Almost a year ago to the day, I wrote about a decision issued by the D.C. Circuit in U.S. ex rel. Barko v. Halliburton in which the court reaffirmed that under Upjohn Co. v. United States, 449 U.S. 383 (1981), the attorney-client privilege applies to communications between employees and representatives of the company’s counsel in the context of an internal investigation (“First Writ”). That, however, was not the last word on the matter. Last month, the D.C. Circuit granted a second writ of mandamus sought in the same underlying False Claims Act case concerning the same contested documents, holding yet again that the attorney-client and work product privileges protect documents created during corporate internal investigations overseen by in-house counsel (“Second Writ”). See In re: Kellogg Brown & Root, Inc., et al.,No. 14-5319 (D.C. Cir. Aug. 11, 2015) (“In re KBR” slip op.). The appellate court vacated for a second time rulings by the district court judge that had ordered the internal investigation documents be produced, this time on the theory that the privileges had been waived.
In granting the First Writ, the Court denied defendant KBR’s request that the case be reassigned to a different district court judge, noting that the district court judge “might entertain timely arguments for why the privilege should not attach to these documents (that is, arguments other than that they were not prepared primarily for the purposes of seeking legal advice).” In the ensuing months the district court judge issued a series of rulings (“Subsequent Orders”) that had the net effect of ordering the production of the privileged documents that were the subject of the First Writ. This time, however, the district court applied a different rationale for ordering production, namely that KBR had “impliedly waived” the attorney-client and work product privileges during a February 2014 30(b)(6) deposition of Christopher Heinrich, KBR Vice President (Legal). Among the subjects for the 30(b)(6) deposition was: “Any investigation or inquiry, internal or external, formal or informal, of [the KBR employee and subcontractor at the center of the alleged fraud] or any of the matters identified in [above-listed topics]. The scope shall include knowledge of everyone who participated in the investigation.” In re KBR at 4. Throughout the deposition, KBR’s attorney instructed Heinrich not to answer questions about the contents of the disputed internal investigation on the basis of attorney-client privilege and work product protection; however, Heinrich did admit that he had reviewed privileged internal investigation documents in preparation for his testimony.
After Barko’s lawyer completed his examination of Heinrich, KBR’s litigation counsel conducted a cross-examination intended to establish that the disputed internal investigation was privileged. Id. at 5. Responding to the questions that followed, Heinrich testified that KBR had a contractual reporting duty pursuant to the Anti-Kickback Act to notify the Department of Defense if it had reason to believe that a violation of the Act had occurred. Id. Heinrich testified that KBR adhered to that obligation and had made disclosures pursuant to the same duty in other instances. Id. And Heinrich explained that even when KBR has made a notification to the Department as required by a contract, it has never provided an internal investigation itself to the Department because it has always treated the investigation as subject to attorney-client privilege. Id. KBR subsequently moved for summary judgment, asserting in part that “KBR represents that KBR did perform [internal investigations] related to [the KBR subcontractor and employee at the center of the fraud alleged by Barko], and made no reports to the Government following those investigations.” Id. at 6.
On November 20, 2014, the district court issued an opinion and order determining that “KBR’s filings affirmatively use the [internal investigation] contents and create an implied waiver” because “KBR has actively sought a positive inference in its favor based on what KBR claims the documents show.” Id. at 7-8. Because Heinrich testified that he had reviewed privileged internal investigation documents in preparation for his deposition, the court used a balancing test before concluding that fairness considerations required disclosure. Id. On December 17, 2014, the district court issued a separate opinion and order compelling production of parts of the privileged internal investigation documents on an alternative basis under the doctrine of “at issue waiver.” Id. Therefore, the challenged documents “are discoverable fact work product and Barko shows substantial need.” Id. (citing United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276, 2014 WL 7212881, at *2 (D.D.C. Dec. 17, 2014)). Two days later, KBR filed the Second Writ. In the interim, the D.C. Circuit granted KBR’s petitions for an interim and emergency stay.
After hearing oral argument, the D.C. Circuit reversed the district court. First, the D.C. Circuit held that the lower court’s Rule 612 ground for its production order was clear error because there was no basis for the fairness balancing test it conducted and, even had there been, the test failed to give due weight to the privilege and protection attached to the internal investigation materials. Second, the court rejected the “at issue waiver,” holding that a mere recitation of fact does not constitute an argument or claim, and that as the movant for summary judgment, the district court should have drawn all inferences against KBR (i.e., the district court should not have interpreted the lack of disclosure after KBR’s internal investigation as suggesting the absence of misconduct).
Like any privilege dispute, the issues here are highly fact-driven. But that said, it is beyond clear that corporations who have robust, legitimate internal compliance mechanisms in place to respond to allegations of wrongdoing should be given the benefit of the doubt when asserting attorney client and/or work product privilege over the content of an internal investigation conducted by or at the direction of counsel. And, hopefully, the third-time will be the charm in Barko and the case will finally move beyond this sticky wicket.