The U.S. Court of Appeals for the D.C. Circuit has once again stepped into an ongoing fight between the proponent of a qui tam action and Kellogg Brown and Root Services, Inc. (“KBR”) over privilege protections for documents related to an internal investigation.1 In so doing, for the second time in a little more than a year,2 the D.C. Circuit has issued a writ of mandamus sought by KBR to protect investigative materials from District Court-ordered disclosure. The ruling reaffirms the protections afforded to investigative materials, but at the same time highlights differences between the attorney-client privilege and work product immunity that warrant close attention by those conducting internal reviews, including reviews prompted by potential FCPA issues. I. Background The D.C. Circuit’s ruling arises from an ongoing fight between KBR and Harry Barko (“Barko”), who has brought a lawsuit under the False Claims Act against KBR, Halliburton, Inc. and other federal contractors, alleging that the U.S. government was overbilled for hundreds of war-zone construction contracts awarded during the Iraq war. Prior to the suit being filed, KBR had conducted an internal investigation of the alleged billing misconduct, as required by statutory and contractual provisions imposed on government contractors.3 That investigation had been overseen by KBR’s in-house legal counsel, although some of the work, including interviews of KBR employees, had been performed by non-lawyers working under the direction of the lawyers. Barko repeatedly has sought production of the investigative report and supporting documents (the “Investigative Materials”) generated by KBR’s review, and the District Court repeatedly had granted the request, initially ruling that the Investigative Materials were not privileged because the investigation was part of KBR’s compliance program and its primary purpose was not the obtainment of legal advice.4 As previously reported here, last summer the D.C. Circuit overturned Continued on page 15 1. In re Kellogg Brown & Root, Inc., No. 14-5319, 2015 WL 4727411 (D.C. Cir. Aug. 11, 2015) (“KBR II”). 2. In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014) (“KBR I”); see also Helen V. Cantwell, Andrew M. Levine, Colby A. Smith, Bruce E. Yannett, Steven S. Michaels, and Blair R. Albom, “D.C. Circuit Upholds Privilege Protections,” FCPA Update, Vol. 5, No. 12 (July 2014), http://www.debevoise.com/insights/publications/2014/07/fcpa-update (reporting on this earlier ruling). 3. KBR I, 756 F.3d at 756. 4. United States ex rel. Barko v. Halliburton Co., 37 F. Supp. 3d 1, 5-6 (D.D.C. 2014). www.debevoise.com FCPA Update 15 August 2015 Volume 7 Number 1 that ruling, emphatically reaffirming that investigations conducted pursuant to a company compliance program were privileged, as long as one of the significant purposes of the investigation was to obtain or provide legal advice.5 On remand, however, the Court of Appeals in KBR I expressly said that Barko could present any other arguments he had timely asserted to overcome the privilege.6 II. The District Court’s Rulings on Remand From KBR I On remand from KBR I, Barko argued that KBR had put the investigative report and related materials “at issue” in the litigation when it argued, by implication, that it had conducted an internal investigation and then not changed any of its corporate conduct, as normally would happen if the investigation had found something unlawful. Barko also argued that he was entitled to fact work product uncovered by the review, because of his demonstrated need. The District Court ruled on the first issue on November 20, 2014 and addressed the second issue separately on December 17, 2014. In both instances, the District Court ordered production of at least some of the Investigative Materials. In its November 20, 2014 ruling, the District Court held that KBR had waived privilege with respect to all of the Investigative Materials, because it had put the contents of the documents “at issue” as part of its defense.7 The District Court found that an argument made by KBR in its summary judgment motion, based upon the testimony of KBR’s Rule 30(b)(6) witness, constructed the following syllogism: First, whenever KBR has reasonable grounds to believe that a kickback or fraud had occurred, its contracts and federal regulation required it to report the possible violation. Second, KBR abides by this obligation and reports possible violations. Third, KBR investigated the alleged kickbacks that are part of Barko’s complaint. Fourth, after the investigation of the allegations in this case, KBR made no report to the [g]overnment about an alleged kickback or fraud.8 Continued on page 16 D.C. Circuit Again Issues Mandamus to Protect Internal Investigation Documents Continued from page 14 5. KBR I, 756 F.3d at 758-59. 6. Id. at 764. 7. United States ex rel. Barko v. Halliburton Co., No.1:05-cv-1276, ECF No. 205, at 23 (D.D.C. Nov. 20, 2014). 