iraq.

During discovery, Barko sought the production of documents related to prior internal investigations into the alleged fraud conducted by KBR’s internal legal department pursuant to the company’s Code of Business Conduct.  Barko argued, and U.S. District Judge James Gwin agreed, that the documents were not protected by the attorney-client privilege because KBR could not show that “the communication would not have been made ‘but for’ the fact that legal advice was sought.”[3]  In the eyes of the district court, KBR’s internal investigation was “undertaken pursuant to regulatory and corporate policy rather than for the purpose of obtaining legal advice.”  Moreover, according to the district court, the attorney work-product doctrine did not apply to the investigation reports because the investigation was conducted several years before Barko’s qui tam complaint was unsealed.

KBR quickly petitioned the D.C. Circuit for, and obtained, a writ of mandamus to protect KBR’s internal investigation documents.  The circuit court held that a company’s internal investigation documents are protected by the attorney-client privilege where “one of the significant purposes” of the investigation was “to obtain or provide legal advice.”[4]  The circuit court further held that the privilege applies regardless of whether the investigation was conducted pursuant to a company policy or to a statutory or regulatory requirement, and regardless of whether the investigation was conducted by outside or in-house counsel.  After rejecting the district court’s unduly burdensome test for qualifying for the attorney-client privilege, the circuit court invited the district court to entertain any other timely arguments regarding whether KBR’s internal investigation documents were protected by either the attorney-client privilege or the work-product doctrine.

KBR – Round II

Barko accepted the circuit court’s invitation.  In November 2014, Barko once again convinced the district court the protections afforded by the attorney-client privilege and work-product doctrine did not apply for KBR.  First, the district court found that, under FRE 612, KBR waived privilege and work-product protection when its 30(b)(6) witness stated that he had reviewed the internal investigation reports in preparation for his deposition.  Second, the district court determined that KBR impliedly waived privilege and work-product protection by putting the investigation reports at issue in a footnote in the introduction of its summary judgment brief.

One month after its November order finding waiver, the district court found, in the alternative, that substantial portions of the investigation reports were non-privileged fact work product for which Barko had demonstrated a substantial need.  KBR again filed a speedy petition for writ of mandamus at the D.C. Circuit, which the circuit court granted after finding that each of the district court’s three rulings constituted a “clear and indisputable” error.

FRE 612 Waiver Did Not Apply

During discovery, Barko noticed for KBR’s 30(b)(6) witness all internal or external investigations into the alleged fraud.  During the subsequent deposition, KBR’s counsel provided that the witness would address the noticed topics subject to the company’s claims of attorney-client privilege and work-product protection, and he repeatedly instructed the witness not to answer questions about the substance of the investigation on that basis.

The witness did testify, however, that he had reviewed the investigation documents to prepare for his deposition.  Based on that statement alone, the district court applied a balancing test and found that the investigation documents must be produced under FRE 612, which provides that an adverse party is entitled to a document that the witness uses to refresh his or her memory before testifying if justice requires.

The circuit court, however, held that FRE 612 only applies when the witness consults a document while testifying and that document influences the witness’s testimony.  In this case, the witness merely stated that he reviewed the documents prior to his deposition and that the documents were privileged.  The circuit court reasoned: “It cannot be the case that just stating the documents were privileged constitutes a testimonial reliance on their contents; else, attorney-client privilege and work product production would mean nothing at all in that their mere invocation would entitle an adversary to production of the privileged or protected materials.”

The circuit court also held that the district court’s balancing test and application of FRE 612 conflicted with UpJohn’s warning against an uncertain privilege that suffers from “widely varying application by the courts.”  In this case, Barko noticed the investigation itself—not the events that were the subject of the investigation—and the witness “had no choice but to review documents related to the [] investigation.”  According to the circuit court, the district court’s reasoning “would allow the attorney-client privilege and work product protection covering internal investigations to be defeated routinely by a counter-party noticing a deposition on the topic of the privileged nature of the internal investigation.”  The circuit court explained that “[a]llowing privilege and protection to be so easily defeated would defy ‘reason and experience,’ [FRE 501], and ‘potentially upend certain settled understandings and practices’ about the protections for such investigations[.]”

At-Issue Waiver Did Not Apply

The district court’s at-issue waiver finding fared no better with the circuit court.  Again, according to the district court, KBR impliedly waived the privilege and work-product protection when it put the content of the investigation at issue in a footnote in the introduction section of its summary judgment brief.  In that footnote, KBR cited to its 30(b)(6) testimony and made the following assertions: (1) KBR’s internal investigative mechanism “provides a means of identifying any potentially illegally activities within the company”, (2) when an investigation finds reasonable grounds of a violation requiring disclosure to the government, KBR makes the required disclosure, (3) KBR has made such disclosures to the government following past investigations, and (4) KBR performed an investigation into the fraud identified by Barko and reported no violation to the government.  The district court found that these statements “actively” sought an “unavoidable” inference that no wrongdoing occurred because KBR investigated the matter and made no subsequent disclosure to the government.  Consequently, the district court held that KBR had put the content of the investigation at issue, and waived the attorney-client privilege and work product protection.

