DLA Piper LLP: Appeals Court Clarifies Attorney-Client, Work Product Privileges In Internal Investigation Context

By Jonathan W. Haray, Jeffrey D. Rotenberg and Lindsay R. Barnes

In its latest review of the attorney-client and work product privileges in In re: Kellogg Brown & Root, Inc. (“In re KBR”), the US Court of Appeals for the DC Circuit again rejected the district court’s restrictive application of these privileges in the internal investigation context.  In ruling this week, the court provided further clarity to companies undertaking internal investigations into alleged wrongdoing, while offering guidance on avoiding pitfalls that may undermine the assertion of privilege over investigatory activity and findings [enhanced opinion available to subscribers | Lexis Advance].

In re KBR arose from a qui tam action under the False Claims Act, 31 U.S.C. 3729 et seq., brought by relator Harry Barko, alleging that KBR inflated costs and accepted kickbacks during its work for the US government in Iraq. In re KBR, No. 14-5319, *2 (D.C. Cir. Aug. 11, 2015).  Last year, the DC Circuit granted a writ of mandamus and found clear error in the district court’s ruling there was no privilege over KBR’s internal investigation because it was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.”  In re Kellogg Brown & Root, Inc., 765 F.3d 754, 756 (D.C. Cir. 2014).   This time, Barko argued and the district court agreed that KBR’s actions had waived any privilege over documents generated by KBR’s investigation into the alleged fraud and, alternatively, that certain of these documents were discoverable as factual work product for which Barko had demonstrated substantial need.  KBR petitioned for and the court granted another writ of mandamus, following which the court vacated the district court’s rulings on several grounds. In re KBR, No. 14-5319, *24-27 (D.C. Cir. Aug. 11, 2015).

First, the district court found that KBR had waived privilege when its general counsel testified in a Rule 30(b)(6) deposition that he had reviewed privileged documents in preparation for the deposition topic covering “any investigation or inquiry” into the alleged fraud underlying the litigation.  Id. at *4.  The district court agreed with Barko that these documents were not shielded from disclosure because they had been used to refresh the memory of a testifying witness under Federal Rule of Evidence 612. Id.  The DC Circuit rejected this conclusion, observing  that the district court’s ruling which “[a]llow[ed] privilege and protection to be so easily defeated would defy ‘reason and experience,’ … and ‘potentially upend certain settled understandings and practices” about the protections for such investigations.’”  Id. at *12  (citing, Fed. R. Evid. 501 and  In re KBR, 756 F.3d at 762). 

Rather, the DC Circuit decided that the investigative documents were not subject to disclosure under FRE 612 because “even if the witness consults a writing while testifying, the adverse party is not entitled to see it unless the writing influenced the witness’s testimony” and that “[i]t cannot be the case that just stating the documents were privileged constitutes a testimonial reliance on their contents.”  Id. at *10, *12.  Moreover, the DC Circuit reasoned that “the District Court’s conclusions were precluded by Upjohn” in any event, because “the District Court’s balancing 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.”  Id. at *11 (citing Upjohn Co. v. U.S., 449 U.S. 383, 393 (1981)).  The court admonished that “[i]f all it took to defeat the privilege . . . was to notice a deposition regarding the investigations (and the privilege attaching to 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[.]”  Id. at *24. 

Second, the district court had agreed with Barko that KBR waived any privilege in its motion for summary judgment, where it stated in a footnote to the factual summary section that “KBR did perform . . . investigations related to [the alleged fraud], and made no reports to the Government following those investigations.”  Id. at *6.  This presented “a more difficult question” for the court, as it noted that “a fact finder could infer that the investigation found no wrongdoing,” and, as such, the footnote came close to being an “implied waiver” of any privilege over the investigation.  Id. at *15, *17.  Ultimately, though, the DC Circuit vacated the finding of waiver here because KBR had not directly revealed the contents of the privileged material nor affirmatively raised an advice of counsel defense. Id. at *17 (internal citation omitted).  The court further reasoned that KBR merely cited the information in a footnote in its factual summary of the case, and that the district court was precluded from drawing “any inference in KBR’s favor based on the contents of the privileged documents,” given the standard for reviewing a motion for summary judgment.  Id. at *18-19. 

Third, the DC Circuit found that the district court had misapplied the “substantial need” standard for allowing disclosure of work product.  Id. at *21-22.  Specifically, it found that the district court had failed to distinguish between fact and opinion work product in that it “compelled disclosure of numerous mental impressions of the investigators, based on a clearly erroneous finding that such conclusions were only ‘background materials’ and therefore fact work product.”  Id. at *21.  Although the court chided KBR for “sloppily insisting on both” attorney-client privilege and attorney work product privilege for documents prepared by non-attorney investigators, it affirmed the principle that “such material is inherently work product so long as it is prepared in anticipation of litigation,” and clarified that the attorney-client privilege would apply “only to the extent [the documents] contain information obtained from the client where the purpose of the report was to put in usable form the information obtained from the client.”  Id. at *21 (internal quotation omitted).

Three takeaways

1. This latest ruling affirms the DC Circuit’s recognition and protection of the attorney-client and work product privileges in the internal investigation context.  It rejected efforts to exploit the discovery devices afforded by the Federal Rules to effectively force an adversary into waiving valid privileges. 

2. Nevertheless, this opinion demonstrates the need for companies to exercise caution in how they plan, implement and utilize internal investigations.  Given the aggressive tactics that opposing parties will use to penetrate the attorney-client and work product privileges, companies must be rigorous about establishing and preserving privilege in their investigations and avoid conduct that might result in a waiver of these protections. 

3.  Finally, in-house and outside counsel should become familiar with the differences between the attorney-client and work product privileges, and be sure to conduct investigations with an understanding of the requirements for their application and their limits. 

For more information on internal investigations and the False Claims Act, please contact any of the following:

Jonathan Haray

Jeffrey D. Rotenberg

Tara M. Lee

Courtney Saleski

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