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The Perils of Privilege: Lessons

Lessons  from a False Claims Act Trial.


The United States and Kellogg Brown & Root, Inc. (“KBR”), have been engaged in a long running case in which the government alleges that KBR subcontractor Eagle Global Logistics bribed KBR’s Robert Bennett for better subcontract terms under KBR’s massive Logistics Civil Augmentation Program III contract, which cost the government $38 billion on over 10 years.  While the illegality of kickbacks is often thought of in connection with government health care programs, there is a similar federal law banning kickbacks in government procurement program (such as defense contracting).  KBR employee Bennett has already pleaded guilty to violating this Anti-Kickback Act, 41 U.S.C. §§ 51-58, now codified at 41 U.S.C. §§ 8701-07, and the United States argues that the alleged violations should be imputed to KBR.


Like many companies faced with reports or allegations of misconduct in the company or by an employee, KBR conducted an internal investigation (which led to Bennett being fired).  Companies typically use lawyers to conduct such investigations and seek to cloak such investigations and the resulting reports with the cloth of privilege (including attorney work product and attorney-client). If successful, privilege then shields the report from future discovery by another party, such as the government, who might seek to use the report as evidence of liability, knowledge of the crime, cover up, etc. Indeed, as we have written before, some of the most incriminating evidence may be found in such materials.


KBR had apparently successfully protected its report from falling into the hands of government prosecutors for years.  Then late last week, near the close of the trial, the presiding federal judge handed the United States a major victory when she ordered KBR to hand over its internal investigation report on the alleged kickbacks on the grounds it had waived attorney-client privilege of the document.  The government had requested such relief after a KBR witness under questioning by KBR counsel invoked the report during testimony; they did so to try to defend the company by showing that it had fired the perpetrator. However, it is often said that the attorney-client privilege acts as a sword and a shield; in this case, by trying to use the report as a shield, KBR handed the government a sword to cut through the company’s defenses. The judge reportedly ruled that protection for the report had been waived nine years before when one KBR employee transmitted it to another. While this was different reasoning than that argued by the government, it led to the same result: a finding that KBR waived the privilege and the report has lost its protection and must be turned over to the government.


The trial has now concluded, with the parties’ post-trial briefings due by Aug. 14, 2015, at which point the judge will take the case under advisement and ultimately render a decision and a judgment. It will be interesting to see how damaging the internal investigation report turns out to be to the company.


The case is U.S. v. KBR Inc., case number 1:04-cv-00042, in U.S. District Court for the Eastern District of Texas.

You Call It Theft; I Call It Evidence

One of the trickier issues in representing whistleblowers is the question of documents.  In virtually every case, the client comes to us with documents to support his or her claim.  Many of these come from the company  that we may sue under the False Claims Act.  The delicate question is how, if at all, may we use these documents in our case, given that the company will undoubtedly say they are the company’s property improperly taken from the premises.


We’ve written on this issue before.  While there is not total uniformity in the courts’ evaluation of this issue, there is some general guidance.  First, assuming the whistleblower doesn’t go overboard (more on that below), the statutory duty to tell the government everything he or she knows about the fraud will outrank, in most judge’s eyes, the defendant’s cries of foul about certain documents being copied and taken off site.


But the devil’s in the details.  Whistleblowers can buy a lot of trouble for themselves and their attorneys if they get carried away.  One obviously delicate area is attorney-client privilege.  There may be attorney-client communications within the company that are highly probative of the company’s intent and its knowledge of wrong-doing.  But those documents may not be admissible, and worse, their disclosure may “taint” not only the whistleblower attorney but the government prosecutors themselves.  So it’s essential that any such documents be identified early and carefully to ensure proper handling to avoid later claims of taint.


In addition, courts are generally sympathetic to whistleblowers if the documents copied are the kind of documents the witness typically saw during the course of his/her employment.  Conversely, courts are generally unsympathetic to witnesses who go searching through company data bases looking for evidence, and looking in places their work would normally not take them.  See generally Quinlan v. Curtiss-Wright Corp., 204 N.J. 239 (2010).


We take a lot of care to get this issue right, and the government prosecutors have often thanked us for not dumping an unwanted surprise on them.


