District Court Misapplied Privilege Waivers In Directing Disclosure, KBR Tells D.C. Circuit

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By Yin Wilczek

Feb. 24 — Kellogg Brown & Root Inc. told a federal appeals court that a lower court committed “clear legal errors” in directing it to disclose documents to whistle-blower Harry Barko.

In a Feb. 23 filing to the U.S. Court of Appeals for the District of Columbia Circuit, KBR said the errors include “fundamental misapplications” of “at issue” waivers of privilege.

The closely watched case has important ramifications regarding the scope of privilege protections for corporate documents, including materials produced during internal investigations.

Rulings at Issue 

In Nov. 20 and Dec. 17 decisions, Judge James Gwin of the U.S. District Court for the District of Columbia ordered KBR to turn over, among other materials, factual summaries prepared by a non-attorney investigator that were part of the company's Code of Business Conduct (COBC) reports from an internal investigation on possible kickbacks.

Gwin also concluded that KBR had waived the attorney-client privilege by questioning its in-house attorney about the substance and results of the internal investigation.

In December, KBR filed a mandamus petition asking the D.C. Circuit to vacate the rulings. The company also asked the appellate court to reassign the case to a different judge. 

Several business associations have supported KBR in a recent amicus filing, saying that Gwin's decisions could have adverse ramifications for internal investigations and corporate compliance programs.

Barko disputed that claim in a Feb. 6 brief, arguing that the district court's latest rulings will not dissuade companies from conducting internal investigations because it was KBR's conduct that resulted in a waiver of privilege.

Implied Waiver 

In its Feb. 23 filing, KBR argued that the “innocuous statement” by KBR attorney Chris Heinrich that the company adheres to its contractual obligation to report suspected kickbacks to the government does not constitute an implied waiver.

Triggering “implied waiver” on such a general statement of legal compliance “is a trap that will discourage corporations from conducting internal investigations,” the company said.

“Under the district court's rationale, any corporate representative—whether an attorney or not—who testifies that the corporation follows procedures for identifying, investigating, and reporting fraud may risk waiver through even general comments on the litigation at issue,” KBR continued. “The prospect of such unexpected and irrevocable waivers highlights the need for mandamus.”

KBR also argued that Gwin should be removed, saying the judge's “continued disclosures of privileged material” and “sua sponte pursuit of novel theories”—among other actions—“create the appearance of a concerted effort to circumvent” the D.C. Circuit's prior mandamus decision.

Second Mandamus Request 

This is the second mandamus petition filed by KBR involving the same 89 documents generated during the company's internal investigations of the relationship between certain KBR employees and the awarding of contracts to a Jordanian subcontractor, Daoud & Partners.

Barko, a former KBR employee, sued the company in 2005 and then-KBR parent Halliburton under the qui tam provisions of the False Claims Act. He alleged that KBR “used a subcontract procedure which vastly inflated the costs of constructing laundry facilities and providing laundry services” on three military bases in Iraq. The whistle-blower sought the 89 documents to support his lawsuit.

The D.C. Circuit granted the first mandamus petition. In June 2014, the appellate court reversed Gwin's ruling that the attorney-client privilege did not apply because KBR had not conducted its investigation for “the primary purpose” of securing legal advice. 

The U.S. Supreme Court subsequently denied Barko's certiorari petition.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Kristyn Hyland at khyland@bna.com

The filing is available at http://www.bloomberglaw.com/public/document/In_re_Kellogg_Brown__Root_Inc_et_al_Docket_No_1405319_DC_Cir_Dec_/2.