United States: Federal District Court: Documents Created During An In-House Corporate Compliance Investigation Are Not Privileged

Robert K. "Bob" Tompkins and Kwamina Thomas Williford are Partners in our Washington-DC office. Timothy J. "Tim" Taylor is an Associate in our North Virginia office

HIGHLIGHTS:

  • In a noteworthy decision in Barko v. Hallilburton Co., a federal court has ruled that a company's internal investigations are not privileged and must be produced to a whistleblower.
  • In light of the ruling in Barko, government contractors and others in regulated industries should consider taking steps to improve their chances of successfully asserting the attorney-client privilege and carefully review their compliance programs.

A recent federal court decision makes a company's internal investigation documents fair game in litigation, particularly when federal regulations, such as the Federal Acquisition Regulation (FAR), require the company to maintain a compliance program and to investigate potential misconduct.

The case has direct applicability to federal contractors, but is potentially significant in other regulated industries as well. This alert summarizes the court's decision and identifies for companies several areas where further consideration of its impact is warranted.

The Barko Opinion

Corporations, like individuals, may claim the protections of the attorney-client privilege and the attorney work product doctrine. "Admittedly," however, as the U.S. Supreme Court wrote in a 1981 ruling, "complications in the application of the privilege arise when the client is a corporation."1 A decision issued on March 6, 2014 by the U.S. District Court for the District of Columbia, United States ex rel. Barko v. Halliburton Co.,2 has added to the complications faced by companies and their in-house counsel.

In Barko, Judge Gwin's succinct opinion held that documents, including witness interview notes, created by non-lawyer in-house investigators during an internal investigation, were not protected by the attorney-client privilege or the attorney work product doctrine. According to the court, the "investigations were undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice."3 Although the decision arose in the federal government contracting context, it poses new challenges for all organizations wishing to protect internal investigations from disclosure in litigation, particularly those that are required by law to maintain compliance programs.

Barko is a False Claims Act, qui tam (i.e., whistleblower) case. The opinion recently issued in the casestemmed from a privilege dispute over certain documents created by the case's defendants (collectively referred to by the court as Kellogg, Brown & Root (KBR) during internal investigations KBR instituted pursuant to its Code of Business Conduct (COBC). As described by the court, KBR had well-established procedures for investigating potential violations of the company's COBC.4 Tips received by the company were routed to the Director of the Code of Business Conduct. The Director would decide whether to open a COBC File to investigate further. If an investigation was opened, COBC investigators – who are not lawyers – would interview relevant personnel and review pertinent documents, and add their findings to the COBC File. The investigators would then prepare a COBC Report, which would then be transmitted to KBR's Law Department. The Barko plaintiff challenged KBR's claim of privilege over the COBC investigative materials, including the COBC Reports.

The court noted that the COBC Reports "are eye-openers" and then held that they were not protected by the attorney-client privilege.5 In contrast to communications made "for the purpose of securing primarily either an opinion on law or legal services or assistance in some legal proceeding,"6 "the COBC investigations were undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice."7 The court reasoned that the company was required to implement a corporate compliance program and investigate misconduct as a condition of participating in government contracting, so "the investigations would have been conducted regardless of whether legal advice were sought."8      

The Barko court then turned to KBR's claim of work product protection and held that it, too, did not apply. It found that the COBC investigations were spurred by government regulations requiring investigations of fraud and the company's business interests in identifying potential problems, as opposed to the prospect of litigation.9 The court drew support for its findings from the fact that the investigation preceded the unsealing of the plaintiffs' qui tam complaint by several years and was not conducted by attorneys.10

Assessing the Purpose of the Investigation

The court called attention to Department of Defense regulations11 that required contractors to maintain a compliance program, and found that KBR's COBC and investigation practices "merely implement these regulatory requirements."12 It also noted that interviewed employees were never told the purpose of the inquiry was to allow the company to obtain legal advice and that confidentiality agreements they were asked to sign never reference that the purpose of the investigation is to obtain legal advice. The court also concluded that employees would not be able to infer that the interviews were for the purpose of obtaining legal advice, as they were conducted by non-lawyers.

The language used by the court seems to place dispositive importance on the fact that KBR's internal investigation was required by law and corporate policy adopted to comply with those legal requirements. This reasoning will certainly be used by other litigants, especially qui tam relators, seeking internal investigation documents. The likely argument will be that wherever government regulation requires investigatory action, the attorney-client privilege does not apply. Read broadly, the court's holding could allow regulations, and not just those applicable to government contractors, to annex zones of communication that might otherwise be protected by the privilege.

Perhaps even more troubling is a finding necessarily implied by the court's reasoning: namely, that compliance activity taken pursuant to regulatory requirements, including investigations, is inherently not legal activity. The DFARS regulations noted by the court required such actions as the "timely discovery and disclosure of improper conduct," and "internal controls for compliance."13 Those DFARS provisions have now been subsumed in the broader FAR requirements mandating contractor ethics and compliance programs in both civilian and defense agencies.14 These new FAR requirements were enacted in late 2008, and make the compliance and investigative requirements for contractors even more explicit and robust. Stretched to its logical conclusion, the court's decision would appear to have even broader application under the current FAR provisions.

