I always enjoy listening to the legal “doomsayers” who love to propound hysterical claims in an effort to gain attention. It reminds me of little children screaming for attention. Unfortunately, in the case of lawyers, they tend to wear suits, earn lucrative salaries and are respected in their professional community.
The latest fad in this space is a federal judge’s ruling in the Barko v. KBR case, which is on appeal right now. Oral arguments were heard on May 7 and a decision is expected in the next few months.
The case involves application of the attorney-client privilege and work product doctrine to documents created as part of an internal compliance investigation. This is not a new or novel issue. Rather, as the Supreme Court stated in Upjohn Co. v. United States, the outcome in any particular circumstance must be determined on a “case-by-case basis” and depends on the particular circumstances of the case.
Harry Barko, a qui tam whistleblower, reported fraud and contracting abuses he believed were committed by KBR in spending the monies it obtained from the U.S. government to pay costs associated with the War in Iraq.
Mr. Barko used the internal reporting procedures established in KBR’s Code of Business Conduct (“CBOC”) to report his allegations regarding the KBR-Daoud fraud. KBR investigated Mr. Barko’s allegations. The company then wrote up internal reports concerning the investigators findings. Nothing was reported to the federal government.
Fast forward approximately ten years later. Mr. Barko, frustrated by his belief that KBR hid evidence of fraud, filed a False Claims Act/qui tam legal action in an attempt to hold the company accountable. As part of his lawsuit he asked that KBR produce in discovery the CBOC reports. KBR refused. They claimed that because an attorney managed the CBOC program the reports were privileged. Barko filed a motion to compel.
On March 6, 2014, after conducting his in camera review, the judge ordered KBR to produce all of its CBOC reports related to Mr. Barko’s allegations.
The district judge explained that the “investigations were undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” As a result, the trial judge determined that the investigation was of a “business nature” rather than a “legal nature.”
Significantly, KBR conducted the investigation without any attention to the attorney-client privilege. For example, KBR investigators failed to advise employees of basic rights as required under Upjohn. The employees who were interviewed were never told: (1) the purpose of the investigation; (2) that the investigation was being conducted under the attorney-client privilege; (3) that KBR retained the privilege and would decide whether or not to waive the privilege; or (4) that they were entitled to representation during the interview.
Faced with the prospect of having to turn over the highly incriminating CBOC reports, KBR filed an “emergency” motion with the U.S. Court of Appeals for the District of Columbia Circuit, seeking interlocutory review of the lower court’s order. KBR claimed that the court’s order would set precedent that internal investigations conducted pursuant to mandatory government regulations, could not be kept confidential under the attorney-client privilege.
Shortly thereafter business associations aligned with KBR, including the Chamber of Commerce, the National Association of Manufactures and the Association of Corporate Counsels, submitted an amicus curie “friend of the court” brief to the appeals court in support of KBR.
The old legal axiom applies to the Barko case – bad facts make bad law. And the facts for KBR are very bad. KBR failed to take the steps, known to any first year law student, to preserve the attorney-client privilege.
Unfortunately for KBR, the COBC investigation was conducted without any adherence to the basic procedural requirements dictated by the Supreme Court under Upjohn and long-standing precedent.
To deflect attention from KBR’s own procedural missteps and mishandling of the COBC internal investigation, KBR is arguing, with the support of powerful business interests, that upholding the trial judge’s decision would undermine the ability of companies to conduct internal investigations under the protection of the attorney-client privilege.
KBR’s argument proves too much and ignores the fact that its own procedural missteps have placed it in a situation where they have nothing left to argue but dramatic distractions from basic legal principles.
Moreover, KBR’s argument would set a dangerous precedent by suggesting that companies will need to conduct more of their compliance operations under the umbrella of privilege. Such a result would run contrary to the important need of compliance programs to be transparent within a company’s culture. This would be a backward step in the development of compliance programs and would have the unfortunate result of increasing privilege claims over routine compliance operations.
Hopefully, the Court of Appeals for the District of Columbia Circuit will apply common sense to the case and remand it back to the trial judge to conduct a more rigorous analysis of a privilege claim, recognizing the basic principles applied in numerous situations to resolve claims of privilege.