False Claims Act: Another Reminder to Approach Dissemination of Internal Investigation Materials with Caution
Companies internally investigating potential false claims issues recently received another reminder of the care that must be taken to maintain attorney-client privilege over internal investigation files and reports. In particular, companies must be very cautious with internal dissemination of any internal investigation files and reports. On June 25, in the midst of June 26 trial, a federal judge in the Eastern District of Texas ordered the production of a report from Kellogg Brown & Root, Inc.’s (KBR) internal investigation regarding alleged kickbacks, finding that attorney-client privilege had been waived. While the precise grounds for waiver have not been spelled out in an order as of the publication of this post, one notable waiver argument raised in the parties’ briefing was that the report was transmitted internally from a KBR supervisor to a KBR employee.
The court’s order highlights the treacherous terrain companies must navigate from the get-go when faced with the possibility of internally investigating potential False Claims Act (FCA) violations. As recently discussed by MWE in this Health Care Compliance and Defense Resource Center Newsletter, KBR continues to be embroiled in separate but related ongoing litigation in D.C. federal court — and in that case, too, KBR was ordered to turn over internal investigation files. The primary basis for waiver of privilege over the files at issue in the D.C. case was that KBR affirmatively placed the investigation at issue in the litigation. This basis for waiver was also asserted by the government in the Texas case as well, with the government arguing that KBR elicited testimony from an employee, who then testified as to the existence of the investigation and the subsequent resignation of the investigated employee.
Though the ultimate impact of the Texas court’s recent ruling remains to be seen, the grounds for waiver recognized by the court should give pause to companies conducting internal investigations. Company personnel involved in an investigation must take care to ensure investigation materials are not transmitted internally outside of the circle of those “who have a need to know in the scope of their corporate responsibilities,” as the Eastern District of Louisiana held in In re Vioxx Products Liab. Litig., 501 F. Supp. 2d 789, 796 (E.D. La. 2007).
A best practice for in-house counsel and management is to maintain control over materials generated over the course of an internal investigation. Dissemination of investigation materials internally can jeopardize a company’s control over deciding down the line whether to affirmatively rely on the investigation, or rather to fight to preserve privilege. While there can never be any guarantees that a privilege claim will be upheld as to investigation files, keeping those materials in as few ‘need to know’ hands as possible is an important early step towards a robust privilege defense.
Case: United States of America v. Kellogg Brown & Root, Inc., Civ. Action No. 1:04-CV-00042 (E.D. Tex.).