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Marcia focuses on Government Contracts and Litigation, advising clients on contract formation, teaming and strategic alliances, contract and subcontract negotiations, performance disputes, audits, terminations, cost accounting and allowability, technical data rights and trade secrets, and fraud/false claims investigations • litigates bid protests and claims and disputes before the GAO, the Boards of Contract Appeals, the Court of Federal Claims, and various other federal and state courts • has handled numerous ADR and mediation proceedings • areas of concentration include aerospace and defense contracts, systems integration, information systems and telecommunications contracts, health care and bio-technology, homeland security contracts, environmental remediation, and research and development contracts.

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Government contractors face ever-increasing pressure to develop robust compliance programs that, among other things, detect potential violations of laws and regulations—which they are then obliged to report to the agency inspector general and the contracting officer. Like many large contractors, Kellogg Brown & Root’s (KBR) law department oversees (and conducts) investigations into potentially reportable violations under a code of business conduct. Although its attorneys’ investigations are protected by the attorney client privilege and the work product doctrine, KBR has been locked in a False Claims Act fight with a former employee/relator (Barko) who keeps trying to obtain KBR’s privileged internal investigation documents.

The D.C. district court has sided twice with the relator and ordered that KBR’s investigative materials be produced. Earlier this week, the D.C. Circuit granted KBR’s second mandamus petition and again rejected the relator’s arguments that it should be given the company’s investigative materials (and vacated the district court’s discovery orders). The opinion provides a further excellent discussion of the law related to the attorney client privilege and work product doctrine. Importantly, the D.C. Circuit’s opinion provides a powerful assurance to contractors that, when they conduct internal investigations under the direction of counsel and when proper steps are taken to protect the resulting investigatory materials, the attorney client privilege and work product doctrine will protect the contractors’ investigations from disclosure to relators in FCA cases (and to the Government).

Relator Barko alleges that “KBR and certain subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq.” During discovery, Barko learned that KBR had previously investigated issues related to the alleged fraud and sought documents related to KBR’s internal investigation. KBR refused. As we previously explained on this blog, during the earlier round of trial and appellate litigation, the district court reviewed the documents in camera and then ruled they should be produced because they purportedly were not generated in response to a request for legal advice, e.g., the investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” The D.C. Circuit rejected that analysis, which could not be reconciled with the Supreme Court’s 1981 decision in Upjohn Co. v. United States.

On remand, the trial court was given license by the D.C. Circuit to consider why the privilege might not attach to specific documents related to KBR’s internal investigation. The district court found that KBR had effected a subject matter waiver when their litigation counsel testified in response to a 30(b)(6) deposition notice about the subject of the investigation—testimony that was given subject to claims of attorney client privilege and objecting (and refusing to answer) questions that would have invaded the privilege.

The trial court held that KBR waived privilege with respect to its internal investigation materials because (i) under FRE 612 (“writing used to refresh a witness”), KBR had improperly allowed its 30(b)(6) witness to review the investigation materials before being deposed about them, and (ii) KBR had purportedly put the investigation materials “at issue” by relying on them in a summary judgment brief. The appeals court rejected both rulings.

First, Barko argued that he had essentially created a trap into which KBR had fallen. Barko asserted that he could “overcome the privilege by putting” the investigation at issue by noticing it as a 30(b)(6) deposition topic then demanding the investigative materials under Rule 612 when the witness concedes that he had reviewed the materials to prepare for the deposition topic that Barko had noticed. The circuit court held that “[a]llowing privilege and protection to be so easily defeated would defy ‘reason and experience’ and ‘potentially upend certain settled understandings and practices’ about the protections for such investigation.”

During oral argument, Barko had argued that KBR” could have avoided the trap by having the 30(b)(6) witness review a summary of the investigation documents prepared by someone else, rather than the documents themselves. The appeals court made clear that this position is “absurd,” as it would incentivize testimony by persons with second- or third-hand knowledge of an investigation rather than first-hand knowledge, and such “less knowledgeable corporate representatives for deposition[s]” would “defeat[] the purpose of civil discovery.” “This makes no sense.”