Think this is just an obscure academic hypothetical?  Try on this cautionary tale from a recent New Jersey case:


“The New Jersey Supreme Court on Tuesday preserved criminal charges against a former school board worker accused of taking confidential records for her discrimination and whistleblower lawsuit, a decision that could put plaintiffs attorneys in the perilous position of weighing disclosure requirements against potentially exposing their clients to prosecution.


A 6-1 majority of the court found sufficient support for an indictment accusing former North Bergen Board of Education employee Ivonne Saavedra of official misconduct and theft by unlawful taking of public documents.”


The case is State v. Saavedra, case number 073793, in the Supreme Court of the State of New Jersey.


Indictment?  Yes, as in criminal case your-liberty-is-at-stake indictment.  Seems the local prosecutors thought poorly of the whistleblower’s decision to take certain private student records out of the files.  (Not clear whether they were removed entirely or just copied, an issue that can be material.)  This criminal case is perhaps the far extreme of how bad things can get if a witness gets a little too enthusiastic in the evidence-gathering department.


It remains to be seen whether this person will be convicted.  But the case provides a cautionary tale about the need to follow the rules and get some guidance from experienced practitioners.  There are ways to stay out of trouble in this arena, and ways to get yourself in trouble.   Same is true for the attorneys representing whistleblowers:  fail to be careful in the handling of the documents, and you, too, can be facing disqualification or worse.


None of this means whistleblowers should think they can’t copy documents.  They do it every day, and the government would be surprised if the witness came in with no documents from the company.  But there’s a way to do it right, and doing it right will greatly increase your chances of success.

What Documents Can a Whistleblower Take?

One of the most tricky questions to surface – routinely – in the representation of False Claims Act whistleblowers is the extent to which the whistleblower or “relator” may make use of company documents, including confidential or even privileged documents.  We are often asked this question and wish that there were a simple answer.  There is not.  There are some general guidelines based on the case law and the positions the United States Department of Justice has taken in cases, but this is one of those questions where the lawyer’s response should not include the words “always” or “never.”


Let’s take the paradigm case.  Employee starts with a company and as part of the orientation process typically gets a number of packages to review and/or sign.  Here’s the 401(k) plan, here’s the health insurance list of choices, here’s the key to the men’s room, here’s the phone directory, and oh yes, here’s our confidentiality agreement which you should review and sign and get back to us… Let us know if you have any questions.


Of course it’s a bit of a buzzkill to start your first day at this great new job saying “Ah, excuse me, but this document is a bit one-sided and I don’t think I’m comfortable with it.”  So employees routinely sign these employer-drafted confidentiality agreements, with about as much review as you would give the fine print on the back of a ski ticket.


It’s usually only later, if a problem ensues, that the employee actually takes a hard look at what he’s agreed to.  Usually, these agreements state explicitly that all documents, in whatever form, are the property of the company and are not to be removed from the premises except with permission, and may not be retained for any purpose after the employee leaves employment at the company.  Many such agreements go on to say that the employee understands he may be sued if he retains any such documentation, and that he agrees to all sorts of draconian relief if he misbehaves:  flogging, defenestration, stockades, and – worst of all – fee shifting provisions saying the employee must pay the exorbitant legal fees of its counsel in bringing all this pressure to bear.


Most qui tam whistleblowers go through an evolutionary process before deciding to sue their employer or former employer.  Usually, these people had no plan whatsoever to cause trouble for their company; usually, they are just normal people trying to do their jobs.  But somewhere things went awry and the employee started to notice a problem that might be fraud-related, and all too often, the company doesn’t like the message he is delivering.  We don’t hear about the cases where companies do this right (we’re sure they’re out there), but often companies punish the messenger rather than correcting the problem.  Even then, often these employees are still undecided about what they should do, even when they know that they’re “on the bubble.”


Coming back to the question of documents, the reality is that the employee has access all through this period of employment and devolution of the relationship to massive amounts of data (email, company memos, and the like) the company would consider confidential, and all of which can fit on a thumb drive.  The worried employee usually starts to make a mental inventory or a more specific inventory of problematic documents as he sorts through his options.  Ultimately, if the employee decides to become a False Claims Act whistleblower, he has a statutory obligation to turn over to the government (the real party in interest) everything he knows about the fraud.  So he copies the key documents onto a thumb drive and turns it over to the feds, right?


