Attorney-Client Privilege Protection Restored For Internal Compliance Investigations
By Adrienne Dresevic, Esq., and Leslie A. Rojas, Esq.
Companies doing business in highly regulated industries, including the healthcare industry, were left holding their breath after a DC district court ruled that the attorney-client privilege doctrine did not attach to a company’s internal compliance investigation conducted under the direction of in-house legal counsel in United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276 (D.D.C. Mar. 6, 2014). The decision shattered the previously held belief that, in most cases, the attorney-client privilege attaches to communications made in the course of an internal investigation led by legal counsel.
However, these industries, and their legal departments in particular, can now breathe easy after the DC Circuit Court overturned the district court’s decision and restored the attorney-client privilege to its previously recognized applicability to internal investigations in Re: Kellogg Brown & Root, Inc., et al., No. 1:05-cv-1276 (D.C. Circuit, May 7, 2014).
Factual Background and District Court’s Ruling
Harry Barko, a former employee of defense contractor Kellogg Brown & Root, Inc. (KBR), filed a False Claims Act compliant under the qui tam provision alleging that KBR defrauded the federal government by inflating costs and accepting kickbacks while administering military construction contracts in Iraq. During discovery, Barko requested that KBR produce certain documents related to KBR’s previously conducted internal investigations looking into the alleged fraudulent activity. The investigations were conducted at the direction of KBR’s in-house legal counsel, and KBR asserted the attorney-client privilege in refusing to produce the documents.
In a potentially groundbreaking decision, the district court held that the attorney-client privilege did not attach to the requested documents because “the communication would not have been made ‘but for’ the fact that legal advice was sought.” The district court concluded that KBR’s internal investigation was conducted for a business, not legal, purpose and “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.”
The district court’s ruling caught the attention of the healthcare industry, among others, where internal investigations into fraudulent or illegal activity are common and, in some instances, required by law. Many healthcare businesses lack the necessary resources to involve outside counsel in every internal investigation or to have an attorney conduct each employee interview, and the district court’s ruling threatened the presumed protections of the attorney-client privilege doctrine.
Circuit Court’s Ruling
In a much anticipated decision, and to the relief of the healthcare industry, the circuit court overturned the district court’s decision and held that the attorney-client privilege attached to the requested documents.
Most importantly, the circuit court rejected the “but for” test applied by the district court as inapplicable to the attorney-client privilege analysis. The circuit court clarified the “primary purpose test” and held that the proper test asks the question: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?” If so, then the attorney-client privilege attaches, regardless of whether the internal investigation was conducted pursuant to company policy, a statute or a regulation.
The circuit court acknowledged the significance of its decision when it branded the district court’s opinion a “novel approach” that “would eradicate the attorney-client privilege for internal investigations conducted by businesses that are required by law to maintain compliance programs, which is now the case in a significant swath of American industries.”
In an ever-changing industry where some healthcare providers are subject to compliance program requirements for Medicare enrollment under the Patient Protection and Affordable Care Act (or are encouraged to implement voluntary compliance programs), healthcare businesses should take note of both the circuit court and the district court’s opinions. To increase the likelihood of protection under the attorney-client privilege doctrine, healthcare businesses, including radiology practices and facilities, should consider revising their internal compliance investigation policies and procedures to include the key principles highlighted in the opinions.
For example, these opinions are a reminder of the importance of having attorneys actively direct the internal compliance investigation and document their involvement. This includes providing written instructions to non-attorneys working on the investigation clarifying that they are working at the direction of the legal department and that a significant purpose of the investigation is to assist the business in obtaining legal advice.
The circuit court’s opinion also reminds us that the attorney-client privilege protects against the disclosure of privileged communications, not the underlying facts if the facts can be obtained through non-privileged sources. Additionally, only confidential communications are protected. Therefore, it is important to ask interviewees to keep communications confidential. Although “magic words” are not required for the attorney-client privilege to attach, it is prudent to inform the interviewees that the interview is being conducted for the purpose of obtaining legal advice for the business. Once conveyed to the interviewee, the interviewer should memorialize in writing that the instructions were conveyed to and understood by the interviewee.
Lastly, it remains to be seen whether other courts will follow the DC Circuit’s opinion. Therefore, out of an abundance of caution and if the resources are available, businesses should consider having legal counsel conduct employee interviews and should consider engaging outside counsel, if appropriate.
Adrienne Dresevic, Esq. graduated Magna Cum Laude from Wayne State University Law School. Practicing healthcare law, she concentrates in Stark and fraud/abuse, representing various diagnostic imaging providers, e.g., IDTFs, mobile leasing entities, and radiology and multi-specialty group practices.
Leslie Rojas, Esq. graduated from Wayne State University Law School and is licensed to practice law in Michigan and Illinois. Practicing healthcare law, she concentrates on fraud/abuse issues, compliance with federal and state healthcare regulations, health information privacy and technology issues, and transactional and corporate aspects of healthcare.
The authors are members of The Health Law Partners, P.C. and may be reached at (248) 996-8510 or (212) 734-0128, or at www.thehlp.com.
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