The recent decision in United States ex rel. Barko v. Halliburton Co., has attracted significant attention throughout the government contracting community, instilling concern that information and opinions generated during confidential internal investigations undertaken for the purpose of enabling company counsel to advise their clients regarding their obligations under legal, contractual and internal disclosure commitments and to prepare for associated litigation may no longer be afforded the protections of the attorney-client privilege or attorney work product doctrine. Indeed, the government contracts bar, legal commentators and academics alike have responded swiftly to Barko, condemning it as wrongly decided and warning of its potentially grave impact on company counsel’s ability to conduct comprehensive internal investigations without fear of having to disclose privileged materials to civil plaintiffs or others. The US Chamber of Commerce, National Association of Manufacturers, and other industry groups have come in as amici to support the writ of mandamus Kellogg, Brown & Root (KBR), one of the defendants in Barko, has filed with the DC Circuit.
Although the DC Circuit recently heard oral argument on KBR’s writ of mandamus, and its decision should issue soon, the decision will likely not mark the end of the story, either in the District of Columbia or in other jurisdictions. It is therefore important that the implications of Barko be understood by US Government contractors. Indeed, the potential implications of Barko are not limited to the government contracting world. They extend to any other regulated industry whose participants are subject to legal or contractual disclosure obligations or incentives, including pharmaceutical companies and other health care providers, financial services firms and registered broker-dealers, and the banking industry, among others.
- Case Background
Harry Barko, a former KBR employee, filed a qui tam lawsuit against his former employer, alleging a wide range of improper activities, including kickbacks, relating to US Government contracts performed in Iraq. During the course of discovery, Barko requested KBR’s undisclosed internal investigation reports and associated files relating to the alleged misconduct.
KBR refused to provide the documents, arguing that they were covered by the attorney- client privilege and work product protections. KBR explained in its briefing that it, like numerous other American companies, has for many years conducted privileged internal investigations into circumstances that potentially present legal risks to the company. In addition, it has established a Code of Business Conduct (COBC) for its employees, and a process for dealing with information, or “tips,” suggesting that the COBC has been violated. Those tips, including the ones at issue in this matter, were routed to KBR’s “Director of the Code of Business Conduct,” who was himself an attorney, although apparently not a member of KBR’s legal department. This COBC Director assigned tips out for investigation; the investigation in this case was, according to KBR, managed by another attorney. Here, the hands-on investigators were not themselves attorneys, but, according to KBR, those investigators communicated with and were directed by the managing attorney. Through the course of the investigation, the investigators interviewed a number of witnesses. However, the investigators did not inform the interviewees that they were gathering facts to enable company counsel to provide legal advice to the company; the confidentiality statement presented to interviewees also did not mention that the investigation had this purpose (though it did note that the general counsel had to approve any further communications on the topic). Additionally, the final reports at issue were labeled privileged and confidential, and they have not resulted in any disclosures to the Department of Defense (although other similar internal investigations have led to such disclosures by KBR).
The Court, Judge James S. Gwin of the Southern District of Ohio sitting by designation, took a skeptical view of KBR’s contention that its investigation reports and associated files were protected from discovery. In determining whether the investigation was protected by the attorney-client privilege, the Court, citing prior district court precedent, applied a “but for” test to determine whether the “primary purpose” of the investigation was to obtain legal advice. In doing so, the Court found that the COBC investigation at issue was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” The regulatory law the Court cited was a former Defense FAR Supplement (DFARS) provision requiring that companies have internal control systems like KBR’s COBC. It further found that the provisions of the COBC pursuant to which KBR conducted its investigation were aimed at implementing that DFARS requirement. The Court concluded that the “but for” test was not satisfied because the investigations “resulted from the Defendants [sic] need to comply with government regulations” and therefore “would have been conducted regardless of whether legal advice were [sic] sought.”
