White Collar Alert
In a unanimous decision dated August 11, 2015, the United States Court of Appeals for the D.C. Circuit held that a district court erred when it ordered Kellogg Brown & Root (KBR) to produce dozens of key internal investigation documents to the qui tam relator in United States ex rel. Barko v. Halliburton Co. (No. 1:05-cv-1276, D.D.C.), a False Claims Act case alleging that KBR defrauded the U.S. government by inflating costs and accepting kickbacks while performing reconstruction work in wartime Iraq. The appellate court concluded that a writ of mandamus -- a "drastic and extraordinary" remedy -- was necessary for a second time in the same case to "protect [its] privilege waiver jurisprudence" and to bring certainty to "corporate general counsel offices throughout the country about what kinds of descriptions of investigatory and disclosure practices [can] be used by an adversary to defeat all claims of privilege and protection of an internal investigation."
The Ongoing Discovery Dispute
As Miller & Chevalier reported in an earlier alert, this case stems from a discovery dispute over 89 documents from KBR's Code of Business Conduct (COBC) investigation into the alleged fraud. In March 2014, the District Court granted the relator's motion to compel, which had argued that the documents were unprivileged business records that he was entitled to discover. The D.C. Circuit's mandamus ruling three months later reversed the District Court's order compelling KBR to produce the investigation materials, finding the order to be "irreconcilable" with the Supreme Court's holding in Upjohn Co. v. United States, 449 U.S. 383 (1981). While the D.C. Circuit concluded that all of the challenged documents were privileged, it nonetheless remanded the case so the District Court could consider other timely arguments for why the privilege should not attach.
On remand, the trial court concluded that KBR waived attorney-client privilege and work product protection for all 89 documents, in two ways: first, by permitting an in-house attorney to review the materials in preparation for his 30(b)(6) deposition; and second, by intentionally putting the documents' contents at issue in the underlying litigation. On these bases, the District Court again concluded that KBR was required to turn the contested documents over to the relator. KBR sought another writ of mandamus from the D.C. Circuit, which held that the District Court clearly erred on both counts.
Federal Rule of Evidence 612 Requires Testimonial Reliance on the Contents of a Document
During discovery, the relator issued a Rule 30(b)(6) deposition notice to KBR, requiring the company to produce a corporate representative to testify about the company's internal investigation (as distinguished from the events that were the subject of the investigation) so that the relator could examine whether and to what extent the investigation was privileged. KBR produced one of its in-house lawyers, Christopher Heinrich, who testified that he had prepared for the deposition by reviewing the COBC investigation materials.
On the basis of Heinrich's testimony, the relator sought disclosure of the COBC documents pursuant to Federal Rule of Evidence 612. Under this rule, an adverse party is entitled to a "writing" used by a witness to refresh his or her memory before testifying, if the court decides that justice so requires. The District Court balanced several factors for, and against, disclosure, and "concluded that 'fairness considerations support disclosure.'"
The D.C. Circuit held that this balancing test was "inappropriate." Because "Rule 612 applies only where a witness 'uses a writing to refresh memory,'" an adverse party is not entitled to see a document -- even one consulted while testifying -- "unless the writing influenced the witness's testimony." The Court continued:
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.
Further, the District Court's balancing test would "routinely" defeat the protections covering internal investigations whenever "a counter-party notic[es] a deposition on the topic of the privileged nature of the internal investigation." As the D.C. Circuit emphasized," 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.'"
The D.C. Circuit rejected the relator's "absurd position" that to avoid waiver KBR should have had someone with second- or third-hand knowledge of the investigation give Heinrich a summary of the documents, rather than allowing Heinrich to review them personally. It concluded that "[s]uch a rule would encourage entities to provide less knowledgeable corporate representatives for deposition, thus defeating the purpose of civil discovery to establish 'the fullest possible knowledge of the issues and facts before trial.'"
Ultimately, the D.C. Circuit held that the relator could not "overcome the privilege by putting [the COBC investigation] in issue" at the deposition, and then demanding under Rule 612 to see the investigatory documents the witness used to prepare." To permit the attorney-client privilege and work product protection to be "so easily defeated would defy 'reason and experience,' and 'potentially upend certain settled understandings and practices' about the protections for such investigations."
KBR Did Not Put Internal Investigation Documents "At Issue" When It Included a Non-Argumentative Recitation of Facts in a Footnote to Its Summary Judgment Papers
The D.C. Circuit held that the District Court also erred when it found that KBR waived privilege and work product protections by purportedly putting the investigation documents "at issue" in the case. During the Rule 30(b)(6) deposition, KBR solicited testimony from Heinrich on cross-examination. Heinrich testified as to the fact of the internal investigation and KBR's reporting duties under its contracts with the Department of Defense. KBR attached excerpts of this testimony to its motion for summary judgment, along with a representation that after the COBC investigation, the company "made no reports to the Government." "All this, in the view of the District Court, added up to a 'message' that the COBC reports 'contain no reasonable grounds to believe a kickback occurred.'" The District Court concluded that KBR created an implied waiver by actively seeking "a positive inference in its favor" based on what KBR claimed the investigation documents showed.
The Court of Appeals disagreed. It held that the deposition transcript and statements of material fact could not "themselves give rise to inferences that place privileged materials 'at issue.'" In proving that it did not waive the attorney-client privilege and work product protection over the internal investigation materials, KBR's "highest hurdle" related to statements in its summary judgment motion that it not only did not report any wrongdoing to the government after the COBC investigation -- but also that when it discovers wrongdoing during investigations, it makes such disclosures. The D.C. Circuit felt that the context of this statement was "essential to [its] clear error conclusion," characterizing the passage in question as a "recitation of facts that appears only in the motion's introduction, not in an argument or claim concerning the privileged documents' contents." Moreover, KBR benefitted from the Court's precedent rejecting the idea that it must treat recitations of facts as making arguments, as well as from the Court's practice of declining to "indulge cursory arguments made only in a footnote."
The District Court's Errors Warranted a Writ of Mandamus
In our earlier alert, we observed that, at oral argument, the three-judge panel was focused on whether the circumstances of the case were sufficiently extraordinary to justify a writ of mandamus. The Court concluded they were.
First, the Court held that KBR had no other adequate means to attain the relief sought, as an appeal after final judgment would "come too late because the privileged documents will have been disclosed." Second, the District Court committed a "clear and indisputable" error by ignoring Supreme Court precedent rejecting a balancing test for the attorney-client privilege. And, third, the writ was appropriate under the circumstances because the District Court's decision would generate "substantial uncertainty about the scope of the attorney-client privilege in the business setting."
If 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 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.
In the Court's view, a writ of mandamus was "essential."
The D.C. Circuit's decision resolves the substantial uncertainty created by the District Court regarding how to preserve the attorney-client privilege and work product protection while navigating a Rule 30(b)(6) deposition. Key to the Court's decision was whether Heinrich's testimony relied on privileged and protected materials. While the Court left open the question of what showing is necessary to meet Rule 612, it nonetheless made clear -- at least in the context of a deposition expressly aimed at determining whether an internal investigation was privileged -- that merely using privileged documents to prepare for such a deposition does not constitute testimonial reliance on the documents' contents such that the documents themselves must be produced.
Miller & Chevalier will continue to monitor this matter and issue additional alerts as appropriate.
For more information, please contact Dawn Murphy-Johnson or any lawyer in the White Collar & Internal Investigations Practice:
Dawn Murphy-Johnson, firstname.lastname@example.org, 202-626-6050