Internal investigations and the effect of Barko
July 2014 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION
When does privilege protect internal investigations? Although companies were previously confident that the attorney-client and work-product privileges insulated investigative work from discovery, this confidence may now be in question.
On 6 March 2014, the District Court for the District of Columbia ordered Kellogg, Brown and Root (KBR) to produce documents related to an internal investigation directed by KBR’s internal law department (but performed by non-attorney investigators). The court rejected KBR’s claim of attorney-client and work-product privilege over the materials. U.S. ex rel. Barko v. Halliburton Co. et al., No. 1:05-cv-1276, 2014 WL 1016784, at *4 (D.D.C. Mar. 6, 2014). Having investigated under the direction of in-house counsel, KBR sought to protect the investigative materials by asserting privilege. But the court ordered KBR to produce the internal-investigation documents, reasoning that the KBR investigators were not attorneys and that KBR undertook the investigations “pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice”. Id. at *3. Thus, internal investigations conducted without outside counsel risk losing protections of the attorney-client or work-product privileges.
The Barko decision underscores the need to consider active involvement of legal counsel to preserve the privileged nature of internal investigations.
The Barko decision
Henry Barko brought a False Claims Act (FCA) lawsuit against Halliburton and its former subsidiary KBR in 2005, alleging that a KBR subcontractor performed substandard work and inflated construction costs, which it passed along to the government. Separately, KBR investigated the contract misconduct internally pursuant to its Code of Business Conduct (COBC), which KBR instituted and administered through its internal legal department.
When the internal investigation commenced, non-attorney investigators interviewed witnesses, reviewed documents, and prepared reports for the internal legal department. A KBR investigator interviewed employees “with potential knowledge of the allegations” and obtained confidential witness statements. Ex rel. Barko, 2014 WL 1016784, at *2. Barko requested that KBR produce documents relating to KBR’s COBC investigations. Id. at *1. Ultimately, Barko moved to compel the production of such investigation files. Id.
Two opinions – the 6 March 2014 opinion granting relator Barko’s motion to compel discovery, and the 11 March 2014 opinion denying KBR’s motion to certify the case for appeal – set forth the facts underlying the Barko decision.
On 6 March 2014, the court granted Barko’s motion, compelling KBR to produce the internal investigation documents. Id. at *4. First, the court held that the COBC investigation was not for the primary purpose of seeking legal advice and was thus not entitled to protection of the attorney-client privilege. Id. In so holding, the court applied the ‘but for’ formulation to determine the primary purpose of the investigations, requiring that the party invoking the privilege show that “the communication would not have been made ‘but for’ the fact that legal advice was sought”. Id. at *2. The court distinguished the KBR investigations from traditional Upjohn investigations, finding that, unlike the KBR investigations, in-house attorneys in Upjohn investigations conferred with outside counsel on whether and how to conduct an internal investigation. Further, the court concluded privilege did not apply to the internal investigation because the interviewers were not attorneys and the confidentiality statements signed by the interviewees mentioned business, rather than legal, purposes for limiting the disclosure of information. Second, the court held that the work-product privilege did not apply because KBR conducted the COBC internal investigation in the ordinary course of business irrespective of the prospect of litigation. Id. at *4. Therefore, the court determined that the “investigations were undertaken pursuant to regulatory law and corporate policy rather than for purposes of obtaining legal advice.” Id. at *3.
KBR has lodged a petition for writ of mandamus with the D.C. Circuit, which has stayed the lower court’s 6 March and 11 March orders.
Application of Barko to ensure privilege protection
Although arguably, an internal investigation does not shed its cloak of privilege simply because it is performed to comply with government regulations, the court’s decision in Barko may undercut traditional protections afforded internal investigations. Thus, companies may want to rethink their compliance programs with a view toward strengthening privilege.
First, companies should consider the early involvement of counsel in all internal investigations. The legal department, a specialised unit within it, or outside counsel should conduct investigations. Not only should attorneys be involved, but counsel should be integral for deciding whether to start the investigation. Companies should instruct, in writing, non-attorneys that assist with the investigation that they are working for the company’s legal department or outside counsel. Involving counsel from the outset signals that the company seeks to communicate for the purpose of securing legal advice.
Second, companies should make it a policy to disclose to employees who are interviewed that the interviews are for the purpose of providing legal advice to the company. As counsel failed to do in Barko, in an effort to secure privilege, companies should review draft agreements with employees and confirm that they communicate the purpose of the investigation – to provide legal advice to the company.
Third, companies should certify that all investigative materials, including witness statements and investigative reports, be marked ‘attorney-client privilege’ and relate to legal advice. Barko’s investigator drafted and submitted a final memorandum at the end of the investigation to KBR’s general counsel but the memorandum did not request legal advice and identified no legal issues for further review. U.S. ex rel. Barko v. Halliburton Co. et al., No. 1:05-cv-1276, 2014 WL 929430, at *2 (D.D.C. Mar. 11, 2014). Counsel should not uniformly apply a privilege label to all documents sent or received as this defeats the purpose of the label. This will increase the likelihood of confidential treatment and prevent disclosure to third parties.
Regardless of the survival of Barko on appeal, Barko is an important reminder of the steps companies should contemplate in order to increase the chances that a court will uphold claims of privilege over materials related to internal investigations.
Michael W. Stockham is a partner and Mackenzie S. Wallace is an associate at Thompson & Knight LLP. Mr. Stockham can be contacted on +1 (214) 969 2515 or by email: firstname.lastname@example.org. Mrs Wallace can be contacted on +1 (214) 969 1404 or by email: email@example.com.
© Financier Worldwide
Michael W. Stockham and Mackenzie S. Wallace
Thompson & Knight LLP