D.C. Circuit Court Reaffirms Protections Afforded to Government Construction Contractor's Internal Investigation
» Posted April 6, 2016 Publications
Understanding the nuances of the attorney-client privilege and work-product protection is integral to effective representation of clients. The foundational elements of both doctrines are straightforward. The attorney-client privilege, under its general formulation, is applicable to “communication . . . between privileged persons in confidence for the purpose of obtaining or providing legal assistance for [a] client.” Restatement (Third) of the Law Governing Lawyers § 68 (2000). Work product is defined under the Federal Rules of Civil Procedure as “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative,” but intangible work product is also afforded protection under federal case law. Fed. R. Civ. P. 26(b)(3)(A); see also 8 Charles Alan Wright et al., Federal Practice & Procedure § 2024 (3d ed.) (discussingHickman v. Taylor, 329 U.S. 495 (1947)).
Work product is divided into two distinct categories: ordinary, or fact, work product and opinion work product. Opinion work product is defined as the “mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation,” while fact work product is, effectively, any non-opinion work product. Fed. R. Civ. P. 26(b)(3)(B). Fact work product is discoverable if the materials “are otherwise discoverable under Rule 26(b)(1)” and “the party shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means.” Fed. R. Civ. P. 26(b)(3)(A)(i)-(ii). Opinion work product is generally afforded almost absolute protection, and is discoverable only in remarkable circumstances. See 8 Charles Alan Wright et al., Federal Practice & Procedure § 2026 (3d ed.).
In practice, however, the attorney-client and work product doctrines are both complex, fact-driven, and ever-changing. Courts are constantly refining the scope of attorney-client privilege and work product protection, requiring executives and in-house counsel to reevaluate company policies and outside counsel to provide accurate and current advice. Over the past two years, protracted litigation under the federal False Claims Act (“FCA”) in the District of Columbia federal courts has led to a series of decisions of particular import to government construction contractors and those who advise them. These decisions in United States ex rel. Barko v. Halliburton Co., 37 F. Supp. 3d 1 (D.D.C. 2014) and 75 F. Supp. 3d. 532 (D.D.C. 2014), and In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014) and 796 F.3d 137 (D.C. Cir. 2015), address the boundaries of both attorney-client privilege and work product protection in the context of companies’ internal investigations pursuant to Department of Defense compliance regulations. In January 2016, the Supreme Court denied the petition for certiorari from the latter of the twoKellogg Brown & Root, Inc. (“KBR”) appellate decisions summarized below, providing some finality on these privilege and protection issues—if only in the D.C. Circuit. See United States ex rel. Barko v. Kellogg Brown & Root, Inc., 136 S. Ct. 823 (2016).
The KBR Cases
The KBR litigation commenced in 2005 and is still pending before the United States District Court for the District of Columbia. Harry Barko (“Barko”) filed a qui tam action under the FCA against KBR and other related entities, alleging that “KBR and certain subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq.” In re Kellogg Brown & Root, Inc., 756 F.3d 754, 756 (D.C. Cir. 2014). During discovery, Barko sought various documents from an earlier KBR internal investigation into the alleged fraud, required for compliance with Department of Defense regulations. See id. at 756. KBR contended the internal investigation documents were protected by attorney-client privilege, while Barko argued they were unprivileged business records. See id. The trial court ruled that the attorney-client privilege did not apply to the investigation records, as the internal investigation was done as a matter of regulatory necessity and corporate policy, “rather than for the purpose of obtaining legal advice.” Id. The court applied a “but-for” test, determining that KBR was required, and failed, to show that the investigation communications “would not have been made ‘but for’ the fact that legal advice was sought.” Id.
The D.C. Circuit’s June 2014 Decision: In re Kellogg Brown & Root, Inc., 756 F.3d 754
KBR petitioned the United States Court of Appeals for the District of Columbia for mandamus relief on this issue, which that court granted in its first of two decisions regarding KBR’s internal investigation. See id. at 756, 764. The D.C. Circuit’s assessment of the trial court’s privilege ruling was blunt: the ruling was a clear legal error. See id. at 757. The D.C. Circuit noted that the assertion of privilege by KBR was “materially indistinguishable” from the assertions made by Upjohn in the seminal Supreme Court case on the matter of attorney-client privilege, Upjohn Co. v. United States, 449 U.S. 383 (1981). See id. The appellate court then rejected three distinctions made by the trial court when improperly removing this case “from underUpjohn’s umbrella.” Id. First, the appellate court found that the fact that the KBR investigation was conducted by in-house counsel, without the involvement of outside legal counsel, did not prevent attorney-client privilege from applying, as “inside legal counsel . . . is fully empowered to engage in privileged communications.” Id. at 758. Second, the appellate court found that the fact that the KBR investigation involved interviews conducted by non-attorneys, at the direction of in-house counsel, did not prevent attorney-client privilege from applying. Communications by and to agents of counsel in investigations are protected to the same extent they would be if made by and to counsel. See id. Third, the appellate court found that, while the KBR investigation did not involve express instruction to interviewees that the interviews were conducted for the purpose of obtaining legal advice, “nothing in Upjohn requires a company to use magic words to its employees in order to gain the benefit of the privilege for an internal investigation.” Id. The KBR employees were aware that the legal department was conducting an investigation and that their disclosures would be protected, and were told not to discuss the interviews without authorization from KBR General Counsel. See id.
