On August 11, 2015, the United States Court of Appeals for the District Court of Columbia issued a decision of importance to all companies that seek to maintain privilege with respect to internal investigations. The D.C. Circuit granted a writ of mandamus vacating a district court’s decision which had held that a corporation waived attorney-client privilege by permitting an in-house lawyer to review documents from an internal investigation before his deposition and by referring to the investigation in a motion for summary judgment. In re Kellogg Brown & Root, Inc. et al., No. 14-5319, 2015 WL 4727411 (D.C. Cir. Aug. 11, 2015). In vacating the district court’s rulings, the D.C. Circuit observed that, if the district court’s decision was allowed to stand, it “would ring alarm bells in corporate general counsel offices throughout the country about what kinds of descriptions of investigatory and disclosure practices could be used by an adversary to defeat all claims of privilege and protection of an internal investigation” and that these “alarm bells would be well founded.” Id. at *12.
“But For” Test Rejected
In 2005, Harry Barko filed a complaint against defense contractor Kellogg Brown & Root, Inc. (KBR) under the False Claims Act alleging that KBR defrauded the U.S. Government by inflating its costs and accepting kickbacks while administering military contracts in wartime Iraq. Barko sought documents related to KBR’s internal investigation into the alleged fraud. KBR argued that the internal investigation had been conducted for the purpose of obtaining legal advice and that the documents were therefore protected from discovery by the attorney client privilege. The federal district court for the District of Columbia rejected the assertion of privilege based on the finding that the investigation was undertaken pursuant to certain regulatory requirements, rather than for the purpose of seeking legal advice—and that KBR had failed to show that the documents at issue would not have been created “but for” seeking legal advice. United States ex rel. Barko v. Halliburton Co., 37 F. Supp. 3d 1, 5 (D.D.C. 2014).
On June 27, 2014, the D.C. Circuit Court of Appeals granted KBR’s first application for a writ of mandamus. In re Kellogg Brown & Root, Inc., et al., 756 F.3d 754 (D.C. Cir. 2014). The D.C. Circuit held that KBR’s assertion of the privilege was “materially indistinguishable” from the assertion of privilege in the U.S. Supreme Court’s landmark decision in Upjohn Co. v. United States, 449 U.S. 383 (1981). Id. at 757. The D.C. Circuit stated, “As in Upjohn, KBR initiated an internal investigation to gather facts and ensure compliance with the law after being informed of potential misconduct. And as in Upjohn, KBR’s investigation was conducted under the auspices of KBR’s in-house legal department, acting in its legal capacity. The same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.” Id. The D.C. Circuit further stated that the district court “erred because it employed the wrong legal test. The but-for test articulated by the District Court is not appropriate for attorney-client privilege analysis. Under the District Court’s approach, the attorney-client privilege apparently would not apply unless the sole purpose of the communication was to obtain or provide legal advice. That is not the law.” Id. at 759. The D.C. Circuit held that the proper test is the “primary purpose” test which “sensibly and properly applied, cannot and does not draw a rigid distinction between a legal purpose on the one hand and a business purpose on the other.” Id. The D.C. Circuit ruled that this test was satisfied, and remanded the case to allow the district court to entertain other arguments for why the privilege should not attach to the documents at issue (aside from the argument that they were not prepared primarily for purposes of seeking legal advice). Id. at 764.
Balancing Test Rejected
On remand, the district court held that KBR had waived privilege. United States ex rel. Barko v. Halliburton Co., Case No. 05-cv-1276, 2014 U.S. Dist. LEXIS 181353 (D.D.C. Nov. 20, 2014) [Dkt. 205]. The district court found waiver based on the fact that a corporate 30(b)(6) designee reviewed certain privileged documents in preparation for his deposition testimony. The district court applied Federal Rule of Evidence 612, which provides that where a witness has used a writing to refresh memory before testifying, the adverse party is entitled to have it produced and to introduce into evidence any portion that relates to the witness’s testimony “if the court decides that justice requires the party to have those options.” Fed. R. Evid. 612. The court engaged in a balancing test and, after identifying several factors supporting and several factors militating against disclosure, concluded that “fairness considerations support disclosure.” Barko, 2014 U.S. Dist. LEXIS 181353, at *41. The district court also found waiver based on the fact that, in a footnote in KBR’s summary judgment brief, KBR stated not only that it conducted an internal investigation into Barko’s claims and did not report any wrongdoing to the government, but also that when KBR discovers wrongdoing during investigations, “KBR makes such disclosures.” Id. at *25-26. The district court concluded KBR had waived privilege by putting the content of the privilege investigation documents “at issue.” Id. at *31.
KBR made a second application for a writ of mandamus, which the D.C. Circuit granted on August 11, 2015. In re Kellogg Brown & Root, Inc. et al., No. 14-5319, 2015 WL 4727411 (D.C. Cir. Aug. 11, 2015). The D.C. Circuit held that it was improper to apply the balancing test in determining whether privilege was waived with respect to the documents reviewed by the deponent, because there was no showing that the documents were used to refresh the witnesses’ memory, which rendered Federal Rule of Evidence 612 inapplicable. Id. at *4. The D.C. Circuit further stated that, even if the balancing test had been appropriate, the district court’s conclusion was precluded by Upjohn, which teaches that “[a]n uncertain privilege, or one which purports to be certain but results in widely varying application by the courts, is little better than no privilege at all.” Id. at *5 (quoting Upjohn Co. v. United States, 449 U.S. 383, 393 (1981)). As for the footnote in KBR’s summary judgment motion, the D.C. Circuit observed that the footnote constituted a “recitation of facts” and not “an argument”; that, in any event, it is not the D.C. Circuit’s practice to “indulge cursory arguments made only in a footnote”; and that, the district court was required to draw all inferences against KBR as the movant on the motion for summary judgment, and that the district court therefore should not have drawn an inference in KBR’s favor that the internal investigation revealed no wrongdoing. Id. at *9.
“General Counsel Offices Throughout the Country”
The D.C. Circuit’s decision was explicitly motivated by a desire to avoid “injecting uncertainty into application of attorney-client privilege and work product protection to internal investigations.” Id. at *1. As the D.C. Circuit itself suggested, “corporate general counsel offices throughout the country” will find the KBR decision instructive “about what kinds of descriptions of investigatory and disclosure practices” may be used by companies which seek to preserve privilege in litigations concerning their internal investigations. Id. at *12.