Second, the district court had found that KBR put its investigation “at issue,” i.e., made the privileged matters the subject of a controversy, by purportedly relying on it as the basis of non-liability argument in a summary judgment brief. Generally, a party asserting privilege cannot “disclose[] as much as he pleases [and] withhold the remainder” of the privileged information. The relator and the district court thought KBR’s summary judgment brief had done that by discussing (in a footnote reference) the law department’s investigation and the fact that, afterward, KBR did not report wrongdoing—from which “a factfinder could infer that the investigation found no wrongdoing.” The D.C. Circuit explained the flaw in Barko’s (and the trial court’s) inference-laden contention:

Where KBR neither directly stated that the . . . investigation had revealed no wrongdoing nor sought any specific relief because of the results of the investigation, KBR has not “based a claim” or defense upon the attorney’s advice.

The trial court also explained that, in the “context of the whole passage” in which it appears, the footnote at issue did not use the investigation to demonstrate KBR’s purported innocence.

Finally, the trial court had found that some of the investigation material constituted work product and was subject to production under the “substantial need” exception to that doctrine. Although the trial court described the law concerning the work product doctrine correctly, “the fault lies in [its] application” of the legal rules—which improperly would have “require[d] KBR to produce materials that are attorney-client privileged.” The D.C. Circuit rejected the trial court’s conclusion and vacated its decision.
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To effectively implement corporate compliance programs and to address the Government’s mandatory disclosure requirements, Government contractors—operating in a heavily regulated environment—must be able to conduct internal investigations. When contractors choose to have counsel conduct those investigations, they must be able to rely on the protection of confidential materials generated as a result of those investigations under the attorney client privilege and work product doctrine. The D.C. Circuit’s most recent KBR decision recognizes this important need and supports the crucial application of attorney client privilege.

Government contractors and health care companies have become increasingly concerned about the application of the Wartime Suspension of Limitations Act (“WSLA”), 18 U.S.C. § 3287, and the Department of Justice’s (“DOJ”) and False Claims Act (“FCA”) relators’ arguments that the statute extends indefinitely the limitation period applicable to civil FCA cases. 31 U.S.C. §§ 3729-3733. Today, the Supreme rejected the unwarranted extension of the WSLA and properly limited the reach of that statute (and suspension of limitations periods) to the context of criminal law. The decision in Kellogg Brown & Root Services, Inc. v. U.S. ex rel. Carter (“KBR”) is an important victory for Government contractors, health care companies and other recipients of federal funding. It provides protection against stale claims, which should be barred by the statute of limitations. It is particularly noteworthy because it removes the risk of stale FCA claims that would otherwise be time barred and that have no connection to wartime activities, such as health care claims, or lawsuits related to other civilian agency programs, e.g., the Department of Agriculture program discussed in United States v. BNP Paribas SA. Continue Reading In an Important Victory for Government Contractors, the Supreme Court Holds that WSLA Does Not Toll the FCA’s Statute of Limitations

iStock_000016952672LargeYesterday, the FAR Council issued an interim regulation addressing inverted corporations involved in government contracting. This interim regulation goes into effect immediately, and companies with inverted corporate structures—or those considering a restructuring—need to understand this development. Continue Reading FAR Council Issues Interim Rule Regarding the Prohibition on Certain Corporate Inversions

iStock_000035162090LargeThis week, the Supreme Court denied the qui tam plaintiff’s petition for certiorari in United States ex. Rel. Rostholder v. Omnicare, Inc., a False Claims Act (FCA) case from the Fourth Circuit. In Omnicare, the relator alleged that the defendants violated the FCA because certain of its practices violated Food and Drug Administration (FDA) safety regulations and Medicare and Medicaid beneficiaries subsequently presented claims for reimbursement for its products. The district court dismissed the relator’s complaint for failure to state a claim upon which relief can be granted, and the Fourth Circuit affirmed. The Supreme Court’s denial of a writ of certiorari sends a signal that there are limits on FCA claims rooted in regulatory violations. Namely, an FCA claim cannot be based on a violation of a regulation that is wholly unrelated to any condition or requirement for payment. Continue Reading Supreme Court Denies Cert in Highly Watched FCA Case—Regulatory Violation Must Be Related to Claim for Payment

Supreme Court_839277LargeToday the Supreme Court began a new term. The Court does not often hear cases involving government contracts, but this may be a notable year for contractors at the Court. In the context of the False Claims Act, the Court will hear Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, which involves  two issues—the Wartime Suspension of Limitations Act (WSLA) and the first-to-file bar. Because the Fourth Circuit held that the WSLA extended the statute of limitations for FCA cases, affirming the Fourth Circuit’s decision could result in longer and more expensive litigation as contractors litigate FCA claims that would have otherwise been summarily dismissed as untimely or barred by a prior action. Although DOJ did not intervene in Carter, it filed an amicus brief on the petition for certiorari that states the the Government is unambiguously in favor of the WSLA and of permitting follow-on qui tam actions once the first case has been dismissed. Continue Reading SCOTUS Will Take up First-to-File Bar and WSLA this Term

