A recent ruling by the U.S. District Court for the District of Columbia puts the privileged status of internal investigations conducted by internal resources at risk.In U.S. ex rel. Harry Barko v. Halliburton Company, the court was asked to decide whether reports from an internal Code of Business Conduct investigation could be protected from disclosure under either attorney-client privilege or the product doctrine.
Barko sought the reports to further his qui tam claims against Halliburton's then-subsidiary KBR for alleged abuses by a government contractor in Iraq. In 2004, there were allegations that some of KBR's employees were taking kickbacks from a contractor, which was providing sub-standard, late and over-billed work. According to court documents, the Director of the Code of Business Conduct for KBR, who was an attorney, received the allegation and sent it to KBR's in-house counsel to coordinate and manage the investigation. To investigate the allegations, security investigators interviewed employees and marked their witness statements "attorney-client privilege." Employee witnesses were required to sign a separate confidentiality statement acknowledging that the interview could not be disclosed to anyone without approval from KBR's general counsel.
The investigation report, which was marked "attorney-client privilege," was issued to KBR's in-house counsel. In its pleadings, the company said that due to possible implications under the Anti-Kickback Act and the False Claims Act, this investigation was conducted in anticipation of future litigation. In addition, the company took many steps to maintain the security and confidentiality of the reports, including keeping them in a locked room at KBR headquarters in Houston to which only KBR attorneys have access, in order to avoid waiving their privileged status.
Despite the steps taken by company counsel, the court found that the reports were not entitled to protection under the attorney-client privilege or the work product doctrine. Some of the reasons cited by the court included:
The investigation was conducted in the normal course of the corporate compliance processes at KBR.
The investigation was required by KBR's policies and by its obligations as a government contractor.
KBR did not confer with outside counsel on "whether and how to conduct an internal investigation."
The investigators did not inform employees whom they interviewed that the information was being gathered for the purpose of seeking legal advice.
The investigators were not attorneys (although this was listed as a factor and not dispositive).
As a result of these factors and others, the court ordered Halliburton to produce these reports to Mr. Barko's attorneys. When Halliburton later asked for permission to file an immediate appeal of the decision, the judge denied it and said that the decision "was not a close question."
For those who conduct internal investigations, this case has several implications. First, the privileged status of routine investigations required by corporate policy or by government regulations may be at risk. Second, the fact that the person coordinating the investigation is an attorney may not automatically make the investigation privileged, but having attorneys directly involved in the actual investigation may assist in preserving the privilege. Third, when interviewing witnesses and giving standard Upjohn warnings, the investigators should also inform each witness that the interview is subject to the company's legal privilege and that the company is gathering information for the purpose of seeking legal advice. Fourth, involvement of outside counsel may assist in preserving the privilege of the investigation. Careful consideration should be given to a company's processes for conducting internal investigations to avoid the risks of disclosure posed by this decision.