Every trial lawyer has a few tried-and-truisms to use in the courtroom. For the admissibility of evidence: That goes to weight, not admissibility. For expert witnesses: The testimony would be helpful to the jury. And for relevance: They opened the door.
A recent ruling out of the Eastern District of Texas shows just how powerful the “opened the door” argument can be.
The government sued KBR, one of its employees, Robert Bennett, and several of its subcontractors based on supposed false statements under the False Claims Act. Just before closing arguments in the case, the court ruled that the company had to turn over to the government the company’s report of an internal investigation into supposed kickbacks to Mr. Bennett. One of the reasons for disclosure was based on testimony KBR had elicited during the trial.
KBR has worked as a civilian contractor for the U.S. Department of Defense to provide transportation and supplies for conflicts in Kosovo, Iraq, and Afghanistan. The government paid KBR billions of dollars through a “cost-plus” arrangement. KBR would submit invoices for its own work and that of KBR’s subcontractors for reimbursement and would receive an agreed-upon profit.
The applicable portions of the FCA are:
[The following] provide liability to a person or corporation who:
1) knowingly presents, or causes to be presented to an officer or employee of the United States Government or member of the Armed Forces of the United States a false claim for payment of approval;
2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government;
3) conspires to defraud the government by having a false statement or fraudulent claim allowed or paid.
The government alleges that Mr. Bennett received illegal inducements from subcontractors in exchange for certain business opportunities. Plus, it alleges that KBR submitted invoices from subcontractors that were improperly marked up and that these submissions were “with deliberate ignorance or reckless disregard.”
When KBR learned of Mr. Bennett’s alleged receipt of gratuities, it conducted an internal investigation. Based on the results of investigation, KBR gave Mr. Bennett the choice either to resign or be terminated. He resigned.
The Government’s Request for KBR’s Internal Report
During the bench trial, the United States requested the internal report summarizing KBR’s investigation of Mr. Bennett’s receipt of kickbacks.
Now, this type of internal report is ordinarily covered by either the attorney-client privilege or the work product doctrine. The government contended, however, that any privilege had been waived based on certain testimony offered at trial. It also argued that KBR impermissibly sought to introduce evidence of the internal investigation as a “sword” while using the privilege as a “shield” to prevent disclosure of the report of the investigation.
[Note to self: Include “sword and shield” on list of tried-and-true cliches to use at trial.]
In support of its motion, the government argued that KBR put the internal investigation “at issue” in the case, thus waiving the privilege. For example, a KBR employee, Ty Hippert, testified at trial that KBR conducted an internal investigation, and that, as a result, the company took disciplinary action against Mr. Bennett for the acceptance of gratuities.
The government argued that KBR’s counsel wanted to show that the company had acted diligently in investigating and disciplining Mr. Bennett and thus should not be liable under the FCA.
The section of the transcript quoted by the government is, at best, weak evidence that KBR truly placed the internal investigation “at issue” in the case at trial. Mr. Hippert merely testified that the company took the allegations “seriously” and that the company disciplined Mr. Bennett. Mr. Hippert said only that the company conducted an internal investigation and based its disciplinary decision on its results. It was a single-sentence answer, not a lengthy description of the investigation procedure or an attempt to describe its depth or breadth.
Other KBR witnesses at trial referred to KBR’s “zero tolerance policy” against gratuities. According to the government, reliance on the existence on this policy without permitting the government to challenge its application further waived KBR’s right to claim privilege.
In addition to the summary of the internal report, which has been produced to the court for in camera review, the government sought to obtain all of the underlying documents that formed the basis for the investigation. In support of this request, the government relied on the theory of selective waiver, contending that:
The Fifth Circuit has been clear that a party may not selectively waive portions of privileged materials and retain its privilege with respect to the entirety of such materials. “[D]isclosure of any significant portion of a confidential communication waives the privilege as to the whole.” Nguyen v. Excel Corp., 197 F.3d 200, 208 (5th Cir. 1999) (quoting Indus. Clearinghouse, Inc. v. Browning Mfg. Div. of Emerson Elec. Co., 953 F.2d 1004, 1007 (5th Cir. 1992)).
KBR Fires Back
In response to the government’s motion, KBR argued that the evidence at trial was insufficient to warrant production of the internal report. First, Mr. Hippert testified that a report existed and that Bennett was disciplined as a result of the conclusion of the report and did not divulge the substance of the report. Therefore, he did not waive any privilege.
KBR quoted the following quote from the D.C. Circuit in United States v. White in support of this argument:
Where a defendant neither reveal[ed] substantive information [from the privileged document], nor prejudice[d] the [opponent’s] case, nor misleads a court by relying on an incomplete disclosure, fairness and consistency do not require the inference of waiver. United States v. White, 887 F.2d 267, 271 (D.C. Cir. 1989).
Second, according to KBR, corporate employees have no authority to waive the privilege of the corporation. Even though the report was sent to Mr. Hippert, the privilege was not waived as he was a KBR employee. KBR had sought to protect the privilege over the report throughout the litigation and thus did not deliberately elicit testimony from Mr. Hippert about the report. (This is the “we didn’t mean to open the door” defense.)
Third, KBR argued that the fact that a zero-tolerance policy exists falls into the category of “general assertions lacking substantive content,” which are insufficient under White to create waivers of privilege. The mere existence of the policy is not privileged or confidential, so references to it do not waive anything at all.
KBR requested that the court deny the government’s motion for production of any of the documents. However, they also requested that if the court were to decide that privilege was waived, that they only be required to turn over the summary document already provided to the court, and not the broad request for “all of the underlying documents” submitted by the government.
The Government Prevails—For Unknown Reasons
According to news reports, Judge Crone ordered that KBR turn over its report during the trial. It is unclear whether KBR was also ordered to disclose all of the underlying documents, or just the summary. The court did enter a one sentence order on the docket denying the government’s motion to compel documents, saying it was moot “per the court’s ruling in trial.”
The court did not issue a written order explaining its reasoning. KBR’s counsel was quoted as saying that disclosure was ordered “on grounds other than what the government argued.”
Note that there was a recent case in the D.C. Circuit protecting an internal investigation report by KBR into similar (or maybe the same) allegations. It’s received a lot of press, which has not mentioned the Texas court’s ruling. The D.C. Circuit concluded that the report was protected from disclosure by the attorney-client privilege. It also refused to find waiver of the privilege when an in-house lawyer reviewed documents related to the investigation to prepare for his deposition and when KBR referred to the investigation results in a motion for summary judgment.
(It’s not clear to me from the D.C. Circuit opinion whether it is the same report or a different one than at issue in this case–if anyone knows the answer, please let me know.)
Between a Rock and a Hard Place
A company facing FCA claims or criminal charges will naturally want to point to its “culture of compliance.” This may mean reference to an internal investigation process or the discipline of employees as a result of such an investigation.
But counsel, as always, must be careful to protect the privilege. As this case shows, even oblique, and possibly inadvertent, references to the investigation could lead to waiver of the privilege. You may open the door to the government’s review of your most confidential processes.
Regardless, on these facts, the Texas court got it wrong and has created potentially dangerous precedent for the government to aggressively seek discovery of internal investigation reports. KBR certainly did not intentionally open this door and its privilege should have been preserved.