Common Sense Prevails as D.C. Circuit Overturns Trial Court’s Denial of Attorney-Client Privilege Protection

829-Brower_GregjohnsonGuest Commentary

by Greg Brower and Brett W. Johnson, Snell & Wilmer LLP*

Government contractors and other companies subject to internal investigation requirements won some relief from the United States Court of Appeals for the D.C. Circuit last week with a decision that firmly reiterated that Upjohn v. United States does indeed stand for the proposition that confidential employee communications made during a business’s internal investigation led by company lawyers are privileged.

In United States of America ex rel. Harry Barko v. Halliburton Company, et al, defendant Halliburton’s subsidiary, Kellogg, Brown & Root (KBR) filed a petition for writ of mandamus seeking to reverse a district court’s order that KBR produce in discovery, certain reports created as part of internal investigations conducted at the direction of in-house counsel.   Over KBR’s objection, the district court had ordered production of the documents, reasoning that because the KBR investigators who prepared the reports were not lawyers, and because the subject investigations were done pursuant to legal requirements and corporate policy, and not solely for the purpose of obtaining legal advice, the reports were not privileged. For more on the trial court’s opinion, see our March 24 Legal Pulse commentary here.

A three-judge panel of the D.C. Circuit disagreed and vacated the district court’s order.  In so doing, the panel found that the privilege claim by KBR was “materially indistinguishable” from the assertion of the privilege in the seminal Upjohn case.  Specifically, the court of appeals found that because, as in Upjohn, KBR initiated an internal investigation to gather facts and ensure compliance with the law after being informed of potential misconduct, and because the investigation was conducted under the auspices of KBR’s in-house legal department, the privilege applied.  Continue reading

District Court’s Attorney-Client Privilege Ruling Counteracts Incentives to Perform Internal Investigations

829-Brower_GregjohnsonGuest Commentary

by Greg Brower and Brett W. Johnson, Snell & Wilmer LLP*

It has long been assumed that under the U.S. Supreme Court’s decision Upjohn Co. v. United States, reports generated during an internal investigation undertaken at the direction, and under the supervision, of corporate attorneys are protected from discovery by the attorney-client privilege.  It came as a significant surprise then that the U.S. District Court for the District of Columbia recently held that the privilege does not apply when an investigation is conducted pursuant to a legal requirement, and not purely for the purpose of obtaining legal advice.  Unless reversed, this decision could pose a significant new dilemma for regulated companies, and especially for government contractors, that perform internal investigations to determine whether “credible evidence” of actual wrong-doing exists.

The decision in United States of America ex rel. Harry Barko v. Halliburton Company, et al. is the latest in a long-running False Claims Act (“FCA”) suit against Halliburton and its former subsidiary, Kellogg, Brown & Root (“KBR”).  In the course of pre-trial discovery, the relator sought the production of reports created by KBR in the course of conducting internal investigations into alleged violations of the company’s Code of Business Conduct (“COBC”).  KBR objected to the production of the COBC reports, contending they were protected from discovery by the attorney-client privilege and work-product doctrine.  On the relator’s motion to compel, the court rejected KBR’s argument that Upjohn was dispositive of the issue, and ordered that the reports be produced.  The court reasoned that because the KBR investigators who prepared the reports were not lawyers, and because the subject investigations were done pursuant to legal requirements and corporate policy, and not solely for the purpose of obtaining legal advice, the reports were not privileged.

Continue reading

High Court Fails To Act On Major Business Case Cert Petitions

supreme courtCross-posted at Forbes.com’s WLF contributor page

Washington Legal Foundation, along with other organizations, business, and individuals with an interest in the Supreme Court and free enterprise cases before it, watched with great anticipation this morning as the justices issued their first new list of certiorari grants since the Court adjourned last June (the so-called Long Conference). We came away from the big cert grant morning, as likely did many other interested parties, wanting more.

The orders list is here. The grants include a tax case, United States v. Quality Stores  addressing whether severance payments made to employees whose employment was involuntarily terminated are taxable. Two other grants relate to the standard of review the U.S. Court of Appeals for the Federal Circuit uses when assessing a district court’s determination that a case is “exceptional” for purposes of imposing attorneys’ fees and other sanctions. Those cases are Octane Fitness v. Icon Health and Fitness and Highmark Inc. v. Allcare Management Systems Inc.

The final cert grant impacting free enterprise is Petrella v. MGM, which involves the movie Raging Bull and the defense of laches against claims of copyright infringement. Marcia Coyle at National Law Journal discussed the interesting facts of the case in a September 16 story.

