Government contractors typically maintain ethics compliance programs, which are mandated by the Federal Acquisition Regulation and are part of the industry’s best practices. Central to these programs are internal investigations to detect and determine the extent of unlawful conduct, to include fraud relative to a government contract, which may, if appropriate, require timely disclosure of improper conduct.
Strict confidentiality is essential to any effective internal investigation, to include all interview notes, witness statements, investigation reports and other communications between a contractor and its legal counsel. Generally speaking, the attorney-client privilege — protecting an attorney’s communications providing legal advice to its client — and the attorney-work product doctrine, which protects attorney-generated documents prepared in anticipation of litigation, will allow a contractor to keep such documents confidential.
However, in March a federal judge found that because a contractor’s internal investigation was led by in-house counsel and involved the use of non-lawyer personnel to conduct interviews, the attorney-client privilege did not apply. The good news is that in June a U.S. Court of Appeals completely rejected that judge’s conclusion, thereby preserving the privilege.
The trial and appellate decisions illustrate the importance of conducting internal investigations and taking the correct steps to protect communications between attorney and client from disclosure.
By way of background, in U.S. ex rel. Barko v. Halliburton, Case No. 1:05-CV-1276 (March 6, 2014), the federal district court for the District of Columbia ordered Kellogg Brown & Root to produce whistleblower plaintiff documents that the company generated during its internal investigations of the alleged fraudulent activity complained of by the whistleblower, ruling that these materials were not protected under either the attorney-client privilege or attorney-work product doctrine.
The court explained that KBR’s investigations, although following its code of business conduct’s procedures, “were undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” Thus the attorney-client privilege did not apply. The court also viewed the investigation reports as generated in the ordinary course of business rather than for anticipated litigation, thereby rendering the work product doctrine also inapplicable. Critical to this conclusion was that some investigation reports were generated by KBR’s non-attorney ethics “director,” although the investigation still fell under the auspices and at the direction of the firm’s in-house legal department.
The court also was swayed by the fact that no one told the employees interviewed that the investigation was being conducted in order to provide legal advice to the company.
The Court of Appeals flatly rejected these findings as valid bases to deny these privileges, holding that: In-house counsel is no less empowered than outside counsel to maintain the attorney-client and attorney-work product privileges; non-attorney investigators do not undermine the privilege so long as they act under the direction and supervision of attorneys; and employees interviewed need not be specifically informed that their interviews are subject to the attorney-client privilege, so long as they are informed that the investigation is confidential.
Most importantly, the Court of Appeals found the fact that KBR was required by law to maintain a compliance program and conduct internal investigations into potential wrongdoing did not eliminate the privilege so long as obtaining legal advice was at least one of the purposes for conducting the investigation.
Thus the appeals court flatly rejected the lower court’s reasoning, yet this case still raises the specter that the sacred privilege protecting attorney communications to a client and attorney work product as to internal ethics investigations can still be lost if incorrectly applied.
Contractors should never be confronted with forced disclosure simply because of inadequate procedures, either by the attorney or by the client. Absent this protection, government contractors and their counsel may seriously undermine the value and effectiveness of internal investigations, among other ways, by refraining from robust and candid questioning and disclosure.
Preserving the privilege assures that the investigation is full, thorough and objective. Limiting the privilege as the Barko trial court did here could also hinder the company’s efforts to create a “tone at the top” culture of compliance. The case also provides a backdrop for the following guidance for preserving the attorney-client privilege and work product doctrines in internal investigations. First, government contractors should develop detailed policies governing internal investigations and potential disclosures of wrongdoing under the Federal Acquisition Regulation mandatory disclosure requirement. Boilerplate codes of ethics often overlook these basic procedures. To qualify, all such internal investigations should always be conducted under the direction and supervision of inside or outside legal counsel, and expressly initiated for the purpose of obtaining information to provide legal advice to the company, among other important features.
Second, despite the ongoing debate on who should be responsible for ethics compliance — lawyer or non-lawyer — at the very least no investigation should be conducted without first obtaining the advice of legal counsel. This may sound like a lawyer’s commercial, but the fact is that the privilege does not exist without counsel involvement at the appropriate level of the process, and investigations conducted and directed solely by non-attorneys simply will not preserve the privilege.
Finally, any documents generated during an investigation should include appropriate protective legends reflecting that they are privileged to cover the attorney-client privilege and created in anticipation of litigation to cover the attorney-work product doctrine.
James C. Fontana is managing member of Dempsey Fontana PLLC. See www.deftlaw.com.