On August 11, 2015, In re Kellogg Brown & Root, Inc., No. 14-5319, slip op. (D.C. Cir. Aug. 11, 2015), the U.S. Court of Appeals for the D.C. Circuit issued an important opinion vacating another series of rulings by the U.S. District Court for the District of Columbia that had required Kellogg Brown & Root, Inc. (KBR) to produce privileged internal investigation documents.  The District Court had concluded that by producing an in-house attorney as a deposition witness on the topic of its investigation and referencing the attorney’s testimony in its motion for summary judgment, KBR had put the contents of the investigation at issue in the litigation and thereby impliedly waived the privilege.  The District Court had also ruled that the attorney-client privilege did not extend to summary reports prepared by KBR’s non-attorney investigators.

In 2005, Harry Barko, a former KBR subcontract manager, filed a False Claims Act complaint against the company, alleging that KBR and certain subcontractors defrauded the U.S. government by inflating costs and accepting kickbacks in connection with military contracts in wartime Iraq.  During discovery, Barko sought documents related to KBR’s prior internal investigation into the alleged fraud.  Id. at 2-3.

A previous panel of the D.C. Circuit had ruled in June 2014 that the District Court had applied the wrong legal standard, causing “substantial uncertainty” over the scope of attorney-client privilege, when it ordered the company to turn over 89 reports from its internal investigation to Barko.  In again vacating the District Court’s ruling in its latest decision, the D.C. Circuit reached three key holdings:

• First, the D.C. Circuit held that simply designating an in-house attorney in response to a deposition notice on the topic of the privileged nature of an internal investigation, while continuing to assert the privilege in response to questioning throughout the deposition, does not, under Federal Rule of Evidence 612, warrant the production of privileged materials reviewed by the witness in preparation for the deposition.  Id. at 9-12.  The D.C. Circuit observed that “[i]f all it took to defeat the privilege and protection attaching to an internal investigation was to notice a deposition regarding the investigations (and the privilege and protection attaching [to] them), we would expect to see such attempts to end-run these barriers to discovery in every lawsuit in which a prior internal investigation was conducted relating to the claims.”  Id. at 24.  The D.C. Circuit expressed concern that such an outcome “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.”  Id.
• Second, the D.C. Circuit held that KBR did not put the privileged investigation files at issue in the litigation merely by referencing the testimony in a footnote in its summary judgment brief because “KBR neither directly stated that the [internal] investigation had revealed no wrongdoing nor sought any specific relief because of the results of the investigation.”  Id. at 17.  In reaching this conclusion, the D.C. Circuit explained that cursory statements made in footnotes of briefs should not be indulged as a matter of practice, and that the mere inference of “no wrongdoing” that could be drawn from KBR’s footnoted assertion held little weight because all inferences were to be drawn against KBR as the summary judgment movant.  Id. at 18.
• Finally, the D.C. Circuit held that the District Court erred in concluding that some of the summary reports prepared by KBR’s non-attorney investigators were not privileged.  According to the D.C. Circuit, it was clear that portions of the documents summarized statements made by KBR employees to the investigators, who, acting at the direction of in-house counsel, “effectively step[ped] into the shoes of the attorney.”  Id. at 20.  However, where such summary reports do not summarize communications with employees, they receive only qualified work product protection and are not privileged for all purposes.  Unlike the attorney-client privilege, the work product protection may be overcome by a showing of substantial need and that the requesting party has no other access to the information without undue hardship.  The D.C. Circuit thus rejected the notion that “everything in an internal investigation is attorney-client privileged.”  Id. at 19.  Emphasizing that the attorney-client privilege and work product protection are separate and distinct from one another, the D.C. Circuit cautioned that “there is nothing to be gained by sloppily insisting on both [attorney-client privilege and work product protection for the same materials] or by failing to distinguish between them.”  Id. at 21.

Guidance for Preserving Privilege and Protecting Work Product

Useful guidance on the scope of the attorney-client privilege and work product protection as applied to internal investigations can be gleaned from the D.C. Circuit’s latest opinion: 

• Corporate counsel can continue to use non-attorneys to assist in carrying out internal investigations without jeopardizing the privilege.  However, the work product of such individuals may only be protected on a qualified basis.
• Plaintiffs cannot defeat the privilege during litigation by merely noticing a privileged investigation as a deposition topic, and corporate defendants do not waive the privilege by designating an in-house attorney as a corporate witness to testify about the internal investigation, so long as the privilege is adequately protected during the deposition.
• To avoid effecting an implied waiver, counsel must be careful about how they describe an internal investigation in court filings and other public documents.  In particular, counsel should avoid expressly stating the investigation’s conclusions and outcomes and  should not seek any litigation-related relief based on the results of the investigation.

All in all, the D.C. Circuit’s latest opinion makes clear that the attorney-client privilege and work product protection remain important and powerful tools in preserving the confidentiality of internal corporate investigations.  However, it also underscores the need for counsel to exercise great care in maintaining clients’ privileges and protections. 

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