A recent district court ruling should serve as a warning to companies to structure internal compliance investigations so as to preserve the attorney-client privilege and work product protections. See U.S. ex rel. Barko v. Halliburton Co., 1:05-CV-1276 (D.D.C. Mar. 6, 2014). In Barko, the district court ordered a qui tam defendant to turn over certain documents, including internal investigation reports, which the court held were ordinary business records created to comply with federal regulations and corporate policy and not to obtain legal advice.
Harry Barko, a former employee of Defendant Halliburton’s former subsidiary KBR, filed the qui tam action under the False Claims Act alleging that KBR had subcontracted work to third parties who submitted inflated invoices for shoddy work, resulting in overcharges to the government. During discovery, Barko sought documents that KBR had prepared in the course of an internal investigation into the same alleged misconduct. After reviewing the documents in camera, the court rejected Halliburton’s contention that they were protected.
Central to the court’s reasoning was that KBR conducted the internal investigation pursuant to its Code of Business Conduct (“COBC”) procedures, an internal controls system required by Department of Defense contracting regulations. Under KBR’s COBC procedures, investigations were initiated by a dedicated COBC director and conducted by non-attorneys. Only once the investigation was complete did COBC transmit its written reports to the law department. Describing this process as a “routine” corporate compliance investigation, the court found that it would have occurred regardless of whether legal advice was sought.
The factors the Barko court considered in reaching this decision were specific to the facts of the case, but offer practical guidance for all companies seeking to preserve the privilege. Internal investigations should be initiated by in-house counsel, based on a legal assessment of the need. Counsel should be involved in designing the investigation, including setting its objectives and scope. Preferably, in-house or outside counsel should be used to gather and review evidence and conduct interviews. If non-attorneys are used, the company should document that this was done at the direction and under the supervision of counsel, and interviewees should always be made aware of the legal nature of the investigation. Finally, the company should explicitly label all documents it believes are subject to the attorney-client and work product protections.