The bigger story from the big cert grant morning was which petitions the Court did not act on. WLF filed amicus briefs in support of review in a number of the cases, which we’ll indicate below (all noted on SCOTUSblog’s “Petitions we Are Watching” page).

Failure to act on these and other petitions does not mean that the Court cannot reconsider them in a future “conference,” and it does not mean that they have been denied. The Court will be issuing an order list on First Monday, October 7, but that order traditionally has only contained cert denials.

Finger on the Pulse: From Our Blogroll and Beyond

  • Supreme Court’s Already ruling has ramifications for standing to sue (On the Case) (More info: WLF’s On the Merits on Already)
  • The highest punitive damage awards in 2013 in California and nationally (California Punitive Damages)
  • What can be concluded from EPA’s 2012 enforcement statistics? (Corruption, Crime & Compliance)
  • Second Circuit agrees with the 4th, 7th, and 9th, and disagrees with 5th, on whether state attorney general suits are removable to federal court under CAFA (Drug & Device Law) (Legal Pulse blog on 5th Cir. ruling)
  • 9th Circuit finds no federal preemption for state medical device liability suit (The Recorder) (More info: WLF Legal Backgrounder)
  • Manufacturer of texting system for truckers not liable for auto accident injuries for failure to make an “accident free” system (Mass Tort Defense)
  • The fascinating story behind the Standard Fire v. Knowles class action case argued in the Supreme Court last Monday (CNN Money/Forbes)
  • U.S. Court of Appeals for the Federal Circuit issues important en banc ruling on patent trolls and the International Trade Commission (Patently-O)

Finger on the Pulse: From Our Blogroll and Beyond

  • Supreme Court denial of cert in “reverse payment” patent settlement case injects twist into pending “no authorized generics” lawsuit in New Jersey (On the Case)
  • Federal government False Claims Act enforcement hauls in nearly $5 billion in 2012 (Corruption, Crime & Compliance)
  • Great roundup on Caronia off-label speech decision by Jim Beck (Drug & Device Law)
  • SEC and DOJ statements about only pursuing “important” Foreign Corrupt Practices Act cases aren’t in line with their past actions (FCPA Professor)
  • U.S. Court of Appeals for the Federal Circuit rejects constitutional challenge to law that put bounty-hunter “patent marking” lawsuits out of business (Patently-O)
  • The latest developments in the six-year-and-still-going Florida tobacco litigation known as “Engle” (Point of Law)

State Attorneys General Step to the Fore on Off-Label Drug “Promotion”

Cross-posted at WLF’s Forbes.com Contributor blog

With their law enforcement counterparts at the federal level raking in prodigious financial settlements, it’s no surprise that state attorneys general (“state AGs”) want a bigger piece of the action on off-label drug “promotion” regulation. The $181 million settlement reached August 29 between 36 attorneys general and a drug maker confirmed that state AGs must indeed be reckoned with on off-label issues. What will get medical product companies’ attention is not the financial settlement, though. The real eye-opener was the precision of the settlement’s conduct requirements, most notably one restraint on speech which goes beyond the dictates of federal law.

The settlement arose from “deceptive marketing” suits filed by state AGs throughout the country involving Ripersdal. Some of those suits resulted in verdicts imposing six- or seven-figure damages on the defendant, Janssen Pharmaceuticals. Janssen and its parent company, Johnson & Johnson (J&J), had appealed those verdicts, but the cost-benefit calculus of fighting vs. settling likely led the companies to resolve the claims on a global basis (much like the tobacco companies did with the state AGs).

In addition to the monetary settlement, Janssen and J&J agreed to conditions and limitations on how they share information about Ripersdal with medical professionals. As noted above and emphasized by former FDA associate chief counsel Arnie Fried in a Pharmalot interview, such behavior-changing dictates were what the AGs were really after here. Continue reading

Time for Supreme Court Review of Corporate “Status Crime” Legal Doctrine

Cross-posted by Forbes.com at WLF contributor site

Two weeks ago in Friedman v. Sebelius, a divided U.S. Court of Appeals for the District of Columbia Circuit largely upheld what amounts to the lifetime exclusion of three senior pharmaceutical executives from any further involvement in the industry.  Their offense:  pleding guilty to misdemeanor charges that they were executives of Purdue Frederick Co., at a time when (unbeknownst to them) some company employees engaged in the improper promotion of Purdue Frederick drugs.