Next, the D.C. Circuit addressed the distinction made by the trial court between the investigation in Upjohn and the investigation inKBR on the basis that the latter “was undertaken to comply with Department of Defense regulations that require defense contractors such as KBR to maintain compliance programs and conduct internal investigations into allegations of potential wrongdoing.” Id. The trial court had determined that the KBR investigation was not privileged because it was completed to comply with those regulations, “rather than to obtain or provide legal advice.” Id. The appellate court described this as a false dichotomy—as long as obtaining or providing legal advice is a significant purpose of an investigation, the attorney-client privilege applies. See id. at 758-59. According to the appellate court, the trial court erred when it applied an inappropriate “but for” test to the investigation communications, an approach that would bar application of attorney-client privilege to any communication not made solely to obtain or provide legal advice. See id. at 759. The D.C. Circuit held that, while it is appropriate to look to the primary purpose of a communication, communications may have more than one primary, or significant, purpose. See id. at 759-60. Otherwise-privileged communications made for both business and legal purposes are, as they have heretofore been, covered by the attorney-client privilege. See id.
After reaching these conclusions regarding the applicability of attorney-client privilege, and granting mandamus relief, the D.C. Circuit noted that the trial court could consider Barko’s other timely-asserted arguments in favor of production of the disputed documents—setting the stage for the second series of decisions regarding privilege and protection issues arising from KBR’s internal investigation. See id. at 764.
The D.C. Circuit’s August 2015 Decision: In re Kellogg Brown & Root, Inc., 796 F.3d 137
After considering Barko’s other arguments against the application of attorney-client privilege and work product protection, the trial court once again determined that the contested investigation documents should be produced. In re Kellogg Brown & Root, Inc., 796 F.3d 137, 140 (D.C. Cir. 2015). KBR sought a second writ of mandamus from the D.C. Circuit. See id. The D.C. Circuit was again blunt, finding that the challenged decisions suffered from the “same fundamental flaw” as those previously before the court in 2014: they ran “contrary to precedent by injecting uncertainty into application of attorney-client privilege and work product protection to internal investigations.” Id. Again, the D.C. Circuit granted the writ of mandamus. See id.
In its second Barko opinion, the trial court compelled production of some investigation documents based on findings that attorney-client privilege did not apply, the documents were fact work product, and Barko had demonstrated a substantial need for them. See id. at 148. Before assessing the trial court’s ruling, the D.C. Circuit described the boundaries of attorney-client privilege and the application of that privilege to internal investigation materials. The appellate court noted that the privilege does not apply to everything in an internal investigation—only those materials that constitute communications between an attorney and a client. See id. at 148-49. Attorneys’ notes capturing attorney-client communications are protected by attorney-client privilege, while notes evaluating those communications and revealing attorneys’ “mental processes” are protected as opinion work product. See id. at 149. Additionally, non-attorney investigators essentially step into the shoes of attorneys when they work under attorneys’ direction, and do not constitute “clients” for the purpose of attorney-client privilege analysis. See id. Thus, investigators’ communications with attorneys are not protected by the attorney-client privilege—but if prepared in anticipation of litigation, they are work product and must be analyzed as such. See id. Materials produced by an investigator, an attorney’s agent, “are attorney-client privileged only to the extent they contain information obtained from the client including where the purpose of [those materials] was to put in usable form the information obtained from the client.” Id.
Following this analysis, the D.C. Circuit found that the trial court inappropriately ordered KBR to disclose investigation documents that were clearly covered by attorney-client privilege, including summaries of statements of KBR employees. See id. at 149-50. And, the D.C. Circuit found that the trial court failed to distinguish between fact and opinion work product before moving to the issue of substantial need, and thus wrongly ordered disclosure of documents that included mental impressions and opinions of the investigators. See id.
