December 30, 2015 Top Story

Documents from Internal Investigation Protected by Privilege

Privilege not compromised by referencing investigation in deposition or pleadings

Daniel P. Elms

Documents created as part of an internal investigation into alleged fraud are privileged as attorney-client communications or attorney work product, according to In re Kellogg Brown & Root, Inc. A party does not waive those privileges solely by permitting a corporate representative to review investigative materials in preparation for a deposition or by disclosing in court filings the fact that it conducted an internal investigation. Section leaders see the court's affirmation of privilege protection over internal investigations as reflecting a reversal of recent trends.  

Internal Investigations Are Privileged

A whistleblower filed a False Claims Act suit alleging that Kellogg Brown & Root (KBR) defrauded the U.S. government by inflating costs and accepting kickbacks while administering military contracts in Iraq. KBR’s legal department led an internal investigation into this alleged fraud, and the plaintiff sought production of certain documents resulting from that investigation. The district court issued two orders compelling production of those documents on the grounds that KBR had waived the attorney-client communications privilege and attorney work-product doctrine.

The district court based its orders on three conclusions. First, KBR had used the results of its internal investigation to create an inference that no wrongful conduct had occurred.  Second, KBR had permitted its in-house counsel to review the investigation documents in preparation for his deposition as a corporate representative. Finally, KBR had included its counsel’s deposition testimony about the investigation and a statement that the investigation did not reveal anything required to be reported to the government in its motion for summary judgment. The district court determined that KBR’s actions put the results of the internal investigation “at issue” and created an implied privilege waiver.

The U.S. Court of Appeals for the D.C. Circuit issued a writ of mandamus vacating the district court’s orders. It found that seeking deposition testimony from a corporate representative about an internal investigation will not defeat privilege, noting that the representative was required to review documents relating to that investigation in order to adequately prepare for the deposition. The appellate court also concluded that KBR’s citation to its corporate representative’s deposition testimony and reference to the investigation in its summary judgment motion did not put the internal investigation at issue such that waiver had occurred.

Pendulum Swings in Favor of Privilege

The appellate court’s decision leaves little doubt that the attorney-client communications and work-product privileges will protect internal investigations. “The appellate court wanted to create a bright-line rule so that parties will know what they are working with when conducting internal investigations. This is important because parties need to know in advance that internal investigations will be privileged before conducting them,” says Blanca F. Young, San Francisco, CA, cochair of the ABA Section of Litigation’s Trial Evidence Committee

This affirmation of privilege protection over internal investigations may reflect a reversal of recent trends. “It is good to see, perhaps, the pendulum swinging back towards the preservation of the attorney-clients communications and work-product privileges after some erosion of such protections in recent years,” opines Jeffrey D. Gardner, Phoenix, AZ, cochair of the Section of Litigation’s Trial Practice Committee.  Allowing a plaintiff to undermine that privilege through creative lawyering “cannot be the right result,” says Gardner.

No Waiver, but Proceed with Caution

The plaintiff issued a deposition notice for corporate representative testimony about the internal investigation, but then argued that KBR waived privilege by permitting that corporate representative to personally review the investigative materials in preparation for that deposition. The appellate court described this argument as “absurd,” and Gardner agrees. “If KBR produced an improper corporate representative on the designated topic, it would potentially face the wrath of the district court for not producing a witness in compliance with the rules,” says Gardner. “I believe the appellate court was troubled by the plaintiff’s careful efforts to tee up a waiver argument.”

Even if the rules for designating corporate representatives protect parties who are forced to produce a witness to testify about an internal investigation, the safer course is to seek protection and guidance from the court before that deposition ever happens. “A party facing a 30(b)(6) notice for testimony about an internal investigation should consider moving for a protective order before the deposition. There is a lot in this opinion suggesting that this type of deposition is improper,” says Young. If the deposition does occur, counsel should make a clear record that it will be taken subject to the protections of privilege, and object to any question about the content of the internal investigation, adds Gardner.

Although the appellate court refused to find a waiver of privilege in this case, some of KBR’s strategic decisions may have taken it close to the edge, particularly including comments about the internal investigation in its court filings. “KBR walked a very thin line in including the statement about its investigation in its summary judgment motion. This seemed like a very risky thing to do,” says Young. In some respects, the appellate court seemed to agree with the district court about the implications of KBR’s statements in its summary judgment motion, observes Young, “but did a bit of a dance and relied on some technical issues to preserve the privilege.”

Daniel P. Elms is a contributing editor for Litigation News.

Keywords:   internal investigations, false claims act,attorney-client communications, attorney work product

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