Criminal prosecution of corporate executives not shown to have a guilty state of mind (or even to have acted negligently) has long been controversial.  Such prosecutions—under what is known as the “Responsible Corporate Officer” (RCO) doctrine—have twice survived constitutional challenges in the Supreme Court by razor-thin 5-4 margins in 1943 and 1975.  The Supreme Court reasoned that the RCO doctrine allows society to make a strong statement regarding its disapproval of corporate misbehavior without unduly punishing largely blameless senior executives, because penalties in RCO cases “commonly are relatively small, and conviction does no grave danger to the person’s reputation.”  Morisette v. United States.  There is serious reason to question whether the lifetime exclusion largely upheld by the D.C. Circuit fits the Supreme Court’s definition of a “relatively small” penalty.  In light of federal officials’ determination to bring more such prosecutions, the Supreme Court ought to revisit the RCO doctrine and decide whether it is being applied in a manner that comports with due process of law. Continue reading

Finger on the Pulse: From Our Blogroll and Beyond

  • Prominent former general counsel calls on government to expand leniency programs for corporations with effective compliance programs (law.com)
  • Trial judge issues ruling in closely watched case involving “standard essential” patents (Alison Frankel’s On the Case)
  • FTC Commissioner objects to Senate effort to label branded company’s refusal to sell generic company its drugs as anticompetitive (FDA Law Blog)
  • 18-year term limit for Supreme Court justices? (Slate via How Appealing)
  • Federal district court limits reach of False Claims Act in qui tam suit vs. health care company (Original Source)
  • Is the EPA deploying drones to do aerial, unannounced searches of cattle feeding areas? (Business Rights Center)
  • 9th Circuit judge invokes Gulliver’s Travels, Dante’s Inferno in scathing dissent in environmental case (Environmental Appeal Court)
  • Will NYC mayor’s proposed big soda portion ban inspire more litigation against soda makers? (Product Liability Monitor)

DOJ-Antitrust Out of Step on Awarding Credit for Compliance Programs

Guest Commentary

Katie Owens, a 2012 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

According to the Antitrust Division of the U.S. Department of Justice, no corporate compliance program is worthy of credit when considering punishment of corporations.  The U.S. Sentencing Commission should correct this outlier policy.

 

At the Department of Justice (“DOJ”), corporate compliance programs are not treated equally among the agencies various divisions. The U.S. Attorney’s Manual expressly “recognizes that no compliance program can ever prevent all criminal activity by a corporation’s employees.” All but one of DOJ’s divisions applies this principle. The Antitrust Division believes that an antitrust violation directly correlates to a “failed” compliance program, one not deserving of credit under the Federal Sentencing Guidelines (“Guidelines”).

DOJ-Antitrust reserved a carve-out from the Guidelines specifically for antitrust violations based on its stance that these violations go to “the heart” of a company’s activities. Note that this carve out applies to antitrust violations only, meaning that all other crimes, including fraud, bribery, and environmental harm, may receive credit for maintaining an effective compliance program. Furthermore, this antitrust rule is an absolute with no exceptions. No compliance program, no matter how diligent, will be considered, because the program is deemed a “failure” by the Division if there is any antitrust law violation.

Rather than rewarding compliance efforts as a means of overall prevention of antitrust violations, the Division focuses instead on amnesty as a means of enforcement. Under this idiosyncratic approach, the first member of a cartel to admit wrongdoing receives amnesty from prosecution, regardless of guilt. The reporting company is then required to do nothing, while in other contexts, violations reported to the Criminal Division of the DOJ require violators to implement compliance programs or to improve existing ones. As commentator Joe Murphy observed, this policy could potentially lead a company to not “worry about compliance, but instead to devote its attention to making sure that it was always the first one to confess to the government if a cartel was about to be discovered. It could then keep most of its excess cartel profits, since it would not be responsible for large fines, and its plea would limit its civil exposure to single damages.” Continue reading

Finger on the Pulse: From Our Blogroll and Beyond

  • Fascinating and troubling fight emerges between two corporate law firms over one firm’s representation of a state attorney general in suit vs. corporate defendant (Alison Frankel’s On the Case)
  • Are claims of copyright abuse online exaggerated? (Copyhype)
  • U.S. DOJ ramps up criminal prosecutions of companies accused of violating environmental laws’ recordkeeping requirements (Corruption, Crime & Compliance)
  • Minnesota high court says attorney general can prevent copycat plaintiffs’ suits when defendant settles consumer protection charges with state (Drug & Device Law)
  • Before going through with his proposed ban on certain portion sizes of beverages, NYC Mayor Bloomberg should read this study about limiting varieties of food (Reuters, h/t FDA_Track®)
  • SoBe drink makers win dismissal of another “all-natural” consumer fraud class action suit (Mass Tort Defense)
  • Plaintiffs in state court suit alleging hydraulic fracturing-related harm fail to prove causation (Product Liability Monitor)
  • What does it mean when one of the brightest appeals court judges on the federal bench appoints an independent expert in a patent case (Truth on the Market)