United States: Implied Waiver Of Privilege In Internal Investigations: Barko Court Compels Production Of Internal Investigation Documents, Again

On November 20, 2014, the District Court for the District of Columbia once again ordered Kellogg, Brown and Root ("KBR") to produce all documents prepared as part of an internal investigation.  The District Court's decision comes after the D.C. Circuit, in an opinion that was welcome news for in-house counsel, found that the documents prepared during an internal investigation were protected by the attorney-client privilege since one of the "significant purposes" of the communications was to obtain or provide legal advice.  On remand, the District Court nonetheless ordered KBR to produce the documents because it found that, under the doctrine of implied waiver, KBR waived the privilege by placing in dispute what otherwise would have been privileged matters when it represented to the Court that the internal investigation resulted in no evidence of fraud.1

Background

In June 2005, plaintiff-relator Henry Barko, a former contract administrator for KBR in Iraq, filed a qui tam False Claims Act ("FCA") lawsuit against Halliburton and its former subsidiary, KBR.  Barko alleged that KBR fraudulently inflated the costs of construction services on military bases in Iraq and passed on those costs to the U.S. Government.  From 2004 to 2006, before Barko's complaint was unsealed, Halliburton, pursuant to its Code of Business Conduct ("COBC"), investigated these allegations.  During discovery, Barko requested production of documents related to this internal investigation.  KBR confirmed that documents responsive to Barko's request existed but withheld them on attorney-client privilege and work-product protection grounds.

March 2014:  The District Court Finds the Attorney-Client Privilege Did Not Apply to KBR's Internal Investigation Documents and Compels Production

The District Court's earlier decision had ordered KBR to produce internal investigation documents because it found that the documents were created for a business purpose, i.e., compliance with regulatory disclosure requirements, and not to obtain legal advice.2 The District Court's order was widely criticized because internal investigations are often conducted with dual purposes:  to comply with business or regulatory requirements and to seek legal advice.  Moreover, internal investigations, even if conducted in great measure to meet business or regulatory requirements, may also be intended to reveal risks of future litigation.

As we noted in a previous blog post, it is likely that the District Court's in camera review provided an impetus for its decision to order production of the documents.  The Court termed KBR's investigation reports "eye-openers" because, in its view, the reports contained both direct and circumstantial evidence of fraud.

June 2014: The D.C. Circuit Vacates the District Court's Order and Finds That Internal Investigation Documents Are Protected by the Attorney-Client Privilege Where at Least One Significant Purpose of the Communications Is to Seek Legal Advice

On June 27, 2014, the D.C. Circuit vacated the District Court's order requiring the production of the internal investigation documents.3  The Court held the proper test for determining attorney-client privilege is "whether obtaining or providing legal advice was one of the significant purposes of the attorney-client communication."  Using this test, the privilege would apply to an internal investigation regardless of whether it was conducted pursuant to company policy or legal requirements, as long as one significant purpose was to obtain legal advice.

November 2014: The District Court Finds KBR Waived the Attorney-Client Privilege and Compels It to Produce Internal Investigation Documents

In its November 2014 order, the District Court held that KBR could not now "hide" behind the attorney-client privilege (which the D.C. Circuit had held existed) where the company had placed the contents of the investigation's report at issue.  The Court concluded that KBR impliedly waived the attorney-client privilege because its motion for summary judgment "intentionally put the contents of the COBC investigation at issue when it represented that its internal investigation of Barko's allegations yielded no reasonable grounds to believe fraud may have occurred."4

The Court determined that KBR put the contents of the COBC investigation files at issue at Rule 30(b)(6) depositions.  The deponent testified that he reviewed the investigation files in preparation for the deposition.  KBR's attorney blocked Barko's attempts to question the deponent regarding what reports and evidence supported KBR's decision not to provide notice of potential kickbacks or fraud to the Department of Defense.  Then, KBR's attorney examined his own 30(b)(6) witness and solicited statements to the effect that if a KBR investigation yielded evidence of fraud or kickbacks, KBR always reported that to the government.  Since KBR had provided no such notice, the clear implication was that no wrongdoing was found in the investigation.

KBR later used the witness' statements in its statement of material undisputed facts its motion for summary judgment.  According to the Court, KBR thereby "injected the COBC contents into the litigation by itself soliciting [its witness'] Rule 30(b)(6) testimony."5 Thus, the Court concluded that "fairness dictates that all the documents in question be produced so that [plaintiff is] able to examine the documents to challenge whether the withheld documents actually support the inferences that [defendants'] attorneys suggested to this Court."6

Using the same fairness considerations, the Court also found that KBR waived the attorney-client privilege when its witness examined COBC documents to refresh his recollection before testifying as KBR's Rule 30(b)(6) witness.  The Court emphasized that the COBC documents "have almost no attorney opinion materials; instead investigator-taken statements and investigator reports predominate."7  In addition, the Court found that KBR's testimony and repeated suggestion that the COBC documents did not contain any evidence of fraud weighed in favor of disclosure.8 Using this fairness analysis, the Court held that disclosure was required under Federal Rule of Evidence 612, which allows an opposing party to inspect writings a witness used to refresh his memory.  The Court noted, however, that "[i]n most cases, Rule 30(b)(6) witnesses who have examined privileged materials before testifying will not waive the privilege."9

Immediately after the Court's Opinion and Order, KBR filed a Motion for Reconsideration.  On December 17, 2014, the District Court denied KBR's motion for reconsideration, denied KBR's motion for certification of an interlocutory appeal, and denied a stay of the Court's November 20, 2014 order pending the disposition of KBR's mandamus position.  The Court did, however, grant a seven day stay of the order so that KBR could file an emergency motion under Circuit Rule 27(f).10  On December 19, 2014, KBR filed for an emergency stay as well as a mandamus petition to vacate the court's November 20, 2014 and December 17, 2014 orders.  The Court of Appeals granted the administrative stay of the orders; briefing on the issue is scheduled to be completed February 23, 2015.  Meanwhile, the District Court denied KBR's motion to stay all proceedings, allowing Barko to continue with depositions.11

Conclusion and Lessons

The District Court's order signals that companies need to carefully consider revealing internal investigation findings in litigation.  However discretely or summarily presented, such statements could have the unintended effect of waiving privilege.  Relying on such waiver, the DistrictCourt in Barko managed to reach its original result – compelling KBR to produce internal investigation documents – despite the Circuit Court's broad application of the attorney-client privilege.  A court's "fairness" analysis is very flexible and fact-dependent, and may skew in favor of finding a waiver of privilege, and thus disclosure (as in Barko), of the entire investigative file.  Barko, if it stands, teaches that companies must completely avoid making arguments to a court, or elsewhere to third parties (e.g. in presentations to the government), that rely on the conclusions of internal investigations if they determine those investigations must remain privileged.

Footnotes

1.United States ex rel. Barko v. Halliburton Co., 1:05-CV-1276, Opinion & Order (D.D.C. Nov. 20, 2014) ("Nov. 20, 2014 Order").

2.United States ex rel. Barko v. Halliburton Co., 1:05-CV-1276, 2014 WL 1016784 (D.D.C. Mar. 6, 2014) vacated sub nom. In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014).

3.In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014).

4.Nov. 20, 2014 Order at 10.

5.Id. at 21.

6.Id. at 23.

7.Id. at 25.

8.Id. at 25-26.

9.Id. at 26.

10.United States ex rel. Barko v. Halliburton Co., 1:05-CV-1276, Opinion & Order (D.D.C. Dec. 17, 2014).

11.United States ex rel. Barko v. Halliburton Co., 1:05-CV-1276, Opinion & Order (D.D.C. Jan. 10, 2015).

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