In addition, the D.C. Circuit ruled that the trial court had wrongly determined that KBR impliedly waived both attorney-client privilege and work product protection for the internal investigation documents. The trial court’s improper finding of implied waiver was based on two events. First, a KBR legal officer was asked to testify regarding KBR internal investigations during a Rule 30(b)(6) deposition. In preparation for the deposition, the officer reviewed the privileged documents at issue, and when asked about them, asserted attorney-client privilege. See id. at 141. Second, KBR included references to the investigation in pleadings filed with the court. See id. at 142.
The D.C. Circuit first addressed the issue of inadvertent waiver arising from the KBR deposition and found the trial court inappropriately relied on Federal Rule of Evidence 612, Writing Used to Refresh a Witness's Memory, when ordering disclosure of documents referred to in the deposition. The appellate court ruled that the KBR officer’s statement that certain documents were privileged did not constitute “a testimonial reliance on their contents” entitling Barko to their disclosure. See id. at 144. Further, the appellate court said the trial court’s ruling would allow litigants to routinely defeat attorney-client privilege and work product protection by putting an internal investigation at issue in a deposition, “and then demanding under Rule 612 to see the investigatory documents the witness used to prepare.” Id. at 145. Such a result would run counter to Upjohn, and inject uncertainty into application of privilege and protection. See id.
The trial court had also determined that KBR waived both attorney-client privilege and work product protection by putting the investigation documents at issue in pleadings filed with the court. The D.C. Circuit, after a detailed analysis, disagreed. KBR’s references to the investigation in its pleadings were not argument and did not give rise to an “unavoidable” inference in KBR’s favor. See id. at 146-48. Thus, KBR did not put the investigation materials at issue, and did not waive any applicable privilege or protection. See id.
Practical Advice for Government Construction Contractors and Their Counsel When Conducting Internal Investigations After KBR
Involve Outside Counsel in Jurisdictions Other Than the D.C. Circuit
Remember that the trial court distinguished the in-house counsel’s internal investigation in KBR from the investigation in Upjohn on the grounds that “the Upjohn internal investigation was conducted only after attorneys from the legal department conferred with outside counsel on whether and how to conduct an internal investigation.” United States ex rel. Barko v. Halliburton Co., 37 F. Supp. 3d 1, 5 (D.D.C. 2014). In reversing the trial court, the D.C. Circuit rejected the notion that the involvement of outside counsel is necessary to cloak an internal investigation in privilege. But, do not assume all internal investigations are automatically privileged, regardless of their genesis. While investigations initiated and overseen by inside counsel are privileged in the D.C. Circuit, this may not be the case in all jurisdictions. And, internal investigations, regardless of their purpose, conducted without the involvement of inside or outside counsel are likely not privileged. Therefore, prudent government contractors, especially those without inside counsel and those with inside counsel subject to litigation outside the D.C. Circuit, should consider engaging outside counsel to maintain privilege and protect the documents generated in internal investigations.
Limit the Use of Non-Attorneys
Similarly, the D.C. Circuit in KBR made clear that investigations conducted by non-attorneys at the behest of inside legal counsel are privileged, but this has not been clarified in all jurisdictions. It is safer to have attorneys conduct investigations, as in Upjohn, to the extent possible. If this is not possible, be sure that inside counsel is providing clear direction to and supervising non-attorneys throughout the investigation.
Clearly Inform and Document That the Investigation Is Legal in Nature
While the D.C Circuit obviated the need for “magic words” to maintain attorney-client privilege, a clear disclaimer should be used when applicable on written materials, indicating that those documents are confidential and covered by attorney-client privilege and/or work product protection. Investigators should clearly inform interviewees that their interviews are being conducted for the purposes of obtaining and providing legal advice. And, attorneys and officers should document the legal purpose of, and steps taken in, every investigation from its outset.
Be Wary When Using Privileged Materials to Prepare a Witness for Deposition
The D.C. Circuit found that an assertion during deposition that certain investigation documents were privileged did not amount to reliance on their contents which would entitle the opposing party to disclosure. However, if a deposition witness were to testify as to the contents of those privileged documents or review them during the deposition, an argument for disclosure could carry more weight. While the D.C. Circuit found that such a result would run counter toUpjohn and the overarching purpose of attorney-client privilege, this area remains unsettled in other jurisdictions. Be sure to prepare deposition witnesses to flatly assert privilege over investigation materials (and other privileged or protected documents), without additional commentary.
Consider Whether Investigation Materials Are Covered by Attorney-Client Privilege or Work-Product Protection
Remember that materials generated by an internal investigation are not all absolutely privileged, as they are not all attorney-client communications. For example, documents evidencing communications between agents of attorneys and attorneys fall outside the scope of the attorney-client privilege to the extent they are not documenting employee communications. They could be protected as fact or opinion work product, assuming that, to the extent they are fact work product, their protection is not overcome by an opposing party’s substantial need for the documents.
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