Missing from the court's analysis, however, is explicit recognition that the types of activity the regulations require contractors to address and investigate are by their nature potential violations of law, including violations of the False Claims Act or "possible contractor violation[s] of Federal criminal law."15 Determining whether a possible violation of law has occurred fundamentally involves undertaking legal analysis and making a legal judgment. Thus, in most cases, it would seem that such an investigation would by definition be for the purpose of obtaining legal advice, even if it was also instituted "to comply with government regulations."16 Read in this context, compliance and investigatory activities would seem to be protected by the attorney-client privilege and work product doctrine. After all, as the Supreme Court noted in Upjohn, "[i]n light of the vast and complicated array of regulatory legislation confronting the modern corporation, corporations, unlike most individuals, constantly go to lawyers to find out how to obey the law, particularly since compliance with the law in this area is hardly an instinctive matter."17

Implications for Companies

Barko underscores some of the basic principles that companies should follow to improve their chances of successively asserting the attorney-client privilege. The court noted the following in finding no privilege or protection:

  • that outside counsel was not consulted on whether and how to conduct the internal investigation18that the investigation was conducted by compliance staff rather than attorneys19
  • that employees were never informed that their interviews were being conducted pursuant to a company request for legal advice20
  • that employees' confidentiality agreements did not include language stating that their interviews were being conducted pursuant to a company request for legal advice (or were privileged, for that matter)21

As for the court's conclusions, their importance cannot be understated for organizations subject to mandatory compliance regulations. The court reasoned that the attorney-client privilege and work product protection does not apply to investigatory documents when the investigation was conducted pursuant to regulation and company policy, which company policy is itself likely influenced by regulatory requirements. In this instance, the regulations requiring investigation were those found in the DFARS,22 but the court's reasoning would seem to apply to any organization subject to a similar legal regime requiring investigation and reporting. These include the following:

  • organizations subject to the code of conduct and mandatory disclosure provisions of the Federal Acquisition Regulation23
  • organizations subject to the mandatory compliance program requirements of the Patient Protection and Affordable Care Act24
  • organizations subject to the Medicare Modernization Act's requirement to implement compliance programs to reduce the risk of fraud and abuse25
  • organizations subject to the Health Insurance Portability and Accountability Act's (HIPAA) requirement to have privacy and security procedures in place to protect access to confidential health information26
  • organizations subject to the Sarbanes-Oxley Act of 2002's requirement to establish compliance procedures to better promote the integrity of the company's internal accounting controls and financial reporting27
  • organizations subject to the Bank Secrecy Act's mandate to adopt programs to prevent the laundering and deposit of proceeds from illegal activities28

Even when not operating under a mandated compliance program, organizations investigating non-compliance based on their voluntary implementation of a compliance program should be aware of Barko's potential implications. Across many industries it is a recognized best practice to implement a corporate compliance program and promptly investigate potential non-compliance. Several enforcement agencies also encourage companies to implement effective compliance programs.29 Effective compliance programs have been known to help shield a company from prosecution.30 Moreover, the U.S. Sentencing Commission Guidelines instruct that an effective compliance program is a mitigating factor when assessing a company's culpability.31

Ultimately, having a compliance program and policies in place to effectively investigate non-compliance is not only a best business practice, but also a means to promote compliance with the law and to protect the company's legal interest. However, in light of this opinion, litigants and qui tam relators in particular seeking internal investigation documents have a basis to assert that these proactive steps to promote compliance are routine business practices and should viewed as a basis to limit the protection of the attorney-client privilege.

Protecting the Attorney-Client Privilege Post-Barko

Barko suggests that prudent organizations should undertake a careful review of their compliance programs. Fortunately, by pointing out the shortcomings in KBR's policies and practices (at least as perceived by the court), the decision illuminates a pathway for protecting the corporate attorney-client privilege in internal investigations. To improve the odds of protecting the privilege, a company should review its compliance policies related to investigations and consider addressing the factors identified by the court before embarking on an investigation. At a minimum, such a review should include the following:

  • updating compliance policies and associated documents to reference explicitly that certain investigations are undertaken by the company for the purpose of obtaining legal advice
  • for reported potential misconduct that could result in legal liability for the company, consulting outside counsel from the outset to determine whether an investigation is needed
  • having attorneys – whether outside or in-house counsel – conduct the actual work of the investigation, or at the very least making clear that the investigation is being led by and conducted at the direction of counsel
  • conducting the investigation with all of the trappings of privilege: hold notices, Upjohn warnings prior to interviews, and appropriate protective legends on documents, communications and employee confidentiality agreements
  • preparing and memorializing the rationale for the investigation to demonstrate that the primary purpose of an investigation is to provide legal advice, rather than to meet business needs or regulatory requirements (this rationale might take the form of a carefully prepared, contemporaneous explanation that the investigation is being conducted for the purpose of obtaining legal advice on whether a violation has occurred); such an explanation could also explain the specific threats and general risks of litigation that are anticipated in light of the facts potentially at issue in the investigation

