48 CFR 52.203-13 and Civil Discovery
I wanted to update a two-part prior post on the Barko opinion out of the D.C. Circuit which regular readers may remember. The two-part prior post concerns 48 CFR 52.203-13 and civil discovery after the implementation of that new rule.
The Revolution of 48 CFR 52.203-13
As regular readers know, beginning in 2009, FAR Subpart 3.100 (which was later codified at 48 CFR 52.203-13) required contractors to disclose “credible evidence” of a violation of the federal False Claims Act – or federal criminal statutes involving bribes or kickbacks – to the United States within a certain time frame.
48 CFR 52.203-13 also mandates that each contractor have in place an ethics compliance program and provide training on ethics reporting for all employees, and requires each contractor to display a poster in a prominent location that informs employees of the internal reporting mechanism and the employee’s options if they feel that their employer is not adequately addressing an ethics concern.
This of course is a tried and true method of educating employees and essentially making them part of the regulatory process — in fact this is exactly how other corrective statutes like the FLSA and Title VII of the Civil Rights Act of 1964 work, with one important difference. Under the rubric of 48 CFR 52.203-13, when the process works – i.e., when an employee communicates concerns about fraud or false claims via one of the internal reporting mechanisms required by the regulation – the contractor must inform the government if the employee’s concerns turn out to be supported by “credible evidence.”
There is no doubt that much ink was spilled and a great many internal memos were generated in the six years following the institution of 48 CFR 52.203-13. The fate of all of this incredibly juicy information in civil discovery was left unanswered until the spring of 2014 when a discovery dust-up occurred in the U.S. District Court for the District of Columbia in a qui tam case styled US ex rel. Barko v. Halliburton, Inc., et al.
The discovery dispute in US ex rel. Barko v. Halliburton, Inc., et al.
Harry Barko is a former employee of Halliburton/KBR who alleged, among other things, that Defendants engaged in a scheme to defraud the United States by inflating the costs of laundry services on American military bases in Iraq. The case is being litigated on a non-intervened basis; in other words, the United States chose not to intervene in the lawsuit, which means the relator’s lawyers — in this case, Kohn Kohn & Colapinto — are responsible for prosecuting the case on behalf of their client Harry Barko, as well as for the United States.
On November 14, 2013 Barko served a set of Requests for Production of Documents. Relator specifically asked for documents relating to any internal audits undertaken by Halliburton/KBR in response to the subject matter of the relator’s Complaint. Specifically, it seems that relator asked for all documents related to KBR’s Code of Business Conduct reviews.
Unsurprisingly, defendants responded that such documents had indeed been created and that such documents still exist. Defendants asserted, however, that the relevant documents and information were protected by either the attorney-client privilege or the protections afforded to attorney work product, or both. As such, defendants declined to produce documents responsive to the request.
This, of course, was not something that Mr. Barko’s lawyers intended to let go. Relator’s counsel filed a Motion to Compel in early February of 2014. Judge Gwin – sitting in D.C. by designation from the U.S. District Court in Cleveland, Ohio – did an in camera review of the documents, which resulted in his 2014 Opinion granting the motion to compel.
In his opinion, he reasoned that the attorney-client and work-product privileges were inapplicable to the internal KBR materials because the investigations that generated these documents were undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice. The full opinion can be found at United States ex rel. Barko v. Halliburton Co., 37 F.Supp.3d 1 (D.D.C. 2014).
Defendants then appealed to the D.C. Circuit.
The D.C. Circuit’s Review of Judge Gwin’s Order
The D.C. Circuit vacated Judge Gwin’s order, finding that the internal Halliburton reports were in fact protected by the attorney-client privilege because they were generated in order to determine if the information should be disclosed to the government. In re Kellogg Brown & Root, Inc., 756 F.3d 754, 764 (D.C. Cir. 2014) cert. denied sub nom. U.S. ex rel. Barko v. Kellogg Brown & Root, Inc., 135 S. Ct. 1163, 190 L. Ed. 2d 914 (2015).
However, the D.C. Circuit made it clear that its opinion applied only to the disclosure of communications to attorneys; the Court was clear that its opinion vacating Judge Gwin’s discovery order did not extend as far as protecting the underlying facts disclosed by the individuals who communicated with the attorney. Therefore, to the extent that Barko timely asserted other arguments in the district court for why the documents were not covered by the privilege afforded to attorney work-product, the D.C. Circuit made it clear that the district court was free to consider those arguments on remand.
Judge Gwin accepted this invitation and eventually ruled that parts of the internal KBR reports be produced as discoverable fact work product. Unlike attorney-client communications, attorney work-product is discoverable if a litigant is able to show a substantial need for the information, and show that the information is otherwise unavailable. Judge Gwin ruled that Barko was able to meet this standard, and thus KBR was ordered to produce portions of the reports, with redactions as explained in the order. United States ex rel. Barko v. Halliburton Co., 2014 WL 7212881 (D.D.C. Dec. 17, 2014).
So that is the update I wanted to share, but that is not the end of the story…in addition to being the first time a court has applied 48 CFR 52.203-13, the Barko case is also significant because it recently generated a first-of-its-kind SEC enforcement action under the new Dodd-Frank rules.
But that is a different story for a different day.