The Perils of Privilege: Lessons

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The Perils of Privilege: Lessons

Lessons  from a False Claims Act Trial.


The United States and Kellogg Brown & Root, Inc. (“KBR”), have been engaged in a long running case in which the government alleges that KBR subcontractor Eagle Global Logistics bribed KBR’s Robert Bennett for better subcontract terms under KBR’s massive Logistics Civil Augmentation Program III contract, which cost the government $38 billion on over 10 years.  While the illegality of kickbacks is often thought of in connection with government health care programs, there is a similar federal law banning kickbacks in government procurement program (such as defense contracting).  KBR employee Bennett has already pleaded guilty to violating this Anti-Kickback Act, 41 U.S.C. §§ 51-58, now codified at 41 U.S.C. §§ 8701-07, and the United States argues that the alleged violations should be imputed to KBR.


Like many companies faced with reports or allegations of misconduct in the company or by an employee, KBR conducted an internal investigation (which led to Bennett being fired).  Companies typically use lawyers to conduct such investigations and seek to cloak such investigations and the resulting reports with the cloth of privilege (including attorney work product and attorney-client). If successful, privilege then shields the report from future discovery by another party, such as the government, who might seek to use the report as evidence of liability, knowledge of the crime, cover up, etc. Indeed, as we have written before, some of the most incriminating evidence may be found in such materials.


KBR had apparently successfully protected its report from falling into the hands of government prosecutors for years.  Then late last week, near the close of the trial, the presiding federal judge handed the United States a major victory when she ordered KBR to hand over its internal investigation report on the alleged kickbacks on the grounds it had waived attorney-client privilege of the document.  The government had requested such relief after a KBR witness under questioning by KBR counsel invoked the report during testimony; they did so to try to defend the company by showing that it had fired the perpetrator. However, it is often said that the attorney-client privilege acts as a sword and a shield; in this case, by trying to use the report as a shield, KBR handed the government a sword to cut through the company’s defenses. The judge reportedly ruled that protection for the report had been waived nine years before when one KBR employee transmitted it to another. While this was different reasoning than that argued by the government, it led to the same result: a finding that KBR waived the privilege and the report has lost its protection and must be turned over to the government.


The trial has now concluded, with the parties’ post-trial briefings due by Aug. 14, 2015, at which point the judge will take the case under advisement and ultimately render a decision and a judgment. It will be interesting to see how damaging the internal investigation report turns out to be to the company.


The case is U.S. v. KBR Inc., case number 1:04-cv-00042, in U.S. District Court for the Eastern District of Texas.