KBR III: No Adverse Inference Arises from Privileged Internal Investigation

If a company successfully invokes the attorney–client privilege over its internal investigation, a question arises whether the company’s litigation adversary may nevertheless receive an adverse inference that the investigation’s results contained information harmful to the company.

In the long-running False Claims Act case involving Kellogg, Brown & Root (KBR), the USDC for the District of Columbia answered, emphatically, “No.”  United States v. Halliburton Co., 2017 WL 1018309 (D.D.C. Mar. 14, 2017).  You may read the decision here.

Internal Investigation Privileged—KBR I

KBR provided contract services to the U.S. Government during the Iraqi war.  A former KBR subcontract administrator brought claims under the False Claims Act against KBR and one of its subcontractors, Daoud & Partners.  The district court ruled that the attorney–client privilege did not cover KBR’s internal investigation.

But, in a thorough opinion, the D.C. Circuit reversed and held that the privilege covered KBR’s internal investigation.  See my post, Significant D.C. Circuit Decision for Attorney-Client Privilege and Internal Investigations, for a detailed look at the decision.

First Remand—KBR II

On remand, the D.C. District Court ruled that KBR waived the attorney–client privilege because its in-house lawyer reviewed internal-investigation documents in preparation for his deposition, and because KBR placed the internal investigation “at issue” by referencing the investigation in a footnote to its summary-judgment motion.

The D.C. Circuit once again reversed, finding no at-issue privilege waiver and no waiver under FRE 612.  See my post, D.C. Circuit (Again) Upholds Privilege for In-House Counsel’s Internal Investigation, for a detailed discussion of the opinion.

Second Remand: Adverse Inference?

On its second remand, KBR again moved for summary judgment.  In attempting to create a factual dispute whether KBR employees received kickbacks from Daoud & Partners, the relator argued that, because KBR refused to produce the investigation results (even though privileged), the court should apply an adverse inference that KBR’s internal investigation revealed bribes and kickbacks.

The court rejected the concept that an adverse inference can arise from successfully claiming privilege over an internal investigation.  Sure, in certain circumstances, one may draw an adverse inference from an individual’s invocation of the self-incrimination privilege in civil litigation, see, e.g., Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258 (CA9 2000), but not with the attorney–client privilege.

The court found that the policy concerns that “enshrine ‘the oldest of the privileges’—including encouraging frank and open discussion—could not allow for such results.”  In short, allowing an adverse inference would discourage persons from seeking legal opinions and lawyers from giving those opinions, and the court refused to adopt an adverse inference for successfully invoking the attorney–client privilege.