8. Id. at 17. www.debevoise.com FCPA Update 16 August 2015 Volume 7 Number 1 This argument, the District Court concluded, “sought a positive inference” in KBR’s favor and “create[d] an implied waiver” of any privilege or work product protections.9 On that basis, the District Court ordered the production of all of the Investigative Materials that KBR had withheld.10 On December 17, 2014 the District Court issued a separate opinion requiring disclosure of some of the Investigative Materials, which it found to constitute “discoverable fact work product” that should be produced because Barko had established “substantial need.”11 In reaching this conclusion, the District Court first ruled that some of the Investigative Materials, including communications between legal counsel and the non-legal investigators conducting many aspects of the investigation who acted as counsel’s agents, were not privileged to the extent they did not contain or reflect communications from company employees. Materials that did not constitute “communications” between attorney and client cannot be privileged, the District Court ruled, but can at most constitute attorney work product.12 The District Court then found that summaries of KBR’s subcontracts and of subcontractors’ performance contained in reports written by the non-lawyer investigators were “fact work product” that could become discoverable upon a showing of substantial need.13 Specifically, the District Court noted that witness lists were fact work product because they did not provide insight into D.C. Circuit Again Issues Mandamus to Protect Internal Investigation Documents Continued from page 15 Continued on page 17 9. Id. at 23. 10. Id. In a related ruling, the District Court also found that KBR had waived privilege protection under Rule 612 of the Federal Rules of Evidence by allowing its Rule 30(b)(6) witness to review some of the Investigative Materials to prepare for his deposition and then testify in support of the syllogism used by KBR in its summary judgment motion. Id. at 23-26. The D.C. Circuit disagreed, finding that Barko himself had put the Investigative Materials at issue in the Rule 30(b)(6) deposition by requesting a witness who was knowledgeable about the investigation itself and not merely the underlying events. The witness, the Court of Appeals ruled, “had no choice but to review documents related to” the investigation. KBR II, at *5. 11. United States ex rel. Barko v. Halliburton Co., No.1:05-cv-1276, 2014 WL 7212881, at *2 (D.D.C. Dec. 17, 2014). 12. Id. at *5. 13. Id. at *8, 10. “Because the District Court found Barko had shown a substantial need for these ‘fact work product’ documents, it required KBR to disclose the portions of the Investigative Materials that did not contain or reflect communications between attorney and client.” www.debevoise.com FCPA Update 17 August 2015 Volume 7 Number 1 the investigator’s “strategy.” Similarly, the District Court found “raw factual contract background material” to be fact work product because it did not reflect attorney strategy or opinions.14 Because the District Court found Barko had shown a substantial need for these “fact work product” documents, it required KBR to disclose the portions of the Investigative Materials that did not contain or reflect communications between attorney and client.15 III. The D.C. Circuit Court’s Opinion Circuit Judge Robert L. Wilkins, writing for a unanimous appeals panel, disagreed with the District Court’s conclusion that KBR had waived attorney-client privilege by placing the Investigative Materials at issue in the case. The Court of Appeals also found that the District Court incorrectly applied the work product doctrine in ordering some of the investigative work product to be produced. According to the Court of Appeals, with respect to the first issue, KBR had not placed privileged materials at issue in its summary judgment pleadings. While KBR certainly had described its normal procedure in conducting investigations and reporting wrongdoing when found, and while KBR may have been hoping the Court would draw a “positive” inference from the fact that KBR had not reported wrongdoing in this case, the Circuit Court found that positive inference to be far from “unavoidable.”16 “[A]n alternative inference,” Judge Wilkins wrote, “is that the investigation showed wrongdoing but KBR nonetheless made no report to the government.”17 Because KBR did not reveal the privileged conclusions reached by the investigation – which would have put the results of the investigation at issue and waived the privilege – KBR’s syllogism supported neither the positive inference nor that alternative inference. In the words of the Court of Appeals: There’s the rub: Where KBR neither directly stated that the COBC investigation revealed no wrongdoing nor sought any specific relief because of the results of the investigation, KBR has not based a claim or defense upon attorney’s advice.18 As a result, according to the Court of Appeals, the District Court’s ruling was clear and reversible error. D.C. Circuit Again Issues Mandamus to Protect Internal Investigation Documents Continued from page 16 Continued on page 18 14. Id. at *7-8. 15. Id. at *10. 16. KBR II, 2015 WL 4727411 at *7. 17. Id. 18. Id. at *8. www.debevoise.com FCPA Update 18 August 2015 Volume 7 Number 1 With respect to the second issue, the Court of Appeals found that the District Court’s description of the legal difference between the attorney-client privilege and work product protection in the context of an investigation was sound, but it found that the District Court had applied that analysis incorrectly when it ordered KBR to produce some of its work product. “[M]aterials produced by an attorney’s agent [such as the non-lawyer investigators in the KBR investigation] are attorney-client privileged only to the extent they contain information obtained from the client.”19 Otherwise, the Court of Appeals said, communications from the investigator to the in-house attorney are “inherently work product.”20 With this distinction in mind, the Court of Appeals found that the District Court had misapplied the law in two ways. First, the Circuit Court found that contrary to the District Court’s ruling, many of the