The circuit court found that the statements in the footnote (1) did not disclose any actual opinion work product, (2) did not expressly state that the investigation revealed no wrongdoing, and (3) did not seek any relief based on the results of the investigation.  Consequently, KBR did not base a claim or defense upon the investigation and therefore did not put the investigation at issue.  The circuit court further found that the statements did not give rise to an “unavoidable” inference, because the statements left open an “alternative inference”: KBR’s investigation identified wrongdoing, but KBR “nonetheless made no report to the government.”  Finally, the circuit court noted that the context of the assertions, which were contained in a footnote in the introduction of a motion for summary judgment in which the court is required to make all inferences against KBR, supported a finding that the district court’s at-issue waiver finding was clear error.

Fact Work Product Doctrine Did Not Apply

The third issue before the circuit court was the lower court’s ruling in the alternative that “substantial portions” of the investigation documents, in which investigators summarized the statements of employees for in-house counsel, constituted non-privileged fact work product for which Barko had demonstrated a substantial need.  The circuit court first rejected KBR’s proposal that all communications from an investigator to in-house counsel qualify as attorney-client communications subject to the privilege and held that such communications are “inherently work product protected so long as [they are] prepared in anticipation of litigation.”

The circuit court then examined the documents at issue and found that even a “cursory review” showed that they contained both attorney-client privileged communications and critical mental impressions of investigators, which the circuit court held was protected work product.  Accordingly, the circuit court held that the district court’s treatment of those documents as unprotected fact work product constituted error.

Mandamus Was Warranted

Perhaps most helpful to companies seeking to protect the confidentiality of internal investigations is the section of the circuit court’s opinion addressing whether to grant the “drastic and extraordinary” remedy of a writ of mandamus.  The circuit court held that the district court’s error was “clear and indisputable” because the natural resulting outcomes “would erode the confidentiality of an internal investigation in a manner squarely contrary to the Supreme Court’s guidance in Upjohn” as well as the D.C. Circuit’s own precedent.

As the Supreme Court held in Upjohn, the attorney-client privilege cannot be overcome “simply by a showing of substantial need and inability to obtain the equivalent without undue hardship.”  Moreover, courts should not employ a balancing test to define the contours of the attorney-client privilege because doing so “would defeat the purpose of the privilege to promote candid communications with counsel in the first instance.”  Yet, contrary to Upjohn, the district court had employed such a balancing test and considered Barko’s demonstration of a substantial need in deciding to overcome the privileged nature of KBR’s communications.

The circuit court closed with the following useful language:

If allowed to stand, the District Court’s rulings would ring alarm bells in corporate general counsel offices throughout the country about what kinds of descriptions of investigatory and disclosure practices could be used by an adversary to defeat all claims of privilege and protection of an internal investigation. []

These alarm bells would be well founded.  If all it took to defeat the privilege and protection attaching to an internal investigation was to notice a deposition regarding the investigations (and the privilege and protection attaching them), we would expect to see such attempts to end-run these barriers to discovery in every lawsuit in which a prior internal investigation was conducted relating to the claims.  Accordingly, we think it is essential to act on this Petition in order to protect our privilege waiver jurisprudence.

Key Takeaways

The D.C. Circuit’s decision, like its first KBR decision in 2014, is an affirmation of the importance of the attorney-client privilege and work product protection as applied to internal investigations.  The decision also presents some important practice pointers to prevent the application of waiver and ensure that internal investigation materials receive protection from discovery, including:

  • Companies and counsel should take care not to make statements or arguments during litigation regarding the content of privileged or protected information.
  • When attorneys or their agents produce work product during an investigation, they should ensure that reports and notes include mental impressions and analysis to prevent a court from finding that it is merely fact work product subject to disclosure upon a showing of substantial need.
  • Finally, companies should prepare for depositions in a manner which protects privileged and protected information.
  • If opposing counsel notices for deposition the content of privileged communications or protected documents, the company should note its objection at the outset in writing or on the record during the deposition, and state that the witness will not provide any answers that reveal the content of privileged or protected information.
  • During depositions, company witnesses should be instructed to not answer when questioned about the content of reports or documents for which the company intends to later claim are privileged or protected.

Pablo Nichols and Catherine Chapple are members of the firm’s Government Contracts practice group.  For more information, please contact:

Pablo A. Nichols
(415) 268-6653

Catherine L. Chapple

[1] In re Kellogg Brown & Root, Inc., No. 14-5319 (D.C. Cir. Aug. 11, 2015).

[2]Upjohn Upheld: D.C. Circuit Re-Affirms Privilege Protections for Multi-Purpose Internal Investigations,” Ryan G. Hassanein, et al., July 1, 2014.

[3] United States ex rel. Barko v. Halliburton Co., 37 F. Supp. 3d 1, 5 (D.D.C. 2014).

[4] In re Kellogg Brown & Root, Inc., 756 F.3d 754, 756 (D.C. Cir. 2014) (citing Upjohn Co. v. United States, 449 U.S. 383 (1981)).