On March 6, 2014, the District Court for the District of Columbia issued an opinion in United States ex rel. Barko v. Halliburton Company et al. requiring Kellogg, Brown & Root Engineering Corporation (“KBR”) to produce documents originally withheld on the basis of attorney-client privilege and the work product doctrine. The Court found that the documents, which related to internal investigations of possible violations of KBR’s code of conduct, were ordinary business records created to satisfy regulatory requirements and were not created for purposes of obtaining or receiving legal advice. The Court’s decision was based on the fact that KBR’s internal investigation was required under the Federal Acquisition Regulation and internal KBR policy, and that the investigation was conducted by non-lawyers. The Court’s holding raises significant questions about existing corporate compliance and investigation programs in regulated industries, including healthcare.
In Barko, the plaintiff brought a qui tam complaint alleging that KBR employees subcontracted to certain third parties who inflated invoices for substandard work, resulting in overcharges to the government. Barko sought, in the course of discovery, documentation from the internal review performed by KBR’s Office of Business Conduct into these allegations. After an in camera review of the documents at issue, the Court determined that the documents were not protected.
The Court reasoned that the attorney-client privilege did not apply, because the internal review was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” The internal review, including interviews of witnesses, was performed by non-lawyers, and only at the end of the investigation was the report sent to the legal department. The Court found that the internal investigation was performed without consultation with outside counsel as to “whether and how to conduct an internal investigation” and therefore the investigation would have been conducted “regardless of whether legal advice [was] sought.”
The Court also held that the documents were not protected by the work product doctrine. Applying the “because of test” asking “whether . . . the document can fairly be said to have been prepared or obtained because of the prospect of litigation,” the Court determined that the investigation would have been conducted in the ordinary course of business and not “because of” anticipated litigation. The Court stated that KBR would have investigated because any “responsible business organization would investigate” the allegations at issue, and KBR was required to do so by government regulations.
KBR filed a motion asking the Court to certify the issue for interlocutory appeal and for a stay of the March 6 Order pending appellate review. After noting that KBR’s “fear of producing the documents is understandable” (in particular, because statements in the documents directly contradicted statements in KBR’s motion for summary judgment), the Court denied KBR’s motion on March 11, 2014. Considering whether the attorney-client privilege and work product doctrine apply to documents created as part of an internal compliance investigation, the Court, citing Upjohn Co. v. United States, noted that “the outcome of any particular circumstances must be determined on a ‘case-by-case basis’ and depends on the particular circumstances of the case.” The Court reiterated that “[n]othing suggests the reports were prepared to obtain legal advice. Instead, the reports were prepared to try to comply with KBR’s obligations to report improper conduct to the Department of Defense.”
The Court’s reliance on KBR’s reporting obligations throws into question whether internal reviews performed by organizations with reporting obligations to the government are protected.
In light of this possibly far-reaching decision, organizations should review their internal policies and procedures with a focus on: (1) how allegations are raised and reviewed internally; (2) how internal investigations are managed and performed; and (3) how both in-house and outside counsel participate in investigations, particularly for those investigations that are intended to be legally privileged.
Click here to access the March 6, 2014 Order denying interlocutory appeal.
For additional information on preserving attorney-client privilege in internal investigations following this decision, see our post here.