documents at issue contained summaries of witness statements to which the attorney-client privilege applied.21 Second, the Court of Appeals found that the District Court’s order required disclosure of “mental impressions of the investigators” contained in background materials, which were not fact work-product, but opinion work product. Opinion work product is afforded a higher level of protection than fact work product, for which the District Court’s finding of substantial need was insufficient.22 The Circuit Court therefore held that there was no basis for producing such opinion work product and reversed that portion of the District Court’s ruling.23 IV. Implications for Conducting Internal Investigations In many respects, the D.C. Circuit’s opinion did not announce any novel concepts or break significant new ground. To be sure, the ruling reaffirmed that “attorney-client privilege protects confidential employee communications made during an internal investigation led by company lawyers.”24 As KBR II also reaffirms, the D.C. Circuit holds the view that “communications that do not involve both attorney and client, are unprotected” by the attorney-client privilege.25 In this case, the Investigative Materials were preserved from production by a combination of attorney-client privilege (covering the communications made by employees to investigators D.C. Circuit Again Issues Mandamus to Protect Internal Investigation Documents Continued from page 17 Continued on page 19 19. Id. at *10. 20. Id. 21. Id. at *11. 22. Id. 23. Id. at *11. The Court of Appeals did not reach the question of whether the District Court’s “substantial need” analysis was appropriate. 24. Id. at *1 (citing Upjohn Co. v. United States, 449 U.S. 383 (1981)). 25. Id. at *10 (quoting In re Sealed Case, 656 F. 2d 793, 809 (D.C. Cir. 1982) (ordering production of a general counsel’s files that did not involve any communications with clients)). www.debevoise.com FCPA Update 19 August 2015 Volume 7 Number 1 during the course of the investigation) and work product immunity (covering the impressions of the investigators and communications among investigators that did not reveal client communications).26 But that protection may not be available in every case, because investigations may be undertaken in circumstances where litigation is not pending or anticipated – a necessary prerequisite for work product protection.27 Indeed, in the KBR case, the very first District Court ruling ordering the production of documents said that KBR had not conducted its investigation in anticipation of litigation.28 Rather, the District Court found the investigation had been conducted in the ordinary course of business to satisfy regulatory obligations and before Barko’s lawsuit had been unsealed.29 In KBR I, the Court of Appeals, having found the documents to be protected by the attorney-client privilege, never expressly addressed that conclusion. In its December 17, 2014 ruling, the District Court, without further explanation, changed course and ruled that KBR’s investigative reports were prepared in anticipation of litigation and therefore qualified for work product protection.30 In other cases, however, where an internal investigation may be conducted for regulatory or corporate governance reasons, rather than in response to or in anticipation of litigation, the D.C. Circuit’s KBR II ruling suggests that those conducting internal investigations may wish to exercise particular care when engaging in communications that do not involve communications between attorney and client. In light of this, companies and compliance departments should consider the following “best practices” when undertaking an internal investigation: • Developing a written work plan that clarifies, where appropriate, that at least one purpose of the investigation is to provide legal advice to the corporate client and that the legal team, which may include non-lawyers, is engaging in the review for that purpose. • Documenting, where appropriate, that the internal investigation is being undertaken in anticipation of possible litigation or in response to pending litigation (which may include possible or pending regulatory actions as well as civil litigation), and making note of the specific type of litigation that the corporation reasonably believes may be possible. D.C. Circuit Again Issues Mandamus to Protect Internal Investigation Documents Continued from page 18 Continued on page 20 26. Id. at *10-12. 27. Fed. R. Civ. P. 26(b)(3). 28. Barko, 37 F. Supp. 3d at 6. 29. Id. 30. Barko, 2014 WL 7212881, at *6. www.debevoise.com FCPA Update 20 August 2015 Volume 7 Number 1 • Clarifying within communications among the team how the communication relates to the client’s request for legal advice or to the provision of legal advice to the client (e.g., note that the communication is in response to a client request, reflects a client request, contains information from the client to be used in responding to the client’s request, reflects advice provided to the client, or otherwise reflects communications between the client and the legal team). Colby A. Smith Andrew M. Levine Johanna N. Skrzypczyk Colby A. Smith and Andrew M. Levine are partners in the Washington, D.C. and New York offices, respectively. Johanna N. Skrzypczyk is an associate in the New York office. They are members of the Litigation Department and White Collar Litigation Practice Group. They may be reached at firstname.lastname@example.org, email@example.com, and firstname.lastname@example.org. Full contact details for each author are available at www.debevoise.com.