The Court’s view of the privilege issue was also affected by certain KBR procedures that the Court determined to be inconsistent with a privileged undertaking. In particular, the Court noted that the investigators did not inform interviewees that their interviews were for the purpose of assisting counsel in providing legal advice and similarly that the confidentiality statements they provided to the interviewees did not mention a purpose of legal advice. Under these circumstances, and given that the interviewers were not lawyers, the interviewees would not have been able to infer that the review was legal in nature. The Court noted that these circumstances differed from those in Upjohn Co. v. United States, 449 U.S. 383 (1981), in that “the Upjohn internal investigation was conducted only after attorneys from the legal department conferred with outside counsel on whether and how to conduct an internal investigation.”
The Court rejected KBR’s work product argument for similar reasons. The Court applied a “because of” test to determine whether the documents were prepared in anticipation of litigation. The Court repeated its findings that the investigation was part of the “ordinary course of business” and required by the DFARS, and that the investigation was conducted by non-attorneys. The Court also noted that the investigation had been concluded three years before the Barko complaint was unsealed, implying that it could not have been conducted “in anticipation of litigation.”
KBR filed a writ of mandamus with the DC Circuit to vacate the district court’s decision. The appeals court requested additional briefing from the parties, and stayed the order pending its review. A number of entities, including the US Chamber of Commerce, filed an amicus brief in support of KBR’s position, and on May 7, 2014, the court heard oral argument on the writ.
It has long been the practice of responsible American companies to give careful attention to circumstances that present legal risks or suggest unlawful behavior by their employees. Determining what to do about such legal risks and unlawful behavior manifestly presents issues of law, and these companies have therefore traditionally sought legal advice from inside and/or outside counsel to inform their decisions about how to deal with these circumstances. When lawyers are consulted about these issues, they generally need to ascertain the relevant facts as a prerequisite to providing competent legal advice (unless an emergency precludes fact-finding). Such fact-finding is generally accomplished through an internal investigation or other, less formal collection of relevant evidence. All of these fundamental facts are obvious and should be beyond dispute.
Barko, however, reflects a lack of appreciation for these fundamental facts, attributable at least in part to the recent spate of disclosure obligations and commitments that have been superimposed on many American companies’ pre-existing practices for addressing legal risks. The Barko Court concluded that KBR’s investigative effort was not primarily motivated by KBR’s need for legal advice, but rather by a relatively recent DFARS provision that supposedly compelled KBR to undertake an investigation so as to compile the contents of its obligatory disclosure. There are two profound analytical flaws in the Court’s approach: (1) the DFARS did not require an investigation; and (2) DFARS compliance itself was a matter on which KBR clearly needed legal advice.
No Investigation Required. The relevant DFARS provision simply contained no statement that a defense contractor must always engage in an investigation before making a disclosure. Rather, it stated that defense contractors should engage in “[p]eriodic reviews of company business practices, procedures, policies, and internal controls for compliance with standards of conduct and the special requirements of Government contracting” and “[t]imely reporting to appropriate Government officials of any suspected or possible violation of law in connection with Government contracts or any other irregularities in connection with such contracts.” Likewise, the superseding FAR amendments contained no blanket statement that investigations must precede disclosures. Indeed, the regulatory history of those FAR amendments (which reflected extensive input from the Department of Defense, the General Services Administration (GSA), NASA and DOJ), stated unequivocally: “The Government does not direct companies to investigate.” This was in part because the regulators themselves recognized that most US Government contractors were already engaging in internal investigations as a matter of normal business practice. Additionally, the regulators were eager to avoid being seen as “deputiz[ing]” U.S Government contractors or “plac[ing them] in the role of law enforcement officers.” It is also significant that the FAR amendments themselves expressly and deliberately stated that they do not require contractors “to waive [their] attorney-client privilege or the protections afforded by the attorney work product doctrine.”
Legal Advice Needed To Comply With Disclosure Regulation. As previously mentioned, the DFARS required disclosure of “any suspected or possible violation of law in connection with Government contracts or any other irregularities in connection with such contracts.” In the overwhelming majority of cases, information coming to the attention of a contractor does not bear a label saying “I am a suspected or possible violation of law in connection with Government contracts.” Determining whether it is or is not involves not only fact-gathering but also the application of law to facts - in other words, legal analysis. Few (if any) corporate executives would have the fortitude (or naiveté) to make a disclosure of “a suspected or possible violation of law in connection with Government contracts” without obtaining legal advice about whether it was indeed a suspected or possible violation, what legal risks might result from making a disclosure, and what legal risks might result from not making a disclosure. It would be Kafkaesque to require contractors’ executives to make these disclosure decisions without the benefit of competent legal advice, or to require their lawyers to perform the necessary legal analysis without the protections of the attorney-client privilege and work product doctrine, merely because the end result might be an obligatory disclosure to the Government.
