A recent federal court decision raises concerns about the ability of companies to maintain privilege over materials generated in connection with internal investigations. The case, United States ex rel. Barko v. Halliburton Company et al., No. 1:05-CV-1276 (D.D.C. Mar. 6, 2014), involved allegations by a qui tam relator that his employer committed abuses in connection with government contracts for military support in Iraq. The relator sought to compel documents related to investigations into the same alleged misconduct performed by his employer pursuant to its Code of Business Conduct (COBC). The court ordered the company to produce the documents, reasoning they were not privileged because the investigators were not attorneys and the investigations were performed "pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice." Prior to its ruling, the court inspected the requested investigation reports and deemed them "eye-openers" that revealed direct and circumstantial evidence of wrongdoing, reported to the company's lawyers after an internal investigation.

The court described the company's COBC investigative process and then declined to extend the reach of the attorney-client privilege over the investigation reports and related documents. Under the company's established investigation protocol, when the company receives a tip of possible misconduct, its COBC Director, a non-lawyer, decides whether to investigate the matter and then directs non-attorney investigators to interview relevant personnel, review documents, obtain witness statements, and prepare a report, which is transmitted to the company's law department. The court reasoned the investigations were undertaken pursuant to government regulations requiring internal control systems such as the company's COBC program, as well as pursuant to corporate policy, rather than for the purpose of obtaining legal advice. Moreover, the court distinguished the COBC investigations from traditional Upjohn internal investigations conducted only after the company consults with outside counsel on how to proceed. In the investigation at issue – as in many internal investigations – the interviewed employees were never informed that the purpose of the interview was to assist the company in obtaining legal advice. The court believed the employees would not have inferred the legal nature of the inquiry because the interviewer was a non-attorney.

The court also refused to shelter the investigation documents from production under the work product doctrine, finding they were generated because "any responsible business organization would investigate allegations of fraud, waste, or abuse in its operations," irrespective of the prospect of litigation. The fact that the investigation was conducted by non-attorney investigators also made it more difficult for the company to assert the documents were prepared in anticipation of litigation.

The Barko lesson is simple: if the purpose of an investigation is to obtain legal advice on how to proceed based on facts uncovered, then you must involve lawyers in the direction of the investigation. Health care providers often conduct internal investigations of reported fraud, abuse and other wrongdoing, and they often do so pursuant to a mandated compliance plan. Because health care providers are subject to HHS regulations requiring internal control systems, this decision applies to health care as much as to any other regulated industry. To avoid compelled disclosure of investigative documents and findings, the safest course is to have outside counsel undertake the investigation, interview witnesses and prepare any reports and analysis, as actions by in-house counsel are susceptible to a determination that they were performed in the ordinary course of business or for other non-litigation purposes.

When costs or other circumstances make hiring outside counsel difficult, in-house internal investigations still should be overseen and directed by in-house counsel. If they are not, Barko teaches that the investigation, and the materials generated by it, may not be privileged. Providers should draft and adopt a "delegation memorandum," prepared by counsel and containing the framework and tasks to be accomplished for the purpose of providing legal advice to the client. At a minimum, a delegation memorandum should:

  1. Include a request that the relevant personnel conduct a confidential investigation at the direction of counsel;
  2. State the purpose of the investigation is to elicit pertinent facts and to report those facts to counsel who will provide legal advice to the company regarding compliance with applicable policies and laws and the potential for litigation; and,
  3. Remind the investigators to issue Upjohn warnings to current employees asked to provide substantive information.

Of course, the provider also should seek meaningful input from counsel – both because fraud and abuse concerns often result in legal action, and because providers often benefit from meaningfully informed legal advice.

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