The D.C. Circuit Court of Appeals recently issued In re KBR et al.,whichaddressed the scope and limitations of the attorney-client privilege and work-product doctrine in the context of internal investigations and litigation that may follow. In re KBR et al., No. 05-1276, slip op. (D.C. Cir. Aug. 11, 2015). The KBR decision highlights issues counsel must consider when determining how, if at all, to use the results of an investigation during litigation.
On August 11, 2015, the D.C. Circuit ruled for a second time that the district court inappropriately ordered Kellogg Brown & Root (KBR) to produce documents related to its internal investigation into whether KBR inflated costs and accepted kickbacks on military contracts. The court opined that:
If allowed to stand, the District Court’s rulings would ring alarm bells in corporate general counsel offices throughout the country about what kind 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.
In re KBR et al., No. 05-1276, slip op. at 24.
Harry Barko, a KBR employee, filed a False Claims Act (FCA) complaint alleging that KBR defrauded the government by inflating costs and accepting kickbacks related to military contracts. Barko sought documents related to the internal investigation KBR had conducted pursuant to the company’s code of business conduct.
The district court ruled that KBR waived the attorney-client privilege and work-product protection twice—first, when KBR allowed its corporate designee to review documents generated during the investigation in preparation for a Rule 30(b)(6) deposition; and second, when KBR placed the internal investigation’s findings “at issue” by stating in a footnote to its summary judgment brief that, following its investigation, it had not reported a violation of the Anti-Kickback Act as it was obligated to do under the Federal Acquisition Regulations had the investigation revealed inflated costs or acceptance of kickbacks.
The court ruled that the lower court inappropriately applied Federal Rule of Evidence 612’s balancing test, which provides that an adverse party may be entitled to a writing used to refresh a witness’s memory. The court noted that such an application of FRE 612 “. . . 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.” Slip op. at 11.
Whether KBR waived the attorney-client privilege and work-product protection by referencing the investigation in its summary-judgment brief, however, posed “a more difficult question.” The district court had determined that KBR’s use of the internal investigation’s contents created an implied waiver because KBR, “actively sought a positive inference in its favor based on what KBR claims the [internal investigation’s] documents show.” Slip op. at 6. “Under the common-law doctrine of implied waiver, the attorney-client privilege is waived when the client places otherwise privileged matters in controversy.” Id. at 12.
Here, KBR referenced that it had conducted an internal investigation and did not report any wrongdoing to the government. KBR’s footnote, the district court concluded, amounted to an implied waiver as KBR had, “impliedly disclosed opinion work product, that is, ‘the substantive conclusion of its [internal] investigation.’” Id. at 16. (emphasis in original).
The D.C. Circuit emphasized, however, that context matters. KBR’s footnote was in the fact section, not in an argument or claim concerning the privileged documents’ contents. In addition, as KBR was the movant for summary judgment, all inferences were to be drawn against KBR. Accordingly, because KBR did not rely on its investigation in arguing in favor of summary judgment and because the district court was prevented from making any inference in KBR’s favor, the D.C. Circuit ruled that the district court erred in implying a waiver of privilege based on KBR’s footnote.
In essence, KBR narrowly escaped a ruling that it waived privilege. The court’s ruling raises several questions. For example, would the outcome have been different had KBR’s footnote been contained in the argument section of its brief? What if KBR was responding to summary judgment with the benefit of all inferences? The KBR decision demonstrates that counsel must be careful how to rely on the results of internal investigations during litigation. Reference to an internal investigation or its results during litigation is risky. The opinion illustrates that arguing that a court should rely on an investigation’s finding is likely to lead to a conclusion that the privilege and/or work product protection has been waived.
—Brian C. Spahn, Godfrey & Kahn, S.C., Milwaukee WI