Probably.  But there are some important caveats.


Caveat One:  You can’t bring a qui tam suit without an attorney, and one of the first things you’d better do is go over with your attorney what you have in your possession that a) you think is relevant to the fraud and b) documents the company would think are its property.  Some sorting needs to be done, and should not be done without the counsel of an attorney.


Caveat Two:  It’s best to limit your copying to things that were fair game for you to have access to during the course of your employment.  Courts tend to react very differently to fact patterns where the employee has gone on a widespread search throughout the company than to fact patterns where the employee simply made copies of things coming through his inbox.  Compare U.S. ex rel. Cafasso v. General Dynamics in which the court allowed the defendants’ counterclaims to proceed, condemning the relator’s “wholesale” collection of documents, and U.S. ex rel. Grandeau v. Cancer Treatment Centers of America, in which the government robustly defended the relator’s right to bring to its attention all the evidence of fraud she had come across.  So while there’s no problem thinking “how broad might this problem be?” or even talking to other people about that question, there may be a risk in searching for files beyond your scope of employment.  (And note:  companies can and routinely check the computers of departing employees to determine forensically what documents have been forwarded or copied to thumb drives.)


Caveat Three:  Understand that attorney-client privileged documents, or trade secret documents, or patient privacy (HIPAA) implicating documents represent special situations – even if they are directly relevant to fraud.  Some documents, quite appropriately, deserve the utmost care.  The last thing the government or your attorney wants is to taint the government team or cause unintended consequences to a third party that could have been avoided.  So before turning anything over to the government, your legal team has to go through the documents with care, flagging these categories of documents, withholding some, redacting others.  It’s painstaking work, but the government will greatly appreciate your team’s careful approach, and you will have saved yourself from major headaches down the line.


Caveat Four:  If you are an attorney and thinking of being a relator against your client or your former client (e.g., former in-house counsel), understand that courts can’t stand this fact pattern.  Judges typically view your exalted status as an attorney as carrying with it certain key obligations of secrecy, confidentiality and privilege, and they will in most instance find a way to bar you from trading on the client’s confidences.  See, e.g., U.S. ex rel. Fair Laboratory Practices Associates v. Quest Diagnostics and Unilab Corp.


To sum it all up, generally the statutory obligation to produce relevant information to law enforcement trumps the company’s interest in not having the information shared with any third party including law enforcement.  See e.g., Town of Newton v. Rumery, 480 U.S. 3.86, 392, 207 S. Ct. 1187, 1191 (1987) (a promise is unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.)  See also XCorp. v. John Doe, 805 F. Supp. 1298, 1310 n.24 (E.D.Va. 1992) (observing in an FCA case brought by defendant’s attorney that confidentiality agreements that prevent an individual from disclosing evidence of fraud to the government are void as against public policy).  So you’re on o.k. ground to start off.


The tricky part comes if the government declines the case and you decide to go forward anyway.  As surely as night follows day, counterclaims will come, asserting breach of contract, conversion, misappropriation, and the like.  In discovery, it will come out what was turned over to the government, and anything else that was taken from the premises.  See e.g., U.S. ex rel. Wildhirt v. AARS Forever, Inc., et al, 2013 WL 5304092 (N.D. Ill. 2012)(sorting through counterclaims and categories of documents, and determining which were relevant to an FCA prosecution and which were not and therefore unprotected).


When the government wins the case, these issues almost always go away.  The case is settled, and defendants usually don’t want to look retaliatory by suing the relator after the settlement for doing something the law says is protected.


But if there’s no settlement and the employee goes forward anyway, the gloves will come off.  And it’s best to have anticipated this reality, by:

• Copying only what you reasonably had access to
• Taking only copies, not originals, of documents
• Reviewing with your attorney prior to disclosure all of the issues shown in the documents
• Staying away from privileged and trade secret documents, or segregating them
• Redacting, as necessary, patient information protected by privacy laws


With these basic guidelines in place, the employee stands a much better chance of defending the fact that company documents were turned over to the government.


Simple, right?