Thus, internal investigations like the one in Barko have several important purposes that extend well beyond merely compiling the contents of disclosures. They serve the traditional corporate purpose of enabling counsel to provide legal advice that helps management decide what to do about legal risks and unlawful employee behavior, as well as the more recently engrafted purpose of enabling counsel to provide legal advice that helps management decide whether and how to make disclosures in connection with various disclosure obligations and commitments. Determining that the content-compiling purpose is the primary one is equivalent to determining that the tail is wagging the dog.
- Best Practices
Although the fate of Barko is still uncertain, three other district courts have also recognized the same or similar version of the “but for” test applied by Judge Gwin, and no circuit court has yet rejected it. Companies will therefore continue to be at some risk of having to disclose the confidential fruits of their internal investigations. Accordingly, government contractors and their counsel should ensure that the manner in which they conduct investigations maximizes their ability to marshal clear and convincing evidence that their primary purpose was to gather facts to enable counsel to provide legal advice and prepare for litigation. Important considerations include:
- Companies should assemble and preserve historical evidence, predating recent disclosure obligations and commitments, of their practice of obtaining legal advice predicated on confidential fact-gathering when confronted with circumstances that present legal risks or suggest unlawful behavior by their employees.
- Companies should include in their written policies and procedures a detailed protocol for conducting internal investigations that requires the involvement of inside and/or outside lawyers whose responsibilities also include providing legal advice.
- Before initiating an internal investigation, companies and their counsel should document the company’s request for legal advice, why the investigation will assist counsel in providing that legal advice, and any litigation that is anticipated as a result of the circumstances triggering the investigation. Employees should be formally requested to cooperate with counsel during the investigation.
- Companies should ensure that all documentation regarding an internal investigation reflects that the investigation is being conducted at the express direction of the legal department, and for the express purpose of enabling counsel to provide legal advice.
- Counsel should play a principal role in the actual investigative steps:
- All internal investigations should be overseen by company lawyers, preferably by either outside counsel or at a minimum inside lawyers whose functions do not substantially involve managing business operations (as opposed to providing legal advice). Indeed, one of the grounds on which Judge Gwin distinguished the KBR investigation from the investigation in Upjohn was the fact that the internal investigation in Upjohn “was conducted only after attorneys from the legal department conferred with outside counsel on whether and how to conduct an internal investigation.”
- Although in a perfect world, all witness interviews would be conducted by lawyers, US government contractors do not live in a perfect world, and whether for cost-related, logistical or other reasons, must often rely upon non-lawyers to conduct certain aspects of an internal investigation, particularly those aspects that occur in various remote contingency operations environments. To the extent that non-lawyers conduct witness interviews during internal investigations, companies should ensure that they do so at the express (and documented) direction of the company’s lawyers, that the non-lawyer interviewers are qualified and experienced enough to conduct and memorialize the interviews in a manner that makes clear that the interviews are for the purpose of obtaining legal advice, and that the non-lawyers’ work product is delivered directly to the company’s legal department.
- Interviewers should begin all interviews by informing the interviewee that:
- the interview is being conducted in order to gather facts that will help company counsel provide legal advice to the company;
- the interviewer is counsel for the company (or is working for counsel for the company);
- the interview is confidential and protected by the company’s attorney-client privilege;
- the company requests that he/she preserve that confidentiality and refrain from discussing the interview with anyone else (provided that such a request is justified under Banner Health System d/b/a Banner Estrella Medical Center and James A. Navarro, 358 NLRB No. 93 (July 30, 2012)); and
- the privilege belongs to the company, which may in the future decide to waive the privilege and disclose information learned during the interview to the US Government or other third parties.
By undertaking these measures, all companies can increase the likelihood that their privileged communications and work product generated during the course of internal investigations will remain protected.