For the second time in as many years, the Court of Appeals for the D.C. Circuit struck down a district court order compelling KBR to turn over documents from an internal investigation conducted by KBR into allegations that it defrauded the U.S. government during the Iraq War. The district court initially ruled that KBR's internal investigation documents were not privileged because they were not prepared primarily for the purposes of seeking legal advice. Finding the documents privileged, the D.C. Circuit vacated that ruling and remanded to the district court, noting that the issue was "materially indistinguishable" from U.S. Supreme Court precedent in Upjohn Co. v. United States. But the district court, at the D.C. Circuit's invitation, entertained other timely arguments as to why the privilege should not attach, and once again it ordered disclosure of the internal investigation documents. The D.C. Circuit, however, disagreed and for a second time upheld privilege over the internal investigation documents, cautioning that the district court's reliance on the balancing test for Federal Rule of Evidence 612, the doctrine of "at issue" waiver, and the "substantial need" test "inject[ed] uncertainty into application of the attorney-client privilege and work product protection to internal investigations."
Background
KBR designated Vice President Christopher Heinrich as its Fed.
R. Civ. P. 30(b)(6) witness on several identified topics, including
a topic addressing any investigation or inquiry of the alleged
fraud or any of the matters identified by the relator. At the
outset of Heinrich's deposition, counsel for KBR offered a
preliminary statement noting that KBR was making Heinrich available
subject to claims of attorney-client privilege and work product
protection.
During Heinrich's deposition, he testified that he reviewed the
now-disputed documents relating to KBR's internal investigation
in preparation for the deposition. On cross-examination by counsel
for KBR, Heinrich testified that KBR had a contractual duty to
report to the Department of Defense ("DoD") if it had
reason to believe any violation of the Anti-Kickback Act may have
occurred. He also explained that when KBR had made such reports to
DoD in the past, that it had treated the investigation itself as
privileged and never provided a copy of the investigation itself to
the government.
Shortly after the deposition, KBR moved for summary judgment.
KBR's memorandum in support of summary judgment acknowledged
KBR's practice of making disclosures to the government where an
investigation revealed reasonable grounds to believe a violation
may have occurred. The memorandum also acknowledged that KBR
intended for its investigations to be protected by privilege but
noted that it had not asserted privilege over the fact that
internal investigations have occurred or the fact that KBR had made
disclosures to the government based on those investigations.
Finally, the memorandum acknowledged that KBR performed an
investigation related to the relator's claims and made no
disclosure to the government following that investigation. The
memorandum also attached excerpts from Heinrich's testimony and
referenced the deposition language in the Statement of Material
Facts to Which there is No Genuine Dispute.
Applying a balancing test, the district court on remand found that
KBR had to produce the documents under Federal Rule of Evidence 612
on the basis that KBR waived privilege when Heinrich reviewed the
documents in preparation for his deposition. The district court
also found that KBR impliedly waived privilege under the "at
issue" doctrine. After rejecting KBR's request to amend
its pleadings to strike the sections that created a waiver, the
district court issued a separate order finding that the documents
were discoverable fact work product and the relator had shown
"substantial need."
Waiver Based on Review in Preparation for Deposition
On appeal from the district court's second ruling, the D.C.
Circuit found that the district court erred in applying a balancing
test under Federal Rule of Evidence 612. The D.C. Circuit noted
that the Rule 612 balancing test applies only where a document is
used to refresh a witness's memory. In other words, the writing
must have influenced the witness's testimony to be
discoverable.
Heinrich did not consult the materials during his deposition, nor
did he testify as to the substance of those documents or any other
privileged element. Further, as noted by KBR's counsel during
the deposition, while Heinrich reviewed the materials prior to the
deposition, the company "would not concede that it was for the
purpose of refreshing recollection so that he could testify because
[KBR has] always consistently taken the position that those reports
are subject to the company's attorney-client privilege and
attorney work product." The D.C. Circuit agreed and refused to
find testimonial reliance to justify application of the balancing
test.