Conclusion

Barko represents a significant development in the law that may disrupt many organization's assumptions about the status of their compliance efforts. Organizations that have shifted substantial portions of their investigative efforts outside their legal departments, especially those that rely on non-law firm outsourced consultants to investigate non-compliance, should pay special attention to this development. Prudent organizations should undertake a careful review of their compliance programs, including incident investigations, in light of this new opinion.

Footnotes

1 Upjohn Co. v. United States, 449 U.S. 383, 390 (1981).

2 No. 1:05-CV-1276 (D.D.C. slip op. issued March 6, 2014) [hereinafter "Barko, slip op."].

3 Id. at 5.

4 Id. at 3–4.

5 Id. at 2, 5.

6 Id. at 5 (internal numerals omitted) (quoting United States v. ISS Marine Servs., Inc., 905 F. Supp. 2d 121, 127 (D.D.C. 2012) (internal citation omitted)).

7 Id.

8 Id. at 6.

9 Id. at 7–8.

10 See id. at 8 ("[T]he fact that the investigation was conducted by non-attorney investigators makes it harder for KBR to assert the documents were prepared in anticipation of litigation. Although documents produced by non-attorneys can be protected under the work-product doctrine, the fact that non-attorneys are conducting the investigation is another indication that the documents were not prepared in anticipation of litigation." (citing ISS Marine, 905 F. Supp. 2d at 138)).

11 The underlying activity took place between 2004 and 2006 and KBR's contracts were subject to then-active provisions of the Defense Federal Acquisition Regulation Supplement (DFARS) requiring DOD contractors to adopt compliance programs. See 48 C.F.R. 203.7000, et seq. (2001 edition).Those DFARS provisions were superseded by the changes to the FAR that became final in late 2008 mandating a Contractor Code of Business Ethics and Conduct for all FAR-covered agencies, and including "Mandatory Disclosure" provisions. See 48 C.F.R. Subpart 3.10; see also 48 C.F.R. § 52.203-13.

12 Barko,slip op. at 6.

13 Id. at 5–6 (citing 48 C.F.R. § 203.7000-.7001(a) (Oct. 1, 2011 ed.).

14 48 C.F.R. Subpart 3.10

15 48 C.F.R. § 3.1003(b).

16 Id. at 6.

17 Upjohn, 449 U.S. at 392 (internal quotation marks and citation omitted).

18 Barko, slip op. at 6 (citing Upjohn, 449 U.S. at 386-87).

19 Id. at 7, 8.

20 Id. at 6.

21 Id.

22 See id. at 5–6, 8.

23 See 48 C.F.R. § 52.203-13.  As noted above, these provisions replaced the DFARS requirements cited by the Barko Court.

24 See Pub. L. No. 111-148 (2010), § 6401(a)(3), codified at 42 U.S.C. § 1395cc(j)(7) (Medicare); id. § 6401(b)(1)(B), codified at 42 U.S.C. § 1396a(kk)(5) (Medicaid).

25 See 42 C.F.R. § 423.504(a)(vi) (stating that Medicare Part D Plan sponsors must "adopt and implement an effective compliance program,"  and at a minimum this "must include a description of how potential compliance issues are investigated and resolved by the . . . sponsors."). 

26 See HIPAA, Pub. L. No. 104-191, 110 Stat. 1936 (Aug. 21, 1996); 45 C.F.R. §§164.316(a), 164.530. 

27 See Sarbanes Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745.

28 See 12 U.S.C. §§ 1818(s), 1829(b), 1951–1959; 31 U.S.C. §§ 5311–5330; 12 C.F.R. §21.21.

29 For example, the Office of Inspector General for the Department of Health and Human Services has issued guidance for pharmaceutical manufacturers to develop policies and procedures to investigate identified instances of non-compliance. See 68 Fed. Reg. 23731 (May 5, 2003).

30 See Press Release No. 2013-65, SEC, SEC Announces Non-Prosecution Agreement with Ralph Lauren Corporation Involving FCPA Misconduct (Apr. 22, 1013), http://tinyurl.com/ls2eldp (noting the agreement to a Non-Prosecution Agreement was based on the company's "level of self-policing along with its self-reporting and cooperation . . . ."); see also Erica Teichert, Good FCPA Compliance Plans Can Halt Prosecutions: DOJ, Law 360 (Feb. 13, 2013), http://tinyurl.com/q3en36h.

31 See U.S. Sentencing Guidelines Manual, § B2.1(a) (acknowledging that one of  the fundamental elements of an effective compliance program is the prevention of criminal conduct).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions