829-Brower_GregjohnsonGuest Commentary

by Greg Brower and Brett W. Johnson, Snell & Wilmer LLP*

Government contractors won another round in a long-running battle over the discoverability of internal investigation documents. On August 11, the United States Court of Appeals for the D.C. Circuit found, for a second time in the same case, that the district court erred in ordering the production of documents, concluding that the district court’s decision was contrary to both the circuit’s own precedent and the United States Supreme Court’s holding in Upjohn v. United States.

Back in March of 2014, in United States of America ex rel. Harry Barko v. Halliburton Company, et al., defendant Halliburton’s subsidiary, Kellogg, Brown & Root (“KBR”) and other defendants filed a petition for writ of mandamus seeking to reverse a district court’s order that certain reports created as part of an internal investigation were not privileged and should be produced in discovery. A three-judge panel of the D.C. Circuit reversed the decision, but remanded the matter back to the district court to consider other potential arguments in favor of production. For more on this decision by the circuit court, see our June 30, 2014 WLF Legal Pulse commentary here.

Upon remand, discovery in the case continued, including the deposition of one of KBR’s in-house lawyers who testified to having reviewed the documents at issue in the decision referenced above. KBR ultimately moved for summary judgment and, in a footnote contained in its moving brief, represented to the court that:

  1. KBR has an internal Code of Business Conduct (“COBC”) that includes a mechanism for investigating allegations of illegal activities within the company;
  2. when such an investigation reveals reasonable grounds to believe that a violation of the law may have occurred requiring disclosure to the government, KBR makes such disclosures;
  3. KBR has made such reports to the government when it has had such reasonable grounds;
  4. KBR intends that reports generated as part of such investigations are protected from disclosure by the attorney-client privilege;
  5. KBR did perform COBC investigations related to the relator’s allegations; and
  6. KBR made no reports to the government as a result of these investigations.

The district court not only denied KBR’s motion for summary judgment, but found that KBR’s use of the “COBC contents” in the motion constituted an implied waiver because KBR “actively sought a positive inference in its favor.” In a separate decision, the district court also found that the relator’s substantial need for the subject documents overcame KBR’s work product argument. In light of these findings, the district court ordered KBR to produce the subject reports.

In response to district court’s order, KBR once again sought relief from the court of appeals, and once again, the D.C. Circuit, held that the district court erred. First, the circuit court observed that the balancing test that the district court used in deciding whether to order disclosure under Federal Rule of Evidence 612(a)(2) was flawed. Specifically, the court explained that such a balancing test was inappropriate because Rule 612 applies only where a witness uses a writing to refresh memory, as opposed to where a witness simply states on the record that certain reviewed documents are privileged. The relator based his Rule 612 argument on the aforementioned deposition testimony by the KBR in-house lawyer, who acknowledged that he had reviewed the disputed COBC documents in preparation for his testimony. In disagreeing with the district court’s decision, the circuit court explained that it “cannot be the case that just stating the documents were privileged constitutes a testimonial reliance on their contents; else, attorney-client privilege and work product production would mean nothing at all in that their mere invocation would entitle an adversary to production of the privileged or protected materials.”

The circuit-court panel went on to conclude that the district court’s balancing “runs counter to Upjohn” by improperly allowing the attorney-client privilege and work product protection covering internal investigations “to be defeated routinely by a counter-party noticing a deposition on the topic of the privileged nature of the internal investigation.” The panel went on to observe that “Upjohn 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,’” and concluded as follows: “In sum, the District Court’s Rule 612 ground 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.”

The panel also disagreed with the district court’s finding that KBR had waived the privilege and work product protection in placing the COBC documents “at issue” by trying to use them to create a certain favorable inference that KBR’s internal investigations found no wrongdoing. While acknowledging that such waivers are indeed possible and that a party “may not use privilege as a tool for manipulation of the truth-seeking process,” the panel nevertheless concluded that here neither the KBR lawyer’s deposition testimony nor the footnote to the introduction of the motion for summary judgment necessarily suggested a positive inference in favor of KBR. The panel disagreed that such an inference was unavoidable, because an alternative inference—that the investigation, in fact, showed wrongdoing but KBR nonetheless made no report to the government—was also plausible and likely to be argued by the relator at trial.

Thus a broad interpretation of Upjohn seems to have carried the day once again.  Within 14 months, the D.C. Circuit has now twice clarified the scope of the attorney-client privilege in the context of corporate internal investigations.  The court first made clear that reports created pursuant to such investigations done at the direction of counsel, are privileged as long as one of the significant purposes of the investigation was to obtain or provide legal advice, regardless of whether the investigation was also done pursuant to a company compliance program required by law.  And with this second ruling in the same case, the court has further clarified that the way in which the privileged or work-product status of certain investigative documents is or, in this case, is not waived.  Both rulings not only saved KBR from having to turn over privileged documents in the case at issue, but more generally serve to shore up the corporate attorney-client privilege against claims that it should be narrowly applied in this context.

*Greg Brower and Brett Johnson are partners in the Reno, Nevada and Phoenix, Arizona offices, respectively, of Snell & Wilmer LLP.  Mr. Brower was U.S. Attorney for the District of Nevada, 2007-2009, and is a member of WLF’s Legal Policy Advisory Board.