Today, the D.C. Circuit granted a mandamus petition in an important case, In re Kellogg Brown & Root, involving to preservation of the attorney client privilege for internal investigations in today’s heavily regulated government contracting environment. The ability of companies to seek and protect the advice of counsel—which is critical to a company’s ability to conduct its business, and respond to and investigate compliance issues—is substantially bolstered by the decision in two vital ways.

Continue Reading The D.C. Circuit Grants Mandamus in Important Case Regarding Limitations on Attorney-Client Privilege in Contractors’ Internal Investigations

Green conservation. Gas pump nozzle and leaf

The Defense Logistics Agency (DLA), in conjunction with the US Navy, has issued a solicitation for bulk fuels for DLA Energy’s customers located in the Inland/East/Gulf Coast regions of the United States. The Inland/East/Gulf Coast is the single largest bulk fuels acquisition program, and it is valued in excess of $3.5 billion.

Continue Reading US Navy Issues a Noteworthy Solicitation for “Drop-In” Biofuel Blends

A proposed rule issued June 10 would extend pervasive requirements for reporting counterfeit,  suspect, and nonconforming items to all contractors, as well as their subcontractors and suppliers doing business with any U.S. Government department or agency. Unlike the earlier counterfeit electronic parts interim rule issued by the DoD on May 6, 2014, the new proposed rule (also issued pursuant to section 818 of the FY 2012 NDAA) applies Government-wide and is not limited to electronic parts, but rather applies to counterfeit, suspect, and non-conforming items of all types. In addition, the requirements must be flowed down to subcontractors and suppliers at every tier of the supply chain. (The discussion below assumes that flow down.)

The proposed rule assumes that the contractor has an inspection system or quality program that is sufficient to avoid and detect the delivery to, or the use by or for, the Government of items that are “counterfeit,” “suspect,” or contain a “critical” or “major” nonconformance. It imposes two requirements on contractors. First, the rule requires that a contractor screen the Government Industry Data Exchange Program (GIDEP) reports to avoid delivery to or use by/for the Government. Second, it requires that contractors report to GIDEP and to the Government’s Contracting Officer (CO) when the contractor becomes aware of a counterfeit, suspect, or non-conforming item. Reports to the CO must be submitted in writing within 30 days of the contractor becoming aware of a counterfeit or suspect item. Items reported to the CO must be retained until the CO directs disposition. The contractor also must report to GIDEP within 60 days of becoming aware of:

(i)  a counterfeit or suspect item; or

(ii) an item that contains a major or critical nonconformance that is also a “common” item and constitutes a “quality escape” that results in the release of such items to more than one customer.

The proposed rule is intended to build on the contractor inspection systems already required by the FAR. But contractors’ existing systems are likely to require enhancement due to the new definitions and requirements to be imposed by the rule.

The rule says nothing about reporting in connection with the Mandatory Disclosure Rule, which requires a report to the CO and the agency Inspector General if the contractor has “credible evidence” of a false claim.

Even more than the DoD rule, this proposal will impose onerous compliance requirements and potential liabilities on commercial entities throughout the economy who do not view themselves as Government suppliers—and indeed, may not be aware that their products have ended up in a Government contractor’s supply chain. Failure to comply with the new rule potentially would expose such entities to substantial risks for costs, penalties and damages.

One of the ongoing issues lawyers face when litigating bid protests at GAO is the lack of precedent related to protective order (PO) admissions. The rules are relatively clear with respect to outside counsel and most in-house attorneys applying for admission under a PO. However, although GAO generally applies its rules consistently with respect to consultants, many consultant applications draw unnecessary objections that have been answered repeatedly by GAO case attorneys in other protests, though not in published opinions or guidance. Although GAO’s protective order process generally works well, it could be improved (and save time and cost) by more written guidance regarding admissibility of consultants. In this post, we’ll briefly summarize the rules applicable to attorneys then provide our take on some of the unwritten rules of consultant admissions. (To the extent readers disagree or want to point to consultant-related precedent, please feel free to continue the conversation in the comments section.)

Continue Reading Some of the Unwritten Rules of GAO Protective Order Admissions