Moreover, the D.C. Circuit also held that, even if consideration of
the balancing test had been appropriate, the district court erred
in its application of that test. Noting that in most cases,
30(b)(6) witnesses who examine privileged materials before
testifying will not waive privilege, the district court nonetheless
found that fairness dictated disclosure here because of
Heinrich's and KBR's repeated suggestion that the documents
contain nothing. The D.C. Circuit rejected the district court
ruling because it failed to give due weight to the privilege and
protection attached to the internal investigation materials and
because it would allow privilege claims over internal
investigations to be routinely defeated by noticing a deposition on
the topic of the privileged nature of the investigation. This
result would directly conflict with Upjohn, which teaches
that an uncertain privilege is little better than no privilege at
all. The D.C. Circuit also found the relator's position that
KBR erred by producing a 30(b)(6) witness that had actually
reviewed the internal investigation materials "absurd"
because such a rule would encourage parties to provide less
knowledgeable corporate representatives.
Implied or "At Issue" Waiver
The D.C. Circuit also rejected the district court's
conclusion that KBR impliedly waived any protection over the
documents in dispute because it actively sought a positive
inference in its favor on what it claimed the internal
investigation documents showed. The district court reasoned that
KBR attempted to use its privilege claim as a sword and a shield by
using the fact that it conducts investigations and makes
disclosures when it has reasonable evidence of a violation to
establish an inference that it had no reasonable evidence of a
violation here, since it conducted an investigation but did not
make a disclosure. The district court further emphasized that KBR
itself had put the materials "at issue" when it solicited
Heinrich's testimony on the materials, attached excerpts from
the testimony to its motion for summary judgment, referenced the
deposition language in its statement of material facts to which
there is no genuine dispute, and discussed the "investigative
mechanism" in its brief.
Acknowledging that the attorney-client privilege cannot be used as
both a sword and a shield, the D.C. Circuit also recognized that
general assertions lacking substantive privileged content are
insufficient to justify waiver. As to the deposition testimony and
the statement of material facts, the D.C. Circuit found that
"as a matter of logic—neither could possibly give rise
to an inference that places the contents of the deposition at
issue." The deposition is merely a record of what Heinrich
said, not an argument, and the statement of material facts does not
create any inferences to be made or contested in the statements
alone. The D.C. Circuit did, however, recognize that waiver could
occur during a deposition or statement of material facts where
partial disclosure of privileged materials was made.
The D.C. Circuit went on to note that the reference to the
investigation in the summary judgment memorandum presented a more
difficult question because "a factfinder could infer that the
investigation found no wrongdoing." Nonetheless, the D.C.
Circuit rejected the district court's position that KBR was
asking it to draw an "unavoidable" inference—that
the investigation uncovered no wrongdoing. Instead, the D.C.
Circuit opined that a different inference could be made—that
the investigation showed wrongdoing but KBR made no report to the
government. Further, the circuit court noted that because all
inferences were to be drawn against KBR in its motion for summary
judgment, the district court could not make any inference in
KBR's favor based on the contents of the privileged documents.
In other words, the district court was prohibited from even making
the most favorable inference that it concluded was
"unavoidable." In any event, the D.C. Circuit noted that
the memorandum merely included a recitation of facts, not an
argument or claim concerning the privileged materials.
"Substantial Need"
Finally, the D.C. Circuit disagreed with the district
court's order directing KBR to produce certain portions of the
report on the basis that the materials were nonprivileged fact work
product discoverable based on substantial need. While agreeing with
the district court on the law, and rejecting KBR's assertion
that everything in an internal investigation is protected by the
attorney-client privilege, the D.C. Circuit found that the district
court misapplied the law to the documents it ordered to be
disclosed.
The circuit court concluded that even a cursory review demonstrated
that many of the documents were protected by the attorney-client
privilege and that other documents contained the mental impressions
of the investigators. Thus, the district court committed clear
error in concluding that the materials were only fact work product.
Because the district court failed to distinguish between fact and
opinion work product, the circuit court did not reach the
"substantial need" and "undue hardship"
questions.
Recommendations
While the D.C. Circuit's ruling reaffirms the protections from disclosure provided by the attorney-client privilege and work product doctrine, as a matter of practice, counsel should carefully consider its approach before conducting any internal investigation. Counsel should be especially mindful that materials that qualify as work product, but that do not fall under the attorney-client privilege, may be subject to disclosure, especially when the materials constitute fact work product. Further, counsel should be careful in its public use of or reference to privileged or work product protected investigative materials so as to avoid impliedly waiving protection. Likewise, counsel should advise 30(b)(6) witnesses not to disclose the contents of such investigative materials when providing testimony. While statements regarding the existence of such materials generally will not result in waiver, revealing the substance of those materials likely will.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
