A cringe-worthy order recently issued in a whistleblower case in the D.C. district court against Kellogg Brown & Root and related entities is worth reviewing. The plaintiff in this qui tam suit requested materials concerning internal audits and investigations into alleged “preferential treatment” and improper payments related to a contractor. Defendants withheld 89 documents based on attorney-client privilege and attorney-work product doctrine. Plaintiff moved to compel. The judge ruled that the documents, including internal memoranda from a KBR investigator to members of the general counsel’s office, were not privileged.
The district court first disposed of the assertion that the documents were privileged attorney-client communications. The court held that no privilege attached because the communications were not created to obtain or receive legal advice. Instead, the investigative memoranda were prepared “pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” The court found that KRB’s Code of Business Conduct (“COBC”) directed the investigation and reporting to occur, not a desire to obtain legal advice. The court also focused on broadly-worded government contracting regulations requiring contractors to have internal control systems to:
- “[f]acilitate timely discovery and disclosure of improper conduct in connection with Government contracts,”
- require a “written code of business ethics,” “internal controls for compliance,” and “[a] mechanism, such as a hotline, by which employees may report suspected instances of improper conduct,”
- mandate “[i]nternal and/or external audits,” and
- provide “[d]isciplinary action for improper conduct.”
The court determined that the COBC investigation policies “merely implement these regulatory requirements.” Distinguishing its facts from those in the touchstone case of Upjohn Co. v. United States, 449 U.S. 383 (1981), wherein an internal investigation occurred after the legal department conferred with outside counsel about the proposed investigation, the court found that the KBR internal investigation “was a routine corporate, and apparently ongoing, compliance investigation.” Another factor the court considered was that the employees who were interviewed were never told that the purpose of the interview was to assist in obtaining legal advice. Finally, the court noted that a non-attorney performed the interviews.
As for the work-product doctrine, the court again relied upon KRB’s own COBC, finding that the company “conducted this COBC internal investigation in the ordinary course of business irrespective of the prospect of litigation,” because “any responsible business organization would investigate allegations of fraud, waste, or abuse in its operations.” Thus, because they were not prepared in anticipation of litigation, the investigation materials were not privileged.
Step One: involve legal. Front-end planning may prevent a back-end catastrophe. Receipt of a specific, particularized directive—from legal—should commence significant internal investigations. No forms, please! Those instructions should explicitly state that they are being performed at the direction of and for the use of the legal department 1) in anticipation of litigation and 2) to assist with obtaining or receiving legal advice. If the investigation is intended to be privileged and constitute work-product, say it out loud, say it early and say it often.