David M. Nadler, David Yang, and Christian N. Curran
Recently, the U.S. District Court for the District of Columbia ruled that a company’s work product created during an internal mandatory disclosure investigation was not protected by the attorney-client privilege or attorney work-product doctrines. During discovery in United States ex. rel. Barko v. Halliburton Co. et al., KBR sought to withhold internal investigation reports relating to alleged fraudulent activities during its performance of the Logistics Civil Augmentation Program (LOGCAP III) contract in Iraq. The ruling casts doubt on whether documents created pursuant to internal investigations are protected by the attorney-client privilege or work-product doctrines and could significantly impact how companies conduct internal investigations, including their mandatory disclosure practices.
The Barko Case
The relator filed his case against KBR under the False Claims Act (FCA) in 2005, alleging that KBR had overcharged the government in a variety of ways under KBR’s LOGCAP III contract. During discovery, the relator requested that KBR produce documents relating to internal audits and investigations of alleged misconduct that was reported by KBR employees under LOGCAP III. KBR asserted that the material was protected by the attorney-client privilege and work-product doctrine. After the relator moved to compel, the court conducted an in camera review of the documents.
In a March 6, 2014 ruling, the court ordered KBR to produce the contested documents, finding that they were created for the business purpose of complying with the mandatory disclosure regulatory scheme. The court held that because of the lack of attorney involvement in the investigation, and the fact that non-attorneys conducted the interviews and prepared the investigative reports, there was no evidence that the documents were created to obtain or provide legal advice to the company or were prepared in anticipation of litigation. In a subsequent decision, the court also noted that KBR may have waived its privilege and work-product claims by placing the documents at issue when it relied on the documents during summary judgment. The district court’s decision, which has been appealed to the D.C. Circuit, has been stayed pending appellate review.
The Impact of Barko
The district court’s view that internal, corporate investigations may not be privileged poses wide reaching ramifications for contractors. Most notably, is the potential chilling effect that the decision could have on contractors’ willingness to conduct investigations or not to document their findings and conclusions. Neither outcome furthers the purpose of the mandatory disclosure regime under the Federal Acquisition Regulation (FAR), which is to encourage timely disclosures and transparency with the government. Indeed, such a position appears to be inconsistent with the protections afforded under the FAR, which provide that contractors need not waive privilege when complying with the mandatory disclosure rules. See FAR 52.203-13. In addition, the district court’s decision indicates that courts may more frequently begin to scrutinize asserted privilege claims over corporate investigations, including who, what, when, why, and how the matter was investigated, rather than accept representations from companies that the materials are protected. Under such a review, it is questionable whether a general assertion that the matter was investigated under the auspices of counsel would be sufficient if the investigation was not actually conducted by counsel. Finally, although the materials in this case related to a mandatory disclosure assessment, the court’s holding could apply beyond mandatory disclosures, as its reasoning potentially extends to any type of corporate investigation.
Considerations for Contractors in the Wake of Barko
The effects of Barko may be limited to its facts, where KBR attempted to use the documents offensively, in support of its motion for summary judgment, to assert that no wrongdoing occurred and where non-attorneys conducted and generated the investigation materials. Presumably, had KBR refrained from placing the documents at issue and conducted the investigation through counsel, the court may have found the materials to be protected from discovery. Nevertheless, Barko raises important considerations and best practices for contractors.
- When conducting internal investigations, contractors should ensure that counsel are actively participating in the review, and not just generally supervising or overseeing the matter. The more hands-on efforts by attorneys a company can show, the better chances are that any investigation materials will be protected by the attorney-client privilege and work-product doctrine.
- Contractors should also revisit their procedures surrounding the handling of corporate investigations, including mandatory disclosure reviews, to confirm that the investigations are for purposes of seeking or providing legal advice to the company, and not simply for making business decisions regarding the regulatory requirements alone. Counsel should ensure that all investigatory documents are drafted with this purpose in mind and clearly indicate that they are being drafted to provide legal advice and/or in anticipation of litigation, with the appropriate legends. Additionally, counsel should be involved in all communications relating to the investigation.
- Contractors should ensure that counsel takes the lead on the investigation. Counsel should evaluate the evidence and draft any investigation findings, analyses, or reports. Further, where appropriate, contractors should evaluate using outside counsel to conduct the investigation, which will demonstrate that the investigation is being undertaken to provide legal advice and, thus, privileged. To the extent that non-attorneys participate in the process, any reports should be marked as drafts and reflect that they are providing the information at the request of counsel. Counsel should evaluate and finalize any such materials.
- During an investigation, counsel should take all interviews or at least attend them if that is not possible. Counsel should ensure that witnesses are given Upjohn instructions that inform them that the interview and investigation are being conducted for the purpose of providing legal advice to the company. Such procedures should provide further evidence that the investigation is privileged.
- Finally, given the ruling in Barko, contractors should review their policies regarding all internal investigations, including mandatory disclosures, to ensure that they are current and that the company will be sufficiently protected in the event protected documents are ordered to be produced. While Barko dealt with a qui tam action under the FCA, the foregoing considerations equally apply to any disclosure scenario, including responses to IG subpoenas and FOIA requests.